<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934 NO FEE REQUIRED
Commission file number 33-14051
FAMILY RESTAURANTS, INC.
INCORPORATED IN DELAWARE I.R.S. Employer Identification
No. 33-0197361
18831 Von Karman Avenue, Irvine, CA 92612
Telephone: (714) 757-7900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.
Indicate by a 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 the filing
requirements for at least the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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
Index to exhibits appears on page 39.
The common stock of the registrant is not publicly traded. Therefore, the
aggregate market value of voting stock held by non-affiliates is not readily
determinable.
Number of shares of outstanding common stock as of March 26, 1997 is 988,285.
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FAMILY RESTAURANTS, INC.
PART I
Item 1. BUSINESS
BACKGROUND
Family Restaurants, Inc. (together with its subsidiaries, the
"Company") was incorporated in Delaware in 1986 and is primarily engaged in the
operation of full-service restaurants through its subsidiaries. At December 29,
1996, the Company operated 281 restaurants in 30 states, with approximately 65%
of its restaurants located in California, Ohio, Pennsylvania, Illinois, Michigan
and Indiana. Additionally, as of December 29, 1996, the Company was the
franchisor and licensor of two restaurants in the United States and 23
restaurants outside the United States. See "--Franchised and Licensed
Restaurants."
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.
("Apollo"), Green Equity Investors, L.P. ("GEI") and Foodmaker, Inc.
("Foodmaker") acquired approximately 98% of the then outstanding common stock,
par value $.01 per share (the "Common Stock"), of the Company (the
"Acquisition"). Concurrently, Chi-Chi's, Inc. ("Chi-Chi's") was merged with and
into a subsidiary of the Company (the "Chi-Chi's Merger"). See "--The
Acquisition." On November 20, 1995, Apollo entered into an Exchange Agreement
with Foodmaker and GEI, pursuant to which, among other things, (i) on December
20, 1995 Foodmaker transferred all of the shares of the Common Stock and the
Warrant (as defined below) owned by it to Apollo and (ii) on November 20, 1995,
GEI transferred 19,609 shares of the Common Stock held by it to Apollo. See
"--Change in Control."
On May 23, 1996, the Company completed the sale of its family
restaurant division, which operated full-service family-style restaurants
primarily under the Coco's and Carrows names (the "Family Restaurant Division"),
to FRD Acquisition Co. ("FAC"), an indirect, wholly-owned subsidiary of Flagstar
Companies, Inc. ("Flagstar"), in exchange for $125 million cash, $150 million
principal amount of 12-1/2% Senior Notes due in 2004 (the "FRD Notes") and the
assumption of $31.5 million of long-term debt, primarily consisting of
capitalized lease obligations. Based on the subsequent completion of a closing
balance sheet, the purchase price was increased and such increase was satisfied
by the issuance of $6.9 million in additional FRD Notes. See "--Sale of Family
Restaurant Division."
On July 3, 1996, the Company repurchased $151.0 million aggregate
principal amount of its 9-3/4% Senior Notes due 2002 (the "Senior Notes") and
$108.6 million aggregate principal amount of its 10-7/8% Senior Subordinated
Discount Notes due 2004 (the "Discount Notes" and together with the Senior
Notes, the "Notes") in exchange for (or from the proceeds from the sale of)
$133.5 million aggregate principal amount of the FRD Notes. In separate
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transactions, the Company repurchased an additional $8.5 million aggregate
principal amount of its Discount Notes in the third quarter of 1996 and an
additional $30.0 million aggregate principal amount of its Senior Notes and an
additional $2.0 million aggregate principal amount of its Discount Notes in the
fourth quarter of 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources--Liquidity."
On January 10, 1997, the Company entered into a five-year, $35 million
credit facility with Foothill Capital Corporation (the "Foothill Credit
Facility") to provide for the ongoing working capital needs of the Company. The
Foothill Credit Facility, which replaced the Company's Old Credit Facility
(defined below), provides for up to $15 million in revolving cash borrowings and
up to $35 million in letters of credit (less the outstanding amount of revolving
cash borrowings). The Foothill Credit Facility is secured by substantially all
of the real and personal property of the Company and contains customary
restrictive covenants, including the maintenance of certain financial ratios.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources--Liquidity."
Unless the context otherwise requires, reference to the "Company"
refers to The Restaurant Enterprises Group, Inc. and its consolidated
subsidiaries (not including Chi-Chi's) when used with respect to historical
information relating to periods prior to January 27, 1994 included herein, and
refers to Family Restaurants, Inc. and its consolidated subsidiaries, giving
effect to the Acquisition, the Chi-Chi's Merger and related transactions and the
Strategic Divestment Program described below, when used with respect to
information relating to periods after January 27, 1994.
ONGOING RESTAURANT OPERATIONS
The Company operated 281 restaurants primarily under the Chi-Chi's, El
Torito and Casa Gallardo names as of December 29, 1996. The Chi-Chi's, El Torito
and Casa Gallardo restaurants serve moderately priced, high-quality Mexican food
and a wide selection of alcoholic beverages. The Company is the largest operator
of full-service Mexican restaurants in the United States, based upon both number
of restaurants and annual revenues. The average food check per person (excluding
alcoholic beverage sales) is approximately $7.54 for Chi-Chi's, $9.10 for El
Torito and $8.21 for Casa Gallardo restaurants. Chi-Chi's restaurants generally
contain from 5,000 to 10,600 square feet of floor space and accommodate
approximately 200 to 400 guests in the restaurant and lounge. El Torito
restaurants generally contain from 8,000 to 10,000 square feet of floor space
and accommodate approximately 300 to 400 guests in the restaurant and lounge.
The Company's restaurants are generally located in freestanding buildings in
densely populated suburban areas, and the Company believes their festive
atmosphere and moderate prices are especially appealing to family clientele.
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At the end of 1995, the Company determined that the 21 remaining
traditional dinnerhouses were no longer part of the Company's core operating
strategy, and the restaurants were held for sale. As of December 29, 1996, there
was one remaining traditional dinnerhouse restaurant pending disposition.
SITE SELECTION
The selection of sites for new restaurants is the responsibility of the
senior management of El Torito and Chi-Chi's. Typically, potential sites are
brought to the attention of the Company by real estate brokers and developers
familiar with its needs. Sites are evaluated on the basis of a variety of
factors, including demographic data, land use and environmental restrictions,
competition in the area, ease of access, visibility, availability of parking and
proximity to a major traffic generator such as a shopping mall, office complex,
stadium or university.
EMPLOYEES
At December 29, 1996, the Company had approximately 19,800 employees,
of whom 18,100 were restaurant employees, 1,335 were field management and 365
were corporate personnel. Employees are paid on an hourly basis, except
restaurant managers, corporate and field management and administrative
personnel. Restaurant employees include a mix of full-time and part-time, mostly
hourly personnel, enabling the Company to provide services necessary during
hours of restaurant operations. The Company has not experienced any significant
work stoppages and believes its labor relations are good.
COMPETITION AND MARKETS
The restaurant business is highly competitive and is affected by
changes in the public's eating habits and preferences, population trends and
traffic patterns, and local and national economic conditions affecting consumer
spending habits. Key competitive factors in the industry are the quality and
value of the food products offered, quality and speed of service, advertising,
name identification, attractiveness of facilities and restaurant location. The
Company's restaurants compete with a wide variety of restaurants ranging from
national and regional restaurant chains to locally owned restaurants.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to Federal, state and
local laws and regulations governing health, sanitation, environmental matters,
safety, the sale of alcoholic beverages and regulations regarding hiring and
employment practices. The Company believes it has all licenses and approvals
material to the operation of its business, and that its operations are in
material compliance with applicable laws and regulations.
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The Company is subject to Federal and state laws governing matters such
as minimum wages, overtime and other working conditions. At December 29, 1996,
approximately 49% of the Company's employees were paid at rates related to the
minimum wage. Therefore, increases in the minimum wage or decreases in the
allowable tip credit (tip credits reduce the minimum wage that must be paid to
tipped employees in certain states) increase the Company's labor costs. This is
especially true in California, where there is no tip credit. Effective October
1, 1996, the Federal minimum wage was increased from $4.25 to $4.75, and
effective September 1, 1997, it will be further increased to $5.15. However, a
provision of the new measure effectively freezes the minimum wage for tipped
employees at current levels by increasing the allowable tip credit in those
states which allow for a tip credit. Furthermore, California voters approved a
proposition on November 5, 1996 that increased the state's minimum wage to $5.00
on March 1, 1997 and will further increase the minimum wage to $5.25 on March 1,
1998.
The Company is also subject to both Federal and state regulations
governing disabled persons' access to its restaurant facilities, including the
Americans with Disabilities Act ("ADA"), which became effective in January 1992.
If the ADA were interpreted to require a higher degree of accessibility for
disabled persons than presently established, it could have a significant
economic impact on the Company, inasmuch as such interpretation could require
the Company, and the restaurant industry as a whole, to make substantial
modifications to its restaurant facilities.
Currently, the Company franchises and licenses two restaurants in the
United States and 23 restaurants internationally. The Company has begun actively
franchising its El Torito concept both domestically and internationally in 1997.
See "--Franchised and Licensed Restaurants." The Company believes its franchises
are operating in substantial compliance with applicable laws and regulations
governing such operations.
TRADEMARKS AND SERVICE MARKS
The Company regards its trademarks and service marks as important to
the identification of its restaurants and believes that they have significant
value in the conduct of its business. The Company has registered various
trademarks and service marks with the United States Patent and Trademark Office.
In addition to its Federal registrations, certain trademarks and service marks
have been registered in various states and selected international markets in
which the Company operates restaurants. Also, many of the Company's menus,
training manuals and other printed manuals utilized in conjunction with its
business are copyrighted.
FRANCHISED AND LICENSED RESTAURANTS
In May 1994, El Torito Restaurants, Inc. ("El Torito") and Coco's
Restaurants, Inc. ("Coco's"), a former indirect subsidiary
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of the Company, entered into a license agreement (the "ET License Agreement"),
which, among other things, granted to Coco's an exclusive right and license that
permits Coco's to grant other parties a sublicense to develop the Company's El
Torito Mexican restaurant concept in Japan. As a result, in April 1995, Coco's
entered into a Technical Assistance and License Agreement, which, among other
things, granted to Coco's Japan Co., Ltd. ("CJCL") the right to develop the
Company's El Torito Mexican restaurant concept in Japan (the "CJCL Agreement").
At December 29, 1996, CJCL operated five El Torito restaurants in Japan.
At December 29, 1996, Chi-Chi's had one international license agreement
covering all international markets, excluding Canada, China, Korea, New Zealand,
the Philippines, Russia and South Africa. In 1996, Chi-Chi's terminated its
franchise agreements with individuals or entities covering limited portions of
one U.S. state and the Province of Quebec, Canada.
In 1996, the Company established El Torito Franchising Company ("ETFC")
to market domestically and internationally the El Torito Mexican restaurant
concept. At December 29, 1996, ETFC was authorized to sell franchises in 40
states and was pursuing the franchise registration process in eight other
states. On January 16, 1997, ETFC entered into a Master Franchise and
Development Agreement with Evliyaoglu Ltd. ("EL"), pursuant to which EL was
granted the rights to develop 50 El Torito restaurants over 15 years in Turkey.
Under existing license and other franchise agreements, five El Torito
restaurants are operated in Japan, two El Torito restaurants are operated in the
United States and 18 Chi-Chi's restaurants are operated in international
markets.
Franchise and license fees were $1,605,000 for the year ended December
29, 1996, of which $1,479,000 or 92% was derived from Coco's restaurants
licensed by CJCL prior to the sale of the Family Restaurant Division on May 23,
1996. As a result of the sale of the Family Restaurant Division, Coco's (the
licensor under the CJCL Agreement) is no longer a subsidiary of the Company.
This compares to $4,824,000 for the year ended December 31, 1995, $6,041,000 for
the 11 months ended December 25, 1994 (including Chi-Chi's fees subsequent to
the Acquisition) and $546,000 for the one month ended January 26, 1994, of which
84%, 87%, and 82%, respectively, were from Coco's restaurants licensed by CJCL.
THE ACQUISITION
The Acquisition involved the following components and related
transactions, all of which (unless otherwise noted) were consummated on the
Closing Date:
New Equity Investment. In January 1994, Apollo, GEI, Foodmaker and
certain officers of the Company made a $154.7 million new equity investment (the
"New Equity Investment") in the Company. Pursuant to the Acquisition Agreement,
dated as of October 15, 1993, among the Company, Apollo, GEI, Foodmaker and
Chi-Chi's (as amended, the "Acquisition Agreement"), Apollo purchased 40.0% of
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the Common Stock outstanding immediately following the Closing Date for $62.3
million in cash and GEI purchased 18.4% of the Common Stock outstanding
immediately following the Closing Date for $28.8 million in cash. In addition,
Foodmaker acquired 40.0% of the Common Stock outstanding immediately following
the Closing Date, with a value of $62.3 million, in the Chi-Chi's Merger
(described below).
Chi-Chi's Merger. The Company acquired Chi-Chi's, a wholly-owned
subsidiary of Foodmaker and the operator or franchisor, directly or indirectly
through its subsidiaries, of 235 full-service Mexican restaurants, through a
merger of a newly-formed subsidiary of the Company with Chi-Chi's. Foodmaker
received (i) $205.0 million in cash, less the principal amount of capital leases
and the face amount of certain indebtedness of Chi-Chi's existing or assumed by
the Company in connection with the Chi-Chi's Merger, (ii) 389,634 shares of
Common Stock and (iii) a warrant to purchase, at an aggregate exercise price of
$26.7 million, 10% of the Common Stock outstanding assuming the full exercise
thereof (the "Warrant").
Employee Stock Purchase and Management Incentive Plan. In connection
with the Acquisition, the Company adopted a new management incentive plan,
pursuant to which certain officers and employees of the Company were granted the
right to purchase up to 40,900 shares of Common Stock (constituting up to 4.1%
of the Common Stock outstanding immediately following such purchases) at $160
per share (the "Employee Stock Purchase"), the same per share price paid by
Apollo and GEI in the New Equity Investment. The Employee Stock Purchase was
consummated on the Closing Date with respect to certain officers (15,625 shares
of Common Stock) and on May 19, 1994 and July 31, 1994 with respect to the other
participants (22,552 shares of Common Stock). No more than fifty percent of the
purchase price was authorized to be financed through interest-bearing recourse
notes payable to the Company. In July 1996, the Company cancelled all such
interest-bearing recourse notes. The Company has repurchased 8,992 shares of
Common Stock at various prices due to employee terminations, leaving 29,185
shares currently owned by management stockholders and terminated employees. The
individuals who purchased Common Stock were also granted options to purchase
20,822 shares of Common Stock in the future at an exercise price initially set
at $160 per share. The Company also granted options to purchase approximately
30,000 shares of Common Stock to approximately 800 other employees.
Approximately 44,500 options have expired due to terminations, and no options
have been exercised.
Strategic Divestment Program. In the first quarter of 1993 the Company
announced a program (the "Strategic Divestment Program") to strategically divest
itself of 169 restaurants in order to (i) eliminate restaurants with negative
cash flow, (ii) exit all but the best traditional dinnerhouse locations and
(iii) focus on the Company's family and Mexican restaurants in the six Western
states of California, Arizona, Washington, Oregon, Nevada and New Mexico.
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In connection with the Acquisition, the Company reduced by 60
restaurants (from 169 to 109) the number of restaurants to be divested under the
Strategic Divestment Program. Two additional restaurants were added to the
program in late 1993. Also, in connection with the Chi-Chi's Merger, 11 poor
performing restaurants were designated for divestment. As of December 25, 1994,
77 properties had been divested, leaving 45 properties remaining to be divested
(including eight properties that were closed). Because the Strategic Divestment
Program was scheduled for completion at the end of fiscal 1994, all remaining
restaurants identified for divestment that were operating at the end of fiscal
1994 have been included in operations since 1995.
CHANGE IN CONTROL
On November 20, 1995, Apollo entered into an Exchange Agreement with
each of Foodmaker and GEI (the "Exchange Agreements") pursuant to which, among
other things, (i) on December 20, 1995 Foodmaker transferred all of the shares
of Common Stock and the Warrant held by it to Apollo, (ii) on November 20, 1995
GEI transferred 19,609 shares of Common Stock held by it to Apollo and (iii) the
Shareholders' Agreement, dated as of January 27, 1994, by and among Apollo, GEI
and Foodmaker (the "Shareholders' Agreement") was terminated as between
themselves and the Company. In connection with the foregoing, Jackson W.
Goodall, Jr., Charles W. Duddles and Edward Gibbons, the three members of the
Company's Board of Directors (the "Board") nominated by Foodmaker pursuant to
the Shareholders' Agreement, and Leonard I. Green and Jonathan D. Sokoloff, the
two members of the Board nominated by GEI, resigned from the Board and from each
other position, if any, held with the Company or its subsidiaries. The foregoing
transactions were consummated after the lenders under the Old Credit Facility,
in connection with their consent to an amendment thereto, required certain of
the Company's shareholders to purchase a participation in certain loans under
such agreement. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources." Apollo agreed to
purchase such participation and, in consideration therefor, Foodmaker and GEI
agreed to the transactions set forth above.
Prior to the consummation of the foregoing transactions, Apollo, GEI
and Foodmaker, the Company's three largest shareholders, held approximately 39%,
18% and 39%, respectively, of the Company's Common Stock, and pursuant to the
terms of the Shareholders' Agreement, controlled the Company. Upon consummation
of the foregoing transactions, Apollo, GEI and Foodmaker held approximately 81%,
16% and 0% of the Common Stock, respectively. Consequently, Apollo, through its
ownership of the Common Stock, controls the Company.
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SALE OF FAMILY RESTAURANT DIVISION
On May 23, 1996, the Company completed the sale of the Family
Restaurant Division to Flagstar in exchange for $125 million cash, $150 million
principal amount of the FRD Notes and the assumption of $31.5 million of
long-term debt, primarily consisting of capitalized lease obligations. Based on
the subsequent completion of a closing balance sheet, the purchase price was
increased and such increase was satisfied by the issuance of $6.9 million in
additional FRD Notes. The Company recorded a gain of $62.6 million on the sale
of the Family Restaurant Division, which gain included the effect of the
increase in purchase price of $6.9 million discussed above. Cash proceeds from
the sale were used to pay indebtedness outstanding under the Old Credit Facility
of $82 million. As of March 26, 1997, the Company had sold or exchanged $150.4
million aggregate principal amount of the FRD Notes. The remaining balance of
$6.5 million is currently restricted in accordance with the sale agreement with
Flagstar to secure potential future indemnity claims. The remaining FRD Notes
are carried at their fair value which approximates their cost.
Item 2. PROPERTIES
Of the 281 restaurants operated by the Company as of December 29, 1996,
the Company owned the land and building for 34, owned the building and leased
the land for 53 and leased both land and building for the remaining 194
restaurants. The restaurants are primarily free-standing units ranging from
approximately 5,000-10,000 square feet. Most of the leases provide for the
payment of a base rental or approximately 5% to 6% of gross sales, whichever is
greater, plus real estate taxes, insurance and other expenses.
The leases (assuming exercise of all options) have terms expiring as
follows:
<TABLE>
<CAPTION>
Number of
Lease Expiration Restaurants
---------------- -----------
<S> <C>
1997-2001 12
2002-2006 19
2007-2011 37
2012-2016 66
2017 and later 113
---
Total 247
===
</TABLE>
In addition, the Company owns a 43,120 square-foot building in Irvine,
California which houses support personnel for the Company. The Company shares a
53,800 square foot office building in Irvine, California with FAC which houses
the Company's headquarters personnel and certain support functions of the
Company. Rent and occupancy expenses are split evenly between the Company and
FAC through April 1997 at which time FAC will vacate the premises and
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the Company will enter into a new lease for 34,200 square feet. The Company
currently leases a portion of a 110,000 square foot building in Irvine,
California which houses El Torito operations staff and certain support personnel
for the Company. The building will be vacated in May 1997 and personnel will be
moved to the Company's other two Irvine buildings. The Company also leases a
26,270 square-foot building in Louisville, Kentucky which houses the Chi-Chi's
operations and support functions and various other smaller offices and
warehouses.
Substantially all of the Company's assets have been pledged under the
Foothill Credit Facility. However, of the 87 owned restaurants at December 29,
1996 (building or land and building), six were subject to security interests in
favor of other third parties.
The following table details the Company-operated restaurants by state
of operation as of December 29, 1996.
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<TABLE>
<CAPTION>
Total
Number of
State Chi-Chi's El Torito Restaurants
- ----- --------- --------- -----------
<S> <C> <C> <C>
California - 77 77
Ohio 30 - 30
Pennsylvania 25 - 25
Illinois 16 1 17
Michigan 17 - 17
Indiana 14 2 16
Wisconsin 12 - 12
Maryland 10 - 10
Missouri 2 8 10
Virginia 10 - 10
Minnesota 7 - 7
New Jersey 7 - 7
Iowa 6 - 6
Kentucky 6 - 6
New York 5 - 5
Florida 1 2 3
Kansas 3 - 3
Massachusetts 3 - 3
Oregon - 3 3
West Virginia 3 - 3
Arizona - 2 2
Colorado 1 - 1
Connecticut 1 - 1
Delaware 1 - 1
Nebraska 1 - 1
Nevada - 1 1
North Carolina 1 - 1
North Dakota 1 - 1
South Dakota 1 - 1
Washington - 1 1
--- -- ---
Total 184 97 281
=== == ===
</TABLE>
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Item 3. LEGAL PROCEEDINGS
The Company is involved in various litigation matters incidental to its
business. The Company does not believe that any of the claims or actions filed
against it will have a material adverse effect upon the consolidated financial
position or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Common Stock.
At March 26, 1997, there were 92 stockholders of record of Common
Stock. No other class of stock was outstanding as of that date. No dividends
have been paid by the Company to its common stockholders.
Each of the indentures, as amended, (collectively, the "Indentures")
governing the Company's outstanding Senior Notes and Discount Notes and the
Foothill Credit Facility imposes certain restrictions on the Company's ability
to pay dividends.
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Item 6. SELECTED FINANCIAL DATA
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
------------------------------------------ --------------------------------------------
As of and for As of and for As of and for
the Years Ended the Eleven For the One the Years Ended
----------------------- Months Ended Month Ended ---------------------------
Dec. 29, Dec. 31, Dec. 25, Jan. 26, Dec. 26, Dec. 28,
1996 1995 1994 1994 1993 1992
---------- ---------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $ 724,229 $1,134,359 $ 1,048,674 $ 64,741 $ 884,910 $ 930,069
Cost of Sales:
Product cost 200,379 322,194 293,413 19,184 259,512 276,020
Payroll and related costs 273,536 419,185 377,569 24,780 331,747 352,841
Occupancy and other operating
expenses 181,730 275,164 243,147 13,712 197,797 211,332
Depreciation and amortization 34,475 57,836 48,646 2,800 32,224 50,538
General and administrative expenses 41,742 56,245 49,059 4,071 44,164 48,376
Gain (loss) on disposition of
properties (8,600) (12,067) (5,685) 12 (4,916) (7,786)
Gain on sale of division 62,601 0 0 0 0 0
Provision for divestitures and
write-down of long-lived assets 0 44,500 144,780 (2) 0 10,400 135,046 (1)
Restructuring costs 6,546 4,392 0 0 0 0
Debt restructuring costs 0 0 0 0 4,239 1,072
Reorganization items 0 0 0 479,427 (1,091) 0
Interest expense, net 36,725 65,277 51,419 4,097 50,276 45,582
Income tax provision 890 1,208 1,773 55 658 721
---------- ---------- ------------ ---------- ----------- -----------
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle 2,207 (123,709) (166,817) 475,481 (52,114) (199,245)
Extraordinary gain on extinguishment
of debt 134,833 0 2,941 72,561 0 0
Effect of adopting SFAS 109 0 0 0 0 0 (667)
---------- ---------- ------------ ---------- ----------- -----------
Net income (loss) 137,040 (123,709) (163,876) 548,042 (52,114) (199,912)
Preferred dividends 0 0 0 1,698 20,232 17,737
---------- ---------- ------------ ---------- ----------- -----------
Net income (loss) attributable to
common shares $ 137,040 $ (123,709) $ (163,876) $ 546,344 $ (72,346) $ (217,649)
========== ========== ============ ========== =========== ===========
Income (loss) per common share
before extraordinary item (3) $ 2.23 $ (124.75) $ (168.55)
Net income (loss) attributable to
common shares (3) $ 138.66 $ (124.75) $ (165.58)
Balance Sheet Data:
Working capital (deficiency) $ (85,524) $ 45,114 (4) $ (155,481) $ (95,209) $ (109,692)
Current assets 48,036 267,077 43,015 77,109 64,948
Total assets 309,030 551,270 734,598 366,577 383,298
Current liabilities 133,560 221,963 198,496 172,318 174,640
Liabilities subject to settlement
under reorganization proceeding 0 0 0 320,194 (5) 277,010 (5)
Non-current portion of long-term
debt, including capitalized lease
obligations 165,325 455,203 (6) 536,495 78,658 84,133
Redeemable cumulative exchangeable
preferred stock 0 0 0 183,921 163,689
Common stockholders' equity (deficit) 5,399 (131,576) (7,259) (391,638) (319,470)
Selected Consolidated Financial
Ratios and Other Data:
EBITDA (7) $ 26,842 $ 61,571 $ 85,486 $ 2,994 $ 51,690 $ 41,500
Net income (loss) 137,040 (123,709) (163,876) 548,042 (52,114) (199,912)
Net cash provided by (used in)
operating activities (23,831) 6,083 18,346 (18,252) 25,352 31,252
Capital expenditures 9,848 38,022 65,618 779 20,064 38,255 (8)
Net cash provided by (used in)
investing activities 168,422 (19,615) (64,167) (192,610) (10,717) (34,472)
Net cash provided by (used in)
financing activities (117,717) 13,663 31,858 223,754 (19,839) 3,474
Restaurants open at end of period 281 670 702 524 528 587
Ratio of EBITDA to interest expense 0.73x 0.94x 1.66x 0.73x(9) 1.03x(9) 0.91 (9)
</TABLE>
-14-
<PAGE> 15
(1) The historical basis of the Company's recorded value of goodwill
represented the excess of the purchase price paid over the fair value
of the identifiable net assets acquired in the 1986 acquisition of the
Company from W. R. Grace & Co. (the "1986 Acquisition"). Goodwill was
allocated to the respective divisions based on the financial forecast
of the Company at the time of the 1986 Acquisition which was developed
using the historical experience of the Company, industry trends and
management's estimates of future performance. Subsequent to the 1986
Acquisition, the Company sustained significant losses and did not meet
the previously prepared forecasts of revenues and operating cash flow
for its Mexican and traditional dinnerhouse restaurants. Further, the
Company determined that the Mexican and traditional dinnerhouse
restaurants were experiencing these negative trends due to increasing
competitive pressure resulting from the lack of sufficient amounts of
capital to maintain and improve their facilities. The negative trends
and operating losses worsened in late 1992. These factors raised
substantial doubt about the Company's ability to achieve the results of
operations forecast for the Mexican and traditional dinnerhouse
restaurants at the time of the 1986 Acquisition and indicated that the
value of the previously recorded goodwill for such restaurants would
not be realized. Accordingly, the Company wrote off the remaining book
value of goodwill, $107,175,000, allocated to these restaurants at
December 28, 1992.
(2) During the fourth quarter of 1994, the Company wrote off the
unamortized balance of the goodwill which was recorded in connection
with the Chi-Chi's Merger of $144,780,000. See Note 7 of the Company's
audited consolidated financial statements (the "Financial Statements").
(3) Net income (loss) per common share for the Company prior to the
Acquisition is not meaningful due to debt discharge, the issuance of
Common Stock and fresh start reporting. Net income (loss) per common
share for the Company subsequent to the Acquisition is computed based
on the weighted average shares actually outstanding (989,683 shares for
the eleven months ended December 25, 1994, 991,650 shares for the year
ended December 31, 1995 and 988,285 shares for the year ended December
29, 1996). The impact of the Warrant and outstanding options have not
been included since the impact would be antidilutive for 1995 and 1994
and would not provide meaningful information in 1996 because the
Company believes that neither the Warrant nor the outstanding options
would be exercised at their current exercise prices.
(4) Includes the impact of working capital loan classification discussed in
Note 9 of the Financial Statements and the classification of
$240,077,000 in property held for sale discussed in Note 5 of the
Financial Statements.
-15-
<PAGE> 16
(5) Liabilities that were cancelled and extinguished as part of the
prepackaged joint plan of reorganization of the Company and REG-M Corp.
(the "Plan") are separately classified in the consolidated balance
sheets as liabilities subject to settlement under reorganization
proceedings and include the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
Old Senior Subordinated Notes $191,928 $187,048
Old Subordinated Notes 78,916 78,770
Accrued interest 52,720 15,531
Debt issuance and other costs (3,370) (4,339)
-------- --------
$320,194 $277,010
======== ========
</TABLE>
(6) Excludes amounts related to the Family Restaurant Division and the
traditional dinnerhouse restaurants which were held for sale.
(7) EBITDA is defined as earnings (loss) before gain (loss) on disposition
of properties, provision for divestitures and write-down of long-lived
assets, 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.
(8) Consolidated capital expenditures includes $12,374,000 for the net cash
used in the acquisition of Bob's Big Boy restaurants in 1992 (the
"Bob's Big Boy Acquisition").
(9) Ratio of EBITDA to interest expense is based on the Company's
historical capital structure which is not representative of the
Company's capital structure subsequent to the Acquisition.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference to the "Predecessor Company" refers to The Restaurant
Enterprises Group, Inc. and its consolidated subsidiaries (excluding Chi-Chi's)
with respect to information relating to periods prior to January 27, 1994
included herein, and reference to the "Successor Company" refers to Family
Restaurants, Inc. and its consolidated subsidiaries, giving effect to the
Acquisition, with respect to information about events occurring upon completion
of or after the Acquisition.
Certain information and statements included in this Annual Report on
Form 10-K, including in this Management's Discussion and Analysis of Financial
Condition and Results of
-16-
<PAGE> 17
Operations, including, without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risks and
uncertainties that could result in actual results of the Company or industry
differing materially from expected results expressed or implied by such
forward-looking statements. Although it is not possible to itemize all of the
factors and specific events that could affect the outlook of a restaurant
company operating in a competitive environment, factors that could significantly
impact expected results include (i) the implementation of a successful cost
restructuring program and the development of a successful marketing strategy for
Chi-Chi's and El Torito, (ii) the effect of national and regional economic
conditions, (iii) the availability of adequate working capital, (iv) competitive
products and pricing, (v) changes in legislation, (vi) demographic changes,
(vii) the ability to attract and retain qualified personnel, (viii) changes in
business strategy or development plans and (ix) business disruptions. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company currently relies primarily on internally generated funds,
supplemented by working capital advances under the Foothill 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 comply with the terms of its financing agreements.
Operating Cash Flow. For the year ending December 29, 1996, the Company
reported EBITDA (defined as earnings (loss) before gain (loss) on disposition of
properties, provision for divestitures and write-down of long-lived assets,
interest, taxes, depreciation and amortization) of $26.8 million. 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.
The Company continues to suffer from declining sales in its continuing
restaurant operations. On December 6, 1995, Kevin S. Relyea was appointed CEO of
the Company and assumed responsibility for Chi-Chi's. As part of a project to
reposition the Chi-Chi's concept and to reengineer the organization's processes,
Roger K. Chamness was appointed to the position of president of Chi-Chi's on
March 1, 1996. Together, along with industry consultants, they developed a plan
to significantly restructure Chi-Chi's costs
-17-
<PAGE> 18
during 1996 in an attempt to bring Chi-Chi's operating margins in line with the
current depressed sales levels. An internal Chi-Chi's project group has been
focusing on strong inventory and meal preparation controls as well as improved
restaurant labor scheduling. Other operating expenses are undergoing a stringent
review for cost-saving opportunities to improve margins. A new marketing firm
was hired in December 1996 to reposition Chi-Chi's as a value-oriented Mexican
restaurant. In addition, sixteen poor performing Chi-Chi's were closed during
1996 to help improve profitability. As a result of these programs, significant
improvement in Chi-Chi's negative EBITDA was noted in 1996 as compared to 1995.
William D. Burt assumed the position of president of El Torito on April
8, 1996 and launched a similar margin improvement program at El Torito during
the fourth quarter of 1996. One aspect of the margin improvement program focuses
on improving labor productivity by enhancing service while reducing hours
through efficient scheduling. Raw material costs and other operating expenses
are being reviewed through a cross-functional cost reengineering team. All ideas
are tested to quantify the benefit and review any impact on quality of service.
El Torito has also developed a new, long-term marketing strategy for 1997 to
reposition the concept as the "perfect place for people to come together." This
brand identification approach is a departure from the previously used special
food product or food offer focus which, by year-end 1996, had been emulated by
many competitors and had saturated the media. Therefore, to break through the
saturation and boost sales, a series of five television commercials will be used
featuring line-art animation and voice-overs to reinforce the idea that El
Torito "brings people together."
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 $85.5 million on December 29, 1996.
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
"Old Credit Facility"). In connection with the sale of the Family Restaurant
Division, (i) the Company used a portion of the cash proceeds from the sale to
repay $82 million outstanding under the Old Credit Facility and (ii) the Old
Credit Facility was amended to change the borrower from FRI-M (which, following
consummation of the sale, was no longer owned by the Company) to FRI-MRD
Corporation, a wholly-owned subsidiary of the Company, to remove all restrictive
covenants, and to reduce the commitment thereunder to up to $32 million of
letters of credit with no provision for revolving loans.
-18-
<PAGE> 19
On January 10, 1997, the Company entered into the Foothill Credit
Facility to replace the Old Credit Facility and to provide for the ongoing
working capital needs of the Company. The Foothill Credit Facility provides up
to $15 million in revolving cash borrowings and up to $35 million in letters of
credit (less the outstanding amount of revolving cash borrowings). The Foothill
Credit Facility is secured by all of the real and personal property of the
Company and contains customary restrictive covenants, including the maintenance
of certain financial ratios. Letters of credit are issued under the Foothill
Credit Facility primarily to provide security for future amounts payable under
the Company's workers' compensation insurance program ($18.5 million of such
letters of credit were outstanding as of March 26, 1997). No revolving cash
borrowings were outstanding as of March 26, 1997.
Other. In the third quarter of 1995, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") as a financial advisor to
assist the Company in the process of divesting certain divisions and operations.
This process culminated in the sale of the Family Restaurant Division on May 23,
1996 to Flagstar for $125 million cash, $150 million principal amount of the FRD
Notes, and the assumption of $31.5 million of long-term debt, primarily
consisting of capitalized lease obligations. Upon completion of the closing
balance sheet, the purchase price was increased by $6.9 million and was
satisfied by the issuance of $6.9 million in additional FRD Notes.
On July 3, 1996, the Company repurchased $151.0 million aggregate
principal amount of the Senior Notes and $108.6 million aggregate principal
amount of the Discount Notes in exchange for (or from the proceeds from the sale
of) $133.5 million aggregate principal amount of the FRD Notes. In separate
transactions, the Company repurchased an additional $8.5 million aggregate
principal amount of its Discount Notes in the third quarter of 1996 and an
additional $30.0 million aggregate principal amount of its Senior Notes and an
additional $2.0 million aggregate principal amount of its Discount Notes in the
fourth quarter of 1996.
As of March 26, 1997, the Company had sold or exchanged $150.4 million
aggregate principal amount of the FRD Notes. The remaining $6.5 million balance
is currently restricted in accordance with the sale agreement with Flagstar to
secure potential future indemnity claims.
Notwithstanding the completion of the sale of the Family Restaurant
Division and the repurchases of the Notes, the Company continues to be highly
leveraged and have significant debt service requirements. Although management
believes that its current sources of cash 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 Notes at
their respective maturities.
-19-
<PAGE> 20
CAPITAL EXPENDITURES
Net cash provided by investing activities was $168.4 million for fiscal
1996 versus net cash used in investing activities of $19.6 million for fiscal
1995, $64.2 million for the eleven months ended December 25, 1994 and $192.6
million for the one month ended January 26, 1994. Net cash provided by investing
activities in 1996 was primarily due to the completion of the sale of the Family
Restaurant Division and certain FRD Notes and a reduction in capital
expenditures during the year. Included in investing activities for 1994 is the
acquisition of Chi-Chi's, which represented $192.4 million, and the partial
conversion of certain Bob's Big Boy restaurants to the Company's concepts which
represented $8.3 million.
In 1994 the Company embarked on a comprehensive capital investment
program. The Company expected to spend an aggregate of approximately $100
million to $130 million of discretionary funds under such capital investment
program, in addition to the annual capital expenditures of approximately $16
million to $19 million devoted to normal improvements of the Company's
restaurants. Subsequent to the Acquisition, the Company remodeled 114 family
restaurants and 81 Mexican restaurants at an aggregate cost of approximately
$37.2 million. Due to the deterioration in operating cash flow in 1994 and 1995,
the Company suspended its remodel program for all restaurants. All other capital
projects were tightly controlled through 1995 and 1996 pending an improvement in
operating cash flow.
Due to the 1996 improvement in operating cash flow in the Chi-Chi's
restaurants, capital expenditures in the range of $15 million to $17 million are
planned for 1997, including approximately $5 million to $6 million devoted to
normal improvements of the Company's restaurants. The Company has identified
several El Torito and Chi-Chi's restaurants for remodel, and an exterior
enhancement program for Chi-Chi's will commence by mid-year. There are also
plans to develop an El Torito prototype to be used for future El Torito
expansion, and the Company is also looking at improving its in-store POS
technology beginning in 1997.
GOODWILL WRITE-OFF
The Chi-Chi's restaurants reported significant sales declines in the
second half of 1994 which continued into 1995. These sales declines resulted in
operating performance for the Chi-Chi's restaurants which was significantly
lower than anticipated at the time of the Acquisition.
CSPI Report. In July 1994, the Center for Science in the Public
Interest ("CSPI") released a report which claimed, among other things, that
Mexican meals were high in fat, saturated fat and sodium and that there are
fewer low fat or low sodium choices in Mexican restaurants than in the Italian
and Chinese restaurants that had been previously analyzed. Although restaurant
officials disagreed with the report and CSPI's methods, subsequent to the
-20-
<PAGE> 21
CSPI study, Chi-Chi's restaurants began reporting significant declines in sales.
The Company introduced a new program, called "New Mex," to all its Mexican
restaurants. This new program included an extensive list of changes including
new menu items, new recipes, a new menu design and look, new commercials, new
china and new uniforms. This program proved ineffective in the Chi-Chi's
restaurants.
Comparable Sales Declines. Chi-Chi's restaurants reported declines in
sales at comparable restaurants (as defined below) of 7.4% in the third quarter
of 1994 and 15.7% in the fourth quarter of 1994. As a result of this poor sales
performance, the Chi-Chi's restaurants achieved EBITDA (pro forma for the entire
1994 fiscal year) approximately 50% below the level achieved in 1993. The
comparable restaurant sales declines for Chi-Chi's continued in 1995.
Acquisition Business Strategy. At the time of the Acquisition, the
Company identified three key sales building strategies for its Mexican
restaurants. The Company planned to build sales by (i) implementing a unified
marketing and food and beverage strategy as part of the goal of integrating all
of the Mexican concepts; (ii) completing a comprehensive refurbishment program
of substantially all of the Mexican restaurants in order to enhance customers'
dining experience and attract new customers; and (iii) following the completion
of the refurbishment program, which was expected to occur during the first three
years following the Acquisition, adding 12 to 20 new restaurants per year. These
new restaurants would have been added in existing markets in order to take
advantage of efficiencies in advertising and management. The valuation of the
Chi-Chi's business at the time of the Acquisition was based on the successful
completion of these business strategies and the resulting anticipated increase
in sales and cash flow.
Reevaluation of the Business Strategy. In the case of Chi-Chi's, all
facets of the post-Acquisition strategy described above were reevaluated. The
Company reestablished a separate marketing department for Chi-Chi's as different
regional tastes proved the unified marketing and food and beverage strategy to
be unsuccessful. In addition, as a result of the lack of improvement in the
performance of the remodels completed in 1994, all remodels of the Chi-Chi's
restaurants were discontinued. As a result of these significant setbacks, no
future expansion of Chi-Chi's could be anticipated.
Consistent with this strategic reevaluation, the Company revised its
forecasts for the future operations of Chi-Chi's which resulted in a significant
reduction in projected future cash flows and a lower valuation of the business.
Furthermore, management concluded that it was unlikely that the Chi-Chi's
restaurants would return to prior profitability levels in the foreseeable
future. Accordingly, in the fourth quarter of 1994, the Company completed an
evaluation of the carrying value of the Chi-Chi's goodwill and wrote off the
entire unamortized balance of $144,780,000 at December 25, 1994.
-21-
<PAGE> 22
RESULTS OF OPERATIONS
As used herein, "comparable restaurants" are restaurants operated by
the Company on the first day of the earlier fiscal year and which continued in
operation through the last day of the later year being compared.
FISCAL YEAR 1996 AS COMPARED TO FISCAL YEAR 1995
Total sales of $724,229,000 for 1996 decreased by $410,130,000 or 36.2%
as compared to 1995. The decrease was due to (i) the loss of sales from the
Family Restaurant Division which was sold by the Company on May 23, 1996, (ii)
sales decreases for restaurants sold or closed, (iii) sales declines in the
comparable El Toritos and Chi-Chi's and (iv) the 53rd week in 1995. The
breakdown of the sales decline for 1996 is detailed below:
<TABLE>
<CAPTION>
1996 Sales
Decreases
----------------
($ in thousands)
<S> <C>
Sales of the Family Restaurant Division $(308,021)
Decrease in Sales of Restaurants Sold
or Closed in 1996 (47,823)
Decrease in Sales of Comparable
Restaurants (45,533)
Decrease in Sales for the 53rd Week
in 1995 (8,753)
---------
Total $(410,130)
=========
</TABLE>
Sales for comparable restaurants of $484,655,000 for 1996 decreased by
$45,533,000 or 8.6% compared to a 52-week 1995. The decrease is comprised of a
$38,038,000 or 12.4% decline in Chi-Chi's and a $7,495,000 or 3.4% decline in El
Torito primarily reflecting a continuing competitive operating environment for
restaurants. Also contributing to the comparable sales decline was severe winter
weather in several markets in early 1996 and an overall weakness in summer sales
during the 1996 Summer Olympics which affected three weekends and two full weeks
during July and August. As discussed above, the Company has initiated marketing
and positioning plans to improve the future sales performance of both Chi-Chi's
and El Torito.
Product cost of $200,379,000 for 1996 decreased by $121,815,000 or
37.8% in 1996 as compared to 1995 primarily due to the sale of the Family
Restaurant Division which accounts for $89,347,000 or 73.3% of the decrease.
Chi-Chi's cost re-engineering project further contributed to product cost
savings by simplifying menus, reducing the number of ingredients used and
controlling inventories. As a percentage of sales, product cost declined to
27.7% in 1996 as compared to 28.4% in 1995.
Payroll and related costs of $273,536,000 for 1996 decreased by
$145,649,000 or 34.7% as compared to 1995 primarily due to the
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<PAGE> 23
sale of the Family Restaurant Division which accounts for $108,406,000 or 74.4%
of the decrease. As a percent of sales, payroll and related costs increased from
37.0% in 1995 to 37.8% in 1996 due in part to labor inefficiencies resulting
from the declining sales without an offsetting reduction in fixed labor expense,
combined with the negative impact of the minimum wage increase on October 1,
1996.
The Company is subject to Federal and state laws governing matters such
as minimum wages, overtime and other working conditions. At December 29, 1996,
approximately 49% of the Company's employees were paid at rates related to the
minimum wage. Therefore, increases in the minimum wage or decreases in the
allowable tip credit (tip credits reduce the minimum wage that must be paid to
tipped employees in certain states) increase the Company's labor costs. This is
especially true in California, where there is no tip credit. Effective October
1, 1996, the Federal minimum wage was increased from $4.25 to $4.75, and
effective September 1, 1997, it will be further increased to $5.15. However, a
provision of the new measure effectively freezes the minimum wage for tipped
employees at current levels by increasing the allowable tip credit in those
states which allow for a tip credit. Furthermore, California voters approved a
proposition on November 5, 1996 that increased the state's minimum wage to $5.00
on March 1, 1997 and will further increase the minimum wage to $5.25 on March 1,
1998. In response to the minimum wage increases on October 1, 1996 and March 1,
1997, the Company raised menu prices at its El Torito restaurants in an effort
to recover the higher payroll costs. Menu prices have not been increased at
Chi-Chi's, however, due to marketing strategies and the fact that Chi-Chi's will
experience a lesser impact from the minimum wage increase due to the increased
allowable tip credit in certain states.
Occupancy and other expenses of $181,730,000 for 1996 decreased by
$93,434,000 or 34.0% as compared to 1995 primarily due to the sale of the Family
Restaurant Division which accounts for $85,314,000 or 62.4% of the decrease. As
a percentage of sales, occupancy and other expenses increased from 24.3% in 1995
to 25.1% in 1996 due primarily to declining sales without an offsetting
reduction in fixed expenses and the lower costs as a percentage of sales in the
Family Restaurant Division in 1995.
Depreciation and amortization of $34,475,000 for 1996 decreased by
$23,361,000 or 40.4% as compared to 1995 primarily due to the sale of the Family
Restaurant Division which accounts for $16,744,000 or 71.7% of the decrease. The
decrease also reflects the third quarter 1995 adjustment to the depreciable
asset base of Chi-Chi's restaurants either held for sale or having impaired
values.
General and administrative expenses of $41,742,000 for 1996 decreased
by $14,503,000 or 25.8% as compared to 1995 primarily due to the sale of the
Family Restaurant Division and the elimination of its related general and
administrative expenses of $10,187,000.
-23-
<PAGE> 24
As a percentage of sales, general and administrative expenses increased from
5.0% in 1995 to 5.8% in 1996 primarily reflecting general and administrative
expenses spread over fewer restaurants due to the sale of the Family Restaurant
Division. In April 1996, the Company announced it would eliminate approximately
130 positions in its Louisville corporate office and approximately 50 positions
in its Irvine corporate offices as it reorganized after the sale of the Family
Restaurant Division. Management continues to closely evaluate the Company's
general and administrative cost structure in light of the sale of the Family
Restaurant Division.
Loss on disposition of properties of $8.6 million for 1996 compared to
a loss of $12.1 million in 1995. These amounts reflect losses associated with
restaurant divestments and closures and the 1995 write-off of costs associated
with cancelled capital projects, both remodels and new restaurant expansion.
The Company reported restructuring costs of $6.5 million in 1996 versus
$4.4 million in 1995. These costs are primarily related to amounts paid to
consultants, professional fees, severance and related costs, and other
restructuring related expenses.
Interest expense, net of $36,725,000 for 1996 decreased by $28,552,000
or 43.7% as compared to 1995 primarily resulting from (i) lower accretion of
interest expense due to the repurchases of the Notes, as previously discussed,
(ii) paying off outstanding revolving debt under the Old Credit Facility in May
1996, (iii) the elimination of the Family Restaurant Division's interest costs,
primarily for capitalized lease obligations and (iv) interest income related to
the FRD Notes.
The Company recognized an extraordinary gain of $134,833,000 in 1996 as
a result of several repurchases of the Notes.
The Company recorded a gain of $62,601,000 in 1996 as a result of the
sale of the Family Restaurant Division.
FISCAL YEAR 1995 AS COMPARED TO FISCAL YEAR 1994
As a result of the impact of the Acquisition on the Company's capital
structure, the Company's adoption of fresh start reporting and the Chi-Chi's
Merger, the results of operations for fiscal 1995 are not comparable to those
for fiscal 1994 which includes eleven months of the Successor Company's
operations and one month of the Predecessor Company's operations. For certain
key operating elements of the statement of operations, however, the following
analysis of a comparison of the Successor Company's operations for fiscal 1995
to the operations (eleven months of the Successor Company plus one month of the
Predecessor Company) for fiscal 1994 is provided. Because of the lack of
comparability of results for this time period, depreciation and amortization and
interest expense, net are not discussed.
-24-
<PAGE> 25
Total sales of $1,134,359,000 for 1995 increased by $20,944,000 or 1.9%
as compared to 1994. This increase was due to (i) sales from Chi-Chi's
restaurants for January 1995 for which there were no comparable sales in 1994
due to the timing of the Chi-Chi's Merger on January 27, 1994, (ii) the impact
of the Bob's Big Boy restaurant conversions, (iii) the additional sales of the
new restaurants opened during 1994 and 1995, (iv) the impact of the 53rd week of
sales in 1995 and (v) sales for restaurants previously identified for divestment
which are included in the Company's operating results for 1995 but were not
included in the Company's operating results in 1994 (20 restaurants as of
December 31, 1995). These sales increases were offset, in part, by decreases
related to restaurants divested or closed and a decrease in sales of comparable
restaurants for 1995. The breakdown of the increase in sales for 1995 is set
forth below:
<TABLE>
<CAPTION>
1995 Sales
Increase
----------------
($ in thousands)
<S> <C>
Sales of Restaurants Previously
Identified for Divestment $ 40,576
Chi-Chi's Sales for January 1995 28,891
Increase in Sales for the 53rd Week 22,514
Increase in Sales of New Restaurants (1) 14,636
Increase in Sales of Bob's Big Boy
Restaurants (2) 4,897
Decrease in Sales of Restaurants Sold
or Closed (36,296)
Decrease in Sales of Comparable
Restaurants (54,274)
--------
Total $ 20,944
========
</TABLE>
(1) Reflects the Company's opening of nine new restaurants in 1994 and
eight new restaurants in 1995. Sales of new Chi-Chi's restaurants are
only included for February through December 1995.
(2) Reflects increased sales for the Bob's Big Boy restaurants converted to
Coco's or Carrows in 1994.
Comparable restaurants as utilized in this calculation excludes
restaurants previously identified for divestment and Chi-Chi's operations for
January 1995. Sales for comparable restaurants of $892,264,000 for 1995
decreased by $54,274,000 or 5.7% as compared to 1994. This comparable sales
decrease reflects decreases in both the Family Restaurant Division and Mexican
Restaurant Division. The comparable sales decrease was due to an increasingly
competitive operating environment for restaurants, particularly effective
promotional activities during the first quarter of 1994, and in the case of the
Family Restaurant Division (which operates primarily in California), new
California smoking legislation effective on January 1, 1995. The comparable
sales
-25-
<PAGE> 26
decrease in the Mexican Restaurant Division was primarily due to Chi-Chi's.
Product cost of $322,194,000 for 1995 increased by $9,597,000 or 3.1%
as compared to 1994. This increase primarily reflects Chi-Chi's product cost for
January 1995 for which there was no comparable cost in 1994 due to the timing of
the Chi-Chi's Merger on January 27, 1994. Also contributing to the increased
product cost were higher food costs, primarily due to increased produce prices.
As a percentage of sales, product cost increased from 28.1% in 1994 to 28.4% in
1995.
Payroll and related costs of $419,185,000 for 1995 increased by
$16,836,000 or 4.2% as compared to 1994. This increase reflects the impact of
Chi-Chi's January 1995 costs as discussed previously and costs related to
restaurants previously identified for divestment which were not included in the
Company's results for 1994 but are included in the Company's operating results
in 1995. As a percentage of sales, payroll and related costs increased from
36.1% in 1994 to 37.0% in 1995 due to the inclusion of the restaurants
previously identified for divestment which generally have poorer margins as a
result of lower sales volumes and the impact of declining comparable restaurant
sales which puts pressure on operating margins.
Occupancy and other expenses of $275,164,000 for 1995 increased by
$18,305,000 or 7.1% as compared to 1994. This increase reflects the impact of
the same factors affecting payroll and related costs discussed above and
increased media spending. As a percentage of sales, occupancy and other
operating expenses increased from 23.1% in 1994 to 24.3% in 1995 due to the same
factors.
General and administrative expenses of $56,245,000 for 1995 increased
by $3,115,000 or 5.9% as compared to 1994, primarily due to (i) the inclusion of
Chi-Chi's general and administrative expenses for January 1995, which were not
included for 1994, (ii) severance and related costs resulting from corporate
staff reductions, (iii) a reduction in foreign license fee income and (iv)
increased training costs in the Mexican Restaurant Division. Also affecting the
overall increase were certain income items that contributed to offsetting these
expenses in 1994 such as the reversal of corporate bonus accruals, proceeds from
a legal settlement and a note receivable settlement that did not occur in 1995.
This increase was offset, in part, by the termination of certain forward
exchange contracts resulting in a realized gain which is included as a reduction
to general and administrative expenses. As a percentage of sales, general and
administrative expenses increased from 4.8% in 1994 to 5.0% in 1995, primarily
as a result of the preceding factors.
The Company reported a loss on disposition of properties of $12.1
million in 1995 as compared to a loss of $5.7 million in fiscal 1994. The loss
in 1995 is primarily due to (i) the write-off of costs associated with cancelled
capital projects, both
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<PAGE> 27
remodels and new restaurant expansion, (ii) net loss associated with the closure
of six Chi-Chi's restaurants, (iii) losses related to the sale/leaseback of
certain owned properties and (iv) write-off of reorganization value related to
the traditional dinnerhouse restaurants being held for sale.
During the third quarter of 1995, the Company recorded a $41.9 million
charge related to the write-down of certain Chi-Chi's restaurants being offered
for sale and other Chi-Chi's restaurants with impaired value. Also, during the
fourth quarter of 1995, the Company recorded an additional provision for
divestitures related to the Company's traditional dinnerhouse restaurants which
are also being offered for sale.
Restructuring costs of $4.4 million were incurred in the third and
fourth quarters of 1995. These costs are primarily related to amounts paid to
consultants, professional fees, severance and related costs and other
restructuring related expenses.
ACCOUNTING PRONOUNCEMENTS
In 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 effect of the adoption of this
statement was not material to the Company's financial position or results of
operations.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation," effective for fiscal years beginning
after December 15, 1995. The Company has elected, as permitted by SFAS No. 123,
to adopt the disclosure requirement of that standard but continue to account for
stock-based compensation under APB Opinion No.25, "Accounting for Stock Issued
to Employees."
Statement of Position 94-6 ("SOP 94-6"), "Disclosure of Certain
Significant Risks and Uncertainties," was issued in December 1994. SOP 94-6
requires disclosure about certain risks and uncertainties that could
significantly affect the amounts reported in an entity's financial statements in
the near term and relate to: the nature of operations, the necessary use of
estimates in the preparation of financial statements and significant
concentrations in certain aspects of the entity's operations. SOP 94-6 is
applicable to financial statements of both public and non-public companies, but
does not cover governmental entities. SOP 94-6 was effective for financial
statements issued for fiscal years ending after December 15, 1995. The Company
has included SOP 94-6 related disclosures in the Consolidated Financial
Statements.
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<PAGE> 28
SELECTED OPERATING DATA
The following table sets forth certain information regarding the
Company, its ongoing operations and the various operations divested in 1996. The
table includes information with respect to total ongoing operations of the El
Torito and the Chi-Chi's restaurants and the divested operations of the Family
Restaurant Division and the traditional dinnerhouse restaurants.
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<PAGE> 29
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
December 29, December 31,
1996 1995
----------- -----------
($ in thousands)
<S> <C> <C>
Ongoing Operations (a)
Restaurants Open at End of Period:
Owned/operated 281 300
Franchised and Licensed 25 25
Sales $ 497,531 $ 578,609
Divisional EBITDA (b) 7,678 3,053
Percentage increase (decrease)
in comparable restaurant sales (8.6)% (7.9)%
Divested Operations (c)
Restaurants Open at End of Period:
Owned/operated -- 370
Franchised and Licensed -- 257
Sales $ 226,698 $ 555,750
Divisional EBITDA (b) 18,877 61,831
Total Company
Restaurants Open at End of Period:
Owned/operated 281 670
Franchised and Licensed 25 282
Sales $ 724,229 $ 1,134,359
EBITDA (d) 26,842 61,571
</TABLE>
- -----------------
(a) Ongoing Operations includes the El Torito and Chi-Chi's restaurants.
(b) 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.
(c) Divested Operations in 1996 includes the results of the Family
Restaurant Division until it was divested on May 23, 1996 and the
traditional dinnerhouse restaurants which were divested by year-end
1996.
(d) EBITDA is defined as earnings (loss) before gain (loss) on disposition
of properties, provision for divestitures and write down of long-lived
assets, interest, taxes, depreciation and amortization. The Company
has included information concerning EBITDA herein because it under-
stands 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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<PAGE> 30
INFLATION
The inflationary factors which have historically affected the Company's
results of operations include increases in the cost of food, alcoholic
beverages, labor and other operating expenses. In addition, most of the
Company's real estate leases require the Company to pay taxes, maintenance,
insurance, repairs and utility costs, all of which are subject to the effects of
inflation. To date, the Company has offset the effects of inflation, at least in
part, through periodic menu price increases and various cost-cutting programs,
but no assurance can be given that the Company will continue to be able to
offset such increases in the future.
During 1996 and 1995, the effects of inflation did not have a
significant impact on the Company's results of operations.
SEASONALITY
The Company, as a whole, does not experience significant seasonal
fluctuations in sales. However, the Company's sales tend to be slightly greater
during the spring and summer months.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE> 31
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
current Directors and executive officers of the Company:
Name Age Position With Company
---- --- ---------------------
Peter P. Copses 38 Director
David B. Kaplan 29 Director
Antony P. Ressler 36 Director
Kevin S. Relyea 42 President, Chief Executive Officer
and a Director
William D. Burt 44 Executive Vice President, President
of El Torito Restaurants, Inc.
Roger K. Chamness 44 Executive Vice President, President
of Chi-Chi's, Inc.
Robert T. Trebing, Jr. 47 Senior Vice President and Chief
Financial Officer
Michael E. Malanga 43 Senior Vice President, Corporate
Development
Gayle A. DeBrosse 39 Senior Vice President, Quality
Assurance and Product Safety,
Purchasing and Distribution,
Public Affairs
Todd E. Doyle 35 Vice President, General Counsel and
Secretary
Janie M. Bereczky 41 Vice President, Taxes
Mr. Copses serves as a Director of the Company. Since 1990, Mr. Copses
has been a principal of Apollo Advisors, L.P. ("Apollo Advisors") which,
together with an affiliate, serves as managing general partner of Apollo
Investment Fund, L.P. ("AIF"), AIF II, L.P. ("AIF II") and Apollo Investment
Fund III, L.P., private securities investment funds, and of Lion Advisors, L.P.
("Lion Advisors"), which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. AIF II
is the general partner of Apollo. Mr. Copses is also a director of Dominick's
Finer Foods, Inc., Food 4 Less Holdings, Inc. and Zale Corporation.
Mr. Kaplan serves as a Director of the Company. Since 1991, Mr. Kaplan
has been associated with and is a limited partner of Apollo Advisors. Prior to
1991, Mr. Kaplan was a member of the Investment Banking Department of Donaldson,
Lufkin & Jenrette Securities Corporation. Mr. Kaplan is a director of BDK
Holdings, Inc., Dominick's Finer Foods, Inc. and PRI Holdings, Inc.
Mr. Ressler serves as a Director of the Company. In 1990, Mr. Ressler
was one of the founding principals of Apollo Advisors. Mr. Ressler is also a
director of Dominick's Finer Foods, Inc., United International Holdings, Inc.,
PRI Holdings, Inc. and Vail Resorts, Inc.
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<PAGE> 32
Mr. Relyea serves as President, Chief Executive Officer and a Director
of the Company. He joined the Company in January 1994 as Executive Vice
President and President of the Family Restaurant Division. From 1988 to January
1994, Mr. Relyea had been Regional Vice President of Jack In The Box Operations
for Foodmaker. Mr. Relyea received an M.B.A. from Pepperdine University in 1988.
Mr. Burt serves as Executive Vice President and President of El Torito.
He joined the Company on April 8, 1996 in this position. Prior to joining the
Company, Mr. Burt was the Vice President of Operations at the Krystal Company
from 1995 to 1996, and an Executive Vice President at Taco Cabana from 1994 to
1995. Prior to 1994, Mr. Burt spent 23 years with Foodmaker. Mr. Burt received
his M.B.A. from Pepperdine University in 1988.
Mr. Chamness serves as Executive Vice President and President of
Chi-Chi's. He joined the Company at its inception and worked in the Finance and
Administration department for the Family Restaurant Division. Mr. Chamness
received a B.A. in Business Economics from UCLA in 1975 and an M.B.A. in Finance
and International Business from UCLA in 1980.
Mr. Trebing serves as Senior Vice President and Chief Financial
Officer. He joined the Company at its inception and has held the positions of
Senior Vice President of Finance, Vice President of Finance, Vice President and
Controller and Manager of Financial Reporting. Mr. Trebing is a Certified Public
Accountant. Mr. Trebing received a B.A. from California State University at
Fullerton in 1972 and an M.B.A. from the University of Southern California in
1973.
Mr. Malanga serves as Senior Vice President, Corporate Development. He
joined the Company at its inception as Director of Mergers and Acquisitions. He
was promoted to his current position in 1995. Mr. Malanga received a B.S. in
Business Administration from the University of Southern California in 1976.
Ms. DeBrosse serves as a Senior Vice President, Quality Assurance and
Product Safety, Purchasing and Distribution, Public Affairs. She joined the
Company in December 1994. Prior to joining the Company, she was Director of
Product Development and Continuous Improvement at Taco Bell and Director,
Research and Development for Flagstar. Ms. DeBrosse received a B.S. in
Nutritional Sciences from Arizona State University in 1979 and an M.S. in
Agribusiness with Emphasis in Food Science, Quality Assurance and Food Chemistry
from Arizona State University in 1982.
Mr. Doyle serves as Vice President, General Counsel and Secretary. He
joined the Company as Senior Legal Counsel in 1992. Prior to joining the
Company, Mr. Doyle spent six years as a business transactional attorney and a
business litigation attorney with Seltzer Caplan Wilkins & McMahon in San Diego,
California. Mr. Doyle received a B.A. in Political Science and a B.A. in
Sociology from the University of California, Santa Barbara in 1983,
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<PAGE> 33
and he received a J.D. from Loyola Law School, Los Angeles, California in 1986.
Ms. Bereczky serves as Vice President, Taxes. She joined the Company in
1987 as Director of Taxes. Ms. Bereczky has been a Certified Public Accountant
since 1981. Ms. Bereczky received a B.A. in Political Science from the
University of California at Santa Barbara in 1978 and an M.B.A. in Taxation from
Golden Gate University in 1985.
All directors hold office for a period of one year until their
successors have been duly elected and qualified. Directors receive no
compensation for serving as directors and received no such compensation during
the last fiscal year. Officers serve at the discretion of the Board of
Directors.
In connection with the change in control of the Company, which occurred
on November 20, 1995, Jackson W. Goodall, Jr., Charles W. Duddles and Edward
Gibbons (the three members of the Board nominated by Foodmaker) and Leonard I.
Green and Jonathan D. Sokoloff (the two members of the Board nominated by GEI)
resigned from the Board and from each other position, if any, held with the
Company or its subsidiaries. In addition, John H. Kissick resigned from the
Board and from each other position, if any, held with the Company or its
subsidiaries on January 15, 1996, Kevin S. Relyea was added as a member of the
Board on December 5, 1995 and David B. Kaplan was added as a member of the Board
on December 16, 1996.
Item 11. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
Summarized below are the principal components of compensation of the
individual serving as the Company's Chief Executive Officer ("CEO") during
fiscal year 1996 and the four most highly compensated executive officers other
than the CEO for each of the last three completed fiscal years.
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<PAGE> 34
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(a)
- --------------------------- ---- --------- -------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Kevin S. Relyea, 1996 390,385 1,172,057 (b) 0 (c) 20,319 (d)
President and Chief Executive 1995 312,727 149,520 0 (c) 918
Officer 1994 208,589 0 0 (c) 242
Kenneth R. Bell, 1996(e) 118,876 339,239 (f) 0 (c) 7,661 (g)
Vice President, New Concept 1995 160,937 37,719 0 (c) 1,498
Development 1994 148,719 0 0 (c) 1,152
William D. Burt, 1996(e) 159,635 180,000 (h) 0 (c) 88,584 (i)
Executive Vice President
Roger K. Chamness, 1996 256,940 590,856 (j) 0 (c) 72,940 (k)
Executive Vice President 1995 153,086 40,357 0 (c) 493
1994 129,325 0 0 (c) 408
Robert T. Trebing, Jr., 1996 174,806 287,031 (l) 0 (c) 7,020 (m)
Senior Vice President and 1995 150,459 43,973 0 (c) 858
Chief Financial Officer 1994 132,520 0 0 (c) 696
</TABLE>
- ------------------
(a) Unless otherwise indicated, amounts shown represent the value of term life
insurance premiums paid by the Company.
(b) Mr. Relyea received $320,000 pursuant to the Company's 1996 Management
Incentive Compensation Plan bonus program; $548,461 pursuant to the
Company's Divestiture Bonus Plan; and $303,596 in connection with the
cancellation of Mr. Relyea's stock purchase loan with the Company.
(c) Aggregate Amount of Other Annual Compensation is the lessor of: (i)
$50,000; or (ii) 10% of the total of annual salary and bonus and therefore
not reported.
(d) Mr. Relyea received $913 representing the imputed value of life insurance
provided by the Company, $12,000 representing the value of automobile
benefits, $4,174 representing the benefit of the Company's Field Management
Presidents' Club Cruise, and $3,232 representing the Company's matching
funds under its Deferred Compensation Plan.
(e) The amounts set forth in the table for fiscal 1996 for Messrs. Bell and
Burt represent less than a full year's compensation. Mr. Bell was not
employed by the Company during the period from May 24, 1996 to September
23, 1996. Mr. Burt joined the Company on April 8, 1996.
(f) Mr. Bell received $85,908 pursuant to the Company's 1996 Management
Incentive Compensation Plan bonus program; $172,373 pursuant to the
Company's Divestiture Bonus Plan; and $80,958 in connection with the
cancellation of Mr. Bell's stock purchase loan with the Company.
(g) Mr. Bell received $2,159 representing the value of automobile benefits and
$5,502 representing the benefit of the Company's Field Management
Presidents' Club Cruise.
(h) Represents bonus earned pursuant to the Company's 1996 Management Incentive
Compensation Plan bonus program.
(i) Mr. Burt received $577 representing the imputed value of life insurance
provided by the Company, $9,000 representing the value of automobile
benefits, $77,762 representing relocation expenses, and $1,245 representing
the Company's matching funds under its Deferred Compensation Plan.
(j) Mr. Chamness received $220,000 pursuant to the Company's 1996 Management
Incentive Compensation Plan bonus program; $241,323 pursuant to the
Company's Divestiture Bonus Plan; and $129,533 in connection with the
cancellation of Mr. Chamness' stock purchase loan with the Company.
(k) Mr. Chamness received $865 representing the imputed value of life insurance
provided by the Company, $1,600 representing the value of automobile
benefits, $68,358 representing relocation expenses, and $2,117 representing
the Company's matching funds under its Deferred Compensation Plan.
(l) Mr. Trebing received $87,500 pursuant to the Company's 1996 Management
Incentive Compensation Plan bonus program; $134,765 pursuant to the
Company's Divestiture Bonus Plan; and $64,766 in connection with the
cancellation of Mr. Trebing's stock purchase loan with the Company.
(m) Mr. Trebing received $1,020 representing the imputed value of life
insurance provided by the Company and $6,000 representing the value of
automobile benefits.
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<PAGE> 35
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to the terms of the Company's Severance Plan, employees,
exclusive of Messrs. Relyea, Burt and Chamness, are entitled to receive benefits
of no more than 52 weeks base salary upon certain events of termination.
Severance benefits for Messrs. Relyea, Burt and Chamness are governed by their
respective employment agreements, which agreements are described below. The
maximum salary severance benefits for Messrs. Relyea, Burt and Chamness are one
year from the date of termination or the remaining period of employment under
their respective employment agreements, whichever is greater. In addition, upon
the occurrence of certain events constituting a change of control, the holders
of stock options, including the executive officers named above, shall be
entitled to receive cash equal to the difference between the price per share
paid in connection with such change of control and the exercise price of the
underlying option.
The Company's President and Chief Executive Officer, Kevin S. Relyea,
entered into an Employment Agreement with the Company on January 1, 1996 for the
period from January 1, 1996 though January 1, 1999, providing for annual
compensation of not less than $400,000, to increase to $500,000 upon the
attainment of $40,000,000 in Company EBITDA, and other periodic increases as
determined by the Company's Board.
The Company's Executive Vice President and the President of Chi-Chi's,
Roger K. Chamness, entered into an Employment Agreement with the Company on
March 1, 1996 for the period from March 1, 1996 through March 1, 1999, providing
for annual compensation of not less than $275,000 and periodic increases as
determined by the Company's Board.
The Company's Executive Vice President and El Torito's President,
William D. Burt, entered into an Employment Agreement with the Company on April
8, 1996 for the period from April 8, 1996 through April 8, 1999, providing for
annual compensation of not less than $225,000 and periodic increases as
determined by the Company's Board.
The employment agreements with each of Messrs. Relyea, Chamness and
Burt also provide that during the terms thereof, such executives will
participate in the Company's Management Incentive Compensation Plan, will be
eligible to participate in the Company's VCU Plan (see discussion below) and
will be entitled to participate in the Company's standard medical, dental, life,
accident, disability, retirement plans, quality review privileges and similar
plans as are generally available to executive employees of the Company from time
to time.
A new supplemental bonus plan was implemented on January 1, 1996 called
the Value Creation Units Plan (the "VCU Plan"). The VCU Plan provides
participants with a contingent financial incentive to contribute to the
long-term success of the Company.
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<PAGE> 36
Payouts will be calculated based on the improvement in the Company's EBITDA
between year-end 1995 and year-end 1998 and in proportion to the amount and type
of Value Creation Units awarded to each participant. At December 29, 1996, there
were 26 participants in the VCU Plan, including Kevin S. Relyea, William D.
Burt, Roger K. Chamness and Robert T. Trebing, Jr.
In connection with the Company's decision to pursue the sale of the
Family Restaurant Division in January 1996, the Board adopted a Divestiture
Bonus Plan for certain members of management (the "DBP"). The purpose of the DBP
was to retain and reward key executives who would be required to assist with the
sale of the Family Restaurant Division. The DBP provided certain key executives
with a monetary bonus upon the consummation of the sale of the Family Restaurant
Division (calculated as a percentage of the purchase price as defined in the
DBP). Kevin S. Relyea, Roger K. Chamness, Robert T. Trebing, Jr. and Kenneth R.
Bell received such a bonus upon the sale of the Family Restaurant Division to
Flagstar in May 1996. The DBP is no longer in effect.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of shares and percentage of
Common Stock owned by each person known to the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, each
director and executive officer of the Company and all executive officers and
directors of the Company as a group.
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<PAGE> 37
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Amount and Nature
of Beneficial Percent
Ownership(a) of Class
----------------- --------
<S> <C> <C>
Apollo FRI Partners, L.P.(b) 798,878 82.77%(c)
2 Manhattanville Rd.
Purchase, NY 10577
Green Equity Investors, L.P.(d) 160,222 16.21%
333 South Grand Avenue
Suite 5400
Los Angeles, CA 90071
Kevin S. Relyea 10,325 1.09%(e)
William D. Burt 0 (f)
Roger K. Chamness 800 (f)
Robert T. Trebing, Jr. 400 (f)
Michael E. Malanga 62 (f)
Gayle A. DeBrosse 0 (f)
Todd E. Doyle 15 (f)
Janie M. Bereczky 220 (f)
All Executive Officers and
Directors of the Company
as a Group (11 persons) 11,822 1.20%
</TABLE>
- ----------
(a) All shares (other than shares held by Apollo and GEI) are subject to,
and shall be voted in accordance with, the Shareholders' Agreement.
(b) The general partner of Apollo is AIF II. The managing general partner
of AIF II is Apollo Advisors. The general partner of Apollo Advisors is
Apollo Capital Management, Inc. ("Apollo Capital"). Messrs. Copses,
Kaplan and Ressler are officers of Apollo Capital. The directors of
Apollo Capital are Leon Black and John Hannan, each of whom is also an
officer of Apollo Capital. Each of Messrs. Copses, Kaplan and Ressler
and the directors of Apollo Capital disclaim beneficial ownership of
any shares beneficially held by Apollo.
(c) Includes 111,111 shares of Common Stock issuable upon exercise of the
Warrant.
(d) The general partner of GEI is Leonard Green & Associates, L.P. ("LGP").
Messrs. Green and Sokoloff are managing general partners of LGP. Each
of Messrs. Green and Sokoloff and the general partners of LGP disclaims
beneficial ownership of any shares beneficially held by GEI.
(e) Includes 419 shares of Common Stock covered by options granted to Mr.
Relyea, which are currently exercisable.
(f) Represents less than 1% ownership.
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<PAGE> 38
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 1995, Apollo Advisors is entitled to $1,200,000 annually
for providing post-Acquisition management consulting and financial planning
services. During 1996, the Company accrued but did not pay any fees to Apollo
Advisors under this arrangement. In November 1995, a similar consulting and
planning arrangement with LGP for $600,000 annually was terminated.
On the Closing Date, the Company entered into the Shareholders'
Agreement and a Registration Rights Agreement with Apollo, GEI and Foodmaker.
The Shareholders' Agreement was terminated as between Apollo, GEI, Foodmaker and
the Company in connection with the Exchange Agreements. See "Business--Change in
Control."
The Company loaned $150,000 to Mr. Relyea (evidenced by recourse notes
which bore interest at a rate of 7% per annum and were due on May 31, 1999) in
connection with his purchase of Common Stock. In July 1996, the loan to Mr.
Relyea was cancelled which resulted in additional income to Mr. Relyea. See
"--Directors and Executive Officers," "Executive Compensation" and
"BUSINESS--The Acquisition."
The Company loaned $64,000 to Mr. Chamness (evidenced by recourse notes
which bore interest at a rate of 7% per annum and were due on May 19, 1999) in
connection with his purchase of Common Stock. In July 1996, the loan to Mr.
Chamness was cancelled which resulted in additional income to Mr. Chamness. See
"--Directors and Executive Officers," "Executive Compensation" and
"BUSINESS--The Acquisition."
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<PAGE> 39
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a) (1) Financial Statements. See the Index to
Financial Statements on page F-1. --
(2) Financial Statement Schedule
Schedule II - Valuation and qualifying accounts S-1
(3) Exhibits
2(a) Stock Purchase Agreement dated as of
March 1, 1996 by and among Family
Restaurants, Inc., Flagstar Companies,
Inc., Flagstar Corporation and FRD
Acquisition Co. (Filed as Exhibit 2.1 to
the Company's Form 10-Q filed with the
SEC on May 15, 1996.)
3(a) Fourth Restated Certificate of
Incorporation of the Company. (Filed as
Exhibit 4.1 to the Company's Form S-8
filed with the SEC on March 23, 1994.)
3(b) Bylaws of the Company. (Filed as Exhibit
4.2 to the Company's Form S-8 filed with
the SEC on March 23, 1994.)
4(a) Indenture Dated as of January 27, 1994
Re: $300,000,000 9-3/4% Senior Notes Due
2002. (Filed as Exhibit 4(a) to the Company's
Form 10-K filed with the SEC on
March 28, 1994.)
4(b) Indenture Dated as of January 27, 1994
Re: $150,000,000 10-7/8% Senior
Subordinated Discount Notes Due 2004.
(Filed as Exhibit 4(b) to the Company's
Form 10-K filed with the SEC on March 28,
1994.)
4(c) First Supplemental Indenture, dated as of
July 3, 1996, between the Registrant and
IBJ Schroder Bank & Trust Company, a New
York Banking corporation, as Trustee.
(Filed as Exhibit 10.1 to the Company's
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<PAGE> 40
Form 8-K filed with the SEC on July 9,
1996.)
4(d) First Supplemental Indenture, dated as of
July 3, 1996, between the Registrant and
Fleet National Bank, as successor by
merger to Fleet National Bank of
Massachusetts, formerly known as Shawmut
Bank, N.A., as Trustee. (Filed as Exhibit
10.2 to the Company's Form 8-K filed with
the SEC on July 9, 1996.)
9 Shareholders' Agreement, dated as of
January 27, 1994, among the Company and
certain of its Shareholders. (Filed as
Exhibit 4.3 to the Company's Form S-8
filed with the SEC on March 23, 1994.)
10(a) The Company's 1994 Incentive Stock Option
Plan. (Filed as Exhibit 10(g) to the
Company's Form 10-K filed with the SEC on
March 28, 1994.)
10(b) The Company's Deferred Compensation Plan.
(Filed as Exhibit 10(k) to the Company's
Form 10-K filed with the SEC on March 27,
1995.)
10(c) The Company's Severance Plan. (Filed as
Exhibit 10(m) to the Company's Form 10-K
filed with the SEC on March 27, 1995.)
10(d) Restated and Expanded Distribution
Agreement, dated as of May 4, 1993 by and
between Marriott Corporation and the
Company. (Filed as Exhibit 10(d) to the
Company's Form 10-Q filed with the SEC
for the Quarter ended March 29, 1993.)
10(e) Amendment No. 1, dated October 15, 1993,
to Restated and Expanded Distribution
Agreement between the Company and
Marriott Corporation. (Filed as Exhibit
10(l) to the Company's Form S-1 filed
with the SEC on November 1, 1993.)
10(f) Form of Management Stock Subscription
Agreement of the Company. (Filed as
Exhibit 10(bb) to the Company's Form 10-K
filed with the SEC on March 28, 1994.)
10(g) Form of Management Pledge Agreement of
the Company. (Filed as Exhibit 10(cc) to
the Company's Form 10-K filed with the
SEC on March 28, 1994.)
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<PAGE> 41
10(h) Management Services Agreement, dated as
of January 27, 1994, by and between the
Company and Apollo Advisors, L.P. (Filed
as Exhibit 10(ff) to the Company's Form
10-K filed with the SEC on March 28,
1994.)
10(i) Management Services Agreement, dated as
of January 27, 1994, by and between the
Company and Leonard Green & Partners,
L.P. (Filed as Exhibit 10(gg) to the
Company's Form 10-K filed with the SEC on
March 28, 1994.)
10(j) Lease Indemnification Agreement, dated as
of January 27, 1994, by and between the
Company and W. R. Grace & Co.-Conn.
(Filed as Exhibit 10(ii) to the Company's
Form 10-K filed with the SEC on March 28,
1994.)
10(k) Distribution Agreement, dated as of
October 4, 1993, by and between
Foodmaker, Inc. and Chi-Chi's, Inc.
(Filed as Exhibit 10(jj) to the Company's
Form 10-K filed with the SEC on March 28,
1994.)
10(l) Tax Sharing Agreement, dated as of
January 27, 1994, by and among the
Company, Foodmaker, Inc. and Chi-Chi's,
Inc. (Filed as Exhibit 10(ll) to the
Company's Form 10-K filed with the SEC on
March 28, 1994.)
10(m) Registration Rights Agreement, dated as
of January 27, 1994, by and among the
Company and certain of its shareholders.
(Filed as Exhibit 10(mm) to the Company's
Form 10-K filed with the SEC on March 28,
1994.)
10(n) Agreement, dated as of January 5, 1996,
by and between Kevin S. Relyea and the
Company. (Filed as Exhibit 10(w) to the
Company's Form 10-K filed with the SEC on
April 1, 1996.)
10(o) Separation Agreement and General Release,
dated as of December 5, 1995, by and
between Barry E. Krantz and the Company.
(Filed as Exhibit 10(x) to the Company's
Form 10-K filed with the SEC on April 1,
1996.)
10(p) Separation Agreement and General Release,
dated as of September 1, 1995, by and
between Patricia K. Johnson and the
Company. (Filed as Exhibit 10(y) to the
-41-
<PAGE> 42
Company's Form 10-K filed with the SEC on
April 1, 1996.)
10(q) Family Restaurants, Inc. and FRI-MRD
Corporation Value Creation Units Plan and
Sample Value Creation Units Agreement.
(Filed as Exhibit 10.1 to the Company's
Form 10-Q filed with the SEC on November
13, 1996.)
*10(r) The Company's 1996 Management Incentive
Compensation Plan Description.
*10(s) Termination of Management Services
Agreement between Leonard Green &
Associates, L.P. and the Company, dated
as of November 20, 1995.
*10(t) Employment Agreement, dated as of January
1, 1996 by and between Kevin S. Relyea
and the Company.
*10(u) Employment Agreement, dated as of March
1, 1996 by and between Roger K. Chamness
and the Company.
*10(v) Employment Agreement, dated as of April
8, 1996, by and between William D. Burt
and the Company.
*10(w) Loan and Security Agreement, dated as of
January 10, 1997, between Foothill
Capital Corporation and the Company and
its subsidiaries named therein.
*10(x) General Continuing Guarantee, dated as of
January 10, 1997, by the Company in favor
of Foothill Capital Corporation.
*10(y) Form of subsidiary General Continuing
Guarantee, dated as of January 10, 1997.
*10(z) Security Agreement, dated as of January
10, 1997, between Foothill Capital
Corporation and the Company.
*10(aa) Form of subsidiary Security Agreement,
dated as of January 10, 1997, between
Foothill Capital Corporation and the
subsidiary named therein.
*10(bb) Stock Pledge Agreement, dated as of
January 10, 1997, between the Company and
Foothill Capital Corporation.
-42-
<PAGE> 43
*10(cc) Form of subsidiary Stock Pledge
Agreement, dated as of January 10, 1997,
between the subsidiary named therein and
Foothill Capital Corporation.
*10(dd) Trademark Security Agreement, dated as of
January 10, 1997, by Chi-Chi's, Inc. in
favor of Foothill Capital Corporation.
*10(ee) Trademark Security Agreement, dated as of
January 10, 1997, by El Torito
Restaurants, Inc. in favor of Foothill
Capital Corporation.
*10(ff) The Company's Divestiture Bonus Plan for
Key Management, dated January 9, 1996.
*21(a) List of Subsidiaries.
*21(b) Names Under Which Subsidiaries Do
Business.
*23(a) Consent of KPMG Peat Marwick LLP.
*27 Financial Data Schedule.
99(a) Press Release, dated May 23, 1996. (Filed
as Exhibit 99.1 to the Company's Form 8-K
filed with the SEC on May 30, 1996.)
99(b) Press Release, dated July 3, 1996. (Filed
as Exhibit 99.1 to the Company's Form 8-K
filed with the SEC on July 9, 1996.)
(b) Reports on Form 8-K
None.
- ----------
* Filed herewith.
-43-
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
By /S/ Robert T. Trebing Jr. March 31, 1997
-------------------------- ----------------
Robert T. Trebing, Jr. Date
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Director, President and
Chief Executive Officer
(Principal Executive
/S/ Kevin S. Relyea Officer) March 31, 1997
- ----------------------
Kevin S. Relyea
/S/ Peter P. Copses Director March 31, 1997
- ----------------------
Peter P. Copses
/S/ David B. Kaplan Director March 31, 1997
- ----------------------
David B. Kaplan
/S/ Antony P. Ressler Director March 31, 1997
- ----------------------
Antony P. Ressler
Senior Vice President and
Chief Financial Officer
(Principal Financial and
/S/ Robert T. Trebing, Jr. Accounting Officer) March 31, 1997
- --------------------------
Robert T. Trebing, Jr.
-44-
<PAGE> 45
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants which have not Registered Securities Pursuant to
Section 12 of the Act
No annual report covering the registrant's last fiscal year has been or
will be sent to security holders, other than a copy of this Annual Report on
Form 10-K.
No proxy statement, form of proxy or other proxy solicitation materials
with respect to any annual or other meeting of security holders were sent in
1996, and none will be sent with respect to 1996, to security holders.
-45-
<PAGE> 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Family Restaurants, Inc.
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 29, 1996
and December 31, 1995 F-3
Consolidated Statements of Operations for the Years
Ended December 29, 1996 and December 31, 1995,
the Eleven Months Ended December 25, 1994 and
the One Month Ended January 26, 1994 F-4
Consolidated Statements of Common Stockholders'
Equity (Deficit) for the Years Ended December 29,
1996 and December 31, 1995, the Eleven Months
Ended December 25, 1994 and the One Month Ended
January 26, 1994 F-5
Consolidated Statements of Cash Flows for the
Years Ended December 29, 1996 and December 31,
1995, the Eleven Months Ended December 25,
1994 and the One Month Ended January 26, 1994 F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
Board of Directors
Family Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of
Family Restaurants, Inc. and its subsidiaries as of December 29, 1996 and
December 31, 1995, and the related consolidated statements of operations, common
stockholders' equity (deficit) and cash flows for the years ended December 29,
1996 and December 31, 1995, the eleven months ended December 25, 1994 (Successor
Company) and the one month ended January 26, 1994 (Predecessor Company). In
connection with our audits of the consolidated financial statements, we also
audited the financial statement schedule as listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Family
Restaurants, Inc. and its subsidiaries at December 29, 1996 and December 31,
1995, and the results of their operations and their cash flows for the years
ended December 29, 1996 and December 31, 1995, the eleven months ended December
25, 1994 (Successor Company) and the one month ended January 26, 1994
(Predecessor Company) in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information shown therein.
As discussed in Notes 1 and 2 to the consolidated financial
statements, the Company commenced a Chapter 11 bankruptcy case on November 23,
1993, which was confirmed by the United States Bankruptcy Court for the District
of Delaware on January 7, 1994. Accordingly, the accompanying consolidated
financial statements have been prepared in conformity with AICPA Statement of
Position 90-7, "Financial Reporting for Entities in Reorganization Under the
Bankruptcy Code."
KPMG PEAT MARWICK LLP
Orange County, California
March 7, 1997
F-2
<PAGE> 48
FAMILY RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
Successor Company
---------------------------
December 29, December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,244 $ 8,370
Receivables 5,043 8,172
Inventories 4,537 5,645
Other current assets 3,012 4,813
Property held for sale 200 240,077
--------- ---------
Total current assets 48,036 267,077
Property and equipment, net 196,872 207,223
Reorganization value in excess of amounts
allocable to identifiable assets, net 37,930 39,332
Other assets 26,192 37,638
--------- ---------
$ 309,030 $ 551,270
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Loan payable to banks $ 0 $ 79,815
Current portion of long-term debt, including
capitalized lease obligations 3,927 3,046
Accounts payable 20,424 22,400
Self-insurance reserves 34,972 35,488
Other accrued liabilities 70,696 78,319
Income taxes payable 3,541 2,895
--------- ---------
Total current liabilities 133,560 221,963
Other long-term liabilities 4,746 5,680
Long-term debt, including capitalized lease
obligations, less current portion 165,325 455,203
Stockholders' equity (deficit):
Common stock - authorized 1,500,000 shares,
par value $.01, 997,277 shares issued 10 10
Additional paid-in capital 157,317 158,251
Notes receivable from stockholders 0 (869)
Accumulated deficit (150,545) (287,585)
Less treasury stock, at cost (8,992 shares) (1,383) (1,383)
--------- ---------
Total stockholders' equity (deficit) 5,399 (131,576)
--------- ---------
$ 309,030 $ 551,270
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 49
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
and shares outstanding)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
--------------------------------------------- ----------
Eleven Months One Month
For the Year Ended Ended Ended
-----------------------------
December 29, December 31, December 25, January 26,
1996 1995 1994 1994
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Sales $ 724,229 $ 1,134,359 $ 1,048,674 $ 64,741
----------- ----------- ------------ ---------
Product cost 200,379 322,194 293,413 19,184
Payroll and related costs 273,536 419,185 377,569 24,780
Occupancy and other operating expenses 181,730 275,164 243,147 13,712
Depreciation and amortization 34,475 57,836 48,646 2,800
General and administrative expenses 41,742 56,245 49,059 4,071
Loss (gain) on disposition of
properties, net 8,600 12,067 5,685 (12)
Provision for divestitures and
write-down of long-lived assets 0 44,500 144,780 0
Restructuring costs 6,546 4,392 0 0
----------- ----------- ------------ ---------
Total costs and expenses 747,008 1,191,583 1,162,299 64,535
----------- ----------- ------------ ---------
Operating income (loss) (22,779) (57,224) (113,625) 206
Interest expense, net 36,725 65,277 51,419 4,097
Gain on sale of division 62,601 0 0 0
----------- ----------- ------------ ---------
Income (loss) before reorganization
items, income tax provision and
extraordinary item 3,097 (122,501) (165,044) (3,891)
----------- ----------- ------------ ---------
Reorganization items:
Professional fees 0 0 0 (4,250)
Payment to Grace 0 0 0 (15,000)
Other 0 0 0 (3,029)
Fresh start adjustment 0 0 0 501,706
----------- ----------- ------------ ---------
Total reorganization items 0 0 0 479,427
----------- ----------- ------------ ---------
Income (loss) before income tax
provision and extraordinary item 3,097 (122,501) (165,044) 475,536
Income tax provision 890 1,208 1,773 55
----------- ----------- ------------ ---------
Income (loss) before extraordinary
item 2,207 (123,709) (166,817) 475,481
Extraordinary gain on extinguishment
of debt 134,833 0 2,941 72,561
----------- ----------- ------------ ---------
Net income (loss) 137,040 (123,709) (163,876) 548,042
Preferred dividends 0 0 0 (1,698)
----------- ----------- ------------ ---------
Net income (loss) attributable to
common shares $ 137,040 $ (123,709) $ (163,876) $ 546,344
=========== =========== ============ =========
Net income (loss) per common share:
Net income (loss) before
extraordinary item $ 2.23 $ (124.75) $ (168.55)
Extraordinary item 136.43 0.00 2.97
----------- ----------- ------------
Net income (loss) attributable
to common shares $ 138.66 $ (124.75) $ (165.58)
=========== =========== ============
Weighted average common shares
outstanding 988,285 991,650 989,683
=========== =========== ============
</TABLE>
Net income per common share for the Predecessor Company is not meaningful due to
debt discharge, the issuance of new common stock and fresh start reporting.
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 50
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 1996
(in thousands)
<TABLE>
<CAPTION>
Notes
Class D Additional Receivable Treasury
Common Common Paid-in from Stock- Accumulated Stock,
Stock Stock Capital holders Deficit at Cost Total
----- ----- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 26, 1993 $4 $ 0 $ 23,481 $ 0 $(415,066) $ (57) $(391,638)
Net income - one month ended
January 26, 1994 0 0 0 0 548,042 0 548,042
Fresh start adjustments:
Cancellation of former
equity (4) 0 (23,481) 0 (132,976) 57 (156,404)
Issuance of new equity 0 10 159,554 (2,947) 0 0 156,617
Net loss - eleven months ended
December 25, 1994 0 0 0 0 (163,876) 0 (163,876)
-- --- -------- ------- --------- ------- ---------
Balance at December 25, 1994 0 10 159,554 (2,947) (163,876) 0 (7,259)
Net loss 0 0 0 0 (123,709) 0 (123,709)
Payments and cancellation
of notes receivable from
stockholders 0 0 (1,303) 2,078 0 0 775
Purchase of treasury stock 0 0 0 0 0 (1,383) (1,383)
-- --- -------- ------- --------- ------- ---------
Balance at December 31, 1995 0 10 158,251 (869) (287,585) (1,383) (131,576)
Net income 0 0 0 0 137,040 0 137,040
Cancellation of notes
receivable from stockholders 0 0 (934) 869 0 0 (65)
-- --- -------- ------- --------- ------- ---------
Balance at December 29, 1996 $0 $10 $157,317 $ 0 $(150,545) $(1,383) $ 5,399
== === ======== ======= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 51
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
--------------------------------------------- -----------
Eleven Months One Month
For the Year Ended Ended Ended
-----------------------------
December 29, December 31, December 25, January 26,
1996 1995 1994 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers $ 727,849 $ 1,133,206 $ 1,049,483 $ 65,257
Cash received from franchisees and licensees 2,762 7,897 7,308 84
Cash paid to suppliers and employees (713,436) (1,084,758) (1,000,332) (59,729)
Interest received 4,176 266 400 136
Interest paid (38,392) (45,198) (28,153) (877)
Restructuring costs (6,546) (4,392) 0 0
Income taxes received (paid) (244) (938) (926) 157
Charges to reserve for divestitures 0 0 (9,434) (1,001)
------------ ------------ ------------ -----------
Net cash provided by (used in) operating
activities before reorganization items (23,831) 6,083 18,346 4,027
Reorganization items:
Professional fees 0 0 0 (4,250)
Payment to Grace 0 0 0 (15,000)
Other 0 0 0 (3,029)
------------ ------------ ------------ -----------
Total reorganization items 0 0 0 (22,279)
------------ ------------ ------------ -----------
Net cash provided by (used in) operating
activities (23,831) 6,083 18,346 (18,252)
------------ ------------ ------------ -----------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 25,115 20,425 6,524 1,588
Proceeds from sale of FRD, net 121,342 0 0 0
Proceeds from sale of notes receivable, net 32,116 0 0 0
Acquisition of Chi-Chi's 0 0 2,478 (194,889)
Capital expenditures (9,848) (38,022) (65,618) (779)
Capitalized opening and conversion costs (235) (2,155) (2,166) (21)
Other (68) 137 (5,385) 1,491
------------ ------------ ------------ -----------
Net cash provided by (used in) investing
activities 168,422 (19,615) (64,167) (192,610)
------------ ------------ ------------ -----------
Cash flows from financing activities:
Repurchases of notes (32,513) 0 0 0
Proceeds from issuance of Notes 0 0 0 409,046
Proceeds from (repayment of) working capital
borrowings, net (79,815) 20,215 59,600 0
Payment of notes payable to Marriott, net 0 0 (21,828) (10,969)
Payment of loan payable to Grace 0 0 0 (2,900)
Payment of debt issuance costs (278) 0 0 (22,973)
Reductions of long-term debt, including
capitalized lease obligations (5,111) (7,794) (7,842) (447)
Cash settlement of liabilities subject to
settlement under reorganization proceedings 0 0 0 (279,055)
Decrease in restricted cash and collateral
deposit 0 1,850 17 38,688
Proceeds from issuance of common stock, net 0 0 1,911 92,364
Purchase of treasury stock 0 (1,383) 0 0
Payments of notes receivable from stockholders 0 775 0 0
------------ ------------ ------------ -----------
Net cash provided by (used in) financing
activities (117,717) 13,663 31,858 223,754
------------ ------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents 26,874 131 (13,963) 12,892
Cash and cash equivalents at beginning of period 8,370 8,239 22,202 9,310
------------ ------------ ------------ -----------
Cash and cash equivalents at end of period $ 35,244 $ 8,370 $ 8,239 $ 22,202
============ ============ ============ ===========
</TABLE>
F-6
<PAGE> 52
FAMILY RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
---------------------------------------- -----------
Eleven Months One Month
For the Year Ended Ended Ended
---------------------------
December 29, December 31, December 25, January 26,
1996 1995 1994 1994
--------- --------- --------- ---------
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities
<S> <C> <C> <C> <C>
Net income (loss) $ 137,040 $(123,709) $(163,876) $ 548,042
--------- --------- --------- ---------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities net
of effects of Chi-Chi's acquisition in 1994:
Depreciation and amortization 34,475 57,836 48,646 2,800
Amortization of debt issuance costs 2,125 6,726 3,006 215
Loss (gain) on disposition of properties 8,600 12,067 5,685 (12)
Charges to reserve for divestitures 0 0 (9,434) (1,001)
Provision for divestitures and write-down
of long-lived assets 0 44,500 144,780 0
Fresh start adjustment 0 0 0 (501,706)
Gain on sale of division (62,601) 0 0 0
Extraordinary gain on extinguishment of debt (134,833) 0 (2,941) (72,561)
Accretion of interest on Discount Notes 9,025 13,454 11,362 0
Accrued interest on liabilities settled under
bankruptcy proceedings 0 0 0 3,113
Decrease in receivables 1,661 708 697 54
(Increase) decrease in inventories 1,176 1,976 (552) 394
(Increase) decrease in other current assets 2,890 (3,382) (566) 358
Increase (decrease) in accounts payable (3,368) 1,403 (14,611) 1,096
Increase (decrease) in self-insurance reserves (382) 1,664 1,526 (386)
Increase (decrease) in other accrued liabilities (20,905) (7,430) (6,223) 1,130
Increase in income taxes payable 1,266 270 847 212
--------- --------- --------- ---------
Total adjustments (160,871) 129,792 182,222 (566,294)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities $ (23,831) $ 6,083 $ 18,346 $ (18,252)
========= ========= ========= =========
</TABLE>
Supplemental schedule of investing activities:
The components of acquisition of Chi-Chi's in 1994 are as follows:
<TABLE>
<S> <C>
Current assets $ (7,730)
Property and equipment (153,731)
Goodwill (149,376)
Other assets (13,908)
Current liabilities 59,324
Other long-term liabilities 5,975
Long-term debt assumed 4,694
Issuance of common stock 62,341
------------
$ (192,411)
============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
See Note 9 for discussion of repurchases of the Notes.
Disclosure of accounting policy:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 53
FAMILY RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 1996
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Family Restaurants, Inc. (together with its subsidiaries, the
"Company") was incorporated in Delaware in 1986 and is primarily engaged in the
operation of full-service restaurants through its subsidiaries. At December 29,
1996, the Company operated 281 restaurants in 30 states, with approximately 65%
of its restaurants located in California, Ohio, Pennsylvania, Illinois, Michigan
and Indiana. Additionally, as of December 29, 1996, the Company was the
franchisor and licensor of two restaurants in the United States and 23
restaurants outside the United States.
Reference to the "Predecessor Company" refers to The Restaurant
Enterprises Group, Inc. and its consolidated subsidiaries (excluding Chi-Chi's)
with respect to information relating to periods prior to January 27, 1994
included herein, and reference to the "Successor Company" refers to Family
Restaurants, Inc. and its consolidated subsidiaries, giving effect to the
Acquisition (as defined below), with respect to information about events
occurring upon completion of or after the Acquisition.
The consolidated financial statements of the Predecessor Company
were prepared on a going concern basis, which contemplated continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business. While the Chapter 11 cases described below were in process,
the Company continued in possession of its properties and operated and managed
its business as a debtor-in-possession pursuant to the United States Bankruptcy
Code. The Company applied the provisions of the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), in the December 26,
1993 consolidated financial statements. On January 7, 1994, the Plan (as defined
below) was confirmed by the bankruptcy court (see Note 2).
The accumulated deficit of the Predecessor Company was eliminated
as required by fresh start reporting; additionally, the statement of operations
for the one month ended January 26, 1994 reflects the effects of the forgiveness
of debt resulting from confirmation of the Plan and the effects of adjustments
to restate assets and liabilities to reflect the reorganization value of the
Successor Company. As such, the consolidated balance sheets of the Company as of
December 29, 1996 and December 31, 1995 and the accompanying consolidated
statements of operations for the years ended December 29, 1996 and December 31,
1995 and the eleven months ended December 25, 1994 represent that of the
Successor Company which, in effect, is a new entity with assets, liabilities and
a capital structure having carrying values not comparable with prior
F-8
<PAGE> 54
periods. The accompanying consolidated statement of operations for the one month
ended January 26, 1994 represents that of the Predecessor Company, and therefore
is not comparable.
NOTE 2 - THE ACQUISITION:
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners,
L.P. ("Apollo"), Green Equity Investors, L.P. ("GEI") and Foodmaker, Inc.
("Foodmaker") acquired approximately 98% of the outstanding common stock, par
value $.01 per share (the "Common Stock") of the Company (the "Acquisition").
The Acquisition involved the following components and related transactions, all
of which (unless otherwise noted) were consummated on the Closing Date:
New Equity Investment. In January 1994, Apollo, GEI, Foodmaker
and certain officers of the Company made a $154.7 million new equity investment
(the "New Equity Investment") in the Company. Pursuant to the Acquisition
Agreement, dated as of October 15, 1993, among the Company, Apollo, GEI,
Foodmaker and Chi-Chi's (as amended, the "Acquisition Agreement"), Apollo
purchased 40.0% of the Common Stock outstanding immediately following the
Closing Date for $62.3 million in cash and GEI purchased 18.4% of the Common
Stock outstanding immediately following the Closing Date for $28.8 million in
cash. In addition, Foodmaker acquired 40.0% of the Common Stock outstanding
immediately following the Closing Date, with a value of $62.3 million, in the
Chi-Chi's Merger (described below).
Chi-Chi's Merger. The Company acquired Chi-Chi's, a wholly-owned
subsidiary of Foodmaker and the operator, directly or indirectly through its
subsidiaries, or franchisor of 235 full-service Mexican restaurants, the largest
chain of such restaurants in the United States based upon both number of
restaurants and annual revenues. This acquisition was accounted for under the
purchase method. The Chi-Chi's acquisition occurred through a merger of a
newly-formed subsidiary of the Company with Chi-Chi's (the "Chi-Chi's Merger").
Pursuant to the Acquisition Agreement, Foodmaker received (i) $205.0 million in
cash, less the principal amount of capital leases and the face amount of certain
indebtedness of Chi-Chi's existing or assumed by the Company in connection with
the Chi-Chi's Merger, (ii) 389,634 shares of Common Stock and (iii) a warrant to
purchase, at an aggregate exercise price of $26.7 million, 10% of the Common
Stock outstanding assuming the full exercise thereof (the "Warrant"). The
Warrant expires on February 1, 1999.
Employee Stock Purchase and Management Incentive Plan. In
connection with the Acquisition, the Company adopted a new management incentive
plan pursuant to which certain officers and employees of the Company were
granted the right to purchase up to 40,900 shares of Common Stock (constituting
up to 4.1% of the Common Stock outstanding immediately following such purchases)
at $160 per share (the "Employee Stock Purchase"), the same per share
F-9
<PAGE> 55
price paid by Apollo and GEI in the New Equity Investment. The Employee Stock
Purchase was consummated on the Closing Date with respect to certain officers
(15,625 shares of Common Stock) and on May 19, 1994 and July 31, 1994 with
respect to the other participants (22,552 shares of Common Stock). No more than
fifty percent of the purchase price was authorized to be financed through
interest-bearing recourse notes payable to the Company. In July 1996, the
Company cancelled all such interest-bearing recourse notes. The Company has
repurchased 8,992 shares of Common Stock at various prices due to employee
terminations, leaving 29,185 shares currently owned by management stockholders
and terminated employees. The individuals who purchased Common Stock were also
granted options to purchase 20,822 shares of Common Stock in the future at an
exercise price initially set at $160 per share. The Company also granted options
to purchase approximately 30,000 shares of Common Stock to approximately 800
other employees. Approximately 44,500 options have expired due to terminations.
Investment Agreement. W. R. Grace & Co.-Conn. ("Grace"), Western
Family Restaurants, Inc., an affiliate of Grace which owned 74.6% of the
Company's common stock, and the Company entered into an agreement as amended
(the "Investment Agreement"), with Apollo REG, Co., GEI REG, Co. and FMI REG,
Co. and Foodmaker. Under the Investment Agreement, among other things, the
Company paid Grace $15.0 million on the Closing Date in consideration of Grace's
undertaking to obtain written confirmation that although Grace would no longer
hold an equity interest in the Company, the Company would continue to receive
royalties under a license agreement through February 4, 2010. Grace also agreed
to indemnify the Company against certain tax liabilities and with respect to
certain previously divested leases.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal year
The Company reports results of operations based on 52 or 53 week
periods ending on the last Sunday in December. The fiscal years ended December
29, 1996 and December 25, 1994 included 52 weeks, and the fiscal year ended
December 31, 1995 included 53 weeks.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and all its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Estimations
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
F-10
<PAGE> 56
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories consist primarily of food and liquor and are stated
at the lower of cost or market. Costs are determined using the first-in,
first-out (FIFO) method.
Property and equipment
Property and equipment are stated at cost and are depreciated on
a straight-line basis over their estimated useful lives (buildings principally
over 25 to 35 years and furniture, fixtures and equipment over 3 to 10 years).
Leasehold improvements are amortized on a straight-line basis over the shorter
of their estimated useful lives or the terms of the related leases. Property
under capitalized leases is amortized over the terms of the leases using the
straight-line method.
Losses on disposition of properties are recognized when a
commitment to divest a restaurant property is made by the Company and include
estimated carrying costs through the expected date of disposal.
Property held for sale
Property held for sale is carried at the lower of its cost or its
estimated fair value, less estimated selling costs.
Advertising
Production costs of commercials and programming are charged to
operations when aired. The costs of other advertising, promotion and marketing
programs are charged to operations in the year incurred.
Franchise and license fees
Initial franchise and license fees are recognized when all
material services have been performed and conditions have been satisfied.
Initial fees for the periods presented are insignificant. Monthly fees for all
franchise and license arrangements are accrued as earned based on the respective
monthly sales. Such fees totalled $2,802,000 for 1996, $6,036,000 for 1995,
$6,006,000 for the eleven months ended December 25, 1994 (including Chi-Chi's
fees subsequent to the Acquisition) and $546,000 for the one month ended January
26, 1994 and are included as an offset to general and administrative expenses.
The Company previously hedged its foreign currency royalties
through forward exchange contracts. These contracts reduced the exposure to
currency movements affecting the royalty receivable. Each contract's duration
typically ended when the receivable was
F-11
<PAGE> 57
expected to be paid. The future value of each contract and the related currency
position were subject to off-setting market risk. On December 4, 1995, these
contracts were terminated, resulting in a realized gain of $2,405,000, which is
included as a reduction to general and administrative expenses in the
consolidated financial statements.
Reorganization value and goodwill
Reorganization value in excess of amounts allocable to
identifiable assets is amortized using the straight-line method over 30 years.
Goodwill related to the Chi-Chi's Merger was amortized using the straight-line
method over 30 years through the fourth quarter of 1994 when the Company wrote
off its remaining goodwill balance (see Note 7). Accumulated amortization of
reorganization value amounted to $4,095,000 at December 29, 1996 and $13,018,000
at December 31, 1995. During 1995, the Company determined that an impairment of
the portion of this asset related to its traditional dinnerhouse restaurants had
occurred and wrote off $2,049,000.
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.
During the third quarter of 1995, the Company closed seven
Chi-Chi's restaurants and identified additional restaurants to be sold or having
impaired asset value. Approximately 32 marginally profitable or unprofitable
restaurants were offered for sale. In conjunction with this divestment program,
the Company analyzed the carrying value of the Chi-Chi's long-lived assets to
determine if any impairment had occurred. In connection with this analysis, the
Company recorded a charge for divestitures and writedowns of long-lived assets
of $41.9 million.
F-12
<PAGE> 58
Income taxes
The Company accounts for income taxes using the principles
specified in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (see Note 12).
Income (loss) per common share
Income (loss) per common share for the Successor Company is
computed based on the weighted average number of shares actually outstanding.
The impact of the Warrant and outstanding options have not been included since
the impact would be antidilutive for 1995 and 1994 and would not provide
meaningful information in 1996 because the Company believes that neither the
Warrant nor the outstanding options would be exercised at their current exercise
prices.
Reclassifications
Certain amounts as previously reported have been reclassified to
conform to the 1996 presentation.
NOTE 4 - RECEIVABLES:
A summary of receivables follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands)
<S> <C> <C>
Trade, principally credit
cards $2,027 $2,760
License and franchise fees
and related receivables 195 3,184
Interest on FRD Notes 370 0
Notes receivable 926 1,016
Other 1,525 1,212
------ ------
$5,043 $8,172
====== ======
</TABLE>
NOTE 5 - PROPERTY HELD FOR SALE:
On March 1, 1996, the Company entered into a definitive agreement
(the "Sale Agreement") to sell its family restaurant division which operated
full-service family restaurants (the "Family Restaurant Division") to an
indirect wholly-owned subsidiary of Flagstar Companies, Inc. ("Flagstar"). On
May 23, 1996, the Company completed the sale of the Family Restaurant Division
in exchange for $125 million cash, $150 million principal amount of 12-1/2%
Senior Notes due in 2004 (the "FRD Notes"), and the assumption of $31.5 million
of long-term debt, primarily consisting of capitalized lease obligations. Based
on the subsequent completion of a closing balance sheet, the purchase price was
increased and such increase was satisfied by the issuance of $6.9 million in
additional FRD Notes. The Company recorded a
F-13
<PAGE> 59
gain of $62.6 million on the sale of the Family Restaurant Division, which gain
included the effect of the increase in purchase price of $6.9 million discussed
above. Cash proceeds from the sale were used to pay indebtedness outstanding
under the Old Credit Facility (see Note 9) of $82 million. As of December 29,
1996, the Company had sold or exchanged $150.4 million aggregate principal
amount of the FRD Notes. The remaining balance of $6.5 million is currently
restricted in accordance with the sale agreement with Flagstar to secure
potential future indemnity claims. The remaining FRD Notes are carried at their
fair value which approximates their cost (see Note 8).
During the fourth quarter of 1995, the Company determined that
its traditional dinnerhouse restaurants would be held for sale. The net assets
of these restaurants were written down to their estimated fair value (based in
part on a previously received offer in late 1995), less estimated selling costs,
of $12,908,000, resulting in a loss of $3,565,000 (including the write-off of
reorganization value of $2,049,000 associated with these restaurants, which is
included in loss (gain) on disposition of properties in the accompanying
consolidated statement of operations for the year ended December 31, 1995). As
of December 29, 1996, there was one remaining traditional dinnerhouse restaurant
pending disposition with an estimated fair value, less estimated selling costs,
of $200,000. During 1996, the net losses associated with the sale of the
traditional dinnerhouse restaurants totalled $4,076,000, which is included in
loss (gain) on disposition of properties in the accompanying consolidated
statement of operations.
As a result of these transactions, the assets and liabilities of
the Family Restaurant Division and the traditional dinnerhouse restaurants were
classified as property held for sale in the accompanying consolidated balance
sheet as of December 31, 1995. The components of property held for sale are as
follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 9,716
Property and equipment, net 166,187
Reorganization value, net 149,315
Other assets 9,405
Current liabilities (67,842)
Long-term debt (26,704)
--------
$240,077
========
</TABLE>
The following unaudited pro forma condensed consolidated
statement of operations for the year ended December 29, 1996 presents pro forma
operating results for the Company as if the sale of the Family Restaurant
Division and related transactions had occurred as of the beginning of fiscal
year 1996. The unaudited pro forma condensed consolidated statement of
operations was prepared assuming the following events had occurred in connection
with the sale of the Family Restaurant Division:
F-14
<PAGE> 60
(i) the consummation of the sale of the Family
Restaurant Division and related transactions,
(ii) the repayment of existing loans payable under the
Old Credit Facility and related transactions and
(iii) the repurchase of $181.0 million aggregate
principal amount of the Senior Notes and $119.1
million aggregate principal amount of the
Discount Notes and related transactions.
The pro forma unaudited adjustments represent the Company's
determination of the necessary adjustments and are based upon certain
assumptions the Company considers reasonable under the circumstances. The
unaudited pro forma financial information presented herein does not purport to
represent what the Company's results of operations would have been had such
events occurred at the beginning of fiscal year 1996, or at the date indicated
or to project the Company's results of operations in any future period.
If the sale of the Family Restaurant Division had occurred as of
the beginning of 1996, the results of operations would have been as follows for
the year ended December 29, 1996 (in thousands except per share):
F-15
<PAGE> 61
<TABLE>
<CAPTION>
Family
Restaurants,
Inc. for the Unaudited
------------------------
year ended Pro Forma
------------------------
Dec. 29, 1996 Adjustments Combined
-------------- ---------- ---------
<S> <C> <C> <C>
Sales $ 724,229 $ (194,464) $ 529,765
-------------- ---------- ---------
Product cost 200,379 (54,187) 146,192
Payroll and related costs 273,536 (72,997) 200,539
Occupancy and other operating expenses 181,730 (37,568) 144,162
Depreciation and amortization 34,475 (11,162) 23,313
General and administrative expenses 41,742 (10,014) 31,728
Loss (gain) on disposition of properties,
net 8,600 (3,442) 12,042
Restructuring costs 6,546 0 6,546
-------------- ---------- ---------
Total costs and expenses 747,008 (182,486) 564,522
-------------- ---------- ---------
Operating loss (22,779) (11,978) (34,757)
Interest expense, net 36,725 20,743 15,982
Gain on sale of division 62,601 0 62,601
-------------- ---------- ---------
Income before income tax provision and
extraordinary item 3,097 8,765 11,862
Income tax provision 890 (180) 710
-------------- ---------- ---------
Income before extraordinary item 2,207 8,945 11,152
Extraordinary gain on extinguishment
of debt 134,833 0 134,833
-------------- ---------- ---------
Net income $ 137,040 $ 8,945 $ 145,985
============== ========== =========
Net income per common share:
Net income before extraordinary item $ 2.23 $ 11.29
Extraordinary item 136.43 136.43
-------------- ---------
Net income per common share $ 138.66 $ 147.72
============== =========
Weighted average common shares outstanding 988,285 988,285
============== =========
</TABLE>
F-16
<PAGE> 62
These unaudited pro forma adjustments include the effect of (i)
the elimination of the operating results of the Family Restaurant Division for
the five months ended May 23, 1996, including certain allocated corporate
general and administrative expenses which are allocated to each of the Company's
divisions based on sales ($7,765,000 for the Family Restaurant Division); (ii)
the elimination of interest expense related to the Old Credit Facility of
$4,729,000, the elimination of interest expense related to the extinguishment of
debt of $16,654,000 and the elimination of interest income related to the FRD
Notes of $2,038,000; and (iii) the decrease in state, local and foreign income
tax expense of $180,000 resulting from the sale of the Family Restaurant
Division (the Company incurs no Federal income taxes due to its operating
losses).
NOTE 6 - PROPERTY AND EQUIPMENT:
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1996 1995
-------- ------
(in thousands)
<S> <C> <C>
Land $ 26,729 $ 24,030
Buildings and improvements 152,350 151,245
Furniture, fixtures and
equipment 69,342 64,253
Projects under construction 4,638 2,666
-------- --------
253,059 242,194
Accumulated depreciation
and amortization (56,187) (34,971)
-------- --------
$196,872 $207,223
======== ========
</TABLE>
Property under capitalized leases in the amount of $21,323,000 at
December 29, 1996 and $23,800,000 at December 31, 1995 is included in buildings
and improvements. Accumulated amortization of property under capitalized leases
amounted to $6,894,000 at December 29, 1996 and $5,227,000 at December 31, 1995.
Capitalized leases primarily relate to the buildings on certain restaurant
properties; the land portions of these leases are accounted for as operating
leases.
Depreciation and amortization relating to property and equipment
was $30,253,000 for 1996, $45,766,000 for 1995, $33,860,000 for the eleven
months ended December 25, 1994 and $2,359,000 for the one month ended January
26, 1994, of which $4,357,000, $7,578,000, $7,451,000 and $412,000,
respectively, was related to amortization of property under capitalized leases.
A majority of the capitalized and operating leases have original
terms of 25 years, and substantially all of these leases expire in the year 2007
or later. Most leases have renewal options. The leases generally provide for
payment of minimum annual
F-17
<PAGE> 63
rent, real estate taxes, insurance and maintenance and, in most cases,
contingent rent, calculated as a percentage of sales, in excess of minimum rent.
The total amount of contingent rent under capitalized leases for the years ended
December 29, 1996 and December 31, 1995, the eleven months ended December 25,
1994 and the one month ended January 26, 1994 was $2,425,000, $5,491,000,
$4,895,000 and $305,000, respectively. Total rental expense for all operating
leases comprised the following:
<TABLE>
<CAPTION>
Eleven Months One Month
Ended Ended
Dec. 25, Jan. 26,
1996 1995 1994 1994
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Minimum rent $ 45,063 $ 56,577 $ 50,373 $ 2,153
Contingent rent 2,058 3,775 3,636 208
Less: Sublease rent (6,293) (5,815) (5,685) (369)
-------- -------- -------- --------
$ 40,828 $ 54,537 $ 48,324 $ 1,992
======== ======== ======== ========
</TABLE>
At December 29, 1996, the present value of capitalized lease
payments and the future minimum lease payments on noncancellable operating
leases were:
<TABLE>
<CAPTION>
Capitalized Operating
Due in Leases Leases
------ ----------- ---------
(in thousands)
<S> <C> <C>
1997 $ 3,597 $ 36,901
1998 3,494 36,252
1999 3,229 35,187
2000 2,969 33,239
2001 2,584 31,287
Later years 9,132 143,547
------- --------
Total minimum lease payments 25,005 $316,413
========
Interest (8,210)
-------
Present value of minimum
lease payments $16,795
=======
</TABLE>
The future lease payments summarized above include commitments
for leased properties included in property held for sale and in the Company's
divestiture program.
NOTE 7 - GOODWILL WRITE-OFF:
Chi-Chi's reported significant sales declines in the second half
of 1994 which continued into 1995. These sales declines resulted in operating
performance for Chi-Chi's which was significantly lower than anticipated at the
time of the Acquisition. These operating results caused the Company to
reevaluate its business strategy for the Mexican Restaurant
F-18
<PAGE> 64
Division, particularly Chi-Chi's. Consistent with this strategic reevaluation,
the Company revised its forecasts for the future operations of Chi-Chi's which
resulted in a significant reduction in projected future cash flows and a lower
valuation of the business. The Company determined that its projected results for
Chi-Chi's would not support the future amortization of the remaining Chi-Chi's
goodwill balance of $144,780,000 at December 25, 1994. Accordingly, the Company
wrote off the remaining unamortized Chi-Chi's goodwill balance of $144,780,000
in the fourth quarter of 1994.
NOTE 8 - OTHER ASSETS:
A summary of other assets follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
(thousands)
<S> <C> <C>
Liquor licenses $ 5,977 $ 6,059
Debt issuance costs 3,653 13,352
Notes receivable 9,239 8,569
FRD Notes 6,500 0
Property held for sale 0 8,753
Other 823 905
------- -------
$26,192 $37,638
======= =======
</TABLE>
Debt issuance costs are amortized over the terms of the
respective loan agreements.
Property held for sale in 1995 represented Chi-Chi's restaurants
identified for divestment during the third quarter of 1995 (see Note 3).
NOTE 9 - LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS:
Long-term debt, including capitalized lease obligations, is
comprised of the following (excluding amounts in 1995 related to the Family
Restaurant Division and traditional dinnerhouse restaurants):
F-19
<PAGE> 65
<TABLE>
<CAPTION>
1996 1995
-------- ------
(in thousands)
<S> <C> <C>
9-3/4% Senior Notes $119,034 $300,000
10-7/8% Senior Subordinated
Discount Notes 30,606 133,860
Capitalized lease obligations 16,795 21,159
Mortgage notes, 12-1/4% - 12-1/2%,
due 1997-1998 353 529
Other 2,464 2,701
-------- --------
169,252 458,249
Amounts due within one year 3,927 3,046
-------- --------
$165,325 $455,203
======== ========
</TABLE>
In connection with the Acquisition, the Company sold $300.0
million principal amount of 9-3/4% Senior Notes due in full in 2002 (the "Senior
Notes") and $150.0 million principal amount ($109.0 million in proceeds) of
10-7/8% Senior Subordinated Discount Notes due in full in 2004 (the "Discount
Notes" and, together with the Senior Notes, the "Notes"), and the Company and
certain of its subsidiaries entered into a $150.0 million senior secured
revolving credit facility with a $100.0 million sub-limit for standby letters of
credit, which was to be used for general corporate purposes including working
capital, debt service and capital expenditure requirements (the "Old Credit
Facility"). The Old Credit Facility was to terminate and the obligations
thereunder would have been immediately due and payable on January 27, 1999.
Borrowings in the amount of $79,815,000 were outstanding under
the Old Credit Facility as of December 31, 1995, and interest on the revolving
credit loans was being charged at 10.0%. On August 1, 1995, the Company borrowed
$14,625,000 under the Old Credit Facility to fund an interest payment made on
the Senior Notes. This amount was paid off in December 1995. On February 1,
1996, the Company borrowed $14,625,000 to fund an additional interest payment on
the Senior Notes.
The Old Credit Facility contained various covenants including the
maintenance of certain financial ratios. The Company suffered from deficit cash
flows from operations and made required debt service payments on other
obligations through borrowings on the Old Credit Facility. Accordingly, the
Company failed to comply with certain of such financial covenants. However, the
banks under the Old Credit Facility (the "Banks") agreed to waive such
noncompliance through July 31, 1996.
On May 23, 1996, the Company completed the sale of the Family
Restaurant Division to Flagstar. The Company used a portion of the cash proceeds
from the sale to repay $82 million outstanding under the Old Credit Facility and
the Old Credit Facility was amended to change the borrower from FRI-M (which,
following consummation of the sale, was no longer owned by the Company) to
FRI-MRD Corporation, a wholly-owned subsidiary of the Company, to remove all
restrictive covenants, and to reduce the commitment thereunder
F-20
<PAGE> 66
to up to $32 million of standby letters of credit with no provision for
revolving loans. Standby letters of credit were issued under the Old Credit
Facility primarily to provide security for future amounts payable by the Company
under its workers' compensation insurance program ($18,960,000 of such letters
of credit were outstanding as of December 29, 1996).
On January 10, 1997, the Company entered into a five-year, $35
million credit facility with Foothill Capital Corporation (the "Foothill Credit
Facility") to provide for the ongoing working capital needs of the Company. The
Foothill Credit Facility, which replaced the Old Credit Facility, provides for
up to $15 million in revolving cash borrowings and up to $35 million in letters
of credit (less the outstanding amount of revolving cash borrowings). The
Foothill Credit Facility is secured by substantially all of the real and
personal property of the Company and contains customary restrictive covenants,
including the maintenance of certain financial ratios.
The Senior Notes require semiannual interest payments on February
1 and August 1 of each year and will mature on February 1, 2002. The Senior
Notes will not be redeemable at the option of the Company prior to February 1,
1999. Thereafter, such notes may be redeemed at prices starting at 102.786% and
declining ratably to 100% at February 1, 2001. The Discount Notes do not require
cash interest payments until August 1, 1997. Thereafter, interest on the
Discount Notes will be paid on February 1 and August 1 of each year, and such
notes will mature on February 1, 2004. The Discount Notes will not be redeemable
at the option of the Company prior to February 1, 1999. Thereafter, such notes
may be redeemed at prices starting at 104.078% and declining ratably to 100% at
February 1, 2002.
The Company continues to be highly leveraged and has significant
debt service requirements. Although management believes that the proceeds
available to the Company as a result of the sale (including funds available from
sale of the FRD Notes), its cost restructuring and revised marketing plans for
Chi-Chi's, completion of the Foothill Credit Facility and other available
options 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 Notes at their respective maturities.
On July 3, 1996, the Company repurchased $151.0 million aggregate
principal amount of the Senior Notes and $108.6 million aggregate principal
amount of the Discount Notes in exchange for (or from the proceeds from the sale
of) $133.5 million aggregate principal amount of the FRD Notes. On December 19,
1996, the Company repurchased $30.0 million aggregate principal amount of the
Senior Notes for $18.6 million. In separate transactions, the Company
repurchased an additional $8.5 million aggregate principal amount of the
Discount Notes in the third quarter of 1996 and $2.0 million aggregate principal
amount of the Discount Notes in the
F-21
<PAGE> 67
fourth quarter of 1996. The Company recognized an extraordinary gain of $134.8
million as a result of these repurchases.
The mortgage notes were issued to a group of institutional
lenders and are collateralized by mortgages covering five restaurants having a
book value of approximately $6,861,000 at December 29, 1996.
Maturities of long-term debt, including capitalized lease
obligations, during the four years subsequent to December 28, 1997 are as
follows: $2,578,000 in 1998, $2,128,000 in 1999, $2,096,000 in 2000 and
$1,885,000 in 2001.
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The recorded amounts of the Company's cash and cash equivalents,
self-insurance reserves, other accrued liabilities and revolving credit
borrowings at December 29, 1996 and December 31, 1995 approximate fair value.
The fair value of the Company's long-term debt, excluding capitalized lease
obligations, is estimated as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
-------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Senior Notes $119,034 $86,895 $300,000 $165,000
Discount Notes 30,606 11,742 133,860 15,000
Mortgage notes 353 347 529 549
Other 2,464 2,096 2,701 2,368
</TABLE>
The fair values of the Notes are based on an average market price
of these instruments as of the end of fiscal 1996 and 1995. The fair value of
the mortgage notes and other debt was estimated using a discount rate which the
Company believes would be currently available to it for debt with similar terms
and average maturities.
The Company does not maintain investments or commitments for
which the application of SFAS 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," would cause a material
effect.
F-22
<PAGE> 68
NOTE 11 - OTHER ACCRUED LIABILITIES:
A summary of other accrued liabilities follows (excluding amounts
in 1995 related to the Family Restaurant Division and traditional dinnerhouse
restaurants):
<TABLE>
<CAPTION>
1996 1995
------- ------
(in thousands)
<S> <C> <C>
Wages, salaries and bonuses $22,249 $16,136
Carrying costs of closed properties 10,500 12,925
Reserve for divestitures 10,004 11,858
Interest 5,038 13,306
Property taxes 3,110 3,460
Sales tax 2,132 3,771
Utilities 1,313 1,381
Accrued rent 537 868
Other 15,813 14,614
------- -------
$70,696 $78,319
======= =======
</TABLE>
Carrying costs of closed properties represent the estimated
future costs associated with the Company's closed and subleased restaurants
which consists primarily of the net present value of lease subsidies which are
mainly comprised of the excess of future lease payments for which the Company is
liable, over amounts estimated to be received from related subleases.
NOTE 12 - INCOME TAXES:
The Company reported a loss for tax purposes in 1996, 1995 and
1994. Accordingly, the income tax provisions for each year primarily reflect
certain state, local and foreign taxes. On a tax return basis, the Federal
regular operating loss carryforwards amounted to approximately $168.3 million
($164.2 million of alternative minimum tax operating loss carryforwards) and
expire in 2003 through 2012. The Company had approximately $711,000 of tax
credit carryforwards which expire in 2003 and 2004.
Upon consummation of the Acquisition, the Company's net operating
loss carryovers and other tax attributes were reduced significantly for Federal
income tax purposes. In addition, because the consummation of the Acquisition
triggered an ownership change of the Company for Federal income tax purposes,
the Company's post-Acquisition use of its remaining net operating loss
carryovers for regular and alternative minimum Federal income tax purposes is
subject to an annual limitation in an amount equal to the product of (i) the
long-term tax-exempt rate prevailing on the Closing Date and (ii) the value of
the Company's stock, increased to reflect the cancellation of indebtedness
pursuant to the Plan (but without taking into account contributions to capital
pursuant to the Acquisition). The Company's annual limit is approximately $5.3
million. The amount of NOL subject to the annual limit is approximately $22.2
million.
F-23
<PAGE> 69
At December 29, 1996, the Company and its subsidiaries had tax
credit carryforwards of approximately $2.1 million not utilized by Grace. In
accordance with the 1986 acquisition from Grace, the Company must reimburse
Grace for 75% of the benefit of these tax credits if they are utilized in future
Company tax returns. Further, El Torito Restaurants, Inc. (a wholly owned
subsidiary of the Company) has approximately $12.2 million of tax depreciation
deductions not claimed in Grace tax returns as a result of a tax sharing
agreement. The Company will also reimburse Grace for 75% of any tax savings
generated by these deductions.
Further, as a result of the Chi-Chi's Merger, the Company has net
operating loss and credit carryforwards not used by Chi-Chi's of $53.2 million
and $6.9 million, respectively. The net operating losses expire beginning in
2004 through 2009 and the credit carryovers expire in various years from 1997
through 2009. The Acquisition, as well as the 1992 acquisition of a previous
franchisee by Chi-Chi's, triggered ownership changes for Federal income tax
purposes which result in separate annual limitations on the availability of
these losses and credits.
A reconciliation of income tax expense to the amount of income
tax benefit that would result from applying the Federal statutory rate (35% for
1996, 1995 and 1994) to loss before income taxes is as follows:
<TABLE>
<CAPTION>
Eleven One
Months Month
Fiscal Year Ended Ended Ended
------------------------
Dec. 29, Dec. 31, Dec. 25, Jan. 26,
1996 1995 1994 1994
-------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Provision (benefit) for
income taxes at
statutory rate $ 48,276 $(42,875) $(56,736) $ 191,834
State taxes, net of
Federal income tax
benefit 249 332 (2,948) (16,300)
State minimum tax 0 0 1,183 55
Foreign taxes 92 270 541 49
Nondeductible goodwill 1,242 3,312 54,679 0
Nondeductible reorgani-
zation costs 0 0 0 (175,597)
Addition to valuation
allowance 0 0 4,896 0
Change in deferred tax
asset which is subject
to a full valuation
reserve and other (48,969) 40,169 158 14
-------- -------- -------- --------
$ 890 $ 1,208 $ 1,773 $ 55
======== ======== ======== ========
</TABLE>
At December 29, 1996 and December 31, 1995, the Company's
deferred tax asset was $124,838,000 and $186,874,000, respectively, and deferred
tax liability was $17,969,000 and $29,514,000,
F-24
<PAGE> 70
respectively. The major components of the Company's net deferred taxes of
$106,869,000 at December 29, 1996 and $157,360,000 at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- -------
(in thousands)
<S> <C> <C>
Depreciation $ (17,969) $ (24,062)
Net operating loss and
credit carryforwards 91,176 115,279
Capitalized leases 719 1,921
Divestment, carrying cost
and rent subsidy reserves 8,787 23,183
Self-insurance reserves 14,700 22,779
Kasumi payment to Grace 0 5,808
Property held for sale 0 (5,451)
Straight-line rent 1,872 1,923
Reorganization costs 4,913 6,714
Other 2,671 9,266
--------- ---------
106,869 157,360
Valuation allowance (106,869) (157,360)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
The decrease in the valuation allowance for 1996 resulted
primarily from the sale of the Family Restaurant Division.
NOTE 13 - BENEFIT PLANS:
The Company maintains certain incentive compensation and related
plans for executives and key operating personnel, including restaurant and field
management. Total expenses for these plans were $10,374,000, $10,151,000,
$8,217,000 and $666,000 for 1996, 1995, the eleven months ended December 25,
1994 and the one month ended January 26, 1994, respectively.
The Predecessor Company had two Retirement Savings Plans, and
substantially all of the Predecessor Company's salaried employees were eligible
to participate in them. Effective December 31, 1991, the Predecessor Company
suspended its match under one of the plans and terminated the other plan. During
1994, the Company acquired two retirement plans related to the Chi-Chi's Merger
and established a new deferred compensation plan for highly compensated
employees. In 1995, the Company reinstituted its match under the Retirement
Savings Plan. In 1996, the two retirement plans related to the Chi-Chi's Merger
were combined with the Company's Retirement Savings Plan and deferred
compensation plan. The Company's contributions and expenses under these plans
were $202,000, $355,000, $528,000 and $2,000 for 1996, 1995, the eleven months
ended December 25, 1994 and one month ended January 26, 1994, respectively. The
Company has no defined benefit plans.
F-25
<PAGE> 71
NOTE 14 - RELATED PARTY TRANSACTIONS:
Foodmaker provides distribution services to a portion of the
Company's restaurants, principally those operated under the Chi-Chi's name.
Distribution sales to those restaurants for the years ended December 29, 1996
and December 31, 1995 and the eleven months ended December 25, 1994 aggregated
$63,785,000, $76,423,000 and $81,537,000, respectively. In relation to the
distribution sales, the Company had accounts payable of $2,301,000 and
$2,348,000 due to Foodmaker at December 29, 1996 and December 31, 1995,
respectively.
On the Closing Date, Apollo and GEI received an aggregate of $7.0
million as a financial advisory fee for services provided in connection with the
Acquisition and related transactions. In addition, Apollo charged a monthly fee
of $100,000 during 1996, and Apollo and GEI each charged a monthly fee of
$50,000 during 1995 and 1994 for providing certain management services to the
Company. For the years ended December 29, 1996 and December 31, 1995 and the
eleven months ended December 25, 1994, the Company was charged $1.2 million,
$1.2 million and $1.1 million, respectively, in connection with this
arrangement.
NOTE 15 - COMMON STOCK:
In connection with the Acquisition, the Company adopted a new
management incentive plan, pursuant to which certain officers and employees of
the Company were granted the right to purchase up to 40,900 shares of Common
Stock (constituting up to 4.1% of the Common Stock outstanding immediately
following such purchases) at $160 per share, the same per share price paid by
Apollo and GEI in the New Equity Investment. The Employee Stock Purchase was
consummated on the Closing Date with respect to certain officers (15,625 shares
of Common Stock) and on May 19, 1994 and July 31, 1994 with respect to the other
participants (22,552 shares of Common Stock). No more than fifty percent of the
purchase price was authorized to be financed through interest-bearing recourse
notes payable to the Company. In July 1996, the Company cancelled all such
interest-bearing recourse notes. The Company has repurchased 8,992 shares of
Common Stock due to employee terminations, leaving 29,185 shares currently owned
by management stockholders and terminated employees. The individuals who
purchased Common Stock were also granted options to purchase 20,822 shares of
Common Stock in the future at an exercise price initially set at $160 per share.
The Company also granted options to purchase approximately 30,000 shares of
Common Stock to approximately 800 other employees. All these options expire in
2004 and 2005 and become exercisable at a rate of 25% on the grant date and 25%
on each of the next three anniversaries of the grant date. Approximately 44,500
options have expired due to terminations.
F-26
<PAGE> 72
NOTE 16 - CONTINGENCIES:
The Company is involved in various litigation matters incidental
to its business. The Company does not believe that any of the claims or actions
filed against it will have a material adverse effect upon the consolidated
financial position or results of operations of the Company.
F-27
<PAGE> 73
SCHEDULE II
FAMILY RESTAURANTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
receivables:
For the year 1996 $997 $ 0 $ 0 $(118)(2) $879
For the year 1995 813 184 0 0 997
For the year 1994 955 21 360 (1) (523)(2) 813
</TABLE>
(1) Represents allowance established at the date of the Chi-Chi's Merger.
(2) Represents write-off of uncollectible receivables against allowance and
includes transfers to other accounts.
S-1
<PAGE> 1
EXHIBIT 10(r)
[FAMILY RESTAURANTS, INC. LETTERHEAD]
FAMILY RESTAURANTS, INC.
1996 MANAGEMENT INCENTIVE COMPENSATION PLAN
PLAN DESCRIPTION
OBJECTIVE
The Family Restaurants, Inc. (FRI) Management Incentive Compensation Plan
(MICP) is designed to motivate and reward employees who, by virtue of their
position and responsibilities, are in a position to make a significant
contribution toward attaining and exceeding the annual business objectives of
FRI or any of its Operating Divisions.
ELIGIBILITY
Employees of FRI and its Operating Divisions are eligible to participate in
MICP based on the following criteria:
o Vice Presidents, Vice President equivalents and above who are
not eligible to participate in other incentive programs are
eligible to participate in the MICP Program.
o A performance level of at least average as defined by the
Company's performance standards, must have been achieved by an
eligible participant.
Individual bonus targets for participants will differ and will reflect levels
of responsibility and authority, as well as the relative impact and complexity
of their positions. Individual target incentive awards are expressed as a
percent of a participant's weighted annual base salary for the calendar year in
which this bonus applies.
ADMINISTRATION
The Nominating and Human Resources (Compensation) Committee of the FRI Board of
Director's ("Committee") shall have full authority for the administration of
MICP including, but not limited to, eligibility, performance criteria, and Plan
modification or termination.
<PAGE> 2
INCENTIVE AWARD LEVELS
Individual incentive awards will be based on one, two, or three performance
criteria, depending on a participants position within the organization. The
factors that comprise each participant's MICP award will include one or more of
the following factors:
o Division EBITDA Performance
o FRI EBITDA Performance
o Individual G & A Budget
EBITDA is defined as operating profit plus miscellaneous income/(expense),
depreciation and opening expense.
The relative weighing of the above factors reflects the degree to which a
participant can impact the performance of FRI or an Operating Division. For
example, the incentive for a corporate participant is weighted exclusively on
FRI performance, whereas a Division participant's incentive is weighted more
heavily on Divisional performance. A combination of any of the above factors
may be used in determining a participant's award.
The measurement criteria for MICP will be set for FRI and the Operating
Divisions at the beginning of each plan year. These objectives will be based
on many criteria including, but not limited to, the established operating
profit for the previous year, general economic conditions, the industry's
competitive environment, and senior management's judgement as to what
constitutes outstanding results.
In some cases, a portion of the incentive will be awarded based on achievement
of Departmental G & A budgets.
TRANSFERS/PROMOTIONS/MERIT INCREASES
If an eligible participant is promoted to a new position during the year and if
such new position reflects a different bonus opportunity percentage, such
factors will be taken into consideration by management insofar as award
determination is concerned. The same factors will be considered by management
insofar as transfers among and between FRI and its Operating Divisions are
concerned. In the case of merit increases during the year, the MICP awards
will be based on the weighted average of a participant's base salary.
<PAGE> 3
MICP PAYOUT
Payment of MICP awards will be made annually, following management's
determination of the operating results for FRI and each of its Operating
Divisions and, barring unforseen circumstances, will be paid before the end of
the first quarter of the following calendar year, to the extent performance
warrants payment. In the event that a participant becomes eligible during the
calendar year, any applicable award will be prorated for the number of months
of service. Payroll and other associated statutory taxes will be withheld from
all MICP awards.
TERMINATION
An eligible participant whose employment terminates, voluntarily or
involuntarily, prior to the end of the fiscal year, will not be eligible to
receive a MICP award. If termination occurs after the end of the fiscal year,
but before payment, the Committee reserves the right to determine if payment,
or portion thereof, will be made.
PENALTIES
A penalty of up to 100% of the MICP award can be assessed for any actions
detrimental to the assets, reputation, or best interest of FRI and/or it's
Operating Divisions including, but not limited to, any lowering of standards in
order to increase operating results, violation of established policies and
procedures, substandard personal performance, etc.
PLAN MODIFICATION
In the event of unusual circumstances which materially impact the performance
of FRI, its Operating Divisions, and/or the individual participant over which
management and/or the individual participant has little or no control, the
Committee may, through the exercise of prudent business judgment, amend the
performance criteria of MICP and, in their discretion, raise or lower MICP
awards. Such conditions as increased competition, forecasting errors, weather,
etc., are ongoing business factors and would not, in and of themselves, warrant
adjustment in performance criteria.
This MICP does not confer or create any rights in employees or any duties or
obligations upon FRI. FRI will make all interpretations concerning the
conditions and qualifications covered under this Plan and senior management
reserves the right to modify or terminate the Plan, should circumstances so
warrant. Notification of MICP modifications or terminations of MICP will be
communicated to participating employees as appropriate.
<PAGE> 1
EXHIBIT 10(s)
TERMINATION AGREEMENT
This TERMINATION AGREEMENT dated as of November 20, 1995 ("Agreement")
is entered into by and between Family Restaurants, Inc., a Delaware corporation
(the "Company") and Leonard Green & Associates, L.P. ("Green"), formerly
Leonard Green & Partners, L.P., with respect to that certain Management
Services Agreement dated as of January 27, 1994 (the "Management Services
Agreement").
WHEREAS, pursuant to the Management Services Agreement, Green was
retained by the Company to provide certain management financial services to the
Company and its subsidiaries; and
WHEREAS, the Company no longer wishes to retain Green for such
services and Green desires not to continue to provide such services.
NOW, the parties hereby agree as follows:
(i) that the Management Services Agreement be, and it hereby is,
terminated as of the date hereof; provided, however, as stated in the last
paragraph of Section 3 of the Management Services Agreement, the Company's
indemnification obligations set forth in Section 5 of the Management Services
Agreement shall survive the termination;
(ii) that earned and unpaid fees owed to Green of $375,000 for
services rendered prior to date of this Agreement shall be paid to Green at
such time as Apollo Advisors, L.P. ("Apollo") is paid the fees owed to Apollo
for its management and financial services rendered to this date pursuant to
that certain Management Services Agreement dated January 27, 1994 between the
Company and Apollo.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers or representatives on the date first
appearing above.
FAMILY RESTAURANTS, INC.
By: _____________________________________
Robert T. Trebing, Jr.
Senior Vice President and Chief Financial Officer
LEONARD GREEN & ASSOCIATES, L.P.
By: _____________________________________
Jonathan D. Sokoloff
Partner
<PAGE> 1
EXHIBIT 10(t)
EMPLOYMENT AGREEMENT FOR KEVIN RELYEA
This Employment Agreement ("Agreement") is entered into as of January 1, 1996,
by and between Kevin Relyea ("Executive") and Family Restaurants, Inc., a
Delaware corporation ("FRI"), Chi-Chi's, Inc., a Delaware corporation
("Chi-Chi's"), and El Torito Restaurants, Inc., a Delaware corporation ("El
Torito") (FRI, Chi-Chi's and El Torito are hereinafter collectively referred to
as "the Company"). Whereas the Company desires to obtain the services of
Executive, and whereas the Executive desires to be employed by the Company upon
the following terms and conditions, the parties agree as follows:
1. POSITION AND DUTIES
Executive will hold the positions and titles of President and Chief Executive
Officer ("CEO") of FRI, CEO of Chi-Chi's and CEO of El Torito from the date of
this Agreement and for the period of time specified in this Agreement. As the
President and CEO of FRI, Executive reports to the Board of Directors of FRI
and will assist the Board in developing and implementing FRI's ongoing business
strategy and objectives, including those of its subsidiaries, El Torito and
Chi-Chi's. The Executive may have additional powers and duties as prescribed
from time to time by the Board.
Executive agrees to devote all of his business time, skill, attention, and best
efforts to the Company's business and to discharge and fulfill the
responsibilities assigned to him by the Company during his employment under
this Agreement. Executive further agrees that he will not render services to
any other person or entity without the prior written consent of the Company,
and that he will not engage in any activity which conflicts or interferes with
the performance of the duties and responsibilities of his position. Unless a
conflict of interest occurs, as determined by the Board, Executive shall be
allowed to serve as a member of the Board of Directors of at least one other
company.
2. TERM OF EMPLOYMENT
This Agreement covers the Executive's employment with the Company from the date
of this Agreement through a period ending on the third anniversary of the date
of this Agreement ("Period of Employment"), or such earlier termination date as
provided for in Section 5 below.
3. LOCATION
Executive will be based at the Company's executive offices in Irvine,
California, and will be expected to travel to the Company's offices and
restaurants at other locations as needed for the performance of his duties and
responsibilities.
1
<PAGE> 2
4. COMPENSATION AND BENEFITS
(a) Salary
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid a salary of not less than $400,000 per year through the
end of fiscal year 1996, to be earned and paid in equal bi-weekly installments,
less any deductions required by law, pursuant to the procedures regularly
established by the Company. Upon the attainment of $40,000,000 in Earnings
Before Interest, Taxes, Depreciation, and Amortization ("EBITDA," as defined in
the Company's SEC filings) in the 1997 or any subsequent fiscal year,
Executive's base salary shall increase to $500,000 per year, effective as of
January 1 of the year immediately following the fiscal year in which the EBITDA
target was met. Furthermore, Executive may be eligible for other periodic
increases in base salary as determined by the Board in its sole and absolute
discretion.
(b) Annual Incentive Compensation
During the Period of Employment, the Executive will participate in the
Company's Management Incentive Compensation Plan (the "Plan") as currently
established and as modified from time to time. Under the terms of the current
Plan, Executive's annual incentive award is based upon one or more performance
measures, such as Company sales performance, Company EBITDA performance, and
personal objectives. Executive will have an annual target incentive equal to
80% of his annual base salary. Actual incentives payable will be determined by
the terms of the Plan or successor plans. The Company reserves the right to
modify, amend, or discontinue the Plan at any time; however, if the Plan is
discontinued, it is expected that a comparable annual incentive plan, as agreed
to by the Executive and the Company, will be implemented in its place.
c) Long Term Incentive Compensation
The Executive will be eligible to participate in the Company's long term
incentive plan ("VCU Plan") which is currently under development. It is
anticipated that Participants' performance will be measured based on the value
created by increases in FRI's EBITDA. Awards under the VCU Plan will be
communicated and agreed to in a separate agreement and will be governed by the
terms of the VCU Plan, except that in the case of termination "By the Company
Without Cause" or for "Good Reason" this Agreement will govern VCU payments.
(d) Benefits
During the Period of Employment, Executive will be entitled to participate in
the Company's standard medical, dental, life, accident, disability, retirement
plans, QRC privileges, and similar plans as shall be generally available to
executive employees of the Company from time to time.
2
<PAGE> 3
(e) Vacation
During the Period of Employment, the Executive will receive Company paid
vacation time off in accordance with the Company's policies and procedures, as
may be amended from time to time, and which currently provide Executive with
four (4) weeks vacation per year.
(f) Car Allowance
During the Period of Employment, the Company will provide Executive with a car
allowance in accordance with the Company's policies and procedures, as may be
amended from time to time, and which currently provide Executive with an
allowance of Twelve Thousand Dollars ($12,000.00) per year.
(g) Expenses
During the Period of Employment, the Company will reimburse Executive for
travel, lodging, entertainment, and other reasonable business expenses incurred
by him in the performance of his duties in accordance with the Company's
general policies, as may be amended from time to time.
5. TERMINATION OF EMPLOYMENT
The Period of Employment shall terminate:
(a) By Death or Disability
Employment will terminate automatically upon the death of Executive or when
Executive begins to receive benefits under the Company's Long Term Disability
Plan. In such cases, the Company will pay the Executive or his Estate:
(i) the salary to which he is entitled through the date of termination;
(ii) a pro rata portion of the Executive's annual incentive award, if any,
to which he is entitled through the date of termination; and,
(iii) the value of VCU awards, determined as follows. If termination
occurs on or before December 1, 1997, the Company will pay a pro rata amount of
the value of all VCU awards determined under the terms of the VCU Plan. If
termination occurs after December 1, 1997, all VCU awards will be valued and
paid in full.
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
3
<PAGE> 4
(b) By the Company for Cause
The Company may terminate, without liability, the Period of Employment for
Cause as defined below at any time and without notice. In such event, the
Company will pay the Executive the salary and benefits to which he is entitled
through the date of termination and thereafter the Company's obligations will
cease. The Executive will not be entitled to any annual incentive award (VCU
payments) or long term incentive award for the period in which Termination for
Cause occurs.
Termination shall be for Cause if the Executive:
(i) willfully breaches significant and material duties he is required to
perform or any of the material terms and conditions of this Agreement;
(ii) commits a material act of fraud, dishonesty, misrepresentation or
other act of moral turpitude;
(iii) is convicted of a felony, whether or not committed during the Period
of Employment or in the course of employment hereunder;
(iv) exhibits gross negligence in the performance of his duties, including,
without limitation, the refusal to perform or carry out the resolutions or
directives of the Board of Directors of the Company that are enacted by
majority vote;
(v) is ordered removed from employment with the Company by a regulatory or
other governmental agency pursuant to applicable law.
(c) By the Company Without Cause
The Company may, upon two weeks' written notice, terminate the employment of
the Executive, at any time, for any reason, with or without Cause and without
liability. If employment is terminated by the Company as described in the
preceding sentence:
(i) The Company will pay the Executive his base salary at the rate in
effect at the time of termination for the remainder of the Period of Employment
or one year from the date of termination, whichever is greater;
(ii) If termination occurs in 1996, the Company shall pay to Executive his
maximum annual incentive award(s) for the remainder of the Period of
Employment. If termination occurs after December 31, 1996, the Company shall
pay the Executive annual incentive award amounts equal to the amount of annual
incentive earned by the Executive in the previous fiscal year for the remainder
of the Period of Employment or for one year, whichever is greater; and,
4
<PAGE> 5
(iii) The value of VCU awards will be determined as follows. If
termination occurs on or before December 1, 1997, the Company will pay a pro
rata amount of the value of all VCU awards as determined under the terms of the
VCU Plan. If termination occurs after December 1, 1997, all VCU awards will be
valued and paid in full.
The Company will continue to cover the Executive in the Company's benefit
programs through the end of Period of Employment or one year from the date of
termination, whichever is greater. The Company may elect, in its sole and
absolute discretion, to pay severance payments in a lump sum equal to the
present value of the future monthly payments (assuming an 8% discount rate),
including amounts necessary to reimburse the Executive for participation in the
Company's benefit plans under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(d) Voluntary Termination
The Executive may terminate employment at any time by giving the Company one
month's advance written notice of such termination. In this event, the Company
will pay the salary and benefits to which the Executive is entitled through the
end of the notice period, and thereafter the Company's obligations under this
Agreement will cease. The Executive will not be entitled to any annual
incentive or long term incentive grant (VCU Plan) for the year in which he
terminates his employment.
(e) Termination for "Good Reason"
The Executive may also terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean:
(i) any assignment to the Executive of duties other than those contemplated
by this Agreement or in accordance with those typically assumed by a President
and CEO or which represent a material reduction in the scope and authority of
Executive's position;
(ii) a Company required relocation of Executive's principal place of work
which requires an increase in Executive's normal commute of more than 50 miles
which is not agreed to by Executive; or,
(iii) any reduction in salary below $400,000 per year which is not agreed
to by Executive.
If Executive terminates employment for "Good Reason," the Company will pay the
Executive:
(iv) his base salary at the rate in effect at the time of termination for
the remainder of the Period of Employment or one year from the date of
termination, whichever is greater;
(v) If termination occurs in 1996, the Company shall pay to Executive his
maximum annual
5
<PAGE> 6
incentive award(s) for the remainder of the Period of Employment. If
termination occurs after December 31, 1996, the Company shall pay the Executive
annual incentive award amounts equal to the amount of annual incentive earned
by the Executive in the previous fiscal year for the remainder of the Period of
Employment or for one year, whichever is greater;
(vi) the value of VCU awards, determined as follows. If termination occurs
on or before December 1, 1997, the Company will pay a pro rata amount of the
value of all VCU awards as determined under the terms of the VCU Plan. If
termination occurs after December 1, 1997, all VCU awards will be valued and
paid in full.
The Company will continue to cover the Executive in the Company's benefit
programs through the end of the Period of Employment or one year from the date
of termination, whichever is greater. The Company may elect, in its sole and
absolute discretion, to pay severance payments in a lump sum equal to the
present value of the future monthly payments (assuming an 8% discount rate),
including amounts necessary to reimburse the Executive for participation in the
Company's benefit plans under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(f) Termination Obligations
Executive acknowledges and agrees that all personal property and equipment
furnished to or prepared by the Executive in the course of or incidental to his
employment belong to the Company and shall be promptly returned to the Company
upon termination of employment by Executive of the Company with or without
Cause or Good Reason. Executive further acknowledges and agrees that all
confidential materials and documents, whether written or contained in computer
files, diskettes, or any other media, remain the property of the Company, shall
be promptly returned to the Company upon termination of employment, and shall
not retain any copies or duplicates or originals of such documents or materials
in any format unless the Company agrees in writing to permit such retention.
6. PROPRIETARY INFORMATION
Executive acknowledges that he has had access to proprietary information, trade
secrets, and confidential material of the Company including, without
limitation, information regarding the Company's business, operations, trade
secret and other proprietary, confidential information, lending and
distribution processes, and other management and financial information.
Executive agrees, without limitation in time or until such information shall
become public other than by Executive's unauthorized disclosure, to maintain
the confidentiality of such information and refrain from divulging, disclosing,
or otherwise using said confidential information to the detriment of the
Company or its subsidiaries, affiliates, successors or assigns, or for any
other purpose.
6
<PAGE> 7
7. ASSIGNMENT
The Executive's rights and obligations under this Agreement may not be
assigned, and any attempted assignment shall be null and void. The Company may
assign this Agreement, but only to a successor or affiliated organization.
8. NOTICES
All notices referred to in this Agreement shall be in writing and delivered to
the Company at its principal address, 18831 Von Karman Avenue, Irvine,
California 92715, or to the Executive at 17403 Tam O'Shanter Drive, Poway,
California 92064.
9. ENTIRE AGREEMENT
The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive
by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms, and that no
extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding involving this Agreement.
10. AMENDMENTS AND WAIVERS
This Agreement may not be modified, amended, or terminated except in writing,
signed by the Executive and by a duly authorized representative of the Company
other than the Executive. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder shall operate as a waiver thereof.
11. SEVERABILITY AND ENFORCEMENT
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be invalid, unenforceable, or void, the remainder of this
Agreement shall remain in full force and effect.
12. GOVERNING LAW
This Agreement shall be interpreted and construed in compliance with the laws
of the State of California, unless a superseding Federal law is applicable.
13. ARBITRATION
The parties agree that any disputes that may arise in connection with, arising
out of or relating to this Agreement, or any dispute that relates in any way,
in whole or in part, to Executive's employment with
7
<PAGE> 8
the Company, the termination of that employment or any other dispute by and
between the parties or their successors or assigns, will be submitted to
binding arbitration in Los Angeles, California, according to the rules and
procedures of the American Arbitration Association and California Code of Civil
Procedure Section 1283.05. The parties agree that each will bear his or its own
attorney's fees and costs in connection with any such arbitration and each
party will pay half of any costs associated with the arbitration. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or causes of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
of an express or implied contract, breach of any collective bargaining
agreement, breach of the covenant of good faith and fair dealing, breach of
fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of
emotional distress, disability, loss of earning, and claims under the
California or Colorado constitutions, the United States Constitution, and
applicable state and federal fair state labor statutes and regulations,
including, but not limited to, the Civil Rights Act of 1964, as amended, the
Fair Labor Standards Acts, as amended, the Americans With Disabilities Act of
1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement
Income Security Act of 1974, as amended, and the Age Discrimination in
Employment Act of 1967.
In witness whereof, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer.
__________________________________
Kevin Relyea
Family Restaurants, Inc. El Torito Restaurants, Inc.
By:_______________________________ By:_________________________
Robert T. Trebing, Jr. Robert T. Trebing,
Jr. Senior Vice President and CFO Vice President
Chi-Chi's, Inc.
By:_______________________________
Robert T. Trebing, Jr.
Vice President
8
<PAGE> 1
EXHIBIT 10(u)
EMPLOYMENT AGREEMENT FOR ROGER CHAMNESS
This Employment Agreement ("Agreement") is entered into as of March 1, 1996, by
and between Roger Chamness ("Executive") and Family Restaurants, Inc., a
Delaware corporation ("FRI"), Chi-Chi's, Inc., a Delaware corporation
("Chi-Chi's"), and El Torito Restaurants, Inc., a Delaware corporation ("El
Torito") (FRI, Chi-Chi's and El Torito are hereinafter collectively referred to
as the "Company"). Whereas the Company desires to obtain the services of
Executive, and whereas the Executive desires to be employed by the Company upon
the following terms and conditions, the parties agree as follows:
1. POSITION AND DUTIES
Executive will hold the positions and titles of Executive Vice President
("EVP") of FRI and President of Chi-Chi's from the date of this Agreement and
for the period of time specified in this Agreement. As the President of
Chi-Chi's, Executive reports to the President and Chief Executive Officer of
FRI and will assist the President and Chief Executive Officer in developing and
implementing Chi-Chi's ongoing business strategy and objectives. The Executive
may have additional powers and duties as prescribed from time to time by the
President and Chief Executive Officer and/or the Board of Directors ("Board")
of FRI.
Executive agrees to devote all of his business time, skill, attention, and best
efforts to the Company's business and to discharge and fulfill the
responsibilities assigned to him by the Company during his employment under
this Agreement. Executive further agrees that he will not render services to
any other person or entity without the prior written consent of the Company,
and that he will not engage in any activity which conflicts or interferes with
the performance of the duties and responsibilities of his position.
2. TERM OF EMPLOYMENT
This Agreement covers the Executive's employment with the Company from the date
of this Agreement through a period ending on the third anniversary of the date
of this Agreement ("Period of Employment"), or such earlier termination date as
provided for in Section 5 below.
3. LOCATION
Executive will be based at the Company's executive offices in Louisville,
Kentucky, and will be expected to travel to the Company's offices and
restaurants at other locations as needed for the performance of his duties and
responsibilities.
4. COMPENSATION AND BENEFITS
1
<PAGE> 2
(a) Salary
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid a salary of not less than $275,000 per year, to be
earned and paid in equal bi-weekly installments, less any deductions required
by law, pursuant to the procedures regularly established by the Company.
Executive may be eligible for periodic increases in base salary as determined
by the Board in its sole and absolute discretion.
(b) Annual Incentive Compensation
During the Period of Employment, the Executive will participate in the
Company's Management Incentive Compensation Plan (the "Plan") as currently
established and as modified from time to time. Under the terms of the current
Plan, Executive's annual incentive award is based upon one or more performance
measures, such as Division sales performance, Division Earnings Before
Interest, Taxes, Depreciation, and Amortization ("EBITDA," as defined in the
Company's SEC filings) performance, and personal objectives. Executive will
have an annual target incentive equal to 80% of his annual base salary. Actual
incentives payable will be determined by the terms of the Plan or successor
plans. The Company reserves the right to modify, amend, or discontinue the
Plan at any time; however, if the Plan is discontinued, it is expected that a
comparable annual incentive plan, as agreed to by the Executive and the
Company, will be implemented in its place.
c) Long Term Incentive Compensation
The Executive will be eligible to participate in the Company's long term
incentive plan ("VCU Plan") which is currently under development. It is
anticipated that Participants' performance will be measured based on the value
created by increases in FRI's EBITDA. Awards under the VCU Plan will be
communicated and agreed to in a separate agreement and will be governed by the
terms of the VCU Plan, except that in the case of termination "By the Company
Without Cause" or for "Good Reason" this Agreement will govern VCU payments.
(d) Benefits
During the Period of Employment, Executive will be entitled to participate in
the Company's standard medical, dental, life, accident, disability, retirement
plans, QRC privileges, and similar plans as shall be generally available to
executive employees of the Company from time to time.
(e) Vacation
During the Period of Employment, the Executive will receive Company paid
vacation time off in accordance with the Company's policies and procedures, as
may be amended from time to time, and which currently provide Executive with 4
weeks vacation per year.
(f) Car Allowance
2
<PAGE> 3
During the Period of Employment, the Company will provide Executive with a car
allowance in accordance with the Company's policies and procedures, as may be
amended from time to time, and which currently provide Executive with an
allowance of Twelve Thousand Dollars ($12,000.00) per year.
(g) Expenses
During the Period of Employment, the Company will reimburse Executive for
travel, lodging, entertainment, and other reasonable business expenses incurred
by him in the performance of his duties in accordance with the Company's
general policies, as may be amended from time to time.
5. TERMINATION OF EMPLOYMENT
The Period of Employment shall terminate:
(a) By Death or Disability
Employment will terminate automatically upon the death of Executive or when
Executive begins to receive benefits under the Company's Long Term Disability
Plan. In such cases, the Company will pay the Executive or his Estate:
(i) the salary to which he is entitled through the date of termination;
(ii) a pro rata portion of the Executive's annual incentive award, if any,
to which he is entitled through the date of termination; and,
(iii) the value of VCU awards, determined as follows. If termination
occurs on or before December 1, 1997, the Company will pay a pro rata amount of
the value of all VCU awards determined under the terms of the VCU Plan. If
termination occurs after December 1, 1997, all VCU awards will be valued and
paid in full.
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(b) By the Company for Cause
The Company may terminate, without liability, the Period of Employment for
Cause as defined below at any time and without notice. In such event, Company
will pay the Executive the salary and benefits to which he is entitled through
the date of termination and thereafter the Company's obligations will cease.
The Executive will not be entitled to any annual incentive award (VCU payments)
or long term incentive award for the period in which Termination for Cause
occurs.
Termination shall be for Cause if the Executive:
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<PAGE> 4
(i) willfully breaches significant and material duties he is required to
perform or any of the material terms and conditions of this Agreement;
(ii) commits a material act of fraud, dishonesty, misrepresentation or
other act of moral turpitude;
(iii) is convicted of a felony, whether or not committed during the Period
of Employment or in the course of employment hereunder;
(iv) exhibits gross negligence in the performance of his duties, including,
without limitation, the refusal to perform or carry out the resolutions or
directives of the Board of Directors of the Company that are enacted by
majority vote;
(v) is ordered removed from employment with the Company by a regulatory or
other governmental agency pursuant to applicable law.
(c) By the Company Without Cause
The Company may, upon two weeks' written notice, terminate the employment of
the Executive, at any time, for any reason, with or without Cause and without
liability. If employment is terminated by the Company as described in the
preceding sentence:
(i) The Company will pay the Executive his base salary at the rate in
effect at the time of termination for the remainder of the Period of Employment
or one year from the date of termination, whichever is greater;
(ii) If termination occurs in 1996, the Company shall pay to Executive his
maximum annual incentive award(s) for the remainder of the Period of
Employment. If termination occurs after December 31, 1996, the Company shall
pay the Executive annual incentive award amounts equal to the amount of annual
incentive earned by the Executive in the previous fiscal year for the remainder
of the Period of Employment or for one year, whichever is greater; and,
(iii) The value of VCU awards will be determined as follows. If
termination occurs on or before December 1, 1997, the Company will pay a pro
rata amount of the value of all VCU awards as determined under the terms of the
VCU Plan. If termination occurs after December 1, 1997, all VCU awards will be
valued and paid in full.
4
<PAGE> 5
The Company will continue to cover the Executive in the Company's benefit
programs through the end of Period of Employment or one year from the date of
termination, whichever is greater. The Company may elect, in its sole and
absolute discretion, to pay severance payments in a lump sum equal to the
present value of the future monthly payments (assuming an 8% discount rate),
including amounts necessary to reimburse the Executive for participation in the
Company's benefit plans under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(d) Voluntary Termination
The Executive may terminate employment at any time by giving the Company one
month's advance written notice of such termination. In this event, the Company
will pay the salary and benefits to which the Executive is entitled through the
end of the notice period, and thereafter the Company's obligations under this
Agreement will cease. The Executive will not be entitled to any annual
incentive or long term incentive grant (VCU Plan) for the year in which he
terminates his employment. (e) Termination for "Good Reason"
The Executive may also terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean:
(i) any assignment to the Executive of duties other than those contemplated
by this Agreement or in accordance with those typically assumed by a President
or which represent a material reduction in the scope and authority of
Executive's position;
(ii) a Company required relocation of Executive's principal place of work
which requires an increase in Executive's normal commute of more than 50 miles
which is not agreed to by Executive; or,
(iii) any reduction in salary below $275,000 per year which is not agreed to
by Executive.
If Executive terminates employment for "Good Reason," the Company will pay the
Executive:
(iv) his base salary at the rate in effect at the time of termination for
the remainder of the Period of Employment or one year from the date of
termination, whichever is greater;
(v) If termination occurs in 1996, the Company shall pay to Executive his
maximum annual incentive award(s) for the remainder of the Period of
Employment. If termination occurs after December 31, 1996, the Company shall
pay the Executive annual incentive award amounts equal to the amount of annual
incentive earned by the Executive in the previous fiscal year for the remainder
of the Period of Employment or for one year, whichever is greater;
5
<PAGE> 6
(vi) the value of VCU awards, determined as follows. If termination occurs
on or before December 1, 1997, the Company will pay a pro rata amount of the
value of all VCU awards as determined under the terms of the VCU Plan. If
termination occurs after December 1, 1997, all VCU awards will be valued and
paid in full.
The Company will continue to cover the Executive in the Company's benefit
programs through the end of the Period of Employment or one year from the date
of termination, whichever is greater. The Company may elect, in its sole and
absolute discretion, to pay severance payments in a lump sum equal to the
present value of the future monthly payments (assuming an 8% discount rate),
including amounts necessary to reimburse the Executive for participation in the
Company's benefit plans under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(f) Termination Obligations
Executive acknowledges and agrees that all personal property and equipment
furnished to or prepared by the Executive in the course of or incidental to his
employment belong to the Company and shall be promptly returned to the Company
upon termination of employment by Executive of the Company with or without
Cause or Good Reason. Executive further acknowledges and agrees that all
confidential materials and documents, whether written or contained in computer
files, diskettes, or any other media, remain the property of the Company, shall
be promptly returned to the Company upon termination of employment, and shall
not retain any copies or duplicates or originals of such documents or materials
in any format unless the Company agrees in writing to permit such retention.
6. PROPRIETARY INFORMATION
Executive acknowledges that he has had access to proprietary information, trade
secrets, and confidential material of the Company including, without
limitation, information regarding the Company's business, operations, trade
secret and other proprietary, confidential information, lending and
distribution processes, and other management and financial information.
Executive agrees, without limitation in time or until such information shall
become public other than by Executive's unauthorized disclosure, to maintain
the confidentiality of such information and refrain from divulging, disclosing,
or otherwise using said confidential information to the detriment of the
Company or its subsidiaries, affiliates, successors or assigns, or for any
other purpose.
7. ASSIGNMENT
The Executive's rights and obligations under this Agreement may not be
assigned, and any attempted assignment shall be null and void. The Company may
assign this Agreement, but only to a successor or affiliated organization.
8. NOTICES
6
<PAGE> 7
All notices referred to in this Agreement shall be in writing and delivered to
the Company at its principal address, 18831 Von Karman Avenue, Irvine,
California 92715, or to the Executive at 10200 Linn Station Road, Louisville,
Kentucky 40223.
9. ENTIRE AGREEMENT
The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive
by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms, and that no
extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding involving this Agreement.
10. AMENDMENTS AND WAIVERS
This Agreement may not be modified, amended, or terminated except in writing,
signed by the Executive and by a duly authorized representative of the Company
other than the Executive. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder shall operate as a waiver thereof.
11. SEVERABILITY AND ENFORCEMENT
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be invalid, unenforceable, or void, the remainder of this
Agreement shall remain in full force and effect.
12. GOVERNING LAW
This Agreement shall be interpreted and construed in compliance with the laws
of the State of California, unless a superseding Federal law is applicable.
13. ARBITRATION
The parties agree that any disputes that may arise in connection with, arising
out of or relating to this Agreement, or any dispute that relates in any way,
in whole or in part, to Executive's employment with the Company, the
termination of that employment or any other dispute by and between the parties
or their successors or assigns, will be submitted to binding arbitration in Los
Angeles, California, according to the rules and procedures of the American
Arbitration Association and California Code of Civil Procedure Section 1283.05.
The parties agree that each will bear his or its own attorney's fees
7
<PAGE> 8
and costs in connection with any such arbitration and each party will pay half
of any costs associated with the arbitration. This arbitration obligation
extends to any and all claims that may arise by and between the parties or
their successors, assigns or affiliates, and expressly extends to, without
limitation, claims or causes of action for wrongful termination, impairment of
ability to compete in the open labor market, breach of an express or implied
contract, breach of any collective bargaining agreement, breach of the covenant
of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of earning, and claims under the California or Colorado
constitutions, the United States Constitution, and applicable state and federal
fair state labor statutes and regulations, including, but not limited to, the
Civil Rights Act of 1964, as amended, the Fair Labor Standards Acts, as
amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of
1973, as amended, the Employee Retirement Income Security Act of 1974, as
amended, and the Age Discrimination in Employment Act of 1967.
In witness whereof, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer.
________________________________________
Roger Chamness
Family Restaurants, Inc. El Torito Restaurants, Inc.
By:____________________________________ By:___________________________
Kevin S. Relyea Robert T. Trebing Jr.
President and Chief Executive Officer Vice President
Chi-Chi's, Inc.
By:_____________________________________
Kevin S. Relyea
Chief Executive Officer
8
<PAGE> 1
EXHIBIT 10(v)
EMPLOYMENT AGREEMENT FOR WILLIAM BURT
This Employment Agreement ("Agreement") is entered into as of April 8, 1996, by
and between William Burt ("Executive") and Family Restaurants, Inc., a Delaware
corporation ("FRI"), Chi-Chi's, Inc., a Delaware corporation ("Chi-Chi's"), and
El Torito Restaurants, Inc., a Delaware corporation ("El Torito") (FRI,
Chi-Chi's and El Torito are hereinafter collectively referred to as the
"Company"). Whereas the Company desires to obtain the services of Executive,
and whereas the Executive desires to be employed by the Company upon the
following terms and conditions, the parties agree as follows:
1. POSITION AND DUTIES
Executive will hold the positions and titles of Executive Vice President
("EVP") of FRI and President of El Torito from the date of this Agreement and
for the period of time specified in this Agreement. As the President of El
Torito, Executive reports to the President and Chief Executive Officer of FRI
and will assist the President and Chief Executive Officer in developing and
implementing El Torito's ongoing business strategy and objectives. The
Executive may have additional powers and duties as prescribed from time to time
by the President and Chief Executive Officer and/or the Board of Directors
("Board") of FRI.
Executive agrees to devote all of his business time, skill, attention, and best
efforts to the Company's business and to discharge and fulfill the
responsibilities assigned to him by the Company during his employment under
this Agreement. Executive further agrees that he will not render services to
any other person or entity without the prior written consent of the Company,
and that he will not engage in any activity which conflicts or interferes with
the performance of the duties and responsibilities of his position.
2. TERM OF EMPLOYMENT
This Agreement covers the Executive's employment with the Company from the date
of this Agreement through a period ending on the third anniversary of the date
of this Agreement ("Period of Employment"), or such earlier termination date as
provided for in Section 5 below.
3. LOCATION
Executive will be based at the Company's executive offices in Irvine,
California, and will be expected to travel to the Company's offices and
restaurants at other locations as needed for the performance of his duties and
responsibilities.
1
<PAGE> 2
4. COMPENSATION AND BENEFITS
(a) Salary
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid a salary of not less than $225,000 per year, to be
earned and paid in equal bi-weekly installments, less any deductions required
by law, pursuant to the procedures regularly established by the Company.
Executive may be eligible for periodic increases in base salary as determined
by the Board in its sole and absolute discretion.
(b) Annual Incentive Compensation
During the Period of Employment, the Executive will participate in the
Company's Management Incentive Compensation Plan (the "Plan") as currently
established and as modified from time to time. Under the terms of the current
Plan, Executive's annual incentive award is based upon one or more performance
measures, such as Division sales performance, Division Earnings Before
Interest, Taxes, Depreciation, and Amortization ("EBITDA," as defined in the
Company's SEC filings) performance, and personal objectives. Executive will
have an annual target incentive equal to 80% of his annual base salary. Actual
incentives payable will be determined by the terms of the Plan or successor
plans. The Company reserves the right to modify, amend, or discontinue the
Plan at any time; however, if the Plan is discontinued, it is expected that a
comparable annual incentive plan, as agreed to by the Executive and the
Company, will be implemented in its place.
c) Long Term Incentive Compensation
The Executive will be eligible to participate in the Company's long term
incentive plan ("VCU Plan") which is currently under development. It is
anticipated that Participants' performance will be measured based on the value
created by increases in FRI's EBITDA. Awards under the VCU Plan will be
communicated and agreed to in a separate agreement and will be governed by the
terms of the VCU Plan, except that in the case of termination "By the Company
Without Cause" or for "Good Reason" this Agreement will govern VCU payments.
(d) Benefits
During the Period of Employment, Executive will be entitled to participate in
the Company's standard medical, dental, life, accident, disability, retirement
plans, QRC privileges, and similar plans as shall be generally available to
executive employees of the Company from time to time.
(e) Vacation
During the Period of Employment, the Executive will receive Company paid
vacation time off in accordance with the Company's policies and procedures, as
may be amended from time to time, and which currently provide Executive with 4
weeks vacation per year.
2
<PAGE> 3
(f) Car Allowance
During the Period of Employment, The Company will provide Executive with a car
allowance in accordance with the Company's policies and procedures, as may be
amended from time to time, and which currently provide Executive with an
allowance of Twelve Thousand Dollars ($12,000.00) per year.
(g) Expenses
During the Period of Employment, The Company will reimburse Executive for
travel, lodging, entertainment, and other reasonable business expenses incurred
by him in the performance of his duties in accordance with the Company's
general policies, as may be amended from time to time.
5. TERMINATION OF EMPLOYMENT
The Period of Employment shall terminate:
(a) By Death or Disability
Employment will terminate automatically upon the death of Executive or when
Executive begins to receive benefits under the Company's Long Term Disability
Plan. In such cases, the Company will pay the Executive or his Estate:
(i) the salary to which he is entitled through the date of termination;
(ii) a pro rata portion of the Executive's annual incentive award, if any,
to which he is entitled through the date of termination; and,
(iii) the value of VCU awards, determined as follows. If termination
occurs on or before December 1, 1997, the Company will pay a pro rata amount of
the value of all VCU awards determined under the terms of the VCU Plan. If
termination occurs after December 1, 1997, all VCU awards will be valued and
paid in full.
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(b) By The Company for Cause
The Company may terminate, without liability, the Period of Employment for
Cause as defined below at any time and without notice. In such event, The
Company will pay the Executive the salary and benefits to which he is entitled
through the date of termination and thereafter the Company's obligations will
cease. The Executive will not be entitled to any annual incentive award (VCU
payments) or long term incentive award for the period in which Termination for
Cause occurs.
Termination shall be for Cause if the Executive:
3
<PAGE> 4
(i) willfully breaches significant and material duties he is required to
perform or any of the material terms and conditions of this Agreement;
(ii) commits a material act of fraud, dishonesty, misrepresentation or
other act of moral turpitude;
(iii) is convicted of a felony, whether or not committed during the Period
of Employment or in the course of employment hereunder;
(iv) exhibits gross negligence in the performance of his duties, including,
without limitation, the refusal to perform or carry out the resolutions or
directives of the Board of Directors of the Company that are enacted by
majority vote;
(v) is ordered removed from employment with the Company by a regulatory or
other governmental agency pursuant to applicable law.
(c) By the Company Without Cause
The Company may, upon two weeks' written notice, terminate the employment of
the Executive, at any time, for any reason, with or without Cause and without
liability. If employment is terminated by the Company as described in the
preceding sentence:
(i) The Company will pay the Executive his base salary at the rate in
effect at the time of termination for the remainder of the Period of Employment
or one year from the date of termination, whichever is greater;
(ii) If termination occurs in 1996, the Company shall pay to Executive his
maximum annual incentive award(s) for the remainder of the Period of
Employment. If termination occurs after December 31, 1996, the Company shall
pay the Executive annual incentive award amounts equal to the amount of annual
incentive earned by the Executive in the previous fiscal year for the remainder
of the Period of Employment or for one year, whichever is greater; and,
(iii) The value of VCU awards will be determined as follows. If
termination occurs on or before December 1, 1997, the Company will pay a pro
rata amount of the value of all VCU awards as determined under the terms of the
VCU Plan. If termination occurs after December 1, 1997, all VCU awards will be
valued and paid in full.
The Company will continue to cover the Executive in the Company's benefit
programs through the end of Period of Employment or one year from the date of
termination, whichever is greater. The Company may elect, in its sole and
absolute discretion, to pay severance payments in a lump sum equal to the
present value of the future monthly payments (assuming an 8% discount rate),
including amounts necessary to reimburse the Executive for participation in the
Company's benefit plans under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). After payment of termination benefits,
the Company's obligations under this Agreement will then cease.
4
<PAGE> 5
(d) Voluntary Termination
The Executive may terminate employment at any time by giving the Company one
month's advance written notice of such termination. In this event, the Company
will pay the salary and benefits to which the Executive is entitled through the
end of the notice period, and thereafter the Company's obligations under this
Agreement will cease. The Executive will not be entitled to any annual
incentive or long term incentive grant (VCU Plan) for the year in which he
terminates his employment.
(e) Termination for "Good Reason"
The Executive may also terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean:
(i) any assignment to the Executive of duties other than those contemplated
by this Agreement or in accordance with those typically assumed by a President
or which represent a material reduction in the scope and authority of
Executive's position;
(ii) a Company required relocation of Executive's principal place of work
which requires an increase in Executive's normal commute of more than 50 miles
which is not agreed to by Executive; or,
(iii) any reduction in salary below $225,000 per year which is not agreed to
by Executive.
If Executive terminates employment for "Good Reason," The Company will pay the
Executive:
(iv) his base salary at the rate in effect at the time of termination for
the remainder of the Period of Employment or one year from the date of
termination, whichever is greater;
(v) If termination occurs in 1996, the Company shall pay to Executive his
maximum annual incentive award(s) for the remainder of the Period of
Employment. If termination occurs after December 31, 1996, the Company shall
pay the Executive annual incentive award amounts equal to the amount of annual
incentive earned by the Executive in the previous fiscal year for the remainder
of the Period of Employment or for one year, whichever is greater;
(vi) the value of VCU awards, determined as follows. If termination occurs
on or before December 1, 1997, the Company will pay a pro rata amount of the
value of all VCU awards as determined under the terms of the VCU Plan. If
termination occurs after December 1, 1997, all VCU awards will be valued and
paid in full.
5
<PAGE> 6
The Company will continue to cover the Executive in the Company's benefit
programs through the end of the Period of Employment or one year from the date
of termination, whichever is greater. The Company may elect, in its sole and
absolute discretion, to pay severance payments in a lump sum equal to the
present value of the future monthly payments (assuming an 8% discount rate),
including amounts necessary to reimburse the Executive for participation in the
Company's benefit plans under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
(f) Termination Obligations
Executive acknowledges and agrees that all personal property and equipment
furnished to or prepared by the Executive in the course of or incidental to his
employment belong to the Company and shall be promptly returned to the Company
upon termination of employment by Executive of the Company with or without
Cause or Good Reason. Executive further acknowledges and agrees that all
confidential materials and documents, whether written or contained in computer
files, diskettes, or any other media, remain the property of the Company, shall
be promptly returned to the Company upon termination of employment, and shall
not retain any copies or uplicates or originals of such documents or materials
in any format unless the Company agrees in writing to permit such retention.
6. PROPRIETARY INFORMATION
Executive acknowledges that he has had access to proprietary information, trade
secrets, and confidential material of the Company including, without
limitation, information regarding the Company's business, operations, trade
secret and other proprietary, confidential information, lending and
distribution processes, and other management and financial information.
Executive agrees, without limitation in time or until such information shall
become public other than by Executive's unauthorized disclosure, to maintain
the confidentiality of such information and refrain from divulging, disclosing,
or otherwise using said confidential information to the detriment of the
Company or its subsidiaries, affiliates, successors or assigns, or for any
other purpose.
7. ASSIGNMENT
The Executive's rights and obligations under this Agreement may not be
assigned, and any attempted assignment shall be null and void. The Company may
assign this Agreement, but only to a successor or affiliated organization.
6
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8. NOTICES
All notices referred to in this Agreement shall be in writing and delivered to
the Company at its principal address, 18831 Von Karman Avenue, Irvine,
California 92715 or to the Executive at 25 Mahogany Drive, Irvine, California
92620.
9. ENTIRE AGREEMENT
The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the employment of the Executive
by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms, and that no
extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding involving this Agreement.
10. AMENDMENTS AND WAIVERS
This Agreement may not be modified, amended, or terminated except in writing,
signed by the Executive and by a duly authorized representative of the Company
other than the Executive. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder shall operate as a waiver thereof.
11. SEVERABILITY AND ENFORCEMENT
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be invalid, unenforceable, or void, the remainder of this
Agreement shall remain in full force and effect.
12. GOVERNING LAW
This Agreement shall be interpreted and construed in compliance with the laws
of the State of California, unless a superseding Federal law is applicable.
13. ARBITRATION
The parties agree that any disputes that may arise in connection with, arising
out of or relating to this Agreement, or any dispute that relates in any way,
in whole or in part, to Executive's employment with the Company, the
termination of that employment or any other dispute by and between the parties
or their successors or assigns, will be submitted to binding arbitration in Los
Angeles, California, according to the rules and procedures of the American
Arbitration Association and California Code of Civil Procedure Section 1283.05.
The parties agree that each will bear his or its own attorney's fees
7
<PAGE> 8
and costs in connection with any such arbitration and each party will pay half
of any costs associated with the arbitration. This arbitration obligation
extends to any and all claims that may arise by and between the parties or
their successors, assigns or affiliates, and expressly extends to, without
limitation, claims or causes of action for wrongful termination, impairment of
ability to compete in the open labor market, breach of an express or implied
contract, breach of any collective bargaining agreement, breach of the covenant
of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of earning, and claims under the California or Colorado
constitutions, the United States Constitution, and applicable state and federal
fair state labor statutes and regulations, including, but not limited to, the
Civil Rights Act of 1964, as amended, the Fair Labor Standards Acts, as
amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of
1973, as amended, the Employee Retirement Income Security Act of 1974, as
amended, and the Age Discrimination in Employment Act of 1967.
In witness whereof, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer.
_______________________________________
William Burt
Family Restaurants, Inc. El Torito Restaurants, Inc.
By:____________________________________ By:_______________________
Kevin S. Relyea Robert T. Trebing, Jr.
President and Chief Executive Officer Vice President
Chi-Chi's, Inc.
By:__________________________________
Kevin S. Relyea
Chief Executive Officer
8
<PAGE> 1
EXHIBIT 10(w)
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND AMONG
FAMILY RESTAURANTS, INC.,
FRI MRD CORPORATION,
EL TORITO RESTAURANTS, INC.,
CHI-CHI'S, INC.,
EACH OF THEIR SUBSIDIARIES,
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF JANUARY 10, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.1 Chi-Chi's Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.2 Chi-Chi's Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.3 El Torito Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.4 El Torito Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.5 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations. . . . . . . . . . . . . 33
2.7 Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.8 Crediting Payments; Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.9 Designated Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.10 Maintenance of Loan Accounts; Statements of Obligations. . . . . . . . . . . . . . . . . . . . . 37
2.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1 Conditions Precedent to the Initial Advance or Initial Letter of Credit. . . . . . . . . . . . . 39
3.2 Conditions Precedent to all Advances and Letters of Credit. . . . . . . . . . . . . . . . . . . 42
3.3 Conditions Subsequent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.5 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.6 Early Termination by Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.7 Termination Upon Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.1 Grant of Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.3 [Intentionally omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.4 Delivery of Additional Documentation Required. . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.6 Right to Inspect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
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5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.1 No Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.2 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.3 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.4 Equipment Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.5 Location of Chief Executive Offices; FEINs. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.6 Due Organization and Qualification; Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 47
5.7 Due Authorization; No Conflict - FRI-MRD and Borrower. . . . . . . . . . . . . . . . . . . . . . 48
5.8 Due Authorization; No Conflict - Guarantors. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.10 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.11 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.12 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.13 Environmental Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.14 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.2 Collateral and Operations Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.3 Financial Statements, Reports, Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.5 Title to Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.6 Maintenance of Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.8 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.9 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.10 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.11 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.12 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.13 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.3 Restrictions on Fundamental Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.4 Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.5 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.6 [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.7 Nature of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.8 [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.9 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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7.10 [Intentionally omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.11 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.12 Accounting Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.14 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.15 Suspension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.16 [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.17 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees. . . . . . . . 63
7.19 No Prohibited Transactions Under ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.20 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.21 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.2 Foothill's Liability for Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
14. DESTRUCTION OF FRI-MRD'S AND BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
15.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
15.3 Section Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
15.4 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
15.5 Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
15.7 Counterparts; Telefacsimile Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
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15.8 Revival and Reinstatement of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
15.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
15.11 Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SCHEDULES AND EXHIBITS
Schedule A-1 Anaheim Property
Schedule C-1 Chi-Chi's Specified Assets
Schedule D-1 Dinnerhouse Assets
Schedule E-1 Non-Encumberable More Important Contracts
Schedule H-1 Headquarters Property
Schedule P-1 Permitted Liens
Schedule P-2 Permitted Sale and Lease-backs of Existing Restaurants
Schedule R-1 Real Property Collateral
Schedule S-1 Specified Leaseholds
Schedule 5.6 List of Subsidiaries
Schedule 5.9 Litigation
Schedule 5.12 ERISA Benefit Plans
Schedule 6.10 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Exhibit A-1 Form of Anaheim Mortgage
Exhibit C-1 Form of Compliance Certificate
Exhibit G-1 Form of Guaranty (Guarantors)
Exhibit G-2 Form of Guaranty (FRI)
Exhibit G-3 Form of Guaranty (Chi-Chi's and El Torito)
Exhibit G-4 Form of Guarantor Security Agreement
Exhibit H-1 Form of Headquarters Mortgage
Exhibit L-1 Form of Leasehold Mortgage
Exhibit L-1 Form of Lessor Consent
Exhibit M-1 Form of Mortgage
Exhibit S-1 Form of Stock Pledge Agreement
Exhibit S-2 Form of FRI Subordination Agreement
Exhibit T-1 Form of Trademark Security Agreement
Exhibit V-1 Form of VCOC Letter
Exhibit 3.1(c)(i) Form of Concentration Account Agreement
Exhibit 3.1(k) Form of Opinion of Counsel of Borrower and Guarantors
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into
as of January 10, 1997, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, on the one
hand, and, on the other hand, FRI-MRD CORPORATION, a Delaware corporation
("FRI-MRD"), with its chief executive office located at 18831 Von Karman
Avenue, Irvine, California 92612, EL TORITO RESTAURANTS, INC., a Delaware
corporation ("El Torito"), with its chief executive office located at 18831 Von
Karman Avenue, Irvine, California 92612, and CHI-CHI'S, INC., a Delaware
corporation ("Chi-Chi's"), with its chief executive office located at 18831 Von
Karman Avenue, Irvine, California 92612, and in addition, for purposes of
acknowledging and agreeing to Section 15.11 of this Agreement, by FAMILY
RESTAURANTS, INC., a Delaware corporation ("FRI"), with its chief executive
office located at 18831 Von Karman Avenue, Irvine, California 92612, FRI-ADMIN
CORPORATION, a Delaware corporation ("FRI-Admin"), with its chief executive
office located at 18831 Von Karman Avenue, Irvine, California 92612, EL TORITIO
FRANCHISING COMPANY, a Delaware corporation ("Franchising"), with its chief
executive office located at 18831 Von Karman Avenue, Irvine, California 92612,
CCMR OF TIMONIUM, INC., a Delaware corporation with its chief executive office
located at 10200 Linn Station Road, Louisville, Kentucky 40223, CCMR OF
MARYLAND, INC., a Delaware corporation with its chief executive office located
at 10200 Linn Station Road, Louisville, Kentucky 40223, CHI-CHI'S OF KANSAS,
INC., a Kansas corporation with its chief executive office located at 10200
Linn Station Road, Louisville, Kentucky 40223, CHI-CHI'S OF GREENBELT, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CHI-CHI'S FRANCHISE OPERATIONS
CORPORATION, a Kentucky corporation with its chief executive office located at
10200 Linn Station Road, Louisville, Kentucky 40223, CCMR OF CANTONSVILLE,
INC., a Kentucky corporation with its chief executive office located at 10200
Linn Station Road, Louisville, Kentucky 40223, CCMR OF GREENBELT, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CCMR OF RITCHIE HIGHWAY, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CHI-CHI'S MANAGEMENT CORPORATION, a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CCMR OF CUMBERLAND, INC., a Kentucky
corporation with its chief executive office located at 10200 Linn Station Road,
Louisville, Kentucky 40223, CCMR OF HARFORD COUNTY, INC., a Kentucky
corporation with its chief executive office located at 10200 Linn Station Road,
Louisville, Kentucky 40223, CHI-CHI'S OF SOUTH CAROLINA, INC., a Kentucky
corporation with its chief executive office located at 10200 Linn Station Road,
Louisville, Kentucky 40223, MAINTENANCE SUPPORT
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GROUP, INC., a Kentucky corporation with its chief executive office located at
10200 Linn Station Road, Louisville, Kentucky 40223, CCMR OF FREDERICK, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CCMR OF INNER HARBOR, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CHI- CHI'S OF WEST VIRGINIA, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, CCMR ADVERTISING AGENCY, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223, and CCMR OF GOLDEN RING, INC., a
Kentucky corporation with its chief executive office located at 10200 Linn
Station Road, Louisville, Kentucky 40223.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the
following terms shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to a Person
arising out of the sale or lease of goods or the rendition of services by such
Person, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Acquisition" means any purchase or other acquisition by
FRI-MRD or its Subsidiaries of the assets or Stock of any other Person, other
than (a) the purchase of Inventory or Equipment in the ordinary course of
business, (b) capital expenditures to the extent not prohibited by this
Agreement, and (c) the acquisition of cash or cash equivalents as consideration
for the sale of Inventory or the rendition of services in the ordinary course
of business.
"Acquisition Lien" means in respect of the assets of any
Person that is the subject of a Permitted Acquisition, a Lien that attaches
solely to such assets, is in existence immediately prior to such Acquisition,
and was not created in connection with, or in anticipation of, the Acquisition
of such Person.
"Advances" means Chi-Chi's Advances or El Torito Advances, as
the context requires.
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"Affiliate" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, or is under common
control with such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person; provided, that Foothill shall not be deemed an Affiliate
of Borrower or any Guarantor.
"Agreement" has the meaning set forth in the preamble hereto.
"Anaheim Mortgage" means a deed of trust, assignment of rents,
and security agreement executed by FRI-Admin in favor of Foothill, in
substantially the form of Exhibit A-1, that encumbers the Anaheim Property and
the related improvements thereto.
"Anaheim Property" means the Real Property of FRI-Admin
located at 1751 S. State College Blvd., Anaheim, California 92801 and more
particularly described on Schedule A-1.
"Anniversary Date" has the meaning set forth in Section
3.3(b).
"Apollo" means Apollo FRI Partners, L.P.
"Apollo Related Persons" means Apollo or any of its Permitted
Transferees (exclusive of FRI and its Subsidiaries).
"Applicable Termination Premium" means an amount equal to the
Maximum Amount, times the following percentages, as applicable: (a) up to but
not including the first anniversary of the Closing Date - 2.0%, (b) on and
after the first anniversary of the Closing Date and up to but not including the
third anniversary of the Closing Date - 1.5%, (c) on and after the third
anniversary of the Closing Date and up to but not including the fourth
anniversary of the Closing Date - .75%, and (d) on and after the fourth
anniversary of the Closing Date until the fifth anniversary of the Closing Date
- - .50%.
"Asset Disposition" means any sale, transfer, or other
disposition, directly or indirectly, of any of the properties or assets of
FRI-MRD or any of its Subsidiaries on or after the date hereof.
"Authorized Person" means (a) any officer of Borrower, or (b)
any employee of Borrower identified from time to time by an officer of Borrower
in a writing delivered to Foothill.
"Average Unused Portion of Maximum Amount" means, as of any
date of determination, (a) the Maximum Amount, less (b) the sum of (i) the
average Daily Balance of
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Advances that were outstanding during the immediately preceding month, plus
(ii) the average Daily Balance of the undrawn Letters of Credit that were
outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which FRI-MRD, any Subsidiary of FRI- MRD, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Blockage Event" means (a) a Default under Section 8.1, or (b)
any Event of Default.
"Borrower" means Chi-Chi's and El Torito, individually and
collectively, jointly and severally.
"Borrower Intellectual Property" means the General Intangibles
of Borrower consisting of: (a) all trademarks, service marks, trade names,
trade styles, trade dress, logos, other source or business identifiers, designs
and general intangibles of like nature; and (b) all the goodwill of each
Debtor's business symbolized by the foregoing or associated therewith.
"Books" means all of a Person's books and records, including
records indicating, summarizing, or evidencing the Collateral or the Guarantor
Collateral and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information relating to the foregoing.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such
time after the date hereof as:
(a) the Apollo Related Persons fail to own and control
(without being subject to any voting trust, voting agreement,
shareholders agreement, or any other agreement or arrangement
limiting or affecting the voting of such Voting Stock (other
than the Shareholder Agreement)) at any time 51% or more of
the outstanding Voting Stock of FRI by vote (assuming that all
convertible instruments, warrants, or options then outstanding
have been exercised),
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(b) the Apollo Related Persons shall fail to have or have the
power to elect a majority of the Board of Directors of FRI,
(c) a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act, but not including an
Apollo Related Person or a Green Related Person) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 20% or more of the
outstanding Voting Stock of FRI by vote; provided, however,
that, any shares of Voting Stock of FRI issued directly by FRI
to such "person" or "group" for value shall not be counted
towards the foregoing percentage (unless they are issued in
one or a series of related transactions involving the
redemption or other acquisition of shares of Voting Stock held
by an Apollo Related Person or a Green Related Person),
(d) the Apollo Related Persons shall fail to own, directly or
indirectly (which may be through FRI or its Subsidiaries), and
control (without being subject to any voting trust, voting
agreement, shareholders agreement, or any other agreement or
arrangement limiting or affecting the voting of such Voting
Stock (other than the Shareholder Agreement)) at any time 51%
or more of the outstanding Voting Stock of FRI-MRD by vote
(assuming that all convertible instruments, warrants, or
options then outstanding have been exercised),
(e) FRI-MRD shall fail to own free and clear of any consensual
Liens of any Person (other than Liens in favor of Foothill)
and control (without being subject to any voting trust, voting
agreement, shareholders agreement, or any other agreement or
arrangement limiting or affecting the voting of such Voting
Stock) at any time 100% of the outstanding Voting Stock of
FRI- Admin by vote (other than directors qualifying shares and
assuming that all convertible instruments, warrants, or
options then outstanding have been exercised),
(f) FRI-MRD shall fail to own free and clear of any consensual
Liens of any Person (other than Liens in favor of Foothill)
and control (without being subject to any voting trust, voting
agreement, shareholders agreement, or any other agreement or
arrangement limiting or affecting the voting of such Voting
Stock) at any time 100% of the outstanding Voting Stock of
Chi- Chi's by vote (other than directors qualifying shares and
assuming that all convertible instruments, warrants, or
options then outstanding have been exercised), or
(g) FRI-MRD shall fail to own free and clear of any consensual
Liens of any Person (other than Liens in favor of Foothill)
and control (without being subject to any voting trust, voting
agreement, shareholders agreement, or any other
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agreement or arrangement limiting or affecting the voting of
such Voting Stock) at any time 100% of the outstanding Voting
Stock of El Torito by vote (other than directors qualifying
shares and assuming that all convertible instruments,
warrants, or options then outstanding held by Persons have
been exercised).
"Chi-Chi's" has the meaning set forth in the preamble to this
Agreement.
"Chi-Chi's Advances" has the meaning set forth in Section
2.1(a).
"Chi-Chi's Designated Account" means account number
12358-05958 of Chi-Chi's maintained with Chi-Chi's' Designated Account Bank, or
such other deposit account of Chi-Chi's (located within the United States)
designated, in writing and from time to time, by Chi-Chi's to Foothill.
Chi-Chi's' Designated Account Bank" means Bank of America
whose office is located in Concord, California, and whose ABA number is
121000358.
"Chi-Chi's Letter of Credit Usage" means the sum of (a) the
undrawn amount of Chi-Chi's Letters of Credit, plus (b) the amount of
unreimbursed drawings under Chi-Chi's Letters of Credit.
"Chi-Chi's Letters of Credit" means an L/C or an L/C Guaranty,
as the context requires, issued for the benefit of Chi-Chi's.
"Chi-Chi's Loan Account" has the meaning set forth in Section
2.10.
"Chi-Chi's Overadvance" has the meaning set forth in Section
2.5.
"Chi-Chi's Specified Assets" means the properties or assets
directly related to the operation of restaurants of Chi-Chi's identified on
Schedule C-1.
"Chi-Chi's Subsidiaries" means Chi-Chi's of Greenbelt, Inc., a
Kentucky corporation, Chi-Chi's of Kansas, Inc., a Kansas corporation,
Chi-Chi's of South Carolina, Inc., a Kentucky corporation, Chi-Chi's of West
Virginia, Inc., a Kentucky corporation, Chi-Chi's Franchise Operations
Corporation, a Kentucky corporation, Chi-Chi's Management Corporation, a
Kentucky corporation, Maintenance Support Group, Inc., a Kentucky corporation,
CCMR Advertising Agency, Inc., a Kentucky corporation, CCMR of Catonsville,
Inc., a Kentucky corporation, CCMR of Cumberland, Inc., a Kentucky corporation,
CCMR of Frederick, Inc., a Kentucky corporation, CCMR of Golden Ring, Inc., a
Kentucky corporation, CCMR of Greenbelt, Inc., a Kentucky corporation, CCMR of
Harford County, Inc., a Kentucky corporation,
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CCMR of Inner Harbor, Inc., a Kentucky corporation, CCMR of Maryland, Inc., a
Delaware corporation, CCMR of Ritchie Highway, Inc., a Kentucky corporation,
and CCMR of Timonium, Inc., a Delaware corporation.
"Chi-Chi's Usage" means, on the date any determination thereof
is to be made, the sum of (a) the outstanding amount of the Chi-Chi's Advances,
plus (b) the Chi-Chi's Letter of Credit Usage
"Closing Date" means the date of the first to occur of the
making of the initial Advance or the issuance of the initial Letter of Credit.
"Code" means the California Uniform Commercial Code.
"Collateral" means the interests of the Debtors in each of the
following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Negotiable Collateral,
(g) Real Property Collateral,
(h) any money, or other assets of the Debtors that now or
hereafter come into the possession, custody, or
control of Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Books,
Equipment, General Intangibles, Inventory, Negotiable
Collateral, Real Property, money, deposit accounts,
or other tangible or intangible property resulting
from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds
thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, or other Person in possession of, having a
Lien upon, or having rights or interests in the Equipment or Inventory, in each
case, in form and substance reasonably satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
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"Compliance Certificate" means a certificate substantially in
the form of Exhibit C-1 and delivered by an executive officer of Borrower to
Foothill.
"Concentration Account" means (a) in the case of Chi-Chi's,
account number 12358-05958 of Chi-Chi's maintained with the Concentration
Account Bank, (b) in the case of El Torito's, account number 11014-06159 of El
Torito maintained with the Concentration Account Bank, and (c) in the case of
FRI-MRD, account number 12359-00417 of FRI-MRD maintained with the
Concentration Account Bank, or, in each case, such other account established
and maintained with the Concentration Account Bank and designated in writing
from time to time by Borrower to Foothill upon 30 days or more prior written
notice.
"Concentration Account Bank" means (a) Bank of America, whose
office is located in Concord, California, and whose ABA number is 121000358, or
(b) any other domestic commercial bank that is reasonably acceptable to
Foothill and is designated in writing from time to time by Borrower to Foothill
upon 30 days or more prior written notice, subject to the execution and
delivery of such concentration account agreements as are in form and substance
reasonably satisfactory to Foothill.
"Daily Balance" means the amount of an Obligation owed at the
end of a given day.
"Debtor" means Chi-Chi's or El Torito, as the context may
require.
"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Dinnerhouse Assets" means properties or assets directly
related to the operation of FRI-Admin's "Charley Brown's" or "Reuben's"
restaurants that are identified on Schedule D-1.
"Disbursement Letter" means an instructional letter executed
and delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be reasonably
satisfactory to Foothill.
"Dollars or $" means United States dollars.
"EBITDA" means, with respect to any fiscal period of a Person,
such Person's earnings (excluding extraordinary items (determined in accordance
with GAAP)), plus (except
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<PAGE> 14
to the extent attributable to extraordinary items (determined in accordance
with GAAP)) the amount of any interest, taxes, depreciation, amortization
deducted in arriving at such earnings, and, without duplication, plus losses
and less gains upon dispositions of properties added or deducted in arriving at
such earnings.
"El Torito" has the meaning set forth in the preamble to this
Agreement.
"El Torito Advances" has the meaning set forth in Section
2.3(a).
"El Torito Designated Account" means account number
11014-06159 of El Torito maintained with El Torito's Designated Account Bank,
or such other deposit account of El Torito (located within the United States)
designated, in writing and from time to time, by El Torito to Foothill.
"El Torito's Designated Account Bank" means Bank of America
whose office is located in Concord, California, and whose ABA number is
121000358.
"El Torito Letter of Credit Usage" means the sum of (a) the
undrawn amount of El Torito Letters of Credit, plus (b) the amount of
unreimbursed drawings under El Torito Letters of Credit.
"El Torito Letters of Credit" means an L/C or an L/C Guaranty,
as the context requires, issued for the benefit of El Torito.
"El Torito Usage" means, on the date any determination thereof
is to be made, the sum of (a) the outstanding amount of the El Torito Advances,
plus (b) the El Torito Letter of Credit Usage
"El Torito Loan Account" has the meaning set forth in Section
2.10.
"El Torito Overadvance" has the meaning set forth in Section
2.5.
"Equipment" means all of a Person's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
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"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Section Section 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation whose employees
are treated as employed by the same employer as the employees of FRI-MRD or its
Subsidiaries under IRC Section 414(b), (b) any trade or business whose
employees are treated as employed by the same employer as the employees of
FRI-MRD or its Subsidiaries under IRC Section 414(c), (c) solely for purposes
of Section 302 of ERISA and Section 412 of the IRC, any organization that is a
member of an affiliated service group of which FRI-MRD or its Subsidiaries are
a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any party that is a party to an arrangement
with FRI-MRD or its Subsidiaries and whose employees are aggregated with the
employees of FRI-MRD or its Subsidiaries under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of FRI- MRD or any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that reasonably might be
expected to provide a basis under Section 4042(a)(1), (2), or (3) of ERISA for
the termination of, or the appointment of a trustee to administer, any Benefit
Plan or Multiemployer Plan, or (ii) that reasonably might be expected to result
in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f)
the partial or complete withdrawal within the meaning of Sections 4203 and 4205
of ERISA, of FRI-MRD or any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by FRI-MRD or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lender" means Credit Lyonnais, New York Branch.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor statute thereto.
"Excluded Contract Right" means, with respect to any Person,
and with respect to any contract to which such Person is a party, a right or
privilege of such Person under such contract, or an obligation due to such
Person under such contract, that: (a) In the case of a More
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<PAGE> 16
Important Contract, arises under a contract described on Schedule E-1 hereto;
or (b) In the case of a Less Important Contract, (i) does not consist of the
right of such Person to receive a payment, or an obligation due to such Person
with respect to a payment, and (ii) is, by the express terms of such contract,
subject to a restriction on assignability that prohibits the pledge,
hypothecation, mortgage, encumbrance, or grant of a Lien on same, if such
restriction is enforceable, and if the breach of such restriction by such
Person would constitute a material breach of such contract sufficient to give
rise to a right on the part of another party to such contract to terminate such
contract or to impose liability for not insignificant damages upon such Person
for breach of such contract; provided that the proceeds of any disposition of
any Excluded Contract Right shall not constitute an Excluded Contract Right,
and any such proceeds shall be subject to Foothill's security interest.
"Federated Securities Account" means (a) the Securities
Account maintained by FRI with Federated Investors, or (b) such other
Securities Account that is maintained with a financial intermediary or
depository reasonably acceptable to Foothill and that is designated in writing
from time to time by FRI to Foothill upon 30 days or more prior written notice,
subject to the execution and delivery of such control agreements as are in form
and substance reasonably satisfactory to Foothill.
"FEIN" means Federal Employer Identification Number.
"Flagstar Bonds" means those certain 12-1/2% Series A Senior
Notes of FRD Acquisition Corp. issued to FRI and having, as of the Closing
Date, an approximate principal balance of $6,500,000.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by FRI or its Subsidiaries
under any of the Loan Documents that are paid or incurred by Foothill as
permitted hereunder or thereunder; reasonable out-of- pocket fees or charges
paid or incurred by Foothill in connection with Foothill's transactions with
FRI or its Subsidiaries including, fees or charges for notarization, couriers
and messengers, telecommunication, public record searches (including tax lien,
litigation, and ucc searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, (subject to Section 2.11(d)) appraisal
(including periodic Collateral or Guarantor Collateral appraisals), real estate
surveys, real estate title policies and endorsements, and, subject to Section
2.11(d) environmental audits; actual out-of-pocket costs and expenses incurred
by Foothill in the disbursement of funds to Borrower (by wire
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transfer or otherwise); actual out-of-pocket charges paid or incurred by
Foothill resulting from the dishonor of checks drawn on, or endorsed by or on
behalf of Borrower; reasonable out-of-pocket costs and expenses paid or
incurred by Foothill to correct any default or enforce any provision of the
Loan Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral or the Guarantor Collateral, or any portion thereof, irrespective of
whether a sale is consummated; subject to Section 2.11(d), reasonable costs and
expenses paid or incurred by Foothill in examining the Books of FRI or its
Subsidiaries; reasonable out-of-pocket costs and expenses paid or incurred by
Foothill in connection with its prosecution of statutory third party claims or
paid or incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with FRI or its Subsidiaries arising out of the Loan
Documents; and Foothill's reasonable out-of-pocket attorneys fees and expenses
incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including reasonable out-of-pocket attorneys
fees and expenses incurred in connection with a "workout," a "restructuring,"
or an Insolvency Proceeding concerning any one of FRI, FRI-MRD, Chi-Chi's, El
Torito, or any of the other Subsidiaries of FRI), defending, or concerning the
Loan Documents, irrespective of whether suit is brought.
"Franchising" has the meaning set forth in the preamble to
this Agreement.
"FRI" has the meaning set forth in the preamble to this
Agreement.
"FRI-Admin" has the meaning set forth in the preamble to this
Agreement.
"FRI-MRD" has the meaning set forth in the preamble to this
Agreement.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of a Person's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature,
reports, catalogs, deposit accounts, insurance premium rebates, tax refunds,
and tax refund claims), other than its goods, Accounts, and Negotiable
Collateral; provided that General Intangibles shall not include any Excluded
Contract Right.
"Green" means Green Equity Investors, L.P.
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<PAGE> 18
"Green Related Persons" means Green or any of its Permitted
Transferees (exclusive of FRI and its Subsidiaries).
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Guaranties" means (a) those certain General Continuing
Guaranties to be executed and delivered by each of the Guarantors (other than
FRI), in substantially the form of Exhibit G-1, (b) that certain General
Continuing Guaranty to be executed and delivered by FRI, in substantially the
form of Exhibit G-2, and (c) those certain General Continuing Guaranties to be
executed and delivered by Chi-Chi's and El Torito, in substantially the form of
Exhibit G-3.
"Guarantor Collateral" means the properties and assets of the
Guarantors that are hypothecated by them in favor of Foothill pursuant to the
Loan Documents, including the Anaheim Property and the Headquarters Property.
"Guarantor Security Agreement" means, those certain Security
Agreements to be executed and delivered by each of the Guarantors, in
substantially the form of Exhibit G-4, and which, in the case of FRI, shall
include subject to the terms thereof, as a portion of the subject collateral,
FRI's interests in the Flagstar Bonds and the Federated Securities Account.
"Guarantors" means FRI, FRI-MRD, FRI-Admin, Franchising, each
of the Chi-Chi's Subsidiaries and each of the other Subsidiaries of FRI-MRD
from time to time party to one of the Guaranties.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any explosives or any
radioactive materials, and (d) asbestos in any form or electrical equipment
that contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.
"Headquarters Mortgage" means a deed of trust, assignment of
rents, and security agreement executed by FRI in favor of Foothill, in
substantially the form of Exhibit H-1, that encumbers the Headquarters Property
and the related improvements thereto.
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"Headquarters Property" means the Real Property of FRI located
at 2701 Alton Avenue, Irvine, California and more particularly described on
Schedule H-1.
"Indebtedness" means, with respect to any Person: (a) all
obligations for borrowed money, (b) all monetary obligations evidenced by
bonds, debentures, notes, or other similar instruments and all reimbursement or
other monetary obligations in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all monetary
obligations under capital leases, (d) all obligations of others secured by a
Lien on any property or asset of such Person, irrespective of whether such
obligation is assumed, and (e) any obligation guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to such Person) any other Person's Indebtedness. The foregoing to the
contrary notwithstanding, the term "Indebtedness" shall not include (i) any
liability of a Person for the deferred purchase price of services or property
incurred in the ordinary course of business, and (ii) interest rate caps,
collars, and other insurance-type financial products. For purposes of this
definition, if the obligation of any other Person secured by a Lien in item (d)
of this definition is not a monetary obligation, then the amount of such
obligation shall equal the lesser of the value of the asset encumbered by such
Lien and the reasonably estimated amount of the secured obligation. If
Indebtedness of FRI-MRD or one of its Subsidiaries is permitted hereunder, a
guaranty thereof by FRI-MRD or one or more of its Subsidiaries also shall be
permitted hereunder and the maximum amount of Indebtedness that shall be deemed
incurred for purposes of Section 7.1 is the amount of the Indebtedness that has
been guarantied.
"Insolvency Event" means, with respect to any Person, the
occurrence of any of the following: (a) such Person shall be adjudicated
insolvent or bankrupt, or shall generally fail to pay or admit in writing its
inability to pay its debts as they become due, (b) such Person shall seek
dissolution, reorganization under the Bankruptcy Code or other insolvency law,
or the appointment of a receiver, trustee, custodian or liquidator for it or a
substantial portion of its property, assets or business or to effect a plan or
other arrangement generally with its creditors, (c) such Person shall make a
general assignment for the benefit of its creditors, or consent to or acquiesce
in the appointment of a receiver, trustee, custodian or liquidator for a
substantial portion of its property, assets or business, (d) such Person shall
file a voluntary petition under any bankruptcy, insolvency or similar law, or
(e) such Person, or a substantial portion of its property, assets or business
shall become the subject of an involuntary proceeding or petition for its
dissolution, reorganization, or the appointment of a receiver, trustee,
custodian or liquidator or shall become subject to any writ, judgment, warrant
of attachment, execution or similar process, and any such proceeding, petition,
writ, judgment, warrant of attachment, execution or similar process shall not
be released, vacated or fully bonded within 30 days after commencement, filing
or levy, as the case may be, or any order for relief shall be entered in any
such proceeding.
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"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, general assignments for the benefit of
creditors, moratoria, compositions, or extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Inventory" means all present and future inventory in which a
Person has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of such Person's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Investment Property" means "investment property" as that term
is defined in Section 9-115 of the Official Text of the Uniform Commercial Code
and as defined in California Senate Bill 1591 which was approved by the
Governor of the State of California on September 14, 1996 and will be effective
on January 1, 1997 as part of Code.
"Investments" means (a) the acquisition of securities (whether
debt or equity) of, or other ownership interests in, a Person, (b) loans,
advances, capital contributions, or transfers of property to a Person, or (c)
the acquisition of all or substantially all of the properties or assets of a
Person. The foregoing to the contrary notwithstanding, none of the acts or
events that are permitted by the proviso to Section 7.3 shall constitute
Investments.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the Treasury regulations promulgated thereunder.
"L/C" means a letter of credit issued by Foothill for the
account of a Debtor.
"L/C Guaranty" means a guaranty of payment issued by Foothill
with respect to a letter of credit issued by an issuing bank for the account of
a Debtor.
"Leaseholds" means (a) the Specified Leaseholds, and (b) such
other leasehold estate of Borrower on which it operates a restaurant and as to
which Foothill and Borrower have agreed upon the applicable Stipulated Cash
Flow.
"Leasehold Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by FRI-MRD or its Subsidiaries, as
applicable, in favor of Foothill, in
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<PAGE> 21
substantially the form of Exhibit L-1, that encumber a Leasehold and the
related improvements thereto.
"Less Important Contract" means, with respect to any Person, a
contract to which such Person is a party that is not a More Important Contract.
"Lessor Consent" means an agreement by a lessor of a Leasehold
consenting to the hypothecation by Borrower to Foothill of Borrower's Leasehold
interest and containing other customary mortgagee protection provisions, the
form of such agreements to be substantially in the form of Exhibit L-2 attached
hereto or otherwise in form and substance reasonably satisfactory to Foothill.
"Letters of Credit" means Chi-Chi's Letters of Credit or El
Torito Letters of Credit, as the context requires.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property,
whether such interest shall be based on the common law, statute, or contract,
whether such interest shall be recorded or perfected, and whether such interest
shall be contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances, including the lien or
security interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting
Real Property.
"Loan Account" means the Chi-Chi's Loan Account or the El
Torito Loan Account, as the context requires.
"Loan Documents" means this Agreement, the Disbursement
Letter, the Guaranties, the Guarantor Security Agreements, the Letters of
Credit, the Mortgages, the Anaheim Mortgage, the Headquarters Mortgage, the
Leasehold Mortgages, the Stock Pledge Agreements, the Trademark Security
Agreements, the VCOC Letter, the Subordination Agreement, any note or notes
executed by Borrower and payable to Foothill, and any other agreement entered
into, now or in the future, in connection with this Agreement.
"Material Adverse Change" means (a) a material and adverse
change in the business, prospects, assets, or financial condition of Borrower,
(b) the material impairment of FRI or its Subsidiaries' ability to perform
their obligations under the Loan Documents to which they
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<PAGE> 22
are parties or of Foothill's ability to enforce the Obligations, in each case,
other than as the proximate result of the action or inaction of Foothill, or
(c) a Material Adverse Collateral Change.
"Material Adverse Collateral Change" means (a) a material and
adverse decline in the value of the Collateral (exclusive of the Stock of the
Chi-Chi's Subsidiaries and exclusive of dispositions of the Collateral that are
not prohibited by the Loan Documents) or the Guarantor Collateral (exclusive of
the Stock of Subsidiaries of such Guarantors and exclusive of dispositions of
the Guarantor Collateral that are not prohibited by the Loan Documents) or the
amount that Foothill would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral or Guarantor Collateral, or (b) a material impairment of the
priority of Foothill's Liens with respect to the Collateral or the Guarantor
Collateral, in each case, other than as the proximate result of the action or
inaction of Foothill.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means, as of any date of determination, the
result of (a) $35,000,000, minus (b) 100% of the Net Proceeds in excess of
$3,500,000 received by FRI-MRD or its Subsidiaries on or after the Closing Date
from Permitted Dispositions (other than (i) Asset Dispositions of Dinnerhouse
Assets, (ii) Asset Dispositions of Chi-Chi's Specified Assets, (iii) Ordinary
Course Dispositions, and (iv) Permitted Sale and Lease-backs).
"Maximum Chi-Chi's Amount" means (a) $35,000,000, minus (b)
100% of the Net Proceeds in excess of $3,500,000 received by FRI- MRD or its
Subsidiaries on or after the Closing Date from Permitted Dispositions (other
than (i) Asset Dispositions of Dinnerhouse Assets, (ii) Asset Dispositions of
Chi-Chi's Specified Assets, (iii) Ordinary Course Dispositions, and (iv)
Permitted Sale and Lease-backs).
"Maximum Chi-Chi's Revolving Amount" means (a) $15,000,000,
minus (b) 100% of the Net Proceeds in excess of $3,500,000 received by FRI-MRD
or its Subsidiaries on or after the Closing Date from Permitted Dispositions
(other than (i) Asset Dispositions of Dinnerhouse Assets, (ii) Asset
Dispositions of Chi-Chi's Specified Assets, (iii) Ordinary Course Dispositions,
and (iv) Permitted Sale and Lease-backs).
"Maximum El Torito Amount" means (a) $35,000,000, minus (b)
100% of the Net Proceeds in excess of $3,500,000 received by FRI- MRD or its
Subsidiaries on or after the Closing Date from Permitted Dispositions (other
than (i) Asset Dispositions of Dinnerhouse Assets, (ii) Asset Dispositions of
Chi-Chi's Specified Assets, (iii) Ordinary Course Dispositions, and (iv)
Permitted Sale and Lease-backs).
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<PAGE> 23
"Maximum El Torito Revolving Amount" means (a) $15,000,000,
minus (b) 100% of the Net Proceeds in excess of $3,500,000 received by FRI-MRD
or its Subsidiaries on or after the Closing Date from Permitted Dispositions
(other than (i) Asset Dispositions of Dinnerhouse Assets, (ii) Asset
Dispositions of Chi-Chi's Specified Assets, (iii) Ordinary Course Dispositions,
and (iv) Permitted Sale and Lease-backs).
"More Important Contract" means, with respect to any Person, a
contract to which such Person is a party: (a) Described on Schedule E-1 to this
Agreement; (b) the material breach of which by such Person could give rise to a
claim against such Person that is material in relation to such Person's
financial condition; or (c) the termination of which could interfere
substantially with the ongoing operations, businesses, or prospects of such
Person.
"Mortgages" means one or more mortgages, deeds of trust, or
deeds to secure debt, executed by Borrower in favor of Foothill, in
substantially the form of Exhibit M-1, that encumber the Real Property
Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which FRI-MRD, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Negotiable Collateral" means all of a Person's present and
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein such Person is the lessor),
chattel paper, and Books relating to any of the foregoing.
"Net Proceeds" means (a) the gross cash proceeds (including
insurance proceeds, condemnation awards, and payments received from time to
time in respect of installment obligations and other non-cash proceeds, if
applicable) received by or on behalf of FRI-MRD or one of its Subsidiaries in
respect of an Asset Disposition, less (b) the sum of (i) the amount, if any, of
all taxes (other than income taxes) payable by FRI-MRD or its Subsidiary in
connection with such Asset Disposition plus Borrower's good faith best estimate
of the amount of all income taxes payable in connection with such Asset
Disposition, (ii) the amount of any reasonable reserve established in
accordance with GAAP against any liabilities associated with the properties or
assets that were the subject of such Asset Disposition, provided that the
amount of any subsequent reduction of such reserve (other than in connection
with a payment in respect of any such liability) shall be deemed to be "Net
Proceeds" of an Asset Disposition occurring on the date of such reduction,
(iii) the amount applied to repay any Indebtedness secured by a Lien upon the
properties or assets that were the subject of the Asset Disposition, to the
extent such Indebtedness is required by its terms to be repaid as a result of
such Asset Disposition, and (iv) reasonable and customary fees, commissions,
and expenses and other costs paid by FRI-MRD or its Subsidiary in connection
with such Asset Disposition (other than those payable to any Affiliate of
FRI-MRD
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<PAGE> 24
or such Subsidiary), in each case only to the extent not already deducted in
arriving at the amount referred to in clause (a).
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to
Foothill under any outstanding Letters of Credit, premiums (including
Applicable Termination Premiums), liabilities (including all amounts charged to
a Debtor's Loan Account pursuant hereto), obligations, fees, charges, or
Foothill Expenses (including any fees or expenses that, but for the provisions
of the Bankruptcy Code, would have accrued), lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and description
pursuant to the Loan Documents, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising.
"Obligor" means any Debtor or any Guarantor.
"Ordinary Course Dispositions" means Asset Dispositions of (a)
Inventory in the ordinary course of business, (b) Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business,
(c) properties or assets between FRI-MRD and its Subsidiaries or between
FRI-MRD's Subsidiaries, other than Prohibited Transfers, (d) cash and cash
equivalents consistent with the provisions hereof, and (e) license rights with
respect to Borrower Intellectual Property in connection with licenses or
franchises entered into by Borrower in the ordinary course of business.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"Pay-Off Letter" means a letter, in form and substance
reasonably satisfactory to Foothill, from Existing Lender respecting the amount
necessary to repay in full all of the obligations of FRI and its Subsidiaries
owing to Existing Lender and obtain a termination or release of all of the
Liens existing in favor of Existing Lender in and to the properties or assets
of FRI and its Subsidiaries.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Acquisition" means an Acquisition of assets of
another Person or, all or substantially all of the Stock of another Person so
long as:
(a) no Default or Event of Default shall have occurred and be
continuing or would result from the consummation of the
proposed Acquisition,
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<PAGE> 25
(b) the assets being acquired, or the Person whose capital
Stock is being acquired, are useful in or engaged in, as
applicable, the restaurant business or a business reasonably
related thereto,
(c) if the proposed Acquisition (whether in one or a series of
related transactions (including any prior Permitted Toehold
Investment)) relates to assets or Stock with an aggregate
consideration of less than $3,000,000, Borrower has provided
Foothill with written confirmation that on a pro forma basis,
calculated in good faith by officers of Borrower and using
reasonable assumptions, Borrower would have been in compliance
with each of the financial covenants in Section 7.20 hereof
for the 12 months ending as of the fiscal quarter ended
immediately prior to the proposed date of consummation of such
proposed Acquisition for which there are available financial
statements,
(d) if the proposed Acquisition (whether in one or a series of
related transactions (including any prior Permitted Toehold
Investment)) relates to assets or Stock with an aggregate
consideration of $3,000,000 or more, (i) Borrower has provided
Foothill with written confirmation, supported by reasonably
detailed calculations, that on a pro forma basis, created by
adding the historical combined financial statements of
Borrower (including the combined financial statements of any
other Person or assets that were the subject of a prior
Permitted Acquisition during the relevant period) to the
historical consolidated financial statements of the Person to
be acquired (or the historical financial statements related to
the assets to be acquired) pursuant to the proposed
Acquisition (adjusted to eliminate expense items that would
not have been incurred and include income items that would
have been recognized, in each case, if the combination had
been accomplished at the beginning of the relevant period;
such eliminations and inclusions to be mutually agreed upon by
Borrower and Foothill), Borrower would have been in compliance
with each of the financial covenants in Section 7.20 hereof
for the 12 months ending as of the fiscal quarter ended
immediately prior to the proposed date of consummation of such
proposed Acquisition for which there are available financial
statements, and (ii) Foothill has completed its audit,
appraisal, and standard due diligence with respect to the
assets or Person that is to be the subject of the proposed
Acquisition and the results thereof are reasonably
satisfactory to Foothill,
(e) the relevant assets or Stock being acquired in such
Acquisition are acquired directly by FRI-MRD, Borrower, or any
of Borrower's Subsidiaries,
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<PAGE> 26
(f) in the case of an asset Acquisition, Borrower or the
relevant acquiring Subsidiary thereof shall have executed and
delivered any and all security agreements, UCC-1 financing
statements, fixture filings, Mortgages, leasehold mortgages,
and other documentation reasonably requested by Foothill in
order to include the newly acquired assets within the
Collateral or the Guarantor Collateral, and
(g) in the case of a Stock Acquisition, (i) Borrower or the
relevant acquiring Subsidiary thereof shall have executed and
delivered a stock pledge agreement (substantially in the form
of the Stock Pledge Agreement executed and delivered by Chi-
Chi's with respect to the Stock of the Chi-Chi's Subsidiaries)
and shall have delivered to Foothill possession of the
original Stock certificates respecting all of the issued and
outstanding shares of Stock of such new Subsidiary or
Subsidiaries, together with stock powers with respect thereto
endorsed in blank, and (ii) Borrower or the relevant acquiring
Subsidiary thereof shall have caused such new Subsidiary or
Subsidiaries to execute and deliver a guaranty (substantially
in the form of the Guaranty executed and delivered by the
Chi-Chi's Subsidiaries) together with any and all security
agreements, UCC-1 financing statements, fixture filings,
Mortgages, leasehold mortgages, and other documentation
reasonably requested by Foothill in order to cause such cause
Subsidiary or Subsidiaries to be obligated with respect to the
Obligations and to include the assets of the new Subsidiary or
Subsidiaries within the Guarantor Collateral.
"Permitted Disposition" means (a) Ordinary Course
Dispositions, (b) subject to the prior or concurrent satisfaction of the
applicable Release Condition therefor, Asset Dispositions of any of the
properties or assets of FRI-MRD or any of its Subsidiaries, other than (i) the
Real Property identified on Schedules A-1, H-1, R-1, and S-1), and (ii) the
Borrower Intellectual Property, and (c) subject to the prior or concurrent
satisfaction of the applicable Release Condition therefor, Permitted Sale and
Lease-backs.
"Permitted Investment" means (a) Permitted Ordinary Course
Investments, (b) Permitted Acquisitions, (c) Permitted Dispositions, (d)
Investments existing on the Closing Date, and (e) Permitted Toehold
Investments.
"Permitted Ordinary Course Investment" means (a) direct
obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America with a maturity not
exceeding one year, (b) certificates of deposit, time deposits, banker's
acceptances or other instruments of a bank having a combined capital and
surplus of not less than $500,000,000 with a maturity not exceeding one year,
(c) investments in commercial paper rated at least A-1 or P-1 maturing within
one year after the date of acquisition
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<PAGE> 27
thereof, (d) money market accounts maintained at a bank having combined capital
and surplus of no less than $500,000,000 or at another financial institution
reasonably satisfactory to Foothill, (e) loans and advances to officers and
employees of Borrower in the ordinary course of business (including in
connection with the purchase of Stock of FRI or its Subsidiaries) in an
aggregate amount at any one time outstanding not to exceed $2,000,000, (f)
investments in negotiable instruments for collection, (g) advances in
connection with purchases of goods or services in the ordinary course of
business, (h) deposits required in connection with leases, (i) loans or
distributions made by FRI-MRD on the Closing Date to FRI of approximately
$23,000,000, and (j) Investments made or received in consideration of Permitted
Dispositions.
"Permitted Liens" means: (a) Liens granted to Foothill or any
assignee under the Loan Documents, (b) Liens for unpaid taxes, assessments, and
government charges that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d)(i) the
interests of lessors or lessees under operating leases and subleases, or (ii)
the interests of licensees or franchisees under licenses or franchises of
Borrower Intellectual Property to the extent constituting an Ordinary Course
Disposition under clause (e) of the definition of Ordinary Course Disposition,
(e)(i) Liens securing purchase money Indebtedness or capital leases permitted
under Section 7.1(g), so long as the Lien only attaches to the asset purchased
or acquired, or (ii) Acquisition Liens, (f) Liens arising by operation of law,
incurred in the ordinary course of business of FRI-MRD and its Subsidiaries and
not in connection with the borrowing of money, and which Liens either (i) are
for sums not yet due and payable, (ii) are the subject of Permitted Protests,
or (iii) in the aggregate are de minimis in amount, (g) Liens arising from
deposits made in connection with obtaining worker's compensation or other
unemployment insurance, (h) Liens or deposits to secure performance of bids,
tenders, contracts or leases (to the extent permitted under this Agreement),
incurred in the ordinary course of business of FRI-MRD and its Subsidiaries and
not in connection with the borrowing of money, (i) Liens arising by reason of
security for surety or appeal bonds, (j) Liens of or resulting from any
judgment or award that does not constitute an Event of Default hereunder, (k)
Liens with respect to the Real Property Collateral, and the Anaheim Property,
that are exceptions to the commitments for title insurance issued in connection
with the Mortgages, and the Anaheim Mortgage as accepted by Foothill at the
time of such issuance, (l) with respect to any Real Property, easements, rights
of way, zoning and similar covenants and restrictions, and similar encumbrances
that do not materially interfere with or impair the use or operation thereof by
FRI-MRD or its Subsidiaries, (m) other Liens imposed by operation of law that
do not materially affect FRI-MRD's or its Subsidiaries ability to perform their
respective obligations under the Loan Documents, (n) replacement or continued
Liens granted to a Person who provides refinancing or continuation of
Indebtedness pursuant to Section 7.1(h) hereof; provided, that the replacement
or continued Lien is limited to all or part of the properties or assets that
secured the refinanced or continued Indebtedness.
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<PAGE> 28
"Permitted Protest" means the right of FRI-MRD or its
Subsidiaries to protest any Lien (other than any such Lien that secures the
Obligations), tax (other than taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) if required in
accordance with GAAP, a reserve with respect to such obligation is established
on the books of FRI-MRD or its Subsidiary, as applicable under the
circumstances, in accordance with GAAP, and (b) any such protest is instituted
and diligently prosecuted by FRI-MRD or its Subsidiary, as applicable under the
circumstances, in good faith.
"Permitted Sale and Lease-backs" means sale and lease-back
transactions that are (a)(i) in respect of Equipment or Real Property (and
related improvements thereto) constituting a restaurant that is first opened or
acquired by FRI-MRD or any of its Subsidiaries after the Closing Date, (ii) in
good faith designated in writing to Foothill, at the time of initial
acquisition of such Equipment or Real Property, as a projected Permitted Sale
and Lease-back, and (iii) fully consummated within 18 months following the date
of initial acquisition of such Equipment or Real Property, as applicable, or
(b) in respect of the Chi-Chi's restaurant located in Greenfield, Wisconsin and
the 5 existing El Torito restaurants identified on Schedule P-2.
"Permitted Toehold Investment" means an Investment in the
Voting Stock of another Person so long as (a) no Default or Event of Default
shall have occurred and be continuing or would result from the consummation of
the proposed Acquisition, (b) the Person whose Stock is being acquired, is
engaged in, the restaurant business or a business reasonably related thereto,
(c) the relevant Voting Stock being acquired in such Investment is acquired
directly by Borrower or its Subsidiaries, (d) Borrower or the relevant
acquiring Subsidiary thereof shall have executed and delivered a stock pledge
agreement (substantially in the form of the Stock Pledge Agreement executed and
delivered by Chi-Chi's with respect to the Stock of the Chi-Chi's Subsidiaries)
and shall have perfected Foothill's security interest in the acquired
Investment, and (e) the aggregate amount of all such Toehold Investments does
not exceed $1,000,000 in the aggregate.
"Permitted Transferee" means, with respect to any Person: (a)
any Affiliate of such Person; (b) any investment manager, investment advisor,
or constituent general partner of such Person; or (c) any investment fund,
investment account, or investment entity that is organized by such Person or
its Affiliates and whose investment manager, investment advisor, or constituent
general partner is such Person or a Permitted Transferee of such Person.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
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"Personal Property Collateral" means all Collateral other than
the Real Property Collateral.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by FRI-MRD or its Subsidiaries or with
respect to which it may incur liability.
"Prohibited Transfers" means: (a) Asset Dispositions of
Equipment by FRI-MRD or any of its Subsidiaries to FRI-Admin or Franchising;
(b) Asset Dispositions of any Real Property identified on Schedule R-1 or
Schedule S-1 by FRI-MRD or any of its Subsidiaries to FRI-MRD or any of its
Subsidiaries, other than such Asset Dispositions solely by one Debtor to the
other Debtor; and (c) Asset Dispositions of the Borrower Intellectual Property
(other than those constituting Ordinary Course Dispositions under clause (e) of
the definition of Ordinary Course Disposition).
"Real Property" means any real property fee estates or
leasehold interests now owned or hereafter acquired by FRI-MRD or its
Subsidiaries.
"Real Property Collateral" means the parcels of Real Property
and the related improvements thereto identified on Schedule R-1, and any Real
Property fee estates hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Release Condition" means that (a) no Default or Event of
Default has occurred and is continuing or would result therefrom, (b) in all
cases other than Asset Dispostions of the Dinnerhouse Assets or the Chi-Chi's
Specified Assets, FRI-MRD or its Subsidiary is receiving at least fair value
for the property or assets that are the subject of the Asset Disposition, and
(c) following such Asset Disposition, the subject properties or assets are not
to be the subject of a lease (other than in connection with a Permitted Sale
and Lease- back) by FRI-MRD or any of its Subsidiaries.
"Relevant Measuring Period" means (a) as applied to
Chi-Chi's, with respect to December 31, 1996, the three months then ended, with
respect to March 31, 1997, the six months then ended, with respect to June 30,
1997, the nine months then ended, and, with respect to any fiscal quarter ended
thereafter, the twelve months then ended, and (b) as applied to El Torito, with
respect to each such date, the twelve months then ended.
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"Reportable Event" means any of the events described in
Section 4043(c) (other than subsections (b)(7) and (b)(9)) of ERISA or the
regulations thereunder other than a Reportable Event as to which the provision
of 30 days notice to the PBGC is waived under applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"SEC" means the United States Securities and Exchange
Commission and any successor Federal agency having similar powers.
"Securities Account" means a "securities account" as that term
is defined in Section 8-501 of the official Text of the Uniform Commercial Code
and as defined in California Senate Bill 1591 which was approved by the
Governor of the State of California on September 14, 1996 and will be effective
on January 1, 1997 as part of the Code.
"Senior Notes" means the 9-3/4% senior notes of FRI due 2002
that originally were issued in January, 1994 and have outstanding principal
amount, as of the date hereof, of approximately $119,000,000.
"Shareholder Agreement" means, collectively, (a) that certain
Shareholder Agreement, dated as of January 27, 1994, among FRI, Apollo and its
"Related Persons" (as such term is defined therein), Green and its "Related
Persons" (as such term is defined therein), and Foodmaker, Inc. and its
"Related Persons" (as such term is defined therein), as amended prior to the
Closing Date, (b) that certain Exchange Agreement, dated as of November 20,
1995, between Green and Apollo, as amended prior to the Closing Date, and (c)
that certain Exchange Agreement, dated as of November 20, 1995, between
Foodmaker, Inc. and Apollo, in each case, as amended prior to the Closing Date.
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and
assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value of
the properties and assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature, and
(e) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's
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properties and assets would constitute unreasonably small capital after giving
due consideration to the prevailing practices in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount that,
in light of all the facts and circumstances existing at such time, represents
the amount that reasonably can be expected to become an actual or matured
liability.
"Specified Leaseholds" means the parcels of Real Property and
the related improvements thereto identified on Schedule S-1.
"Stipulated Cash Flow" means (a) the cash flow of the
restaurant located at a Specified Leasehold as such cash flow is identified on
Schedule S-1, and (b) in the case of a restaurant located at a Leasehold that
is not identified on Schedule S-1, the amount of the annual cash flow of such
restaurant as mutually agreed upon by Foothill and Borrower.
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC
under the Exchange Act).
"Stock Pledge Agreements" means (a) a Stock Pledge Agreement
executed and delivered by FRI with respect to the shares of Stock that it owns
with respect to each of its direct Subsidiaries, (b) a Stock Pledge Agreement
executed and delivered by FRI-MRD with respect to the shares of Stock that it
owns with respect to each of its direct Subsidiaries, and (c) a Stock Pledge
Agreement executed and delivered by Chi-Chi's with respect to the shares of
Stock that it owns with respect to each of its direct Subsidiaries, each to be
in substantially the form of Exhibit S-1.
"Subordination Agreement" means a Subordination Agreement, in
substantially the form of Exhibit S-2, by FRI in favor of Foothill.
"Subordinated Notes" means the 10-7/8% senior subordinated
discount notes of FRI due 2004 that originally were issued in January, 1994 and
have fully accreted outstanding principal amount, as of the date hereof, of
approximately $31,000,000.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
appoint other managers of such corporation, partnership, limited liability
company, or other entity.
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"Trademark Security Agreements" means (a) a Trademark Security
Agreement executed and delivered by Chi-Chi's, and (b) a Trademark Security
Agreement executed and delivered by El Torito, each to be in substantially the
form of Exhibit T-1.
"Triggering Event" means any of (a) the occurrence and
continuation of an Event of Default under Section 8.1 (other than an Event of
Default based solely on acceleration of the maturity of the Obligations based
on an Event of Default arising other than under Section 8.1), or (b) the
occurrence of an Insolvency Event relative to one or both of the Debtors.
"VCOC Letter" means a letter agreement among FRI, FRI-MRD,
FRI-Admin, Borrower, Franchising, and Foothill's Participants that meets the
Venture Capital Operating Company requirements and that is in substantially the
form of Exhibit V-1.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Voting Stock" means Stock or similar equity interest of a
Person pursuant to which the holders thereof have, at the time of
determination, the general voting power under ordinary circumstances to vote
for the election of directors (or individuals performing similar functions),
managers, trustees, or general partners of such Person (irrespective of whether
at the time any other class or classes will have or might have voting power by
reason of the happening of any contingency).
1.2 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. Whenever a particular Person is identified with respect to
a financial covenant or a related definition, it shall be understood to mean
such Person on a consolidated basis unless the context clearly requires
otherwise. The first sentence of this Section 1.2 notwithstanding, if one or
more changes in GAAP after the date hereof are required to be applied to the
then existing transactions, and such change has a material effect on the
financial computations required under this Agreement, the parties agree to
negotiate in good faith to attempt to draft an amendment of this Agreement that
shall approximate, to the extent possible, the economic effect of the original
provisions hereof after taking into account such change or changes in GAAP;
provided, however, that until the parties are able to negotiate such amendment,
then as used in this Agreement, "GAAP" shall mean generally accepted accounting
principles in effect prior to such change or changes.
1.3 CODE. Any terms used in this Agreement that are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
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1.4 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. An Event of Default shall "continue" or be "continuing" until such
Event of Default has been waived in writing by Foothill. Section, subsection,
clause, schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 CHI-CHI'S ADVANCES. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make advances ("Chi-Chi's
Advances") to Chi-Chi's in an amount at any one time outstanding not to exceed
the least of: (i) (y) the Maximum Chi-Chi's Amount minus (z) the sum of (1) the
Chi-Chi's Letter of Credit Usage and (2) the El Torito Usage; and (ii) (y) the
Maximum Chi-Chi's Revolving Amount minus (z) the amount of outstanding El
Torito Advances.
(b) Anything to the contrary in Section 2.1(a)
above notwithstanding, Foothill may create reserves against the Maximum
Chi-Chi's Revolving Amount or the Maximum Chi-Chi's Amount without declaring an
Event of Default if it reasonably determines that there has occurred a Material
Adverse Collateral Change and so long as the same continues to exist.
(c) Foothill shall have no obligation to make
additional Chi-Chi's Advances hereunder to the extent that concurrent requests
for Chi-Chi's Letters of Credit, El Torito Advances, or El Torito Letters of
Credit would cause the outstanding Obligations to exceed the Maximum Amount.
(d) Amounts borrowed pursuant to this Section 2.1
may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement without penalty.
2.2 CHI-CHI'S LETTERS OF CREDIT.
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(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue L/Cs or L/C Guarantees for the account of
Chi-Chi's in an aggregate undrawn and unreimbursed amount at any one time
outstanding not to exceed the lesser of: (i) (y) the Maximum Chi-Chi's Amount
minus (z) the sum of (1) the amount of outstanding Chi-Chi's Advances and (2)
the El Torito Usage; or (ii) (y) the Maximum Amount minus (z) the sum of (1)
the amount of outstanding Chi-Chi's Advances and (2) the El Torito Usage.
Chi-Chi's and Foothill agree that (i) so long as Foothill is owned by Norwest
Corporation or any Affiliate thereof, Foothill will be obligated to issue the
L/Cs provided for under this Section and, if Foothill's L/C will not be
accepted by the beneficiary, to arrange for the issuance of the letters of
credit that are to be the subject of L/C Guarantees, and (ii) if at any time
Foothill is no longer owned by Norwest Corporation or any Affiliate thereof,
then from and after such date Foothill will continue to be obligated to issue
the L/Cs provided for under this Section but, if Foothill's L/C will not be
accepted by the beneficiary, Foothill will have the right, but not the
obligation, to arrange for the issuance of the letters of credit that are to be
the subject of L/C Guarantees. Foothill and Chi-Chi's acknowledge and agree
that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each Chi-Chi's Letter of
Credit shall have an expiry date no later than 20 days prior to the date on
which this Agreement is scheduled to terminate under Section 3.4 and all such
Chi-Chi's Letters of Credit shall be in form and substance acceptable to
Foothill and Chi-Chi's. If Foothill is obligated to advance funds under a Chi-
Chi's Letter of Credit, Chi-Chi's immediately shall reimburse such amount to
Foothill and, in the absence of such reimbursement, the amount so advanced
immediately and automatically shall be deemed to be an Chi-Chi's Advance
hereunder and, thereafter, shall bear interest at the rate then applicable to
Chi-Chi's Advances under Section 2.6.
(b) Chi-Chi's agrees to be bound by the issuing
bank's regulations and interpretations of any Chi-Chi's Letters of Credit
guarantied by Foothill and opened to or for Chi-Chi's' account or by Foothill's
interpretations of any L/C issued by Foothill to or for Chi-Chi's' account,
even though this interpretation may be different from Chi-Chi's' own, and
Chi-Chi's understands and agrees that Foothill shall not be liable (other than
for the wilful misconduct, gross negligence, or bad faith of Foothill) for any
error, negligence, or mistake, whether of omission or commission, in following
Chi-Chi's' instructions or those contained in the Chi-Chi's Letter of Credit or
any modifications, amendments, or supplements thereto. Chi-Chi's understands
that the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Chi-Chi's against such
issuing bank. Chi-Chi's hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank (other than if
such loss, cost, or expense is the proximate result of the gross negligence,
willful misconduct, or bad faith of Foothill).
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(c) Chi-Chi's hereby authorizes and directs any
bank that issues a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents, and other writings and property received
by the issuing bank pursuant to such letter of credit, and to accept and rely
upon Foothill's instructions and agreements with respect to all matters arising
in connection with such letter of credit and the related application; provided,
that Foothill agrees to consider in good faith Chi-Chi's reasonable requests
with respect to waivers of discrepancies and amendments with respect thereto.
Chi-Chi's may or may not be the "applicant" or "account party" with respect to
such letter of credit.
(d) Any and all actual charges, commissions,
fees, and costs incurred by Foothill relating to the letters of credit
guaranteed by Foothill shall be considered Foothill Expenses for purposes of
this Agreement and immediately shall be reimbursable by Chi-Chi's to Foothill.
(e) Immediately upon the termination of this
Agreement, Chi-Chi's agrees to either (i) cause to be delivered to Foothill
releases of all of Foothill's obligations under outstanding Chi-Chi's Letters
of Credit, or (ii) provide Foothill with an irrevocable letter of credit, in
form and substance and from an issuer, that is reasonably acceptable to
Foothill, for the maximum amount of Foothill's obligations under outstanding
Chi-Chi's Letters of Credit.
(f) If by reason of (i) any change in any applicable
law, treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Foothill with
any direction, request, or requirement (irrespective of whether having the
force of law) of any governmental authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any Chi-Chi's Letters of
Credit issued hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or Chi-Chi's
Letter of Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly the cost to the
issuing bank or Foothill of issuing, making, guaranteeing, or maintaining any
letter of credit, or Chi-Chi's Letter of Credit, as applicable, or to reduce
the amount receivable in respect thereof by such issuing bank or Foothill,
then, and in any such case, Foothill may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify Chi-Chi's, and Chi-Chi's shall
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pay no later than 3 Business Days following a demand for payment such amounts
as the issuing bank or Foothill may specify to be reasonably necessary to
compensate the issuing bank or Foothill for such additional cost or reduced
receipt. The determination by the issuing bank or Foothill, as the case may
be, of any amount due pursuant to this Section 2.2(f), as set forth in a
certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.
2.3 EL TORITO ADVANCES. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make advances ("El Torito
Advances") to El Torito in an amount at any one time outstanding not to exceed
the least of: (i) (y) the Maximum El Torito Amount minus (z) the sum of (1) the
El Torito Letter of Credit Usage and (2) the Chi-Chi's Usage; and (ii) (y) the
Maximum El Torito Revolving Amount minus (z) the amount of outstanding
Chi-Chi's Advances.
(b) Anything to the contrary in Section 2.3(a)
above notwithstanding, Foothill may create reserves against the Maximum El
Torito Revolving Amount or the Maximum El Torito Amount without declaring an
Event of Default if it reasonably determines that there has occurred a Material
Adverse Collateral Change and so long as the same continues to exist.
(c) Foothill shall have no obligation to make
additional El Torito Advances hereunder to the extent that concurrent requests
for El Torito Letters of Credit, Chi-Chi's Advances, or Chi-Chi's Letters of
Credit would cause the outstanding Obligations to exceed the Maximum Amount.
(d) Amounts borrowed pursuant to this Section 2.3
may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement without penalty.
2.4 EL TORITO LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue L/Cs or L/C Guarantees for the account of
El Torito in an aggregate undrawn and unreimbursed amount at any one time
outstanding not to exceed the lesser of: (i) (y) the Maximum El Torito Amount
minus (z) the sum of (1) the amount of outstanding El Torito Advances and (2)
the Chi-Chi's Usage; or (ii) (y) the Maximum Amount minus (1) the amount of
outstanding El Torito Advances and (2) the Chi-Chi's Usage. Borrower and
Foothill acknowledge and agree that certain of the letters of credit that are
to be the subject of L/C Guarantees may be outstanding on the Closing Date. El
Torito and Foothill agree that (i) so long as Foothill is owned by Norwest
Corporation or any Affiliate thereof, Foothill will be obligated to issue the
L/Cs provided for under this Section and, if Foothill's L/C will not be
accepted by the
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beneficiary, to arrange for the issuance of the letters of credit that are to
be the subject of L/C Guarantees, and (ii) if at any time Foothill is no longer
owned by Norwest Corporation or any Affiliate thereof, then from and after such
date Foothill will continue to be obligated to issue the L/Cs provided for
under this Section but, if Foothill's L/C will not be accepted by the
beneficiary, Foothill will have the right, but not the obligation, to arrange
for the issuance of the letters of credit that are to be the subject of L/C
Guarantees. Foothill and El Torito acknowledge and agree that certain of the
letters of credit that are to be the subject of L/C Guarantees may be
outstanding on the Closing Date. Each El Torito Letter of Credit shall have an
expiry date no later than 20 days prior to the date on which this Agreement is
scheduled to terminate under Section 3.4 and all such El Torito Letters of
Credit shall be in form and substance acceptable to Foothill and El Torito. If
Foothill is obligated to advance funds under a El Torito Letter of Credit, El
Torito immediately shall reimburse such amount to Foothill and, in the absence
of such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an El Torito Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to El Torito Advances under Section
2.6.
(b) El Torito agrees to be bound by the issuing
bank's regulations and interpretations of any El Torito Letters of Credit
guarantied by Foothill and opened to or for El Torito's account or by
Foothill's interpretations of any L/C issued by Foothill to or for El Torito's
account, even though this interpretation may be different from El Torito's own,
and El Torito understands and agrees that Foothill shall not be liable (other
than for the wilful misconduct, gross negligence, or bad faith of Foothill) for
any error, negligence, or mistake, whether of omission or commission, in
following El Torito's instructions or those contained in the El Torito Letter
of Credit or any modifications, amendments, or supplements thereto. El Torito
understands that the L/C Guarantees may require Foothill to indemnify the
issuing bank for certain costs or liabilities arising out of claims by El
Torito against such issuing bank. El Torito hereby agrees to indemnify, save,
defend, and hold Foothill harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred by Foothill under
any L/C Guaranty as a result of Foothill's indemnification of any such issuing
bank (other than if such loss, cost, or expense is the proximate result of the
gross negligence, willful misconduct, or bad faith of Foothill).
(c) El Torito hereby authorizes and directs any
bank that issues a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents, and other writings and property received
by the issuing bank pursuant to such letter of credit, and to accept and rely
upon Foothill's instructions and agreements with respect to all matters arising
in connection with such letter of credit and the related application; provided,
that Foothill agrees to consider in good faith El Torito's reasonable requests
with respect to waivers of discrepancies and amendments as to waivers of
discrepancies and amendments with respect thereto. El Torito may or may not be
the "applicant" or "account party" with respect to such letter of credit.
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(d) Any and all actual charges, commissions,
fees, and costs incurred by Foothill relating to the letters of credit
guaranteed by Foothill shall be considered Foothill Expenses for purposes of
this Agreement and immediately shall be reimbursable by El Torito to Foothill.
(e) Immediately upon the termination of this
Agreement, El Torito agrees to either (i) cause to be delivered to Foothill
releases of all of Foothill's obligations under outstanding El Torito Letters
of Credit, or (ii) provide Foothill with an irrevocable letter of credit, in
form and substance and from an issuer, that is reasonably acceptable to
Foothill, for the maximum amount of Foothill's obligations under outstanding El
Torito's Letters of Credit.
(f) If by reason of (i) any change in any applicable
law, treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Foothill with
any direction, request, or requirement (irrespective of whether having the
force of law) of any governmental authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any El Torito Letters of
Credit issued hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or El Torito
Letter of Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly the cost to the
issuing bank or Foothill of issuing, making, guaranteeing, or maintaining any
letter of credit, or El Torito Letter of Credit, as applicable, or to reduce
the amount receivable in respect thereof by such issuing bank or Foothill,
then, and in any such case, Foothill may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify El Torito, and El Torito shall pay no later than 3 Business Days
following a demand for payment such amounts as the issuing bank or Foothill may
specify to be reasonably necessary to compensate the issuing bank or Foothill
for such additional cost or reduced receipt. The determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this
Section 2.4(f), as set forth in a certificate setting forth the calculation
thereof in reasonable detail, shall, in the absence of manifest or demonstrable
error, be final and conclusive and binding on all of the parties hereto.
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Chi-Chi's to Foothill pursuant to Sections 2.1 or
2.2 is greater than either the Dollar
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limitations set forth in Sections 2.1 or 2.2 (a "Chi-Chi's Overadvance"),
Chi-Chi's immediately shall pay to Foothill, in cash, the amount of such excess
to be used by Foothill first, to repay Chi-Chi's Advances outstanding under
Section 2.1 and, thereafter, to be held by Foothill as cash collateral to
secure Chi-Chi's' obligation to repay Foothill for all amounts paid pursuant to
Chi-Chi's Letters of Credit. If, at any time or for any reason, the amount of
Obligations owed by El Torito to Foothill pursuant to Sections 2.3 or 2.4 is
greater than either the Dollar limitations set forth in Sections 2.3 or 2.4 (an
"El Torito Overadvance"), El Torito immediately shall pay to Foothill, in cash,
the amount of such excess to be used by Foothill first, to repay El Torito
Advances outstanding under Section 2.3 and, thereafter, to be held by Foothill
as cash collateral to secure El Torito's obligation to repay Foothill for all
amounts paid pursuant to El Torito Letters of Credit. Without limiting the
generality of the foregoing, in the event that (i) a Chi-Chi's Overadvance
arises from the reduction of the Maximum Amount, the Maximum Chi-Chi's Amount,
or the Maximum Chi-Chi's Revolving Amount following a Permitted Disposition,
Chi-Chi's immediately shall pay to Foothill, in cash, the amount necessary to
reduce the Chi-Chi's Usage to the extent necessary to eliminate such Chi-Chi's
Overadvance, and (ii) an El Torito Overadvance arises from the reduction of the
Maximum Amount, the Maximum El Torito Amount, or the Maximum El Torito
Revolving Amount following a Permitted Disposition, El Torito immediately shall
pay to Foothill, in cash, the amount necessary to reduce the El Torito Usage to
the extent necessary to eliminate such El Torito Overadvance.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS,
AND CALCULATIONS.
(a) Interest Rate. Except as provided in clause
(b) below (i) at such times as the aggregate amount of Advances outstanding
hereunder is less than $10,000,000, all monetary Obligations that are charged
to the Loan Account (except for undrawn Letters of Credit) shall bear interest
at a per annum rate of 1.875 percentage points above the Reference Rate, and
(ii) at such times as the aggregate amount of Advances outstanding hereunder is
equal to or greater than $10,000,000, all monetary Obligations that are charged
to the Loan Account (except for undrawn Letters of Credit) in excess of
$10,000,000 shall bear interest at a per annum rate of 2.875 percentage points
above the Reference Rate and the portion of such monetary Obligations not in
excess of $10,000,000 shall bear interest at a per annum rate of 1.875
percentage points above the Reference Rate.
(b) Default Rate. From and after and during the
continuation of an Event of Default, (i) all monetary Obligations (except for
undrawn Letters of Credit) shall bear interest at a per annum rate equal to 2
percentage points above the rate that otherwise is applicable under Section
2.6(a) hereof, and (ii) the fee provided in Section 2.6(c) shall be increased
to a fee equal to 5% per annum times the actual Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding month.
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(c) Letter of Credit Fees. On the first day of
each month, (i) Chi-Chi's will pay Foothill a fee (in addition to the charges,
commissions, fees, and costs set forth in Section 2.2(d)) equal to 3.0% per
annum times the actual Daily Balance of the undrawn Chi-Chi's Letters of Credit
that were outstanding during the immediately preceding month, and (ii) El
Torito will pay Foothill a fee (in addition to the charges, commissions, fees,
and costs set forth in Section 2.4(d)) equal to 3.0% per annum times the actual
Daily Balance of the undrawn El Torito Letters of Credit that were outstanding
during the immediately preceding month.
(d) Minimum Interest. In no event shall the rate
of interest chargeable hereunder for any day be less than 7% per annum. To the
extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the minimum
rate.
(e) Payments. Interest and Letter of Credit fees
payable hereunder shall be due and payable, in arrears, on the first day
following the end of each month during the term hereof. Each Debtor hereby
authorizes Foothill, at its option, without prior notice to such Debtor, to
charge such interest and Letter of Credit fees, all Foothill Expenses (as and
when incurred), the Letter of Credit fees and related charges, commissions,
fees, and costs provided for in Section 2.2(d) or 2.4(d) (as applicable and as
and when accrued or incurred), the fees and charges provided for in Section
2.11 (as and when accrued or incurred), and all installments or other payments
due by such Debtor under any Loan Document to its respective Loan Account,
which amounts thereafter shall accrue interest at the rate then applicable to
Advances hereunder. Any interest not paid when due shall be compounded and
shall thereafter accrue interest at the rate then applicable to Advances
hereunder.
(f) Computation. The Reference Rate as of the
date of this Agreement is 8.25% per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees chargeable
under the Loan Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.
(g) If, on or before the Anniversary Date,
Borrower has not been able to secure Lessor Consents with respect to Leaseholds
whose restaurants have an aggregate Stipulated Cash Flow of $3,200,000, or
greater, then, immediately and without notice or demand of any kind whatsoever,
each of the rates of interest set forth in Sections 2.6(a)(i) and 2.6(a)(ii)
shall be increased by one eighth percentage point (0.125%) above the rates
otherwise applicable under such Sections. Such increase in such specified
interest rates shall be applied retroactively to the Closing Date as if such
rate were in existence from the date of the execution and delivery of this
Agreement and shall apply prospectively up to the date, if ever, on which
Borrower has
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secured Lessor Consents with respect to Leaseholds whose restaurants have an
aggregate Stipulated Cash Flow of $3,200,000, or greater.
(h) Intent to Limit Charges to Maximum Lawful Rate.
In no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under applicable law. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Agreement, Borrower is
and shall be liable only for the payment of such maximum as allowed by law, and
payment received from Borrower in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance (but not below zero)
of the Obligations to the extent of such excess. Any amount not applied to so
reduce such principal balance promptly shall be refunded, without interest, to
Borrower.
2.7 COLLECTIONS. Each Debtor shall at all times maintain
their respective Concentration Account and agrees that all Collections shall be
deposited into its Concentration Account or into a deposit account of such
Debtor the proceeds of which are remitted no less frequently than has been its
past practice to its Concentration Account. Each Debtor, Foothill, and the
Concentration Account Bank shall enter into an agreement that, among other
things, shall provide that, from and after the giving of notice by Foothill to
such Concentration Account Bank, the Concentration Account Bank shall remit all
proceeds received in such Concentration to an account (the "Foothill Account")
maintained by Foothill at a depositary selected by Foothill. Foothill agrees
that it will not give such notice to the Concentration Account Bank unless a
Triggering Event has occurred and is continuing. No arrangement contemplated
hereby shall be modified by any Debtor without the prior written consent of
Foothill. Upon the occurrence and during the continuance of a Triggering
Event, Foothill may elect to notify the Concentration Account Bank to remit all
amounts received in the Concentration Account to the Foothill Account.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections of Chi-Chi's by Foothill (whether from transfers to
Foothill by the Concentration Account Bank or otherwise) immediately shall be
applied provisionally to reduce the Chi-Chi's Advances outstanding under
Section 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and
is made to the Foothill Account or unless and until such Collection item is
honored when presented for payment. The receipt of any Collections of El
Torito by Foothill (whether from transfers to Foothill by the Concentration
Account Bank or otherwise) immediately shall be applied provisionally to reduce
the El Torito Advances outstanding under Section 2.3, but shall not be
considered a payment on
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account unless such Collection item is a wire transfer of immediately available
federal funds and is made to the Foothill Account or unless and until such
Collection item is honored when presented for payment. Should any Collection
item not be honored when presented for payment, then the applicable Debtor
shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill only
if it is received into the Foothill Account on a Business Day on or before
11:00 a.m. Los Angeles time. If any Collection item is received into the
Foothill Account on a non-Business Day or after 11:00 a.m. Los Angeles time on
a Business Day, it shall be deemed to have been received by Foothill as of the
opening of business on the immediately following Business Day.
2.9 DESIGNATED ACCOUNTS. (a) Foothill is
authorized to make the Chi-Chi's Advances and the Chi-Chi's Letters of Credit
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.6(e). Chi-Chi's agrees to establish and maintain the
Chi-Chi's Designated Account with Chi-Chi's' Designated Account Bank for the
purpose of receiving the proceeds of the Chi-Chi's Advances requested by
Chi-Chi's and made by Foothill hereunder. Unless otherwise agreed by Foothill
and Chi-Chi's, any Chi-Chi's Advance requested by Chi-Chi's and made by
Foothill hereunder shall be made to the Chi-Chi's Designated Account.
(b) Foothill is authorized to make the El Torito Advances
and the El Torito Letters of Credit under this Agreement based upon telephonic
or other instructions received from anyone purporting to be an Authorized
Person, or without instructions if pursuant to Section 2.6(e). El Torito
agrees to establish and maintain the El Torito Designated Account with El
Torito's Designated Account Bank for the purpose of receiving the proceeds of
the El Torito Advances requested by El Torito and made by Foothill hereunder.
Unless otherwise agreed by Foothill and El Torito, any El Torito Advance
requested by El Torito and made by Foothill hereunder shall be made to the El
Torito Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNTS; STATEMENTS OF
OBLIGATIONS. (a) Foothill shall maintain an account on its books in the
name of Chi-Chi's (the "Chi-Chi's Loan Account") on which Chi-Chi's will be
charged with all Chi-Chi's Advances made by Foothill to Chi- Chi's or for
Chi-Chi's' account, including, accrued interest, Foothill Expenses, and any
other payment Obligations of Chi-Chi's. In accordance with Section 2.8, the
Chi-Chi's Loan Account will be credited with all payments received by Foothill
from Chi-Chi's or for Chi-Chi's' account, including all amounts received in the
Foothill Account from the Chi-Chi's Concentration Account Bank. Foothill shall
render statements, in accordance with its customary practices in respect of
rendering statements to its customers, regarding the Loan Account to Chi-Chi's,
including principal, interest, fees, and including an itemization of all
charges and expenses constituting Foothill Expenses owing, and such statements
shall (absent manifest error) be
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conclusively presumed to be correct and accurate and constitute an account
stated between Chi-Chi's and Foothill unless, within 30 days after receipt
thereof by Chi-Chi's, Chi-Chi's shall deliver to Foothill by registered or
certified mail or overnight courier at its address specified in Section 12,
written objection thereto describing the error or errors contained in any such
statements.
(b) Foothill shall maintain an account on its
books in the name of El Torito (the "El Torito Loan Account") on which El
Torito will be charged with all El Torito Advances made by Foothill to El
Torito or for El Torito's account, including, accrued interest, Foothill
Expenses, and any other payment Obligations of El Torito. In accordance with
Section 2.8, the El Torito Loan Account will be credited with all payments
received by Foothill from El Torito or for El Torito's account, including all
amounts received in the Foothill Account from the El Torito Concentration
Account Bank. Foothill shall render statements regarding the Loan Account to
El Torito, including principal, interest, fees, and including an itemization of
all charges and expenses constituting Foothill Expenses owing, and such
statements shall (absent manifest error) be conclusively presumed to be correct
and accurate and constitute an account stated between El Torito and Foothill
unless, within 30 days after receipt thereof by El Torito, El Torito shall
deliver to Foothill by registered or certified mail or overnight courier at its
address specified in Section 12, written objection thereto describing the error
or errors contained in any such statements.
2.11 FEES. Borrower shall pay to Foothill the following
fees:
(a) Closing Fee. On the Closing Date, a closing
fee of $700,000, such fee to be apportioned among the Debtors as follows: (i)
$350,000 for the account of Chi-Chi's, and (ii) $350,000 for the account of El
Torito;
(b) Unused Line Fee. On the first day following
the end of each month during the term of this Agreement, an unused line fee in
an amount equal to 0.375% per annum times the Average Unused Portion of the
Maximum Amount, such fee to be apportioned among the Debtors as follows: (i)
50% thereof to be for the account of Chi-Chi's, and (ii) 50% thereof to be for
the account of El Torito;
(c) Annual Facility Fee. On each anniversary of
the Closing Date, an annual facility fee in an amount equal to 0.25% of the
Maximum Amount, such fee to be apportioned among the Debtors as follows: (i)
50% thereof to be for the account of Chi-Chi's, and (ii) 50% thereof to be for
the account of El Torito;
(d) Financial Examination, Documentation, and
Appraisal Fees. (i) Foothill's customary fee of $650 per day per examiner,
plus reasonable out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of FRI and its Subsidiaries performed
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by personnel employed by Foothill; Foothill's customary appraisal fee of $1,500
per day per appraiser, plus reasonable out-of-pocket expenses for each
appraisal of the Collateral and the Guarantor Collateral performed by personnel
employed by Foothill; and (ii) without duplication, the actual charges paid or
incurred by Foothill if it elects to employ the services of one or more third
Persons to perform such financial analyses and examinations (i.e., audits) of
FRI-MRD and its Subsidiaries or to appraise the Collateral or the Guarantor
Collateral or to perform environmental audits; and (iii) on each anniversary of
the Closing Date, Foothill's customary fee of $5,000 per year for its loan
documentation review. The foregoing notwithstanding, so long as no Event of
Default has occurred and is continuing, Foothill agrees that Borrower only
shall be obligated to reimburse Foothill for the foregoing fees, expenses, and
charges with respect to 1 appraisal of the Collateral and Guarantor Collateral
per year (which appraisal may be conducted in different stages and a copy of
which appraisal Foothill agrees to provide to FRI-MRD upon request, without
representations or warranties of any kind whatsoever, and at FRI-MRD's expense)
and with respect to 1 environmental audit of the Collateral or the Guarantor
Collateral per year (which environmental audit may be performed in different
stages and a copy of which environmental audit Foothill agrees to provide to
FRI-MRD upon request, without representations or warranties of any kind
whatsoever, and at FRI-MRD's expense); and
(e) Servicing Fee. On the first day of each
month during the term of this Agreement, and thereafter so long as any
Obligations are outstanding, a servicing fee in an amount equal to $11,500.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE OR
INITIAL LETTER OF CREDIT. The obligation of Foothill to make the initial
Advance or to issue the initial Letter of Credit is subject to the fulfillment,
to the satisfaction of Foothill and its counsel, of each of the following
conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before
January 15, 1996;
(b) Foothill shall have received confirmation of
the filing of substantially all of its financing statements and fixture
filings;
(c) Foothill shall have received each of the
following documents, duly executed, and each such document shall be in full
force and effect:
i) the agreements contemplated hereby with
the Concentration Account Bank, in
substantially the form of Exhibit 3.1(c)(i);
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ii) the Disbursement Letter;
iii) the Pay-Off Letter, together with UCC
termination statements and other
documentation evidencing the termination by
Existing Lender of its Liens in and to the
properties and assets of FRI and its
Subsidiaries;
iv) the Mortgages, the Anaheim Mortgage, and
the Headquarters Mortgage;
v) the Guaranties;
vi) the VCOC Letter;
vii) the Stock Pledge Agreements, and shall
have received the original Stock certificates
respecting the pledged shares thereunder,
together with stock powers duly executed in
blank with respect thereto in form reasonably
satisfactory to Foothill;
viii) each of FRI, Borrower, Foothill, and
each applicable financial intermediary shall
enter into a control agreement that, among
other things, provides that, from and after
the giving of notice by Foothill to such
financial intermediary, it shall take
instructions solely from Foothill with
respect to the applicable Securities Account
and related securities entitlements.
Foothill agrees that it will not give such
notice unless a Triggering Event has
occurred. Each of FRI-MRD and Borrower
agrees that it will not transfer assets out
of such Securities Accounts other than in the
ordinary course of business or as otherwise
permitted hereunder and, if to another
financial intermediary, unless each of
FRI-MRD, Borrower, Foothill, and the
substitute financial intermediary have
entered into a control agreement of the type
described above. No arrangement contemplated
hereby shall be modified by FRI-MRD or
Borrower without the prior written consent of
Foothill. Upon the occurrence and during the
continuance of a Triggering Event, Foothill
may elect to notify the financial
intermediary to liquidate or transfer the
securities entitlements in such Securities
Account and remit the proceeds thereof to the
Foothill Account;
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ix) a certificate from an appropriate officer
of the Debtors and the Guarantors regarding
the depositaries at which they maintain
deposit accounts and account numbers of each
of such deposit accounts, together with
notification letters to such depositaries
pursuant to Section 9302(g) of the Code;
x) the Guarantor Security Agreements;
xi) the Trademark Security Agreements;
xii) the Subordination Agreement; and
xiii) a bailee agreement, with a brokerage
firm reasonably acceptable to Foothill (the
"Brokerage Firm") and in form and substance
reasonably satisfactory to Foothill, in
respect of the possession by such Brokerage
Firm of the original Flagstar Bonds as a
bailee for Foothill for purposes of
perfection of Foothill's Lien thereon; and
evidence that the original Flagstar Bonds
(together with duly executed endorsements or
assignments with respect thereto) shall have
been delivered to the Brokerage Firm to be
held pursuant to the terms and conditions of
such bailee agreement; provided, that
Foothill hereby acknowledges and agrees that
the Flagstar Bonds contain certain legends,
contain restrictions on transfer, and are
subject to claims of Flagstar and potential
reductions of the principal amount thereof;
(d) Foothill shall have received a certificate
from the Secretary of each Obligor attesting to the resolutions of such
Obligor's Board of Directors authorizing its execution, delivery, and
performance of this Agreement and the other Loan Documents to which such
Obligor is a party and authorizing specific officers of such Obligor to execute
the same;
(e) Foothill shall have received copies of each
Obligor's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of such Obligor;
(f) Foothill shall have received certificates of
status with respect to each Obligor, dated within 20 days of the Closing Date
for those Obligors incorporated in Delaware and dated within 36 days of the
Closing Date for those Obligors not incorporated in Delaware, such certificates
to be issued by the appropriate officer of the jurisdiction of organization of
such Obligor, which certificate shall indicate that such Obligor is in good
standing in such jurisdiction;
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(g) Foothill shall have received certificates of
status with respect to each Obligor, each dated within 36 days of the Closing
Date, such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed would have
a Material Adverse Change, which certificates shall indicate that such Obligor
is in good standing in such jurisdictions;
(h) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.8, the form and substance of which shall be reasonably satisfactory to
Foothill and its counsel;
(i) Foothill shall have received an officer's
certificate to the effect that FRI-MRD and its Subsidiaries have at least
$4,500,000 of unrestricted cash or cash equivalents after giving effect to the
consummation on the Closing Date of the transactions contemplated herein;
(j) Foothill shall have received reasonably
satisfactory evidence that FRI has contributed 100% of the shares of Stock of
FRI-Admin to FRI-MRD, such that FRI-Admin has become a wholly owned direct
Subsidiary of FRI-MRD;
(k) Foothill shall have received an opinion of
Borrower's and Guarantors' counsel in substantially the form attached hereto as
Exhibit 3.1(k);
(l) Foothill shall have received mortgagee title
insurance policies (or marked commitments to issue the same) for the Real
Property Collateral, the Anaheim Property, and the Headquarters Property issued
by Chicago Title Company (each a "Mortgage Policy" and, collectively, the
"Mortgage Policies") in amounts reasonably satisfactory to Foothill assuring
Foothill that the Mortgages (or the Anaheim Mortgage or the Headquarters
Mortgage, as applicable) on such Real Property Collateral (or the Anaheim
Property or the Headquarters Property, as applicable) are valid and enforceable
first priority mortgage Liens on such Real Property Collateral (or the Anaheim
Property or the Headquarters Property, as applicable) free and clear of all
defects and encumbrances except Permitted Liens, and the Mortgage Policies
otherwise shall be in form and substance reasonably satisfactory to Foothill;
(m) Foothill shall have (i) received an officers
certificate to the effect that all tax returns required to be filed by FRI and
its Subsidiaries have been timely filed and all taxes upon FRI and its
Subsidiaries or their properties, assets, income, and franchises (including
Real Property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest, and (ii) entered
into a tax servicing agreement with a third Person satisfactory to Foothill,
the form and substance of such agreement being reasonably satisfactory to
Foothill; and
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(n) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered or executed or recorded and shall be in form and substance reasonably
satisfactory to Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT. The following shall be conditions precedent to all Advances and
Letters of Credit hereunder:
(a) the representations and warranties contained
in this Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such extension of credit, as though
made on and as of such date (except to the extent that such representations and
warranties relate to an earlier date);
(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof; and
(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any governmental
authority against Borrower or Foothill.
3.3 CONDITIONS SUBSEQUENT. As conditions subsequent to
the initial closing hereunder, each of FRI-MRD and Borrower shall perform or
cause to be performed the following (the failure by FRI-MRD or Borrower to so
perform or cause to be performed constituting an Event of Default hereunder):
(a) within 30 days of the Closing Date, deliver
to Foothill the certified copies of the policies of property insurance,
together with the endorsements thereto, as are required by Section 6.8;
(b) from and after the Closing Date up until the
date that is 1 year after the Closing Date (the "Anniversary Date"), Borrower
shall use its continued reasonable best efforts to obtain Lessor Consents from
the lessors of the Specified Leasehold locations;
(c) within 30 days of the date on which Borrower
obtains a Lessor Consent, deliver to Foothill (i) duly executed originals of
Leasehold Mortgages in respect of the applicable Leasehold, and (ii) mortgagee
title insurance policies (or marked commitments to issue the same) for such
Leasehold issued by Chicago Title Company (each a "Leasehold Mortgage Policy"
and, collectively, the "Leasehold Mortgage Policies") in amounts reasonably
satisfactory to Foothill assuring Foothill that such Leasehold Mortgages are
valid and enforceable first priority mortgage Liens on such Leasehold free and
clear of all defects and encumbrances except
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Permitted Liens, and the Leasehold Mortgage Policies otherwise shall be in form
and substance reasonably satisfactory to Foothill; and
(d) on or before May 1, 1997, Foothill shall have
received a Collateral Access Agreement from the lessor of Borrower's leased
headquarters location in Irvine, California.
3.4 TERM. This Agreement shall become effective upon the
later of (a) the execution and delivery of this Agreement by FRI, FRI-MRD,
Borrower, Foothill, and each of the other parties hereto, and (b) the Closing
Date, and shall continue in full force and effect for a term ending on the date
(the "Maturity Date") that is 5 years from the Closing Date. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of
this Agreement, all Obligations (including contingent reimbursement obligations
of Borrower with respect to any outstanding Letters of Credit) immediately
shall become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder unless, and Foothill's continuing security
interests in the Collateral shall remain in effect until, all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWER. Borrower has the
option, at any time upon 10 Business Days prior written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including a release of all Letters of Credit or delivery of an irrevocable
letter of credit, in form and substance and from an issuer, that is reasonably
acceptable to Foothill, for the maximum amount of Foothill's obligations under
outstanding Letters of Credit), in full, together with the Applicable
Termination Premium. The foregoing to the contrary notwithstanding, if the
Obligations are refinanced with a financing that is provided or agented by
Foothill, then no Applicable Termination Premium shall be payable in connection
with such refinancing of the Obligations. Anything to the contrary
notwithstanding, if at any time Foothill is no longer owned by Norwest
Corporation or any Affiliate thereof and if Foothill is unable to arrange for
the issuance of letters of credit requested hereunder, then no Applicable
Termination Premium shall be payable in connection with any termination of this
Agreement by Borrower pursuant to the first sentence of this Section.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill
terminates this Agreement upon the occurrence of an Event of Default that
intentionally is caused by Borrower for the purpose, in Foothill's reasonable
and good faith judgment, of avoiding payment of the
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Early Termination Premium provided in Section 3.6, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the
Applicable Termination Premium. The Applicable Termination Premium shall be
presumed to be the amount of damages sustained by Foothill as the result of the
early termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The Applicable Termination Premium provided
for in this Section 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Debtor hereby
grants to Foothill a continuing security interest in all of such Debtor's
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all Obligations and
in order to secure prompt performance by such Debtor of each of its covenants
and duties under the Loan Documents.
Foothill's security interests in the Personal
Property Collateral shall attach to all Personal Property Collateral without
further act on the part of Foothill or Borrower. Anything contained in this
Agreement or any other Loan Document to the contrary notwithstanding, except
for Permitted Dispositions, Borrower has no authority, express or implied, to
dispose of any item or portion of the Personal Property Collateral or the Real
Property Collateral. Concurrent with the consummation of any Permitted
Disposition, Foothill agrees to release its Liens on the subject property or
asset (but not the proceeds from the Asset Disposition).
4.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral (other than Collections items that are received by Borrower in the
ordinary course of business and that are deposited in accordance with Section
2.7), Borrower, promptly upon the request of Foothill, shall endorse and
deliver physical possession of such Negotiable Collateral to Foothill to the
extent required for Foothill to have a first priority perfected Lien thereon.
4.3 [INTENTIONALLY OMITTED]
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At
any time upon the request of Foothill, Borrower shall execute and deliver to
Foothill all financing statements, continuation financing statements, fixture
filings, security agreements, chattel mortgages, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices,
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schedules of accounts, letters of authority, and all other documents that
Foothill reasonably may request, in form reasonably satisfactory to Foothill,
to perfect and continue perfected Foothill's security interests in the
Collateral, and in order to fully consummate all of the transactions
contemplated hereby and under the other Loan Documents. Without limiting the
foregoing, each of FRI, FRI-MRD, and Borrower agrees (and by the execution and
delivery of their Guarantees, each of the other Guarantors agree) to execute
and deliver any supplementary security agreements, financing statements, or
other documents reasonably required by Foothill to create or perfect its
security interest in Borrower's (or Guarantor's, as applicable) Investment
Property (subject to the remedial restrictions contained herein).
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably
makes, constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as Borrower's true and lawful
attorney, with power to (a) if Borrower refuses to, or fails timely to execute
and deliver any of the documents described in Section 4.4, sign the name of
Borrower on any of the documents described in Section 4.4, (b) endorse
Borrower's name on any Collection item that may come into Foothill's
possession, and (c) and at any time that an Event of Default has occurred and
is continuing, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance. The appointment of Foothill as Borrower's attorney, and
each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 RIGHT TO INSPECT. Prior to the time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure,
Foothill (through any of its officers, employees, or agents) shall have the
right, from time to time hereafter upon reasonable prior notification to
Borrower and during normal business hours, to inspect FRI-MRD's and its
Subsidiaries' Books and to check, test, and (subject to Section 2.11(d))
appraise the Collateral (and the Guarantor Collateral) in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral (or the Guarantor Collateral).
After the time that an Event of Default has occurred and is continuing or
Foothill deems itself insecure, Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time thereafter, to
inspect FRI-MRD's and its Subsidiaries' Books and to check, test, and (subject
to Section 2.11(d)) appraise the Collateral (and the Guarantor Collateral) in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral (or the Guarantor
Collateral).
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5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each
of FRI-MRD and Borrower makes the following representations and warranties
which shall be true, correct, and
complete in all material respects as of the date hereof, and shall be true,
correct, and complete in all material respects as of the Closing Date, and at
and as of the date of the making of each Advance or issuance of each Letter of
Credit thereafter, as though made on and as of the date of such Advance or
Letter of Credit (except to the extent that such representations and warranties
relate solely to an earlier date) and such representations and warranties shall
survive the execution and delivery of this Agreement until the repayment in
full of the Obligations:
5.1 NO ENCUMBRANCES. Borrower has good and marketable
title to the Collateral, free and clear of Liens except for Permitted Liens.
Each of FRI-MRD and its Subsidiaries has good and marketable title to the
Guarantor Collateral hypothecated by them under the Loan Documents to which
they are parties, free and clear of Liens except for Permitted Liens.
5.2 EQUIPMENT. All of the Equipment of FRI-MRD and its
Subsidiaries is used or held for use in their business and is fit for such
purposes (ordinary wear and tear excepted).
5.3 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory
and Equipment of FRI-MRD and its Subsidiaries is not stored with a bailee,
warehouseman, or similar party (without Foothill's prior written consent) and
is located only at the locations identified on Schedule 6.10 or otherwise
permitted by Section 6.10.
5.4 EQUIPMENT RECORDS. Borrower keeps correct and
accurate records itemizing and describing the kind, type, quality, and quantity
of its Equipment, and Borrower's cost therefor.
5.5 LOCATION OF CHIEF EXECUTIVE OFFICES; FEINS. The
chief executive office of each Debtor and each Guarantor is at the location set
forth in the preamble to this Agreement; provided, however, that Borrower may
amend this Section 5.5 to identify a new chief executive office for a Guarantor
or Debtor so long as such amendment occurs by written notice to Foothill not
less than 30 days prior to the date on which the Debtor or Guarantor, as
applicable, move their chief executive office to such new location, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, the Debtor or Guarantor, as applicable,
provides any financing statements necessary to perfect and continue perfected
Foothill's security interests in such Person's assets. Chi-Chi's FEIN is
41-0901437 and El Torito's FEIN is 33-0197059.
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5.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and
in good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected
to have a Material Adverse Change.
(b) Each Guarantor is duly organized and existing
and in good standing under the laws of the jurisdiction of its incorporation
and qualified and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified reasonably could be
expected to have a Material Adverse Change.
(c) Set forth on Schedule 5.6 attached hereto is
a complete and accurate list of FRI's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their incorporation; (ii) the number of shares
of each class of common and preferred Stock authorized for each of such
Subsidiaries; and (iii) the number and the percentage of the outstanding shares
of each such class owned directly or indirectly by FRI. All of the outstanding
capital Stock of each such Subsidiary has been validly issued and is fully paid
and non- assessable.
(d) Except as set forth on Schedule 5.6 attached
hereto, no capital Stock (or any securities, instruments, warrants, options,
purchase rights, conversion or exchange rights, calls, commitments or claims of
any character convertible into or exercisable for capital Stock) of any direct
or indirect Subsidiary of Borrower is subject to the issuance of any security,
instrument, warrant, option, purchase right, conversion or exchange right,
call, commitment or claim of any right, title, or interest therein or thereto.
5.7 DUE AUTHORIZATION; NO CONFLICT - FRI-MRD AND
BORROWER.
(a) The execution, delivery, and performance by
each of FRI-MRD and Borrower of this Agreement and the Loan Documents to which
each is a party have been duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by
each of FRI-MRD and Borrower of this Agreement and the Loan Documents to which
each is a party do not and will not (i) violate, in any material respect, any
provision of federal, state, or local law or regulation (including Regulations
G, T, U, and X of the Federal Reserve Board) applicable to FRI-MRD and
Borrower, the Governing Documents of FRI-MRD and Borrower, or any order,
judgment, or decree of any court or other Governmental Authority binding on
FRI-MRD and Borrower, (ii) conflict with, result in a material breach of, or
constitute (with due notice or lapse of time or both) a material default under
any material contractual obligation or material lease of FRI-MRD
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or Borrower, (iii) result in or require the creation or imposition of any Lien
of any nature whatsoever upon any properties or assets of FRI- MRD and
Borrower, other than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of FRI-MRD or Borrower.
(c) Other than the filing of appropriate
financing statements, fixture filings, recordations in the applicable trademark
and copyright registries, and mortgages and related documents in respect of the
Collateral and the Guarantor Collateral, the execution, delivery, and
performance by each of FRI-MRD and Borrower of this Agreement and the Loan
Documents to which each is a party do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to
which each of FRI-MRD and Borrower is a party, and all other documents
contemplated hereby and thereby, when executed and delivered by them, as
applicable, will be the legally valid and binding obligations of such Person,
enforceable against it in accordance with their respective terms, except as
enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
(e) The Liens granted by each of FRI-MRD and
Borrower to Foothill in and to their properties and assets pursuant to this
Agreement and the other Loan Documents are validly created, and first priority
Liens, subject only to Permitted Liens.
5.8 DUE AUTHORIZATION; NO CONFLICT - GUARANTORS.
(a) The execution, delivery, and performance by
each Guarantor of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by
each Guarantor of the Loan Documents to which it is a party do not and will not
(i) violate, in any material respect, any provision of federal, state, or local
law or regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) applicable to such Guarantor, the Governing Documents of such Guarantor,
or any order, judgment, or decree of any court or other Governmental Authority
binding on such Guarantor, (ii) conflict with, result in a material breach of,
or constitute (with due notice or lapse of time or both) a material default
under any material contractual obligation or material lease of such Guarantor,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of such Guarantor, other than
Permitted
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Liens, or (iv) require any approval of stockholders or any approval or consent
of any Person under any material contractual obligation of such Guarantor.
(c) Other than the filing of appropriate
financing statements, fixture filings, and mortgages and related documents in
respect of the Guarantor Collateral, the execution, delivery, and performance
by each Guarantor of the Loan Documents to which it is a party do not and will
not require any registration with, consent, or approval of, or notice to, or
other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(d) The Loan Documents to which each Guarantor is
a party, and all other documents contemplated hereby and thereby, when executed
and delivered by such Guarantor will be the legally valid and binding
obligations of such Guarantor, enforceable against it in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by each Guarantor to
Foothill in and to its properties and assets are validly created, and first
priority Liens, subject only to Permitted Liens.
5.9 LITIGATION. There are no actions or proceedings
pending against FRI-MRD and its Subsidiaries before any court or administrative
agency and each of FRI-MRD or Borrower does not have knowledge of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving FRI-MRD and its Subsidiaries,
except for: (a) matters disclosed on Schedule 5.9; and (b) matters arising
after the date hereof that would not reasonably be expected to result in a
Material Adverse Change.
5.10 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or the Guarantors that have been delivered by Borrower to
Foothill have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present, in all material respects,
Borrower's (or such Guarantor's, as applicable) financial condition as of the
date thereof and Borrower's (or such Guarantor's, as applicable) results of
operations for the period then ended. On the Closing Date there has not been a
material adverse change in the financial condition of Borrower and the
Guarantors, taken as a whole since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.11 SOLVENCY. FRI-MRD and each of its Subsidiaries is
Solvent. No transfer of property is being made by FRI-MRD or any of its
Subsidiaries and no obligation is being incurred by FRI-MRD or any of its
Subsidiaries in connection with the transactions contemplated
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by this Agreement or the other Loan Documents with the intent to hinder, delay,
or defraud either present or future creditors of FRI-MRD or its Subsidiaries.
5.12 EMPLOYEE BENEFITS. None of FRI-MRD, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan, other than those listed on Schedule 5.12. FRI-MRD, each of its
Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any other event
occurred that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of FRI-MRD or its Subsidiaries, any
ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law, treaty,
rule, regulation, or agreement that reasonably could be expected to result in a
Material Adverse Change. None of FRI-MRD or its Subsidiaries or any ERISA
Affiliate is required to provide security to any Plan under Section 401(a)(29)
of the IRC.
5.13 ENVIRONMENTAL CONDITION. Except (i) as may be in
compliance, in all material respects, with applicable legal requirements, or
(ii) may have occurred or exists, without the knowledge of FRI-MRD or any of
its Subsidiaries, as a result of the acts or omissions of previous owners, or
(iii) could not reasonably be expected to result in a material adverse change
in the value of the subject Real Property: (a) none of FRI-MRD's or its
Subsidiaries' properties or assets ever has been used by them in the disposal
of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials; (b) none of FRI-MRD's or its Subsidiaries' properties or assets has
been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute; (c) no Lien arising
under any environmental protection statute has attached to any revenues or to
any real or personal property owned or operated by FRI-MRD or any of its
Subsidiaries; and (d) FRI-MRD and its Subsidiaries have not received a summons,
citation, or directive from the United States Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by them resulting in the releasing or disposing of Hazardous Materials
into the environment.
5.14 LEASES. No material default by FRI-MRD or its
Subsidiaries exists under any lease to which it is a party and no event has
occurred or exists which, with notice or lapse of time or both, would
constitute a material default by FRI-MRD or its Subsidiaries thereunder.
6. AFFIRMATIVE COVENANTS.
Each of FRI-MRD and Borrower covenants and agrees that, so
long as any credit hereunder shall be available and until full and final
payment of the Obligations, and unless
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Foothill shall otherwise consent in writing, FRI-MRD and its Subsidiaries shall
do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard system of
accounting that enables each of them to produce financial statements in
accordance with GAAP and also maintain records pertaining to the Collateral and
the Guarantor Collateral that contain information as from time to time may
reasonably be requested by Foothill.
6.2 COLLATERAL AND OPERATIONS REPORTING. Provide
Foothill with the following documents at the following times in form
satisfactory to Foothill: (a) on a quarterly basis, and in any event, by no
later than the 30th day following the end of each quarter during the term of
this Agreement, a listing of each Borrower's and each Guarantor's currently
operating restaurants, (b) on a quarterly basis, and in any event, by no later
than the 30th day following the end of each quarter during the term of this
Agreement, a listing of each of the restaurants of Borrower and the Guarantors
that have been closed during such quarter, (c) on a quarterly basis, and in any
event, by no later than the 30th day following the end of each quarter during
the term of this Agreement, a detailed listing of the properties or assets that
have been sold or otherwise disposed of since the Closing Date (other than
Ordinary Course Dispositions) and a statement of the Net Proceeds received by
FRI-MRD and its Subsidiaries from each such sale or other disposition, and (d)
such other reports as to the Collateral and the Guarantor Collateral or the
financial condition of FRI-MRD or its Subsidiaries as Foothill may request from
time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver
to Foothill: (a) as soon as available, but in any event within 45 days after
the end of each quarter during each of FRI's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering FRI's
operations during such period; and (b) as soon as available, but in any event
within 90 days after the end of each of FRI's fiscal years, financial
statements of FRI for each such fiscal year, audited by KPMG Peat Marwick LLP
or such other independent certified public accountants reasonably acceptable to
Foothill and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not have
knowledge of the existence of any Default or Event of Default. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and statement of cash flow and, promptly after receipt and if prepared, such
accountants' letter to management. In addition to the financial statements
referred to above, each of FRI-MRD and Borrower agrees to deliver, as soon as
available, but in any event within 30 days after the end of each month during
each of FRI's fiscal years, the "key data report" covering FRI, Chi-Chi's, and
El Torito for the month then ended and the year to date.
Together with the above, Borrower also shall deliver to
Foothill FRI's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form
8-K Current Reports, and any other
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filings made by FRI with the SEC, if any, as soon as the same are filed, and
any other report reasonably requested by Foothill relating to the Collateral or
the Guarantor Collateral or the financial condition of FRI-MRD or its
Subsidiaries.
Each quarter, together with the financial statements provided
pursuant to Section 6.3(a), each of FRI-MRD and Borrower shall deliver to
Foothill a certificate signed by its chief financial officer to the effect
that: (i) all financial statements delivered or caused to be delivered to
Foothill hereunder have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present in all material
respects the financial condition of the applicable Person, (ii) to such
officer's best knowledge the representations and warranties of FRI-MRD and its
Subsidiaries contained in this Agreement and the other Loan Documents are true
and correct in all material respects on and as of the date of such certificate,
as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), (iii) for
each quarter that also is the date on which a financial covenant in Section
7.20, or 7.21 is to be tested, a Compliance Certificate demonstrating in
reasonable detail compliance at the end of such period with the applicable
financial covenants contained in Section 7.20, or 7.21, and (iv) to such
officer's best knowledge on the date of delivery of such certificate to
Foothill there does not exist any condition or event that constitutes a Default
or Event of Default (or, in the case of clauses (i), (ii), or (iii), to the
extent of any non-compliance, describing such non-compliance as to which he or
she may have knowledge and what action FRI-MRD or Borrower has taken, is
taking, or proposes to take with respect thereto).
6.4 TAX RETURNS. Upon Foothill's request, make available
to Foothill for review at Borrower's chief executive office, copies of each of
FRI's future federal income tax returns, and any amendments thereto.
6.5 TITLE TO EQUIPMENT. In the event that the book value
of all Equipment of Borrower and the Guarantors the ownership of which is
evidenced by a certificate of title or similar form of evidence of ownership
exceeds $200,000 in the aggregate, then, upon Foothill's request, FRI-MRD and
its Subsidiaries shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of, certificates of title, or applications for title to
any items of Equipment owned by Borrower or any Guarantor.
6.6 MAINTENANCE OF EQUIPMENT. Maintain their Equipment
in good operating condition and repair (ordinary wear and tear excepted), and
make all necessary replacements thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved; provided,
however, that the foregoing shall not be deemed to prevent Permitted
Dispositions to the extent otherwise permitted hereunder.
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6.7 TAXES. Other than taxes of which FRI-MRD and its
Subsidiaries are unaware or that in the aggregate are de minimis in amount, all
assessments and taxes (including withholding taxes), whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against FRI-MRD
or its Subsidiaries, or any of their properties, shall be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax (other than taxes that are
the subject of a United States federal tax lien) shall be the subject of a
Permitted Protest. FRI-MRD and its Subsidiaries, upon request, shall furnish
Foothill with proof reasonably satisfactory to Foothill indicating that FRI-MRD
and its Subsidiaries have made all due and timely payments or deposits of all
such federal, state, and local taxes, assessments, or contributions required of
them by law.
6.8 INSURANCE.
(a) Keep their properties and assets insured
against loss or damage by fire, theft, explosion, sprinklers, and other hazards
and risks, and in such amounts, as are ordinarily insured against by other
owners in similar businesses. FRI-MRD and its Subsidiaries also shall maintain
business interruption, public liability, product liability, and property damage
insurance relating to their ownership and use of their properties and assets,
and insurance against larceny, embezzlement, and criminal misappropriation, in
each case, consistent with the coverages evidenced by the certificates of
insurance delivered pursuant to Section 3.1. Foothill agrees that FRI or its
Subsidiaries may self-insure for workers compensation insurance, general
liability insurance, auto liability insurance, and health insurance, in each
case, consistent with past practices and for not more than $500,000 per
occurrence.
(b) Obtain and maintain to the extent available
(i) insurance of the type necessary to insure their properties and assets for
the full replacement cost thereof, against loss by fire, lightning, windstorm,
hail, explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks included under "extended coverage" policies or an
"extended coverage" endorsement, in amounts as are ordinarily insured against
by other similar companies in the same industry, but in any event in amounts
sufficient to prevent FRI-MRD or Borrower, as applicable, from becoming a
co-insurer under such policies, and (ii) combined single limit bodily injury
and property damage liability insurance against any loss, liability, or damages
on, about, or relating to each parcel of Real Property Collateral, in an amount
of not less than $1,000,000; provided, however, that FRI-MRD and its
Subsidiaries only shall be required to use their reasonable best efforts to
maintain earthquake insurance, in amounts and subject to deductibles consistent
with those ordinarily insured against by other similar companies in the same
industry, so long as it is available at reasonable commercial rates.
(c) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. Insurance policies
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covering property and assets against loss by fire, lightening, windstorm, hail,
explosion, aircraft, smoke damage, earthquake, elevator collisions and other
risks included under an "extended coverage" endorsement shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as a loss payee thereof as its
interests may appear, and shall contain a waiver of warranties. All such
insurance (with the exception of workers' compensation and health insurance
policies) shall name Foothill as an additional insured as its interest may
appear. Every policy of insurance referred to in this Section 6.8 (with the
exception of workers' compensation and health insurance policies) shall contain
an agreement by the insurer that it will not cancel such policy except after 10
days prior written notice to Foothill. Certified copies or originals of such
policies or certificates thereof satisfactory to Foothill evidencing such
insurance shall be delivered to Foothill prior to the expiration or
cancellation of the existing or preceding policies. Each of FRI-MRD and
Borrower shall deliver to Foothill, upon the request of Foothill, evidence of
the payment of all premiums for such policies of insurance.
(d) Each of FRI-MRD and Borrower shall give
Foothill prompt notice of any loss or damage to their properties and assets by
fire, lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle
damage, earthquake, elevator collision, and other risks included under an
"extended coverage" endorsement covered by such insurance in excess of
$250,000. Upon the occurrence and during the continuance of an Event of
Default, Foothill shall have the exclusive right to adjust all losses payable
under the applicable insurance policies without any liability to FRI-MRD or
Borrower, as applicable, whatsoever in respect of such adjustments. Any monies
received as payment for any loss or damage to their properties and assets by
fire, lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle
damage, earthquake, elevator collision, and other risks included under an
"extended coverage" endorsement under the applicable insurance policy
(exclusive of any casualty loss wherein the insurance proceeds are less than
$50,000), shall be paid over to Foothill, and FRI-MRD and Borrower shall have
the right to designate in writing to Foothill within 45 days of such payment
whether such payment shall be (i) applied to the prepayment of the Obligations
without premium, in such order or manner as Foothill may elect (together with a
commensurate reduction of the Maximum Amount, the Maximum Chi-Chi's Amount, the
Maximum Chi-Chi's Revolving Amount, the Maximum El Torito Amount, and the
Maximum El Torito Revolving Amount), or (ii) disbursed to FRI-MRD or its
Subsidiary, as applicable, under staged payment terms satisfactory to Foothill
for application to the cost of repairs, replacements, or restorations and
subject to the conditions set forth in this Section 6.8(d). In the event
Foothill fails to receive timely such written designation or the conditions set
forth in the following sentence are not satisfied, the payment shall be applied
in the manner set forth in clause (i) of the immediately preceding sentence.
If FRI-MRD and Borrower elect to cause Foothill to disburse any monies received
as payment for any loss pursuant to this Section 6.8(d), Foothill only shall be
obligated to disburse such money for the repair, replacement or restoration of
the affected property or assets if all of the following conditions are
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satisfied: (A) no Default or Event of Default has occurred and is continuing or
would result from the disbursement or application of such monies; (B) FRI-MRD
or Borrower have cash, cash equivalents, borrowing availability under Section
2.1 or Section 2.3, and/or business interruption insurance proceeds in amounts
sufficient, in Foothill's reasonable judgment, to ensure that Borrower will be
able to make payment as and when due of each of its direct Obligations that
will be payable during the period of such repair, replacement, or restoration;
(C) Foothill is reasonably satisfied that the amount of such cash, cash
equivalents, borrowing availability, and/or insurance proceeds will be
sufficient fully to repair, replace, or restore the affected property or
assets; (D) construction, completion of the repair, replacement, or restoration
of the affected property or assets shall be completed in accordance with plans,
specifications, and drawings submitted to and approved by Foothill, which
approval shall not be unreasonably withheld or delayed; (E) all construction
and completion of the repair, replacement, or restoration shall be effected
with reasonable promptness and shall be of a value (the "Replaced Value") (i)
at least equal to the replacement value (the "Destroyed Value") of such items
of property destroyed or condemned prior to such destruction or condemnation,
or (ii) of a value less than the Destroyed Value so long as the difference
between the Destroyed Value and the Replaced Value is applied to the prepayment
of the Obligations without premium, in such order or manner as Foothill may
elect (together with a commensurate reduction of the Maximum Amount, the
Maximum Chi-Chi's Amount, the Maximum Chi-Chi's Revolving Amount, the Maximum
El Torito Amount, and the Maximum El Torito Revolving Amount); and (f) all
monies paid by Borrower to Foothill may be commingled with other funds of
Foothill and will not bear interest pending disbursement hereunder. Upon the
occurrence and during the continuance of an Event of Default, Foothill shall
have the right to apply all prepaid premiums to the payment of the Obligations
in such order or form as Foothill shall determine.
6.9 NO SETOFFS OR COUNTERCLAIMS. Unless otherwise
required by applicable law, all payments hereunder and under the other Loan
Documents made by or on behalf of FRI-MRD or Borrower shall be made without
setoff or counterclaim.
6.10 LOCATION OF INVENTORY AND EQUIPMENT. Keep their
Inventory and Equipment only at or in-transit between the locations identified
on Schedule 6.10; provided, however, that Borrower may amend Schedule 6.10 so
long as such amendment occurs by written notice to Foothill not less than 30
days prior to the date on which the Inventory or Equipment is moved to such new
location, so long as such new location is within the continental United States,
and so long as, at the time of such written notification, FRI-MRD or its
Subsidiary, as applicable, provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests in
such assets.
6.11 COMPLIANCE WITH LAWS. Comply, in all material
respects, with the requirements of all applicable laws, rules, regulations, and
orders of any governmental authority,
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including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non- compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to have a Material Adverse Change.
6.12 EMPLOYEE BENEFITS.
(a) (i) Promptly, and in any event within 10 Business
Days after FRI-MRD or any of its Subsidiaries knows or has reason to know that
an ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, a written statement of the chief financial officer of
FRI-MRD and Borrower describing such ERISA Event and any action that is being
taking with respect thereto by FRI-MRD or Borrower, any such Subsidiary or
ERISA Affiliate, and any action taken or threatened by the IRS, Department of
Labor, or PBGC and (ii) promptly, and in any event within 10 Business Days
after the filing thereof with the IRS, a copy of each funding waiver request
filed with respect to any Benefit Plan and, within 10 days of receipt by
FRI-MRD or any of its Subsidiaries, all written communications received by FRI-
MRD, any of its Subsidiaries or, to the knowledge of FRI-MRD or Borrower, any
ERISA Affiliate with respect to such request. FRI-MRD, Borrower, or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor.
(b) FRI-MRD and Borrower will cause to be delivered to
Foothill, upon Foothill's request, each of the following: (i) a copy of each
Plan (or, where any such plan is not in writing, complete description thereof)
(and if applicable, related trust agreements or other funding instruments) and
all amendments thereto, all written material interpretations thereof and
material written descriptions thereof that have been distributed to employees
or former employees of FRI-MRD or its Subsidiaries; (ii) the most recent
determination letter issued by the IRS with respect to each Benefit Plan; (iii)
for the three most recent plan years, annual reports on Form 5500 Series
required to be filed with any governmental agency for each Benefit Plan; (iv)
all actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of
the most recent annual contributions required to be made by FRI-MRD, Borrower,
or any ERISA Affiliate to each such plan and copies of the collective
bargaining agreements requiring such contributions; and (vi) any information
that has been provided to FRI-MRD, Borrower, or any ERISA Affiliate regarding
withdrawal liability under any Multiemployer Plan.
6.13 LEASES. Pay when due all rents and other amounts
payable under any material leases to which FRI-MRD or its Subsidiaries is a
party or by which their properties and assets are bound (other than amounts of
which they are unaware or that in the aggregate are de minimis amount), unless
such payments are the subject of a Permitted Protest. To the extent that
FRI-MRD or its Subsidiaries fail timely to make payment of such rents and other
amounts
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payable when due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Maximum Chi-Chi's Revolving Amount and the Maximum El Torito Revolving Amount
until such amounts are actually paid in full.
7. NEGATIVE COVENANTS.
Each of FRI-MRD and Borrower covenants and agrees that, so
long as any credit hereunder shall be available and until full and final
payment of the Obligations, FRI-MRD and its Subsidiaries will not do any of the
following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit,
guarantee, or otherwise become or remain, directly or indirectly, liable with
respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and
the other Loan Documents, together with Indebtedness to issuers of letters of
credit that are the subject of L/C Guaranties;
(b) Indebtedness set forth on Schedule 7.1;
(c) (i) Indebtedness owed by FRI-MRD to FRI, so
long as such Indebtedness is unsecured and is
the subject of the Subordination Agreement;
and (ii) Indebtedness owed by FRI-MRD or its
Subsidiaries to FRI-MRD or its Subsidiaries;
(d) Indebtedness relating to insurance premium
financing;
(e) Indebtedness relating to FRI-MRD's and its
Subsidiaries' controlled disbursement
accounts or in respect of overdrafts of zero
balance bank accounts so long as such
Indebtedness is outstanding for not more than
2 Business Days at any one time;
(f) Other unsecured Indebtedness not exceeding
$1,500,000 in principal amount at any time
outstanding;
(g) (i) Indebtedness in respect of capital leases
or purchase money financings for Equipment so
long as the acquisition of the subject asset
or assets is not prohibited by Section 7.21
hereof and so long as the aggregate amount of
such Indebtedness outstanding at any one time
does not exceed $5,000,000; and (ii)
Indebtedness in respect of capital leases or
purchase money financings for Real
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Property (and the related improvements
thereto) acquired after the Closing Date; and
(h) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b)
through (g) of this Section 7.1 (and
continuance or renewal of any Permitted Liens
associated therewith) so long as: (i) as
compared to the Indebtedness being
refinanced, renewed, or extended, the terms
and conditions of such refinancings,
renewals, or extensions do not materially
impair the prospects of repayment of the
Obligations by FRI-MRD and its Subsidiaries,
(ii) the net cash proceeds of such
refinancings, renewals, or extensions do not
result in an increase in the aggregate
principal amount of the Indebtedness so
refinanced, renewed, or extended (other than
the inclusion of customary fees and expenses
incurred in connection with such financing),
(iii) such refinancings, renewals,
refundings, or extensions do not result in a
shortening of the average weighted maturity
of the Indebtedness so refinanced, renewed,
or extended, and (iv) to the extent that
Indebtedness that is refinanced was
subordinated in right of payment to the
Obligations, then the subordination terms and
conditions of the refinancing Indebtedness
must be at least as favorable to Foothill as
those applicable to the refinanced
Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any Lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens.
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except to the
extent otherwise permitted by Section 7.13, enter into any Acquisition, merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
Stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose
of, in one transaction or a series of related transactions, all or
substantially all of its property or assets; provided, however, that: (i) any
Chi-Chi's Subsidiary may be merged with any other Chi-Chi's Subsidiary or with
Chi-Chi's; and (ii) any Subsidiary of FRI-MRD (other than one of the Chi-Chi's
Subsidiaries or one of the Debtors) may be merged with FRI-MRD or any of its
Subsidiaries (other than the Chi-Chi's Subsidiaries or one of the Debtors); and
(iii) one Debtor may be merged with the other Debtor.
7.4 DISPOSAL OF ASSETS. Except for Permitted
Dispositions, consummate any Asset Disposition.
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7.5 CHANGE NAME. Except upon 30 days prior written
notice to Foothill, change FRI-MRD's or any of its Subsidiaries' name, FEIN,
corporate structure (within the meaning of Section 9402(7) of the Code), or
identity, or add any new fictitious name.
7.6 [INTENTIONALLY OMITTED].
7.7 NATURE OF BUSINESS. Make any change in the principal
nature of FRI-MRD's or any of its Subsidiaries' business.
7.8 [INTENTIONALLY OMITTED].
7.9 CHANGE OF CONTROL. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
7.10 [INTENTIONALLY OMITTED].
7.11 DISTRIBUTIONS. Make any loan to FRI or any of its
Subsidiaries or make any distribution or declare or pay any dividends (in cash
or other property, other than capital Stock) on, or purchase, acquire, redeem,
or retire any of FRI-MRD's or any of its Subsidiaries' capital Stock, of any
class, whether now or hereafter outstanding, except:
(a) (i) any Subsidiary of FRI-MRD may make loans,
or declare and pay dividends or other distributions in cash, to such
Subsidiary's immediate parent; and (ii) FRI-MRD and its Subsidiaries may make
Permitted Ordinary Course Investments.
(b) so long as no Blockage Event exists and is
continuing at the time of such payment or would result therefrom, FRI-MRD may
make loans to or declare and pay dividends or other distributions in cash to
FRI to make payment of regularly scheduled payments of interest then due and
owing with respect to the Senior Notes and the Subordinated Notes, if and so
long as FRI promptly uses the proceeds of such dividends or other distributions
solely to satisfy such obligations;
(c) so long as no Triggering Event exists and is
continuing at the time of such payment or would result therefrom, FRI-MRD may
make loans to or declare and pay dividends or other distributions in cash to
FRI to make payment of its and its Subsidiaries' general and administrative
operating expenses (other than: (i) those set forth in clause (b) above; (ii)
the repurchase or retirement of the Senior Notes or the Subordinated Notes; and
(iii) management or other fees payable to any Apollo Related Person or any
Green Related Person (other than customary directors fees paid to directors
generally) and federal, state, local, and foreign taxes and other assessments
of a similar nature (whether imposed directly or through withholding) then
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due and owing, in each case, as determined in good faith by the Board of
Directors of FRI-MRD and to the extent arising from or directly related to
FRI's ownership interest in FRI-MRD and its Subsidiaries, if and so long as FRI
promptly uses the proceeds of such dividends or other distributions solely to
satisfy such obligations; and
(d) so long as no Blockage Event exists and is
continuing at the time of such payment or would result therefrom, FRI-MRD may
make loans to or declare and pay dividends or other distributions in cash to
FRI to redeem shares of Stock of FRI or any of its Subsidiaries held by its
officers, directors, or employees or its former officers, directors, or
employees (or their estates or beneficiaries under their estates) that were
issued pursuant to any stock option plan, restricted stock plan, or similar
arrangement, upon the death, disability, retirement, termination of employment,
or pursuant to the terms under which such shares of Stock were issued;
provided, that the aggregate consideration paid for all such redemptions does
not exceed $2,000,000 in any fiscal year.
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently
existing, or at any time hereafter entered into with any third party accounting
firm or service bureau for the preparation or storage of FRI-MRD's and its
Subsidiaries' accounting records without said accounting firm or service bureau
agreeing to provide Foothill information regarding the Collateral or the
Guarantor Collateral or FRI-MRD's and its Subsidiaries' financial condition.
7.13 INVESTMENTS. Directly or indirectly make any
Investments except for Permitted Investments.
7.14 TRANSACTIONS WITH AFFILIATES. Except as permitted by
Sections 7.11 and 7.13 and except for Permitted Ordinary Course Investments,
directly or indirectly, enter into or permit to exist any material transaction
with any Affiliate of FRI-MRD or its Subsidiaries except for (a) transactions
that are in the ordinary course of FRI-MRD's and its Subsidiaries' business,
are upon fair and reasonable terms, and are no less favorable to FRI-MRD and
its Subsidiaries than would be obtained in an arm's length transaction with a
non-Affiliate, (b) transactions between or among FRI-MRD and its Subsidiaries,
or (c) the payment of reasonable and customary compensation or similar fees
(including options and related Stock appreciation or value creation rights or
similar rights pursuant to any Stock option or other similar plan or
arrangement) to officers, directors, and employees of FRI-MRD or any of its
Subsidiaries (so long as such individuals are not also officers, directors,
partners, or employees of an Apollo Related Person), in each case as determined
by the Board of Directors (or the compensation committee thereof) of FRI-MRD or
such Subsidiary, as applicable. Anything contained herein to the contrary
notwithstanding, without Foothill's prior written consent, FRI-MRD and its
Subsidiaries shall not pay (but, upon the execution and delivery by the
applicable Apollo Related Persons of
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a subordination agreement in form and substance reasonably satisfactory to
Foothill, may accrue) any management, consulting, advisory, or other fee to an
Apollo Related Person.
7.15 SUSPENSION. Voluntarily suspend or go out of a
substantial portion of its business.
7.16 [INTENTIONALLY OMITTED].
7.17 USE OF PROCEEDS. Use the proceeds of the Advances
made hereunder for any purpose other than (i) on the Closing Date, to repay in
full the outstanding principal, accrued interest, and accrued fees and expenses
owing to Existing Lender, and (ii) to pay transactional costs and expenses
incurred in connection with this Agreement, and (iii) consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a
new location without providing 30 days prior written notification thereof to
Foothill and so long as, at the time of such written notification, FRI-MRD or
its Subsidiary, as applicable, provides any financing statements necessary to
perfect and continue perfected Foothill's security interests. The Inventory
and Equipment of FRI-MRD and its Subsidiaries shall not at any time now or
hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) Engage, or permit any Subsidiary of FRI-MRD to
engage, in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the
IRC for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan
any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of FRI-MRD to
fail, to pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of FRI-MRD
to terminate, any Benefit Plan where such event would result in any material
liability of FRI-MRD, any of its Subsidiaries or any ERISA Affiliate under
Title IV of ERISA;
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(e) fail, or permit any Subsidiary of FRI-MRD to
fail, to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of FRI-MRD to
fail, to pay any required installment or any other payment required under
Section 412 of the IRC on or before the due date for such installment or other
payment;
(g) amend, or permit any Subsidiary of FRI-MRD to
amend, a Plan resulting in a material increase in current liability for the
plan year such that either of FRI-MRD, any Subsidiary of FRI-MRD, or any ERISA
Affiliate is required to provide security to such Plan under Section 401(a)(29)
of the IRC; or
(h) withdraw, or permit any Subsidiary of FRI-MRD to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably
likely to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of FRI-MRD, any of its
Subsidiaries or any ERISA Affiliate in excess of $1,000,000.
7.20 FINANCIAL COVENANTS.
(a) EBITDA - Chi-Chi's. In the case of
Chi-Chi's, fail to maintain EBITDA for the Relevant Measuring Period of not
less than the relevant amount set forth in the following table, measured on a
fiscal quarter-end basis:
<TABLE>
<CAPTION>
Period Ending Minimum EBITDA
------------- --------------
<S> <C>
12/31/96 <$2,000,000>
3/31/97 <$2,000,000>
6/30/97 <$2,000,000>
9/30/97 -0-
12/31/97 -0-
03/31/98 $1,000,000
06/30/98 $1,000,000
09/30/98 $1,000,000
</TABLE>
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<TABLE>
<CAPTION>
Period Ending Minimum EBITDA
------------- --------------
<S> <C>
12/31/98 $1,000,000
03/31/99 $2,000,000
quarterly thereafter $2,000,000
</TABLE>
(b) EBITDA - El Torito. In the case of El
Torito, fail to maintain EBITDA for the Relevant Measuring Period of not less
than the relevant amount set forth in the following table, measured on a fiscal
quarter-end basis:
<TABLE>
<CAPTION>
Period Ending Minimum EBITDA
------------- --------------
<S> <C>
12/31/96 $8,500,000
3/31/97 $9,000,000
6/30/97 $9,000,000
9/30/97 $9,000,000
12/31/97 $9,000,000
03/31/98 $10,000,000
06/30/98 $10,000,000
09/30/98 $10,000,000
12/31/98 $10,000,000
03/31/99 $11,000,000
quarterly thereafter $11,000,000
</TABLE>
(c) EBITDA - Combined. In the case of Chi-Chi's
and El Torito, on a combined basis, fail to maintain EBITDA for the Relevant
Measuring Period of not less than the relevant amount set forth in the
following table, measured on a fiscal quarter-end basis:
<TABLE>
<CAPTION>
Period Ending Minimum EBITDA
------------- --------------
<S> <C>
12/31/96 n/a
3/31/97 n/a
</TABLE>
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<TABLE>
<CAPTION>
Period Ending Minimum EBITDA
------------- --------------
<S> <C>
6/30/97 n/a
9/30/97 $10,000,000
12/31/97 $12,000,000
03/31/98 $14,000,000
06/30/98 $14,000,000
09/30/98 $15,000,000
12/31/98 $15,000,000
03/31/99 $15,000,000
quarterly thereafter $15,000,000
</TABLE>
(d) Total Obligations to Combined EBITDA. In the
case of Borrower, fail to maintain a ratio of (i) the sum of (y) total monetary
Obligations charged to the Loan Account plus (z) all contingent Obligations
with respect to Letters of Credit, to (ii) the combined EBITDA of the Debtors
for the fiscal quarter then ended of equal to or less than the relevant amount
set forth in the following table, measured on a fiscal quarter-end basis:
<TABLE>
<CAPTION>
Period Ending Minimum Ratio
------------- -------------
<S> <C>
12/31/96 4.5:1.0
3/31/97 4.5:1.0
6/30/97 4.0:1.0
9/30/97 3.5:1.0
12/31/97 3.0:1.0
03/31/98 3.0:1.0
06/30/98 2.5:1.0
09/30/98 2.5:1.0
12/31/98 2.5:1.0
03/31/99 2.0:1.0
</TABLE>
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<TABLE>
<CAPTION>
Period Ending Minimum Ratio
------------- -------------
<S> <C>
quarterly thereafter 2.0:1.0
</TABLE>
7.21 CAPITAL EXPENDITURES. Make capital expenditures in
connection with new restaurants in any consecutive 12 month period in excess of
the sum of (a) the amount of equity capital contributions made by FRI to
Borrower for the sole purpose of permitting Borrower to make capital
expenditures in connection with new restaurants, plus (b) the greater of (i)
$5,000,000, or (ii) 25% of the combined EBITDA of the Debtors during the
applicable 12 month period (as reflected in the financial statements delivered
to Foothill pursuant hereto). For purposes of this Section 7.21, a restaurant
shall be deemed to be a "new restaurant" if, as of any date of determination,
it was opened for the first time not more than 12 months prior to such date.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Foothill, reimbursement of Foothill Expenses, or other amounts constituting
Obligations); provided, however, that in the case of Chi-Chi's Overadvances
that are caused by the charging of interest, fees, or Foothill Expenses to
Chi-Chi's Loan Account, such event shall not constitute an Event of Default if,
within 3 Business Days prior telephonic notice of such Chi-Chi's Overadvance,
Chi-Chi's prepays, or otherwise eliminates, such Chi-Chi's Overadvance;
provided, however, that in the case of El Torito Overadvances that are caused
by the charging of interest, fees, or Foothill Expenses to El Torito's Loan
Account, such event shall not constitute an Event of Default if, within 3
Business Days prior telephonic notice of such El Torito Overadvance, El Torito
prepays, or otherwise eliminates, such El Torito Overadvance;
8.2 If (a) FRI-MRD or its Subsidiaries fails or neglects
to perform, keep, or observe, in any material respect any term, provision,
condition, covenant, or agreement contained in Sections 6.1 (Accounting
System), 6.2 (Collateral Reports), 6.4 (Tax Returns), 6.5 (Title to Equipment),
6.6 (Maintenance of Equipment), 6.10 (Location of Inventory and Equipment),
6.11 (Compliance with Laws), or 6.12 (Employee Benefits) of this Agreement and
such failure continues for a period of 15 days from the date on which any of
FRI-MRD and its Subsidiaries first had knowledge or reasonably should have had
knowledge of such failure or neglect, or (b)
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FRI or its Subsidiaries fails or neglects to perform, keep, or observe, in any
material respect, any other term, provision, condition, covenant, or agreement
contained in this Agreement or any of the other Loan Documents (other than any
such term, provision, condition, covenant, or agreement that is the subject of
another provision of this Section 8, including Section 8.15, and, in each
instance, after giving effect to any notice, grace, or cure periods provided
for in such Loan Documents);
8.3 If there is a Material Adverse Collateral Change;
8.4 If any material property of FRI-MRD or any of its
Subsidiaries is attached, seized, subjected to a writ or distress warrant, or
is levied upon, and such attachment, seizure, writ, warrant, or levy is not
released, discharged, or bonded against before the earlier of 30 days of the
date it first arises or 5 days of the date when such property or asset is
subject to being forfeited by FRI-MRD or its Subsidiary;
8.5 If an Insolvency Proceeding is commenced by FRI-MRD
or any of its Subsidiaries;
8.6 If an Insolvency Proceeding is commenced against
FRI-MRD or any of its Subsidiaries and any of the following events occur: (a)
FRI-MRD or any such Subsidiary consents to the institution of the Insolvency
Proceeding against it; (b) the petition commencing the Insolvency Proceeding is
not timely controverted; (c) the petition commencing the Insolvency Proceeding
is not dismissed within 60 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period, Foothill shall be
relieved of its obligation to extend additional credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all or any substantial portion of
the business of, FRI-MRD or any such Subsidiary; or (e) an order for relief
shall have been issued or entered therein;
8.7 If FRI-MRD or any of its Subsidiaries is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs and such injunction,
restraining order, or other court order is not stayed within 30 days of the
date on which it first arises;
8.8 (a) If a notice of lien, levy, or assessment is filed
of record with respect to any of FRI's or any of its Subsidiaries' properties
or assets by the United States, or if any taxes or debts owing at any time
hereafter to the United States becomes a lien, whether choate or otherwise,
upon any of FRI's or any of its Subsidiaries' properties or assets; or
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(b) If a notice of lien, levy, or assessment is filed
of record with respect to any of FRI-MRD's or any of its Subsidiaries'
properties or assets by any state, county, municipal, or other non-federal
governmental agency, or if any taxes or debts owing for an amount in excess of
$250,000 at any time hereafter to any one or more of such entities becomes a
lien, whether choate or otherwise, upon any of FRI-MRD's or any of its
Subsidiaries' properties or assets and, in any such case, such taxes or debts
are not the subject of a Permitted Protest, and the lien, levy, or assessment
is not released, discharged, or bonded against before the earlier of 30 days of
the date it first arises or 5 days of the date when such property or asset is
subject to being forfeited; or
(c) If a notice of lien, levy, or assessment is filed
of record with respect to the Headquarters Property by any state, county,
municipal, or other non-federal governmental agency, or if any Real Property
taxes owing for an amount in excess of $250,000 at any time hereafter to any
one or more of such entities becomes a lien, whether choate or otherwise, upon
the Headquarters Property and, in any such case, such taxes are not the subject
of a Permitted Protest, and the lien, levy, or assessment is not released,
discharged, or bonded against before the earlier of 30 days of the date it
first arises or 5 days of the date when the Headquarters Property is subject to
being forfeited; or
8.9 If a judgment or other claim becomes a Lien upon any
material property of FRI-MRD and its Subsidiaries and the same is not released,
discharged, bonded against, or stayed pending appeal before the earlier of 30
days of the date it first arises or 5 days of the date when such property or
asset is subject to being forfeited by FRI-MRD or any of its Subsidiaries;
provided, however, that during such period Foothill shall be entitled to create
a reserve against the Maximum Chi-Chi's Revolving Amount and the Maximum El
Torito Revolving Amount, in an amount sufficient to discharge such lien or
encumbrance and any and all penalties or interest payable in connection
therewith;
8.10 If there is a material default in any material
agreement relating to Indebtedness to which FRI-MRD or any of its Subsidiaries
is a party with one or more third Persons and such default (a) occurs at the
final maturity of the obligations thereunder, or (b) results in a right by such
third Person(s), irrespective of whether exercised, to accelerate the maturity
of FRI-MRD's or its Subsidiaries' obligations thereunder or to terminate the
subject agreement;
8.11 If Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to
the payment of the Obligations, except to the extent such payment is permitted
by the terms of the subordination provisions applicable to such Indebtedness;
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8.12 If any material misstatement or misrepresentation
exists now or hereafter in any written warranty, representation, statement, or
report made pursuant to any of the Loan Documents to Foothill by FRI-MRD or its
Subsidiaries or by any officer, director, employee, or agent of FRI-MRD or its
Subsidiaries (in the case of employees or agents who are not officers or
directors, to the extent authorized by an officer or director to communicate or
transact business with Foothill or who regularly communicate or transact
business with Foothill), or if any such warranty or representation is
withdrawn;
8.13 If the obligation of any Guarantor under any Loan
Document is terminated by operation of law, or any Guarantor becomes the
subject of an Insolvency Proceeding;
8.14 With respect to any Loan Document to which Borrower or
any Guarantor is a party that includes a guaranty of any of the Obligations or
the grant or conveyance of a Lien on any real or personal property or any
interest or estate therein to secure all or any part of the Obligations or any
guaranty thereof, if Borrower or any Guarantor that is a party thereto shall
have purported to rescind, revoke, or terminate such Loan Document, or shall
have asserted that such Loan Document is not effective, in the case of a Loan
Document that includes a guaranty, to guaranty all or any part of the present
or future Obligations, or, in the case of a Loan Document that grants or
conveys a Lien, to secure all or any part of the present or future Obligations;
or
8.15 If FRI or any Subsidiary of FRI that is a party to the
VCOC Letter fails or neglects to perform, keep, or observe any term, provision,
covenant, or agreement contained in the VCOC Letter and applicable to it, if
such failure or neglect continues for thirty (30) days following the date that
Foothill gives notice to such Person of such failure or neglect, specifying
same with reasonable particularity.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during
the continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by FRI-MRD and Borrower:
(a) Declare all Obligations, evidenced by this
Agreement, or any of the other Loan Documents, immediately due and payable;
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement, or under any of the Loan
Documents;
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(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of Foothill, but
without affecting Foothill's rights and security interests in the Personal
Property Collateral or the Real Property Collateral and without affecting the
Obligations;
(d) [intentionally omitted]
(e) [intentionally omitted]
(f) Without notice to or demand upon FRI-MRD or
Borrower or any Guarantor, make such payments and do such acts as Foothill
considers reasonably necessary to protect its security interests in the
Collateral. Borrower agrees to assemble the Personal Property Collateral if
Foothill so requires, and to make the Personal Property Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Personal Property Collateral is located, to take and
maintain possession of the Personal Property Collateral, or any part of it, and
to pay, purchase, contest, or compromise any encumbrance, charge, or Lien that
in Foothill's reasonable determination appears to conflict with its security
interests and to pay all expenses incurred in connection therewith. With
respect to any of FRI-MRD's or Borrower's owned or leased premises, each of
them hereby grants Foothill a license to enter into possession of such premises
and to occupy the same, without charge, for up to 120 days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) [intentionally omitted]
(h) [intentionally omitted]
(i) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Personal Property Collateral. Foothill is hereby
granted a license or other right to use, without charge, FRI-MRD's and
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Personal Property
Collateral, in advertising for sale and selling any Personal Property
Collateral and FRI-MRD's and Borrower's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(j) Sell the Personal Property Collateral at
either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including FRI-MRD's and Borrower's premises) as Foothill determines is
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commercially reasonable. It is not necessary that the Personal Property
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition
of the Personal Property Collateral as follows:
(1) Foothill shall give Borrower and each
holder of a security interest in the Personal Property Collateral who has filed
with Foothill a written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section 12, at least 10
days before the date fixed for the sale, or at least 10 days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Personal
Property Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market. Notice to
Persons other than Borrower claiming an interest in the Personal Property
Collateral shall be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice
one time at least 10 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any
public sale; and
(m) Any deficiency that exists after disposition
of the Personal Property Collateral as provided above will be paid promptly
(and in any event within 2 Business Days) by FRI-MRD and the other Guarantors
(pursuant to their respective Guaranty) and Borrower. Any excess will be
returned promptly, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
Anything in this Agreement to the contrary notwithstanding, unless a Triggering
Event has occurred and is continuing, Foothill (a) shall not exercise any of
its default remedies with respect to the Concentration Accounts or any other
deposit accounts of FRI or its Subsidiaries, and (b) shall not exercise any of
its default remedies with respect to the Investment Property.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies
under this Agreement and the other Loan Documents shall be cumulative.
Foothill shall have all other
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rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity. No exercise by Foothill of one right or remedy shall be
deemed an election, and no waiver by Foothill of any Event of Default shall be
deemed a continuing waiver. No delay by Foothill shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
If FRI-MRD or any of its Subsidiaries fails to pay any monies
(whether taxes, assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under such leases) due to
third Persons, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement or the
other Loan Documents, then, to the extent that Foothill determines that such
failure by FRI-MRD or any of its Subsidiaries could reasonably be expected to
result in a Material Adverse Collateral Change, without prior notice to FRI-MRD
or Borrower, Foothill may do any or all of the following: (a) make payment of
the same or any part thereof; (b) set up such reserves in one or more of the
Loan Accounts as Foothill reasonably deems necessary to protect Foothill from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in Section 6.8, and take any action with respect
to such policies as Foothill reasonably deems prudent. Any such amounts paid
by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any
such expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall for purposes of this Agreement be conclusive evidence
that the same was validly due and owing. Foothill agrees to endeavor in good
faith promptly to provide notice to FRI-MRD or Borrower of any action taken by
Foothill under this Section 10, but the failure of Foothill to do so (except if
such failure is the result of Foothill's bad faith) shall not create any
liability whatsoever on the part of Foothill.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Each of FRI-MRD and Borrower
waives, to the extent permitted by law, all demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by
Foothill on which FRI-MRD or Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as
Foothill complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto
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occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person; or (e) any risk of
loss, damage, or destruction of the Collateral or the Guarantor Collateral.
11.3 INDEMNIFICATION. Each of FRI-MRD and Borrower,
jointly and severally, shall pay, indemnify, defend, and hold Foothill, each
Participant, and each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys fees and disbursements and other out-of-pocket costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document,
or the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Each of FRI-MRD and Borrower shall have no
obligation to any Indemnified Person under this Section 11.3: (a) with respect
to any Indemnified Liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
such Indemnified Person; (b) with respect to any settlement in excess of
$250,000 made without Borrower's consent (which shall not be unreasonably
withheld, conditioned, or delayed and which consent need not be obtained if
FRI-MRD or Borrower is in default of its obligations under this Section 11.3);
or (c) without Borrower's consent (which shall not be reasonably withheld,
conditioned, or delayed and which consent need not be obtained if FRI-MRD or
Borrower is in default of its obligations under this Section 11.3), for the
fees and disbursements of more than one separate firm of attorneys for all
Indemnified Persons relative to a particular Indemnified Liability. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations for a period of two years (and shall continue thereafter with
respect to claims made or asserted during such period).
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
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prepaid, return receipt requested), overnight courier, or telefacsimile to
FRI-MRD, Borrower, or to Foothill, as the case may be, at its address set forth
below:
IF TO FRI-MRD,
EL TORITO,
OR CHI-CHI'S: FRI-MRD CORPORATION
18831 Von Karman Avenue
Irvine, California 92713
Attn: Mr. Robert D. Gonda
Fax No. 714.757.7984
WITH COPIES TO: SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 South Grand Avenue
Los Angeles, California 90071
Attn: Michael Woronoff, Esq.
Fax No. 213.687.5600
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
WITH COPIES TO: THE FOOTHILL GROUP, INC.
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Mr. Dennis Ascher
Fax No. 310.479.0461
AND
BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.239.1324
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The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this Section 12,
other than notices by Foothill in connection with Sections 9504 or 9505 of the
Code, shall be deemed received on the earlier of the date of actual receipt or
3 days after the deposit thereof in the mail. Each of FRI-MRD and Borrower
acknowledges and agrees that notices sent by Foothill in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANY OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
FOOTHILL'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO
BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
EACH OF FRI-MRD, BORROWER, AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. EACH OF FRI-MRD, BORROWER, AND FOOTHILL
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF
FRI-MRD, BORROWER, AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE
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EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
14. DESTRUCTION OF FRI-MRD'S AND BORROWER'S DOCUMENTS.
Except for Negotiable Collateral, all documents, schedules,
invoices, agings, or other papers delivered to Foothill may be destroyed or
otherwise disposed of by Foothill 4 months after they are delivered to or
received by Foothill, unless FRI-MRD or Borrower requests, in writing, the
return of said documents, schedules, or other papers and makes arrangements, at
FRI-MRD's or Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective upon the later of (a) the execution of this Agreement by FRI,
FRI-MRD, Borrower, FRI-Admin, Franchising, the Chi-Chi's Subsidiaries, and
Foothill and (b) the Closing Date.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind
and inure to the benefit of the respective successors and assigns of each of
the parties; provided, however, that FRI-MRD and Borrower may not assign this
Agreement or any rights or duties hereunder without Foothill's prior written
consent and any prohibited assignment shall be absolutely void. No consent to
an assignment by Foothill shall release FRI-MRD or Borrower from their
respective Obligations. Foothill may assign this Agreement and its rights and
duties hereunder and no consent or approval by FRI-MRD or Borrower is required
in connection with any such assignment and Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder; in each case, so long
as, after giving effect thereto, Foothill or its Affiliates retain commitments
of not less than ten thirty-fifths (10/35ths) of the Maximum Amount. In
connection with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating to
FRI-MRD and Borrower or their respective businesses. To the extent that
Foothill assigns its rights and obligations hereunder to a third Person,
Foothill thereafter shall be released from such assigned obligations to FRI-MRD
and Borrower and such assignment shall effect a novation between FRI-MRD and
Borrower, on the one hand, and such third Person, on the other hand.
15.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
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15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against
Foothill, FRI-MRD, or Borrower, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by all parties
and shall be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of all
parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by Foothill, FRI-MRD, and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This
Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower, or any Guarantor or the
transfer by any or all of such parties to Foothill of any property of any or
all of such parties should for any reason subsequently be declared to be void
or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers
of property (collectively, a "Voidable Transfer"), and if Foothill is required
to repay or restore, in whole or in part, any such Voidable Transfer, or elects
to do so upon the reasonable advice of its counsel, then, as to any such
Voidable Transfer, or the amount thereof that Foothill is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of Foothill related thereto, the liability of Borrower, or such Guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other
Loan Documents, reflects the entire understanding of the parties with respect
to the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.
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15.10 CONFIDENTIALITY. Foothill agrees that material,
non-public information regarding FRI and its Subsidiaries, their operations,
assets, and existing and contemplated business plans shall be treated by
Foothill in a confidential manner, and shall not be disclosed by it to Persons
who are not parties to this Agreement, except: (a) to counsel for and other
advisors, accountants, and auditors to Foothill, (b) as may be required by
statute, decision, or judicial or administrative order, rule, or regulation,
(c) as may be agreed to in advance by a Debtor, (d) as to any such information
that is or becomes generally available to the public (other than as a result of
prohibited disclosure by Foothill), and (e) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participation, or pledge or prospective pledge of Foothill's interests under
this Agreement, provided that any such counsel, advisors, accountants, auditors
and any such assignee, prospective assignee, purchaser, prospective purchaser,
participant, prospective participant, pledgee, or prospective pledgee shall
have agreed in writing to take its interest hereunder subject to the terms
hereof. The provisions of this Section 15.10 shall survive for 2 years after
the full and final repayment of the Obligations.
15.11 GUARANTORS. By its execution and delivery of this
Agreement, each Guarantor hereby agrees to be bound by each of the provisions
hereof applicable to such Guarantor or the assets and properties thereof and
hereby agrees to guaranty the Obligations, as more particularly set forth in
the Guaranty to which it is party and whose terms and conditions are by this
reference incorporated herein mutatis mutandis.
- Remainder of page intentionally left blank. -
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<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
FRI MRD CORPORATION,
a Delaware corporation
By____________________________________
Title:________________________________
EL TORITO RESTAURANTS, INC.,
a Delaware corporation
By____________________________________
Title:________________________________
CHI-CHI'S INC.,
a Delaware corporation
By____________________________________
Title:________________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By____________________________________
Title:________________________________
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<PAGE> 85
Acknowledgement and Agreement
of Guarantors under Section
15.11 of the Agreement:
FAMILY RESTAURANTS, INC.,
a Delaware corporation
By _____________________________
Title: _________________________
FRI-MRD CORPORATION,
a Delaware corporation
By _____________________________
Title: _________________________
FRI-ADMIN CORPORATION,
a Delaware corporation
By _____________________________
Title: _________________________
EL TORITO FRANCHISING COMPANY,
a Delaware corporation
By _____________________________
Title: _________________________
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<PAGE> 86
CCMR OF TIMONIUM, INC.,
a Delaware corporation
By _____________________________
Title: _________________________
CCMR OF MARYLAND, INC.,
a Delaware corporation
By _____________________________
Title: _________________________
CHI-CHI'S OF KANSAS, INC.,
a Kansas corporation
By _____________________________
Title: _________________________
CHI-CHI'S OF GREENBELT, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
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<PAGE> 87
CHI-CHI'S FRANCHISE OPERATIONS CORPORATION,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF CANTONSVILLE, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF GREENBELT, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF RITCHIE HIGHWAY, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
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<PAGE> 88
CHI-CHI'S MANAGEMENT CORPORATION,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF CUMBERLAND, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF HARFORD COUNTY, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CHI-CHI'S OF SOUTH CAROLINA, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
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<PAGE> 89
MAINTENANCE SUPPORT GROUP, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF FREDERICK, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF INNER HARBOR, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CHI-CHI'S OF WEST VIRGINIA, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
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<PAGE> 90
CCMR ADVERTISING AGENCY, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
CCMR OF GOLDEN RING, INC.,
a Kentucky corporation
By _____________________________
Title: _________________________
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<PAGE> 1
EXHIBIT 10(x)
GENERAL CONTINUING GUARANTY
FAMILY RESTAURANTS, INC.
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
January 10, 1997, is executed and delivered by FAMILY RESTAURANTS, INC., a
Delaware corporation ("Guarantor"), in favor of Foothill Capital Corporation, a
California corporation ("Guarantied Party"), in light of the following:
WHEREAS, Debtor, Guarantor, Guarantied Party, and the other
parties thereto are, contemporaneously herewith, entering into the Loan
Agreement; and
WHEREAS, in order to induce Guarantied Party to extend
financial accommodations to Debtor pursuant to the Loan Agreement, and in
consideration thereof, and in consideration of any loans or other financial
accommodations at any time extended by Guarantied Party to Debtor pursuant to
the Loan Agreement, Guarantor has agreed to guaranty the Guarantied
Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
hereby agrees, in favor of Guarantied Party, as follows:
1. Definitions and Construction.
(a) Definitions. Capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed to them in
the Loan Agreement. The following terms, as used in this Guaranty, shall have
the following meanings:
"Debtor" shall mean any one or more of
Chi-Chi's, Inc., a Delaware corporation, and El Torito Restaurants, Inc., a
Delaware corporation, individually and collectively, jointly and severally.
"Guarantied Obligations" shall mean the due
and punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, and premium, if any, on the
Indebtedness owed by Debtor to Guarantied Party pursuant to the terms of the
Loan Documents.
"Guarantied Party" shall have the meaning set
forth in the preamble to this Guaranty.
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<PAGE> 2
"Guarantor" shall have the meaning set forth
in the preamble to this Guaranty.
"Guaranty" shall have the meaning set forth
in the preamble to this Guaranty.
"Indebtedness" shall mean any and all
Obligations, whether recovery is or hereafter becomes barred by any statute of
limitations or otherwise becomes unenforceable for any reason whatsoever,
including any act or failure to act by Guarantied Party.
"Loan Agreement" shall mean that certain Loan
and Security Agreement, dated as of the date hereof, entered into between
Debtor, Guarantied Party, and the other parties thereto.
"Permitted Liens" shall have the meaning set
forth in that certain Guarantor Security Agreement executed by Guarantor.
"Restricted Subsidiary" means any Subsidiary
of Guarantor (other than FRI-MRD and its Subsidiaries) that has not been
designated by Guarantor as an Unrestricted Subsidiary.
"Unrestricted Subsidiary" means any
Subsidiary of Guarantor (other than FRI-MRD and its Subsidiaries) that is (a)
now existing or hereafter created or acquired, and (b) designated in writing by
Guarantor to Foothill as an Unrestricted Subsidiary.
(b) Construction. Unless the context of this
Guaranty clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the part includes the
whole, the terms "include" and "including" are not limiting, and the term "or"
has the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and other similar terms refer to
this Guaranty as a whole and not to any particular provision of this Guaranty.
Any reference in this Guaranty to any of the following documents includes any
and all alterations, amendments, restatements, extensions, modifications,
renewals, or supplements thereto or thereof, as applicable: the Loan Agreement;
this Guaranty; and the other Loan Documents. This Guaranty has been reviewed
by Guarantor, Guarantied Party, and their respective counsel, and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of Guarantied Party and
Guarantor.
2. Guarantied Obligations. Guarantor hereby irrevocably
and unconditionally guaranties to Guarantied Party, as and for its own debt,
until final and indefeasible payment
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<PAGE> 3
thereof has been made, (a) the payment of the Guarantied Obligations, in each
case when and as the same shall become due and payable, whether at maturity,
pursuant to a mandatory prepayment requirement, by acceleration, or otherwise;
it being the intent of Guarantor that the guaranty set forth herein shall be a
guaranty of payment and not a guaranty of collection; and (b) the punctual and
faithful performance, keeping, observance, and fulfillment by Debtor of all of
the agreements, conditions, covenants, and Obligations of Debtor contained in
the Loan Agreement, and under each of the other Loan Documents.
3. Continuing Guaranty. This Guaranty includes
Guarantied Obligations arising under successive transactions continuing,
compromising, extending, increasing, modifying, releasing, or renewing the
Guarantied Obligations, changing the interest rate, payment terms, or other
terms and conditions thereof, or creating new or additional Guarantied
Obligations after prior Guarantied Obligations have been satisfied in whole or
in part. To the maximum extent permitted by law, Guarantor hereby waives any
right to revoke this Guaranty as to future Indebtedness. If such a revocation
is effective notwithstanding the foregoing waiver, Guarantor acknowledges and
agrees that (a) no such revocation shall be effective until written notice
thereof has been received by Guarantied Party, (b) no such revocation shall
apply to any Guarantied Obligations in existence on such date (including any
subsequent continuation, extension, or renewal thereof, or change in the
interest rate, payment terms, or other terms and conditions thereof), (c) no
such revocation shall apply to any Guarantied Obligations made or created after
such date to the extent made or created pursuant to a legally binding
commitment of Guarantied Party in existence on the date of such revocation, and
(d) any payment by Debtor or from any source other than Guarantor subsequent to
the date of such revocation shall first be applied to that portion of the
Guarantied Obligations as to which the revocation is effective and which are
not, therefore, guarantied hereunder, and to the extent so applied shall not
reduce the maximum obligation of Guarantor hereunder.
4. Performance Under this Guaranty. In the event that
Debtor fails to make any payment of any Guarantied Obligations, on or before
the due date thereof, or if Debtor shall fail to perform, keep, observe, or
fulfill any other obligation referred to in clause (b) of Section 2 hereof in
the manner provided in the Loan Agreement or the other Loan Documents, as
applicable, Guarantor immediately shall cause such payment to be made or each
of such obligations to be performed, kept, observed, or fulfilled.
5. Primary Obligations. This Guaranty is a primary and
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions until full and final payment in cash
(or other consideration acceptable to Foothill in its sole discretion and
agreed to by Foothill) of the Guarantied Obligations and the termination of all
commitments of Foothill to extend Credit to
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Debtor or Guarantor. Guarantor agrees that it is directly, jointly and
severally with any other guarantor of the Guarantied Obligations, liable to
Guarantied Party, that the obligations of Guarantor hereunder are independent
of the obligations of Debtor or any other guarantor, and that a separate action
may be brought against Guarantor, whether such action is brought against Debtor
or any other guarantor or whether Debtor or any other guarantor is joined in
such action. Guarantor agrees that its liability hereunder shall be immediate
and shall not be contingent upon the exercise or enforcement by Guarantied
Party of whatever remedies it may have against Debtor or any other guarantor,
or the enforcement of any lien or realization upon any security Guarantied
Party may at any time possess. Guarantor agrees that any release which may be
given by Guarantied Party to Debtor or any other guarantor shall not release
Guarantor. Guarantor consents and agrees that Guarantied Party shall be under
no obligation to marshal any property or assets of Debtor or any other
guarantor in favor of Guarantor, or against or in payment of any or all of the
Guarantied Obligations.
6. Waivers.
(a) To the fullest extent permitted by applicable
law, Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of
any loans or other financial accommodations made or extended under the Loan
Agreement, or the creation or existence of any Guarantied Obligations; (iii)
notice of the amount of the Guarantied Obligations, subject, however, to
Guarantor's right to make inquiry of Guarantied Party to ascertain the amount
of the Guarantied Obligations at any reasonable time; (iv) notice of any
adverse change in the financial condition of Debtor or of any other fact that
might increase Guarantor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the
Loan Documents; (vi) notice of any unmatured Event of Default or Event of
Default under the Loan Agreement; and (vii) all other notices (except if such
notice is specifically required to be given to Guarantor under this Guaranty or
any other Loan Documents to which Guarantor is a party) and demands to which
Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable
law, Guarantor hereby waives the right by statute or otherwise to require
Guarantied Party to institute suit against Debtor or to exhaust any rights and
remedies which Guarantied Party has or may have against Debtor. In this
regard, Guarantor agrees that it is bound to the payment of each and all
Guarantied Obligations, whether now existing or hereafter arising, as fully as
if such Guarantied Obligations were directly owing to Guarantied Party by
Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guarantied
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.
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(c) To the fullest extent permitted by applicable
law, Guarantor hereby waives: (i) any rights to assert against Guarantied
Party any defense (legal or equitable), set-off, counterclaim, or claim which
Guarantor may now or at any time hereafter have against Debtor or any other
party liable to Guarantied Party on account of or with respect to the
Guarantied Obligations; (ii) any defense, set-off, counterclaim, or claim, of
any kind or nature, arising directly or indirectly from the present or future
lack of perfection, sufficiency, validity, or enforceability of the Guarantied
Obligations or any security therefor; (iii) any defense arising by reason of
any claim or defense based upon an election of remedies by Guarantied Party
including any defense based upon an election of remedies by Guarantied Party
under the provisions of Section Section 580d and 726 of the California Code of
Civil Procedure, or any similar law of California or any other jurisdiction;
(iv) the benefit of any statute of limitations affecting Guarantor's liability
hereunder or the enforcement thereof, and any act which shall defer or delay
the operation of any statute of limitations applicable to the Guarantied
Obligations shall similarly operate to defer or delay the operation of such
statute of limitations applicable to Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied
Obligations have been fully, finally, and indefeasibly paid in full in cash (or
other consideration acceptable to Foothill in its sole discretion and agreed to
by Foothill): (i) Guarantor hereby waives and postpones any right of
subrogation Guarantor has or may have as against Debtor with respect to the
Guarantied Obligations; (ii) in addition, Guarantor hereby waives and postpones
any right to proceed against Debtor or any other Obligor with respect to any
portion of the Obligations, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims (irrespective of
whether direct or indirect, liquidated or contingent), with respect to the
Guarantied Obligations; and (iii) in addition, Guarantor also hereby waives
and postpones any right to proceed or to seek recourse against or with respect
to any property or asset of Debtor.
(e) If any of the Guarantied Obligations at any
time are secured by a mortgage or deed of trust upon real property, Guarantied
Party may elect, in its sole discretion, upon a default with respect to the
Guarantied Obligations, to foreclose such mortgage or deed of trust judicially
or nonjudicially in any manner permitted by law, before or after enforcing this
Guaranty, without diminishing or affecting the liability of Guarantor
hereunder. Guarantor understands that (a) by virtue of the operation of
California's antideficiency law applicable to nonjudicial foreclosures, an
election by Guarantied Party nonjudicially to foreclose such a mortgage or deed
of trust probably would have the effect of impairing or destroying rights of
subrogation, reimbursement, contribution, or indemnity of Guarantor against
Debtor or other guarantors or sureties, and (b) absent the waiver given by
Guarantor herein, such an election would estop Guarantied Party from enforcing
this Guaranty against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of this
Guaranty, Guarantor hereby waives any right to assert against Guarantied Party
any defense to the enforcement of this Guaranty, whether denominated "estoppel"
or
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otherwise, based on or arising from an election by Guarantied Party
nonjudicially to foreclose any such mortgage or deed of trust securing the
Guarantied Obligations. Guarantor understands that the effect of the foregoing
waiver may be that Guarantor may have liability hereunder for amounts with
respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Debtor or other guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Guaranty.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES,
TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR
DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA
CIVIL CODE Section Section 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821,
2822, 2838, 2839, 2845, 2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL
PROCEDURE Section Section 580A, 580B, 580C, 580D, AND 726, AND CHAPTER 2 OF
TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL
RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE GUARANTIED
PARTY, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE
WITH RESPECT TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED THE
GUARANTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE DEBTOR BY THE
OPERATION OF SECTION 580D OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR
OTHERWISE.
7. Releases. Guarantor consents and agrees that,
without notice to or by Guarantor and without affecting or impairing the
obligations of Guarantor hereunder, Guarantied Party may, by action or
inaction, compromise or settle, extend the period of duration or the time for
the payment, or discharge the performance of, or may refuse to, or otherwise
not enforce, or may, by action or inaction, release all or any one or more
parties to, any one or more of the terms and provisions of the Loan Agreement
or any of the other Loan Documents or may grant other indulgences to Debtor in
respect thereof, or may amend or modify at any time (or from time to time) any
one or more of the Loan Agreement or any of the other Loan Documents in any
manner permitted thereunder, or may, by action or inaction, release or
substitute any other guarantor, if any, of the Guarantied Obligations, or may
enforce, exchange, release, or waive, by action or
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inaction, any security for the Guarantied Obligations or any other guaranty of
the Guarantied Obligations, or any portion thereof.
8. No Election. Guarantied Party shall have the right
to seek recourse against Guarantor to the fullest extent provided for herein
and no election by Guarantied Party to proceed in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of Guarantied Party's right to proceed in any other form of action or
proceeding or against other parties unless Guarantied Party has expressly
waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by Guarantied Party under
any document or instrument evidencing the Guarantied Obligations shall serve to
diminish the liability of Guarantor under this Guaranty except to the extent
that Guarantied Party finally and unconditionally shall have realized
indefeasible payment by such action or proceeding.
9. Indefeasible Payment. The Guarantied Obligations
shall not be considered indefeasibly paid for purposes of this Guaranty unless
and until all payments to Guarantied Party are no longer subject to any right
on the part of any person whomsoever, including Debtor, Debtor as a debtor in
possession, or any trustee (whether appointed under the Bankruptcy Code or
otherwise) of Debtor's assets to invalidate or set aside such payments or to
seek to recoup the amount of such payments or any portion thereof, or to
declare same to be fraudulent or preferential. In the event that, for any
reason, all or any portion of such payments to Guarantied Party is set aside or
restored, whether voluntarily or involuntarily, after the making thereof, the
obligation or part thereof intended to be satisfied thereby shall be revived
and continued in full force and effect as if said payment or payments had not
been made and Guarantor shall be liable for the full amount Guarantied Party is
required to repay plus any and all costs and expenses (including attorneys
fees) paid by Guarantied Party in connection therewith.
10. Financial Condition of Debtor. Guarantor represents
and warrants to Guarantied Party that it is currently informed of the financial
condition of Debtor and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Guarantied
Obligations. Guarantor further represents and warrants to Guarantied Party
that it has read and understands the terms and conditions of the Loan Agreement
and the other Loan Documents. Guarantor hereby covenants that it will continue
to keep itself informed of Debtor's financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which
bear upon the risk of nonpayment or nonperformance of the Guarantied
Obligations.
11. [Intentionally Omitted.]
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12. Payments; Application. All payments to be made
hereunder by Guarantor shall be made in lawful money of the United States of
America at the time of payment, shall be made in immediately available funds,
and shall be made without deduction (whether for taxes or otherwise) or offset.
All payments made by Guarantor hereunder shall be applied as follows: first,
to all reasonable out-of-pocket costs and expenses (including reasonable
attorneys fees) actually incurred by Guarantied Party in enforcing this
Guaranty or in collecting the Guarantied Obligations; second, to all accrued
and unpaid interest, premium, if any, and fees owing to Guarantied Party
constituting Guarantied Obligations; and third, to the balance of the
Guarantied Obligations.
13. Attorneys Fees and Costs. Guarantor agrees to pay
promptly all reasonable attorneys fees and all other reasonable costs and
expenses which may be incurred by Guarantied Party in the enforcement of this
Guaranty or in any way arising out of, or consequential to the protection,
assertion, or enforcement of the Guarantied Obligations (or any security
therefor), irrespective of whether suit is brought.
14. Notices. Unless otherwise specifically provided in
this Guaranty, any notice or other communication relating to this Guaranty or
any other agreement entered into in connection therewith shall be in writing
and shall be personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegram (with messenger delivery specified) to Guarantor or
to Guarantied Party, as the case may be, at its addresses set forth below:
If to Guarantor: FAMILY RESTAURANTS, INC.
18831 Von Karman Avenue
Irvine, California 92713
Attn: Mr. Robert D. Gonda
Telecopy No.: (714) 757-7984
with a copy to: SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
300 S. Grand Avenue
Los Angeles, California 90071
Attn: Michael A. Woronoff, Esq.
Telecopy No.: (213) 687-5600
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If to Guarantied Party: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Telecopy No.: (310) 575-3435
with a copy to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Telecopy No.: (213) 745-3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this Section 14,
other than notices by Guarantied Party in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the date of actual
receipt or three (3) calendar days after the deposit thereof in the mail.
Guarantor acknowledges and agrees that notices sent by Guarantied Party in
connection with Sections 9504 or 9505 of the Code shall be deemed sent when
deposited in the mail or transmitted by telefacsimile or other similar method
set forth above.
15. Cumulative Remedies. No remedy under this Guaranty,
under the Loan Agreement, or any other Loan Document is intended to be
exclusive of any other remedy, but each and every remedy shall be cumulative
and in addition to any and every other remedy given under this Guaranty, under
the Loan Agreement, or any other Loan Document, and those provided by law. No
delay or omission by Guarantied Party to exercise any right under this Guaranty
shall impair any such right nor be construed to be a waiver thereof. No
failure on the part of Guarantied Party to exercise, and no delay in
exercising, any right under this Guaranty shall operate as a waiver thereof;
nor shall any single or partial exercise of any right under this Guaranty
preclude any other or further exercise thereof or the exercise of any other
right.
16. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable under applicable law shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
17. Entire Agreement; Amendments. This Guaranty
constitutes the entire agreement between Guarantor and Guarantied Party
pertaining to the subject matter contained herein. This Guaranty may not be
altered, amended, or modified, nor may any provision hereof be waived or
noncompliance therewith consented to, except by means of a writing executed by
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both Guarantor and Guarantied Party. Any such alteration, amendment,
modification, waiver, or consent shall be effective only to the extent
specified therein and for the specific purpose for which given. No course of
dealing and no delay or waiver of any right or default under this Guaranty
shall be deemed a waiver of any other, similar or dissimilar, right or default
or otherwise prejudice the rights and remedies hereunder.
18. Successors and Assigns. This Guaranty shall be
binding upon Guarantor and its successors and assigns and shall inure to the
benefit of the successors and assigns of Guarantied Party permitted under the
Loan Agreement and the Other Loan Documents; provided, however, Guarantor shall
not assign this Guaranty or delegate any of its duties hereunder without
Guarantied Party's prior written consent and any unconsented to assignment
shall be absolutely void. In the event of any assignment or other transfer of
rights by Guarantied Party in accordance with the Loan Agreement, the rights
and benefits herein conferred upon Guarantied Party shall automatically extend
to and be vested in such assignee or other transferee.
19. No Third Party Beneficiary. This Guaranty is solely
for the benefit of Guarantied Party and its successors and permitted assigns
and may not be relied on by any other Person.
20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT FOOTHILL'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF GUARANTOR AND
GUARANTIED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO
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VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
21. Certain Covenants Applicable to Guarantor.
(a) Guarantor shall not pay dividends or
make distributions with respect to its Stock, or repurchase or redeem shares of
its Stock, except that, so long as no Default or Event of Default exists and is
continuing at the time of such payment or would result therefrom, dividends or
other distributions may be made by Guarantor to redeem shares of Stock of
Guarantor held by its officers, directors, or employees or its former officers,
directors, or employees (or their estates or beneficiaries under their estates)
that were issued pursuant to any stock option plan, restricted stock plan, or
similar arrangement, upon the death, disability, retirement, termination of
employment, or pursuant to the terms under which such shares of Stock were
issued; provided, that the aggregate consideration paid for such redemption
does not exceed $2,000,000 in any fiscal year.
(b) Guarantor shall not pay management
or other fees to any Affiliate of Apollo (other than customary director's fees
paid to directors generally).
(c) Except as otherwise provided below,
(i) if, after the Closing Date, Guarantor acquires any real or personal
property or assets, Guarantor shall grant to Guarantied Party first priority
(except for Permitted Liens) security interests in any or all of such real or
personal property or assets, and (ii) if, after the Closing Date, Guarantor
forms or acquires any additional Subsidiary, Guarantor shall (A) grant or cause
to be granted to Guarantied Party a first priority security interest in all
Stock of such Subsidiary owned by Guarantor or any Subsidiary of Guarantor, (B)
cause such Subsidiary, if it is a Restricted Subsidiary, to guarantee payment
and performance of the Obligations pursuant to a written guaranty similar in
form and substance to the Guaranty (including similar representations,
warranties, and covenants, except
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<PAGE> 12
for any provisions that are unique to Guarantor and therefore inapplicable to
such Restricted Subsidiary), and (C) cause such Subsidiary, if it is a
Restricted Subsidiary, to grant to Guarantied Party first priority (except for
Permitted Liens) security interests in any or all of the real or personal
property or assets of such Subsidiary pursuant to a written security agreement
similar in form and substance to the Guarantor Security Agreement (including
similar representations, warranties, and covenants, except for any provisions
that are unique to Guarantor and therefore inapplicable to such Restricted
Subsidiary).
(d) From and after the Closing Date, up
to but not more than $10,000,000 in the aggregate at any one time of assets of
Guarantor and the Restricted Subsidiaries may be transferred to, contributed
to, or invested in Unrestricted Subsidiaries.
(e) Guarantor shall not transfer, sell,
or otherwise dispose of any real property or interest in real property that is
subject to any mortgage or deed of trust in favor of Foothill without the prior
written consent of Foothill to any such transfer, sale, or disposition.
(f) Guarantor shall not cause, suffer,
or permit any now existing or hereafter created or acquired Unrestricted
Subsidiary to own, operate or manage any Chi-Chi's restaurant or any El Torito
restaurant.
22. Effectiveness. This Guaranty shall be binding and
deemed effective upon the later of (a) the execution of this Guaranty by
Guarantor and (b) the Closing Date.
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IN WITNESS WHEREOF, the undersigned has executed and delivered
this Guaranty as of the date first written above.
FAMILY RESTAURANTS, INC.,
a Delaware corporation
By _____________________________
Title: _________________________
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<PAGE> 1
EXHIBIT 10(y)
GENERAL CONTINUING GUARANTY
FRI-ADMIN CORPORATION
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
January 10, 1997, is executed and delivered by FRI-ADMIN CORPORATION, a
Delaware corporation ("Guarantor"), in favor of Foothill Capital Corporation, a
California corporation ("Guarantied Party"), in light of the following:
WHEREAS, Debtor, Guarantied Party, and the other parties
thereto are, contemporaneously herewith, entering into the Loan Agreement; and
WHEREAS, in order to induce Guarantied Party to extend
financial accommodations to Debtor pursuant to the Loan Agreement, and in
consideration thereof, and in consideration of any loans or other financial
accommodations at any time extended by Guarantied Party to Debtor pursuant to
the Loan Agreement, Guarantor has agreed to guaranty the Guarantied
Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor
hereby agrees, in favor of Guarantied Party, as follows:
1. Definitions and Construction.
(a) Definitions. Capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed to them in
the Loan Agreement. The following terms, as used in this Guaranty, shall have
the following meanings:
"Debtor" shall mean any one or more of
Chi-Chi's, Inc., a Delaware corporation, and El Torito Restaurants, Inc., a
Delaware corporation, individually and collectively, jointly and severally.
"Guarantied Obligations" shall mean the due
and punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, and premium, if any, on the
Indebtedness owed by Debtor to Guarantied Party pursuant to the terms of the
Loan Documents.
"Guarantied Party" shall have the meaning set
forth in the preamble to this Guaranty.
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<PAGE> 2
"Guarantor" shall have the meaning set forth
in the preamble to this Guaranty.
"Guaranty" shall have the meaning set forth
in the preamble to this Guaranty.
"Indebtedness" shall mean any and all
Obligations, whether recovery is or hereafter becomes barred by any statute of
limitations or otherwise becomes unenforceable for any reason whatsoever,
including any act or failure to act by Guarantied Party.
"Loan Agreement" shall mean that certain Loan
and Security Agreement, dated as of the date hereof, entered into between
Debtor, Guarantied Party, and the other parties thereto.
(b) Construction. Unless the context of this
Guaranty clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the part includes the
whole, the terms "include" and "including" are not limiting, and the term "or"
has the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and other similar terms refer to
this Guaranty as a whole and not to any particular provision of this Guaranty.
Any reference in this Guaranty to any of the following documents includes any
and all alterations, amendments, restatements, extensions, modifications,
renewals, or supplements thereto or thereof, as applicable: the Loan Agreement;
this Guaranty; and the other Loan Documents. This Guaranty has been reviewed
by Guarantor, Guarantied Party, and their respective counsel, and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of Guarantied Party and
Guarantor.
2. Guarantied Obligations. Guarantor hereby irrevocably
and unconditionally guaranties to Guarantied Party, as and for its own debt,
until final and indefeasible payment thereof has been made, (a) the payment of
the Guarantied Obligations, in each case when and as the same shall become due
and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of Guarantor
that the guaranty set forth herein shall be a guaranty of payment and not a
guaranty of collection; and (b) the punctual and faithful performance, keeping,
observance, and fulfillment by Debtor of all of the agreements, conditions,
covenants, and Obligations of Debtor contained in the Loan Agreement, and under
each of the other Loan Documents.
3. Continuing Guaranty. This Guaranty includes
Guarantied Obligations arising under successive transactions continuing,
compromising, extending, increasing, modifying, releasing, or renewing the
Guarantied Obligations, changing the interest rate, payment
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<PAGE> 3
terms, or other terms and conditions thereof, or creating new or additional
Guarantied Obligations after prior Guarantied Obligations have been satisfied
in whole or in part. To the maximum extent permitted by law, Guarantor hereby
waives any right to revoke this Guaranty as to future Indebtedness. If such a
revocation is effective notwithstanding the foregoing waiver, Guarantor
acknowledges and agrees that (a) no such revocation shall be effective until
written notice thereof has been received by Guarantied Party, (b) no such
revocation shall apply to any Guarantied Obligations in existence on such date
(including any subsequent continuation, extension, or renewal thereof, or
change in the interest rate, payment terms, or other terms and conditions
thereof), (c) no such revocation shall apply to any Guarantied Obligations made
or created after such date to the extent made or created pursuant to a legally
binding commitment of Guarantied Party in existence on the date of such
revocation, and (d) any payment by Debtor or from any source other than
Guarantor subsequent to the date of such revocation shall first be applied to
that portion of the Guarantied Obligations as to which the revocation is
effective and which are not, therefore, guarantied hereunder, and to the extent
so applied shall not reduce the maximum obligation of Guarantor hereunder.
4. Performance Under this Guaranty. In the event that
Debtor fails to make any payment of any Guarantied Obligations, on or before
the due date thereof, or if Debtor shall fail to perform, keep, observe, or
fulfill any other obligation referred to in clause (b) of Section 2 hereof in
the manner provided in the Loan Agreement or the other Loan Documents, as
applicable, Guarantor immediately shall cause such payment to be made or each
of such obligations to be performed, kept, observed, or fulfilled.
5. Primary Obligations. This Guaranty is a primary and
original obligation of Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions until full and final payment in cash
(or other consideration acceptable to Foothill in its sole discretion and
agreed to by Foothill) of the Guarantied Obligations and the termination of all
commitments of Foothill to extend Credit to Debtor or Guarantor. Guarantor
agrees that it is directly, jointly and severally with any other guarantor of
the Guarantied Obligations, liable to Guarantied Party, that the obligations of
Guarantor hereunder are independent of the obligations of Debtor or any other
guarantor, and that a separate action may be brought against Guarantor, whether
such action is brought against Debtor or any other guarantor or whether Debtor
or any other guarantor is joined in such action. Guarantor agrees that its
liability hereunder shall be immediate and shall not be contingent upon the
exercise or enforcement by Guarantied Party of whatever remedies it may have
against Debtor or any other guarantor, or the enforcement of any lien or
realization upon any security Guarantied Party may at any time possess.
Guarantor agrees that any release which may be given by Guarantied Party to
Debtor or any other guarantor shall not release Guarantor. Guarantor consents
and agrees that Guarantied Party shall be under no obligation to marshal any
property
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<PAGE> 4
or assets of Debtor or any other guarantor in favor of Guarantor, or against or
in payment of any or all of the Guarantied Obligations.
6. Waivers.
(a) To the fullest extent permitted by applicable
law, Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of
any loans or other financial accommodations made or extended under the Loan
Agreement, or the creation or existence of any Guarantied Obligations; (iii)
notice of the amount of the Guarantied Obligations, subject, however, to
Guarantor's right to make inquiry of Guarantied Party to ascertain the amount
of the Guarantied Obligations at any reasonable time; (iv) notice of any
adverse change in the financial condition of Debtor or of any other fact that
might increase Guarantor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the
Loan Documents; (vi) notice of any unmatured Event of Default or Event of
Default under the Loan Agreement; and (vii) all other notices (except if such
notice is specifically required to be given to Guarantor under this Guaranty or
any other Loan Documents to which Guarantor is a party) and demands to which
Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable
law, Guarantor hereby waives the right by statute or otherwise to require
Guarantied Party to institute suit against Debtor or to exhaust any rights and
remedies which Guarantied Party has or may have against Debtor. In this
regard, Guarantor agrees that it is bound to the payment of each and all
Guarantied Obligations, whether now existing or hereafter arising, as fully as
if such Guarantied Obligations were directly owing to Guarantied Party by
Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guarantied
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.
(c) To the fullest extent permitted by applicable
law, Guarantor hereby waives: (i) any rights to assert against Guarantied
Party any defense (legal or equitable), set-off, counterclaim, or claim which
Guarantor may now or at any time hereafter have against Debtor or any other
party liable to Guarantied Party on account of or with respect to the
Guarantied Obligations; (ii) any defense, set-off, counterclaim, or claim, of
any kind or nature, arising directly or indirectly from the present or future
lack of perfection, sufficiency, validity, or enforceability of the Guarantied
Obligations or any security therefor; (iii) any defense arising by reason of
any claim or defense based upon an election of remedies by Guarantied Party
including any defense based upon an election of remedies by Guarantied Party
under the provisions of Section Section 580d and 726 of the California Code of
Civil Procedure, or any similar law of California or any other jurisdiction;
(iv) the benefit of any statute of limitations affecting Guarantor's liability
hereunder or the enforcement thereof, and any act which shall defer or delay
the operation of any
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<PAGE> 5
statute of limitations applicable to the Guarantied Obligations shall similarly
operate to defer or delay the operation of such statute of limitations
applicable to Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied
Obligations have been fully, finally, and indefeasibly paid in full in cash (or
other consideration acceptable to Foothill in its sole discretion and agreed to
by Foothill): (i) Guarantor hereby waives and postpones any right of
subrogation Guarantor has or may have as against Debtor with respect to the
Guarantied Obligations; (ii) in addition, Guarantor hereby waives and postpones
any right to proceed against Debtor or any other Obligor with respect to any
portion of the Obligations, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims (irrespective of
whether direct or indirect, liquidated or contingent), with respect to the
Guarantied Obligations; and (iii) in addition, Guarantor also hereby waives
and postpones any right to proceed or to seek recourse against or with respect
to any property or asset of Debtor.
(e) If any of the Guarantied Obligations at any
time are secured by a mortgage or deed of trust upon real property, Guarantied
Party may elect, in its sole discretion, upon a default with respect to the
Guarantied Obligations, to foreclose such mortgage or deed of trust judicially
or nonjudicially in any manner permitted by law, before or after enforcing this
Guaranty, without diminishing or affecting the liability of Guarantor
hereunder. Guarantor understands that (a) by virtue of the operation of
California's antideficiency law applicable to nonjudicial foreclosures, an
election by Guarantied Party nonjudicially to foreclose such a mortgage or deed
of trust probably would have the effect of impairing or destroying rights of
subrogation, reimbursement, contribution, or indemnity of Guarantor against
Debtor or other guarantors or sureties, and (b) absent the waiver given by
Guarantor herein, such an election would estop Guarantied Party from enforcing
this Guaranty against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of this
Guaranty, Guarantor hereby waives any right to assert against Guarantied Party
any defense to the enforcement of this Guaranty, whether denominated "estoppel"
or otherwise, based on or arising from an election by Guarantied Party
nonjudicially to foreclose any such mortgage or deed of trust securing the
Guarantied Obligations. Guarantor understands that the effect of the foregoing
waiver may be that Guarantor may have liability hereunder for amounts with
respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Debtor or other guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Guaranty.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES,
TO THE MAXIMUM EXTENT SUCH WAIVER
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<PAGE> 6
IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE Section Section
2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847,
2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE Section Section 580A,
580B, 580C, 580D, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL
CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL
RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE GUARANTIED
PARTY, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE
WITH RESPECT TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED THE
GUARANTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE DEBTOR BY THE
OPERATION OF SECTION 580D OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR
OTHERWISE.
7. Releases. Guarantor consents and agrees that,
without notice to or by Guarantor and without affecting or impairing the
obligations of Guarantor hereunder, Guarantied Party may, by action or
inaction, compromise or settle, extend the period of duration or the time for
the payment, or discharge the performance of, or may refuse to, or otherwise
not enforce, or may, by action or inaction, release all or any one or more
parties to, any one or more of the terms and provisions of the Loan Agreement
or any of the other Loan Documents or may grant other indulgences to Debtor in
respect thereof, or may amend or modify at any time (or from time to time) any
one or more of the Loan Agreement or any of the other Loan Documents in any
manner permitted thereunder, or may, by action or inaction, release or
substitute any other guarantor, if any, of the Guarantied Obligations, or may
enforce, exchange, release, or waive, by action or inaction, any security for
the Guarantied Obligations or any other guaranty of the Guarantied Obligations,
or any portion thereof.
8. No Election. Guarantied Party shall have the right
to seek recourse against Guarantor to the fullest extent provided for herein
and no election by Guarantied Party to proceed in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of Guarantied Party's right to proceed in any other form of action or
proceeding or against other parties unless Guarantied Party has expressly
waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by Guarantied Party under
any document or instrument evidencing the Guarantied Obligations shall serve to
diminish the liability of Guarantor under this Guaranty except to the extent
that Guarantied Party finally and unconditionally shall have realized
indefeasible payment by such action or proceeding.
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<PAGE> 7
9. Indefeasible Payment. The Guarantied Obligations
shall not be considered indefeasibly paid for purposes of this Guaranty unless
and until all payments to Guarantied Party are no longer subject to any right
on the part of any person whomsoever, including Debtor, Debtor as a debtor in
possession, or any trustee (whether appointed under the Bankruptcy Code or
otherwise) of Debtor's assets to invalidate or set aside such payments or to
seek to recoup the amount of such payments or any portion thereof, or to
declare same to be fraudulent or preferential. In the event that, for any
reason, all or any portion of such payments to Guarantied Party is set aside or
restored, whether voluntarily or involuntarily, after the making thereof, the
obligation or part thereof intended to be satisfied thereby shall be revived
and continued in full force and effect as if said payment or payments had not
been made and Guarantor shall be liable for the full amount Guarantied Party is
required to repay plus any and all costs and expenses (including attorneys
fees) paid by Guarantied Party in connection therewith.
10. Financial Condition of Debtor. Guarantor represents
and warrants to Guarantied Party that it is currently informed of the financial
condition of Debtor and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Guarantied
Obligations. Guarantor further represents and warrants to Guarantied Party
that it has read and understands the terms and conditions of the Loan Agreement
and the other Loan Documents. Guarantor hereby covenants that it will continue
to keep itself informed of Debtor's financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which
bear upon the risk of nonpayment or nonperformance of the Guarantied
Obligations.
11. [Intentionally Omitted.]
12. Payments; Application. All payments to be made
hereunder by Guarantor shall be made in lawful money of the United States of
America at the time of payment, shall be made in immediately available funds,
and shall be made without deduction (whether for taxes or otherwise) or offset.
All payments made by Guarantor hereunder shall be applied as follows: first,
to all reasonable out-of-pocket costs and expenses (including reasonable
attorneys fees) actually incurred by Guarantied Party in enforcing this
Guaranty or in collecting the Guarantied Obligations; second, to all accrued
and unpaid interest, premium, if any, and fees owing to Guarantied Party
constituting Guarantied Obligations; and third, to the balance of the
Guarantied Obligations.
13. Attorneys Fees and Costs. Guarantor agrees to pay
promptly all reasonable attorneys fees and all other reasonable costs and
expenses which may be incurred by Guarantied Party in the enforcement of this
Guaranty or in any way arising out of, or consequential to the protection,
assertion, or enforcement of the Guarantied Obligations (or any security
therefor), irrespective of whether suit is brought.
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<PAGE> 8
14. Notices. Unless otherwise specifically provided in
this Guaranty, any notice or other communication relating to this Guaranty or
any other agreement entered into in connection therewith shall be in writing
and shall be personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegram (with messenger delivery specified) to Guarantor or
to Guarantied Party, as the case may be, at its addresses set forth below:
If to Guarantor: FRI-ADMIN CORPORATION
18831 Von Karman Avenue
Irvine, California 92713
Attn: Mr. Robert D. Gonda
Telecopy No.: (714) 757-7984
with a copy to: SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 S. Grand Avenue
Los Angeles, California 90071
Attn: Michael A. Woronoff, Esq.
Telecopy No.: (213) 687-5600
If to Guarantied Party: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Telecopy No.: (310) 575-3435
with a copy to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Telecopy No.: (213) 745-3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this Section 14,
other than notices by Guarantied Party in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the date of actual
receipt or three (3) calendar days after the deposit thereof in the mail.
Guarantor acknowledges and agrees that notices sent by Guarantied Party in
connection with
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<PAGE> 9
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.
15. Cumulative Remedies. No remedy under this Guaranty,
under the Loan Agreement, or any other Loan Document is intended to be
exclusive of any other remedy, but each and every remedy shall be cumulative
and in addition to any and every other remedy given under this Guaranty, under
the Loan Agreement, or any other Loan Document, and those provided by law. No
delay or omission by Guarantied Party to exercise any right under this Guaranty
shall impair any such right nor be construed to be a waiver thereof. No
failure on the part of Guarantied Party to exercise, and no delay in
exercising, any right under this Guaranty shall operate as a waiver thereof;
nor shall any single or partial exercise of any right under this Guaranty
preclude any other or further exercise thereof or the exercise of any other
right.
16. Severability of Provisions. Any provision of this
Guaranty which is prohibited or unenforceable under applicable law shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
17. Entire Agreement; Amendments. This Guaranty
constitutes the entire agreement between Guarantor and Guarantied Party
pertaining to the subject matter contained herein. This Guaranty may not be
altered, amended, or modified, nor may any provision hereof be waived or
noncompliance therewith consented to, except by means of a writing executed by
both Guarantor and Guarantied Party. Any such alteration, amendment,
modification, waiver, or consent shall be effective only to the extent
specified therein and for the specific purpose for which given. No course of
dealing and no delay or waiver of any right or default under this Guaranty
shall be deemed a waiver of any other, similar or dissimilar, right or default
or otherwise prejudice the rights and remedies hereunder.
18. Successors and Assigns. This Guaranty shall be
binding upon Guarantor and its successors and assigns and shall inure to the
benefit of the successors and assigns of Guarantied Party permitted under the
Loan Agreement and the Other Loan Documents; provided, however, Guarantor shall
not assign this Guaranty or delegate any of its duties hereunder without
Guarantied Party's prior written consent and any unconsented to assignment
shall be absolutely void. In the event of any assignment or other transfer of
rights by Guarantied Party in accordance with the Loan Agreement, the rights
and benefits herein conferred upon Guarantied Party shall automatically extend
to and be vested in such assignee or other transferee.
19. No Third Party Beneficiary. This Guaranty is solely
for the benefit of Guarantied Party and its successors and permitted assigns
and may not be relied on by any other Person.
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<PAGE> 10
20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT FOOTHILL'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF GUARANTOR AND
GUARANTIED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
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<PAGE> 11
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Guaranty as of the date first written above.
FRI-ADMIN CORPORATION,
a Delaware corporation
By _____________________________
Title: _________________________
S-1
<PAGE> 1
EXHIBIT 10(z)
SECURITY AGREEMENT
FAMILY RESTAURANTS, INC.
This SECURITY AGREEMENT (this "Agreement"), is entered into as
of January 10, 1997 between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and FAMILY
RESTAURANTS, INC., a Delaware corporation ("Guarantor"), with its chief
executive office located at 18831 Von Karman Avenue, Irvine, California 92713.
WHEREAS, Borrower, Foothill, and the other parties thereto
are, contemporaneously herewith, entering into the Loan Agreement;
WHEREAS, Guarantor owns 100% of the issued and outstanding
stock of FRI-MRD Corporation, a Delaware corporation, which in turn owns 100%
of the issued and outstanding stock of Borrower, such that the entities
Borrower comprises are indirect subsidiaries of Guarantor;
WHEREAS, Guarantor has executed that certain General
Continuing Guaranty, of even date herewith, in favor of Foothill (the
"Guaranty"), respecting certain obligations of Borrower owing to Foothill under
the Loan Agreement;
WHEREAS, Guarantor desires to collateralize its obligations
under the Guaranty by granting to Foothill a security interest in certain of
its assets; and
WHEREAS, Guarantor will benefit by virtue of the loan from
Foothill to Borrower.
NOW THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and each intending to be bound hereby, Foothill and Guarantor agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to
them in the Loan Agreement. As used in this Agreement, the following terms
shall have the following definitions:
<PAGE> 2
"Accounts" means all currently existing and
hereafter arising accounts, contract rights, and all other forms of obligations
owing to Guarantor arising out of the sale, license, or lease of goods or the
rendition of services by Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security
therefor.
"Acquired Indebtedness" means Indebtedness of
a Person that exists at the time such Person becomes a Restricted Subsidiary of
Guarantor or that is assumed by Guarantor or any Restricted Subsidiary in
connection with the acquisition of assets from such Person, and, in any such
case, is not incurred by such Person in connection with, or in anticipation of,
such Person becoming a Restricted Subsidiary of Guarantor or in connection
with, or in anticipation of, the acquisition of assets from such Person.
"Agreement" means this Security Agreement and
any extensions, riders, supplements, notes, amendments, or modifications to or
in connection with this Security Agreement.
"Borrower" means any one or more of
Chi-Chi's, Inc., a Delaware corporation and El Torito Restaurants, Inc., a
Delaware corporation, individually and collectively, jointly and severally.
"Collateral" means each of the following: the
Accounts; Guarantor's Books; the Equipment; the General Intangibles; the
Inventory; the Negotiable Collateral; any money, or other assets of Guarantor
which now or hereafter come into the possession, custody, or control of
Foothill; and the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Guarantor's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or
other tangible or intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof.
"Equipment" means all of Guarantor's present
and hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Guarantor in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"Event of Default" has the meaning ascribed
to it in Section 6.
"Excluded Contract Right" means, with respect
to Guarantor, and with respect to any contract to which Guarantor is a party, a
right or privilege of Guarantor under
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<PAGE> 3
such contract, or an obligation due to Guarantor under such contract, that: (a)
In the case of a More Important Contract, arises under a contract described on
Schedule E-1 to the Loan Agreement; or (b) In the case of a Less Important
Contract, (i) does not consist of the right of Guarantor to receive a payment,
or an obligation due to Guarantor with respect to a payment, and (ii) is, by
the express terms of such contract, subject to a restriction on assignability
that prohibits the pledge, hypothecation, mortgage, encumbrance, or grant of a
Lien on same, if such restriction is enforceable, and if the breach of such
restriction by Guarantor would constitute a material breach of such contract
sufficient to give rise to a right on the part of another party to such
contract to terminate such contract or to impose liability for not
insignificant damages upon Guarantor for breach of such contract; provided that
the proceeds of any disposition of any Excluded Contract Right shall not
constitute an Excluded Contract Right, and any such proceeds shall be subject
to Foothill's security interest.
"General Corporate Purposes" means, with
respect to any transfer or disposition of Collateral by Guarantor or any
Restricted Subsidiary, a transfer or disposition made for general corporate
purposes of such Person reasonably related to (a) its ownership, operation,
management, or conduct of restaurant businesses and other businesses reasonably
related or incidental thereto, (b) ownership of its Subsidiaries to the extent
that such Subsidiaries are engaged in the ownership, operation, management, or
conduct of restaurant businesses and other businesses reasonably related or
incidental thereto, (c) the recapitalization of Guarantor or the restructuring
of the Indebtedness of Guarantor, (d) the payment of principal or interest owed
by Guarantor with respect to Senior Notes or Subordinated Notes, or (e) the
purchase, redemption, or retirement by Guarantor of Senior Notes or
Subordinated Notes.
"General Intangibles" means all of
Guarantor's present and future general intangibles and other personal property
(including contract rights, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, patents, trade names,
trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer discs
or tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral; provided that General Intangibles shall not include any
Excluded Contract Right.
"Guarantied Obligations" shall have the
meaning ascribed to it in the Guaranty.
"Guarantor's Books" means all of Guarantor's
books and records, including: ledgers; records indicating, summarizing, or
evidencing Guarantor's properties or assets (including the Collateral) or
liabilities; all information relating to Guarantor's business
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<PAGE> 4
operations or financial condition; and all computer programs, disc or tape
files, printouts, runs, or other computer prepared information in respect of
such books and records.
"Guarantor" has the meaning ascribed thereto
in the preamble to this Agreement.
"Guaranty" means the General Continuing
Guaranty of Guarantor to Foothill of even date herewith.
"Inventory" means all present and future
inventory in which Guarantor has any interest, including goods held for sale,
license, or lease or to be furnished under a contract of service and all of
Guarantor's present and future raw materials, work in process, finished goods,
and packing and shipping materials, wherever located, and any documents of
title representing any of the above.
"Investment Property" means "investment
property" as that term is defined in Section 9-115 of the Official Text of the
Uniform Commercial Code and as defined in California Senate Bill 1591 which was
approved by the Governor of the State of California on September 14, 1996 and
will be effective as of January 1, 1997 as part of the Code.
"Less Important Contract" means, with respect
to Guarantor, a contract to which Guarantor is a party that is not a More
Important Contract.
"Loan Agreement" means that certain Loan and
Security Agreement, dated as of even date herewith, between Borrower, Foothill,
and the other parties thereto.
"Material Adverse Collateral Change" means
(a) a material and adverse decline in the value of the Collateral (exclusive of
the Stock of Subsidiaries of Guarantor and exclusive of dispositions of the
Collateral (including, the Flagstar Bonds) that are not prohibited by the Loan
Documents) or the amount that Foothill would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral, or (b) a material impairment of the priority of Foothill's
Liens with respect to such Collateral, in each case, other than as the
proximate result of the action or inaction of Foothill.
"More Important Contract" means, with respect
to Guarantor, a contract to which Guarantor is a party: (a) Described on
Schedule E-1 to the Loan Agreement; (b) the material breach of which by
Guarantor could give rise to a claim against Guarantor that is material in
relation to Guarantor's financial condition; or (c) the termination of which
could interfere substantially with the ongoing operations, businesses, or
prospects of Guarantor.
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<PAGE> 5
"Negotiable Collateral" means all of
Guarantor's present and future letters of credit, notes, drafts, instruments,
Investment Property (including the shares of stock of Subsidiaries of
Guarantor), documents, personal property leases (wherein Guarantor is the
lessor), chattel paper, and Guarantor's Books relating to any of the foregoing.
"Permitted Liens" means, with respect to
assets of Guarantor or any Restricted Subsidiary: (a) Liens granted to
Foothill or any assignee under the Loan Documents; (b) Liens for unpaid taxes,
assessments, and government charges that either (i) are not yet due and payable
or (ii) are the subject of Permitted Protests; (c) Liens set forth on Schedule
P-1 of the Loan Agreement, (d) the interests of lessors or lessees under
operating leases and subleases; (e) Liens securing purchase money Indebtedness
or capital leases granted or entered into by Guarantor or any Restricted
Subsidiary, other than in connection with the acquisition of a Person or the
acquisition of assets not in the ordinary course of an existing business of
Guarantor or a Restricted Subsidiary, provided, however, that such Lien only
attaches to the asset purchased or acquired; (f) Liens arising by operation of
law, incurred in the ordinary course of business of Guarantor and Garauntor's
Restricted Subsidiaries and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet due and payable, (ii) are the
subject of Permitted Protests, or (iii) in the aggregate are de minimis in
amount; (g) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance; (h) Liens or deposits to
secure performance of bids, tenders, contracts or leases (to the extent
permitted under this Agreement), incurred in the ordinary course of business of
Guarantor or any Restricted Subsidiary and not in connection with the borrowing
of money; (i) Liens arising by reason of security for surety or appeal bonds;
(j) Liens of or resulting from any judgment or award that does not constitute
an Event of Default hereunder; (k) Liens with respect to the Headquarters
Property, that are exceptions to the commitments for title insurance issued in
connection with the Headquarters Mortgage, as accepted by Foothill at the time
of such issuance, (l) with respect to any Real Property, easements, rights of
way, zoning and similar covenants and restrictions, and similar encumbrances
that do not materially interfere with or impair the use or operation thereof by
Guarantor or any Restricted Subsidiary; (m) other Liens imposed by operation of
law that do not materially affect Guarantor's or any Restricted Subsidiary's
ability to perform their respective obligations under the Loan Documents; (n)
replacement or continued Liens granted to a Person who provides refinancing or
continuation of Indebtedness under any Permitted Lien; provided, that the
replacement or continued Lien is limited to all or part of the properties or
assets that secured the refinanced or continued Indebtedness; (o) existing
mortgages or Liens disclosed in the most recent financial statements (or the
notes thereto) of Guarantor delivered to Foothill prior to the Closing Date;
and (p) with respect to any acquisition after the Closing Date by Guarantor or
any Restricted Subsidiary of any assets, or of any Person, any pre-existing
Liens on such acquired assets or on the assets of such acquired Person to the
extent and only to the extent that they secure Acquired Indebtedness.
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<PAGE> 6
"Permitted Protest" means the right of
Guarantor or any Restricted Subsidiary to protest any Lien (other than any such
Lien that secures the Guarantied Obligations), tax (other than taxes that are
the subject of a United States federal tax lien), or rental payment, provided
that (a) if required in accordance with GAAP, a reserve with respect to such
obligation is established on the books of Guarantor or any Restricted
Subsidiary, as applicable under the circumstances, in accordance with GAAP, and
(b) any such protest is instituted and diligently prosecuted by Guarantor or
any Restricted Subsidiary, as applicable under the circumstances, in good
faith.
"Restricted Subsidiary" means any Subsidiary
of Guarantor (other than FRI-MRD and its Subsidiaries) that has not been
designated by Guarantor as an Unrestricted Subsidiary.
"Secured Obligations" shall mean all
liabilities, obligations, or undertakings owing by Guarantor to Foothill of any
kind or description arising out of or outstanding under, advanced or issued
pursuant to, or evidenced by the Guaranty, any other Loan Document heretofore,
herewith, or hereafter executed by Guarantor, or this Agreement, irrespective
of whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now
existing or hereafter arising, and including all interest (including interest
that accrues after the filing of a case under the Bankruptcy Code) and any and
all reasonable out- of-pocket costs, fees (including reasonable attorneys
fees), and expenses which Guarantor is required to pay pursuant to any of the
foregoing, by law, or otherwise.
"Unrestricted Subsidiary" means any
Subsidiary of Guarantor (other than FRI-MRD and its Subsidiaries) that is (a)
now existing or hereafter created or acquired, and (b) designated in writing by
Guarantor to Foothill as an Unrestricted Subsidiary.
1.2 CODE. Any terms used in this Agreement which
are defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this
Agreement clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. Any reference in this Agreement
or in any of the other Loan Documents to this Agreement or any of the other
Loan Documents shall include all alterations, amendments, restatements,
changes, extensions, modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as
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<PAGE> 7
applicable. In the event of a direct conflict between the terms and provisions
of this Agreement and the Loan Agreement, it is the intention of the parties
hereto that both such documents shall be read together and construed, to the
fullest extent possible, to be in concert with each other. In the event of any
actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms
and provisions of the Loan Agreement shall control and govern; provided,
however, that the inclusion herein of additional obligations on the part of
Guarantor and supplemental rights and remedies in favor of Foothill, in each
case in respect of the Collateral, shall not be deemed a conflict with the Loan
Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules
and exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Guarantor hereby
grants to Foothill a continuing security interest in all of its currently
existing and hereafter acquired or arising Collateral in order to secure
payment and performance of the Secured Obligations. Foothill's security
interests in the Collateral shall attach to all Collateral without further act
on the part of Foothill or Guarantor. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, Guarantor has no
authority, express or implied, to dispose of any item or portion of the
Collateral except as set forth in Section 2.7 hereof. Concurrent with the
consummation of any Permitted Disposition, Foothill agrees to release its Liens
on the subject property or asset (but not the proceeds from the Asset
Disposition).
2.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral (other than Collection items received by Guarantor in the ordinary
course of Guarantor's business and deposited), Guarantor shall, promptly upon
the request of Foothill, deliver physical possession of such Negotiable
Collateral to Foothill or its bailee to the extent required for Foothill to
have a first priority perfected Lien thereon.
2.3 [Intentionally omitted.]
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION
REQUIRED. Guarantor shall execute, and deliver to Foothill, prior to or
concurrently with Guarantor's execution and delivery of this Agreement and at
any time thereafter at the request of Foothill, all financing statements,
continuation financing statements, fixture filings, security agreements,
chattel mortgages, pledges, mortgages, deeds of trust, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Foothill may reasonably request, in form satisfactory to
Foothill, to perfect and continue perfected
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<PAGE> 8
Foothill's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
2.5 POWER OF ATTORNEY. Guarantor hereby
irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's
officers, employees, or agents designated by Foothill) as Guarantor's true and
lawful attorney, with power to: (a) if Guarantor refuses to, or fails timely
to execute and deliver any of the documents described in Section 2.4, sign the
name of Guarantor on any of the documents described in Section 2.4; (b) endorse
Guarantor's name on any Collection item that may come into Foothill's
possession; (c) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Guarantor's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance. The appointment of Foothill as Guarantor's attorney,
and each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the Secured Obligations have been fully
and finally repaid and performed and Foothill's obligation to extend credit
under the Loan Agreement is terminated.
2.6 RIGHT TO INSPECT. Prior to the time that an
Event of Default has occurred and is continuing or Foothill deems itself
insecure, Foothill (through any of its officers, employees, or agents) shall
have the right, from time to time hereafter upon reasonable prior notification
to Guarantor and during normal business hours, to inspect Guarantor's and each
Restricted Subsidiary's Books and to check, test, and, subject to Section
2.11(d) of the Loan Agreement, appraise the Collateral in order to verify
Guarantor's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral. After the time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure,
Foothill (through any of its officers, employees, or agents) shall have the
right, from time to time thereafter, to inspect Guarantor's and each Restricted
Subsidiaries' Books and to check, test, and, subject to Section 2.11(d) of the
Loan Agreement, appraise the Collateral in order to verify Guarantor's
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
2.7 DISPOSITION OF COLLATERAL. So long as (a) no
Triggering Event exists, (b) such transfer or disposition would not result in
the breach of any covenant contained in any Loan Document to which Guarantor or
any Restricted Subsidiary is a party or by which Guarantor or any Restricted
Subsidiary has agreed to be bound (including, Section 21(d) of the Guaranty),
and (c) the transfer or disposition is for General Corporate Purposes of
Guarantor or any of Guarantor's Restricted Subsidiaries, Guarantor or any
Restricted Subsidiary may transfer or dispose of Collateral, such transfer or
disposition to be free and clear of the security interest of Foothill, provided
that Foothill's security interest shall attach to all proceeds of any transfer
or disposition and Guarantor or such Restricted Subsidiary promptly shall take
or cause to be taken all steps reasonably requested by Foothill to perfect such
security interest in proceeds. Anything in the foregoing to the contrary
notwithstanding, nothing in this Agreement shall be construed
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<PAGE> 9
to authorize Guarantor to transfer or dispose of any real property or interest
in real property which is subject to any mortgage or deed of trust in favor of
Foothill without the prior written consent of Foothill to any such transfer or
disposition.
3. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants on its own behalf
and on behalf of its Restricted Subsidiaries as follows:
3.1 NO PRIOR ENCUMBRANCES. Guarantor and its
Restricted Subsidiaries own the Collateral, free and clear of Liens, except for
Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE;
FEIN. On the Closing Date, the chief executive office of Guarantor is at the
address indicated in the first paragraph of this Agreement. Guarantor's FEIN
is 33-0197361.
3.3 [Intentionally Omitted.]
3.4 [Intentionally Omitted.]
3.5 [Intentionally Omitted.]
3.6 DUE ORGANIZATION AND QUALIFICATION.
Guarantor is a Delaware corporation, and it is and shall at all times hereafter
be duly organized and existing and in good standing under the laws of Delaware
and qualified and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified could reasonably be
expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), or prospects of Guarantor or on the value
of the Collateral.
3.7 DUE AUTHORIZATION; NO CONFLICT. The
execution, delivery, and performance of this Agreement, the Guaranty, and any
other Loan Document to which Guarantor is a party are within Guarantor's
corporate powers, have been duly authorized, and are not in conflict with nor,
constitute a breach of any provision contained in Guarantor's Articles or
Certificate of Incorporation or By-laws, nor will they constitute an event of
default under any material agreement to which Guarantor is now or may hereafter
become a party.
3.8 LITIGATION. There are no actions or
proceedings pending against Guarantor or any Restricted Subsidiary before any
court or administrative agency and neither Guarantor or any Restricted
Subsidiary has knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Guarantor or any Restricted Subsidiary, except for: (a)
matters disclosed on Schedule
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<PAGE> 10
5.9 of the Loan Agreement; and (b) matters arising after the date hereof that,
if decided adversely to Guarantor or any Restricted Subsidiary, would not
materially impair the prospect of repayment of the Secured Obligations or
materially impair the value or priority of Foothill's security interests in the
Collateral.
3.9 NO INTENT TO HINDER CREDITORS. No transfer
of property is being made by Guarantor and no obligation is being incurred by
Guarantor or any Restricted Subsidiary in connection with the transactions
contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Guarantor or
any Restricted Subsidiary.
3.10 RELIANCE BY FOOTHILL; CUMULATIVE. The
warranties, representations, and agreements set forth herein shall be
conclusively presumed to have been relied upon by Foothill and shall be
cumulative and in addition to any and all other warranties, representations,
and agreements which Guarantor and its Restricted Subsidiaries shall now or
hereinafter give, or cause to be given, to Foothill.
4. AFFIRMATIVE COVENANTS.
Guarantor covenants and agrees that, until payment in
full of the Secured Obligations, and unless Foothill shall otherwise consent in
writing, Guarantor shall do all of the following:
4.1 [Intentionally Omitted.]
4.2 [Intentionally Omitted.]
4.3 [Intentionally Omitted.]
4.4 [Intentionally Omitted.]
4.5 TAXES. Other than taxes of which Guarantor
is unaware or that in the aggregate are de minimis, all assessments and taxes
(including withholding taxes), whether real, personal, or otherwise, due or
payable by, or imposed, levied, or assessed against Guarantor or any of its
Restricted Subsidiaries, or any of their properties, have been paid, and shall
be paid in full, before delinquency or before the expiration of any extension
period, except to the extent that the validity of such assessment or tax (other
than taxes that are the subject of a United States federal tax lien) is the
subject of a Permitted Protest. Guarantor and its Restricted Subsidiaries, upon
request, shall furnish Foothill with proof reasonably satisfactory to Foothill
indicating that Guarantor and its Restricted Subsidiaries have made all due and
timely payments or deposits of all such federal, state, and local taxes,
assessments, or contributions required of them by law.
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<PAGE> 11
4.6 INSURANCE.
(a) At its expense, keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Guarantor also shall maintain business
interruption, public liability, product liability, and property damage
insurance relating to their ownership and use of the Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation, in each
case consistent with past practice; provided, however, that FRI-MRD and its
Subsidiaries only shall be required to use their reasonable best efforts to
maintain earthquake insurance, in amounts and subject to deductibles consistent
with those ordinarily insured against by other similar companies in the same
industry, so long as it is available at reasonable commercial rates. Foothill
agrees that Guarantor and its Subsidiaries may self-insure for workers
compensation insurance, generally liability insurance, auto liability
insurance, and health insurance, in each case, consistent with past practice
and with a limit of up to $500,000 per occurrence.
(b) All such policies of insurance shall
be in such form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. Insurance policies covering property and assets
against loss by fire, lightening, windstorm, hail, explosion, aircraft, smoke
damage, earthquake, elevator collisions and other risks included under an
"extended coverage" endorsement shall, with respect to hazard insurance and
such other insurance as Foothill shall specify, contain a California Form
438BFU (NS) mortgagee endorsement, or an equivalent endorsement satisfactory to
Foothill, showing Foothill as a loss payee thereof as its interests may appear,
and shall contain a waiver of warranties. All such insurance (with the
exception of workers' compensation and health insurance policies) shall name
Foothill as an additional insured as its interest may appear. Every policy of
insurance referred to in this Section 4.6 (with the exception of workers'
compensation and health insurance policies) shall contain an agreement by the
insurer that it will not cancel such policy except after 10 days prior written
notice to Foothill. Certified copies or originals of such policies or
certificates thereof satisfactory to Foothill evidencing such insurance shall
be delivered to Foothill prior to the expiration or the cancellation of the
existing or preceding policies. Guarantor shall deliver to Foothill, upon the
request of Foothill, evidence of the payment of all premiums for such policies
of insurance.
4.7 FOOTHILL EXPENSES. Guarantor shall
immediately and without demand reimburse Foothill for all sums expended by
Foothill which constitute Foothill Expenses and Guarantor hereby authorizes and
approves all advances and payments by Foothill for items constituting Foothill
Expenses.
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<PAGE> 12
4.8 CONTROL AGREEMENT. Each of Guarantor,
Foothill, and each applicable financial intermediary shall enter into a control
agreement that, among other things, provides that, from and after the giving of
notice by Foothill to such financial intermediary, it shall take instructions
solely from Foothill with respect to the applicable Securities Account and
related securities entitlements. Foothill agrees that it will not give such
notice unless a Triggering Event has occurred. Guarantor agrees that it will
not transfer assets out of such Securities Accounts other than in the ordinary
course of business or as otherwise permitted under the Loan Documents and, if
to another financial intermediary, unless each of Guarantor, Foothill, and the
substitute financial intermediary have entered into a control agreement of the
type described above. No arrangement contemplated hereby shall be modified by
Guarantor without the prior written consent of Foothill. Upon the occurrence
and during the continuance of a Triggering Event, Foothill may elect to notify
the financial intermediary to liquidate or transfer the securities entitlements
in such Securities Account and remit the proceeds thereof to the Foothill
Account.
5. NEGATIVE COVENANTS.
Guarantor covenants and agrees that until payment in
full of the Secured Obligations, it will not, nor will it permit any Restricted
Subsidiary to, do any of the following without Foothill's prior written
consent:
5.1 LIENS. Create, incur, assume, or permit to
exist, directly or indirectly, any lien on or with respect to any of its
property or assets, of any kind, whether now owned or hereafter acquired, or
any income or profits therefrom, except Permitted Liens.
5.2 [Intentionally omitted.]
5.3 [Intentionally omitted.]
5.4 CHANGE NAME. Except on 30 days prior written
notice to Foothill, change its name or FEIN.
5.5 [Intentionally omitted.]
5.6 [Intentionally omitted.]
5.7 [Intentionally omitted.]
5.8 [Intentionally omitted.]
5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written
notification to Foothill, relocate
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its chief executive office to a new location, unless, at the time of such
written notification, it provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests and
also provides to Foothill a landlord's waiver in form and substance
satisfactory to Foothill. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party
without Foothill's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default") under this
Agreement:
6.1 The occurrence of an Event of Default (as defined in
the Loan Agreement);
6.2 If (a) Guarantor fails or neglects to perform, keep,
or observe, in any material respect, any term, provision, condition, covenant,
or agreement contained in this Agreement or in the Guaranty, or in any other
present or future Loan Document between Guarantor and Foothill, and such
failure continues for a period of 15 days from the date on which Guarantor
first had knowledge or reasonably should have had knowledge of such failure or
neglect, or (b) Guarantor fails or neglects to perform, keep, or observe, in
any material respect, any other term, provision, condition, covenant, or
agreement contained in this Agreement or in the Guaranty, or in any other
present or future Loan Document between Guarantor and Foothill, and Foothill,
in its reasonable discretion, determines such failure or neglect is not capable
of cure by Guarantor within 15 days from the date on which Guarantor first had
knowledge or reasonably should have had knowledge of such failure or neglect.
6.3 If there is a Material Adverse Collateral Change;
6.4 (a) If a notice of lien, levy, or assessment is filed
of record with respect to any of Guarantor's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or if
any taxes or debts owing at any time hereafter to the United States becomes a
lien, whether choate or otherwise, upon any of Guarantor's properties or
assets; or (b) if a notice of lien, levy, or assessment is filed of record for
an amount in excess of $250,000 with respect to any of Guarantor's properties
or assets by any state, county, municipal, or governmental agency, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a lien for an amount in excess of $250,000, whether choate or
otherwise, upon any of Guarantor's properties or assets and, in any such case,
such taxes or debts are not the subject of a Permitted Protest, and the lien,
levy, or assessment is not released, discharged, or bonded against before the
earlier of 30 days of the date it first arises or 5 days of the date when such
property or asset is subject to being forfeited;
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6.5 If a judgment or other claim becomes a Lien upon any
material portion of Guarantor's properties or assets and the same is not
released, discharged, bonded against, or stayed pending appeal before the
earlier of 30 days of the date it first arises or 5 days of the date when such
property or asset is subject to being forfeited;
6.6 If there is a material default in any material
agreement relating to Indebtedness to which Guarantor is a party with one or
more third Persons resulting in a right by such third Persons, irrespective of
whether exercised, to accelerate the maturity of Guarantor's obligations
thereunder;
6.7 [Intentionally omitted;]
6.8 If any misstatement or misrepresentation exists now
or hereafter in any written warranty, representation, statement, or report made
pursuant to any of the Loan Documents to Foothill by Guarantor or any officer,
director, employee, or agent of Guarantor (in the case of employees or agents
who are not officers or directors, to the extent authorized by an officer or
director to communicate or transact business with Foothill or who regularly
communicate or transact business with Foothill), or if any such warranty or
representation is withdrawn.
7. FOOTHILL'S RIGHTS AND REMEDIES.
7.1 RIGHTS AND REMEDIES. Upon the occurrence and
during the continuation of an Event of Default, the security hereby constituted
shall become enforceable and, in addition to all other rights and remedies
available to Foothill as provided hereafter, Foothill may, at its election,
without notice of its election and without demand, do any one or more of the
following, all of which are authorized by Guarantor:
(a) Proceed directly and at once,
without notice, against the Guarantor to collect and recover the full amount or
any portion of the Guarantied Obligations, without first proceeding against
Borrower, or against any security or collateral for the Guarantied Obligations.
(b) Without notice to the Guarantor and
regardless of the acceptance of any security or collateral for the payment
hereof, appropriate and apply toward the payment of the Guarantied Obligations
(i) any indebtedness due or to become due from Foothill to the Guarantor and
(ii) any moneys, credits or other property belonging to the Guarantor at any
time held by or coming into the possession of Foothill.
(c) May exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein and
the Guaranty or otherwise available to it, all the
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<PAGE> 15
rights and remedies available to it at law (including those of a secured party
under the Code) or in equity.
(d) [Intentionally Omitted;]
(e) [Intentionally Omitted;]
(f) Without notice or demand, make such
payments and do such acts as Foothill considers reasonably necessary to protect
its security interest in the Collateral. Guarantor agrees to assemble the
Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Guarantor authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Foothill's reasonable determination
appears to be prior or superior to its security interest and to pay all
reasonable expenses incurred in connection therewith. With respect to any of
Guarantor's owned premises, Guarantor hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without charge, for up
to one hundred twenty (120) days in order to exercise any of Foothill's rights
or remedies provided herein, at law, in equity, or otherwise;
(g) Ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for sale, and sell (in
the manner provided for herein) the Collateral. Foothill is hereby granted a
license or other right to use, without charge, Guarantor's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of advertising for sale
and selling any Collateral, and Guarantor's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(h) Sell all or any part of the
Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such
places (including Guarantor's premises) as Foothill determines is commercially
reasonable. It is not necessary that the Collateral be present at any such
sale. Foothill shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in Guarantor, which right or equity is hereby waived or
released to the extent permitted by law. Anything in the foregoing to the
contrary notwithstanding, Foothill acknowledges and agrees that (i) the
Flagstar Bonds contain certain legends, contain certain restrictions on
transfer, and are subject to certain claims of Flagstar and potential
reductions of the principal amount thereof, (ii) any transfer of the Flagstar
Bonds (including, without limitation, upon foreclosure) shall be subject to any
enforceable restrictions contained in the Flagstar Bonds, and (iii) so long as
no Triggering Event has occurred and is
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continuing and so long as the proposed sale would not violate any covenant
contained in any Loan Document to which Guarantor is a party or by which
Guarantor is bound, in the event of a proposed sale by Guarantor of any
Flagstar Bonds in the possession of a bailee under a bailee agreement with
Foothill, promptly after Guarantor notifies Foothill of such sale, Foothill
shall instruct the bailee to deliver such Flagstar Bonds to Guarantor (or
otherwise in accordance with Guarantor's written instructions) within 5
Business Days of Guarantor's notice to Foothill, and within 5 Business Days of
Guarantor's notice to Foothill, it shall deliver duly executed non-recourse
endorsements or assignments (if necessary), provided that Guarantor shall
immediately return such Flagstar Bonds to the bailee, and any such endorsements
or assignments to Foothill, in the event that such sale is not consummated
within 5 Business Days of the delivery of such Flagstar Bonds to Guarantor.
(i) Foothill shall give notice of the
disposition of the Personal Property Collateral as follows:
(1) Foothill shall give Guarantor and each
holder of a security interest in the Personal Property Collateral who has filed
with Foothill a written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Guarantor as provided in Section 10, at least 10
days before the date fixed for the sale, or at least 10 days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Personal
Property Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market. Notice to
Persons other than Guarantor claiming an interest in the Personal Property
Collateral shall be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice
one time at least 10 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(j) [Intentionally omitted;]
(k) [Intentionally omitted;]
(l) [Intentionally omitted;]
(m) [Intentionally omitted;]
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<PAGE> 17
(n) Any deficiency which exists after
disposition of the Collateral as provided above will be paid immediately by
Guarantor up to the maximum amount, if any, of Guarantor's liability under the
Guaranty. Any excess will be promptly returned to Guarantor, without interest
and subject to the rights of third parties, by Foothill.
Except as required by law, Foothill may take any or all of the foregoing action
without demand, presentment, protest, advertisement or notice of any kind to or
upon Guarantor or any other person. Anything in this Agreement to the contrary
notwithstanding, unless a Triggering Event has occurred and is continuing,
Foothill (a) shall not exercise any of its default remedies with respect to the
Flagstar Bonds, and (b) shall not exercise any of its default remedies with
respect to the Investment Property.
7.2 REMEDIES CUMULATIVE. Foothill's rights and
remedies under this Agreement and the other Loan Documents shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election,and no waiver by Foothill of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Foothill shall constitute a waiver, election, or acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Guarantor fails to pay any monies (whether taxes,
rents, assessments, insurance premiums, or otherwise) due to third persons or
entities, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement, then, to
the extent that Foothill determines that such failure, by Guarantor reasonably
could be expected to have a material adverse effect on Foothill's interests in
the Collateral, in its discretion and without prior notice to Guarantor,
Foothill may do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves in Borrower's loan account as
Foothill reasonably deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in Sections 4.6 hereof insuring Guarantor's ownership and use of
the Collateral, and take any action with respect to such policies as Foothill
reasonably deems prudent. Any amounts paid or deposited by Foothill shall
constitute Foothill Expenses, shall immediately become additional Secured
Obligations, shall bear interest at the applicable rate described in the Loan
Document, and shall be secured by the Collateral. Any payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any
such expense, tax, security interest, encumbrance, or lien and the receipt of
the usual official notice for the payment thereof shall for the purposes of
this Agreement be conclusive evidence that the same was validly due and owing.
Foothill shall use its best efforts to provide notice to Guarantor of any
action taken by it under this Section 8.
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<PAGE> 18
9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the fullest extent
permitted by applicable law, Guarantor waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Guarantor may in any way be
liable.
9.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long
as Foothill complies with its obligations, if any, under Section 9207 of the
Code, Foothill shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person; and (e) risk of loss, damage, or
destruction of the Collateral.
9.3 INDEMNIFICATION. Guarantor agrees to defend,
indemnify, save, and hold Foothill and its officers, employees, and agents
harmless against: (a) all demands, claims, and liabilities claimed or asserted
by any other Person, and (b) all losses (including reasonable attorneys fees
and disbursements) in any way suffered, incurred, or paid by Foothill as a
result of or in any way arising out of, or related to transactions with
Borrower or Guarantor, under this Agreement and any other Loan Documents.
Guarantor shall have no obligation under this Section 9.3: (a) with respect to
indemnification of any liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
the indemnified person; (b) with respect to any settlement in excess of
$250,000 made without Guarantor's consent (which shall not be unreasonably
withheld, conditioned, or delayed and which consent need not be obtained if
FRI-MRD or Borrower is in default of its obligations under this Section 9.3);
or (c) without Guarantor's consent (which shall not be reasonably withheld,
conditioned, or delayed), for the fees and disbursements of more than one
separate firm of attorneys for all indemnified persons relative to a
indemnification of any particular liability. This provision shall survive
full and final payment in cash of the Secured Obligations and the termination
of all commitments of Foothill to extend credit to Borrower or Guarantor for a
period of 2 years.
9.4 WAIVERS. (a) To the fullest extent permitted
by applicable law, Guarantor hereby waives: (i) notice of acceptance hereof;
(ii) notice of any loans or other financial accommodations made or extended
under the Loan Agreement, or the creation or existence of any Obligations;
(iii) notice of the amount of the Obligations, subject, however, to Guarantor's
right to make inquiry of Foothill to ascertain the amount of the Obligations at
any reasonable time; (iv) notice of any adverse change in the financial
condition of Borrower or of any other fact that might increase Guarantor's risk
hereunder; (v) notice of presentment for payment, demand, protest, and notice
thereof as to any instrument among the Loan Documents;
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<PAGE> 19
(vi) notice of any unmatured Event of Default or Event of Default under the
Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Guarantor under this Agreement) and
demands to which Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Guarantor waives the right by statute or otherwise to require Foothill to
institute suit against Borrower or to exhaust any rights and remedies which
Foothill has or may have against Borrower. Guarantor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Obligations shall have been fully and finally indefeasibly
paid) of Borrower or by reason of the cessation from any cause (other than that
the Obligations shall have been fully and finally indefeasibly paid) whatsoever
of the liability of Borrower in respect thereof.
(c) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) any rights to assert against Foothill any defense
(legal or equitable), set-off, counterclaim, or claim which Guarantor may now
or at any time hereafter have against Borrower or any other party liable to
Foothill on account of or with respect to the Obligations; (ii) any defense,
set-off, counterclaim, or claim, of any kind or nature, arising directly or
indirectly from the present or future sufficiency, validity, or enforceability
of the Obligations; (iii) any defense arising by reason of any claim or defense
based upon an election of remedies by Foothill including, to the extent
applicable, the provisions of Section Section 580d and 726 of the California
Code of Civil Procedure, or any similar law of California or any other
jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof.
(d) To the fullest extent permitted by applicable law,
Guarantor hereby waives any right of subrogation Guarantor has or may have as
against Borrower with respect to the Obligations. In addition, Guarantor
hereby waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Obligations. Guarantor also hereby waives any right to
proceed or to seek recourse against or with respect to any property or asset of
Borrower. Guarantor hereby agrees that, in light of the waivers contained in
this Section, Guarantor shall not be deemed to be a "creditor" (as that term is
defined in the Bankruptcy Code or otherwise) of Borrower, whether for purposes
of the application of Sections 547 or 550 of the United States Bankruptcy Code
or otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Foothill may elect,
in its sole discretion, upon a default with respect to the Secured Obligations,
to foreclose such mortgage or deed of trust judicially or nonjudicially in any
manner permitted by law, before or after enforcing this Agreement, without
diminishing or affecting the liability of Guarantor hereunder. Guarantor
understands that (a) by virtue of the operation of California's antideficiency
law applicable to nonjudicial foreclosures, an election by Foothill
nonjudicially to foreclose such a mortgage or deed of trust probably would
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<PAGE> 20
have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of Guarantor against Borrower or
guarantors or sureties, and (b) absent the waiver given by Guarantor herein,
such an election might estop Foothill from enforcing this Agreement against
Guarantor. Understanding the foregoing, and understanding that Guarantor is
hereby relinquishing a defense to the enforceability of this Agreement,
Guarantor hereby waives any right to assert against Foothill any defense to the
enforcement of this Agreement, whether denominated "estoppel" or otherwise,
based on or arising from an election by Foothill nonjudicially to foreclose any
such mortgage or deed of trust. Guarantor understands that the effect of the
foregoing waiver may be that Guarantor may have liability hereunder for amounts
with respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Borrower or guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE Section
Section 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848,
2849, AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE
Section Section 580A, 580B, 580C, 580D, AND 726, AND, TO THE EXTENT
APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES ALL RIGHTS
AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY FOOTHILL, EVEN THOUGH
THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO
SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED GUARANTOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE BORROWER BY THE OPERATION OF SECTION
580D OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
10. NOTICES.
All notices and other communications hereunder to
Foothill shall be in writing and shall be mailed, sent or delivered in
accordance with the Loan Agreement and all notices and other communications
hereunder to Guarantor shall be in writing and shall be mailed, sent or
delivered in care of Borrower in accordance with the Loan Agreement.
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<PAGE> 21
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT FOOTHILL'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF GUARANTOR AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE
TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
GUARANTOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS. GUARANTOR AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12. DESTRUCTION OF GUARANTOR'S DOCUMENTS.
All documents, schedules, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill
four (4) months after they are delivered to or received by Foothill, unless
Guarantor requests, in writing, the return of said documents, schedules or
other papers and makes arrangements, at Guarantor's expense, for their return.
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<PAGE> 22
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be
binding and deemed effective upon the later of (a) the execution of this
Agreement by Guarantor and Foothill and (b) the Closing Date.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall
bind and inure to the benefit of the respective successors and assigns of each
of the parties; provided, however, that Guarantor may not assign this Agreement
or any rights or duties hereunder without Foothill's prior written consent and
any prohibited assignment shall be absolutely void. No consent to an
assignment by Foothill shall release Guarantor from its Secured Obligations.
Foothill may assign this Agreement and its rights and duties hereunder in
accordance with the Loan Agreement, and no consent or approval by Guarantor is
required in connection with any such assignment. In accordance with the Loan
Agreement, Foothill reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Foothill's
rights and benefits hereunder. In accordance with the Loan Agreement, Foothill
may disclose all documents and information which Foothill now or hereafter may
have relating to Guarantor or Guarantor's business. To the extent that
Foothill assigns its rights and obligations to a third Person in accordance
with the Loan Agreement, Foothill thereafter shall be released from such
assigned obligations to Guarantor and such assignment shall effect a novation
between Guarantor and such third Person.
13.3 SECTION HEADINGS. Headings and numbers have
been set forth herein for convenience only. Unless the contrary is compelled
by the context, everything contained in each section applies equally to this
entire Agreement.
13.4 INTERPRETATION. Neither this Agreement nor
any uncertainty or ambiguity herein shall be construed or resolved against
Foothill or Guarantor, whether under any rule of construction or otherwise. On
the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
13.5 SEVERABILITY OF PROVISIONS. Each provision
of this Agreement shall be severable from every other provision of this
Agreement for the purpose of determining the legal enforceability of any
specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can
only be amended by a writing signed by both Foothill and Guarantor.
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<PAGE> 23
13.7 COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one
and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If
the incurrence or payment of the Secured Obligations by Guarantor or the
transfer by Guarantor to Foothill of any property of Guarantor should for any
reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Foothill is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
13.9 TERMINATION. Upon the full and final payment
in cash of the Secured Obligations and the termination of all commitments of
Foothill to extend credit to Borrower or Guarantor, Foothill shall promptly
terminate and release its security interests in the Collateral, execute and
deliver any necessary financing statement terminations or releases, and return
to Guarantor any Collateral that was in the possession of Foothill, provided
that, with respect to any loss or damage Foothill may incur as a result of
dishonored checks or other items of payment received by Foothill and applied to
the Secured Obligations, Foothill shall, at its option, (i) have received a
written agreement, executed by Borrower or Guarantor (as required by Foothill
in its sole discretion) and by any Person whose loans or other advances to
Borrower or Guarantor are used in whole or in part to satisfy the Secured
Obligations, indemnifying Foothill from any such loss or damage; or (ii) have
retained such monetary reserves or Liens on the Collateral for such period of
time as Foothill, in its reasonable discretion, may deem necessary to protect
Foothill from any such loss or damage. All reasonable expenses incurred by
Foothill in connection with the termination of the security interests granted
to Foothill in connection with this agreement shall be the sole expense of
Guarantor.
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed at Los Angeles, California.
FAMILY RESTAURANTS, INC.,
a Delaware corporation
By_____________________________________
Its____________________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_____________________________________
Its____________________________________
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<PAGE> 1
EXHIBIT 10 (aa)
SECURITY AGREEMENT
(FRI-MRD CORPORATION)
This SECURITY AGREEMENT (this "Agreement"), is entered into as
of January 10, 1997 between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and FRI-MRD
CORPORATION, a Delaware corporation ("Guarantor"), with its chief executive
office located at 18831 Von Karman Avenue, Irvine, California 92713.
WHEREAS, Borrower, Foothill, and the other parties thereto
are, contemporaneously herewith, entering into the Loan Agreement;
WHEREAS, Guarantor has executed that certain General
Continuing Guaranty, of even date herewith, in favor of Foothill (the
"Guaranty"), respecting certain obligations of Borrower owing to Foothill under
the Loan Agreement;
WHEREAS, Guarantor desires to collateralize its obligations
under the Guaranty by granting to Foothill a security interest in certain of
its assets; and
WHEREAS, Guarantor will benefit by virtue of the loan from
Foothill to Borrower.
NOW THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and each intending to be bound hereby, Foothill and Guarantor agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to
them in the Loan Agreement. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all currently existing and
hereafter arising accounts, contract rights, and all other forms of obligations
owing to Guarantor arising out of the sale, license, or lease of goods or the
rendition of services by Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security
therefor.
<PAGE> 2
"Agreement" means this Security Agreement and
any extensions, riders, supplements, notes, amendments, or modifications to or
in connection with this Security Agreement.
"Borrower" means any one or more of
Chi-Chi's, Inc., a Delaware corporation, and El Torito Restaurants, Inc., a
Delaware corporation, individually and collectively, jointly and severally.
"Collateral" means each of the following: the
Accounts; Guarantor's Books; the Equipment; the General Intangibles; the
Inventory; the Negotiable Collateral; any money, or other assets of Guarantor
which now or hereafter come into the possession, custody, or control of
Foothill; and the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Guarantor's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or
other tangible or intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof.
"Equipment" means all of Guarantor's present
and hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of Guarantor in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"Event of Default" has the meaning ascribed
to it in Section 6.
"Excluded Contract Right" means, with respect
to Guarantor, and with respect to any contract to which Guarantor is a party, a
right or privilege of Guarantor under such contract, or an obligation due to
Guarantor under such contract, that: (a) In the case of a More Important
Contract, arises under a contract described on Schedule E-1 of the Loan
Agreement; or (b) In the case of a Less Important Contract, (i) does not
consist of the right of Guarantor to receive a payment, or an obligation due to
Guarantor with respect to a payment, and (ii) is, by the express terms of such
contract, subject to a restriction on assignability that prohibits the pledge,
hypothecation, mortgage, encumbrance, or grant of a Lien on same, if such
restriction is enforceable, and if the breach of such restriction by Guarantor
would constitute a material breach of such contract sufficient to give rise to
a right on the part of another party to such contract to terminate such
contract or to impose liability for not insignificant damages upon Guarantor
for breach of such contract; provided that the proceeds of any disposition of
any Excluded Contract Right shall not constitute an Excluded Contract Right,
and any such proceeds shall be subject to Foothill's security interest.
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<PAGE> 3
"General Intangibles" means all of
Guarantor's present and future general intangibles and other personal property
(including contract rights, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, patents, trade names,
trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer discs
or tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral; provided that General Intangibles shall not include any
Excluded Contract Right.
"Guarantied Obligations" shall have the
meaning ascribed to it in the Guaranty.
"Guarantor's Books" means all of Guarantor's
books and records, including: ledgers; records indicating, summarizing, or
evidencing Guarantor's properties or assets (including the Collateral) or
liabilities; all information relating to Guarantor's business operations or
financial condition; and all computer programs, disc or tape files, printouts,
runs, or other computer prepared information in respect of such books and
records.
"Guarantor" has the meaning ascribed thereto
in the preamble to this Agreement.
"Guaranty" means the General Continuing
Guaranty of Guarantor to Foothill of even date herewith.
"Inventory" means all present and future
inventory in which Guarantor has any interest, including goods held for sale,
license, or lease or to be furnished under a contract of service and all of
Guarantor's present and future raw materials, work in process, finished goods,
and packing and shipping materials, wherever located, and any documents of
title representing any of the above.
"Investment Property" means "investment
property" as that term is defined in Section 9-115 of the Official Text of the
Uniform Commercial Code and as defined in California Senate Bill 1591 which was
approved by the Governor of the State of California on September 14, 1996 and
will be effective on January 1, 1997 as part of the Code.
"Less Important Contract" means, with respect
to Guarantor, a contract to which Guarantor is a party that is not a More
Important Contract.
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<PAGE> 4
"Loan Agreement" means that certain Loan and
Security Agreement, dated as of even date herewith, between Borrower, Foothill,
and the other parties thereto.
"More Important Contract" means, with respect
to Guarantor, a contract to which Guarantor is a party: (a) Described on
Schedule E-1 to the Loan Agreement; (b) the material breach of which by
Guarantor could give rise to a claim against Guarantor that is material in
relation to Guarantor's financial condition; or (c) the termination of which
could interfere substantially with the ongoing operations, businesses, or
prospects of Guarantor.
"Negotiable Collateral" means all of
Guarantor's present and future letters of credit, notes, drafts, instruments,
Investment Property (including the shares of stock of Subsidiaries of
Guarantor), documents, personal property leases (wherein Guarantor is the
lessor), chattel paper, and Guarantor's Books relating to any of the foregoing.
"Permitted Liens" means, with respect to the
assets of Guarantor or its Subsidiaries: (a) Liens granted to Foothill or any
assignee under the Loan Documents, (b) Liens for unpaid taxes, assessments, and
government charges that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-1 of the Loan
Agreement, (d)(i) the interests of lessors or lessees under operating leases
and subleases, or (ii) the interests of licensees or franchisees under licenses
or franchises of Borrower Intellectual Property to the extent constituting an
Ordinary Course Disposition under clause (e) of the definition of Ordinary
Course Disposition, (e)(i) Liens securing purchase money Indebtedness or
capital leases permitted under Section 7.1(g) of the Loan Agreement, so long as
the Lien only attaches to the asset purchased or acquired, or (ii) Acquisition
Liens, (f) Liens arising by operation of law, incurred in the ordinary course
of business of Guarantor and its Subsidiaries and not in connection with the
borrowing of money, and which Liens either (i) are for sums not yet due and
payable, (ii) are the subject of Permitted Protests, or (iii) in the aggregate
are de minimis in amount, (g) Liens arising from deposits made in connection
with obtaining worker's compensation or other unemployment insurance, (h) Liens
or deposits to secure performance of bids, tenders, contracts or leases (to the
extent permitted under this Agreement), incurred in the ordinary course of
business of Guarantor and its Subsidiaries and not in connection with the
borrowing of money, (i) Liens arising by reason of security for surety or
appeal bonds, (j) Liens of or resulting from any judgment or award that does
not constitute an Event of Default hereunder, (k) Liens with respect to the
Real Property Collateral, and the Anaheim Property, that are exceptions to the
commitments for title insurance issued in connection with the Mortgages, and
the Anaheim Mortgage as accepted by Foothill at the time of such issuance, (l)
with respect to any Real Property, easements, rights of way, zoning and similar
covenants and restrictions, and similar encumbrances that do not materially
interfere with or impair the use or operation thereof by Guarantor or its
Subsidiaries, (m) other Liens imposed by operation of law that do not
materially affect Guarantor's or its Subsidiaries ability to perform
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their respective obligations under the Loan Documents, (n) replacement or
continued Liens granted to a Person who provides refinancing or continuation of
Indebtedness pursuant to Section 7.1(h) of the Loan Agreement; provided, that
the replacement or continued Lien is limited to all or part of the properties
or assets that secured the refinanced or continued Indebtedness.
"Secured Obligations" shall mean all
liabilities, obligations, or undertakings owing by Guarantor to Foothill of any
kind or description arising out of or outstanding under, advanced or issued
pursuant to, or evidenced by the Guaranty, any other Loan Document heretofore,
herewith, or hereafter executed by Guarantor, or this Agreement, irrespective
of whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now
existing or hereafter arising, and including all interest (including interest
that accrues after the filing of a case under the Bankruptcy Code) and any and
all reasonable out- of-pocket costs, fees (including reasonable attorneys
fees), and expenses which Guarantor is required to pay pursuant to any of the
foregoing, by law, or otherwise.
1.2 CODE. Any terms used in this Agreement which
are defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this
Agreement clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. Any reference in this Agreement
or in any of the other Loan Documents to this Agreement or any of the other
Loan Documents shall include all alterations, amendments, restatements,
changes, extensions, modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable. In the event of a direct
conflict between the terms and provisions of this Agreement and the Loan
Agreement, it is the intention of the parties hereto that both such documents
shall be read together and construed, to the fullest extent possible, to be in
concert with each other. In the event of any actual, irreconcilable conflict
that cannot be resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; provided, however, that the inclusion
herein of additional obligations on the part of Guarantor and supplemental
rights and remedies in favor of Foothill, in each case in respect of the
Collateral, shall not be deemed a conflict with the Loan Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules
and exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
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2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Guarantor hereby
grants to Foothill a continuing security interest in all of its currently
existing and hereafter acquired or arising Collateral in order to secure
payment and performance of the Secured Obligations. Foothill's security
interests in the Collateral shall attach to all Collateral without further act
on the part of Foothill or Guarantor. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, Guarantor has no
authority, express or implied, to dispose of any item or portion of the
Collateral other than Permitted Dispositions. Concurrent with the consummation
of any Permitted Disposition, Foothill agrees to release its Liens on the
subject property or asset (but not the proceeds from the Asset Disposition).
2.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral (other than Collection items received by Guarantor in the ordinary
course of Guarantor's business and deposited), Guarantor shall, promptly upon
the request of Foothill, deliver physical possession of such Negotiable
Collateral to Foothill or its bailee to the extent required for Foothill to
have a first priority perfected Lien thereon.
2.3 [Intentionally omitted.]
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION
REQUIRED. Guarantor shall execute, and deliver to Foothill, prior to or
concurrently with Guarantor's execution and delivery of this Agreement and at
any time thereafter at the request of Foothill, all financing statements,
continuation financing statements, fixture filings, security agreements,
chattel mortgages, pledges, mortgages, deeds of trust, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Foothill may reasonably request, in form satisfactory to
Foothill, to perfect and continue perfected Foothill's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under the Loan Documents.
2.5 POWER OF ATTORNEY. Guarantor hereby
irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's
officers, employees, or agents designated by Foothill) as Guarantor's true and
lawful attorney, with power to: (a) if Guarantor refuses to, or fails timely
to execute and deliver any of the documents described in Section 2.4, sign the
name of Guarantor on any of the documents described in Section 2.4; (b) endorse
Guarantor's name on any Collection item that may come into Foothill's
possession; (c) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Guarantor's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance. The appointment of Foothill as Guarantor's attorney,
and each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the
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<PAGE> 7
Secured Obligations have been fully and finally repaid and performed and
Foothill's obligation to extend credit under the Loan Agreement is terminated.
2.6 RIGHT TO INSPECT. Prior to the time that an
Event of Default has occurred and is continuing or Foothill deems itself
insecure, Foothill (through any of its officers, employees, or agents) shall
have the right, from time to time hereafter upon reasonable prior notification
to Guarantor and during normal business hours, to inspect Guarantor's and each
of its Subsidiary's Books and to check, test, and, subject to Section 2.11(d)
of the Loan Agreement, appraise the Collateral in order to verify Guarantor's
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral. After the time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure, Foothill
(through any of its officers, employees, or agents) shall have the right, from
time to time thereafter, to inspect Guarantor's and each of its Subsidiaries'
Books and to check, test, and, subject to Section 2.11(d) of the Loan
Agreement, appraise the Collateral in order to verify Guarantor's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral.
3. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants as follows:
3.1 NO PRIOR ENCUMBRANCES. Guarantor owns the
Collateral, free and clear of Liens, except for Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE;
FEIN. On the Closing Date, the chief executive office of Guarantor is at the
address indicated in the first paragraph of this Agreement. Guarantor's FEIN
is 33-0197772).
3.3 [Intentionally Omitted].
3.4 [Intentionally Omitted].
3.5 [Intentionally Omitted].
3.6 DUE ORGANIZATION AND QUALIFICATION.
Guarantor is a Delaware corporation, and it is and shall at all times hereafter
be duly organized and existing and in good standing under the laws of Delaware
and qualified and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified could reasonably be
expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), finances, or prospects of Guarantor or on
the value of the Collateral.
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<PAGE> 8
3.7 DUE AUTHORIZATION; NO CONFLICT. The
execution, delivery, and performance of this Agreement, the Guaranty, and any
other Loan Document to which Guarantor is a party are within Guarantor's
corporate powers, have been duly authorized, and are not in conflict with nor,
constitute a breach of any provision contained in Guarantor's Articles or
Certificate of Incorporation, or By-laws, nor will they constitute an event of
default under any material agreement to which Guarantor is now or may hereafter
become a party.
3.8 LITIGATION. There are no actions or
proceedings pending by or against Guarantor before any court or administrative
agency and Guarantor does not have knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving Guarantor, except for: (a)
matters disclosed on Schedule 5.9 of the Loan Agreement; and (b) matters
arising after the date hereof that, if decided adversely to Guarantor, would
not materially impair the prospect of repayment of the Secured Obligations or
materially impair the value or priority of Foothill's security interests in the
Collateral.
3.9 NO INTENT TO HINDER CREDITORS. No transfer
of property is being made by Guarantor and no obligation is being incurred by
Guarantor in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Guarantor.
3.10 RELIANCE BY FOOTHILL; CUMULATIVE. The
warranties, representations, and agreements set forth herein shall be
conclusively presumed to have been relied upon by Foothill and shall be
cumulative and in addition to any and all other warranties, representations,
and agreements which Guarantor shall now or hereinafter give, or cause to be
given, to Foothill.
4. AFFIRMATIVE COVENANTS.
Guarantor covenants and agrees that, until payment in
full of the Secured Obligations, and unless Foothill shall otherwise consent in
writing, Guarantor shall do all of the following:
4.1 [Intentionally Omitted.]
4.2 [Intentionally Omitted.]
4.3 [Intentionally Omitted.]
4.4 [Intentionally Omitted.]
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4.5 TAXES. Other than taxes of which Guarantor
is unaware or that in the aggregate are de minimis, all assessments and taxes
(including withholding taxes), whether real, personal, or otherwise, due or
payable by, or imposed, levied, or assessed against Guarantor or any of its
property have been paid, and shall be paid in full, before delinquency or
before the expiration of any extension period, except to the extent that the
validity of such assessment or tax (other than taxes that are the subject of a
United States federal tax lien) is the subject of a Permitted Protest.
Guarantor, upon request, shall furnish Foothill with proof reasonably
satisfactory to Foothill indicating that Guarantor has made all due and timely
payments or deposits of all such federal, state, and local taxes, assessments,
or contributions required of it by law.
4.6 INSURANCE.
(a) At its expense, keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Guarantor also shall maintain business
interruption, public liability, product liability, and property damage
insurance relating to their ownership and use of the Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation, in each
case consistent with past practice; provided, however, that Guarantor and its
Subsidiaries only shall be required to use their reasonable best efforts to
maintain earthquake insurance, in amounts and subject to deductibles consistent
with those ordinarily insured against by other similar companies in the same
industry, so long as it is available at reasonable commercial rates. Foothill
agrees that Guarantor and its Subsidiaries may self-insure for workers
compensation insurance, generally liability insurance, auto liability
insurance, and health insurance, in each case, consistent with past practice
and with a limit of up to $500,000 per occurrence.
(b) All such policies of insurance shall
be in such form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. Insurance policies covering property and assets
against loss by fire, lightening, windstorm, hail, explosion, aircraft, smoke
damage, earthquake, elevator collisions and other risks included under an
"extended coverage" endorsement shall, with respect to hazard insurance and
such other insurance as Foothill shall specify, contain a California Form
438BFU (NS) mortgagee endorsement, or an equivalent endorsement satisfactory to
Foothill, showing Foothill as a loss payee thereof as its interests may appear,
and shall contain a waiver of warranties. All such insurance (with the
exception of workers' compensation and health insurance policies) shall name
Foothill as an additional insured as its interest may appear. Every policy of
insurance referred to in this Section 4.6 (with the exception of workers'
compensation and health insurance policies) shall contain an agreement by the
insurer that it will not cancel such policy except after 10 days prior written
notice to Foothill. Certified copies or originals of such policies or
certificates thereof satisfactory to Foothill evidencing such insurance shall
be delivered to Foothill prior to
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the expiration or the cancellation of the existing or preceding policies.
Guarantor shall deliver to Foothill, upon the request of Foothill, evidence of
the payment of all premiums for such policies of insurance.
4.7 FOOTHILL EXPENSES. Guarantor shall
immediately and without demand reimburse Foothill for all sums expended by
Foothill which constitute Foothill Expenses and Guarantor hereby authorizes and
approves all advances and payments by Foothill for items constituting Foothill
Expenses.
5. NEGATIVE COVENANTS.
Guarantor covenants and agrees that until payment in
full of the Secured Obligations, it will not do any of the following without
Foothill's prior written consent:
5.1 LIENS. Create, incur, assume, or permit to
exist, directly or indirectly, any lien on or with respect to any of its
property or assets, of any kind, whether now owned or hereafter acquired, or
any income or profits therefrom, except for Permitted Liens.
5.2 [Intentionally omitted.]
5.3 [Intentionally omitted.]
5.4 CHANGE NAME. Except on 30 days prior written
notice to Foothill, change its name or FEIN.
5.5 [Intentionally omitted.]
5.6 [Intentionally omitted.]
5.7 [Intentionally omitted.]
5.8 [Intentionally omitted.]
5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written
notification to Foothill, relocate its chief executive office to a new
location, unless, at the time of such written notification, it provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
landlord's waiver in form and substance satisfactory to Foothill. The
Inventory and Equipment shall not at any time now or hereafter be stored with a
bailee, warehouseman, or similar party without Foothill's prior written
consent.
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6. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default") under this
Agreement:
6.1 The occurrence of an Event of Default (as defined in
the Loan Agreement);
6.2 If (a) Guarantor fails or neglects to perform, keep,
or observe, in any material respect, any term, provision, condition, covenant,
or agreement contained in this Agreement or in the Guaranty, or in any other
present or future Loan Document between Guarantor and Foothill and such failure
continues for a period of 15 days from the date on which Guarantor first had
knowledge or reasonably should have had knowledge of such failure or neglect,
or (b) Guarantor fails or neglects to perform, keep, or observe, in any
material respect, any other term, provision, condition, covenant, or agreement
contained in this Agreement or in the Guaranty, or in any other present or
future Loan Document between Guarantor and Foothill, and Foothill, in its
reasonable discretion, determines such failure or neglect is not capable of
cure by Guarantor within 15 days from the date on which Guarantor first had
knowledge or reasonably should have had knowledge of such failure or neglect;
6.3 If there is a Material Adverse Collateral Change;
6.4 (a) If a notice of lien, levy, or assessment is filed
of record with respect to any of Guarantor's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or if
any taxes or debts owing at any time hereafter to the United States becomes a
lien, whether choate or otherwise, upon any of Guarantor's properties or
assets; or (b) if a notice of lien, levy, or assessment is filed of record for
an amount in excess of $250,000 with respect to any of Guarantor's properties
or assets by any state, county, municipal, or governmental agency, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a lien for an amount in excess of $250,000, whether choate or
otherwise, upon any of Guarantor's properties or assets and, in any such case,
such taxes or debts are not the subject of a Permitted Protest, and the lien,
levy, or assessment is not released, discharged, or bonded against before the
earlier of 30 days of the date it first arises or 5 days of the date when such
property or asset is subject to being forfeited;
6.5 If a judgment or other claim becomes a Lien upon any
material portion of Guarantor's properties or assets and the same is not
released, discharged, bonded against, or stayed pending appeal before the
earlier of 30 days of the date it first arises or 5 days of the date when such
property or asset is subject to being forfeited;
6.6 If there is a material default in any material
agreement relating to Indebtedness to which Guarantor is a party with one or
more third Persons resulting in a right by
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<PAGE> 12
such third Persons, irrespective of whether exercised, to accelerate the
maturity of Guarantor's obligations thereunder;
6.7 [Intentionally Omitted;]
6.8 If any misstatement or misrepresentation exists now
or hereafter in any written warranty, representation, statement, or report made
pursuant to any of the Loan Documents to Foothill by Guarantor or any officer,
employee, agent, or director of Guarantor (in the case of employees or agents
who are not officers or directors, to the extent authorized by an officer or
director to communicate or transact business with Foothill or who regularly
communicate or transact business with Foothill), or if any such warranty or
representation is withdrawn.
7. FOOTHILL'S RIGHTS AND REMEDIES.
7.1 RIGHTS AND REMEDIES. Upon the occurrence and
during the continuation of an Event of Default, the security hereby constituted
shall become enforceable and, in addition to all other rights and remedies
available to Foothill as provided hereafter, Foothill may, at its election,
without notice of its election and without demand, do any one or more of the
following, all of which are authorized by Guarantor:
(a) Proceed directly and at once,
without notice, against the Guarantor to collect and recover the full amount or
any portion of the Guarantied Obligations, without first proceeding against
Borrower, or against any security or collateral for the Guarantied Obligations;
(b) Without notice to the Guarantor and
regardless of the acceptance of any security or collateral for the payment
hereof, appropriate and apply toward the payment of the Guarantied Obligations
(i) any indebtedness due or to become due from Foothill to the Guarantor and
(ii) any moneys, credits or other property belonging to the Guarantor at any
time held by or coming into the possession of Foothill;
(c) May exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein and
the Guaranty or otherwise available to it, all the rights and remedies
available to it at law (including those of a secured party under the Code) or
in equity;
(d) [Intentionally omitted;]
(e) [Intentionally omitted;]
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<PAGE> 13
(f) Without notice or demand, make such
payments and do such acts as Foothill considers reasonably necessary to protect
its security interest in the Collateral. Guarantor agrees to assemble the
Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Guarantor authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Foothill's reasonable determination
appears to be prior or superior to its security interest and to pay all
reasonable expenses incurred in connection therewith. With respect to any of
Guarantor's owned premises, Guarantor hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without charge, for up
to one hundred twenty (120) days in order to exercise any of Foothill's rights
or remedies provided herein, at law, in equity, or otherwise;
(g) Ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for sale, and sell (in
the manner provided for herein) the Collateral. Foothill is hereby granted a
license or other right to use, without charge, Guarantor's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of advertising for sale
and selling any Collateral, and Guarantor's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(h) Sell all or any part of the
Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such
places (including Guarantor's premises) as Foothill determines is commercially
reasonable. It is not necessary that the Collateral be present at any such
sale. Foothill shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in Guarantor, which right or equity is hereby waived or
released to the extent permitted by law. Anything in the foregoing to the
contrary notwithstanding, Foothill acknowledges and agrees that (i) the
Flagstar Bonds contain certain legends, contain certain restrictions on
transfer, and are subject to certain claims of Flagstar and potential
reductions of the principal amount thereof, (ii) any transfer of the Flagstar
Bonds (including, without limitation, upon foreclosure) shall be subject to any
enforceable restrictions contained in the Flagstar Bonds, and (iii) so long as
no Triggering Event has occurred and is continuing and so long as the proposed
sale would not violate any covenant contained in any Loan Document to which
Guarantor is a party or by which Guarantor is bound, in the event of a proposed
sale by Guarantor of any Flagstar Bonds in the possession of a bailee under a
bailee agreement with Foothill, promptly after Guarantor notifies Foothill of
such sale, Foothill shall instruct the bailee to deliver such Flagstar Bonds to
Guarantor (or otherwise in accordance with Guarantor's written instructions)
within 5 Business Days of Guarantor's notice to Foothill, it shall deliver duly
executed non-recourse endorsements or assignments (if necessary), provided that
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<PAGE> 14
Guarantor shall immediately return such Flagstar Bonds to the bailee, and such
endorsements or assignments to Foothill, in the event that such sale is not
consummated within 5 Business Days of the delivery of such Flagstar Bonds to
Guarantor.
(i) Foothill shall give notice of the
disposition of the Personal Property Collateral as follows:
(1) Foothill shall give Guarantor and each
holder of a security interest in the Personal Property Collateral who has filed
with Foothill a written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Guarantor as provided in Section 10, at least 10
days before the date fixed for the sale, or at least 10 days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Personal
Property Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market. Notice to
Persons other than Guarantor claiming an interest in the Personal Property
Collateral shall be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice
one time at least 10 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(j) [Intentionally omitted;]
(k) [Intentionally omitted;]
(l) [Intentionally omitted;]
(m) [Intentionally omitted;]
(n) Any deficiency which exists after
disposition of the Collateral as provided above will be paid immediately by
Guarantor up to the maximum amount, if any, of Guarantor's liability under the
Guaranty. Any excess will be promptly returned to Guarantor, without interest
and subject to the rights of third parties, by Foothill.
Except as required by law, Foothill may take any or all of the foregoing action
without demand, presentment, protest, advertisement or notice of any kind to or
upon Guarantor or any other
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<PAGE> 15
person. Anything in this Agreement to the contrary notwithstanding, unless a
Triggering Event has occurred and is continuing, Foothill (a) shall not
exercise any of its default remedies with respect to the Flagstar Bonds, and
(b) shall not exercise any of its default remedies with respect to the
Investment Property.
7.2 REMEDIES CUMULATIVE. Foothill's rights and
remedies under this Agreement and the other Loan Documents shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election,and no waiver by Foothill of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Foothill shall constitute a waiver, election, or acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Guarantor fails to pay any monies (whether taxes,
rents, assessments, insurance premiums, or otherwise) due to third persons or
entities, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement, then, to
the extent that Foothill determines that such failure, by Guarantor reasonably
could be expected to have a material adverse effect on Foothill's interests in
the Collateral, in its discretion and without prior notice to Guarantor,
Foothill may do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves in Borrower's loan account as
Foothill reasonably deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in Section 4.6 hereof insuring Guarantor's ownership and use of
the Collateral, and take any action with respect to such policies as Foothill
reasonably deems prudent. Any amounts paid or deposited by Foothill shall
constitute Foothill Expenses, shall immediately become additional Secured
Obligations, shall bear interest at the applicable rate described in the Loan
Document, and shall be secured by the Collateral. Any payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any
such expense, tax, security interest, encumbrance, or lien and the receipt of
the usual official notice for the payment thereof shall for the purposes of
this Agreement be conclusive evidence that the same was validly due and owing.
Foothill shall use its best efforts to provide notice to Guarantor of any
action taken by it under this Section 8.
9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the fullest extent
permitted by applicable law, Guarantor waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
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<PAGE> 16
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which Guarantor may in
any way be liable.
9.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long
as Foothill complies with its obligations, if any, under Section 9207 of the
Code, Foothill shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person; and (e) risk of loss, damage, or
destruction of the Collateral.
9.3 INDEMNIFICATION. Guarantor agrees to defend,
indemnify, save, and hold Foothill and its officers, employees, and agents
harmless against: (a) all demands, claims, and liabilities claimed or asserted
by any other Person, and (b) all losses (including reasonable attorneys fees
and disbursements) in any way suffered, incurred, or paid by Foothill as a
result of or in any way arising out of, or related to transactions with
Borrower or Guarantor, under this Agreement and any other Loan Documents.
Guarantor shall have no obligation under this Section 9.3: (a) with respect to
indemnification of any liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
the indemnified person; (b) with respect to any settlement in excess of
$250,000 made without Guarantor's consent (which shall not be unreasonably
withheld, conditioned, or delayed and which consent need not be obtained if
Guarantor or Borrower is in default of its obligations under this Section 9.3);
or (c) without Guarantor's consent (which shall not be reasonably withheld,
conditioned, or delayed), for the fees and disbursements of more than one
separate firm of attorneys for all indemnified persons relative to a
indemnification of any particular liability. This provision shall survive full
and final payment in cash of the Secured Obligations and the termination of all
commitments of Foothill to extend credit to Borrower or Guarantor for a period
of 2 years.
9.4 WAIVERS. (a) To the fullest extent permitted
by applicable law, Guarantor hereby waives: (i) notice of acceptance hereof;
(ii) notice of any loans or other financial accommodations made or extended
under the Loan Agreement, or the creation or existence of any Obligations;
(iii) notice of the amount of the Obligations, subject, however, to Guarantor's
right to make inquiry of Foothill to ascertain the amount of the Obligations at
any reasonable time; (iv) notice of any adverse change in the financial
condition of Borrower or of any other fact that might increase Guarantor's risk
hereunder; (v) notice of presentment for payment, demand, protest, and notice
thereof as to any instrument among the Loan Documents; (vi) notice of any
unmatured Event of Default or Event of Default under the Loan Agreement; and
(vii) all other notices (except if such notice is specifically required to be
given to Guarantor under this Agreement) and demands to which Guarantor might
otherwise be entitled.
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(b) To the fullest extent permitted by applicable law,
Guarantor hereby waives the right by statute or otherwise to require Foothill
to institute suit against Borrower or to exhaust any rights and remedies which
Foothill has or may have against Borrower. Guarantor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Obligations shall have been fully and finally indefeasibly
paid) of Borrower or by reason of the cessation from any cause (other than that
the Obligations shall have been fully and finally indefeasibly paid) whatsoever
of the liability of Borrower in respect thereof.
(c) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) any rights to assert against Foothill any defense
(legal or equitable), set-off, counterclaim, or claim which Guarantor may now
or at any time hereafter have against Borrower or any other party liable to
Foothill on account of or with respect to the Obligations; (ii) any defense,
set-off, counterclaim, or claim, of any kind or nature, arising directly or
indirectly from the present or future sufficiency, validity, or enforceability
of the Obligations; (iii) any defense arising by reason of any claim or defense
based upon an election of remedies by Foothill including, to the extent
applicable, the provisions of Section Section 580d and 726 of the California
Code of Civil Procedure, or any similar law of California or any other
jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof.
(d) To the fullest extent permitted by applicable law,
Guarantor hereby waives any right of subrogation Guarantor has or may have as
against Borrower with respect to the Obligations. In addition, Guarantor
hereby waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Obligations. Guarantor also hereby waives any right to
proceed or to seek recourse against or with respect to any property or asset of
Borrower. Guarantor hereby agrees that, in light of the waivers contained in
this Section, Guarantor shall not be deemed to be a "creditor" (as that term is
defined in the Bankruptcy Code or otherwise) of Borrower, whether for purposes
of the application of Sections 547 or 550 of the United States Bankruptcy Code
or otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Foothill may elect,
in its sole discretion, upon a default with respect to the Secured Obligations,
to foreclose such mortgage or deed of trust judicially or nonjudicially in any
manner permitted by law, before or after enforcing this Agreement, without
diminishing or affecting the liability of Guarantor hereunder. Guarantor
understands that (a) by virtue of the operation of California's antideficiency
law applicable to nonjudicial foreclosures, an election by Foothill
nonjudicially to foreclose such a mortgage or deed of trust probably would have
the effect of impairing or destroying rights of subrogation, reimbursement,
contribution, or indemnity of Guarantor against Borrower or guarantors or
sureties, and (b) absent the waiver given by Guarantor herein, such an election
might estop Foothill from enforcing this Agreement against Guarantor.
Understanding the foregoing, and understanding that Guarantor is hereby
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relinquishing a defense to the enforceability of this Agreement, Guarantor
hereby waives any right to assert against Foothill any defense to the
enforcement of this Agreement, whether denominated "estoppel" or otherwise,
based on or arising from an election by Foothill nonjudicially to foreclose any
such mortgage or deed of trust. Guarantor understands that the effect of the
foregoing waiver may be that Guarantor may have liability hereunder for amounts
with respect to which Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Borrower or guarantors or
sureties. Guarantor also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of Guarantor's liability under
this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE Section
Section 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848,
2849, AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE
Section Section 580A, 580B, 580C, 580D, AND 726, AND, TO THE EXTENT
APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES ALL RIGHTS
AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY FOOTHILL, EVEN THOUGH
THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO
SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED GUARANTOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE BORROWER BY THE OPERATION OF SECTION
580D OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
10. NOTICES.
All notices and other communications hereunder to
Foothill shall be in writing and shall be mailed, sent or delivered in
accordance with the Loan Agreement and all notices and other communications
hereunder to Guarantor shall be in writing and shall be mailed, sent or
delivered in care of Borrower in accordance with the Loan Agreement.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
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THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT FOOTHILL'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF GUARANTOR AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE
TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
GUARANTOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS. GUARANTOR AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12. DESTRUCTION OF GUARANTOR'S DOCUMENTS.
All documents, schedules, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill
four (4) months after they are delivered to or received by Foothill, unless
Guarantor requests, in writing, the return of said documents, schedules or
other papers and makes arrangements, at Guarantor's expense, for their return.
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13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be
binding and deemed effective when executed by Guarantor and accepted and
executed by Foothill.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall
bind and inure to the benefit of the respective successors and assigns of each
of the parties; provided, however, that Guarantor may not assign this Agreement
or any rights or duties hereunder without Foothill's prior written consent and
any prohibited assignment shall be absolutely void. No consent to an
assignment by Foothill shall release Guarantor from its Secured Obligations.
Foothill may assign this Agreement and its rights and duties hereunder in
accordance with the Loan Agreement, and no consent or approval by Guarantor is
required in connection with any such assignment. In accordance with the Loan
Agreement, Foothill reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Foothill's
rights and benefits hereunder. In accordance with the Loan Agreement, Foothill
may disclose all documents and information which Foothill now or hereafter may
have relating to Guarantor or Guarantor's business. To the extent that
Foothill assigns its rights and obligations to a third Person in accordance
with the Loan Agreement, Foothill thereafter shall be released from such
assigned obligations to Guarantor and such assignment shall effect a novation
between Guarantor and such third Person.
13.3 SECTION HEADINGS. Headings and numbers have
been set forth herein for convenience only. Unless the contrary is compelled
by the context, everything contained in each section applies equally to this
entire Agreement.
13.4 INTERPRETATION. Neither this Agreement nor
any uncertainty or ambiguity herein shall be construed or resolved against
Foothill or Guarantor, whether under any rule of construction or otherwise. On
the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
13.5 SEVERABILITY OF PROVISIONS. Each provision
of this Agreement shall be severable from every other provision of this
Agreement for the purpose of determining the legal enforceability of any
specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can
only be amended by a writing signed by both Foothill and Guarantor.
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13.7 COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one
and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If
the incurrence or payment of the Secured Obligations by Guarantor or the
transfer by Guarantor to Foothill of any property of Guarantor should for any
reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Foothill is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
13.9 TERMINATION. Upon the full and final payment
in cash of the Secured Obligations and the termination of all commitments of
Foothill to extend credit to Borrower or Guarantor, Foothill shall promptly
terminate and release its security interests in the Collateral, execute and
deliver any necessary financing statement terminations or releases, and return
to Guarantor any Collateral that was in the possession of Foothill, provided
that, with respect to any loss or damage Foothill may incur as a result of
dishonored checks or other items of payment received by Foothill and applied to
the Secured Obligations, Foothill shall, at its option, (i) have received a
written agreement, executed by Borrower or Guarantor (as required by Foothill
in its sole discretion) and by any Person whose loans or other advances to
Borrower or Guarantor are used in whole or in part to satisfy the Secured
Obligations, indemnifying Foothill from any such loss or damage; or (ii) have
retained such monetary reserves or Liens on the Collateral for such period of
time as Foothill, in its reasonable discretion, may deem necessary to protect
Foothill from any such loss or damage. All reasonable expenses incurred by
Foothill in connection with the termination of the security interests granted
to Foothill in connection with this agreement shall be the sole expense of
Guarantor.
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IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed at Los Angeles, California.
FRI-MRD CORPORATION,
a Delaware corporation
By____________________________________
Its___________________________________
FOOTHILL CAPITAL CORPORATION, a
California corporation
By____________________________________
Its___________________________________
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EXHIBIT 10(bb)
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
January 10, 1997, is entered into between FAMILY RESTAURANTS, INC., a Delaware
corporation ("Pledgor"), and Foothill Capital Corporation, a California
corporation ("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns One Hundred (100) shares
of the common stock of FRI-MRD Corporation, a Delaware corporation ("FRI-MRD");
WHEREAS, Pledgor, Borrower, Secured Party, and the other
parties thereto have entered into that certain Loan and Security Agreement (the
"Loan Agreement"), of even date herewith, pursuant to which Secured Party has
agreed to make certain financial accommodations to Pledgor and Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Pledgor and Borrower pursuant to the Loan Agreement,
Pledgor desires to pledge, grant, transfer, and assign to Secured Party a
security interest in the Collateral (as hereinafter defined) to secure the
Secured Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions and Construction.
(a) Definitions. All initially capitalized terms
used herein and not otherwise defined herein shall have the meaning ascribed
thereto in the Loan Agreement. As used in this Agreement:
"Agreement" shall mean this Stock Pledge
Agreement.
"Chief Executive Office" shall mean where
Pledgor is deemed located pursuant to section 9-103(3)(d) of the Code.
"Collateral" shall mean the Pledged Shares,
the Future Rights, and the Proceeds, collectively.
"Future Rights" shall mean: (a) to the extent
of Pledgor's interest therein, all shares of stock (other than Pledged Shares)
of the Issuers, and all securities convertible or exchangeable into, and all
warrants, options, or other rights to purchase, shares of stock of the Issuers;
(b) to the extent of Pledgor's interest therein, all shares of, all securities
convertible or exchangeable into, and all warrants, options, or other rights to
purchase shares of
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stock of any Person in which Pledgor, after the date of this Agreement,
acquires a direct equity interest, irrespective of whether such Person is or
becomes a Subsidiary of Pledgor; and (c) the certificates or instruments
representing such additional shares, convertible or exchangeable securities,
warrants, and other rights and all dividends, cash, options, warrants, rights,
instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or
all of such shares.
"Guaranty" means that certain General
Continuing Guaranty dated of even date herewith made by Pledgor for the benefit
of Secured Party, as the same may from time to time be amended, modified,
supplemented, renewed, or reinstated.
"Holder" and "Holders" shall have the
meanings ascribed thereto in Section 3 of this Agreement.
"Issuers" shall mean FRI-MRD Corporation and
any other Person identified as an Issuer on Schedule A attached hereto (or any
addendum thereto), and any successors thereto, whether by merger or otherwise.
"Lien" shall mean any lien, mortgage, pledge,
assignment (including any assignment of rights to receive payments of money),
security interest, charge, or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, or any agreement to give any security interest).
"Loan Agreement" shall have the meaning
ascribed thereto in the recitals to this Agreement.
"Permitted Liens" means: (a) Liens granted
to Secured Party or any assignee under the Loan Documents, (b) Liens for unpaid
taxes, assessments, and government charges that either (i) are not yet due and
payable or (ii) are the subject of Permitted Protests, (c) Liens arising by
operation of law, incurred in the ordinary course of business of Pledgor and
not in connection with the borrowing of money, and which Liens either (i) are
for sums not yet due and payable, (ii) are the subject of Permitted Protests,
or (iii) in the aggregate are de minimis in amount, (d) Liens of or resulting
from any judgment or award that does not constitute an Event of Default, and
(e) other Liens imposed by operation of law that do not materially affect
Pledgor's ability to perform its obligations under the Loan Documents.
"Permitted Protest" means the right of
Pledgor to protest any Lien (other than any such Lien that secures the
Obligations), tax (other than taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) if required in
accordance with GAAP, a reserve with respect to such obligation is established
on the books of Pledgor, as applicable under the circumstances, in accordance
with GAAP, and (b) any such protest is instituted and diligently prosecuted by
Pledgor, as applicable under the circumstances, in good faith.
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"Pledged Shares" shall mean all of the shares
described in the recitals to this Agreement and any other shares identified as
Pledged Shares on Schedule A attached hereto (or any addendum thereto).
"Pledgor" shall have the meaning ascribed
thereto in the preamble to this Agreement.
"Proceeds" shall mean all proceeds (including
proceeds of proceeds) of the Pledged Shares and Future Rights including all:
(a) rights, benefits, distributions, premiums, profits, dividends, interest,
cash, instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for,
any of the Pledged Shares, Future Rights, or proceeds thereof (including any
cash, stock, or other securities or instruments issued after any
recapitalization, readjustment, reclassification, merger or consolidation with
respect to the Issuers and any claims against financial intermediaries under
Section 8-313(2) of the Code or otherwise); (b) "proceeds," as such term is
used in Section 9-306 of the Code; (c) proceeds of any insurance, indemnity,
warranty, or guaranty (including guaranties of delivery) payable from time to
time with respect to any of the Pledged Shares, Future Rights, or proceeds
thereof; (d) payments (in any form whatsoever) made or due and payable to
Pledgor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Pledged Shares,
Future Rights, or proceeds thereof; and (e) other amounts from time to time
paid or payable under or in connection with any of the Pledged Shares, Future
Rights, or proceeds thereof.
"Secured Obligations" shall mean all
liabilities, obligations, or undertakings owing by Pledgor to Secured Party of
any kind or description arising out of or outstanding under, advanced or issued
pursuant to, or evidenced by the Guaranty, any other Loan Document heretofore,
herewith, or hereafter executed by Pledgor, or this Agreement, irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now
existing or hereafter arising, and including all interest (including interest
that accrues after the filing of a case under the Bankruptcy Code) and any and
all reasonable out-of-pocket costs, fees (including reasonable attorneys fees),
and expenses which Pledgor is required to pay pursuant to any of the foregoing,
by law, or otherwise.
"Secured Party" shall have the meaning
ascribed thereto in the preamble to this Agreement, together with its
successors or assigns.
"Securities Act" shall have the meaning
ascribed thereto in Section 9(c) of this Agreement.
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(b) Construction.
(i) Unless the context of this
Agreement clearly requires otherwise, references to the plural include the
singular and to the singular include the plural, the part includes the whole,
the term "including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or."
The words "hereof," "herein," "hereby," "hereunder," and other similar terms in
this Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection, exhibit,
and schedule references are to this Agreement unless otherwise specified. All
of the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference to any of the following
documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement, the Loan Agreement, or any of the other Loan
Documents.
(ii) This Agreement has been
reviewed by both of the parties and their respective counsel and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of the parties hereto.
(iii) In the event of any direct
conflict between the express terms and provisions of this Agreement and of the
Loan Agreement, the terms and provisions of the Loan Agreement shall control.
2. Pledge. As security for the prompt payment and
performance of the Secured Obligations in full by Pledgor when due, whether at
stated maturity, by acceleration or otherwise (including amounts that would
become due but for the operation of the provisions of the Bankruptcy Code),
Pledgor hereby pledges, grants, transfers, and assigns to Secured Party a
security interest in all of Pledgor's right, title, and interest in and to the
Collateral.
3. Delivery and Registration of Collateral.
(a) All certificates or instruments representing
or evidencing the Collateral shall be promptly delivered by Pledgor to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to Secured Party.
(b) After the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right, at any
time in its discretion and without notice to Pledgor, to transfer to or to
register on the books of the Issuers (or of any other Person maintaining
records with respect to the Collateral) in the name of Secured Party or any of
its nominees any or all of the Collateral. In addition, Secured Party shall
have the right, at any time
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after the occurrence and during the continuation of an Event of Default, to
exchange certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
(c) If, at any time and from time to time, any
Collateral (including any certificate or instrument representing or evidencing
any Collateral) is in the possession of a Person other than Secured Party or
Pledgor (a "Holder"), then Pledgor shall promptly, at Secured Party's option,
either cause such Collateral to be delivered into Secured Party's possession,
or execute and deliver to such Holder a written notification/instruction, and
take all other reasonable steps necessary to perfect the security interest of
Secured Party in such Collateral, including obtaining from such Holder a
written acknowledgement that such Holder holds such Collateral for Secured
Party, all pursuant to Section Section 8-313 and 8-321 of the Code or other
applicable law governing the perfection of Secured Party's security interest in
the Collateral in the possession of such Holder. Each such
notification/instruction and acknowledgement shall be in form and substance
reasonably satisfactory to Secured Party.
(d) Any and all Collateral (including dividends,
interest, and other cash distributions) at any time received or held by Pledgor
shall be so received or held in trust for Secured Party, shall be segregated
from other funds and property of Pledgor and shall be forthwith delivered to
Secured Party in the same form as so received or held, with any necessary
endorsements; provided that dividends or distributions received by Pledgor, if
and to the extent they are not prohibited by the Loan Agreement, may be
retained by Pledgor in accordance with Section 4.
(e) If at any time and from time to time any
Collateral consists of an uncertificated security or a security in book entry
form, then Pledgor shall promptly cause such Collateral to be registered or
entered, as the case may be, in the name of Secured Party, or otherwise cause
Secured Party's security interest thereon to be perfected in accordance with
applicable law.
4. Voting Rights and Dividends.
(a) So long as no Triggering Event exists and is
continuing or would result therefrom, and except to the extent that the
Collateral, or any portion thereof, shall have been disposed of by Secured
Party following the occurrence and during the continuance of an Event of
Default in connection with the exercise by Secured Party of its remedies as the
holder of a security interest therein, Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the express terms of the
Loan Documents and shall be entitled to receive and retain any dividends,
interest, or distributions paid in respect of the Collateral in accordance with
the terms of the Loan Agreement and the Loan Documents.
(b) Upon the occurrence and during the
continuance of any Triggering Event, all rights of Pledgor to exercise the
voting and other consensual rights or receive and retain
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cash dividends or distributions that it would otherwise be entitled to exercise
or receive and retain, as applicable pursuant to Section 4(a), shall cease, and
all such rights shall thereupon become vested in Secured Party, who shall
thereupon have the sole right to exercise such voting or other consensual
rights and to receive and retain such cash dividends and distributions.
Pledgor shall execute and deliver (or cause to be executed and delivered) to
Secured Party all such proxies and other instruments as Secured Party may
reasonably request for the purpose of enabling Secured Party to exercise the
voting and other rights which it is entitled to exercise and to receive the
dividends and distributions that it is entitled to receive and retain pursuant
to the preceding sentence.
5. Representations and Warranties. Pledgor represents,
warrants, and covenants as follows:
(a) Pledgor has taken all steps it deems
necessary or appropriate to be informed on a continuing basis of changes or
potential changes affecting the Collateral (including rights of conversion and
exchange, rights to subscribe, payment of dividends, reorganizations or
recapitalization, tender offers and voting rights), and Pledgor agrees that
Secured Party shall have no responsibility or liability for informing Pledgor
of any such changes or potential changes or for taking any action or omitting
to take any action with respect thereto;
(b) All information herein or hereafter supplied
to Secured Party by or on behalf of Pledgor in writing with respect to the
Collateral is, or in the case of information hereafter supplied will be,
accurate and complete in all material respects;
(c) Pledgor is and will be the sole record holder
and beneficial owner (provided that, for purposes of determining beneficial
ownership of a Person, indirect ownership through ownership of interests in one
or more intermediate Persons, that in turn own direct interests in such Person
first referred to, shall not be deemed beneficial ownership) of the Collateral
(including the Pledged Shares and all other Collateral acquired by Pledgor
after the date hereof) free and clear of any adverse claim, Lien, or other
right, title, or interest of any party other than Permitted Liens;
(d) This Agreement, and the delivery to Secured
Party of the Pledged Shares representing Collateral (or the delivery to all
Holders of the Pledged Shares representing Collateral of the
notification/instruction referred to in Section 3 of this Agreement), creates a
valid, perfected, and first priority security interest in one hundred percent
(100%) of the Pledged Shares in favor of Secured Party securing payment of the
Secured Obligations, and all actions necessary to achieve such perfection have
been duly taken;
(e) Schedule A to this Agreement is true and
correct and complete in all material respects; without limiting the generality
of the foregoing: (i) all the Pledged Shares are in certificated form, and,
except to the extent registered in the name of Secured Party or its nominee
pursuant to the provisions of this Agreement, are registered in the name of
Pledgor; and (ii) the Pledged Shares as to each of the Issuers constitute at
least the percentage of all the fully
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diluted issued and outstanding shares of stock of such Issuer as set forth in
Schedule A to this Agreement;
(f) There are no presently existing Future Rights
or Proceeds owned by Pledgor, except as set forth in Schedule C hereto;
(g) The Pledged Shares have been duly authorized
and validly issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant
to this Agreement nor the extensions of credit related to the Secured
Obligations violates Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
6. Further Assurances.
(a) Pledgor agrees that from time to time, at the
expense of Pledgor, Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable, as Secured Party may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will: (i) at the request of Secured Party, mark
conspicuously each of its records pertaining to the Collateral with a legend,
in form and substance reasonably satisfactory to Secured Party, indicating that
such Collateral is subject to the security interest granted hereby; (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
reasonably desirable, as Secured Party may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby;
(iii) allow inspection of the Collateral by Secured Party or Persons designated
by Secured Party (subject to any applicable restrictions or limitations on
inspection rights set forth in any of the Loan Documents); and (iv) appear in
and defend any action or proceeding that may affect Pledgor's title to or
Secured Party's security interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party to
file one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of Pledgor
where permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will furnish to Secured Party, upon
the reasonable request of Secured Party: (i) a certificate executed by an
authorized officer of Pledgor, and dated as of the date of delivery to Secured
Party, itemizing in such detail as Secured Party reasonably may request, the
Collateral which, as of the date of such certificate, has been delivered to
Secured Party by Pledgor pursuant to the provisions of this Agreement; and (ii)
such statements and
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schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party reasonably may
request.
7. Covenants of Pledgor. Pledgor shall:
(a) At all times keep at least one complete set
of its records concerning substantially all of the Collateral at its Chief
Executive Office as set forth in Schedule B hereto, and not change the location
of its Chief Executive Office or such records without giving Secured Party at
least thirty (30) days prior written notice thereof;
(b) Upon receipt by Pledgor of any material
written notice, report, or other written communication from any of the Issuers
or any Holder relating to all or any part of the Collateral, deliver such
notice, report or other communication to Secured Party as soon as possible, but
in no event later than five (5) days following the receipt thereof by Pledgor.
8. Secured Party as Pledgor's Attorney-in-Fact.
(a) Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, with full authority in the place and stead
of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to
time at Secured Party's reasonable discretion, to take any action and to
execute any instrument that Secured Party may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including: (i) after
the occurrence and during the continuance of a Triggering Event, to receive,
endorse, and collect all instruments made payable to Pledgor representing any
dividend, payment, or other distribution in respect of the Collateral or any
part thereof to the extent permitted hereunder and to give full discharge for
the same and to execute and file governmental notifications and reporting
forms; (ii) to issue any notifications/instructions Secured Party reasonably
deems necessary pursuant to Section 3 of this Agreement; or (iii) after the
occurrence and during the continuance of an Event of Default, to arrange for
the transfer of the Collateral on the books of any of the Issuers or any other
Person to the name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured
Party as Pledgor's attorney-in-fact in subsection (a), Pledgor hereby
irrevocably appoints Secured Party as Pledgor's agent and attorney-in-fact,
upon the occurrence and during the continuance of an Event of Default, to make,
execute and deliver any and all documents and writings which may be necessary
or appropriate for approval of, or be required by, any regulatory authority
located in any city, county, state or country where Pledgor or any of the
Issuers engage in business, in order to transfer or to effectively transfer any
of the Pledged Shares or otherwise enforce Secured Party's rights hereunder.
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9. Remedies upon Default. Upon the occurrence and
during the continuance of an Event of Default:
(a) Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the
affected items of Collateral), and Secured Party may also without notice
(except as specified below) sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker's board or at
any of Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Secured Party in good faith believes to be commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Collateral. To the maximum extent permitted by applicable law, Secured Party
may be the purchaser of any or all of the Collateral at any such sale and shall
be entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such public
sale, to use and apply all or any part of the Secured Obligations as a credit
on account of the purchase price of any Collateral payable at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from
any claim or right on the part of Pledgor, and Pledgor hereby waives (to the
extent permitted by law) all rights of redemption, stay, or appraisal that it
now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten (10) calendar days notice to
Pledgor of the time and place of any public sale or the time after which a
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the maximum extent permitted by law,
Pledgor hereby waives any claims against Secured Party arising because the
price at which any Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale, even if
Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree.
(b) Pledgor hereby agrees that any sale or other
disposition of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, or other reputable
financial institutions in the City of Los Angeles, California in disposing of
property similar to the Collateral shall be deemed to be commercially
reasonable.
(c) Pledgor hereby acknowledges that the sale by
Secured Party of any Collateral pursuant to the terms hereof in compliance with
the Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require strict limitations as to the manner in which Secured Party or
any subsequent transferee of the Collateral may dispose thereof. Pledgor
acknowledges and agrees that in order to protect Secured Party's interest it
may be necessary to sell the Collateral at a price less than the maximum
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price attainable if a sale were delayed or were made in another manner, such as
a public offering under the Securities Act. Pledgor has no objection to sale
in such a manner and agrees that Secured Party shall have no obligation to
obtain the maximum possible price for the Collateral. Without limiting the
generality of the foregoing, Pledgor agrees that, upon the occurrence and
during the continuation of an Event of Default, Secured Party may, subject to
applicable law, from time to time attempt to sell all or any part of the
Collateral by a private placement, restricting the bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution. In so doing, Secured Party may
solicit offers to buy the Collateral or any part thereof for cash, from a
limited number of investors deemed by Secured Party, in its reasonable
judgment, to be institutional investors or other responsible parties who might
be interested in purchasing the Collateral. If Secured Party shall solicit
such offers in such fashion, then the good faith acceptance by Secured Party of
an offer received in response to such solicitation shall be deemed to be a
commercially reasonable method of disposition of the Collateral.
(d) If Secured Party shall determine to exercise
its right to sell all or any portion of the Collateral pursuant to this
Section, Pledgor agrees that, upon request of Secured Party, Pledgor will, at
its own expense:
(i) use its reasonable best
efforts to execute and deliver, and cause the Issuers and the directors and
officers thereof to execute and deliver, all such instruments and documents,
and to do or cause to be done all such other acts and things, as may be
necessary or advisable, in the opinion of experienced securities counsel for
Secured Party, to register such Collateral under the provisions of the
Securities Act, and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectuses which, in the opinion of experienced
securities counsel for Secured Party, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(ii) use its reasonable best
efforts to qualify the Collateral under the state securities laws or "Blue Sky"
laws of each state reasonably requested in writing by Secured Party and to
obtain all necessary governmental approvals for the sale of the Collateral, as
reasonably requested by Secured Party; provided, that no Issuer shall be
required to qualify generally to do business in any state where it is not so
qualified, or to take any action that would subject it to taxation or general
service of process in any such state where it is not then so subject;
(iii) if Pledgor is in control
(within the meaning of the Securities Act) of an Issuer, use its reasonable
best efforts to cause such Issuer to make available to its security holders, as
soon as practicable, an earnings statement which will satisfy the provisions of
Section 11(a) of the Securities Act;
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(iv) use its reasonable best
efforts to execute and deliver, or cause the officers and directors of the
Issuers to execute and deliver, to any person, entity or governmental authority
as Secured Party may choose, any and all documents and writings which, in
Secured Party's reasonable judgment, may be necessary or appropriate for
approval, or be required by, any regulatory authority located in any city,
county, state or country where Pledgor or the Issuers engage in business, in
order to transfer or to more effectively transfer the Pledged Shares or
otherwise enforce Secured Party's rights hereunder, or in conjunction with such
transfer of the Pledged Shares, in order to facilitate the transfer of any
license, permit, or leasehold estate or interest of any Issuer, or compliance
with any "change of control" or like restriction with respect thereto; and
(v) use its reasonable best
efforts to do or cause to be done all such other acts and things as may be
necessary to make such sale of the Collateral or any part thereof valid,
binding, and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not
be adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced. Anything in this
Section 9(d) to the contrary notwithstanding, Secured Party shall not, in
connection with any specific proposed disposition of Collateral, require
registration of the Collateral under the Securities Act unless, in the opinion
of experienced securities counsel for Secured Party, such registration is
reasonably necessary to ensure that such specific proposed distribution does
not violate the Securities Act.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM
EXTENT PERMITTED BY LAW: (I) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL
HEARING PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE
COLLATERAL AS PROVIDED IN THIS SECTION; (II) ALL RIGHTS OF REDEMPTION, STAY, OR
APPRAISAL THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE
OF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (III) EXCEPT AS SET
FORTH IN SUBSECTION (A) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. Application of Proceeds. After the occurrence and
during the continuance of an Event of Default, any cash held by Secured Party
as Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in Section 9 shall be applied from time to time by
Secured Party as provided in the Loan Agreement.
11. Duties of Secured Party. The powers conferred on
Secured Party hereunder are solely to protect its interests in the Collateral
and shall not impose on it any duty to exercise such powers. Except as
provided in Section 9-207 of the Code, Secured Party shall have no duty
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with respect to the Collateral or any responsibility for taking any necessary
steps to preserve rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS
AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF
THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT
ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE
TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
FOOTHILL'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO
BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR PROPERTY MAY BE FOUND. EACH OF
PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12.
13. Amendments; Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Pledgor herefrom
shall in any event be effective unless the same shall be in writing and signed
by Secured Party and Pledgor, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of Secured Party to exercise, and no delay in
exercising any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right under
this Agreement, any other Loan Document, or otherwise with respect to any of
the Secured Obligations preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided for in this Agreement or
otherwise with respect to any of the Secured Obligations are cumulative and not
exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided
herein, any notice or other communication herein required or permitted to be
given shall be in writing and shall be delivered in the manner set forth in the
Loan Agreement.
15. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall: (i) remain
in full force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon Pledgor and its
successors and permitted assigns; and (iii) inure to the benefit of Secured
Party and its successors, transferees, and assigns. Upon the indefeasible
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payment in full of the Secured Obligations, including the cash
collateralization, expiration, or cancellation of all Secured Obligations, if
any, consisting of letters of credit, and the full and final termination of any
commitment to extend any financial accommodations under the Loan Agreement, the
security interests granted herein shall automatically terminate and all rights
to the Collateral shall revert to Pledgor. Upon any such termination, Secured
Party will, at Pledgor's expense, execute and deliver to Pledgor such documents
as Pledgor shall reasonably request to evidence such termination. Such
documents shall be prepared by Pledgor and shall be in form and substance
reasonably satisfactory to Secured Party.
16. Security Interest Absolute. To the maximum extent
permitted by law, all rights of Secured Party, all security interests
hereunder, and all obligations of Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any
of the Secured Obligations or any other agreement or instrument relating
thereto, including any of the Loan Documents;
(b) any change in the time, manner, or place of
payment of, or in any other term of, all or any of the Secured Obligations, or
any other amendment or waiver of or any consent to any departure from any of
the Loan Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of
any other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise
constitute a defense available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
17. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
18. Severability. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
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19. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same Agreement.
20. Waiver of Marshaling. Each of Pledgor and Secured
Party acknowledges and agrees that in exercising any rights under or with
respect to the Collateral: (i) Secured Party is under no obligation to marshal
any Collateral; and (ii) may, in its absolute discretion, realize upon the
Collateral in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
21. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED
PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
22. Waivers.
(a) To the maximum extent permitted by law, Pledgor
hereby waives: (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Loan Agreement, or
the creation or existence of any Secured Obligations; (iii) notice of the
amount of the Secured Obligations, subject, however, to Section 2.6 of the Loan
Agreement and Pledgor's right to make inquiry of Secured Party to ascertain the
amount of the Secured Obligations at any reasonable time; (iv) notice of any
adverse change in the financial condition of Borrower or of any other fact that
might increase Pledgor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Pledgor under this Agreement or any other
Loan Document) and demands to which Pledgor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Pledgor waives the right by statute or otherwise to require Secured Party to
institute suit against Borrower or to exhaust any rights and remedies which
Secured Party has or may have against Borrower. Pledgor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
indefeasibly paid) of Borrower or by reason of the cessation from any cause
(other than that the Secured Obligations shall have been fully and finally
indefeasibly paid) whatsoever of the liability of Borrower in respect thereof.
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(c) To the maximum extent permitted by law, Pledgor
hereby waives: (i) any rights to assert against Secured Party any defense
(legal or equitable), set-off, counterclaim, or claim which Pledgor may now or
at any time hereafter have against Borrower or any other party liable to
Secured Party on account of or with respect to the Secured Obligations; (ii)
any defense, set-off, counterclaim, or claim, of any kind or nature, arising
directly or indirectly from the present or future sufficiency, validity, or
enforceability of the Secured Obligations; (iii) any defense arising by reason
of any claim or defense based upon an election of remedies by Secured Party
including, to the extent applicable, the provisions of Section Section 580d
and 726 of the California Code of Civil Procedure, or any similar law of
California or any other jurisdiction; (iv) the benefit of any statute of
limitations affecting Pledgor's liability hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law, Pledgor
hereby waives any right of subrogation Pledgor has or may have as against
Borrower with respect to the Secured Obligations. In addition, Pledgor hereby
waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Secured Obligations. Pledgor also hereby waives any right
to proceed or to seek recourse against or with respect to any property or asset
of Borrower. Pledgor hereby agrees that, in light of the waivers contained in
this Section, Pledgor shall not be deemed to be a "creditor" (as that term is
defined in the Bankruptcy Code or otherwise) of Borrower, whether for purposes
of the application of Sections 547 or 550 of the United States Bankruptcy Code
or otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Secured Party may
elect, in its sole discretion, upon a default with respect to the Secured
Obligations, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Agreement, without diminishing or affecting the liability of Pledgor hereunder.
Pledgor understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Secured Party nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of
subrogation, reimbursement, contribution, or indemnity of Pledgor against
Borrower or guarantors or sureties, and (b) absent the waiver given by Pledgor
herein, such an election might estop Secured Party from enforcing this
Agreement against Pledgor. Understanding the foregoing, and understanding that
Pledgor is hereby relinquishing a defense to the enforceability of this
Agreement, Pledgor hereby waives any right to assert against Secured Party any
defense to the enforcement of this Agreement, whether denominated "estoppel" or
otherwise, based on or arising from an election by Secured Party nonjudicially
to foreclose any such mortgage or deed of trust. Pledgor understands that the
effect of the foregoing waiver may be that Pledgor may have liability hereunder
for amounts with respect to which Pledgor may be left without rights of
subrogation, reimbursement, contribution, or indemnity against Borrower or
guarantors or sureties. Pledgor also agrees that the "fair market value"
provisions of Section 580a of the California Code of Civil Procedure shall have
no applicability with respect to the determination of Pledgor's liability under
this Agreement.
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(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE Section
Section 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848,
2849, AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE
Section Section 580A, 580B, 580C, 580D, AND 726, AND, TO THE EXTENT
APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES ALL RIGHTS
AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY SECURED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED PLEDGOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE BORROWER BY THE OPERATION OF SECTION
580D OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
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IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
FOOTHILL CAPITAL CORPORATION FAMILY RESTAURANTS, INC.,
a California corporation a Delaware corporation
By_________________________ By_________________________
Title: Title:
-S-1-
<PAGE> 18
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: FAMILY RESTAURANTS, INC.
Pledged Shares
<TABLE>
<CAPTION>
Former Name, if Pledgor's
Certificate any, in which Percentage Jurisdiction of
Issuer Number of Shares Class Number(s) Certificate Issued Ownership Incorporation
- ------ ---------------- ----- ----------- ------------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
FRI-MRD common 100% Delaware
Corporation
</TABLE>
<PAGE> 19
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: FAMILY RESTAURANT, INC., a Delaware corporation
Address of Chief Executive Office:
Family Restaurants, Inc.
Executive Headquarters
18831 Von Karman Avenue
Irvine, California 92612
<PAGE> 20
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: [None.]
<PAGE> 1
EXHIBIT 10(cc)
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
January 10, 1997, is entered into between FRI-MRD CORPORATION, a Delaware
corporation ("Pledgor"), and Foothill Capital Corporation, a California
corporation ("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns: (i) One Hundred (100)
shares of the common stock, of EL TORITO RESTAURANTS, INC., a Delaware
corporation ("El Torito"); (ii) One Thousand (1,000) shares of the common
stock, of CHI-CHI'S INC., a Delaware corporation ("Chi- Chi's"); (iii) One
Hundred (100) shares of the common stock, of FRI-ADMIN CORPORATION, a Delaware
corporation ("Admin"); and (iv) One Hundred (100) shares of the common stock,
of EL TORITO FRANCHISING COMPANY, a Delaware corporation ("Franchising");
WHEREAS, Pledgor, Borrower, Secured Party, and the other
parties thereto have entered into that certain Loan and Security Agreement (the
"Loan Agreement"), of even date herewith, pursuant to which Secured Party has
agreed to make certain financial accommodations to Pledgor and Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Pledgor and Borrower pursuant to the Loan Agreement,
Pledgor desires to pledge, grant, transfer, and assign to Secured Party a
security interest in the Collateral (as hereinafter defined) to secure the
Secured Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:
1. Definitions and Construction.
(a) Definitions. All initially capitalized terms
used herein and not otherwise defined herein shall have the meaning ascribed
thereto in the Loan Agreement. As used in this Agreement:
"Agreement" shall mean this Stock Pledge
Agreement.
"Chief Executive Office" shall mean where
Pledgor is deemed located pursuant to section 9-103(3)(d) of the Code.
"Collateral" shall mean the Pledged Shares,
the Future Rights, and the Proceeds, collectively.
1
<PAGE> 2
"Future Rights" shall mean: (a) to the extent
of Pledgor's interest therein, all shares of stock (other than Pledged Shares)
of the Issuers, and all securities convertible or exchangeable into, and all
warrants, options, or other rights to purchase, shares of stock of the Issuers;
(b) to the extent of Pledgor's interest therein, all shares of, all securities
convertible or exchangeable into, and all warrants, options, or other rights to
purchase shares of stock of any Person in which Pledgor, after the date of this
Agreement, acquires a direct equity interest, irrespective of whether such
Person is or becomes a Subsidiary of Pledgor; and (c) the certificates or
instruments representing such additional shares, convertible or exchangeable
securities, warrants, and other rights and all dividends, cash, options,
warrants, rights, instruments, and other property or proceeds from time to time
received, receivable, or otherwise distributed in respect of or in exchange for
any or all of such shares.
"Guaranty" means that certain General
Continuing Guaranty dated of even date herewith made by Pledgor for the benefit
of Secured Party, as the same may from time to time be amended, modified,
supplemented, renewed, or reinstated.
"Holder" and "Holders" shall have the meanings
ascribed thereto in Section 3 of this Agreement.
"Issuers" shall mean El Torito, Chi-Chi's,
Admin, Franchising, and any other Person identified as an Issuer on Schedule A
attached hereto (or any addendum thereto), and any successors thereto, whether
by merger or otherwise.
"Lien" shall mean any lien, mortgage, pledge,
assignment (including any assignment of rights to receive payments of money),
security interest, charge, or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, or any agreement to give any security interest).
"Loan Agreement" shall have the meaning
ascribed thereto in the recitals to this Agreement.
"Permitted Liens" means: (a) Liens granted
to Secured Party or any assignee under the Loan Documents, (b) Liens for unpaid
taxes, assessments, and government charges that either (i) are not yet due and
payable or (ii) are the subject of Permitted Protests, (c) Liens arising by
operation of law, incurred in the ordinary course of business of Pledgor and
not in connection with the borrowing of money, and which Liens either (i) are
for sums not yet due and payable, (ii) are the subject of Permitted Protests,
or (iii) in the aggregate are de minimis in amount, (d) Liens of or resulting
from any judgment or award that does not constitute an Event of Default, and
(e) other Liens imposed by operation of law that do not materially affect
Pledgor's ability to perform its obligations under the Loan Documents.
"Permitted Protest" means the right of
Pledgor to protest any Lien (other than any such Lien that secures the
Obligations), tax (other than taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) if required in
accordance
2
<PAGE> 3
with GAAP, a reserve with respect to such obligation is established on the
books of Pledgor, as applicable under the circumstances, in accordance with
GAAP, and (b) any such protest is instituted and diligently prosecuted by
Pledgor, as applicable under the circumstances, in good faith.
"Pledged Shares" shall mean all of the shares
described in the recitals to this Agreement and any other shares identified as
Pledged Shares on Schedule A attached hereto (or any addendum thereto).
"Pledgor" shall have the meaning ascribed
thereto in the preamble to this Agreement.
"Proceeds" shall mean all proceeds (including
proceeds of proceeds) of the Pledged Shares and Future Rights including all:
(a) rights, benefits, distributions, premiums, profits, dividends, interest,
cash, instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for,
any of the Pledged Shares, Future Rights, or proceeds thereof (including any
cash, stock, or other securities or instruments issued after any
recapitalization, readjustment, reclassification, merger or consolidation with
respect to the Issuers and any claims against financial intermediaries under
Section 8-313(2) of the Code or otherwise); (b) "proceeds," as such term is
used in Section 9-306 of the Code; (c) proceeds of any insurance, indemnity,
warranty, or guaranty (including guaranties of delivery) payable from time to
time with respect to any of the Pledged Shares, Future Rights, or proceeds
thereof; (d) payments (in any form whatsoever) made or due and payable to
Pledgor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Pledged Shares,
Future Rights, or proceeds thereof; and (e) other amounts from time to time
paid or payable under or in connection with any of the Pledged Shares, Future
Rights, or proceeds thereof.
"Secured Obligations" shall mean all
liabilities, obligations, or undertakings owing by Pledgor to Secured Party of
any kind or description arising out of or outstanding under, advanced or issued
pursuant to, or evidenced by the Guaranty, any other Loan Document heretofore,
herewith, or hereafter executed by Pledgor, or this Agreement, irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now
existing or hereafter arising, and including all interest (including interest
that accrues after the filing of a case under the Bankruptcy Code) and any and
all reasonable out-of-pocket costs, fees (including reasonable attorneys fees),
and expenses which Pledgor is required to pay pursuant to any of the foregoing,
by law, or otherwise.
"Secured Party" shall have the meaning
ascribed thereto in the preamble to this Agreement, together with its
successors or assigns.
3
<PAGE> 4
"Securities Act" shall have the meaning
ascribed thereto in Section 9(c) of this Agreement.
(b) Construction.
(i) Unless the context of this
Agreement clearly requires otherwise, references to the plural include the
singular and to the singular include the plural, the part includes the whole,
the term "including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or."
The words "hereof," "herein," "hereby," "hereunder," and other similar terms in
this Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection, exhibit,
and schedule references are to this Agreement unless otherwise specified. All
of the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference to any of the following
documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement, the Loan Agreement, or any of the other Loan
Documents.
(ii) This Agreement has been
reviewed by both of the parties and their respective counsel and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of the parties hereto.
(iii) In the event of any direct
conflict between the express terms and provisions of this Agreement and of the
Loan Agreement, the terms and provisions of the Loan Agreement shall control.
2. Pledge. As security for the prompt payment and
performance of the Secured Obligations in full by Pledgor when due, whether at
stated maturity, by acceleration or otherwise (including amounts that would
become due but for the operation of the provisions of the Bankruptcy Code),
Pledgor hereby pledges, grants, transfers, and assigns to Secured Party a
security interest in all of Pledgor's right, title, and interest in and to the
Collateral.
3. Delivery and Registration of Collateral.
(a) All certificates or instruments representing
or evidencing the Collateral shall be promptly delivered by Pledgor to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to Secured Party.
(b) After the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right, at any
time in its discretion and without notice to
4
<PAGE> 5
Pledgor, to transfer to or to register on the books of the Issuers (or of any
other Person maintaining records with respect to the Collateral) in the name of
Secured Party or any of its nominees any or all of the Collateral. In
addition, Secured Party shall have the right, at any time after the occurrence
and during the continuation of an Event of Default, to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
(c) If, at any time and from time to time, any
Collateral (including any certificate or instrument representing or evidencing
any Collateral) is in the possession of a Person other than Secured Party or
Pledgor (a "Holder"), then Pledgor shall promptly, at Secured Party's option,
either cause such Collateral to be delivered into Secured Party's possession,
or execute and deliver to such Holder a written notification/instruction, and
take all other reasonable steps necessary to perfect the security interest of
Secured Party in such Collateral, including obtaining from such Holder a
written acknowledgement that such Holder holds such Collateral for Secured
Party, all pursuant to Section Section 8-313 and 8-321 of the Code or other
applicable law governing the perfection of Secured Party's security interest in
the Collateral in the possession of such Holder. Each such
notification/instruction and acknowledgement shall be in form and substance
reasonably satisfactory to Secured Party.
(d) Any and all Collateral (including dividends,
interest, and other cash distributions) at any time received or held by Pledgor
shall be so received or held in trust for Secured Party, shall be segregated
from other funds and property of Pledgor and shall be forthwith delivered to
Secured Party in the same form as so received or held, with any necessary
endorsements; provided that dividends or distributions received by Pledgor, if
and to the extent they are not prohibited by the Loan Agreement, may be
retained by Pledgor in accordance with Section 4.
(e) If at any time and from time to time any
Collateral consists of an uncertificated security or a security in book entry
form, then Pledgor shall promptly cause such Collateral to be registered or
entered, as the case may be, in the name of Secured Party, or otherwise cause
Secured Party's security interest thereon to be perfected in accordance with
applicable law.
4. Voting Rights and Dividends.
(a) So long as no Triggering Event exists and is
continuing or would result therefrom, and except to the extent that the
Collateral, or any portion thereof, shall have been disposed of by Secured
Party following the occurrence and during the continuance of an Event of
Default in connection with the exercise by Secured Party of its remedies as the
holder of a security interest therein, Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the express terms of the
Loan Documents and shall be entitled to receive and retain any dividends,
interest, or distributions paid in respect of the Collateral in accordance with
the terms of the Loan Agreement and the Loan Documents.
5
<PAGE> 6
(b) Upon the occurrence and during the
continuance of any Triggering Event, all rights of Pledgor to exercise the
voting and other consensual rights or receive and retain cash dividends or
distributions that it would otherwise be entitled to exercise or receive and
retain, as applicable pursuant to Section 4(a), shall cease, and all such
rights shall thereupon become vested in Secured Party, who shall thereupon have
the sole right to exercise such voting or other consensual rights and to
receive and retain such cash dividends and distributions. Pledgor shall
execute and deliver (or cause to be executed and delivered) to Secured Party
all such proxies and other instruments as Secured Party may reasonably request
for the purpose of enabling Secured Party to exercise the voting and other
rights which it is entitled to exercise and to receive the dividends and
distributions that it is entitled to receive and retain pursuant to the
preceding sentence.
5. Representations and Warranties. Pledgor represents,
warrants, and covenants as follows:
(a) Pledgor has taken all steps it deems
necessary or appropriate to be informed on a continuing basis of changes or
potential changes affecting the Collateral (including rights of conversion and
exchange, rights to subscribe, payment of dividends, reorganizations or
recapitalization, tender offers and voting rights), and Pledgor agrees that
Secured Party shall have no responsibility or liability for informing Pledgor
of any such changes or potential changes or for taking any action or omitting
to take any action with respect thereto;
(b) All information herein or hereafter supplied
to Secured Party by or on behalf of Pledgor in writing with respect to the
Collateral is, or in the case of information hereafter supplied will be,
accurate and complete in all material respects;
(c) Pledgor is and will be the sole record holder
and beneficial owner (provided that, for purposes of determining beneficial
ownership of a Person, indirect ownership through ownership of interests in one
or more intermediate Persons, that in turn own direct interests in such Person
first referred to, shall not be deemed beneficial ownership) of the Collateral
(including the Pledged Shares and all other Collateral acquired by Pledgor
after the date hereof) free and clear of any adverse claim, Lien, or other
right, title, or interest of any party other than Permitted Liens;
(d) This Agreement, and the delivery to Secured
Party of the Pledged Shares representing Collateral (or the delivery to all
Holders of the Pledged Shares representing Collateral of the
notification/instruction referred to in Section 3 of this Agreement), creates a
valid, perfected, and first priority security interest in one hundred percent
(100%) of the Pledged Shares in favor of Secured Party securing payment of the
Secured Obligations, and all actions necessary to achieve such perfection have
been duly taken;
(e) Schedule A to this Agreement is true and
correct and complete in all material respects; without limiting the generality
of the foregoing: (i) all the Pledged Shares are in certificated form, and,
except to the extent registered in the name of Secured Party or its
6
<PAGE> 7
nominee pursuant to the provisions of this Agreement, are registered in the
name of Pledgor; and (ii) the Pledged Shares as to each of the Issuers
constitute at least the percentage of all the fully diluted issued and
outstanding shares of stock of such Issuer as set forth in Schedule A to this
Agreement;
(f) There are no presently existing Future Rights
or Proceeds owned by Pledgor, except as set forth in Schedule C hereto;
(g) The Pledged Shares have been duly authorized
and validly issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant
to this Agreement nor the extensions of credit related to the Secured
Obligations violates Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
6. Further Assurances.
(a) Pledgor agrees that from time to time, at the
expense of Pledgor, Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
reasonably desirable, as Secured Party may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will: (i) at the request of Secured Party, mark
conspicuously each of its records pertaining to the Collateral with a legend,
in form and substance reasonably satisfactory to Secured Party, indicating that
such Collateral is subject to the security interest granted hereby; (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
reasonably desirable, as Secured Party may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby;
(iii) allow inspection of the Collateral by Secured Party or Persons designated
by Secured Party (subject to any applicable restrictions or limitations on
inspection rights set forth in any of the Loan Documents); and (iv) appear in
and defend any action or proceeding that may affect Pledgor's title to or
Secured Party's security interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party to
file one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of Pledgor
where permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will furnish to Secured Party, upon
the reasonable request of Secured Party: (i) a certificate executed by an
authorized officer of Pledgor, and dated as of the date of delivery to Secured
Party, itemizing in such detail as Secured Party reasonably may request, the
Collateral which, as of the date of such certificate, has been delivered to
Secured
7
<PAGE> 8
Party by Pledgor pursuant to the provisions of this Agreement; and (ii) such
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party
reasonably may request.
7. Covenants of Pledgor. Pledgor shall:
(a) At all times keep at least one complete set
of its records concerning substantially all of the Collateral at its Chief
Executive Office as set forth in Schedule B hereto, and not change the location
of its Chief Executive Office or such records without giving Secured Party at
least thirty (30) days prior written notice thereof;
(b) Upon receipt by Pledgor of any material
written notice, report, or other written communication from any of the Issuers
or any Holder relating to all or any part of the Collateral, deliver such
notice, report or other communication to Secured Party as soon as possible, but
in no event later than five (5) days following the receipt thereof by Pledgor.
8. Secured Party as Pledgor's Attorney-in-Fact.
(a) Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, with full authority in the place and stead
of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to
time at Secured Party's reasonable discretion, to take any action and to
execute any instrument that Secured Party may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including: (i) after
the occurrence and during the continuance of a Triggering Event, to receive,
endorse, and collect all instruments made payable to Pledgor representing any
dividend, payment, or other distribution in respect of the Collateral or any
part thereof to the extent permitted hereunder and to give full discharge for
the same and to execute and file governmental notifications and reporting
forms; (ii) to issue any notifications/instructions Secured Party reasonably
deems necessary pursuant to Section 3 of this Agreement; or (iii) after the
occurrence and during the continuance of an Event of Default, to arrange for
the transfer of the Collateral on the books of any of the Issuers or any other
Person to the name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured
Party as Pledgor's attorney-in-fact in subsection (a), Pledgor hereby
irrevocably appoints Secured Party as Pledgor's agent and attorney-in-fact,
upon the occurrence and during the continuance of an Event of Default, to make,
execute and deliver any and all documents and writings which may be necessary
or appropriate for approval of, or be required by, any regulatory authority
located in any city, county, state or country where Pledgor or any of the
Issuers engage in business, in order to transfer or to effectively transfer any
of the Pledged Shares or otherwise enforce Secured Party's rights hereunder.
8
<PAGE> 9
9. Remedies upon Default. Upon the occurrence and
during the continuance of an Event of Default:
(a) Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the
affected items of Collateral), and Secured Party may also without notice
(except as specified below) sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker's board or at
any of Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Secured Party in good faith believes to be commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Collateral. To the maximum extent permitted by applicable law, Secured Party
may be the purchaser of any or all of the Collateral at any such sale and shall
be entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such public
sale, to use and apply all or any part of the Secured Obligations as a credit
on account of the purchase price of any Collateral payable at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from
any claim or right on the part of Pledgor, and Pledgor hereby waives (to the
extent permitted by law) all rights of redemption, stay, or appraisal that it
now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten (10) calendar days notice to
Pledgor of the time and place of any public sale or the time after which a
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the maximum extent permitted by law,
Pledgor hereby waives any claims against Secured Party arising because the
price at which any Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale, even if
Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree.
(b) Pledgor hereby agrees that any sale or other
disposition of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, or other reputable
financial institutions in the City of Los Angeles, California in disposing of
property similar to the Collateral shall be deemed to be commercially
reasonable.
(c) Pledgor hereby acknowledges that the sale by
Secured Party of any Collateral pursuant to the terms hereof in compliance with
the Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require strict limitations as to the manner in which Secured Party or
any subsequent transferee of the Collateral may dispose thereof. Pledgor
acknowledges and agrees that in order to protect Secured Party's interest it
may be necessary to sell the Collateral at a price less than the maximum
9
<PAGE> 10
price attainable if a sale were delayed or were made in another manner, such as
a public offering under the Securities Act. Pledgor has no objection to sale
in such a manner and agrees that Secured Party shall have no obligation to
obtain the maximum possible price for the Collateral. Without limiting the
generality of the foregoing, Pledgor agrees that, upon the occurrence and
during the continuation of an Event of Default, Secured Party may, subject to
applicable law, from time to time attempt to sell all or any part of the
Collateral by a private placement, restricting the bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution. In so doing, Secured Party may
solicit offers to buy the Collateral or any part thereof for cash, from a
limited number of investors deemed by Secured Party, in its reasonable
judgment, to be institutional investors or other responsible parties who might
be interested in purchasing the Collateral. If Secured Party shall solicit
such offers in such fashion, then the good faith acceptance by Secured Party of
an offer received in response to such solicitation shall be deemed to be a
commercially reasonable method of disposition of the Collateral.
(d) If Secured Party shall determine to exercise
its right to sell all or any portion of the Collateral pursuant to this
Section, Pledgor agrees that, upon request of Secured Party, Pledgor will, at
its own expense:
(i) use its reasonable best
efforts to execute and deliver, and cause the Issuers and the directors and
officers thereof to execute and deliver, all such instruments and documents,
and to do or cause to be done all such other acts and things, as may be
necessary or advisable, in the opinion of experienced securities counsel for
Secured Party, to register such Collateral under the provisions of the
Securities Act, and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectuses which, in the opinion of experienced
securities counsel for Secured Party, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(ii) use its reasonable best
efforts to qualify the Collateral under the state securities laws or "Blue Sky"
laws of each state reasonably requested in writing by Secured Party and to
obtain all necessary governmental approvals for the sale of the Collateral, as
reasonably requested by Secured Party; provided, that no Issuer shall be
required to qualify generally to do business in any state where it is not so
qualified, or to take any action that would subject it to taxation or general
service of process in any such state where it is not then so subject;
(iii) if Pledgor is in control
(within the meaning of the Securities Act) of an Issuer, use its reasonable
best efforts to cause such Issuer to make available to its security holders, as
soon as practicable, an earnings statement which will satisfy the provisions of
Section 11(a) of the Securities Act;
10
<PAGE> 11
(iv) use its reasonable best
efforts to execute and deliver, or cause the officers and directors of the
Issuers to execute and deliver, to any person, entity or governmental authority
as Secured Party may choose, any and all documents and writings which, in
Secured Party's reasonable judgment, may be necessary or appropriate for
approval, or be required by, any regulatory authority located in any city,
county, state or country where Pledgor or the Issuers engage in business, in
order to transfer or to more effectively transfer the Pledged Shares or
otherwise enforce Secured Party's rights hereunder, or in conjunction with such
transfer of the Pledged Shares, in order to facilitate the transfer of any
license, permit, or leasehold estate or interest of any Issuer, or compliance
with any "change of control" or like restriction with respect thereto; and
(v) use its reasonable best
efforts to do or cause to be done all such other acts and things as may be
necessary to make such sale of the Collateral or any part thereof valid,
binding, and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not
be adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced. Anything in this
Section 9(d) to the contrary notwithstanding, Secured Party shall not, in
connection with any specific proposed disposition of Collateral, require
registration of the Collateral under the Securities Act unless, in the opinion
of experienced securities counsel for Secured Party, such registration is
reasonably necessary to ensure that such specific proposed distribution does
not violate the Securities Act.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM
EXTENT PERMITTED BY LAW: (I) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL
HEARING PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE
COLLATERAL AS PROVIDED IN THIS SECTION; (II) ALL RIGHTS OF REDEMPTION, STAY, OR
APPRAISAL THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE
OF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (III) EXCEPT AS SET
FORTH IN SUBSECTION (A) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. Application of Proceeds. After the occurrence and
during the continuance of an Event of Default, any cash held by Secured Party
as Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in Section 9 shall be applied from time to time by
Secured Party as provided in the Loan Agreement.
11. Duties of Secured Party. The powers conferred on
Secured Party hereunder are solely to protect its interests in the Collateral
and shall not impose on it any duty to exercise such powers. Except as
provided in Section 9-207 of the Code, Secured Party shall have no duty
11
<PAGE> 12
with respect to the Collateral or any responsibility for taking any necessary
steps to preserve rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS
AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF
THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT
ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE
TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
FOOTHILL'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE FOOTHILL ELECTS TO
BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR PROPERTY MAY BE FOUND. EACH OF
PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12.
13. Amendments; Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by Pledgor herefrom
shall in any event be effective unless the same shall be in writing and signed
by Secured Party and Pledgor, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of Secured Party to exercise, and no delay in
exercising any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right under
this Agreement, any other Loan Document, or otherwise with respect to any of
the Secured Obligations preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided for in this Agreement or
otherwise with respect to any of the Secured Obligations are cumulative and not
exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided
herein, any notice or other communication herein required or permitted to be
given shall be in writing and shall be delivered in the manner set forth in the
Loan Agreement.
15. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall: (i) remain
in full force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon Pledgor and its
successors and permitted assigns; and (iii) inure to the benefit of Secured
Party and its successors, transferees, and assigns. Upon the indefeasible
12
<PAGE> 13
payment in full of the Secured Obligations, including the cash
collateralization, expiration, or cancellation of all Secured Obligations, if
any, consisting of letters of credit, and the full and final termination of any
commitment to extend any financial accommodations under the Loan Agreement, the
security interests granted herein shall automatically terminate and all rights
to the Collateral shall revert to Pledgor. Upon any such termination, Secured
Party will, at Pledgor's expense, execute and deliver to Pledgor such documents
as Pledgor shall reasonably request to evidence such termination. Such
documents shall be prepared by Pledgor and shall be in form and substance
reasonably satisfactory to Secured Party.
16. Security Interest Absolute. To the maximum extent
permitted by law, all rights of Secured Party, all security interests
hereunder, and all obligations of Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any
of the Secured Obligations or any other agreement or instrument relating
thereto, including any of the Loan Documents;
(b) any change in the time, manner, or place of
payment of, or in any other term of, all or any of the Secured Obligations, or
any other amendment or waiver of or any consent to any departure from any of
the Loan Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of
any other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise
constitute a defense available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
17. Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
18. Severability. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
13
<PAGE> 14
19. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same Agreement.
20. Waiver of Marshaling. Each of Pledgor and Secured
Party acknowledges and agrees that in exercising any rights under or with
respect to the Collateral: (i) Secured Party is under no obligation to marshal
any Collateral; and (ii) may, in its absolute discretion, realize upon the
Collateral in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
21. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED
PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
22. Waivers.
(a) To the maximum extent permitted by law, Pledgor
hereby waives: (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Loan Agreement, or
the creation or existence of any Secured Obligations; (iii) notice of the
amount of the Secured Obligations, subject, however, to Section 2.6 of the Loan
Agreement and Pledgor's right to make inquiry of Secured Party to ascertain the
amount of the Secured Obligations at any reasonable time; (iv) notice of any
adverse change in the financial condition of Borrower or of any other fact that
might increase Pledgor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Pledgor under this Agreement or any other
Loan Document) and demands to which Pledgor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Pledgor waives the right by statute or otherwise to require Secured Party to
institute suit against Borrower or to exhaust any rights and remedies which
Secured Party has or may have against Borrower. Pledgor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
indefeasibly paid) of Borrower or by reason of the cessation from any cause
(other than that the Secured Obligations shall have been fully and finally
indefeasibly paid) whatsoever of the liability of Borrower in respect thereof.
14
<PAGE> 15
(c) To the maximum extent permitted by law, Pledgor
hereby waives: (i) any rights to assert against Secured Party any defense
(legal or equitable), set-off, counterclaim, or claim which Pledgor may now or
at any time hereafter have against Borrower or any other party liable to
Secured Party on account of or with respect to the Secured Obligations; (ii)
any defense, set-off, counterclaim, or claim, of any kind or nature, arising
directly or indirectly from the present or future sufficiency, validity, or
enforceability of the Secured Obligations; (iii) any defense arising by reason
of any claim or defense based upon an election of remedies by Secured Party
including, to the extent applicable, the provisions of Section Section 580d
and 726 of the California Code of Civil Procedure, or any similar law of
California or any other jurisdiction; (iv) the benefit of any statute of
limitations affecting Pledgor's liability hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law, Pledgor
hereby waives any right of subrogation Pledgor has or may have as against
Borrower with respect to the Secured Obligations. In addition, Pledgor hereby
waives any right to proceed against Borrower, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims (irrespective of whether direct or indirect, liquidated or contingent),
with respect to the Secured Obligations. Pledgor also hereby waives any right
to proceed or to seek recourse against or with respect to any property or asset
of Borrower. Pledgor hereby agrees that, in light of the waivers contained in
this Section, Pledgor shall not be deemed to be a "creditor" (as that term is
defined in the Bankruptcy Code or otherwise) of Borrower, whether for purposes
of the application of Sections 547 or 550 of the United States Bankruptcy Code
or otherwise.
(e) If any of the Secured Obligations at any time are
secured by a mortgage or deed of trust upon real property, Secured Party may
elect, in its sole discretion, upon a default with respect to the Secured
Obligations, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Agreement, without diminishing or affecting the liability of Pledgor hereunder.
Pledgor understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Secured Party nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of
subrogation, reimbursement, contribution, or indemnity of Pledgor against
Borrower or guarantors or sureties, and (b) absent the waiver given by Pledgor
herein, such an election might estop Secured Party from enforcing this
Agreement against Pledgor. Understanding the foregoing, and understanding that
Pledgor is hereby relinquishing a defense to the enforceability of this
Agreement, Pledgor hereby waives any right to assert against Secured Party any
defense to the enforcement of this Agreement, whether denominated "estoppel" or
otherwise, based on or arising from an election by Secured Party nonjudicially
to foreclose any such mortgage or deed of trust. Pledgor understands that the
effect of the foregoing waiver may be that Pledgor may have liability hereunder
for amounts with respect to which Pledgor may be left without rights of
subrogation, reimbursement, contribution, or indemnity against Borrower or
guarantors or sureties. Pledgor also agrees that the "fair market value"
provisions of Section 580a of the California Code of Civil Procedure shall have
no applicability with respect to the determination of Pledgor's liability under
this Agreement.
15
<PAGE> 16
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER
OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE Section
Section 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848,
2849, AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE
Section Section 580A, 580B, 580C, 580D, AND 726, AND, TO THE EXTENT
APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES ALL RIGHTS
AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY SECURED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED PLEDGOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE BORROWER BY THE OPERATION OF SECTION
580D OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
16
<PAGE> 17
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
FOOTHILL CAPITAL FRI-MRD CORPORATION,
CORPORATION, a Delaware corporation
a California corporation
By_______________________________ By____________________________
Title: Title:
<PAGE> 18
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: FRI-MRD CORPORATION
<TABLE>
<CAPTION>
Pledged Shares
--------------
Former Name, if Pledgor's
Number of Certificate any, in which Percentage Jurisdiction of
Issuer Shares Class Numbers Certificate Issued Ownership Incorporation
------ ------ ----- ------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
EL TORITO RESTAURANTS, INC. common 100% Delaware
CHI-CHI'S INC. common 100% Delaware
FRI-ADMIN CORPORATION common 100% Delaware
EL TORITO FRANCHISING COMPANY common 100% Delaware
</TABLE>
<PAGE> 19
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: FRI-MRD CORPORATION, a Delaware corporation
Address of Chief Executive Office:
FRI-MRD Corporation
c/o Family Restaurants, Inc.
Executive Headquarters
18831 Von Karman Avenue
Irvine, California 92612
<PAGE> 20
SCHEDULE C
TO
STOCK PLEDGE AGREEMENT
Existing Future Rights and Proceeds: [None.]
<PAGE> 1
EXHIBIT 10(dd)
TRADEMARK SECURITY AGREEMENT
THIS TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as
of January 10, 1997, is made by CHI-CHI'S, INC., a Delaware corporation
("Debtor"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation
("Secured Party").
RECITALS
A. Debtor and El Torito Restaurants, Inc. (individually
and collectively, jointly and severally, "Borrower"), Secured Party, and the
other parties thereto have entered into that certain Loan and Security
Agreement, dated as of the date hereof (as amended, restated, modified, renewed
or extended from time to time, the "Loan Agreement"), pursuant to which Secured
Party has agreed to make certain financial accommodations to Borrower, and
Borrower has granted to Secured Party a security interest in (among other
things) all of Borrower's general intangibles.
B. Pursuant to the Loan Agreement and as one of the
conditions precedent to the obligations of Secured Party under the Loan
Agreement, Debtor has agreed to execute and deliver this Agreement to Secured
Party for filing with the United States Patent and Trademark Office and,
subject to the last sentence of Section 3 hereof, as reasonably required by
Foothill, with any other relevant recording systems in any domestic or foreign
jurisdiction, and as further evidence of and to effectuate Secured Party's
existing security interests in the trademarks and other general intangibles
described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtor hereby agrees in favor of
Secured Party as follows:
1. Definitions; Interpretation.
(a) Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Event of Default" shall have the meaning ascribed thereto in
the Loan Agreement.
<PAGE> 2
"Lien" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"Proceeds" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts, chattel
paper, instruments, general intangibles, cash and other proceeds, payable to or
for the account of Debtor, from time to time in respect of any of the Trademark
Collateral, (ii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to or for the account of Debtor from time to time with respect
to any of the Trademark Collateral, (iii) any and all claims and payments (in
any form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trademark Collateral by any Person acting
under color of governmental authority, and (iv) any and all other amounts from
time to time paid or payable under or in connection with any of the Trademark
Collateral or for or on account of any damage or injury to or conversion of any
Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and
any successor thereto.
"Secured Obligations" means all liabilities, obligations, or
undertakings owing by Debtor to Secured Party of any kind or description
arising out of or outstanding under, advanced or issued pursuant to, or
evidenced by the Loan Agreement, the other Loan Documents heretofore, herewith
or hereafter executed by Debtor, or this Agreement, irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due
or to become due, voluntary or involuntary, whether now existing or hereafter
arising, and including all interest (including interest that accrues after the
filing of a case under the Bankruptcy Code) and any and all reasonable
out-of-pocket costs, fees (including reasonable attorneys fees), and expenses
which Debtor is required to pay pursuant to any of the foregoing, by law, or
otherwise.
"Trademark Collateral" has the meaning set forth in Section 2.
"Trademarks" has the meaning set forth in Section 2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of California.
"United States" and "U.S." each mean the United States of
America.
-2-
<PAGE> 3
(b) Terms Defined in UCC. Where applicable and
except as otherwise defined herein, terms used in this Agreement shall have the
meanings assigned to them in the UCC.
(c) Interpretation. In this Agreement, except to
the extent the context otherwise requires:
(i) Any reference to a Section or a
Schedule is a reference to a section hereof, or a schedule hereto,
respectively, and to a subsection or a clause is, unless otherwise
stated, a reference to a subsection or a clause of the Section or
subsection in which the reference appears.
(ii) The words "hereof," "herein,"
"hereto," "hereunder" and the like mean and refer to this Agreement as
a whole and not merely to the specific Section, subsection, paragraph
or clause in which the respective word appears.
(iii) The meaning of defined terms shall
be equally applicable to both the singular and plural forms of the
terms defined.
(iv) The words "including," "includes"
and "include" shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other
contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto.
(vi) References to statutes or
regulations are to be construed as including all statutory and
regulatory provisions consolidating, amending or replacing the statute
or regulation referred to.
(vii) Any captions and headings are for
convenience of reference only and shall not affect the construction of
this Agreement.
(viii) Capitalized words not otherwise
defined herein shall have the respective meanings assigned to them in
the Loan Agreement.
(ix) In the event of a direct conflict
between the terms and provisions of this Agreement and the Loan Agreement, it
is the intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan Agreement shall
control and
-3-
<PAGE> 4
govern; provided, however, that the inclusion herein of additional obligations
on the part of Debtor and supplemental rights and remedies in favor of Secured
Party (whether under California law or applicable federal law), in each case in
respect of the Trademark Collateral, shall not be deemed a conflict in the Loan
Agreement.
2. Security Interest.
(a) Assignment and Grant of Security Interest.
To secure the Secured Obligations, Debtor hereby grants, assigns, transfers and
conveys to Secured Party a continuing security interest in all of Debtor's
right, title and interest in and to the following property, whether now
existing or hereafter acquired or arising and whether registered or
unregistered (collectively, the "Trademark Collateral"):
(i) all state (including common law),
federal and foreign trademarks, service marks and trade names,
corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or business
identifiers, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, together with and including
all licenses therefor held by Debtor (unless otherwise prohibited by
any license or related licensing agreement under circumstances where
the granting of the security interest would have the effect under
applicable law of the termination or permitting termination of the
license for breach and if such breach would constitute a material
breach of such license sufficient to give rise to a right on the part
of the licensor to terminate such license or to impose liability for
not insignificant damages upon the licensee for breach of such
license), and all registrations and recordings thereof, and all
applications filed or to be filed in connection therewith, including
registrations and applications in the PTO, any State of the United
States or any other country or any political subdivision thereof, and
all extensions or renewals thereof, including without limitation any
of the foregoing identified on Schedule A hereto (as the same may be
amended, modified or supplemented from time to time), and the right
(but not the obligation) to register claims under any state or federal
trademark law or regulation or any trademark law or regulation of any
foreign country and to apply for, renew and extend any of the same, to
sue or bring opposition or cancellation proceedings in the name of
Debtor or in the name of Secured Party for past, present or future
infringement or unconsented use thereof, and all rights arising
therefrom throughout the world (collectively, the "Trademarks");
(ii) all claims, causes of action and rights to
sue for past, present or future infringement or unconsented use of any
Trademarks and all rights arising therefrom and pertaining thereto;
-4-
<PAGE> 5
(iii) all general intangibles related to or
arising out of any of the Trademarks and all the goodwill of Debtor's
business symbolized by the Trademarks or associated therewith; and
(iv) all products and Proceeds of any and all of
the foregoing.
(b) Continuing Security Interest. Debtor agrees
that this Agreement shall create a continuing security interest in the
Trademark Collateral which shall remain in effect until terminated in
accordance with Section 17.
(c) Incorporation into Loan Agreement. This
Agreement shall be fully incorporated into the Loan Agreement and all
understandings, agreements and provisions contained in the Loan Agreement shall
be fully incorporated into this Agreement. Without limiting the foregoing, the
Trademark Collateral described in this Agreement shall constitute part of the
Collateral in the Loan Agreement. The foregoing notwithstanding, nothing
herein shall be construed to prohibit any Permitted Disposition to the extent
expressly permitted in the Loan Agreement.
3. Further Assurances; Appointment of Secured Party as
Attorney-in-Fact. Debtor at its expense shall execute and deliver, or cause to
be executed and delivered, to Secured Party any and all documents and
instruments, in form and substance satisfactory to Secured Party, and take any
and all action, which Secured Party may reasonably request from time to time,
to perfect and continue perfected, maintain the priority of or provide notice
of Secured Party's security interest in the Trademark Collateral and to
accomplish the purposes of this Agreement. Secured Party shall have the right,
in the name of Debtor, or in the name of Secured Party or otherwise, without
notice to or assent by Debtor, and Debtor hereby irrevocably constitutes and
appoints Secured Party (and any of Secured Party's officers or employees or
agents designated by Secured Party) as Debtor's true and lawful
attorney-in-fact with full power and authority, (i) to sign the name of Debtor
on all or any of such documents or instruments and perform all other acts that
Secured Party deems reasonably necessary or advisable in order to perfect or
continue perfected, maintain the priority or enforceability of or provide
notice of Secured Party's security interest in, the Trademark Collateral, and
(ii) to execute any and all other documents and instruments, and to perform any
and all acts and things for and on behalf of Debtor, which Secured Party may
deem reasonably necessary or advisable to maintain, preserve and protect the
Trademark Collateral and to accomplish the purposes of this Agreement,
including (A) after the occurrence and during the continuance of any Event of
Default, to defend, settle, adjust or institute any action, suit or proceeding
with respect to the Trademark Collateral, (B) to assert or retain any rights
under any license agreement for any of the Trademark Collateral, and (C) after
the occurrence and during the continuance of any Event of Default, to execute
any and all applications, documents, papers and instruments for Secured Party
to use the Trademark Collateral, to grant or issue any exclu-
-5-
<PAGE> 6
sive or non-exclusive license (subject to the rights of any then existing
licensees) with respect to any Trademark Collateral, and to assign, convey or
otherwise transfer title in or dispose of the Trademark Collateral. The power
of attorney set forth in this Section 3, being coupled with an interest, is
irrevocable so long as this Agreement shall not have terminated in accordance
with Section 17. Anything herein to the contrary notwithstanding, unless an
Event of Default shall have occurred and be continuing, Secured Party shall not
require Debtor to record, register, or file this Agreement with any foreign
recording system (meaning for purposes of this sentence any recording,
registration, or filing system pertaining to trademarks, service marks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, source or business identifiers,
designs, other general intangibles of like nature, or licenses with respect to
any thereof, not maintained by the United States, any State thereof, or any
political subdivision of any thereof, or any agency or instrumentality of any
thereof), or otherwise to record, register, or file the security interest of
Secured Party in the Trademark Collateral with any foreign recording system, if
the result thereof would be the imposition on Debtor of any tax, charge, or
imposition other than in a de minimis amount.
4. Representations and Warranties. Debtor represents and
warrants to Secured Party as follows:
(a) No Other Trademarks. Schedule A sets forth,
as of the Closing Date, a true and correct list of all of the existing
Trademarks that are registered, or for which any application for registration
has been filed with the PTO or any corresponding or similar trademark office of
any other U.S. or foreign jurisdiction, and that are owned by Debtor and all
Trademark license agreements to which the Debtor is a party permitting Debtor
to use a third party's Trademark.
(b) Trademarks Subsisting. Except as set forth
in Schedule B, Each of the Trademarks listed in Schedule A is subsisting and
has not been adjudged invalid or unenforceable, in whole or in part, and, to
the best of Debtor's knowledge, each of the Trademarks is valid and
enforceable.
(c) Ownership of Trademark Collateral; No
Violation.
(i) Debtor has rights in and good
defensible title to the existing Trademark Collateral.
(ii) With respect to the Trademark
Collateral shown on Schedule A hereto as owned by it, except as set
forth in Schedule B, Debtor is the sole and exclusive owner thereof,
free and clear of any Liens and rights of others (other
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<PAGE> 7
than the security interest created hereunder), including licenses,
registered user agreements and covenants by Debtor not to sue third
persons.
(iii) With respect to any Trademarks for
which Debtor is a licensor pursuant to a license regarding such
Trademark, each such license is in full force and effect, Debtor is
not in default of any of its obligations thereunder and, other than
the parties to such licenses, no other Person has any rights in or to
any of the Trademark Collateral.
(iv) With respect to any Trademarks for
which Debtor is a licensee pursuant to a licensee agreement regarding
such Trademark, each such licensing agreement is in full force and
effect, Debtor is not in default of any of its obligations thereunder
and, to the best of Debtor's knowledge, other than the parties to such
licensing agreements, no other Person has any rights in or to any of
the Trademark Collateral.
(v) To the best of Debtor's knowledge,
except as set forth in Schedule B, the past, present and contemplated
future use of the Trademark Collateral by Debtor has not, does not and
will not infringe upon or violate any right, privilege or license
agreement of or with any other Person.
(d) No Infringement. Except as set forth in
Schedule B, to the best of Debtor's knowledge, no material infringement or
unauthorized use presently is being made of any of the Trademark Collateral by
any Person.
(e) Powers. Debtor has the unqualified right,
power and authority to pledge and to grant to Secured Party a security interest
in all of the Trademark Collateral pursuant to this Agreement, and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other Person except as
already obtained.
5. Covenants. So long as any of the Secured Obligations
remain unsatisfied, Debtor agrees that it will comply with all of the
covenants, terms and provisions of this Agreement, the Loan Agreement and the
other Loan Documents, and Debtor will promptly give Secured Party written
notice of the occurrence of any event that could have a material adverse effect
on any of the Trademarks or the Trademark Collateral, including any petition
under the Bankruptcy Code filed by or against any licensor of any of the
Trademarks for which Debtor is a licensee.
6. Future Rights. For so long as any of the Secured
Obligations shall remain outstanding, or, if earlier, until Secured Party shall
have released or terminated, in whole but
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<PAGE> 8
not in part, its interest in the Trademark Collateral, if and when Debtor shall
obtain rights to any new Trademarks, or any reissue, renewal or extension of
any Trademarks, the provisions of Section 2 shall automatically apply thereto
and Debtor shall give to Secured Party prompt notice of all applications filed
and registrations issued. Debtor shall do all things reasonably deemed
necessary or advisable by Secured Party to ensure the validity, perfection,
priority and enforceability of the security interests of Secured Party in
future acquired Trademark Collateral. Debtor hereby authorizes Secured Party
to modify, amend or supplement the Schedules hereto and to re-execute this
Agreement from time to time on Debtor's behalf and as its attorney-in-fact to
include any future Trademarks which are or become Trademark Collateral and to
cause such re-executed Agreement or such modified, amended or supplemented
Schedules to be filed with the PTO.
7. Secured Party's Duties. Notwithstanding any provision
contained in this Agreement, Secured Party shall have no duty to exercise any
of the rights, privileges or powers afforded to it and shall not be responsible
to Debtor or any other Person for any failure to do so or delay in doing so.
Except for the accounting for moneys actually received by Secured Party
hereunder or in connection herewith, Secured Party shall have no duty or
liability to exercise or preserve any rights, privileges or powers pertaining
to the Trademark Collateral.
8. Remedies. From and after the occurrence and during the
continuation of an Event of Default, Secured Party shall have all rights and
remedies available to it under the Loan Agreement and applicable law (which
rights and remedies are cumulative) with respect to the security interests in
any of the Trademark Collateral or any other Collateral. Debtor agrees that
such rights and remedies include the right of Secured Party as a secured party
to sell or otherwise dispose of its Collateral after default, pursuant to UCC
Section 9504. Debtor agrees that Secured Party shall at all times have such
non-exclusive royalty-free licenses, to the extent permitted by law, for any
Trademark Collateral that is reasonably necessary to permit the exercise of any
of Secured Party's rights or remedies upon or after the occurrence of (and
during the continuance of) an Event of Default with respect to (among other
things) any tangible asset of Debtor in which Secured Party has a security
interest, including Secured Party's rights to sell inventory, tooling or
packaging which is acquired by Debtor (or its successor, assignee or trustee in
bankruptcy), subject to reasonable rights of quality control and inspection in
favor of Debtor as are necessary and advisable for the maintenance of the
Trademark's validity. In addition to and without limiting any of the
foregoing, upon the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Secured Party deems reasonably
necessary or advisable, in the name of Debtor or Secured Party, to enforce or
protect any of the Trademark Collateral, in which event Debtor shall, at the
request of Secured Party, do any and all lawful acts and execute any and all
documents required by Secured Party in aid of such enforcement. To the extent
that Secured
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<PAGE> 9
Party shall elect not to bring suit to enforce such Trademark Collateral,
Debtor agrees to take all reasonable measures and exercise reasonably diligent
efforts, whether by action, suit, proceeding or otherwise, to prevent the
infringement, misappropriation or violation thereof by others.
9. Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Debtor and Secured Party and
their respective successors and assigns.
10. Notices. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
11. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the assignment and
security interests hereunder in respect of any Trademark Collateral are
governed by federal law, in which case such choice of California law shall not
be deemed to deprive Secured Party of such rights and remedies as may be
available under federal law.
12. Entire Agreement; Amendment. This Agreement, together
with the Schedules hereto, contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior drafts and
communications relating to such subject matter. Neither this Agreement nor any
provision hereof may be modified, amended or waived except by the written
agreement of the parties as provided in the Loan Agreement. Notwithstanding
the foregoing, Secured Party may re-execute this Agreement or modify, amend or
supplement the Schedules hereto as provided in Section 6 hereof.
13. Severability. If one or more provisions contained in
this Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render
illegal or unenforceable any such provision in any other jurisdiction or with
respect to any other party, or any other provisions of this Agreement.
14. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the
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<PAGE> 10
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
15. Loan Agreement. Debtor acknowledges that the rights and
remedies of Secured Party with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Loan
Agreement and all such rights and remedies are cumulative.
16. No Inconsistent Requirements. Debtor acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters,
and Debtor agrees that all such covenants, terms and provisions are cumulative
and all shall be performed and satisfied in accordance with their respective
terms.
17. Termination. Upon the indefeasible payment in full of
the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate, and Secured Party shall promptly execute and deliver such documents
and instruments and take such further action reasonably requested by Debtor, at
Debtor's expense, as shall be necessary to evidence termination of the security
interest granted by Debtor to Secured Party hereunder, including cancellation
of this Agreement by written notice from Secured Party to the PTO.
- Remainder of page intentionally left blank. -
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
CHI-CHI'S, INC.,
a Delaware Corporation
By:___________________________________
Title:________________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:___________________________________
Title:________________________________
-S-1-
<PAGE> 12
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On January 10, 1997, before me, ____________________________, Notary
Public, personally appeared ____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Signature
[SEAL]
<PAGE> 13
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On January 10, 1997, before me, _____________________________, Notary
Public, personally appeared _____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Signature
[SEAL]
<PAGE> 14
SCHEDULE A
to the Trademark Security Agreement
Trademarks of Debtor
A-1.
<PAGE> 1
EXHIBIT 10(ee)
TRADEMARK SECURITY AGREEMENT
THIS TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as
of January 10, 1997, is made by EL TORITO RESTAURANTS, INC., a Delaware
corporation ("Debtor"), in favor of FOOTHILL CAPITAL CORPORATION, a California
corporation ("Secured Party").
RECITALS
A. Debtor and Chi-Chi's, Inc. (individually and
collectively, jointly and severally, "Borrower"), Secured Party, and the other
parties thereto have entered into that certain Loan and Security Agreement,
dated as of the date hereof (as amended, restated, modified, renewed or
extended from time to time, the "Loan Agreement"), pursuant to which Secured
Party has agreed to make certain financial accommodations to Borrower, and
Borrower has granted to Secured Party a security interest in (among other
things) all of Borrower's general intangibles.
B. Pursuant to the Loan Agreement and as one of the
conditions precedent to the obligations of Secured Party under the Loan
Agreement, Debtor has agreed to execute and deliver this Agreement to Secured
Party for filing with the United States Patent and Trademark Office and,
subject to the last sentence of Section 3 hereof, as reasonably required by
Foothill, with any other relevant recording systems in any domestic or foreign
jurisdiction, and as further evidence of and to effectuate Secured Party's
existing security interests in the trademarks and other general intangibles
described herein.
ASSIGNMENT
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtor hereby agrees in favor of
Secured Party as follows:
1. Definitions; Interpretation.
(a) Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Event of Default" shall have the meaning ascribed thereto in
the Loan Agreement.
<PAGE> 2
"Lien" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"Proceeds" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts, chattel
paper, instruments, general intangibles, cash and other proceeds, payable to or
for the account of Debtor, from time to time in respect of any of the Trademark
Collateral, (ii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to or for the account of Debtor from time to time with respect
to any of the Trademark Collateral, (iii) any and all claims and payments (in
any form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trademark Collateral by any Person acting
under color of governmental authority, and (iv) any and all other amounts from
time to time paid or payable under or in connection with any of the Trademark
Collateral or for or on account of any damage or injury to or conversion of any
Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and
any successor thereto.
"Secured Obligations" means all liabilities, obligations, or
undertakings owing by Debtor to Secured Party of any kind or description
arising out of or outstanding under, advanced or issued pursuant to, or
evidenced by the Loan Agreement, the other Loan Documents heretofore, herewith
or hereafter executed by Debtor, or this Agreement, irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due
or to become due, voluntary or involuntary, whether now existing or hereafter
arising, and including all interest (including interest that accrues after the
filing of a case under the Bankruptcy Code) and any and all reasonable
out-of-pocket costs, fees (including reasonable attorneys fees), and expenses
which Debtor is required to pay pursuant to any of the foregoing, by law, or
otherwise.
"Trademark Collateral" has the meaning set forth in Section 2.
"Trademarks" has the meaning set forth in Section 2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of California.
"United States" and "U.S." each mean the United States of
America.
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<PAGE> 3
(b) Terms Defined in UCC. Where applicable and
except as otherwise defined herein, terms used in this Agreement shall have the
meanings assigned to them in the UCC.
(c) Interpretation. In this Agreement, except to
the extent the context otherwise requires:
(i) Any reference to a Section or a
Schedule is a reference to a section hereof, or a schedule hereto,
respectively, and to a subsection or a clause is, unless otherwise
stated, a reference to a subsection or a clause of the Section or
subsection in which the reference appears.
(ii) The words "hereof," "herein,"
"hereto," "hereunder" and the like mean and refer to this Agreement as
a whole and not merely to the specific Section, subsection, paragraph
or clause in which the respective word appears.
(iii) The meaning of defined terms shall
be equally applicable to both the singular and plural forms of the
terms defined.
(iv) The words "including," "includes"
and "include" shall be deemed to be followed by the words "without
limitation."
(v) References to agreements and other
contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto.
(vi) References to statutes or
regulations are to be construed as including all statutory and
regulatory provisions consolidating, amending or replacing the statute
or regulation referred to.
(vii) Any captions and headings are for
convenience of reference only and shall not affect the construction of
this Agreement.
(viii) Capitalized words not otherwise
defined herein shall have the respective meanings assigned to them in
the Loan Agreement.
(ix) In the event of a direct conflict
between the terms and provisions of this Agreement and the Loan Agreement, it
is the intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan Agreement shall
control and
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<PAGE> 4
govern; provided, however, that the inclusion herein of additional obligations
on the part of Debtor and supplemental rights and remedies in favor of Secured
Party (whether under California law or applicable federal law), in each case in
respect of the Trademark Collateral, shall not be deemed a conflict in the Loan
Agreement.
2. Security Interest.
(a) Assignment and Grant of Security Interest.
To secure the Secured Obligations, Debtor hereby grants, assigns, transfers and
conveys to Secured Party a continuing security interest in all of Debtor's
right, title and interest in and to the following property, whether now
existing or hereafter acquired or arising and whether registered or
unregistered (collectively, the "Trademark Collateral"):
(i) all state (including common law),
federal and foreign trademarks, service marks and trade names,
corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or business
identifiers, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, together with and including
all licenses therefor held by Debtor (unless otherwise prohibited by
any license or related licensing agreement under circumstances where
the granting of the security interest would have the effect under
applicable law of the termination or permitting termination of the
license for breach and if such breach would constitute a material
breach of such license sufficient to give rise to a right on the part
of the licensor to terminate such license or to impose liability for
not insignificant damages upon the licensee for breach of such
license), and all registrations and recordings thereof, and all
applications filed or to be filed in connection therewith, including
registrations and applications in the PTO, any State of the United
States or any other country or any political subdivision thereof, and
all extensions or renewals thereof, including without limitation any
of the foregoing identified on Schedule A hereto (as the same may be
amended, modified or supplemented from time to time), and the right
(but not the obligation) to register claims under any state or federal
trademark law or regulation or any trademark law or regulation of any
foreign country and to apply for, renew and extend any of the same, to
sue or bring opposition or cancellation proceedings in the name of
Debtor or in the name of Secured Party for past, present or future
infringement or unconsented use thereof, and all rights arising
therefrom throughout the world (collectively, the "Trademarks");
(ii) all claims, causes of action and rights to
sue for past, present or future infringement or unconsented use of any
Trademarks and all rights arising therefrom and pertaining thereto;
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<PAGE> 5
(iii) all general intangibles related to or
arising out of any of the Trademarks and all the goodwill of Debtor's
business symbolized by the Trademarks or associated therewith; and
(iv) all products and Proceeds of any and all of
the foregoing.
(b) Continuing Security Interest. Debtor agrees
that this Agreement shall create a continuing security interest in the
Trademark Collateral which shall remain in effect until terminated in
accordance with Section 17.
(c) Incorporation into Loan Agreement. This
Agreement shall be fully incorporated into the Loan Agreement and all
understandings, agreements and provisions contained in the Loan Agreement shall
be fully incorporated into this Agreement. Without limiting the foregoing, the
Trademark Collateral described in this Agreement shall constitute part of the
Collateral in the Loan Agreement. The foregoing notwithstanding, nothing
herein shall be construed to prohibit any Permitted Disposition to the extent
expressly permitted in the Loan Agreement.
3. Further Assurances; Appointment of Secured Party as
Attorney-in-Fact. Debtor at its expense shall execute and deliver, or cause to
be executed and delivered, to Secured Party any and all documents and
instruments, in form and substance satisfactory to Secured Party, and take any
and all action, which Secured Party may reasonably request from time to time,
to perfect and continue perfected, maintain the priority of or provide notice
of Secured Party's security interest in the Trademark Collateral and to
accomplish the purposes of this Agreement. Secured Party shall have the right,
in the name of Debtor, or in the name of Secured Party or otherwise, without
notice to or assent by Debtor, and Debtor hereby irrevocably constitutes and
appoints Secured Party (and any of Secured Party's officers or employees or
agents designated by Secured Party) as Debtor's true and lawful
attorney-in-fact with full power and authority, (i) to sign the name of Debtor
on all or any of such documents or instruments and perform all other acts that
Secured Party deems reasonably necessary or advisable in order to perfect or
continue perfected, maintain the priority or enforceability of or provide
notice of Secured Party's security interest in, the Trademark Collateral, and
(ii) to execute any and all other documents and instruments, and to perform any
and all acts and things for and on behalf of Debtor, which Secured Party may
deem reasonably necessary or advisable to maintain, preserve and protect the
Trademark Collateral and to accomplish the purposes of this Agreement,
including (A) after the occurrence and during the continuance of any Event of
Default, to defend, settle, adjust or institute any action, suit or proceeding
with respect to the Trademark Collateral, (B) to assert or retain any rights
under any license agreement for any of the Trademark Collateral, and (C) after
the occurrence and during the continuance of any Event of Default, to execute
any and all applications, documents, papers and instruments for Secured Party
to use the Trademark Collateral, to grant or issue any exclu-
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<PAGE> 6
sive or non-exclusive license (subject to the rights of any then existing
licensees) with respect to any Trademark Collateral, and to assign, convey or
otherwise transfer title in or dispose of the Trademark Collateral. The power
of attorney set forth in this Section 3, being coupled with an interest, is
irrevocable so long as this Agreement shall not have terminated in accordance
with Section 17. Anything herein to the contrary notwithstanding, unless an
Event of Default shall have occurred and be continuing, Secured Party shall not
require Debtor to record, register, or file this Agreement with any foreign
recording system (meaning for purposes of this sentence any recording,
registration, or filing system pertaining to trademarks, service marks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, source or business identifiers,
designs, other general intangibles of like nature, or licenses with respect to
any thereof, not maintained by the United States, any State thereof, or any
political subdivision of any thereof, or any agency or instrumentality of any
thereof), or otherwise to record, register, or file the security interest of
Secured Party in the Trademark Collateral with any foreign recording system, if
the result thereof would be the imposition on Debtor of any tax, charge, or
imposition other than in a de minimis amount.
4. Representations and Warranties. Debtor represents and
warrants to Secured Party as follows:
(a) No Other Trademarks. Schedule A sets forth,
as of the Closing Date, a true and correct list of all of the existing
Trademarks that are registered, or for which any application for registration
has been filed with the PTO or any corresponding or similar trademark office of
any other U.S. or foreign jurisdiction, and that are owned by Debtor and all
Trademark license agreements to which the Debtor is a party permitting Debtor
to use a third party's Trademark.
(b) Trademarks Subsisting. Except as set forth
in Schedule B, Each of the Trademarks listed in Schedule A is subsisting and
has not been adjudged invalid or unenforceable, in whole or in part, and, to
the best of Debtor's knowledge, each of the Trademarks is valid and
enforceable.
(c) Ownership of Trademark Collateral; No
Violation.
(i) Debtor has rights in and good and
defensible title to the existing Trademark Collateral.
(ii) With respect to the Trademark
Collateral shown on Schedule A hereto as owned by it, except as set
forth in Schedule B, Debtor is the sole and exclusive owner thereof,
free and clear of any Liens and rights of others (other
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<PAGE> 7
than the security interest created hereunder), including licenses,
registered user agreements and covenants by Debtor not to sue third
persons.
(iii) With respect to any Trademarks for
which Debtor is a licensor pursuant to a license regarding such
Trademark, each such license is in full force and effect, Debtor is
not in default of any of its obligations thereunder and, other than
the parties to such licenses, no other Person has any rights in or to
any of the Trademark Collateral.
(iv) With respect to any Trademarks for
which Debtor is a licensee pursuant to a licensee agreement regarding
such Trademark, each such licensing agreement is in full force and
effect, Debtor is not in default of any of its obligations thereunder
and, to the best of Debtor's knowledge, other than the parties to such
licensing agreements, no other Person has any rights in or to any of
the Trademark Collateral.
(v) To the best of Debtor's knowledge,
except as set forth in Schedule B, the past, present and contemplated
future use of the Trademark Collateral by Debtor has not, does not and
will not infringe upon or violate any right, privilege or license
agreement of or with any other Person.
(d) No Infringement. Except as set forth in
Schedule B, to the best of Debtor's knowledge, no material infringement or
unauthorized use presently is being made of any of the Trademark Collateral by
any Person.
(e) Powers. Debtor has the unqualified right,
power and authority to pledge and to grant to Secured Party a security interest
in all of the Trademark Collateral pursuant to this Agreement, and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other Person except as
already obtained.
5. Covenants. So long as any of the Secured Obligations
remain unsatisfied, Debtor agrees that it will comply with all of the
covenants, terms and provisions of this Agreement, the Loan Agreement and the
other Loan Documents, and Debtor will promptly give Secured Party written
notice of the occurrence of any event that could have a material adverse effect
on any of the Trademarks or the Trademark Collateral, including any petition
under the Bankruptcy Code filed by or against any licensor of any of the
Trademarks for which Debtor is a licensee.
6. Future Rights. For so long as any of the Secured
Obligations shall remain outstanding, or, if earlier, until Secured Party shall
have released or terminated, in whole but
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<PAGE> 8
not in part, its interest in the Trademark Collateral, if and when Debtor shall
obtain rights to any new Trademarks, or any reissue, renewal or extension of
any Trademarks, the provisions of Section 2 shall automatically apply thereto
and Debtor shall give to Secured Party prompt notice of all applications filed
and registrations issued. Debtor shall do all things reasonably deemed
necessary or advisable by Secured Party to ensure the validity, perfection,
priority and enforceability of the security interests of Secured Party in
future acquired Trademark Collateral. Debtor hereby authorizes Secured Party
to modify, amend or supplement the Schedules hereto and to re-execute this
Agreement from time to time on Debtor's behalf and as its attorney-in-fact to
include any future Trademarks which are or become Trademark Collateral and to
cause such re-executed Agreement or such modified, amended or supplemented
Schedules to be filed with the PTO.
7. Secured Party's Duties. Notwithstanding any provision
contained in this Agreement, Secured Party shall have no duty to exercise any
of the rights, privileges or powers afforded to it and shall not be responsible
to Debtor or any other Person for any failure to do so or delay in doing so.
Except for the accounting for moneys actually received by Secured Party
hereunder or in connection herewith, Secured Party shall have no duty or
liability to exercise or preserve any rights, privileges or powers pertaining
to the Trademark Collateral.
8. Remedies. From and after the occurrence and during the
continuation of an Event of Default, Secured Party shall have all rights and
remedies available to it under the Loan Agreement and applicable law (which
rights and remedies are cumulative) with respect to the security interests in
any of the Trademark Collateral or any other Collateral. Debtor agrees that
such rights and remedies include the right of Secured Party as a secured party
to sell or otherwise dispose of its Collateral after default, pursuant to UCC
Section 9504. Debtor agrees that Secured Party shall at all times have such
non-exclusive royalty-free licenses, to the extent permitted by law, for any
Trademark Collateral that is reasonably necessary to permit the exercise of any
of Secured Party's rights or remedies upon or after the occurrence of (and
during the continuance of) an Event of Default with respect to (among other
things) any tangible asset of Debtor in which Secured Party has a security
interest, including Secured Party's rights to sell inventory, tooling or
packaging which is acquired by Debtor (or its successor, assignee or trustee in
bankruptcy), subject to reasonable rights of quality control and inspection in
favor of Debtor as are necessary and advisable for the maintenance of the
Trademark's validity. In addition to and without limiting any of the
foregoing, upon the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Secured Party deems reasonably
necessary or advisable, in the name of Debtor or Secured Party, to enforce or
protect any of the Trademark Collateral, in which event Debtor shall, at the
request of Secured Party, do any and all lawful acts and execute any and all
documents required by Secured Party in aid of such enforcement. To the extent
that Secured
-8-
<PAGE> 9
Party shall elect not to bring suit to enforce such Trademark Collateral,
Debtor agrees to take all reasonable measures and exercise reasonably diligent
efforts, whether by action, suit, proceeding or otherwise, to prevent the
infringement, misappropriation or violation thereof by others.
9. Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Debtor and Secured Party and
their respective successors and assigns.
10. Notices. All notices and other communications hereunder
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement.
11. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the assignment and
security interests hereunder in respect of any Trademark Collateral are
governed by federal law, in which case such choice of California law shall not
be deemed to deprive Secured Party of such rights and remedies as may be
available under federal law.
12. Entire Agreement; Amendment. This Agreement, together
with the Schedules hereto, contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior drafts and
communications relating to such subject matter. Neither this Agreement nor any
provision hereof may be modified, amended or waived except by the written
agreement of the parties as provided in the Loan Agreement. Notwithstanding
the foregoing, Secured Party may re-execute this Agreement or modify, amend or
supplement the Schedules hereto as provided in Section 6 hereof.
13. Severability. If one or more provisions contained in
this Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render
illegal or unenforceable any such provision in any other jurisdiction or with
respect to any other party, or any other provisions of this Agreement.
14. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the
-9-
<PAGE> 10
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
15. Loan Agreement. Debtor acknowledges that the rights and
remedies of Secured Party with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Loan
Agreement and all such rights and remedies are cumulative.
16. No Inconsistent Requirements. Debtor acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters,
and Debtor agrees that all such covenants, terms and provisions are cumulative
and all shall be performed and satisfied in accordance with their respective
terms.
17. Termination. Upon the indefeasible payment in full of
the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate, and Secured Party shall promptly execute and deliver such documents
and instruments and take such further action reasonably requested by Debtor, at
Debtor's expense, as shall be necessary to evidence termination of the security
interest granted by Debtor to Secured Party hereunder, including cancellation
of this Agreement by written notice from Secured Party to the PTO.
- Remainder of page intentionally left blank. -
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
EL TORITO RESTAURANTS, INC.,
a Delaware Corporation
By:___________________________________
Title:________________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:___________________________________
Title:________________________________
-S-1-
<PAGE> 12
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On January 10, 1997, before me, ____________________________, Notary
Public, personally appeared ____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Signature
[SEAL]
<PAGE> 13
SCHEDULE A
to the Trademark Security Agreement
Trademarks of Debtor
A-1.
<PAGE> 14
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On January 10, 1997, before me, _____________________________, Notary
Public, personally appeared _____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Signature
[SEAL]
<PAGE> 1
EXHIBIT 10(ff)
FAMILY RESTAURANTS, INC.
DIVESTITURE BONUS PLAN
FOR KEY MANAGEMENT
OBJECTIVE:
- ----------
The Family Restaurants, Inc. ("FRI") Divestiture Bonus Plan for Key
Management ("DBP") has been created in connection with FRI's decision to pursue
the sale of either or both of its El Torito Restaurants, Inc. subsidiary ("El
Torito") and its Family Restaurant Division which is comprised of multiple
subsidiaries doing business as Carrows and Coco's restaurants ("FRD"). The DBP
is designed to retain and reward key executives who will assist with the
sale(s).
ELIGIBILITY:
- ------------
Participants shall be identified from time-to-time by the Board of
Directors of FRI. The following individuals have been identified by the Board
as participants in the DBP: Kevin Relyea, President and Chief Operating
Officer; Roger Chamness, Executive Vice President, Finance and Administration;
Robert Trebing, Jr., Senior Vice President and Chief Financial Officer; Ken
Bell, Executive Vice President, Coco's/jojos/Carrows Operations; and Azam
Malik, Executive Vice President, El Torito Operations.
Individual bonus amounts shall be approved for each participant and
shall be calculated as a percentage of the "Purchase Price" (as defined below)
for FRD or El Torito. The above-named participants are eligible for the
following percentages of the Purchase Price of FRD and El Torito (with 100
Basis Points equal to 1%):
<TABLE>
<CAPTION>
FAMILY RESTAURANT
KEY MANAGEMENT DIVISION SALE EL TORITO SALE
-----------------------------------------------------------------------------------------
<S> <C> <C>
Kevin Relyea 17.5 Basis Points 17.5 Basis Points
Roger Chamness 7.7 Basis Points 7.7 Basis Points
Robert Trebing, Jr. 4.3 Basis Points 4.3 Basis Points
Ken Bell 5.5 Basis Points 0 Basis Points
Azam Malik 0 Basis Points 5.5 Basis Points
</TABLE>
Purchase Price is defined for purposes of any DBP payout calculation
as the aggregate amount or value of all cash and non-cash consideration
actually received by FRI and/or its subsidiaries or shareholders, plus the
aggregate principal amount of any debt assumed or repaid (and for which FRI or
any of its subsidiaries does not continue to act as a guarantor or obligor) in
connection with a sale. In the event that the sale price is paid in whole or
in part in the form
- 1 -
EXHIBIT "A"
-----------
<PAGE> 2
of securities or other assets, the value of such securities or other assets
shall be the fair market value thereof, as determined by the Board of Directors
of FRI; provided, that if such consideration includes securities with an
existing public trading market, the value thereof shall be determined by
calculating the average sales price for such securities during the last ten
(10) trading days prior to such consummation. In the event that all or some
portion of the consideration is related to the future earnings or operations of
El Torito or of one or more of the entities comprising FRD, the portion of the
compensation relating thereto shall be calculated and shall be paid when and as
such future earnings are realized.
TERM:
- -----
This DBP shall apply to any written agreement of purchase and sale for
either El Torito or FRD executed in calendar year 1996.
DBP PAYOUT:
- -----------
Except as provided above, each DBP participant shall receive their
bonus in a lump sum payment made within thirty (30) days after the consummation
of a sale of either El Torito or FRD. For purposes of the DBP, a sale shall be
deemed to be consummated upon the earliest of any of the following events to
occur:
(a) The acquisition by a person or entity other than FRI or any of
its subsidiaries or affiliates of a majority of the
outstanding common stock of El Torito or stock representing a
majority of the business, as measured by revenues, of the
entities comprising FRD;
(b) A merger or consolidation of (i) El Torito or (ii) the
entities comprising FRD with another person or entity other
than FRI or any of its subsidiaries or affiliates; or
(c) The acquisition by another person or entity other than FRI or
any of its subsidiaries or affiliates of assets of El Torito
representing a majority of such assets, as measured by book
value, or of the entities comprising FRD representing a
majority of the assets of such entities, as measured by book
value.
Payroll and other associated taxes will be withheld from all DBP bonus
payments.
TERMINATION:
- ------------
A DBP participant whose employment terminates voluntarily or
involuntarily for cause prior to the consummation of a sale of either El Torito
or FRD, as applicable to the participant, shall not be eligible to receive his
or her DBP bonus. A DBP participant whose employment terminates involuntarily
without cause prior to the consummation of a sale of either El Torito or FRD,
as applicable to the participant, shall be entitled to receive his or her DBP
bonus if the sale of El Torito or FRD, as applicable to the participant, is
consummated within twelve (12) months after the participant's termination date.
- 2 -
<PAGE> 3
ADMINISTRATION:
- ---------------
The DBP shall be administered by the Board of Directors of FRI, which
shall have the discretion and authority to make, amend, interpret and enforce
all appropriate rules and regulations for the administration of the DBP and
decide or resolve any and all questions, including interpretations of the DBP,
as may arise. The decision or action of the Board of Directors of FRI with
respect to any question or matter arising out of or in connection with the
administration, interpretation and application of the DBP shall be final and
conclusive and binding upon all persons having any interest in the DBP.
FRI shall indemnify and hold harmless the members of the Board of
Directors of FRI against any and all claims, losses, damages, expenses and
liabilities arising from any action or failure to act with respect to the DBP,
except in the case of wilful misconduct.
MISCELLANEOUS:
- --------------
Unsecured General Creditor. DBP participants and their heirs,
successors and assigns shall have no legal or equitable rights, interest or
claims in any property or assets of FRI or any of its subsidiaries or
affiliates. FRI's obligation under the DBP shall be merely that of an unfunded
and unsecured promise to pay money in accordance with the DBP. Amounts payable
to a DBP participant shall be paid from the general assets of FRI exclusively.
FRI's Liability. The DBP shall supplement and shall not supersede,
modify or amend any other plan or program, except as may otherwise be expressly
provided. Despite the foregoing, and except for the benefits specifically
provided for in the DBP, the DBP shall not be construed as entitling a DBP
participant to receive any other benefit offered by FRI or any of its
subsidiaries or affiliates. Neither FRI nor any of its subsidiaries or
affiliates shall have any obligation to a DBP participant under the DBP, except
as expressly provided herein.
Nonassignability. A DBP participant shall not have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are expressly declared to be, unassignable and
non-transferable, except that the foregoing shall not apply to any family
support obligations set forth in a court order. No part of the amount payable
shall, prior to actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a DBP
participant or any other person, nor be transferable by operation of law in the
event of a DBP participant's or any other person's bankruptcy or insolvency.
Not a Contract of Employment. The terms and conditions of the DBP
shall not be deemed to constitute a contract of employment. Each DBP
participant's employment is hereby acknowledged to be "at will" that can be
terminated at any time for any reason, with or without cause. Nothing in the
DBP shall be deemed to give a participant the right to be employed in the
service of FRI or any of its subsidiaries or affiliates, or to interfere with
the right of any of them to discipline or discharge the DBP participant at any
time.
- 3 -
<PAGE> 4
Captions. The captions hereof are for convenience only and shall not
control or affect the meaning or construction of any of its provisions.
Governing Law. The provisions of the DBP shall be construed and
interpreted according to the laws of the State of California.
Entire Benefit. The DBP constitutes the entire agreement and
understanding with regards to the subject matter hereof and supersedes all
prior oral or written agreements, arrangements and understandings with respect
thereto. No representation, promise, inducement, statement or intention has
been made by FRI or any of its subsidiaries or affiliates that is not embodied
herein, and no person shall be bound by or be liable for any alleged
representation, promise, inducement or statement not set forth in this
document.
IN WITNESS WHEREOF, FRI has signed this DBP document as of
January 9, 1996.
FAMILY RESTAURANTS, INC.,
a Delaware corporation
By: [SIG]
-------------------------------
Name:
-------------------------------
Its:
-------------------------------
- 4 -
<PAGE> 1
EXHIBIT 21(a)
FAMILY RESTAURANTS, INC.
1996 FORM 10-K
LIST OF SUBSIDIARIES
Jurisdiction of
Subsidiaries as of December 29, 1996 Incorporation
- ------------------------------------------- --------------
CCMR Advertising Agency, Inc. Kentucky
CCMR of Catonsville, Inc. Kentucky
CCMR of Cumberland, Inc. Kentucky
CCMR of Frederick, Inc. Kentucky
CCMR of Golden Ring, Inc. Kentucky
CCMR of Greenbelt, Inc. Kentucky
CCMR of Harford County, Inc. Kentucky
CCMR of Inner Harbor, Inc. Kentucky
CCMR of Maryland, Inc. Delaware
CCMR of Ritchie Highway, Inc. Kentucky
CCMR of Timonium, Inc. Delaware
Chi-Chi's, Inc. Delaware
Chi-Chi's Franchise Operations Corporation Kentucky
Chi-Chi's Management Corporation Kentucky
Chi-Chi's of Greenbelt, Inc. Kentucky
Chi-Chi's of Kansas, Inc. Kansas
Chi-Chi's of South Carolina, Inc. Kentucky
Chi-Chi's of West Virginia, Inc. Kentucky
El Torito Franchising Company Delaware
El Torito Restaurants, Inc. Delaware
FRI-Admin Corporation Delaware
FRI-MRD Corporation Delaware
Maintenance Support Group, Inc. Kentucky
<PAGE> 1
EXHIBIT 21(b)
FAMILY RESTAURANTS, INC.
1996 FORM 10-K
NAMES UNDER WHICH OPERATING
SUBSIDIARIES DO BUSINESS - 12/29/96
El Torito Restaurants, Inc.
- --------------------------------
Casa Gallardo
Casa Gallardo Grill
Casa Maria
El Torito
El Torito Grill
El Torito Restaurant & Cantina
GuadalaHARRY's
Hola Amigos
Keystone Grill
Las Brisas
Original El Torito Restaurant
Specialty Catering
Tequila Willie's
Who-Song & Larry's Restaurant
and Cantina
Chi-Chi's, Inc.
- --------------------------------
Chi-Chi's
Chi-Chi's El Pronto
Chi-Chi's Mexican Restaurante
HomeTown Buffet
FRI-Admin Corporation
- --------------------------------
Carrows
Charley Brown's
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Family Restaurants, Inc.
We consent to incorporation by reference in the Registration Statement
(No. 33-52795) on Form S-8 of Family Restaurants, Inc. of our report dated March
7, 1997, relating to the consolidated balance sheets of Family Restaurants, Inc.
and its subsidiaries as of December 29, 1996 and December 31, 1995 and the
related statements of operations, common stockholders' equity (deficit) and cash
flows and related financial statement schedule for the years ended December 29,
1996 and December 31, 1995, the eleven months ended December 25, 1994 (Successor
Company) and the one month ended January 26, 1994 (Predecessor Company), which
report appears in the December 29, 1996 annual report on Form 10-K of Family
Restaurants, Inc. Our report refers to a change in the method of financial
statement reporting.
KPMG PEAT MARWICK LLP
Orange County, California
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR
ENDED DECEMBER 29, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-29-1996
<CASH> 35,244
<SECURITIES> 0
<RECEIVABLES> 5,043
<ALLOWANCES> 0
<INVENTORY> 4,537
<CURRENT-ASSETS> 3,212
<PP&E> 253,059
<DEPRECIATION> 56,187
<TOTAL-ASSETS> 309,030
<CURRENT-LIABILITIES> 133,560
<BONDS> 165,325
0
0
<COMMON> 10
<OTHER-SE> 5,399
<TOTAL-LIABILITY-AND-EQUITY> 309,030
<SALES> 724,229
<TOTAL-REVENUES> 724,229
<CGS> 200,379
<TOTAL-COSTS> 747,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,725
<INCOME-PRETAX> 3,097
<INCOME-TAX> 890
<INCOME-CONTINUING> 2,207
<DISCONTINUED> 0
<EXTRAORDINARY> 134,833
<CHANGES> 0
<NET-INCOME> 137,040
<EPS-PRIMARY> 138.66
<EPS-DILUTED> 0
</TABLE>
