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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-14051
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KOO KOO ROO ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0197361
(Incorporated in) (I.R.S. Employer
Identification No.)
18831 Von Karman Avenue, Irvine, CA 92612
(Address of principal executive offices)
Telephone: (949) 757-7900
(Registrant's telephone number, including area code)
----------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value.
----------------
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. [_]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [_]
The aggregate market value of the registrant's common stock held by non-
affiliates of the registrant as of March 19, 1999 was approximately $36.6
million. All directors, officers and more than 10% stockholders of registrant
are deemed affiliates of registrant for the purpose of calculating such
aggregate market value. The registrant, however, does not represent that such
persons, or any of them, would be deemed "affiliates" of the registrant for
any other purpose under the Securities Exchange Act of 1934 or the Securities
Act of 1933.
As of March 19, 1999, the registrant had issued and outstanding 180,380,513
shares of common stock, $.01 par value per share.
Documents Incorporated by Reference
Notice of 1999 Annual Meeting and Proxy Statement (Part III of Form 10-K)
================================================================================
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
PART I
Item 1. BUSINESS
Background
Koo Koo Roo Enterprises, Inc., formerly known as Family Restaurants, Inc.
(together with its subsidiaries, the "Company"), was incorporated in Delaware
in 1986. The Company is primarily engaged in the operation of restaurants in
the full-service and fast-casual segments. Information relating to periods
ending prior to October 30, 1998 included in this report relates to the
historical operations of Family Restaurants, Inc. and, except as otherwise
indicated, does not reflect the operations of Koo Koo Roo, Inc., a Delaware
corporation ("KKR"), which the Company acquired on October 30, 1998. At
December 27, 1998, the Company operated 314 restaurants in 28 states,
approximately 65% of which are located in California, Ohio, Pennsylvania,
Indiana and Michigan, and franchised and licensed 23 restaurants outside the
United States.
Recent Merger
On October 30, 1998, the Company, FRI-Sub, Inc. ("Merger Sub"), an indirect
wholly-owned subsidiary of the Company, and KKR consummated a merger (the
"Merger"), pursuant to which Merger Sub was merged with and into KKR, with KKR
as the surviving corporation. As a result of the Merger, each outstanding
share of common stock of KKR was converted into the right to receive one share
of common stock of the Company (the "Company Common Stock"). Immediately prior
to the Merger, a stock dividend was declared pursuant to which approximately
121.96 shares of Company Common Stock were distributed for each share of
Company Common Stock outstanding. Prior to the Merger, the Company provided a
$3 million loan (the "Bridge Loan") to a subsidiary of KKR, which was repaid
after completion of the Merger. Additionally, in connection with the Merger,
FRI-MRD Corporation, a wholly owned subsidiary of the Company ("FRI-MRD"),
issued $24 million aggregate face amount of new senior secured discount notes
(the "New MRD Notes") for net proceeds of $21.7 million, and the Company
expanded the Foothill Credit Facility (as defined below) by an additional
$20 million. The proceeds from the sale of the New MRD Notes were used to
acquire all of the outstanding capital stock of The Hamlet Group, Inc.
("Hamlet") from KKR immediately prior to the consummation of the Merger (the
"Hamlet Acquisition"). The Merger and the Hamlet Acquisition were accounted
for as a purchase. Accordingly, the results of operations and financial
position of KKR (including Hamlet) were combined with the results of
operations and financial position of the Company's operations from October 30,
1998 forward.
The Company believes that, since the completion of the Merger, confusion
between the name of the Company, its KKR subsidiary and the Koo Koo Roo
restaurant concept has led to misunderstandings within the restaurant industry
and among the Company's stockholders and vendors. Accordingly, the Company is
considering changing the name of the Company to better convey the Company's
position as a multi-brand restaurant operating company.
Other Historical Events
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"), 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. Cash proceeds from the sale were used to pay
indebtedness outstanding under the Old Credit Facility (as defined below) of
$82 million, to help fund the repurchases of the Notes (as defined below) and
for general corporate purposes. As of March 19, 1999, the Company had sold or
exchanged all of the FRD Notes.
1
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On July 3, 1996, the Company repurchased $151 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 transactions,
the Company repurchased (i) an additional $8.5 million aggregate principal
amount of its Discount Notes in the third quarter of 1996 and (ii) an
additional $30 million aggregate principal amount of its Senior Notes and an
additional $2 million aggregate principal amount of its Discount Notes in the
fourth quarter of 1996.
On January 10, 1997, the Company entered into a five-year, $35 million
credit facility (the "Foothill Credit Facility") with Foothill Capital
Corporation ("Foothill") to provide for the ongoing working capital needs of
the Company. The Foothill Credit Facility replaced the Company's old credit
facility with Credit Lyonnais (the "Old Credit Facility"). In connection with
the Merger, the Company increased the Foothill Credit Facility to $55 million.
The Foothill Credit Facility now provides for up to $35 million in revolving
cash borrowings and up to $55 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 restrictive covenants.
On August 12, 1997, FRI-MRD issued senior discount notes (the "Senior
Discount Notes") in an aggregate face amount of $61 million at a price of
approximately 75% of par. The Senior Discount Notes are due on January 24,
2002. No cash interest is payable on the Senior Discount Notes until July 31,
1999, at which time interest will be payable in cash semi-annually at the rate
of 15% per annum, with the first cash interest payment due on January 31,
2000. The Senior Discount Notes were issued to certain existing holders of the
Company's Senior Notes in exchange for $15.6 million of Senior Notes plus
approximately $34 million of cash. On January 14 and 15, 1998, FRI-MRD issued
an additional $14 million aggregate face amount of the Senior Discount Notes
to the same purchasers at a price of 83% of par. FRI-MRD received
approximately $11.6 million in cash as a result of this subsequent sale.
Proceeds from the sales of the Senior Discount Notes have been and will
continue to be used to fund the Company's capital expenditure programs and for
general corporate purposes.
On June 9, 1998, FRI-MRD entered into a Note Agreement pursuant to which on
October 30, 1998 FRI-MRD issued $24 million aggregate face amount of New MRD
Notes at a price of approximately 90% of par resulting in net proceeds of
$21.7 million. The New MRD Notes are due on January 24, 2002. No cash interest
is payable on the New MRD Notes until July 31, 1999, at which time interest
will be payable in cash semi-annually at the rate of 14% per annum with the
first cash interest payment due on January 31, 2000. The New MRD Notes are
redeemable by FRI-MRD, in whole or in part, on or before January 23, 2001, at
a price of 105% of the accreted value thereof, or after January 23, 2001, at a
price of 102.5% of the accreted value thereof. Proceeds from the sale of the
New MRD Notes were used exclusively to purchase all of the outstanding shares
of Hamlet, and the New MRD Notes are secured by all of such outstanding shares
of Hamlet.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Liquidity and Capital Resources--Liquidity."
Ongoing Restaurant Operations
The Company operated 314 restaurants primarily under the Chi-Chi's, El
Torito, Casa Gallardo, Koo Koo Roo and Hamburger Hamlet concepts at December
27, 1998. The Chi-Chi's, El Torito and Casa Gallardo restaurants serve
moderately priced, high-quality Mexican food and a wide selection of alcoholic
and non-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. Koo Koo Roo restaurants are in the emerging
food category of fresh, convenient meals--meals with the convenience and value
associated with quick service, but the quality, freshness and variety
associated with upscale, casual full-service restaurants. The Hamburger Hamlet
restaurants are full-service casual dining restaurants known for their quality
service and their extensive variety of distinctive products.
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The average food check per person (excluding alcoholic beverage sales) for
1998 by concept is as follows:
<TABLE>
<S> <C>
Chi-Chi's.............................................................. $8.12
El Torito.............................................................. 9.86
Casa Gallardo.......................................................... 8.34
Koo Koo Roo............................................................ 8.70
Hamburger Hamlet....................................................... 10.18
</TABLE>
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 7,500 to 11,000
square feet of floor space and accommodate approximately 300 to 400 guests in
the restaurant and lounge. The Company's Mexican 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. Koo Koo Roo restaurants generally contain from
2,700 to 3,100 square feet of floor space and accommodate approximately 75 to
85 guests.
Site Selection
The selection of sites for new restaurants is the responsibility of the
senior management of El Torito Restaurants, Inc. ("El Torito"), Chi-Chi's,
Inc. ("Chi-Chi's") and KKR. Typically, potential sites are brought to the
attention of the Company by real estate brokers and developers familiar with
the Company's 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 27, 1998, the Company had 20,096 employees, of whom 18,629 were
restaurant employees, 1,130 were field management and 337 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
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,
attractiveness of facilities, advertising, name identification and restaurant
location. Each of the Company's restaurants competes directly or indirectly
with locally-owned restaurants, as well as with restaurants with national or
regional images, many of which have greater financial, marketing, personnel
and other resources than the Company. The Company is required to respond to
various factors affecting the restaurant industry, including changes in
consumer preferences, tastes and eating habits, demographic trends and traffic
patterns, increases in food and labor costs, competitive pricing and national,
regional and local economic conditions. The failure to compete successfully
could have a material adverse effect on the Company's financial condition and
results of operations.
The Company's Mexican restaurants have encountered increased competition in
recent years, both from new Mexican full-service restaurants and from
restaurants offering Mexican food products as part of an overall casual dining
concept.
Koo Koo Roo restaurants participate in the quick-service segment which is
highly competitive with respect to price, service and location. In addition,
the quick-service segment is characterized by the frequent introduction
3
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of new products, accompanied by substantial promotional campaigns. In recent
years numerous competitors, including those in the casual dining and quick-
service segment have introduced products, including products featuring
chicken, that were developed to capitalize on growing consumer preference for
food products that are, or are perceived to be, more healthful, nutritious,
lower in calories and lower in fat content. Management believes that Koo Koo
Roo will be subject to increased competition from companies whose products or
marketing strategies address these consumer preferences. There can be no
assurance that consumers will regard the Koo Koo Roo products as sufficiently
distinguishable from competitive products (such as, for example, those offered
by El Pollo Loco and Boston Market) or that substantially equivalent products
will not be introduced by existing or new competitors.
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.
The Company is subject to Federal and state laws governing matters such as
minimum wages, overtime and other working conditions. Approximately half of
the Company's employees are 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 was further increased to $5.15. However, a
provision of the new measure effectively froze 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, in California, voters
approved a proposition on November 5, 1996 that increased the state's minimum
wage to $5.00 on March 1, 1997 and further increased the state's minimum wage
to $5.75 on March 1, 1998. In response to the minimum wage increases on
October 1, 1996, March 1, 1997 and March 1, 1998, the Company raised menu
prices at its El Torito restaurants in an effort to recover the higher payroll
costs. Chi-Chi's also raised menu prices in October and December 1997 as a
result of the cumulative impact of these minimum wage increases. Similarly, in
March 1998, KKR also raised menu prices for its Koo Koo Roo restaurants. No
minimum wage increases are scheduled for 1999 at this time, but pressure
continues for further increases at both the Federal and California levels.
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 22 restaurants
internationally. 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.
4
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Franchised and Licensed Restaurants
In May 1994, El Torito and Coco's Restaurants, Inc. ("Coco's"), a former
indirect subsidiary of the Company, entered into a 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. At December 27, 1998,
CJCL operated seven El Torito restaurants in Japan.
On October 15, 1997, Chi-Chi's entered into a binding term sheet agreement
with its licensee, Chi-Chi's International Operations, Inc. ("CCIO"), whereby
the parties agreed to resolve various ongoing disputes. Under the general
provisions of the term sheet, (i) the rights to develop Chi-Chi's restaurants
throughout the world, except in areas of currently existing Chi-Chi's
franchises, have been transferred back to Chi-Chi's; (ii) for a period of five
years, CCIO shall operate the existing 12 international Chi-Chi's restaurants
for Chi-Chi's in exchange for a fee equal to all royalties and fees payable
from the international franchisees and licensees; (iii) CCIO has the right to
convert the existing 12 international Chi-Chi's restaurants to other concepts;
and (iv) under certain conditions, Chi-Chi's has the right to terminate the
management arrangement with CCIO within five years. As a result of the term
sheet, Chi-Chi's will not receive any royalties or license fees from CCIO or
the currently existing international Chi-Chi's restaurant operations until
Chi-Chi's terminates the management agreement with CCIO. In 1996, Chi-Chi's
received no royalties from CCIO due to a payment abatement, and during 1997,
Chi-Chi's received royalties of $16,000 from CCIO.
KKR entered into an agreement in 1995 with a group of Canadian business
leaders to form a partnership to develop the Koo Koo Roo restaurant concept in
Canada ("KKR Canada"). KKR and KKR Canada entered into a license agreement in
1996, which, among other things, granted to KKR Canada an exclusive right and
license to develop Koo Koo Roo restaurants throughout Canada. KKR currently
has a 28% ownership interest in KKR Canada. KKR Canada opened three
restaurants in 1997, all in the greater Toronto area, one of which was closed
in early 1999. No additional restaurants are planned at this time. Discussions
are underway concerning the purchase of KKR Canada by another company. No
royalties are currently being paid under the KKR Canada arrangement. In
addition, KKR has signed license agreements covering England and Israel. No
restaurants have been developed to date under these agreements.
In 1996, the Company established El Torito Franchising Company ("ETFC") to
market domestically and internationally the El Torito Mexican restaurant
concept. There is currently no domestic franchise activity. 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
a minimum of 20 El Torito restaurants over 15 years in Turkey. At December 27,
1998, EL operated one El Torito restaurant in Turkey. In addition, on
February 13, 1998, ETFC entered into a Master Franchise and Development
Agreement with UVECO Holding, Inc. ("UVECO"), pursuant to which UVECO was
granted the rights to develop 21 El Torito restaurants over 20 years in seven
countries in the Middle East.
As described above, under existing license and other franchise agreements,
seven El Torito restaurants are operated in Japan, one El Torito restaurant is
operated in Turkey, 12 Chi-Chi's restaurants are operated in international
markets and two Koo Koo Roo restaurants are operated in Toronto, Canada.
Franchise and license fees were $235,000 for the year ended December 27, 1998.
This compares to $219,000 for the year ended December 28, 1997 and $1,605,000
for the year ended December 29, 1996, of which 92% was from Coco's restaurants
licensed by CJCL. The license arrangement with CJCL for Coco's restaurants was
transferred upon completion of the sale of the Family Restaurant Division in
1996.
5
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Certain Risk Factors
Substantial Leverage
The Company currently has a significant amount of indebtedness. The
following chart shows certain important credit statistics as of the dates
specified below:
<TABLE>
<CAPTION>
For the Years Ended
-------------------------
December 27, December 28,
1998 1997
------------ ------------
($ in thousands)
<S> <C> <C>
Total Debt......................................... $239,649 $202,649
Stockholders' deficit.............................. (21,137) (26,194)
Deficiency of losses to cover fixed charges........ (62,733) (31,084)
</TABLE>
This substantial indebtedness could have important consequences. For
example, it could:
. increase the Company's vulnerability to adverse general economic and
industry conditions;
. limit the Company's ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions and other
general corporate requirements;
. require the Company to dedicate a substantial portion of its cash flow
from operations to payments on indebtedness, thereby reducing the
availability of cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate purposes;
. limit the Company's flexibility in planning for, or reacting to, changes
in its business and the industry in which it operates;
. place the Company at a competitive disadvantage compared to its
competitors that have less debt; and
. subject the Company to covenants that will restrict, among other things,
its ability to borrow money, conduct affiliate transactions, lend or
otherwise advance money to non-subsidiaries, pay dividends or advances
and make certain other payments and, under its credit facility, require
it to maintain specified financial ratios and earnings.
Failure to comply with certain covenants in the Company's debt instruments
could result in an event of default which, if not cured or waived, could have
a material adverse effect on the Company.
Ability to Service Debt
The Company's ability to make payments on and to refinance its indebtedness
and to fund planned capital expenditures will depend on its ability to
generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond the Company's control.
The Company can give no assurance that its business will generate sufficient
cash flow from operations, that currently anticipated cost savings and
operating improvements will be realized on schedule or that future borrowings
will be available in an amount sufficient to enable the Company to pay its
indebtedness or to fund other liquidity needs. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
debt, it may be required, among other things, to seek additional financing in
the debt or equity markets, to refinance or restructure all or a portion of
its indebtedness, to sell selected assets or to reduce or delay planned
capital expenditures. Such measures may not be sufficient for the Company to
service its debt. In addition, there can be no assurance that any such
financing, refinancing or sale of assets will be available on commercially
reasonable terms or at all.
History of Losses
For the years ended December 27, 1998 and December 28, 1997, the Company
recorded net losses of $63.1 million and $31.6 million, respectively. For the
same periods, the Company recorded operating losses of $38.1 million and $11.6
million, respectively. Although the Company believes that the Merger will
result in
6
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improvements to revenues and reductions in costs, there can be no assurance
that the Company will achieve profitable operations in the future.
Potential difficulties in integrating KKR into the Company
The Company previously operated separately from KKR. A factor in the success
of the combined organization is the ability to integrate the operations of
KKR, a process that is still taking place, without a loss of key employees or
suppliers, loss of customer patronage, increases in operating or other costs
or other difficulties. In addition, the Company may not be able to realize the
cost savings and other benefits that were sought from the Merger.
Future Growth and Financing
The Company's growth strategy includes remodeling existing restaurants and
developing new restaurants, which may include future development, construction
and renovation projects. The extent and timing of any such projects will
depend upon various factors, including available cash flow, the ability to
obtain additional financing (including landlord contributions) and the
availability of suitable locations, many of which are beyond the Company's
control. In addition, the Company is subject to the risks inherent in any
development activity, including, but not limited to, disruption of existing
operations, delays in receipt of permits, licenses or other regulatory
approvals, shortages of materials or skilled labor, work stoppages, and
weather interferences, any of which could delay development or result in
substantial cost increases.
Control by Principal Stockholder
The former partners of Apollo FRI Partners, L.P. ("Apollo") own
approximately 55% of the Company's outstanding common stock and have the
ability to control the election of directors and the results of virtually all
other matters submitted to a vote of the stockholders. Such concentration of
ownership, together with the anti-takeover effects of certain provisions in
the Delaware General Corporate Law and the Company's charter documents may
have the effect of delaying or preventing a change of control of the Company.
Key Personnel
The Company's success depends to a significant extent on retaining the
services of its executive officers and directors, particularly Mr. Kevin
Relyea, the Company's Chief Executive Officer and Chairman of the Board. The
Company does not maintain key man insurance. The loss of the services of key
employees or directors (whether such loss is through resignation or other
causes) or the inability to attract additional qualified personnel could have
an adverse effect on the Company's financial condition and results of
operations. The Company has entered into an employment agreement with Mr.
Relyea that expires on December 31, 2001.
Forward Looking Statements
This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act
including, in particular, the statements about the Company's plans,
strategies, and prospects. When used in this document and the documents
incorporated herein by reference, the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions are
intended to identify in certain circumstances, forward looking statements.
Although the Company believes that its plans, intentions and expectations
reflected in or suggested by such forward looking statements are reasonable,
it can give no assurance that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ
materially from the forward looking statements made in this document are set
forth above and elsewhere in this document and in the documents incorporated
herein by reference. Given these uncertainties, the Company cautions against
undue reliance on such statements or projections. The Company does not
undertake any obligation to update these forward looking statements or
projections. All forward looking statements attributable to the Company or
persons acting on the Company's behalf are expressly qualified in their
entirety by the preceding cautionary statements.
7
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Item 2. PROPERTIES
Of the 314 restaurants operated by the Company as of December 27, 1998, the
Company owned the land and buildings for 31, owned the buildings and leased
the land for 52 and leased both land and buildings for the remaining 231
restaurants. The full-service restaurants are primarily free-standing units
ranging from approximately 5,000-11,000 square feet. KKR restaurants generally
approximate 2,700 to 3,100 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>
1999-2003........................................................ 14
2004-2008........................................................ 29
2009-2013........................................................ 65
2014-2018........................................................ 60
2019 and later................................................... 115
---
Total.......................................................... 283
===
</TABLE>
In addition, the Company owns a 43,120 square-foot building in Irvine,
California which houses support personnel for the Company. The Company leases
34,200 square feet of space in an office building in Irvine, California which
houses El Torito and KKR operations staff, the Company's headquarters
personnel and certain support functions of the Company. The Company also
leases 26,270 square feet of space in a building in Louisville, Kentucky which
houses the Chi-Chi's operations and support functions and various other
smaller offices and warehouses. As a result of the Merger, the Company remains
liable for the vacant KKR headquarters office comprising 11,400 square feet in
Los Angeles. This lease expires on May 31, 1999.
Substantially all of the Company's assets have been pledged under the
Foothill Credit Facility. However, of the 83 owned restaurants at December 27,
1998 (buildings or land and buildings), two were subject to security interests
in favor of other third parties.
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Approximately 39% of the Company's restaurants are located in California.
Revenues are dependent on discretionary spending by consumers, particularly by
consumers living in the communities in which the restaurants are located. A
significant weakening in any of the local economies in which the restaurants
operate (particularly California) may cause the residents of such communities
to curtail discretionary spending which, in turn, could have a material effect
on the results of operations and financial position of the entire Company. In
addition, the results achieved to date by the Koo Koo Roo restaurants in the
core Southern California market may not be indicative of the prospects or
market acceptance of a larger number of restaurants, particularly in wider and
more geographically dispersed areas with varied demographic characteristics.
The Company's geographic concentration of restaurants could have a material
adverse effect on its financial condition and results of operations. The
following table details the Company-operated restaurants by state of operation
as of December 27, 1998:
<TABLE>
<CAPTION>
Total
Hamburger Number of
Chi-Chi's El Torito Koo Koo Roo Hamlet Restaurants
--------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
California................ 0 77 34 10 121
Ohio...................... 28 0 0 0 28
Pennsylvania.............. 24 0 0 0 24
Indiana................... 14 2 0 0 16
Michigan.................. 16 0 0 0 16
Maryland.................. 10 0 0 2 12
Virginia.................. 10 0 0 2 12
Missouri.................. 2 8 0 0 10
Wisconsin................. 10 0 0 0 10
Illinois.................. 7 1 0 0 8
Minnesota................. 7 0 0 0 7
New Jersey................ 7 0 0 0 7
Iowa...................... 6 0 0 0 6
Kentucky.................. 6 0 0 0 6
New York.................. 5 0 0 0 5
Florida................... 0 0 4 0 4
Massachusetts............. 3 0 0 0 3
Nevada.................... 0 1 2 0 3
Oregon.................... 0 3 0 0 3
West Virginia............. 3 0 0 0 3
Arizona................... 0 2 0 0 2
Kansas.................... 2 0 0 0 2
Connecticut............... 1 0 0 0 1
Delaware.................. 1 0 0 0 1
Nebraska.................. 1 0 0 0 1
North Dakota.............. 1 0 0 0 1
South Dakota.............. 1 0 0 0 1
Washington................ 0 1 0 0 1
--- --- --- --- ---
Total................... 165 95 40 14 314
=== === === === ===
</TABLE>
In the past four years, the Company has divested more than 100 restaurants,
and the Company currently has a substantial portfolio of closed, subleased and
assigned properties. Because the ability of any particular acquiror to satisfy
its obligations under any subleased or assigned lease depends on its ability
to generate sufficient revenues in the acquired restaurant, there can be no
assurance that the Company will not incur significant and unplanned costs in
connection with such leases. It is expected that ongoing divestment activities
will add to this portfolio of closed, subleased and assigned properties. From
time to time, the Company has been required to
9
<PAGE>
reassume leases associated with these properties, but it has generally been
able to relet them in a reasonable period of time. As of December 27, 1998,
the Company was attempting to lease eight closed properties with an annual
carrying cost of $1.4 million. The failure to relet such leases on favorable
economic terms, or at all, or increases in the carrying costs associated with
such leases, could have a material adverse effect on the Company's financial
condition and results of operations.
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
On October 29, 1998, the majority stockholder of the Company, acting by
written consent, consented to: (a) the adoption of the Fifth Restated
Certificate of Incorporation of the Company; (b) amending and restating the
By-laws of the Company; (c) the 1998 Stock Incentive Plan; and (d) changing
the name of the Company to Koo Koo Roo Enterprises, Inc.
10
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
From September 15, 1986 (date of incorporation) through October 30, 1998,
there was no established public trading market for the Company's Common Stock.
Commencing November 2, 1998 with the consummation of the Merger, and
continuing until February 1, 1999, the Company's Common Stock traded in and
was listed for quotation through the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") National Market. Beginning
February 2, 1999, the Company's Common Stock has traded in the NASD Over-the-
Counter Bulletin Board Market.
The following table sets forth for the periods identified the high and low
closing price of the Company Common Stock, as reported by the applicable
market.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Year Ended December 1996
First Quarter N/A N/A
Second Quarter................................................ N/A N/A
Third Quarter................................................. N/A N/A
Fourth Quarter................................................ N/A N/A
Year Ended December 1997
First Quarter................................................. N/A N/A
Second Quarter................................................ N/A N/A
Third Quarter................................................. N/A N/A
Fourth Quarter................................................ N/A N/A
Year Ended December 1998
First Quarter................................................. N/A N/A
Second Quarter................................................ N/A N/A
Third Quarter................................................. N/A N/A
Fourth Quarter (beginning November 2, 1998)................... $1.25 $0.53
</TABLE>
At March 19, 1999, there were 997 stockholders of record of Company Common
Stock.
The Securities and Exchange Commission ("SEC") recently amended certain
rules under the Securities Exchange Act of 1934 regarding the use of a
company's discretionary proxy voting authority with respect to stockholder
proposals submitted to a company for consideration at such company's next
annual meeting. Stockholder proposals submitted to the Company outside the
processes of Rule 14a-8 (i.e., the procedures for placing a stockholders'
proposal in the Company's proxy materials) (i) will be considered untimely
with respect to the 1999 annual meeting of stockholders unless received at a
reasonable time before the Company begins to print and mail its proxy
materials and (ii) will be considered untimely with respect to all subsequent
annual meetings of stockholders if received by the Company more than 120 days
or less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders.
The Company has not paid cash dividends to holders of Company Common Stock
since its incorporation. The Company has retained, and expects to continue to
retain, all available earnings, if any, generated by its operations for the
maintenance, development and growth of its business, and does not anticipate
paying dividends on Company Common Stock in the foreseeable future. In
addition, each of the indentures, as amended, (collectively, the "Indentures")
governing the Company's outstanding Senior Notes and Discount Notes, the note
agreements governing the FRI-MRD Senior Discount Notes and the New MRD Notes
and the Foothill Credit Facility restricts or prohibits the Company's ability
to pay dividends.
11
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Predecessor
Successor Company (1) Company (1)
------------------------------------------------------------------ -----------
As of and
for
As of and for the Years Ended the Eleven For the One
---------------------------------------------------- Months Ended Month Ended
Dec. 27, Dec. 28, Dec. 29, Dec. 31, Dec. 25, Jan. 26,
1998 1997 1996 1995 1994 1994
----------- ----------- ----------- ----------- ------------ -----------
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Sales................... $ 472,653 $ 463,724 $ 724,229 $ 1,134,359 $ 1,048,674 $ 64,741
Cost of Sales:
Product cost........... 126,788 123,803 200,379 322,194 293,413 19,184
Payroll and related
costs................. 165,207 162,807 273,536 419,185 377,569 24,780
Occupancy and other
operating expenses.... 125,177 129,428 181,730 275,164 243,147 13,712
Depreciation and
amortization........... 22,916 22,395 33,802 52,561 44,658 2,800
General and
administrative
expenses............... 27,417(2) 30,186 41,742 56,245 49,059 4,071
Opening expense......... 3,345 188 673 5,275 3,988 0
Gain (loss) on
disposition of
properties............. (7,993) (3,885) (8,600) (12,067) (5,685) 12
Gain on sale of
division............... 0 0 62,601 0 0 0
Provision for
divestitures and write-
down of long-lived
assets................. 27,661 2,640 0 44,500 144,780(3) 0
VCU termination
expense(4)............. 4,223 0 0 0 0 0
Restructuring costs..... 0 0 6,546 4,392 0 0
Reorganization items.... 0 0 0 0 0 479,427
Interest expense, net... 24,659 19,476 36,725 65,277 51,419 4,097
Income tax provision.... 400 509 890 1,208 1,773 55
----------- ----------- ----------- ----------- ----------- --------
Income (loss) before
extraordinary item..... (63,133) (31,593) 2,207 (123,709) (166,817) 475,481
Extraordinary gain on
extinguishment of
debt................... 0 0 134,833 0 2,941 72,561
----------- ----------- ----------- ----------- ----------- --------
Net income (loss)....... (63,133) (31,593) 137,040 (123,709) (163,876) 548,042
Preferred dividends..... 0 0 0 0 0 1,698
----------- ----------- ----------- ----------- ----------- --------
Net income (loss)
attributable to common
shares................. $ (63,133) $ (31,593) $ 137,040 $ (123,709) $ (163,876) $546,344
=========== =========== =========== =========== =========== ========
Net income (loss) per
share--basic and
diluted(5):
Income (loss) before
extraordinary item.... $ (0.48) $ (0.26) $ 0.02 $ (1.02) $ (1.35)
Extraordinary item..... -- -- 1.11 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ (0.48) $ (0.26) $ 1.13 $ (1.02) $ (1.35)
=========== =========== =========== =========== ===========
Weighted average shares
outstanding--basic and
diluted(5)............. 131,309,797 121,515,391 121,515,391 121,515,391 121,687,283
=========== =========== =========== =========== ===========
Balance Sheet Data:
Working capital
(deficiency)........... $ (92,770) $ (66,412) $ (85,524) $ 45,114 $ (155,481)
Current assets.......... 35,790 45,117 46,612 267,077 43,015
Total assets............ 348,186 289,768 307,606 551,270 734,598
Current liabilities..... 128,560 111,529 132,136 221,963 198,496
Non-current portion of
long-term debt,
including capitalized
lease obligations...... 237,151 199,955 165,325 455,203 536,495
Common stockholders'
equity (deficit)....... (21,137) (26,194) 5,399 (131,576) (7,259)
Selected Consolidated
Financial Ratios and
Other Data:
EBITDA(6)............... $ 28,064(2) $ 17,500 $ 26,842 $ 61,571 $ 85,486 $ 2,994
Net income (loss)....... (63,133) (31,593) 137,040 (123,709) (163,876) 548,042
Net cash provided by
(used in) operating
activities............. (2,495) (13,105) (21,857) 6,083 18,346 (18,252)
Capital expenditures.... 27,691 13,588 9,848 38,022 65,618 779
Net cash provided by
(used in) investing
activities............. (41,760) (16,631) 165,024 (19,615) (64,167) (192,610)
Net cash provided by
(used in) financing
activities............. 29,444 28,434 (117,717) 13,663 31,858 223,754
Deficiency of earnings
(losses) to cover fixed
charges(7)............. (62,733) (31,084) (59,504) (122,501) (165,044)
Restaurants open at end
of period.............. 314 275 281 670 702 524
Ratio of EBITDA to
interest expense, net.. 1.14x 0.90x 0.73x 0.94x 1.66x 0.73x(8)
</TABLE>
- -------
12
<PAGE>
(1) 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 Koo Koo Roo Enterprises, Inc. (formerly known as Family Restaurants,
Inc.) and its consolidated subsidiaries, giving effect to the acquisition
on January 27, 1994, when Apollo, Green Equity Investors, L.P. and
Foodmaker, Inc. acquired approximately 98% of the Common Stock and Chi-
Chi's was merged with and into a subsidiary of the Company. The results of
operations and financial position of KKR (including Hamlet) have been
combined with the results of operations and financial position of the
Company from October 30, 1998 forward.
(2) Includes the reversal of accrued management fees of $2,500,000 payable to
Apollo that the Company will not be required to pay.
(3) 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
when Chi-Chi's was acquired on January 27, 1994. These operating results
caused the Company to reevaluate its business strategy for 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.
(4) Compensation expense of $4.2 million was recorded in the fourth quarter of
1998 in connection with the termination of the Company's Value Creation
Units Plan. Such expense consisted of a $4 million cash payment and
approximately $0.2 million for the intrinsic value of stock options
granted on December 9, 1998 in connection with the termination of awards
under the Value Creation Units Plan. The stock options are fully vested
options to purchase up to, in the aggregate, 3% of the fully diluted
Company Common Stock immediately following the Merger (including shares to
be reserved for issuance under the Company's 1998 Stock Incentive Plan).
Such options have a per share strike price of $.50 and are not exercisable
for a period of 90 days after issuance.
(5) Net income per share for the Predecessor Company is not meaningful due to
debt discharge, the issuance of new common stock and fresh start
reporting.
(6) EBITDA is defined as earnings (loss) before opening costs, gain (loss) on
disposition of properties, gain on sale of division, provision for
divestitures and write-down of long-lived assets, VCU termination expense,
restructuring costs, interest, taxes, depreciation and amortization and
extraordinary items. 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. Furthermore, other companies may compute EBITDA differently,
and therefore, EBITDA amounts among companies may not be comparable.
(7) For the periods presented, the Company's earnings (losses) are inadequate
to cover fixed charges by the amounts disclosed. For the purposes of
calculating the deficiency of earnings (losses) to fixed charges
(i) earnings (losses) represent income (loss) before income taxes, fixed
charges, gain on sale of division and extraordinary gain on extinguishment
of debt and (ii) fixed charges consist of interest on all indebtedness,
interest related to capital lease obligations and amortization of debt
issuance costs and discounts relating to indebtedness. Information for the
Predecessor Company is not meaningful.
(8) 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 January 27, 1994.
13
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information and statements included in this Management's Discussion
and Analysis of Financial Condition and Results of Operations, including,
without limitation, statements containing the words "believes," "anticipates,"
"expects," "intends, "plans," "estimates" 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 cause actual results of the Company or the
restaurant industry to differ 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 development of
successful marketing strategies for the Company's restaurants, (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, (ix) business disruptions, (x) changes in consumer preferences, tastes
and eating habits, (xi) increases in food and labor costs, (xii) the Company's
ability to mitigate the impact of the year 2000 issue successfully and (xiii)
potential difficulties in combining the operations of KKR with the Company.
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.
On October 30, 1998, the Company, Merger Sub and KKR consummated the Merger,
pursuant to which Merger Sub was merged with and into KKR, with KKR as the
surviving corporation. As a result of the Merger, each outstanding share of
common stock of KKR was converted into the right to receive one share of
Company Common Stock. Immediately prior to the Merger, a stock dividend was
declared pursuant to which approximately 121.96 shares of Company Common Stock
were distributed for each share of Company Common Stock outstanding
immediately prior to the Merger. Prior to the Merger, the Company provided the
Bridge Loan to a subsidiary of KKR. Additionally, in connection with the
Merger, FRI-MRD issued the New MRD Notes pursuant to the Senior Secured
Discount Note Agreement dated June 9, 1998 for which it received net proceeds
of $21.7 million, and the Company expanded the Foothill Credit Facility by an
additional $20 million. The proceeds from the sale of the New MRD Notes were
used to complete the Hamlet Acquisition immediately prior to the consummation
of the Merger.
Information relating to periods ending prior to October 30, 1998 included
herein relates to the historical operations of Koo Koo Roo Enterprises, Inc.
(formerly known as Family Restaurants, Inc.) and, except as otherwise
indicated, does not reflect the operations of KKR, which the Company acquired
on October 30, 1998.
Liquidity and Capital Resources
Liquidity
The Company reported net cash used in operating activities for the years
ended December 27, 1998 and December 28, 1997 of $2.5 million and $13.1
million, respectively. Cash needs are being funded by available cash balances,
supplemented, as necessary, by working capital advances available under the
Foothill Credit Facility. In addition, in 1997 and 1998 FRI-MRD has raised
approximately $67.3 million in cash from the issuance of the Senior Discount
Notes and the New MRD Notes to supplement its cash needs. The Company's
viability has been and will continue to be 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.
Statement of Cash Flows. For the year ended December 27, 1998, net cash used
in operating activities was $2.5 million compared to $13.1 million for the
year ended December 28, 1997. The difference in cash received from customers,
franchisees and licensees as compared to cash paid to suppliers and employees
improved by $17.9 million from 1997 to 1998 which more than offset cash paid
for opening costs of $3.0 million and for
14
<PAGE>
VCU termination expense of $4.0 million in 1998. For 1998, net cash used in
investing activities was $41.8 million compared to $16.6 million for the same
period in 1997. The increase in net cash used in investing activities of $25.2
million was due to Merger-related expenditures of $17.0 million and an
increase in capital expenditures of $14.1 million which more than offset
decreases in mandatory lease buybacks of $2.7 million, lease termination
payments of $1.5 million and an increase in proceeds from disposal of property
and equipment of $3.4 million. For 1998, net cash provided by financing
activities was $29.4 million compared to $28.4 million for the same period in
1997. During 1998 and 1997, $33.3 million and $33.9 million in net proceeds
from the issuance of notes was received, respectively, while reductions of
long-term debt decreased by $0.4 million and payment of debt issuance costs
decreased by $1.3 million from 1997.
For the year ended December 28, 1997, the Company reported net cash used in
operating activities of $13.1 million compared to net cash used in operating
activities of $21.9 million for the year ended December 29, 1996. The
improvement in net cash used in operating activities of $8.8 million was due
to a $21.6 million reduction in interest paid and no restructuring costs in
1997 versus $6.5 million of such costs in 1996. These improvements were
partially offset by a reduction in cash received from customers, franchisees
and licensees net of cash paid to suppliers and employees. For 1997, the
Company reported net cash used in investing activities of $16.6 million
compared to net cash provided by investing activities of $165.0 million in
1996. This difference was primarily due to a $173.6 million reduction in
proceeds from (i) the disposal of property and equipment; (ii) the sale of the
Family Restaurant Division, net; and (iii) the sale of notes receivable, net.
For 1997, the Company reported net cash provided by financing activities of
$28.4 million compared to net cash used in financing activities of $117.7
million in 1996. During 1997, $33.9 million in net proceeds from the issuance
of notes was received, while in 1996, repurchases of notes and repayment of
working capital borrowings amounted to $32.5 million and $79.8 million,
respectively.
EBITDA. For the year ended December 27, 1998, the Company reported EBITDA
(defined as earnings (loss) before opening costs, gain (loss) on disposition
of properties, gain on sale of division, provision for divestitures and write-
down of long-lived assets, VCU termination expense, restructuring costs,
interest, taxes, depreciation and amortization and extraordinary items) of
$28.1 million, compared to $17.5 million for 1997. The $10.6 million
improvement was due to the continuing impact of El Torito and Chi-Chi's cost
reduction and reengineering strategies, which have improved operating margins,
improving comparable restaurant sales trends, $0.4 million contributed by KKR
for November and December 1998 and the $2.5 million reversal of certain
management fee accruals that the Company will not be required to pay. This
improved EBITDA is the continuation of the trend that began in 1996 when new
management was installed at both El Torito and Chi-Chi's. Since 1995, the
divisional EBITDA of the Company's ongoing operations is set forth in the
following table.
<TABLE>
<CAPTION>
Divisional
EBITDA
----------------
El Chi-
Fiscal Year Ended Torito Chi's
----------------- ------- --------
($ in thousands)
<S> <C> <C>
December 31, 1995(a)....................................... $13,508 $(10,455)
December 29, 1996.......................................... 11,956 (4,278)
December 28, 1997.......................................... 17,627 36
December 27, 1998.......................................... 22,869 1,426
</TABLE>
- --------
(a) Includes 53 weeks of operations and, in accordance with Company policy at
that time, excludes certain unallocated corporate overhead.
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. Furthermore, other companies
may compute EBITDA differently, and therefore, EBITDA amounts among companies
may not be comparable.
15
<PAGE>
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 $92.8 million on December 27, 1998.
Credit Facility. The Foothill Credit Facility:
. provides for up to $35 million in revolving cash borrowings and up to
$55 million in letters of credit (less the outstanding amount of
revolving cash borrowings);
. is secured by substantially all of the real and personal property of the
Company;
. contains restrictive covenants; and
. expires on January 10, 2002.
The Company is in compliance with all financial ratios at December 27, 1998.
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 ($16.4 million of such letters of credit were
outstanding as of March 19, 1999). No revolving cash borrowings were
outstanding as of March 19, 1999.
Senior Discount Notes. On August 12, 1997, FRI-MRD issued an aggregate
principal amount of $61 million of its Senior Discount Notes to certain
holders of the Company's Senior Notes in exchange for $15.6 million of Senior
Notes plus approximately $34 million of cash. On January 14 and 15, 1998, FRI-
MRD issued an additional $14 million aggregate principal amount of its Senior
Discount Notes to the same purchasers for approximately $11.6 million in cash.
The Senior Discount Notes are due on January 24, 2002. No cash interest is due
on the Senior Discount Notes until July 31, 1999, at which time interest will
be payable in cash semi-annually at the rate of 15% per annum with the first
cash interest payment due on January 31, 2000. The Senior Discount Notes are
redeemable by FRI-MRD, in whole or in part, on or before January 23, 2001, at
a price of 107.5% of the accreted value thereof, or after January 23, 2001, at
a price of 103.75% of the accreted value thereof. The Senior Discount Notes
contain covenants that restrict FRI-MRD, including limitations on (i) the
incurrence of certain indebtedness and liens, (ii) the ability to make certain
restricted payments, (iii) certain mergers, consolidations and asset sales and
(iv) certain transactions with affiliates. Proceeds from the sales of the
Senior Discount Notes have been and will continue to be used to fund the
Company's capital expenditure programs and for general corporate purposes.
Senior Secured Discount Notes. On June 9, 1998, FRI-MRD entered into a Note
Agreement pursuant to which on October 30, 1998 FRI-MRD issued $24 million
aggregate face amount of New MRD Notes at a price of approximately 90% of par
resulting in net proceeds of $21.7 million. The New MRD Notes are due on
January 24, 2002. No cash interest is payable on the New MRD Notes until July
31, 1999, at which time interest will be payable in cash semi-annually at the
rate of 14% per annum with the first cash interest payment due on January 31,
2000. The New MRD Notes are redeemable by FRI-MRD, in whole or in part, on or
before January 23, 2001, at a price of 105% of the accreted value thereof, or
after January 23, 2001, at a price of 102.5% of the accreted value thereof.
The New MRD Notes contain covenants that restrict FRI-MRD, including
limitations on (i) the incurrence of certain indebtedness and liens, (ii) the
ability to make certain restricted payments, (iii) certain mergers,
consolidations and asset sales, (iv) certain transactions with affiliates and
(v) the issuance of any equity securities of Hamlet. Proceeds from the sale of
the New MRD Notes were used exclusively to purchase all of the outstanding
shares of Hamlet, and the New MRD Notes are secured by all of such outstanding
shares of Hamlet.
16
<PAGE>
Other. The Company continues to be highly leveraged and has significant debt
service requirements as follows:
<TABLE>
<CAPTION>
Cash
Interest Principal
-------- ---------
($ in millions)
<S> <C> <C>
1999.................................................. $14.3 $ 2.5
2000.................................................. 28.7 2.7
2001.................................................. 28.6 2.5
2002.................................................. 5.6 204.0
2003.................................................. 3.7 1.1
2004.................................................. 0.6 31.6
</TABLE>
In order to continue to fund its capital expenditure programs, management
has begun considering various alternatives to reduce near-term debt service
requirements and extend current maturity dates. There can be no assurance that
the Company will be able to repay or refinance the Notes, or that FRI-MRD will
be able to repay or refinance the Senior Discount Notes or the New MRD Notes,
at their respective maturities. The Company continues to consider additional
sources of cash, such as the sale of non-core assets.
Capital Resources
Net cash used in investing activities was $41.8 million for the year ended
December 27, 1998, including $27.7 million for capital expenditures, as
compared to net cash used in investing activities of $16.6 million for fiscal
1997 and net cash provided by investing activities of $165 million for fiscal
1996. The net cash provided by investing activities for 1996 was primarily due
to the completion of the sale of the Company's Family Restaurant Division and
certain notes receivable.
Capital expenditures of up to approximately $36 million have been identified
for fiscal 1999, including approximately $6 million devoted to normal
improvements of the Company's restaurants. The Company is continuing its
remodeling of both El Torito and Chi-Chi's restaurants and is committing
approximately $18 million to $19 million for this purpose in fiscal 1999. The
Company also anticipates opening up to 11 new El Torito restaurants, including
the new "El Torito Express" concept, and five new Koo Koo Roo restaurants, and
the Company is also planning to upgrade El Torito's in-store point-of-sale
("POS") technology during fiscal 1999.
By December 27, 1998, the Company had completed the remodeling of 32 El
Torito restaurants, primarily in the Los Angeles/Orange County and Sacramento
markets, and 45 Chi-Chi's restaurants, in various markets (including five
restaurants that tested an enhanced remodel package).
Year 2000
Background. In the past, many computers, software programs, and other
information technology ("IT systems"), as well as other equipment relying on
microprocessors or similar circuitry ("non-IT systems"), were written or
designed using two digits, rather than four, to define the applicable year. As
a result, date-sensitive systems (both IT systems and non-IT systems) may
recognize a date identified with "00" as the year 1900, rather than the year
2000. This is generally described as the Year 2000 issue. If this situation
occurs, the potential exists for system failures or miscalculations, which
could impact business operations.
The SEC has asked public companies to disclose four general types of
information related to Year 2000 preparedness: the company's state of
readiness, costs (historical and prospective), risks and contingency plans.
See SEC Release No. 33-7558 (July 29, 1998). Accordingly, the Company has
included the following discussion in this report, in addition to the Year 2000
disclosures previously filed with the SEC.
State of Readiness. The Company began a concerted effort to address its Year
2000 issues in fiscal 1997. In fiscal 1998, the Company formalized the effort
with a team that includes the Chief Executive Officer, General
17
<PAGE>
Counsel, Chief Financial Officer and Vice President of Information Services.
This team decided in early 1998 that the Company's best course of action was
to replace the IT systems that were not Year 2000 compliant with new hardware
and software. In addition to improving processes and allowing wider access to
data, the new systems would be Year 2000 compliant.
The Company believes that it has identified all significant IT Systems that
require replacement in connection with Year 2000 issues. Internal resources
have been used, and are continuing to be used, to make the required changes
and test Year 2000 readiness. The required modifications of all significant
systems are well underway. The Company plans on completing the replacement and
testing of all significant systems by September 1999. The Company is in the
process of identifying all non-IT systems that require replacement or update.
Non-IT systems that may have a significant impact on the Company are expected
to be replaced or updated by September 1999.
In addition, the Company has communicated with suppliers, banks, vendors and
others with whom it does significant business (collectively, its "business
partners") to determine their Year 2000 readiness and the extent to which the
Company is vulnerable to any other organization's Year 2000 issues. Based on
these communications and related responses, the Company is monitoring the Year
2000 preparations and state of readiness of its business partners. Although
the Company is not aware of any significant Year 2000 problems with its
business partners, there can be no guarantee that the systems of other
organizations on which the Company's systems rely will be converted in a
timely manner, or that a failure to convert by another organization, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
Costs. The total cost to the Company of Year 2000 activities has not been
and is not anticipated to be material to its financial position or results of
operations in any given year. The Company spent approximately $2.2 million on
the new software and related hardware and installation costs in 1998 . In
addition, the El Torito in-store POS upgrade discussed in Capital Expenditures
above and POS upgrades in the Company's other operating divisions, including
KKR, which are required for Year 2000 compliancy, are expected to be completed
by September 1999 at a cost of approximately $6.5 million to $7.0 million,
much of which is anticipated to be lease financed. These costs, as well as the
date on which the Company plans to complete the Year 2000 modifications and
testing processes, are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved, and actual results could differ from those estimates.
Risks. The Company utilizes IT systems and non-IT systems in many aspects of
its business. Year 2000 problems in some of the Company's systems could
possibly disrupt operations at some restaurants, but the Company does not
expect that any such disruption would have a material adverse impact on the
Company's operating results.
The Company is also exposed to the risk that one or more of its suppliers or
vendors could experience Year 2000 problems that could impact the ability of
such suppliers or vendors to provide goods and services. Although this risk is
lessened by the availability of alternative suppliers, the disruption of
certain services, such as utilities, could, depending upon the extent of the
disruption, potentially have a material adverse impact on the Company's
operations.
Contingency Plans. Based on the above-described plans, the Company does not
believe that significant contingency plans will be necessary but as 1999
unfolds, the Company will begin preparing plans to deal with the possibility
that some suppliers or vendors might fail to provide goods and services on a
timely basis as a result of Year 2000 problems. The Company expects these
contingency plans will generally include the identification, acquisition
and/or preparation of backup systems, suppliers and vendors.
18
<PAGE>
Results of Operations
As used herein, "comparable restaurants" are restaurants operated by the
Company on the first day of the earlier fiscal year and that continued in
operation through the last day of the later year being compared.
Fiscal year 1998 as compared to fiscal year 1997
Total sales of $472,653,000 for 1998 increased by $8,929,000 or 1.9% as
compared to 1997. The increase was due to (i) the addition of sales from the
Koo Koo Roo and Hamburger Hamlet restaurants which were acquired in the Merger
and the Hamlet Acquisition on October 30, 1998 and (ii) sales increases in the
comparable El Torito and Chi-Chi's, partially offset by sales decreases for
restaurants sold or closed. The breakdown of the sales increase for 1998 is
detailed below:
<TABLE>
<CAPTION>
1998 Sales
Increase
----------
($ in
thousands)
<S> <C>
Sales from the KKR Restaurant Division............................ $ 14,617
Increase in Sales of Comparable Restaurants....................... 4,814
Decrease in Sales of Restaurants Sold or Closed................... (10,502)
--------
$ 8,929
========
</TABLE>
Sales for comparable restaurants of $451,928,000 for 1998 increased by
$4,814,000 or 1.1% compared to 1997. The increase is comprised of a $4,223,000
or 1.8% increase in Chi-Chi's and a $591,000 or 0.3% increase in El Torito,
achieved in the face of a continuing competitive operating environment for
restaurants.
<TABLE>
<CAPTION>
1998
Comparable
Sales Increase
--------------
Amount Percent
------ -------
($ in
thousands)
<S> <C> <C>
Comparable Chi-Chi's.......................................... $4,223 1.8%
Comparable El Torito.......................................... 591 0.3
------
Total....................................................... $4,814 1.1%
====== ===
</TABLE>
El Torito comparable sales for the year were up 0.3% as compared to the same
period in 1997. After the negative impact of the El Nino weather system in the
first quarter of 1998, comparable sales for the second, third and fourth
quarters were up 0.3%, 0.1% and 2.6%, respectively, as compared to the same
periods in 1997. During the third and fourth quarters, El Torito suspended the
use of electronic media for advertising, opting to reach targeted customers
utilizing alternative print media strategies. July began with the introduction
of El Torito's "All New Fajitas" campaign featuring a series of bounce-back
programs. In the fourth quarter, El Torito introduced the "XXL Fajitas
Skillets" promotion which featured seven new Fajitas entrees served on
oversize cast iron skillets. The in-restaurant marketing for the promotion
included brightly colored in-store material featuring an "actual size" Fajitas
skillet. The campaign was advertised utilizing print media and included
special discount offers designed to both generate new guest trial and increase
frequency of existing guests. In addition, El Torito introduced a Traditional
Holiday Combinations menu insert in December in an effort to trade guests into
higher margin entrees. Also contributing to El Torito's improving sales trends
are the positive results of the remodel program which started in 1997. As of
the end of fiscal 1998, El Torito had completed 32 remodels.
Comparable sales for Chi-Chi's were up 1.8% for the year as compared to the
same period in 1997. During the third and fourth quarters of 1998, Chi-Chi's
comparable sales were up 3.1% and 4.7%, respectively, as compared to the same
periods in 1997. July began with the media-supported introduction of Chi-Chi's
"Sizzling Sensation" campaign featuring the new Grilled Steak & Chicken Tower
and other items such as the Sizzling Enchiladas and the new Sizzling Burrito
and Sizzling Chimichanga. A free-standing insert extended the
19
<PAGE>
campaign through mid-September and included special discount offers for all
times of the day to boost sales during the historic back-to-school sales lull.
Chi-Chi's continued with its marketing direction through the end of 1998
portraying the concept as a value-oriented, fun Mexican restaurant where you
can "put a little salsa in your life." Also contributing to Chi-Chi's
improving comparable sales trends are the favorable results of the remodel
program begun in 1997. Since the inception of the program, Chi-Chi's has
remodeled 45 restaurants, five of which incorporated an enhanced, more
extensive version of the original remodel concept.
Product costs of $126,788,000 for 1998 increased by $2,985,000 or 2.4% as
compared to 1997 due to the acquisition of the Koo Koo Roo and Hamburger
Hamlet restaurants in the Merger which accounts for $4,699,000 or 157.4% of
the increase, partially offset by the impact of the 22 restaurants sold or
closed since the beginning of 1997. As a percentage of sales, product costs
remained relatively flat, increasing slightly to 26.8% in 1998 from 26.7% in
1997.
Payroll and related costs of $165,207,000 for 1998 increased by $2,400,000
or 1.5% as compared to 1997 due to the acquisition of the Koo Koo Roo and
Hamburger Hamlet restaurants in the Merger which accounts for $5,308,000 or
221.2% of the increase, partially offset by the impact of the 22 restaurants
sold or closed since the beginning of 1997. As a percentage of sales, payroll
and related costs decreased slightly from 35.1% in 1997 to 35.0% in 1998 due
in part to a continuing focus on improving labor scheduling and efficiencies.
The improvement in payroll and related costs as a percentage of sales was
offset, in part, by the impact of the minimum wage increases nationally on
September 1, 1997, and on March 1, 1997 and March 1, 1998 in California.
The Company is subject to Federal and state laws governing matters such as
minimum wages, overtime and other working conditions. Approximately half of
the Company's employees are 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 was further increased to $5.15. However, a
provision of the new measure effectively froze 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, in California, voters
approved a proposition on November 5, 1996 that increased the state's minimum
wage to $5.00 on March 1, 1997 and further increased the state=s minimum wage
to $5.75 on March 1, 1998. In response to the minimum wage increases on
October 1, 1996, March 1, 1997 and March 1, 1998, the Company raised menu
prices at its El Torito restaurants in an effort to recover the higher payroll
costs. Chi-Chi's also raised menu prices in October and December 1997 as a
result of the cumulative impact of these minimum wage increases. Similarly, in
March 1998, KKR also raised menu prices. No minimum wage increases are
scheduled for 1999 at this time, but pressure continues for further increases
at both the Federal and California levels.
Occupancy and other operating expenses of $125,177,000 for 1998 decreased by
$4,251,000 or 3.3% as compared to 1997. The decrease was due to (i) the impact
of the 22 restaurants sold or closed since the beginning of 1997, (ii) the
impact of El Torito and Chi-Chi's cost reduction strategies and (iii) a
decrease in media advertising expense in El Torito, partially offset by the
acquisition of the Koo Koo Roo and Hamburger Hamlet restaurants in the Merger
which added $3,234,000 in additional costs. As a percentage of sales,
occupancy and other expenses decreased from 27.9% in 1997 to 26.5% in 1998.
Depreciation and amortization of $22,916,000 for 1998 increased by $521,000
or 2.3% as compared to 1997 due to the acquisition of the Koo Koo Roo and
Hamburger Hamlet restaurants in the Merger which accounts for $1,087,000 or
208.6% of the increase and additional depreciation related to the Company's
ongoing capital expenditure program, partially offset by the impact of the 22
restaurants sold or closed since the beginning of 1997 and the write-down of
certain long-lived assets in 1997 and 1998.
General and administrative expenses of $27,417,000 for 1998 decreased by
$2,769,000 or 9.2% as compared to 1997. As a percentage of sales, general and
administrative expenses decreased from 6.5% in 1997 to 5.8% in
20
<PAGE>
1998. General and administrative expenses were relatively flat for the year
after taking into account the impact of $2,500,000 in prior year management
fee accrual reversals and no similar fees accrued in 1998, partially offset by
$1,012,000 in incremental expenses related to completing the Merger and the
Hamlet Acquisition and absorbing the KKR divisional operations. Management
continues to closely evaluate the Company's general and administative cost
structure for savings opportunities and expects that, as a result of the
Merger and the Hamlet Acquisition, general and administrative expenses will
decrease as a percentage of sales.
Opening costs are incurred in connection with the opening or remodeling of a
restaurant and are principally related to stocking the restaurant and training
its staff. Through the year ended December 28, 1997, the Company's policy had
been to capitalize such opening costs and amortize them over one year. In
April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up
Activities," which specifies that all costs of start-up activities, including
restaurant opening costs, should be expensed as incurred. Although SOP 98-5 is
effective for fiscal years beginning after December 15, 1998, early adoption
was allowed, and the Company elected to adopt the provisions of SOP 98-5 in
the quarter ended March 29, 1998. Accordingly, $344,000 of unamortized opening
costs at December 28, 1997 (classified as other current assets) was expensed
in the condensed consolidated statement of operations for the quarter ended
March 29, 1998. Opening costs incurred during the year ended December 27, 1998
were $3,001,000. Amortization of opening costs of $188,000 and $673,000 in the
comparable periods of 1997 and 1996 have been reclassified.
The Company reported a loss on disposition of properties of $8.0 million for
1998 compared to a loss of $3.9 million in 1997. These amounts reflect losses
associated with restaurant divestments and closures in such periods. In
addition, also included in 1998 is a $3.0 million increase in the Company=s
reserve for carrying costs of closed properties and the write-off of $2.2
million in notes receivable related to prior restaurant divestments.
As a result of a continued review of operating results and as part of its
strategic planning process for 1999, the Company identified 48 non-strategic
Chi-Chi's restaurants which are not part of the Chi-Chi's long-term core
market focus. In connection with this analysis, the Company analyzed the
carrying value of the long-lived assets of these restaurants, determined the
anticipated costs of divestment and recorded a provision for divestitures of
$22.9 million, which included reducing the assets' carrying value to their
estimated fair market value. The Company is actively marketing these
restaurants for divestment, and the majority of the restaurants continue in
operation. In addition, the Company identified 12 other restaurants with
impaired values and recorded a write-down of long-lived assets of $4.8
million.
Interest expense, net of $24,659,000 for 1998 increased by $5,183,000 or
26.6% as compared to 1997 primarily resulting from (i) the issuance of the
Senior Discount Notes in August 1997 and January 1998 and the accretion of
interest thereon and (ii) the issuance of the New MRD Notes on October 30,
1998 and the accretion of interest thereon, partially offset by the
elimination of cash interest expense associated with the $15.6 million of
Senior Notes received as part of the exchange on August 12, 1997.
Compensation expense of $4.2 million was recorded in the fourth quarter of
1998 in connection with the termination of the Company's Value Creation Units
Plan. Such expense consisted of a $4 million cash payment and approximately
$0.2 million for the intrinsic value of stock options granted on December 9,
1998 in connection with the termination of awards under the Value Creation
Units Plan. The stock options are fully vested options to purchase up to, in
the aggregate, 3% of the fully diluted Company Common Stock immediately
following the Merger (including shares to be reserved for issuance under the
Company's 1998 Stock Incentive Plan). Such options have a per share strike
price of $.50 and are not exercisable for a period of 90 days after issuance.
Fiscal year 1997 as compared to fiscal year 1996
Total sales of $463,724,000 for 1997 decreased by $260,505,000 or 36.0% as
compared to 1996. The decrease was due to (i) the loss of sales from the
Family Restaurant Division which was sold by the Company
21
<PAGE>
on May 23, 1996, (ii) sales decreases for restaurants sold or closed and (iii)
sales declines in the comparable El Toritos and Chi-Chi's. The breakdown of
the sales decline for 1997 is detailed below:
<TABLE>
<CAPTION>
1997 Sales
Decreases
----------
($ in
thousands)
<S> <C>
Sales of the Family Restaurant Division.......................... $(194,464)
Decrease in Sales from Restaurants Sold or Closed................ (42,995)
Decrease in Sales from Comparable Restaurants.................... (23,046)
---------
$(260,505)
=========
</TABLE>
Sales for comparable restaurants of $456,965,000 for 1997 decreased by
$23,046,000 or 4.8% compared to 1996. The decrease was comprised of a
$21,816,000 or 8.2% decline in Chi-Chi's and a $1,230,000 or 0.6% decline in
El Torito primarily reflecting a continuing competitive operating environment
for restaurants.
<TABLE>
<CAPTION>
1997 Comparable
Sales Decrease
-----------------
Amount Percent
-------- -------
($ in thousands)
<S> <C> <C>
Comparable Chi-Chi's...................................... $(21,816) (8.2)%
Comparable El Torito...................................... (1,230) (0.6)
-------- ----
Total................................................... $(23,046) (4.8)%
======== ====
</TABLE>
El Torito comparable sales for fiscal 1997 were down slightly as compared to
the same period in 1996. El Torito had hired a new advertising agency, Grey
Advertising, to continue to refine and build upon its long-term marketing
strategy, positioning El Torito as a "Mexican Getaway." Both television and
radio commercials were utilized to communicate this position. In addition, the
theme was incorporated into all in-store materials and menus.
Chi-Chi's continued with its new marketing direction through the end of 1997
portraying the concept as a value-oriented, fun Mexican restaurant where you
can "put a little salsa in your life." A new menu was introduced in December
that expanded the product offerings to appeal to a greater segment of the
population. Barbequed and grilled meats, related to Mexican cuisine, but not
considered traditional Mexican dishes, were added along with additional
Mexican entrees. Chi-Chi's comparable sales trend for 1997 improved
5.4 percentage points over that of 1996 with comparable sales down 8.2% for
1997 as compared with the 1996 versus 1995 negative trend of 13.6% for the
same group of restaurants.
Product cost of $123,803,000 for 1997 decreased by $76,576,000 or 38.2% in
1997 as compared to 1996 primarily due to the sale of the Family Restaurant
Division which accounted for $54,187,000 or 70.8% of the decrease, as well as
the impact of the 47 other restaurants sold or closed since the end of fiscal
1995. In addition, El Torito and Chi-Chi's cost reduction strategies further
contributed to product cost savings by revising product specifications,
reducing the number of ingredients used and controlling inventories. As a
percentage of sales, product cost declined to 26.7% in 1997 as compared to
27.7% in 1996.
Payroll and related costs of $162,807,000 for 1997 decreased by $110,729,000
or 40.5% as compared to 1996 primarily due to the sale of the Family
Restaurant Division which accounted for $72,997,000 or 65.9% of the decrease,
as well as the impact of the 47 other restaurants sold or closed since the end
of fiscal 1995. As a percent of sales, payroll and related costs decreased
from 37.8% in 1996 to 35.1% in 1997 due in part to savings realized from the
El Torito and Chi-Chi's cost reduction strategies which focused on improving
labor scheduling and efficiencies. The improvement in payroll and related
costs was offset, in part, by the impact of the minimum wage increases
nationally on October 1, 1996 and September 1, 1997 and on March 1, 1997 in
California.
Occupancy and other operating expenses of $129,428,000 for 1997 decreased by
$52,302,000 or 28.8% as compared to 1996 primarily due to the sale of the
Family Restaurant Division which accounted for $37,568,000
22
<PAGE>
or 71.8% of the decrease, as well as the impact of the 47 other restaurants
sold or closed since the end of fiscal 1995. As a percentage of sales,
occupancy and other expenses increased from 25.1% in 1996 to 27.9% in 1997.
These increases primarily reflected (i) the impact of declining sales without
an offsetting reduction in fixed expenses, (ii) an increase in planned media
spending in both El Torito and Chi-Chi's in connection with the implementation
of new marketing campaigns in 1997 to reposition both concepts and (iii) the
lower occupancy and other operating expenses as a percentage of sales in the
Family Restaurant Division in the first five months of 1996.
Depreciation and amortization of $22,395,000 for 1997 decreased by
$11,407,000 or 33.8% as compared to 1996 primarily due to the sale of the
Family Restaurant Division which accounted for $11,162,000 or 97.9% of the
decrease.
General and administrative expenses of $30,186,000 for 1997 decreased by
$11,556,000 or 27.7% as compared to 1996 primarily due to the sale of the
Family Restaurant Division and the elimination of its direct and allocated
general and administrative expenses of $10,014,000. The Company eliminated 134
positions in its Louisville corporate office and 52 positions in its Irvine
corporate offices in connection with its reorganization after the sale of the
Family Restaurant Division. As a percentage of sales, general and
administrative expenses increased from 5.8% in 1996 to 6.5% in 1997 primarily
reflecting general and administrative expenses spread over fewer restaurants.
The Company reported a loss on disposition of properties of $3.9 million for
1997 compared to a loss of $8.6 million in 1996. These amounts reflect losses
associated with restaurant divestments and closures in such periods.
As a result of a continued review of operating results, the Company
identified 18 unprofitable Chi-Chi's restaurants, analyzed the carrying value
of the long-lived assets of these restaurants and recorded a write-down of
long-lived assets of $2.6 million during the second quarter of 1997 to reduce
the assets' carrying value to their estimated fair maket value.
The Company reported no restructuring costs in 1997 versus $6.5 million in
1996. These costs were primarily related to amounts paid to consultants,
professional fees, severance and related costs, and other restructuring
related expenses that were not incurred in 1997.
Interest expense, net of $19,476,000 for 1997 decreased by $17,249,000 or
47.0% as compared to 1996 primarily resulting from (i) lower interest expense
due to the repurchases of $181.0 million aggregate principal amount of the
Company's Senior Notes and $119.1 million aggregate principal amount of its
Discount Notes in the third and fourth quarters of 1996 and the exchange of
$15.6 million of Senior Notes on August 12, 1997, (ii) the repayment of
outstanding revolving debt under the Old Credit Facility in May 1996 and (iii)
the elimination of the Family Restaurant Division's interest costs, primarily
for capitalized lease obligations. These decreases were partially offset by
the increase due to the issuance of the Senior Discount Notes on August 12,
1997 and the accretion of interest thereon.
The Company recorded a gain of $62,601,000 in 1996 as a result of the sale
of the Family Restaurant Division.
The Company recognized an extraordinary gain of $134,833,000 in 1996 as a
result of several repurchases of the Notes.
Accounting Pronouncements
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," an amendment of SFAS No.
87, No. 88 and No. 106. This Statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement
23
<PAGE>
or recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful. This Statement is not applicable to
the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes standards for
derivative instruments and for hedging activities, and requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company has no instruments or
transactions subject to this Statement.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." This Statement requires that after the
securitization of a mortgage loan held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed security as a
trading security. This Statement is not applicable to the Company.
Selected Operating Data
Until the Merger on October 30, 1998, the Company primarily operated full-
service Mexican restaurants in two divisions under the El Torito, Chi-Chi's,
Casa Gallardo and other names. In connection with the Merger and the Hamlet
Acquisition, the Company acquired the Koo Koo Roo and Hamburger Hamlet
restaurant operations. At December 27, 1998 the Company's El Torito restaurant
division operated 95 full-service and fast-casual restaurants, the Company's
Chi-Chi's restaurant division operated 165 full-service restaurants and the
Company's KKR restaurant division operated 54 fast-casual and full-service
restaurants.
24
<PAGE>
The following table sets forth certain information regarding the Company,
its El Torito, Chi-Chi's and KKR restaurant divisions, and the various
operations divested in 1996.
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
($ in thousands, except average check
amount)
<S> <C> <C> <C>
El Torito Restaurant Division
Restaurants Open at End of Period:
Owned/operated..................... 95 96 97
Franchised and Licensed............ 8 9 7
Sales................................ $214,370 $217,949 $219,466
Restaurant Level Cashflow (a)........ 34,807 30,051 26,355
Divisional EBITDA (b)................ 22,869 17,627 11,956
Percentage increase (decrease) in
comparable restaurant sales......... 0.3% (0.6)% (3.0)%
Average check........................ $ 10.15 $ 9.87 $ 9.47
Chi-Chi's Restaurant Division
Restaurants Open at End of Period:
Owned/operated..................... 165 179 184
Franchised and Licensed............ 12 16 18
Sales................................ $243,666 $245,775 $278,065
Restaurant Level Cashflow (a)........ 18,285 16,515 9,674
Divisional EBITDA (b)................ 1,426 36 (4,278)
Percentage increase (decrease) in
comparable restaurant sales......... 1.8% (8.2)% (11.5)%
Average check........................ $ 8.12 $ 7.62 7.54
KKR Restaurant Division (c)
Restaurants Open at End of Period:
Owned/operated..................... 54 0 0
Franchised and Licensed............ 3 0 0
Sales................................ $ 14,617 $ 0 $ 0
Restaurant Level Cashflow (a)........ 1,376 0 0
Divisional EBITDA (b)................ 364 0 0
Percentage decrease in comparable
restaurant sales.................... N.A.% 0% 0%
Average check (Koo Koo Roo
restaurants only)................... $ 8.70 $ 0 $ 0
Ongoing Operations
Restaurants Open at End of Period:
Owned/operated..................... 314 275 281
Franchised and Licensed............ 23 25 25
Sales................................ $472,653 $463,724 $497,531
Divisional EBITDA (b)................ 24,659 17,663 7,678
Divested Operations (d)
Restaurants Open at End of Period:
Owned/operated..................... 0 0 0
Franchised and Licensed............ 0 0 0
Sales................................ $ 0 $ 0 $226,698
Divisional EBITDA (b)................ 0 0 18,877
Total Company
Restaurants Open at End of Period:
Owned/operated..................... 314 275 281
Franchised and Licensed............ 23 25 25
Sales................................ $472,653 $463,724 $724,229
EBITDA (e)........................... 28,064 (f) 17,500 26,842
</TABLE>
- --------
25
<PAGE>
(a) Restaurant Level Cashflow with respect to any operating division
represents Divisional EBITDA (as defined below) before general and
administrative expenses and any net franchise profit or miscellaneous
income (expense) reported by the respective division.
(b) Divisional EBITDA with respect to any operating division is defined as
earnings (loss) before opening costs, gain (loss) on disposition of
properties, interest, taxes, depreciation and amortization.
(c) Reflects operations for the months of November and December 1998.
(d) 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 that were divested by year-end
1996.
(e) EBITDA is defined as earnings (loss) before opening costs, gain (loss)
on disposition of properties, gain on sale of division, provision for
divestitures and write-down of long-lived assets, VCU termination
expense, restructuring costs, interest, taxes, depreciation and
amortization and extraordinary items. 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. Furthermore, other companies may
compute EBITDA differently, and therefore, EBITDA amounts among
companies may not be comparable.
(f) Includes the reversal of accrued management fees of $2,500,000 payable
to Apollo that will not be paid.
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 1998 and 1997, 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.
26
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers of the Registrant is
incorporated herein by reference to the Company's definitive proxy statement
which will be filed with the Commission within 120 days of the Company's
fiscal year end.
Item 11. EXECUTIVE COMPENSATION
Information concerning executive compensation of the Registrant is
incorporated herein by reference to the Company's definitive proxy statement
which will be filed with the Commission within 120 days of the Company's
fiscal year end.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management of the Registrant is incorporated herein by reference to the
Company's definitive proxy statement which will be filed with the Commission
within 120 days of the Company's fiscal year end.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions with
the Registrant is incorporated herein by reference to the Company's definitive
proxy statement which will be filed with the Commission within 120 days of the
Company's fiscal year end.
27
<PAGE>
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.)
2 (b) Agreement and Plan of Merger, dated as of June 9, 1998
by and among the Company, Fri-Sub, Inc. and Koo Koo Roo,
Inc. ("KKR"). (Filed as Exhibit 2.1 to the Company's
Form S-4 filed with the SEC on July 1, 1998.)
3 (a) Fifth Restated Certificate of Incorporation of the
Company. (Filed as Exhibit 4.1 to the Company's Form S-8
filed with the SEC on November 12, 1998.)
3 (b) Amendment to Fifth Restated Certificate of Incorporation
of the Company. (Filed as Exhibit 4.2 to the Company's
Form S-8 filed with the SEC on November 12, 1998.)
*3 (c) Second Amended and Restated Bylaws of the Company.
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 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.)
4 (e) Note Agreement Dated as of August 12, 1997
Re: Up to $75,000,000 FRI-MRD Corporation Senior
Discount Notes Due January 24, 2002. (Filed as Exhibit
4(e) to the Company's Form 10-Q filed with the SEC on
November 12, 1997.)
4 (f) Joinder Agreement Dated as of January 14, 1998
Re: FRI-MRD Corporation Senior Discount Notes due
January 24, 2002. (Filed as Exhibit 4(f) to the
Company's Form 10-K filed with the SEC on March 30,
1998.)
4 (g) First Amendment dated as of June 9, 1998 to the Note
Agreement dated August 12, 1997. (Filed as Exhibit 4.7
to the Company's Form S-4 filed with the SEC on July 1,
1998.)
28
<PAGE>
<TABLE>
<C> <S> <C>
4 (h) Note Agreement dated as of June 9, 1998 Re: $24,000,000
FRI-MRD Corporation Senior Secured Discount Notes due
January 24, 2002. (Filed as Exhibit 4.8 to the
Company's Form S-4 filed with the SEC on July 1, 1998.)
4 (i) First Amendment dated as of October 30, 1998 to the
Note Agreement dated as of June 9, 1998. (Filed as
Exhibit 4(i) to the Company's Form 10-Q filed with the
SEC on November 12, 1998.)
*4 (j) Waiver dated as of January 29, 1999 to the Note
Agreements dated as of August 12, 1997 and June 9,
1998.
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) 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 (e) 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 (f) 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 (g) The Company's 1997 Management Incentive Compensation
Plan Description.
*10 (h) The Company's 1998 Management Incentive Compensation
Plan Description.
10 (i) Termination of Management Services Agreement between
Leonard Green & Associates, L.P. and the Company, dated
as of November 20, 1995. (Filed as Exhibit 10(s) to the
Company's Form 10-K filed with the SEC on March 31,
1997.)
10 (j) Loan and Security Agreement, dated as of January 10,
1997, between Foothill Capital Corporation and the
Company and its subsidiaries named therein. (Filed as
Exhibit 10(w) to the Company's Form 10-K filed with the
SEC on March 31, 1997.)
10 (k) General Continuing Guarantee, dated as of January 10,
1997, by the Company in favor of Foothill Capital
Corporation. (Filed as Exhibit 10(x) to the Company's
Form 10-K filed with the SEC on March 31, 1997.)
10 (l) Form of subsidiary General Continuing Guarantee, dated
as of January 10, 1997. (Filed as Exhibit 10(y) to the
Company's Form 10-K filed with the SEC on March 31,
1997.)
10 (m) Security Agreement, dated as of January 10, 1997,
between Foothill Capital Corporation and the Company.
(Filed as Exhibit 10(z) to the Company's Form 10-K
filed with the SEC on March 31, 1997.)
10 (n) Form of subsidiary Security Agreement, dated as of
January 10, 1997, between Foothill Capital Corporation
and the subsidiary named therein. (Filed as
Exhibit 10(aa) to the Company's Form 10-K filed with
the SEC on March 31, 1997.)
10 (o) Stock Pledge Agreement, dated as of January 10, 1997,
between the Company and Foothill Capital Corporation.
(Filed as Exhibit 10(bb) to the Company's Form 10-K
filed with the SEC on March 31, 1997.)
</TABLE>
29
<PAGE>
<TABLE>
<C> <S> <C>
10 (p) Form of subsidiary Stock Pledge Agreement, dated as of
January 10, 1997, between the subsidiary named therein
and Foothill Capital Corporation. (Filed as
Exhibit 10(cc) to the Company's Form 10-K filed with
the SEC on March 31, 1997.)
10 (q) Trademark Security Agreement, dated as of January 10,
1997, by Chi-Chi's, Inc. in favor of Foothill Capital
Corporation. (Filed as Exhibit 10(dd) to the Company's
Form 10-K filed with the SEC on March 31, 1997.)
10 (r) Trademark Security Agreement, dated as of January 10,
1997, by El Torito Restaurants, Inc. in favor of
Foothill Capital Corporation. (Filed as Exhibit 10(ee)
to the Company's Form 10-K filed with the SEC on March
31, 1997.)
10 (s) First Amendment to the Loan and Security Agreement
dated as of May 23, 1997 by and among the parties
thereto. (Filed as Exhibit 10(gg) to the Company's
Form 10-Q filed with the SEC on August 13, 1997.)
10 (t) Amendment Number Two to Loan and Security Agreement
dated as of August 12, 1997 by and among the parties
thereto. (Filed as Exhibit 10(hh) to the Company's
Form 10-Q filed with the SEC on November 12, 1997.)
10 (u) Distribution Service Agreement, dated as of November
1, 1997, between El Torito Restaurants, Inc. and The
SYGMA Network, Inc. (Portions of this document have
been omitted pursuant to a request for confidential
treatment.) (Filed as Exhibit 10(bb) to the Company's
Form 10-K filed with the SEC on March 30, 1998.)
10 (v) Distribution Service Agreement, dated as of April 30,
1997, between Chi-Chi's, Inc. and Sysco Corporation.
(Portions of this document have been omitted pursuant
to a request for confidential treatment.) (Filed as
Exhibit 10(cc) to the Company's Form 10-K filed with
the SEC on March 30, 1998.)
10 (w) Stock Purchase Agreement dated as of June 9, 1998 by
and between FRI-MRD Corporation and KKR. (Filed as
Exhibit 10.1 to the Company's Form S-4 filed with the
SEC on July 1, 1998.)
10 (x) Bridge Loan Agreement dated as of June 9, 1998 among
the Hamlet Group, Inc., as borrower, KKR, H.H.K. of
Virginia, and H.H. of Maryland, Inc., as guarantors,
and FRI-MRD Corporation, as lender. (Filed as Exhibit
10.2 to the Company's Form S-4 filed with the SEC on
July 1, 1998.)
10 (y) Amendment Number Three to Loan and Security Agreement
dated as of April 9, 1998 by and among the parties
thereto. (Filed as Exhibit 10.29 to Amendment No. 1 to
the Company's Form S-4 filed with the SEC on August
18, 1998.)
10 (z) Amendment Number Four to Loan and Security Agreement
dated as of June 9, 1998 by and among the parties
thereto. (Filed as Exhibit 10.30 to Amendment No. 1 to
the Company's Form S-4 filed with the SEC on August
18, 1998.)
10 (aa) Amendment Number Five to Loan and Security Agreement
dated as of October 30, 1998 by and among the parties
thereto. (Filed as Exhibit 10(hh) to the Company's
Form 10-Q filed with the SEC on November 12, 1998.)
10 (bb) Koo Koo Roo Enterprises, Inc. 1998 Stock Incentive
Plan. (Filed as Exhibit 10(ii) to the Company's Form
10-Q filed with the SEC on November 12, 1998.)
*10 (cc) General Continuing Guarantee dated October 30, 1998 by
The Hamlet Group, Inc.
*10 (dd) Amendment Number One to General Continuing Guarantee
and Security Agreement, dated as of October 30, 1998
between Foothill and the Company.
</TABLE>
30
<PAGE>
<TABLE>
<C> <S> <C>
*10 (ee) Amendment Number One to Security Agreement dated
October 30, 1998 between Foothill and FRI-MRD
Corporation.
*10 (ff) Amendment Number One to Stock Pledge Agreement dated
October 30, 1998 between Foothill Capital Corporation
and FRI-MRD Corporation.
*10 (gg) General Continuing Guarantee dated October 30, 1998 by
KKR.
*10 (hh) Security Agreement dated October 30, 1998 between
Foothill Capital Corporation and KKR.
*10 (ii) Amended and Restated Employment Agreement dated as of
November 9, 1998 by and between Kevin S. Relyea, the
Company and certain subsidiaries.
*10 (jj) Amended and Restated Employment Agreement dated as of
November 9, 1998 by and between Roger K. Chamness, the
Company and certain subsidiaries.
*10 (kk) Amended and Restated Employment Agreement dated as of
November 9, 1998 by and between William D. Burt, the
Company and certain subsidiaries.
*10 (ll) Employment Agreement dated as of November 1, 1998 by
and between Gayle A. DeBrosse, the Company and certain
subsidiaries.
*10 (mm) Nominating Agreement dated as of December 1, 1998
between the Company and AIF II, L.P.
*10 (nn) Amendment Number Six to Loan and Security Agreement
dated as of February 26, 1999 by and among the parties
thereto.
*21 (a) List of Subsidiaries.
*21 (b) Names Under Which Subsidiaries Do Business.
*23 Consent of KPMG LLP.
*27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
On November 2, 1998, the Company filed a report on Form 8-K announcing
the completion of the Merger.
- --------
* Filed herewith.
31
<PAGE>
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.
KOO KOO ROO ENTERPRISES, INC.
/s/ Robert T. Trebing, Jr.
By: _________________________________
Robert T. Trebing, Jr.
Executive Vice President and
Chief Financial Officer
Date: March 29, 1999
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
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin S. Relyea Chairman, President and Chief March 29, 1999
____________________________________ Executive Officer (Principal
Kevin S. Relyea Executive Officer)
/s/ A. William Allen, III Director March 29, 1999
____________________________________
A. William Allen, III
/s/ Peter P. Copses Director March 29, 1999
____________________________________
Peter P. Copses
/s/ George G. Golleher Director March 29, 1999
____________________________________
George G. Golleher
/s/ Lee A. Iacocca Director March 29, 1999
____________________________________
Lee A. Iacocca
/s/ David B. Kaplan Director March 29, 1999
____________________________________
David B. Kaplan
/s/ Antony P. Ressler Director March 29, 1999
____________________________________
Antony P. Ressler
/s/ Robert T. Trebing, Jr. Executive Vice President and March 29, 1999
____________________________________ Chief Financial Officer
Robert T. Trebing, Jr. (Principal Financial and
Accounting Officer)
</TABLE>
32
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
KOO KOO ROO ENTERPRISES, INC.
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 27, 1998 and December 28,
1997.................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 27,
1998, December 28, 1997 and December 29, 1996........................... F-4
Consolidated Statements of Common Stockholders' Equity (Deficit) for the
Years Ended December 27, 1998, December 28, 1997 and December 29, 1996.. F-5
Consolidated Statements of Cash Flows for the Years Ended December 27,
1998, December 28, 1997 and December 29, 1996........................... F-6
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Koo Koo Roo Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Koo Koo Roo
Enterprises, Inc. (formerly known as Family Restaurants, Inc.) and its
subsidiaries as of December 27, 1998 and December 28, 1997, and the related
consolidated statements of operations, common stockholders' equity (deficit)
and cash flows for the years ended December 27, 1998, December 28, 1997 and
December 29, 1996. 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 Koo Koo
Roo Enterprises, Inc. and its subsidiaries as of December 27, 1998 and
December 28, 1997, and the results of their operations and their cash flows
for the years ended December 27, 1998, December 28, 1997 and December 29, 1996
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.
KPMG LLP
Orange County, California
March 1, 1999
F-2
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 27, December 28,
1998 1997
------------ ------------
($ in thousands)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $ 17,707 $ 32,518
Receivables........................................ 9,106 3,944
Inventories........................................ 5,020 4,569
Other current assets............................... 3,957 4,086
--------- ---------
Total current assets............................. 35,790 45,117
Property and equipment, net.......................... 201,314 183,601
Reorganization value in excess of amount allocable to
identifiable assets, net............................ 35,129 36,529
Costs in excess of net assets of business acquired,
net................................................. 56,455 0
Other assets......................................... 19,498 24,521
--------- ---------
$ 348,186 $ 289,768
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Current portion of long-term debt, including
capitalized lease obligations..................... $ 2,498 $ 2,694
Accounts payable................................... 22,447 13,959
Self-insurance reserves............................ 25,040 32,515
Other accrued liabilities.......................... 74,833 58,573
Income taxes payable............................... 3,742 3,788
--------- ---------
Total current liabilities........................ 128,560 111,529
Other long-term liabilities.......................... 3,612 4,478
Long-term debt, including capitalized lease
obligations, less current portion................... 237,151 199,955
Stockholders' deficit:
Common stock--authorized 300,000,000 shares, par
value $.01, 178,105,294 shares issued and
outstanding in 1998 and 121,515,391 shares issued
and outstanding in 1997........................... 1,781 1,215
Additional paid-in capital......................... 222,353 154,729
Accumulated deficit................................ (245,271) (182,138)
--------- ---------
Total stockholders' deficit...................... (21,137) (26,194)
--------- ---------
$ 348,186 $ 289,768
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
($ in thousands, except per share
amounts)
<S> <C> <C> <C>
Sales................................ $ 472,653 $ 463,724 $ 724,229
----------- ----------- -----------
Product costs........................ 126,788 123,803 200,379
Payroll and related costs............ 165,207 162,807 273,536
Occupancy and other operating
expenses............................ 125,177 129,428 181,730
Depreciation and amortization........ 22,916 22,395 33,802
General and administrative expenses.. 27,417 30,186 41,742
Opening costs........................ 3,345 188 673
Loss on disposition of properties,
net................................. 7,993 3,885 8,600
Provision for divestitures and write-
down of long-lived assets........... 27,661 2,640 0
VCU termination expense.............. 4,223 0 0
Restructuring costs.................. 0 0 6,546
----------- ----------- -----------
Total costs and expenses........... 510,727 475,332 747,008
----------- ----------- -----------
Operating loss....................... (38,074) (11,608) (22,779)
Interest expense, net................ 24,659 19,476 36,725
Gain on sale of division............. 0 0 62,601
----------- ----------- -----------
Income (loss) before income tax
provision and extraordinary item.... (62,733) (31,084) 3,097
Income tax provision................. 400 509 890
----------- ----------- -----------
Income (loss) before extraordinary
item................................ (63,133) (31,593) 2,207
Extraordinary gain on extinguishment
of debt............................. 0 0 134,833
----------- ----------- -----------
Net income (loss).................... $ (63,133) $ (31,593) $ 137,040
=========== =========== ===========
Net income (loss) per share--basic
and diluted:
Income (loss) before extraordinary
item.............................. $ (0.48) $ (0.26) $ 0.02
Extraordinary item................. -- -- 1.11
----------- ----------- -----------
Net income (loss).................. $ (0.48) $ (0.26) $ 1.13
=========== =========== ===========
Weighted average shares outstanding--
basic and diluted................... 131,309,797 121,515,391 121,515,391
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 27, 1998
<TABLE>
<CAPTION>
Notes
Common Stock Additional Receivable
------------------ Paid-in from Accumulated
Shares Amount Capital Stockholders Deficit Total
----------- ------ ---------- ------------ ----------- ---------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 121,515,391 $1,215 $155,663 $(869) $(287,585) $(131,576)
Net income.............. 0 0 0 0 137,040 137,040
Cancellation of notes
receivable from
stockholders........... 0 0 (934) 869 0 (65)
----------- ------ -------- ----- --------- ---------
Balance at December 29,
1996................... 121,515,391 1,215 154,729 0 (150,545) 5,399
Net loss................ 0 0 0 0 (31,593) (31,593)
----------- ------ -------- ----- --------- ---------
Balance at December 28,
1997................... 121,515,391 1,215 154,729 0 (182,138) (26,194)
Net loss................ 0 0 0 0 (63,133) (63,133)
Issuance of common stock
to acquire KKR......... 56,589,903 566 67,437 0 0 68,003
VCU termination
expense................ 0 0 187 0 0 187
----------- ------ -------- ----- --------- ---------
Balance at December 27,
1998................... 178,105,294 $1,781 $222,353 $ 0 $(245,271) $ (21,137)
=========== ====== ======== ===== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
($ in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.......... $ 471,716 $ 464,780 $ 727,849
Cash received from franchisees and
licensees............................ 2,018 2,074 2,762
Cash paid to suppliers and employees.. (454,024) (465,069) (711,462)
Cash paid for VCU termination
expense.............................. (4,036) 0 0
Interest received..................... 1,931 2,119 4,176
Interest paid......................... (16,653) (16,747) (38,392)
Opening costs......................... (3,001) 0 0
Restructuring costs................... 0 0 (6,546)
Income taxes paid..................... (446) (262) (244)
--------- --------- ---------
Net cash used in operating
activities......................... (2,495) (13,105) (21,857)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property and
equipment............................ 4,862 1,492 25,115
Proceeds from sale of FRD, net........ 0 0 121,342
Proceeds from sale of notes
receivable, net...................... 0 3,514 32,116
Cash required for Merger and Hamlet
Acquisition.......................... (17,016) 0 0
Capital expenditures.................. (27,691) (13,588) (9,848)
Mandatory lease buyback, net.......... 0 (2,690) 0
Lease termination payments............ (1,349) (2,891) (3,398)
Capitalized opening costs............. 0 (532) (235)
Other................................. (566) (1,936) (68)
--------- --------- ---------
Net cash provided by (used in)
investing activities............... (41,760) (16,631) 165,024
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of notes.................. 0 0 (32,513)
Net proceeds from issuance of notes... 33,304 33,947 0
Repayments of working capital
borrowings, net...................... 0 0 (79,815)
Payment of debt issuance costs........ (1,141) (2,418) (278)
Reductions of long-term debt,
including capitalized lease
obligations.......................... (2,719) (3,095) (5,111)
--------- --------- ---------
Net cash provided by (used in)
financing activities............... 29,444 28,434 (117,717)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................ (14,811) (1,302) 25,450
Cash and cash equivalents at beginning
of period.............................. 32,518 33,820 8,370
--------- --------- ---------
Cash and cash equivalents at end of
period................................. $ 17,707 $ 32,518 $ 33,820
========= ========= =========
</TABLE>
F-6
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------
December 27, December 28, December 29,
1998 1997 1996
------------ ------------ ------------
($ in thousands)
<S> <C> <C> <C>
Reconciliation of Net Income (Loss) to Net Cash Used in Operating Activities
Net income (loss)...................... $(63,133) $(31,593) $ 137,040
-------- -------- ---------
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization........ 22,916 22,395 33,802
Amortization of debt issuance costs.. 1,250 1,084 2,125
Expense of unamortized opening
costs............................... 344 0 0
Loss on disposition of properties.... 7,993 3,885 8,600
Provision for divestitures and write-
down of long-lived assets........... 27,661 2,640 0
VCU termination expense related to
stock options....................... 187 0 0
Gain on sale of division............. 0 0 (62,601)
Extraordinary gain on extinguishment
of debt............................. 0 0 (134,833)
Accretion of interest on notes....... 8,757 2,845 9,025
(Increase) decrease in receivables... (819) 304 1,661
(Increase) decrease in inventories... 93 (32) 1,176
(Increase) decrease in other current
assets.............................. 30 (342) 3,563
Increase (decrease) in accounts
payable............................. 4,767 (5,041) (4,792)
Decrease in self-insurance reserves.. (7,475) (2,457) (382)
Decrease in other accrued
liabilities......................... (5,020) (7,040) (17,507)
Increase (decrease) in income taxes
payable............................. (46) 247 1,266
-------- -------- ---------
Total adjustments.................. 60,638 18,488 (158,897)
-------- -------- ---------
Net cash used in operating activities.. $ (2,495) $(13,105) $ (21,857)
======== ======== =========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Capital expenditures and cash flows from financing activities exclude
capitalized leases of $903 in 1998.
See Note 2 for discussion of the Merger.
See Note 7 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>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each of the Three Years in the Period Ended December 27, 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Koo Koo Roo Enterprises, Inc., formerly known as Family Restaurants, Inc.
(together with its subsidiaries, the "Company"), was incorporated in Delaware
in 1986. The Company is primarily engaged in the operation of restaurants in
the full-service and fast-casual segments, through its subsidiaries.
Information relating to periods ending prior to October 30, 1998 included
herein relates to the historical operations of Family Restaurants, Inc. and,
except as otherwise indicated, does not reflect the operations of Koo Koo Roo,
Inc., a Delaware corporation ("KKR"), which the Company acquired on October
30, 1998. At December 27, 1998, the Company operated 314 restaurants in 28
states, approximately 65% of which are located in California, Ohio,
Pennsylvania, Indiana and Michigan, and franchised and licensed 23 restaurants
outside the United States.
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 27,
1998, December 28, 1997 and December 29, 1996 included 52 weeks.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and 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 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 disposal date.
Advertising
Production costs of commercials and programming are charged to operations
when aired. Costs of other advertising, promotion and marketing programs are
charged to operations in the year incurred.
F-8
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1998
totaled $350,000 and were insignificant for 1997 and 1996. Monthly fees for
all franchise and license arrangements are accrued as earned based on the
respective monthly sales. Such fees totaled $1,331,000 for 1998, $2,215,000
for 1997 and $2,802,000 for 1996 and offset general and administrative
expenses.
Reorganization value
Reorganization value in excess of amounts allocable to identifiable assets
is amortized using the straight-line method over 30 years. Accumulated
amortization of reorganization value amounted to $6,896,000 at December 27,
1998 and $5,496,000 at December 28, 1997.
Costs in excess of net assets of business acquired, net
Costs in excess of net assets of business acquired is amortized using the
straight-line method over 40 years. Accumulated amortization amounted to
$244,000 at December 27, 1998.
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
remaining 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.
As a result of a continued review of operating results, the Company
identified nine unprofitable Chi-Chi's and three unprofitable El Torito
restaurants which may either take too long to recover profitability or may not
recover at all, despite current marketing and cost control programs. In
connection with this analysis, the Company analyzed the carrying value of the
long-lived assets of these restaurants and recorded a write-down of long-lived
assets of $4.8 million during the fourth quarter of 1998 to reduce the assets'
carrying value to their estimated fair market value.
Also, during 1997, the Company identified 18 unprofitable Chi-Chi's
restaurants with impaired values. In connection with this analysis, the
Company analyzed the carrying value of the long-lived assets of these
restaurants and recorded a write-down of long-lived assets of $2.6 million
during the second quarter of 1997 to reduce the assets' carrying value to
their estimated fair market value.
Opening costs
Opening costs are incurred in connection with the opening or remodeling of a
restaurant and are principally related to stocking the restaurant and training
its staff. Through the year ended December 28, 1997, the
F-9
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's policy had been to capitalize such opening costs and amortize them
over one year. In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities," which specifies that all costs of start-up
activities, including restaurant opening costs, should be expensed as
incurred. Although SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, early adoption was allowed, and the Company adopted the
provisions of SOP 98-5 in the quarter ended March 29, 1998.
Accordingly, $344,000 of unamortized opening costs at December 28, 1997
(classified as other current assets) was expensed in the condensed
consolidated statement of operations for the quarter ended March 29, 1998.
Opening costs incurred during 1998 were $3,001,000. Amortization of opening
costs of $188,000 and $673,000 in 1997 and 1996, respectively, has been
reclassified in the accompanying consolidated statements of operations.
Net income (loss) per common share
Statement of Financial Acocunting Standards ("SFAS") No. 128, "Earnings per
Share" specifies the computation, presentation and disclosure requirements for
earnings (loss) per share for entities with publicly held common stock. The
impact of common stock equivalents has not been included since the impact
would be antidilutive for all periods presented.
Share and per share restatement
On October 30, 1998, the Company declared a stock dividend pursuant to which
approximately 121.96 shares of Company Common Stock were distributed for each
share of Company Common Stock outstanding immediately prior to the Merger. All
data with respect to earnings (loss) per share and share information in the
consolidated financial statements has been retroactively adjusted to reflect
the stock dividend.
Stock-based employee compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company measures stock-based employee compensation cost for financial
statement purposes in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and its related
interpretations and includes pro forma information in Note 13. Accordingly,
compensation cost for the stock option grants to employees is measured as the
excess of the quoted market price of the Company's common stock at the grant
date over the amount the employee must pay for the stock.
Comprehensive income
In 1998, the Company adopted SFAS No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." This statement establishes rules for the reporting of
comprehensive income and its components. The adoption of SFAS 130 did not
impact the Company's consolidated financial statements or related disclosures
as the Company does not have any components of other comprehensive income.
Therefore, comprehensive income (loss) equaled net income (loss) for all
periods presented.
Segment disclosures
In 1998, the Company adopted SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for reporting information about operating segments. The Company's
reportable segments are based on restaurant operating divisions.
F-10
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes
The Company accounts for income taxes using the principles specified in
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Reclassifications
Certain amounts as previously reported have been reclassified to conform to
the 1998 presentation.
NOTE 2--KKR MERGER:
On October 30, 1998, the Company, FRI-Sub, Inc. ("Merger Sub"), an indirect
wholly owned subsidiary of the Company, and KKR consummated a merger (the
"Merger"), pursuant to which Merger Sub was merged with and into KKR, with KKR
as the surviving corporation. The Merger was effected after KKR received
stockholder approval for the Merger at a special meeting of KKR stockholders
held on October 30, 1998.
As a result of the Merger, each outstanding share of common stock, $.01 par
value, of KKR was converted into the right to receive one share of common
stock, par value $.01 per share, of the Company (the "Company Common Stock").
Accordingly, the aggregate number of shares of Company Common Stock issued in
the Merger was approximately 56.6 million. Immediately prior to the Merger, a
stock dividend was declared pursuant to which approximately 121.96 shares of
Company Common Stock were distributed for each share of Company Common Stock
outstanding immediately prior to the Merger. Prior to the Merger, the Company
provided a $3 million loan to a subsidiary of KKR which was repaid after
completion of the Merger. Additionally, in connection with the Merger, FRI-MRD
Corporation, a wholly owned subsidiary of the Company ("FRI-MRD"), issued $24
million aggregate face amount of new senior secured discount notes (the "New
MRD Notes") pursuant to the Senior Secured Discount Note Agreement dated June
9, 1998 for which it received net proceeds of $21.7 million and the Company
expanded the Foothill Credit Facility (as defined below) by an additional
$20 million. The proceeds from the sale of the New MRD Notes were used to
acquire all of the outstanding capital stock of The Hamlet Group, Inc.
("Hamlet") from KKR immediately prior to the consummation of the Merger (the
"Hamlet Acquisition"). The Merger and the Hamlet Acquisition were accounted
for as a purchase. Accordingly, the results of operations and financial
position of KKR (including Hamlet) are combined with the results of operations
and financial position of the Company subsequent to the purchase.
The assets acquired, including the costs in excess of net assets of business
acquired, and liabilities assumed in the Merger and the Hamlet Acquisition are
as follows ($ in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value......................... $ 44,915
Costs in excess of net assets of business acquired............. 56,699
Liabilities assumed at fair value.............................. (16,595)
--------
Total purchase price........................................... $ 85,019
========
</TABLE>
The allocation of purchase price to the fair value of tangible assets
acquired and liabilities assumed is dependent upon certain valuations and
other studies that have not progressed to a stage where there is sufficient
information to make a definitive allocation. Although the purchase price
allocation is preliminary, the Company does not anticipate that there will be
significant changes necessary to arrive at the final allocation.
The following table summarizes unaudited pro forma combined financial
information for the Company, assuming the Merger and the Hamlet Acquisition
occurred as of the beginning of fiscal 1997. The unaudited pro forma combined
financial information is not indicative of the results of operations of the
combined companies
F-11
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
that would have occurred had the Merger and the Hamlet Acquisition occurred at
the beginning of the periods presented, nor is it indicative of future
operating results. The unaudited pro forma adjustments are based upon
currently available information and certain assumptions that management
believes are reasonable under the circumstances.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------
December 27, December 28,
1998 1997
------------ ------------
(Pro Forma)
($ in thousands, except
per share data)
<S> <C> <C>
Consolidated Statements of Operations
Information--
Sales........................................ $546,683 $532,062
Net loss..................................... $(87,219) $(55,205)
Pro forma basic and diluted loss per common
share....................................... $ (0.49) $ (0.31)
Pro forma weighted average number of common
shares outstanding (in thousands)........... 178,105 178,105
</TABLE>
NOTE 3--RECEIVABLES:
A summary of receivables follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
($ in
thousands)
<S> <C> <C>
Trade, principally credit cards............................. $3,113 $2,057
License and franchise fees and related receivables.......... 254 341
FRD Notes................................................... 3,250 0
Interest on FRD Notes....................................... 186 186
Notes receivable............................................ 153 127
Other....................................................... 2,150 1,233
------ ------
$9,106 $3,944
====== ======
</TABLE>
NOTE 4--STRATEGIC DIVESTMENT PROGRAM AND SALE OF RESTAURANTS:
In the fourth quarter of 1998, 48 non-strategic Chi-Chi's restaurants were
designated for divestment (the "Strategic Divestment Program"). In conjunction
with the Strategic Divestment Program, the Company recorded a provision for
divestitures of $22,884,000. This provision consisted of (i) $10,628,000 for
the write-down to net realizable value of the property and equipment
associated with such restaurants, (ii) $1,465,000 for severance costs
associated with approximately three regional managers and 144 restaurant
managers in connection with the restaurants to be divested and (iii)
$10,791,000 for costs associated with lease terminations, subsidized
subleases, brokerage fees and other divestment costs. During 1998, these
restaurants had sales of $48,969,000 and restaurant level operating losses of
$3,978,000. Most of the restaurants are still in operation, and, accordingly,
only $1,645,000 of the divestiture reserves have been utilized as of December
27, 1998. The Strategic Divestment Program is scheduled to be completed over a
12 to 18 month timeframe and the operating results will be included in the
Company's consolidated statement of operations until the divestments are
completed.
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"). 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
F-12
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 (see
Note 7) of $82 million, to help fund the repurchases of the Notes and for
general corporate purposes. As of December 27, 1998, the Company had sold or
exchanged $153.65 million aggregate principal amount of the FRD Notes. The
remaining balance of $3.25 million was sold in January 1999.
NOTE 5--PROPERTY AND EQUIPMENT:
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
($ in thousands)
<S> <C> <C>
Land................................................... $ 23,700 $ 26,890
Buildings and improvements............................. 156,220 150,223
Furniture, fixtures and equipment...................... 92,887 73,218
Projects under construction............................ 13,592 5,684
-------- --------
286,399 256,015
Accumulated depreciation and amortization.............. (85,085) (72,414)
-------- --------
$201,314 $183,601
======== ========
</TABLE>
Property under capitalized leases in the amount of $12,104,000 at December
27, 1998 and $20,880,000 at December 28, 1997 is included in buildings and
improvements. Accumulated amortization of property under capitalized leases
amounted to $6,287,000 at December 27, 1998 and $8,871,000 at December 28,
1997. These capitalized leases primarily relate to the buildings on certain
restaurant properties; the land portions of these leases are accounted for as
operating leases.
In addition, property under capitalized leases in the amount of $810,000 at
December 27, 1998 is included in furniture, fixtures and equipment.
Accumulated amortization of this property under capitalized leases amounted to
$184,000 at December 27, 1998.
Depreciation and amortization relating to property and equipment was
$21,271,000 for 1998, $20,994,000 for 1997 and $30,253,000 for 1996, of which
$2,169,000, $2,236,000 and $4,357,000, 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 2009 or later.
Most leases have renewal options. The leases generally provide for payment of
minimum annual 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 27, 1998, December 28, 1997 and December 29, 1996 was
$938,000, $934,000 and $2,425,000, respectively. Total rental expense for all
operating leases comprised the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
($ in thousands)
<S> <C> <C> <C>
Minimum rent.................................... $35,476 $35,521 $45,063
Contingent rent................................. 1,417 1,235 2,058
Less: Sublease rent............................. (5,903) (6,434) (6,293)
------- ------- -------
$30,990 $30,322 $40,828
======= ======= =======
</TABLE>
F-13
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 27, 1998, the present value of capitalized lease payments and
the future minimum lease payments on noncancellable operating leases were:
<TABLE>
<CAPTION>
Capitalized Operating
Due in Leases Leases
------ ----------- ---------
($ in thousands)
<S> <C> <C>
1999................................................. $ 2,312 $ 32,905
2000................................................. 2,096 32,086
2001................................................. 1,659 31,122
2002................................................. 1,379 28,308
2003................................................. 1,058 25,404
Later years.......................................... 3,336 90,852
-------- --------
Total minimum lease payment.......................... 11,840 $240,677
========
Interest............................................. (3,530)
--------
Present value of minimum lease payments.............. $ 8,310
========
</TABLE>
The future lease payments summarized above include commitments for leased
properties included in the Company's divestiture program.
NOTE 6--OTHER ASSETS:
A summary of other assets follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
($ in thousands)
<S> <C> <C>
Liquor licenses.......................................... $ 6,014 $ 5,910
Debt issuance costs...................................... 4,857 4,918
Notes receivable......................................... 7,655 9,898
FRD Notes................................................ 0 3,250
Other.................................................... 972 545
-------- --------
$ 19,498 $ 24,521
======== ========
</TABLE>
Debt issuance costs are amortized over the terms of the respective loan
agreements.
NOTE 7--LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS:
Long-term debt, including capitalized lease obligations, is comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
($ in thousands)
<S> <C> <C>
9 3/4% Senior Notes..................................... $103,456 $103,456
10 7/8% Senior Subordinated Discount Notes.............. 30,900 30,900
15% Senior Discount Notes............................... 69,111 48,514
14% Senior Secured Discount Notes....................... 22,179 0
Capitalized lease obligations........................... 8,310 14,595
Other................................................... 3,145 1,922
-------- --------
237,101 199,387
Deferred gain on debt exchange.......................... 2,548 3,262
-------- --------
239,649 202,649
Amounts due within one year............................. 2,498 2,694
-------- --------
$237,151 $199,955
======== ========
</TABLE>
F-14
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On January 27, 1994, the Company sold $300 million principal amount of 9
3/4% Senior Notes due in full in 2002 (the "Senior Notes") and $150 million
principal amount ($109 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 million senior secured revolving credit
facility with a $100 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").
On January 10, 1997, the Company entered into a five-year, $35 million
credit facility with Foothill Capital Corporation (the "Foothill Credit
Facility"), which replaced the Old Credit Facility, to provide for the ongoing
working capital needs of the Company. In connection with the Merger, the
Company increased the Foothill Credit Facility to $55 million. The Foothill
Credit Facility now provides for up to $35 million in revolving cash
borrowings and up to $55 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 restrictive covenants. The Company is in compliance with all
financial ratios at December 27, 1998. Standby letters of credit are issued
under the Foothill Credit Facility primarily to provide security for future
amounts payable by the Company under its workers' compensation insurance
program ($13,131,000 of such letters of credit were outstanding as of December
27, 1998). No revolving cash borrowings were outstanding as of December 27,
1998.
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
are redeemable at the option of the Company after February 1, 1999. Such notes
may now be redeemed at prices starting at 102.786% and declining ratably to
100% at February 1, 2001. Cash interest payments on the Discount Notes began
on August 1, 1997 and will continue to be paid on February 1 and August 1 of
each year, and such notes will mature on February 1, 2004. The Discount Notes
are redeemable at the option of the Company after February 1, 1999. Such notes
may now be redeemed at prices starting at 104.078% and declining ratably to
100% at February 1, 2002.
On July 3, 1996, the Company repurchased $151 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 million aggregate principal amount of the
Senior Notes for $18.6 million. In separate transactions, the Company
repurchased (i) an additional $8.5 million aggregate principal amount of the
Discount Notes in the third quarter of 1996 and (ii) $2 million aggregate
principal amount of the Discount Notes in the fourth quarter of 1996. The
Company recognized an extraordinary gain of $134.8 million as a result of
these repurchases.
On August 12, 1997, FRI-MRD issued senior discount notes (the "Senior
Discount Notes") in the face amount of $61 million at a price of approximately
75% of par. The Senior Discount Notes are due on January 24, 2002. No cash
interest is payable on the Senior Discount Notes until July 31, 1999, at which
time interest will be payable in cash semi-annually at the rate of 15% per
annum, with the first cash interest payment due on January 31, 2000. The
Senior Discount Notes were issued to certain existing holders of the Company's
Senior Notes in exchange for $15.6 million of Senior Notes plus approximately
$34 million of cash. The gain of $3,548,000 realized on the exchange of Senior
Notes has been deferred and classified as an element of long-term debt in
accordance with the guidelines of Emerging Issues Task Force Issue No. 96-19
because the present value of the cash flows of the Senior Discount Notes was
not at least 10% different from the present value of the cash flows of the
Senior Notes exchanged. The deferred gain is being amortized as a reduction of
interest expense over the life of the Senior Discount Notes. On January 14 and
15, 1998, FRI-MRD issued an additional $14 million aggregate face amount of
the Senior Discount Notes to the same purchasers at a price of 83% of par.
FRI-MRD received approximately $11.6 million in cash as a result of this
subsequent sale. Proceeds from the sales of the Senior Discount Notes have
been and will continue to be used to fund the Company's capital expenditure
programs and for general corporate purposes.
F-15
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 9, 1998, FRI-MRD entered into a Note Agreement pursuant to which
FRI-MRD issued $24 million aggregate face amount of New MRD Notes on October
30, 1998 at a price of approximately 90% of par resulting in net proceeds of
$21.7 million. The New MRD Notes are due on January 24, 2002. No cash interest
is payable on the New MRD Notes until July 31, 1999, at which time interest
will be payable in cash semi-annually at the rate of 14% per annum with the
first cash interest payment due on January 31, 2000. The New MRD Notes are
redeemable by FRI-MRD, in whole or in part, on or before January 23, 2001, at
a price of 105% of the accreted value thereof, or after January 23, 2001, at a
price of 102.5% of the accreted value thereof. Proceeds from the sale of the
New MRD Notes were used exclusively to purchase all of the outstanding shares
of Hamlet, and the New MRD Notes are secured by all of such outstanding shares
of Hamlet.
The Company continues to be highly leveraged and has significant debt
service requirements. In order to continue to fund its capital expenditure
programs, management has begun considering various alternatives to reduce
near-term debt service requirements and extend current maturity dates. There
can be no assurance that the Company will be able to repay or refinance its
Senior Notes and its 10 7/8% Senior Subordinated Discount Notes due 2004, or
that FRI-MRD will be able to repay or refinance the Senior Discount Notes or
the New MRD Notes, at their respective maturities. The Company continues to
consider additional sources of cash, such as sale of non-core assets.
Maturities of long-term debt, including capitalized lease obligations,
during the four years subsequent to December 26, 1999 are as follows:
$2,687,000 in 2000, $2,481,000 in 2001, $204,027,000 in 2002 and $1,142,000 in
2003.
NOTE 8--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The recorded amounts of the Company's cash and cash equivalents,
receivables, accounts payable, self-insurance reserves, other accrued
liabilities and certain financial instruments included in other assets at
December 27, 1998 and December 28, 1997 approximate fair value. The fair value
of the Company's long-term debt, excluding capitalized lease obligations, is
estimated as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Recorded Fair Recorded Fair
Amount Value Amount Value
-------- ------- -------- -------
($ in thousands)
<S> <C> <C> <C> <C>
Senior Notes............................ $103,456 $65,177 $103,456 $82,765
Discount Notes.......................... 30,900 18,540 30,900 22,866
Senior Discount Notes................... 69,111 67,781 48,514 50,630
Senior Secured Discount Notes........... 22,179 22,179 0 0
Other................................... 3,145 2,903 1,922 1,692
</TABLE>
The fair values of the Senior Notes and Discount Notes are based on an
average market price of these instruments as of the end of fiscal 1998 and
1997. The fair values of the Senior Discount Notes and Senior Secured Discount
Notes as of the end of fiscal 1998 are based on an assessment of the value of
the notes by an investment banking firm which takes into account the accreted
values of the Senior Discount Notes and Senior Secured Discount Notes on such
date, historical sale price information and other relevant pricing
information. The fair value of the Senior Discount Notes as of the end of
fiscal 1997 is based on the issuance of the remaining $14 million in face
value of the Notes at a price of 83% of par on January 14 and 15, 1998. The
fair value of the other debt is estimated using discount rates which the
Company believes would be available to it for debt with similar terms and
average maturities.
The Company has no instruments or transactions subject to the provisions of
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
F-16
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 9--OTHER ACCRUED LIABILITIES:
A summary of other accrued liabilities follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
($ in
thousands)
<S> <C> <C>
Wages, salaries and bonuses............................... $17,618 $16,251
Carrying costs of closed properties....................... 12,282 12,407
Reserve for divestitures.................................. 10,611 0
Interest.................................................. 5,689 5,773
Property taxes............................................ 2,744 2,993
Sales tax................................................. 3,443 2,612
Utilities................................................. 3,340 1,996
Accrued rent.............................................. 372 452
Other..................................................... 18,734 16,089
------- -------
$74,833 $58,573
======= =======
</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 over estimated sublease
revenues.
NOTE 10--INCOME TAXES:
The Company reported a loss for tax purposes in 1998, 1997 and 1996.
Accordingly, the income tax provisions for each year primarily reflect certain
state and local taxes. On a tax return basis, the Federal regular operating
loss carryforwards amounted to approximately $241.4 million ($241.5 million of
alternative minimum tax operating loss carryforwards) and expire in 2003
through 2019. The Company had approximately $711,000 of tax credit
carryforwards which expire in 2003 and 2004.
At December 27, 1998, the Company and its subsidiaries had tax credit
carryforwards of approximately $2.1 million not utilized by W. R. Grace & Co.-
Conn. ("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 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.
As a result of the acquisition of Chi-Chi's, the Company has net operating
loss and credit carryforwards not used by Chi-Chi's of $50.7 million and $6.8
million, respectively. The net operating losses expire beginning in 2004
through 2009 and the credit carryovers expire in various years from 2004
through 2009. The acquisition of Chi-Chi's, 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.
Further, as a result of the Merger and the Hamlet Acquisition, the Company
has net operating losses not used by KKR of $42.3 million. The net operating
losses expire beginning in 2005 through 2013. The Merger triggered an
ownership change for KKR in 1998 for Federal income tax purposes, which, along
with an ownership change for KKR in 1995, results in separate annual
limitations on the availability of these losses.
The Company does not believe that it underwent an ownership change causing a
limitation on the use of tax attributes as a result of the Merger and the
Hamlet Acquisition. Nevertheless, no assurance can be given that there will
not be other transactions that could cause the Company to undergo such an
ownership change.
F-17
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of income tax expense to the amount of income tax benefit
that would result from applying the Federal statutory rate (35% for 1998, 1997
and 1996) to loss before income taxes is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------
Dec. 27, Dec. 28, Dec. 29,
1998 1997 1996
-------- -------- --------
($ in thousands)
<S> <C> <C> <C>
Provision (benefit) for income taxes at
statutory rate............................ $(21,956) $(10,879) $ 48,276
State taxes, net of Federal income tax
benefit................................... 242 219 249
Foreign taxes.............................. 0 0 92
Nondeductible goodwill..................... 556 490 1,242
Change in deferred tax asset which is
subject to a full valuation reserve and
other..................................... 21,558 10,679 (48,969)
-------- -------- --------
$ 400 $ 509 $ 890
======== ======== ========
</TABLE>
At December 27, 1998 and December 28, 1997, the Company's deferred tax asset
was $165,686,000 and $134,717,000, respectively, and deferred tax liability
was $5,667,000 and $17,456,000, respectively. The major components of the
Company's net deferred taxes of $160,019,000 at December 27, 1998 and
$117,261,000 at December 28, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
($ in thousands)
<S> <C> <C>
Depreciation........................................ $ (5,667) $ (17,456)
Net operating loss and credit carryforwards......... 132,257 103,909
Capitalized leases.................................. 852 817
Carrying costs and other reserves................... 8,717 5,120
Self-insurance reserves............................. 9,642 12,915
Straight-line rent.................................. 1,423 1,811
Reorganization costs................................ 6,479 4,700
Other............................................... 6,316 5,445
--------- ---------
160,019 117,261
Valuation allowance................................. (160,019) (117,261)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
The increase in the valuation allowance for 1998 resulted from two primary
factors. First, $21,558,000 of the increase resulted from the normal
occurrence of temporary differences, including the current year tax loss.
Second, the Merger and Hamlet Acquisition resulted in the acquisition of
approximately $21,200,000 of deferred tax assets that were subject to a full
valuation allowance.
NOTE 11--BENEFIT PLANS:
The Company maintains certain incentive compensation and related plans for
executives and key operating personnel, including restaurant and field
management. Expenses for these plans were $4,261,000, $4,062,000 and
$10,374,000 for 1998, 1997 and 1996, respectively.
The Company provides a savings plan pursuant to Section 401(k) of the
Internal Revenue Code, which allows administrative and clerical employees who
have satisfied the service requirements to contribute from 2% to 12% of their
pay on a pre-tax basis. The Company contributes an amount equal to 20% of the
first 4% of compensation that is contributed by the participant. The Company's
contributions under this plan were $151,000, $156,000 and $164,000 in 1998,
1997 and 1996, respectively.
F-18
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company also maintains an unfunded, non-qualified deferred compensation
plan, which was created in 1994 for key executives and other members of
management who were then excluded from participation in the qualified savings
plan. This plan allows participants to defer up to 50% of their salary on a
pre-tax basis. The Company contributes an amount equal to 20% of the first 4%
contributed by the employee. The Company's contributions under the non-
qualified deferred compensation plan were $70,000, $37,000 and $38,000 in
1998, 1997 and 1996, respectively. In each plan, a participant's right to
Company contributions vests at a rate of 25% per year of service.
NOTE 12--RELATED PARTY TRANSACTIONS:
Foodmaker, Inc. ("Foodmaker") provided distribution services through May
1997 to a portion of the Company's restaurants, principally those operated
under the Chi-Chi's name. No distribution services were provided during 1998.
Distribution sales to those restaurants for the years ended December 28, 1997
and December 29, 1996 aggregated $21,844,000 and $63,785,000, respectively.
Apollo FRI Partners, L.P. ("Apollo") and Green Equity Investors, L.P.
("GEI") charged a combined monthly fee of $100,000 for providing certain
management services to the Company until October 30, 1998. In November 1995,
the management services arrangement with GEI was terminated. In the fourth
quarter of 1998, it was determined that the Company would not be required to
pay $2.5 million of such fees accrued for the benefit of Apollo at December
28, 1997 and any fees charged in 1998. Accordingly, the reversal of such fees
is included as a reduction in 1998 general and administrative expenses. The
Company had total management services fees payable to Apollo and GEI of
$750,000 and $3,250,000 at December 27, 1998 and December 28, 1997,
respectively.
NOTE 13--STOCK OPTIONS:
At December 27, 1998, the Company had three stock option plans. Options to
purchase common stock are generally granted at the fair market value of the
stock on date of grant.
Certain officers and employees of the Company were granted stock options
under the Family Restaurants, Inc. 1994 Incentive Stock Option Plan. As a
result of the Merger, the stock option agreements for these individuals were
amended to convert the number of options and strike prices for the merged
Company's common stock. Additionally, the Company assumed existing stock
option plans of KKR in connection with the Merger, and all options under such
KKR plans are fully vested.
Certain officers, employees and directors of the Company were granted stock
options to purchase approximately 12,703,000 shares under a new stock option
plan, the Koo Koo Roo Enterprises, Inc. 1998 Stock Incentive Plan, which was
approved November 9, 1998 by the Company's board of directors. The stock
options granted to officers and employees vest ratably over a four year period
and have a ten year term. The stock options granted to directors were
immediately vested and have a ten year term. Under the Company's 1998 Stock
Incentive Plan, a maximum of approximately 20,787,000 shares of common stock
are available for stock option grants.
The Family Restaurants, Inc. Value Creation Units Plan was terminated in
connection with the Merger. An expense of $4,223,000 was incurred in
connection with the termination. Such expense consisted of a $4,036,000 cash
payment and $187,000 for the intrinsic value of stock options granted on
December 9, 1998 under the Company's 1998 Stock Incentive Plan to purchase
approximately 6,236,000 shares. Such options have a per share strike price of
$.50, are not exercisable for a period of 90 days after issuance and have a
five year term.
F-19
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's plans as of December 27, 1998,
December 28, 1997 and December 29, 1996 and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
Dec. 27, 1998 Dec. 28, 1997 Dec. 29, 1996
-------------------------- ------------------------ --------------------------
Weighted- Weighted- Weighted-
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
---------- -------------- --------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 934,652 $ .89 934,652 $.89 6,467,664 $.89
Granted................. 18,939,232 .75 0 0 0 0
Impact of Merger-KKR
plans.................. 6,473,385 2.65 0 0 0 0
Cancelled............... (6,500) 1.56 0 0 (5,533,012) .89
---------- ------- ----------
Outstanding at end of
year................... 26,340,769 $1.22 934,652 $.89 934,652 $.89
========== ===== ======= ==== ========== ====
Options exercisable at
end of year............ 7,851,537 700,989 467,326
========== ======= ==========
</TABLE>
Options granted during 1998 were approximately 14% of the weighted average
common shares outstanding representing approximately 500 employees. There were
no options exercised during the periods presented.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
December 27, 1998 December 27, 1998
-------------------------------------------- --------------------------
Weighted-Average
Number of Remaining Weighted-Average Number of Weighted-Average
Range of Exercise Prices Options Life (Years) Exercise Price Options Exercise Price
------------------------ ---------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$.33 to $.50............ 6,525,293 5.17 $ .49 289,061 $ .33
$.51 to $1.00........... 13,257,172 9.73 .87 1,004,172 .79
$1.01 to $3.00.......... 4,666,387 5.51 1.58 4,666,387 1.58
$3.01 to $8.75.......... 1,891,917 4.92 5.36 1,891,917 5.36
---------- ---- ----- --------- -----
$.33 to $8.75........... 26,340,769 7.51 $1.22 7,851,537 $2.28
========== ==== ===== ========= =====
</TABLE>
Pro forma net income (loss) and net income (loss) per common share were
determined if the Company had accounted for its employee stock options under
the fair value method of SFAS 123 and are presented in the table below ($ in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Dec. 27, 1998
-------------
<S> <C>
Net loss--pro forma......................................... $(63,847)
Net loss per common share--pro forma--basic and diluted..... $ (.49)
Weighted average fair value of options granted.............. $ .26
</TABLE>
For pro forma disclosures, the options' estimated fair value was amortized
over their expected life of ten years. These pro forma disclosures do not
apply to 1997 and 1996 nor are they necessarily indicative of anticipated
future disclosures because there were no options granted in 1997, 1996 and
1995, and SFAS 123 does not apply to grants before 1995. The fair value for
these options was estimated at the date of grant using an options pricing
model. The model was designed to estimate the fair value of exchange traded
options which, unlike employee stock options, can be traded at any time and
are fully transferable. In addition, such models require the input of highly
subjective assumptions, including the expected volatility of the stock price.
Therefore, in management's opinion, the existing models do not provide a
reliable single measure of the value of employee stock options. The following
weighted average assumptions were used to estimate the fair value of these
options:
<TABLE>
<CAPTION>
Dec. 27, 1998
-------------
<S> <C>
Expected dividend yield...................................... 0%
Expected stock price volatility.............................. 10%
Risk free interest rate...................................... 5.00%
Expected life of options (in years).......................... 10
</TABLE>
F-20
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 14--SEGMENT INFORMATION:
The Company operates exclusively in the food-service industry. Substantially
all revenues result from the sale of menu products at restaurants operated by
the Company. The Company's reportable segments are based on restaurant
operating divisions. Operating income (loss) includes the operating results
before interest.
The accounting policies of the segments are the same as those described in
Note 1. The corporate component of operating income (loss) represents
corporate general and administrative expenses. Corporate assets include
corporate cash, investments, receivables and asset portions of financing
instruments.
The divested operations component of sales, operating income (loss) and
capital expenditures includes the operating results of the Family Restaurant
Division which was sold in May 1996 and the traditional dinnerhouse
restaurants that were divested by year-end 1996.
<TABLE>
<CAPTION>
Dec. 27, 1998 Dec. 28, 1997 Dec. 29, 1996
------------- ------------- -------------
($ in thousands)
<S> <C> <C> <C>
Sales
El Torito Division............ $214,370 $217,949 $219,466
Chi-Chi's Division............ 243,666 245,775 278,065
Koo Koo Roo Division.......... 14,617 0 0
Divested Operations........... 0 0 226,698
-------- -------- --------
Total Sales.................. $472,653 $463,724 $724,229
======== ======== ========
Depreciation and Amortization
El Torito Division............ $ 9,688 $ 10,779 $ 10,336
Chi-Chi's Division............ 10,610 9,956 10,420
Koo Koo Roo Division.......... 1,087 0 0
Corporate..................... 1,531 1,660 13,046
-------- -------- --------
Total Depreciation and
Amortization................ $ 22,916 $ 22,395 $ 33,802
======== ======== ========
Operating Income (Loss)
El Torito Division............ $ 6,605 $ 3,457 $ (1,406)
Chi-Chi's Division............ (39,699) (12,052) (12,450)
Koo Koo Roo Division.......... (831) 0 0
Corporate..................... (4,149) (3,013) (14,218)
Divested Operations........... 0 0 5,295
-------- -------- --------
Total Operating Loss......... $(38,074) $(11,608) $(22,779)
======== ======== ========
Interest (Income) Expense, net
El Torito Division............ $ 856 $ 995 $ 818
Chi-Chi's Division............ 571 635 210
Koo Koo Roo Division.......... (24) 0 0
Corporate..................... 23,256 17,846 35,697
-------- -------- --------
Total Interest Expense, net.. $ 24,659 $ 19,476 $ 36,725
======== ======== ========
Capital Expenditures
El Torito Division............ $ 10,980 $ 5,684 $ 2,409
Chi-Chi's Division............ 13,395 6,599 4,098
Koo Koo Roo Division.......... 1,450 0 0
Corporate..................... 1,866 1,305 1,523
Divested Operations........... 0 0 1,818
-------- -------- --------
Total Capital Expenditures... $ 27,691 $ 13,588 $ 9,848
======== ======== ========
Total Assets
El Torito Division............ $100,056 $103,210 $107,209
Chi-Chi's Division............ 112,328 134,141 139,166
Koo Koo Roo Division.......... 108,410 0 0
Corporate..................... 27,392 52,417 61,231
-------- -------- --------
Total Assets................. $348,186 $289,768 $307,606
======== ======== ========
</TABLE>
F-21
<PAGE>
KOO KOO ROO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15--CONTINGENCIES:
The Company is involved in various litigation matters incidental to its
business. The Company does not believe that any of the claims or actions filed
against it will have a material adverse effect upon the consolidated financial
position or results of operations of the Company.
F-22
<PAGE>
SCHEDULE II
KOO KOO ROO ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
($ in thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged Balance
beginning Charged to to other at end
Description of period costs and accounts Deductions of period
----------- ---------- expenses -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible
receivables:
For the year 1998..... $1,051 $3,060 $ 0 $(649)(1) $3,462
For the year 1997..... 879 78 300 (206)(1) 1,051
For the year 1996..... 997 0 0 (118)(1) 879
</TABLE>
- --------
(1) Represents write-off of uncollectible receivables against allowance and
includes transfers to other accounts.
S-1
<PAGE>
EXHIBIT 3(c)
SECOND
AMENDED AND RESTATED
BY-LAWS
of
KOO KOO ROO ENTERPRISES, INC.
A Delaware Corporation
Effective December 14, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I - OFFICES..................................................... 2
Section 1.1 Registered Office.................................... 2
Section 1.2 Other Offices........................................ 2
ARTICLE II - MEETINGS OF STOCKHOLDERS................................... 2
Section 2.1 Place of Meetings.................................... 2
Section 2.2 Annual Meetings...................................... 2
Section 2.3 Nomination of Directors.............................. 4
Section 2.4 Special Meetings..................................... 5
Section 2.5 Conduct of Meetings.................................. 6
Section 2.6 Notice............................................... 6
Section 2.7 Adjournments......................................... 6
Section 2.8 Quorum............................................... 6
Section 2.9 Proxies.............................................. 7
Section 2.10 Voting............................................... 8
Section 2.11 Consent of Stockholders in Lieu of Meeting........... 8
Section 2.12 List of Stockholders Entitled to Vote................ 9
Section 2.13 Stock Ledger......................................... 9
Section 2.14 Inspectors of Election............................... 9
Section 2.15 Record Date.......................................... 9
ARTICLE III - DIRECTORS................................................. 11
Section 3.1 Number and Election of Directors..................... 11
Section 3.2 Vacancies............................................ 11
Section 3.3 Duties and Powers.................................... 11
Section 3.4 Organization......................................... 11
Section 3.5 Meetings............................................. 11
Section 3.6 Quorum............................................... 12
Section 3.7 Actions of Board..................................... 12
Section 3.8 Meetings by Means of Conference Telephone............ 12
Section 3.9 Committees........................................... 12
Section 3.10 Compensation......................................... 13
Section 3.11 Interested Directors................................. 13
Section 3.12 Board Representation................................. 14
xxvii
<PAGE>
ARTICLE IV - OFFICERS................................................... 14
Section 4.1 General.............................................. 14
Section 4.2 Election............................................. 14
Section 4.3 Voting Securities Owned by the Corporation........... 14
Section 4.4 Chairman of the Board of Directors................... 15
Section 4.5 President............................................ 15
Section 4.6 Vice Presidents...................................... 15
Section 4.7 Secretary............................................ 16
Section 4.8 Treasurer............................................ 16
Section 4.9 Assistant Secretaries................................ 17
Section 4.10 Assistant Treasurers................................. 17
Section 4.11 Other Officers....................................... 17
ARTICLE V - STOCK....................................................... 18
Section 5.1 Form of Certificates................................. 18
Section 5.2 Signatures........................................... 18
Section 5.3 Lost, Destroyed, Stolen or Mutilated Certificates.... 18
Section 5.4 Transfers............................................ 18
Section 5.5 Transfer and Registry Agents......................... 19
Section 5.6 Beneficial Owners.................................... 19
ARTICLE VI - NOTICES.................................................... 19
Section 6.1 Notices.............................................. 19
Section 6.2 Waivers of Notice.................................... 19
ARTICLE VII - GENERAL PROVISIONS........................................ 20
Section 7.1 Dividends............................................ 20
Section 7.2 Disbursements........................................ 20
Section 7.3 Fiscal Year.......................................... 20
Section 7.4 Corporate Seal....................................... 20
ARTICLE VIII - INDEMNIFICATION.......................................... 21
Section 8.1 Power to Indemnify in Actions, Suits or Proceedings
Other than Those by or in the Right of the
Corporation ......................................... 21
Section 8.2 Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation................ 21
xxviii
<PAGE>
Section 8.3 Authorization of Indemnification..................... 22
Section 8.4 Good Faith Defined................................... 22
Section 8.5 Indemnification by a Court........................... 22
Section 8.6 Expenses Payable in Advance.......................... 23
Section 8.7 Nonexclusivity of Indemnification and Advancement
of Expenses.......................................... 23
Section 8.8 Insurance............................................ 23
Section 8.9 Certain Definitions.................................. 24
Section 8.10 Survival of Indemnification and Advancement
of Expenses.......................................... 24
Section 8.11 Limitation on Indemnification........................ 24
Section 8.12 Indemnification of Employees and Agents.............. 25
ARTICLE IX - AMENDMENTS................................................. 25
Section 9.1 Amendments........................................... 25
Section 9.2 Entire Board of Directors............................ 25
xxvix
<PAGE>
SECOND
AMENDED AND RESTATED
BY-LAWS
OF
KOO KOO ROO ENTERPRISES, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1.1 Registered Office. The registered office of the Corporation
-----------------
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2 Other Offices. The Corporation may also have offices at such
-------------
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1.3 Place of Meetings. Meetings of the stockholders for the
-----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 1.4 Annual Meetings. The Annual Meetings of Stockholders for the
---------------
election of directors shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors.
No business may be transacted at an Annual Meeting of Stockholders, other
than business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committeethereof), (b) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee
2
<PAGE>
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 2.2 and on the record date
for the determination of stockholders entitled to vote at such annual meeting
and (ii) who complies with the notice procedures set forth in this Section 2.2.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred and twenty
(120) days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or after
such date, notice by the stockholder in order to be timely must be so received
not later than the close of business on the tenth (10th) day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
In the case of the 1999 Annual Meeting, to be timely, a stockholder's notice to
the Secretary must be delivered to or mailed and received at the principal
executive offices of the Corporation a reasonable time before the Corporation
begins to print and mail its proxy materials, as determined by the Board of
Directors.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures
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set forth in this Section 2.2; provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.2 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 1.5 Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this Section
2.3 and on the record date for the determination of stockholders entitled to
vote at such meeting and (ii) who complies with the notice procedures set forth
in this Section 2.3.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than ninety (90) days nor more than
one hundred and twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that in
the event that the annual meeting is called for a date that is not within thirty
(30) days before or after such date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was
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made, whichever first occurs. In the case of the 1999 Annual Meeting, to be
timely, a stockholder's notice to the Secretary must be delivered to or mailed
and received at the principal executive offices of the Corporation a reasonable
time before the Corporation begins to print and mail its proxy materials, as
determined by the Board of Directors.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
2.3. If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 1.6 Special Meetings. Unless otherwise required by law or by the
----------------
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors,
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(ii) the President, (iii) any Vice President, (iv) the Secretary or (v) any
Assistant Secretary, and shall be called by any such officer at the request in
writing of (i) the Board of Directors, (ii) a committee of the Board of
Directors that has been duly designated by the Board of Directors and whose
powers and authority include the power to call such meetings or (iii)
stockholders owning a majority of the capital stock of the Corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. At a Special Meeting of the Stockholders, only
such business shall be conducted as shall be specified in the notice of meeting
(or any supplement thereto).
Section 1.7 Conduct of Meetings. The Board of Directors of the
-------------------
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
Section 1.8 Notice. Whenever stockholders are required or permitted to
------
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.9 Adjournments. Any meeting of the stockholders may be
------------
adjourned from time to time to reconvene at the same or some other place, and
notice
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need not be given of any such adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 1.10 Quorum. Except as otherwise required by law or by the
------
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
in the manner provided by Section 2.7, until a quorum shall be present or
represented.
Section 1.11 Proxies. Any stockholder entitled to vote may do so in
-------
person or by his or her proxy appointed by an instrument in writing subscribed
by such stockholder or by his or her attorney thereunto authorized, delivered to
the Secretary of the meeting; provided, however, that no proxy shall be voted or
-------- -------
acted upon after three years from its date, unless said proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for him or her as proxy, either of the
following shall constitute a valid means by which a stockholder may grant such
authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him or her as proxy. Execution may be accomplished by
the stockholder or his or her authorized officer, director, employee or
agent signing such writing or causing his or her signature to be affixed to
such writing by any reasonable means, including, but not limited to, by
facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him or her as proxy by transmitting or authorizing the transmission of a
telegram or other means of electronic transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent
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duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or other means
of electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram or other
electronic transmission was authorized by the stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided that such copy, facsimile telecommunication
--------
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 1.12 Voting. At all meetings of the stockholders at which a
------
quorum is present, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 2.12, each stockholder represented at a meeting of
stockholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote on such question held by such stockholder. The Board of
Directors, in its discretion, or the officer of the Corporation presiding at a
meeting of stockholders, in his or her discretion, may require that any votes
cast at such meeting shall be cast by written ballot.
Section 1.13 Consent of Stockholders in Lieu of Meeting. Unless otherwise
------------------------------------------
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. Every written consent shall bear the date of signature of each
stockholder
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who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by this Section 2.11 to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing and who, if the action
had been taken at a meeting, would have been entitled to notice of the meeting
if the record date for such meeting had been the date that written consents
signed by a sufficient number of holders to take the action were delivered to
the Corporation as provided above in this section.
Section 1.14 List of Stockholders Entitled to Vote. The officer of the
-------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 1.15 Stock Ledger. The stock ledger of the Corporation shall be
------------
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2.12 or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
Section 1.16 Inspectors of Election. In advance of any meeting of
----------------------
stockholders, the Board by resolution or the Chairman or President shall appoint
one or more inspectors of election to act at the meeting and make a written
report thereof. One or more other persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is present, ready and willing to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be
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officers, employees or agents of the Corporation. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector shall have the duties
prescribed by law and shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken and of such
other facts as may be required by law.
Section 1.17 Record Date.
-----------
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
nor less than ten days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; providing, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
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corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolutions taking such
prior action.
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
ARTICLE III
DIRECTORS
---------
Section 1.18 Number and Election of Directors. The Board of Directors
--------------------------------
shall consist of not less than two nor more than seven members, the exact number
of which shall be determined from time to time by resolution adopted by the
Board of Directors. Except as provided in Section 3.2, directors shall be
elected by the stockholders at the Annual Meetings of Stockholders, and each
director so elected shall hold office until such director's successor is duly
elected and qualified, or until such director's death, or until such director's
earlier resignation or removal. Any director may resign at any time upon written
notice to the Corporation. Directors need not be stockholders.
Section 1.19 Vacancies. Unless otherwise required by law or the
---------
Certificate of Incorporation, vacancies arising through death, resignation,
removal or otherwise may be filled only by a majority of the directors then in
office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and qualified, or until their earlier death,
resignation or removal.
Section 1.20 Duties and Powers. The business of the Corporation shall be
-----------------
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by
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statute or by the Certificate of Incorporation or by these By-Laws required to
be exercised or done by the stockholders.
Section 1.21 Organization. At each meeting of the Board of Directors, the
------------
Chairman of the Board of Directors, or, in his or her absence, a director chosen
by a majority of the directors present, shall act as Chairman. The Secretary of
the Corporation shall act as Secretary at each meeting of the Board of
Directors. In case the Secretary shall be absent from any meeting of the Board
of Directors, an Assistant Secretary shall perform the duties of Secretary at
such meeting; and in the absence from any such meeting of the Secretary and all
the Assistant Secretaries, the Chairman of the meeting may appoint any person to
act as Secretary of the meeting.
Section 1.22 Meetings. The Board of Directors of the Corporation may hold
--------
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, the Vice Chairman, if there be one, or a
majority of the directors then in office. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone,
facsimile or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
Section 1.23 Quorum. Except as may be otherwise required by law, the
------
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 1.24 Actions of Board. Unless otherwise provided by the
----------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the
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case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee.
Section 1.25 Meetings by Means of Conference Telephone. Unless otherwise
-----------------------------------------
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.8 shall constitute
presence in person at such meeting.
Section 1.26 Committees. The Board of Directors may, by resolution passed
----------
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent permitted by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
Section 1.27 Compensation. The directors may be paid their expenses, if
------------
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary, or such other emoluments as the Board of Directors shall from time to
time determine. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 1.28 Interested Directors. No contract or transaction between the
--------------------
Corporation and one or more of its directors or officers, or between the
Corporation
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and any other corporation, partnership, association, or other organization in
which one or more of its directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because such person's or their votes are
counted for such purpose if (i) the material facts as to such person's or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
such person's or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
Section 1.29 Board Representation. The Corporation shall take all actions
--------------------
necessary to comply with the Nominating Agreement by and among the Corporation
and AIF II, L.P. dated as of December 1, 1998, so long as such agreement is in
effect. Neither Section 3.1 nor this Section 3.12 shall be altered, amended or
repealed, in whole or in part, during the Shareholder Designee Period as defined
in such agreement.
ARTICLE IV
OFFICERS
--------
Section 1.30 General. The officers of the Corporation shall be chosen by
-------
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
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Section 1.31 Election. The Board of Directors at its first meeting
--------
held after each Annual Meeting of Stockholders (or action by written consent of
stockholders in lieu of the Annual Meeting of Stockholders), shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 1.32 Voting Securities Owned by the Corporation. Powers of
------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 1.33 Chairman of the Board of Directors. The Chairman of the
----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, and except
where by law the signature of the President is required, the Chairman of the
Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these By-Laws or by
the Board of Directors.
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Section 1.34 President. The President shall, subject to the control
---------
of the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him or her by these
By-Laws or by the Board of Directors.
Section 1.35 Vice Presidents. At the request of the President or in
---------------
his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice President or
the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
Section 1.36 Secretary. The Secretary shall attend all meetings of
---------
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees of the
Board of Directors when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors, the Chairman of the Board of Directors or President,
under whose supervision the Secretary shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then
16
<PAGE>
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his or her signature. The Secretary shall see that all
books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.
Section 1.37 Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under control of the Treasurer belonging to the Corporation.
Section 1.38 Assistant Secretaries. Except as may be otherwise
---------------------
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 1.39 Assistant Treasurers. Assistant Treasurers, if there be
--------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's
17
<PAGE>
disability or refusal to act, shall perform the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of the office of Assistant Treasurer and for
the restoration to the Corporation, in case of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Assistant Treasurer's
possession or under control of the Assistant Treasurer belonging to the
Corporation.
Section 1.40 Other Officers. Such other officers as the Board of
--------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
Section 1.41 Form of Certificates. Every holder of stock in the
--------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder of stock in the Corporation.
Section 1.42 Signatures. Any or all of the signatures on a
----------
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 1.43 Lost, Destroyed, Stolen or Mutilated Certificates. The
-------------------------------------------------
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of
18
<PAGE>
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or such person's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 1.44 Transfers. Stock of the Corporation shall be
---------
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; provided, however, that such
-------- -------
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
Section 1.45 Transfer and Registry Agents. The Corporation may from
----------------------------
time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
Section 1.46 Beneficial Owners. The Corporation shall be entitled to
-----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
-------
19
<PAGE>
Section 1.47 Notices. Whenever written notice is required by law,
-------
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile, telex or cable.
Section 1.48 Waivers of Notice.
-----------------
Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1.49 Dividends. Subject to the requirements of the General
---------
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL") and the provisions of the Certificate of Incorporation,
dividends upon the capital stock of the Corporation may be declared by the Board
of Directors at any regular or special meeting of the Board of Directors (or any
action by written consent in lieu thereof in accordance with Section 3.8), and
may be paid in cash, in property, or in shares of the Corporation's capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for purchasing any of the shares
of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or
other securities or evidences of indebtedness of the Corporation, or for
equalizing dividends,
20
<PAGE>
or for repairing or maintaining any property of the Corporation, or for any
other proper purpose, and the Board of Directors may modify or abolish any such
reserve.
Section 1.50 Disbursements. All checks or demands for money and
-------------
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 1.51 Fiscal Year. The fiscal year of the Corporation shall
-----------
be fixed by resolution of the Board of Directors.
Section 1.52 Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1.53 Power to Indemnify in Actions, Suits or Proceedings
---------------------------------------------------
Other than Those by or in the Right of the Corporation. Subject to Section 8.3,
- ------------------------------------------------------
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director or officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any
21
<PAGE>
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 1.54 Power to Indemnify in Actions, Suits or Proceedings by
------------------------------------------------------
or in the Right of the Corporation. Subject to Section 8.3, the Corporation
- ----------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 1.55 Authorization of Indemnification. Any indemnification
--------------------------------
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 8.1 or Section 8.2, as the case may be. Such determination shall be made
(i) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
Section 1.56 Good Faith Defined. For purposes of any determination
------------------
under Section 8.3, a person shall be deemed to have acted in good faith and in a
manner
22
<PAGE>
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe his or her conduct was unlawful, if such
person's action is based on the records or books of account of the Corporation
or another enterprise, or on information supplied to such person by the officers
of the Corporation or another enterprise in the course of their duties, or on
the advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 8.4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer, employee or agent. The provisions of
this Section 8.4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 8.1 or 8.2, as the case may be.
Section 1.57 Indemnification by a Court. Notwithstanding any
--------------------------
contrary determination in the specific case under Section 8.3, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery of the State of Delaware or any other
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Sections 8.1 and 8.2. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Section 8.1 or 8.2, as the case may be. Neither a contrary determination in the
specific case under Section 8.3 nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the director
or officer seeking indemnification has not met any applicable standard of
conduct. Notice of any application for indemnification pursuant to this Section
8.5 shall be given to the Corporation promptly upon the filing of such
application. If successful, in whole or in part, the director or officer seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
Section 1.58 Expenses Payable in Advance. Expenses incurred by a
---------------------------
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director
23
<PAGE>
or officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article VIII.
Section 1.59 Nonexclusivity of Indemnification and Advancement of
----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or granted
- --------
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any By-Law, agreement,
contract, vote of stockholders or disinterested directors or pursuant to the
direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Section 8.1 and 8.2
shall be made to the fullest extent permitted by law. The provisions of this
Article VIII shall not be deemed to preclude the indemnification of any person
who is not specified in Section 8.1 or 8.2 but whom the Corporation has the
power or obligation to indemnify under the provisions of the GCL, or otherwise.
Section 1.60 Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
Section 1.61 Certain Definitions. For purposes of this Article VIII,
-------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall
24
<PAGE>
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
Section 1.62 Survival of Indemnification and Advancement of Expenses.
-------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 1.63 Limitation on Indemnification. Notwithstanding anything
-----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 8.5
hereof), the Corporation shall not be obligated to indemnify any director or
officer (or his or her heirs, executors or personal or legal representatives) or
advance expenses in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.
Section 1.64 Indemnification of Employees and Agents. The
---------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1.65 Amendments. These By-Laws may be altered, amended or
----------
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be
25
<PAGE>
approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
Section 1.66 Entire Board of Directors. As used in this Article IX
-------------------------
and in these By-Laws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
26
<PAGE>
EXHIBIT 4(j)
WAIVER TO NOTE AGREEMENTS
WAIVER TO NOTE AGREEMENTS (this "Waiver") dated as of January 29,
1999, by and among FRI-MRD Corporation, a Delaware corporation (the "Company"),
and each 1997 Purchaser and 1998 Purchaser (as hereinafter defined) identified
on the signature pages hereto.
W I T N E S S E T H:
-------------------
WHEREAS, the Company and the Purchasers party thereto (the "1997
Purchasers") have entered into the Note Agreement, dated as of August 12, 1997
(as previously amended or otherwise modified, the "1997 Note Agreement"),
relating to the Company's $75,000,000 aggregate principal amount of 15% Senior
Discount Notes due January 24, 2002 (the "1997 Notes");
WHEREAS, the Company and the Purchasers party thereto (the "1998
Purchasers") have entered into the Note Agreement, dated as of June 9, 1998 (as
previously amended or otherwise modified, the "1998 Note Agreement"), relating
to the Company's $24,000,000 aggregate principal amount of 14% Senior Secured
Discount Notes due January 24, 2002 (the "1998 Notes");
WHEREAS, 1997 Purchasers holding at least 50% in aggregate Accreted
Value (as defined in the 1997 Note Agreement) of the 1997 Notes have agreed to
waive the provisions of Section 5.5 of the 1997 Note Agreement as provided
herein; and
WHEREAS, 1998 Purchasers holding at least 50% in aggregate Accreted
Value (as defined in the 1998 Note Agreement) of the 1998 Notes have agreed to
waive the provisions of Section 5.5 at the 1998 Note Agreement as provided
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Waiver.
------
<PAGE>
(1) 1997 Purchasers holding at least 50% in aggregate Accreted Value (as
defined in the 1997 Note Agreement) of the 1997 Notes hereby agree to waive the
provisions of Section 5.5 of the 1997 Note Agreement for the period from October
30, 1998 through and including October 31, 1999 to the extent necessary to
permit KKR and its subsidiaries to maintain and remain liable for secured
Indebtedness in an aggregate principal amount not to exceed $1,600,000,which
secured Indebtedness was incurred prior to the merger of FRI-Sub, Inc. with and
into KKR, pursuant to the Merger Agreement.
(2) 1998 Purchasers holding at least 50% in aggregate Accreted Value (as
defined in the 1998 Note Agreement) of the outstanding 1998 Notes agree to waive
the provisions of Section 5.5 of the 1998 Note Agreement for the period from
October 30, 1998 through and including October 31, 1999 to the extent necessary
to permit KKR and its subsidiaries to maintain and remain liable for secured
Indebtedness in an aggregate principal amount not to exceed $1,600,000,which
secured Indebtedness was incurred prior to the merger of FRI-Sub, Inc. with and
into KKR, pursuant to the Merger Agreement.
Section 2. Status of Note Agreements. This Waiver is limited solely for
-------------------------
the purposes and to the extent expressly set forth herein and nothing herein
expressed or implied shall constitute an amendment or waiver of any other term,
provision or condition of the 1997 Note Agreement or the 1998 Note Agreement.
Except as expressly waived hereby, the terms and conditions of the 1997 Note
Agreement and the 1998 Note Agreement shall continue in full force and effect.
Section 3. Effectiveness. This Waiver shall become effective upon the
-------------
execution hereof by the Company, 1997 Purchasers holding at least 50% in
aggregate Accreted Value (as defined on the 1997 Note Agreement) of the 1997
Notes and 1998 Purchasers holding at least 50% in aggregate Accreted Value (as
defined in the 1998 Note Agreement) of the 1998 Notes.
Section 4. Counterparts. This Waiver may be executed in any number of
------------
counterparts, all of which taken together shall constitute on Waiver, and any of
the parties hereto may execute this Waiver by signing such a counterpart .
Section 5. Headings. The descriptive headings of the various Sections
--------
or parts of this Waiver are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
<PAGE>
Section 6. Governing Laws. THIS WAIVER SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW AND SECTION 327(b) OF THE NEW YORK CIVIL PRACTICE LAWS AND
RULES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Waiver as of the date first
above written.
FRI-MRD CORPORATION, as Company
By:
________________________________
Name: Robert T. Trebing, Jr.
Title: President
[signature pages continued on next page]
<PAGE>
PURCHASERS:
THE MAINSTAY FUNDS, ON BEHALF OF
ITS HIGH YIELD CORPORATE BOND FUND
SERIES
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
________________________________
Name:
Title:
[signature pages continued on next page]
<PAGE>
THE MAINSTAY VP SERIES FUND, INC.,
ON BEHALF OF ITS HIGH YIELD CORPORATE
BOND PORTFOLIO
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
________________________________
Name:
Title:
[signature pages continued on next page]
<PAGE>
TEACHERS' RETIREMENT SYSTEM
OF LOUISIANA
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
_______________________________
Name:
Title:
[signature pages continued on next page]
<PAGE>
THE BROWN & WILLIAMSON MASTER
RETIREMENT TRUST
By: MacKay-Shield Financial Corporation
Its: Investment Advisor
By:
________________________________
Name:
Title:
[signature pages continued on next page]
<PAGE>
THE MAINSTAY FUND, ON BEHALF OF
ITS STRATEGIC INCOME FUND
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
_______________________________
Name:
Title:
[signature pages continued on next page]
<PAGE>
HIGHBRIDGE CAPITAL CORPORATION
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
________________________________
Name:
Title:
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<PAGE>
POLICE OFFICERS PENSION SYSTEM OF
THE CITY OF HOUSTON
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
_______________________________
Name:
Title:
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<PAGE>
VULCAN MATERIALS COMPANY HIGH
YIELD ACCOUNT
By: MacKay-Shields Financial Corporation
Its: Investment Advisor
By:
_______________________________
Name:
Title:
<PAGE>
EXHIBIT 10(g)
[LOGO OF FAMILY RESTAURANTS, INC. APPEARS HERE]
1997 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>
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 earnings before interest, taxes, depreciation and
ammortization.
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 primarily 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>
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>
EXHIBIT 10(h)
[LOGO OF FAMILY RESTAURANTS, INC. APPEARS HERE]
1998 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.
o Directors, Managers and equivalents who are not eligible to
participate in other incentive programs.
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>
INCENTIVE AWARD LEVELS
- ----------------------
Individual incentive awards will be based on three, four, or five 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 FRI EBITDA Performance
o Division EBITDA Performance
o Departmental G&A Budget
o Personal Objectives
EBITDA is defined as earnings before interest, taxes, depreciation and
ammortization.
The relative weighing of the above factors reflects the degree to which a
participant can impact the performance of one or both operating divisions. For
example, the incentive for a corporate participant is weighted between Chi-Chi's
and El Torito 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.
A portion of the incentive will be awarded based on achievement of Departmental
G&A budgets.
Personal Objectives are established on an individual basis and approved by the
CEO. Incentives will be awarded based on the level to which the objectives are
achieved as determined by the Department Head and the CEO.
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>
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>
EXHIBIT 10(cc)
GENERAL CONTINUING GUARANTY
---------------------------
THE HAMLET GROUP, INC.
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of October 30,
1998, is executed and delivered by THE HAMLET GROUP, INC., a California
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 have
heretofore entered into the Loan Agreement; and
WHEREAS, in order to induce Guarantied Party to continue 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.
"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.
<PAGE>
"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 January 10, 1997 (as heretofore amended, supplemented, or otherwise
modified), 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 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
-2-
<PAGE>
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. The
foregoing notwithstanding, this Guaranty will terminate at such time as FRI-MRD
Corporation, a Delaware corporation, no longer owns any Stock of Guarantor.
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 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
-3-
<PAGE>
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
(S)(S) 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
-4-
<PAGE>
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 IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S)
2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847,
2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 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
-5-
<PAGE>
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.
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.
-6-
<PAGE>
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.
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: THE HAMLET GROUP, 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
-7-
<PAGE>
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
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
-8-
<PAGE>
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.
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 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.
----------
-9-
<PAGE>
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.
- remainder of page intentionally left blank -
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
THE HAMLET GROUP, INC.,
a California corporation
By
-----------------------------------
Title:
-------------------------------
-11-
<PAGE>
EXHIBIT 10(dd)
AMENDMENT NUMBER ONE TO
GENERAL CONTINUING GUARANTY AND
SECURITY AGREEMENT
This AMENDMENT NUMBER ONE TO GENERAL CONTINUING GUARANTY AND SECURITY
AGREEMENT (this "Amendment") is entered into as of October 30, 1998, by and
between Foothill Capital Corporation, a California corporation ("Foothill"), and
Family Restaurants, Inc., a Delaware corporation ("FRI") with reference to the
following facts:
A. Foothill, on the one hand, and El Torito Restaurant's, Inc. ("El
Torito"), a Delaware corporation, Chi-Chi's, Inc., a Delaware
Corporation (collectively with El Torito, "Borrower"), FRI-MRD
Corporation, a Delaware corporation ("FRI-MRD"), and certain of their
Affiliates, on the other hand, heretofore have entered into that
certain Loan and Security Agreement, dated as of January 10, 1997 (as
heretofore amended, supplemented, or otherwise modified, the "Loan
Agreement");
B. Foothill and FRI have heretofore entered into that certain General
Continuing Guaranty, dated as of January 10, 1997 (the "Guaranty"),
pursuant to which FRI has guaranteed the obligations of Borrower to
Foothill under the Loan Agreement, and that certain Security
Agreement, dated as of January 10, 1997 (the "Security Agreement"),
pursuant to which FRI has collateralized its obligations under the
Guaranty;
C. Borrower, FRI-MRD, and Foothill have heretofore entered into that
certain Amendment Number Four to Loan Agreement, dated as of June 9,
1998 (the "Fourth Amendment") to permit, inter alia, FRI-MRD's
----------
issuance of new Senior Secured Discount Notes in the original
principal amount of up to $24,000,000 (yielding gross proceeds of
approximately $21,000,000) to be secured by a pledge of the Pledged
HGI Collateral;
D. FRI has requested Foothill to amend the Guaranty and the Security
Agreement to permit the foregoing transactions; and
E. Foothill is willing to so modify the Guaranty and the Security
Agreement, each in accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill and FRI hereby agree as follows:
1. Definitions for this Amendment.
------------------------------
<PAGE>
Any and all initially capitalized terms used herein shall have the
meanings ascribed thereto in the Security Agreement, as amended hereby. For
purposes of this Amendment only, the following initially capitalized terms shall
have the following meanings:
"Effective Date" means the date on which Foothill acknowledges, in
--------------
writing, that each of the conditions contained in Section 4 have been fulfilled
---------
or waived.
2. Amendments to the Guaranty.
--------------------------
a. Section 21(c) of the Guaranty hereby is amended and restated
-------------
in its entirety to read as follows:
(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 (not including the Stock of HGI) 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 for any provisions that are unique to Guarantor and therefore
inapplicable to such Restricted Subsidiary), and (C) except for HGI, 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).
3. Amendments to the Security Agreement.
------------------------------------
a. Section 1.1 of the Agreement hereby is amended by modifying
-----------
the following definition:
"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
-2-
<PAGE>
therein, and the proceeds thereof; provided, however, that the Pledged
-------- -------
HGI Collateral and the proceeds or products thereof shall not constitute
Collateral.
"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, other than
HGI), documents, personal property leases (wherein Guarantor is the
lessor), chattel paper, and Guarantor's Books relating to any of the
foregoing.
b. Section 5.1 of the Security Agreement hereby is amended and
-----------
restated in its entirety to read as follows:
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 and the pledge of the Pledged
HGI Collateral pursuant to the Senior Secured Discount Note Agreement.
4. Conditions Precedent to the Effectiveness of this Amendment.
The effectiveness of the provisions of this Amendment is subject to
the fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions:
a. Foothill shall have received each of the following documents,
in form and substance satisfactory to Foothill and its counsel, duly executed,
and each such document shall be in full force and effect:
(1) this Amendment; and
(2) the Fourth Amendment.
b. All conditions to the effectiveness of Section 3 of the Fourth
---------
Amendment shall have been fulfilled or waived, and the same shall be in full
force and effect.
c. Foothill shall have received a certificate from the Secretary
of FRI attesting to the resolutions of FRI's Board of Directors authorizing its
execution, delivery, and performance of this Amendment and authorizing specific
officers of FRI to execute the same;
d. No injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
governmental authority against Borrower, FRI-MRD, FRI, any other Guarantor,
Foothill, or any of their Affiliates; and
e. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance reasonably satisfactory
to Foothill and its counsel.
-3-
<PAGE>
5. Representations and Warranties. FRI hereby represents and
------------------------------
warrants to Foothill that: (a) the execution, delivery, and performance of this
Amendment, of the Guaranty as amended by this Amendment, and of the Security
Agreement as amended by this Amendment, are within its corporate powers, have
been duly authorized by all necessary corporate action, and are not in
contravention of any law, rule, or regulation, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court, or governmental authority,
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected;
(b) this Amendment, the Guaranty as amended by this Amendment, and the Security
Agreement as amended by this Amendment, constitute FRI's legal, valid, and
binding obligation, enforceable against FRI in accordance with their terms.
6. Effect on Guaranty. The Guaranty, as amended by this Amendment,
------------------
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of or,
except as expressly set forth herein, as an amendment, of any right, power, or
remedy of Foothill under the Guaranty, as in effect prior to the date hereof.
7. Effect on Security Agreement. The Security Agreement, as amended
----------------------------
by this Amendment, shall be and remain in full force and effect in accordance
with its respective terms and hereby are ratified and confirmed in all respects.
The execution, delivery, and performance of this Amendment shall not operate as
a waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Foothill under the Security Agreement, as in effect
prior to the date hereof.
8. Miscellaneous.
-------------
a. Upon the effectiveness of this Amendment, each reference in the
Guaranty to "this Guaranty", "hereunder", "herein", "hereof" or words of like
import referring to the Guaranty shall mean and refer to the Guaranty as amended
by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in the
Loan Documents to the "Guaranty", "thereunder", "therein", "thereof" or words of
like import referring to the Guaranty shall mean and refer to the Guaranty as
amended by this Amendment.
c. Upon the effectiveness of this Amendment, each reference in the
Security Agreement to "this Agreement", "hereunder", "herein", "hereof" or words
of like import referring to the Security Agreement shall mean and refer to the
Security Agreement as amended by this Amendment.
d. Upon the effectiveness of this Amendment, each reference in the
Loan Documents to the "Security Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Security Agreement shall mean and refer
to the Security Agreement as amended by this Amendment.
-4-
<PAGE>
e. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this Amendment by signing any such
counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first written above.
FAMILY RESTAURANTS, INC.,
a Delaware corporation
By --------------------------------
Title: ----------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By --------------------------------
Title: ----------------------------
-6-
<PAGE>
EXHIBIT 10(ee)
AMENDMENT NUMBER ONE TO
SECURITY AGREEMENT
This AMENDMENT NUMBER ONE TO SECURITY AGREEMENT (this "Amendment") is
entered into as of October 30, 1998, by and between Foothill Capital
Corporation, a California corporation ("Foothill"), and FRI-MRD Corporation, a
Delaware corporation ("FRI-MRD") with reference to the following facts:
A. Foothill, on the one hand, and El Torito Restaurant's, Inc. ("El
Torito"), a Delaware corporation, Chi-Chi's, Inc., a Delaware
Corporation (collectively with El Torito, "Borrower"), FRI-MRD, and
certain of their Affiliates, on the other hand, heretofore have
entered into that certain Loan and Security Agreement, dated as of
January 10, 1997 (as heretofore amended, supplemented, or otherwise
modified, the "Loan Agreement");
B. Foothill and FRI-MRD have heretofore entered into that certain
General Continuing Guaranty, dated as of January 10, 1997 (the
"Guaranty"), pursuant to which FRI-MRD has guaranteed the obligations
of Borrower to Foothill under the Loan Agreement, and that certain
Security Agreement, dated as of January 10, 1997 (the "Security
Agreement"), pursuant to which FRI-MRD has collateralized its
obligations under the Guaranty;
C. Borrower and FRI-MRD have requested Foothill to consent to, inter
-----
alia, FRI-MRD's issuance of new Senior Secured Discount Notes in the
----
original principal amount of up to $24,000,000 (yielding gross
proceeds of approximately $21,000,000) to be secured by a pledge of
the Pledged HGI Collateral;
D. Borrower and FRI-MRD have requested Foothill to amend the Loan
Agreement and the Security Agreement to permit the foregoing
transactions;
E. Borrower, FRI-MRD, and Foothill have entered into that certain
Amendment Number Four to Loan Agreement, dated as of June 9, 1998 (the
"Fourth Amendment") to so modify the Loan Agreement; and
F. Foothill is willing to so modify the Security Agreement in
accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill and FRI-MRD hereby agree as follows:
1. Definitions for this Amendment.
------------------------------
Any and all initially capitalized terms used herein shall have the
meanings ascribed thereto in the Security Agreement, as amended hereby. For
purposes of this Amendment only, the following initially capitalized terms shall
have the following meanings:
<PAGE>
"Effective Date" means the date on which Foothill acknowledges, in
--------------
writing, that each of the conditions contained in Section 3 have been fulfilled
---------
or waived.
2. Amendments to the Security Agreement.
------------------------------------
a. Section 1.1 of the Agreement hereby is amended by modifying
-----------
following definition:
"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; provided, however,
-------- -------
that the Pledged HGI Collateral and the proceeds or products thereof shall
not constitute Collateral.
b. Section 5.1 of the Security Agreement hereby is amended and
-----------
restated in its entirety to read as follows:
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 and the pledge of the Pledged
HGI Collateral pursuant to the Senior Secured Discount Note Agreement.
3. Conditions Precedent to the Effectiveness of this Amendment.
The effectiveness of the provisions of this Amendment is subject to
the fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions:
a. Foothill shall have received each of the following documents,
in form and substance satisfactory to Foothill and its counsel, duly executed,
and each such document shall be in full force and effect:
(1) this Amendment; and
(2) the Fourth Amendment.
-2-
<PAGE>
b. All conditions to the effectiveness of Section 3 of the Fourth
---------
Amendment shall have been fulfilled or waived, and the same shall be in full
force and effect.
c. Foothill shall have received a certificate from the Secretary
of FRI-MRD attesting to the resolutions of FRI-MRD's Board of Directors
authorizing its execution, delivery, and performance of this Amendment and
authorizing specific officers of such FRI-MRD to execute the same;
d. No injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
governmental authority against Borrower, FRI-MRD, any Guarantor, Foothill, or
any of their Affiliates; and
e. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance reasonably satisfactory
to Foothill and its counsel.
4. Representations and Warranties. FRI-MRD hereby represents and
------------------------------
warrants to Foothill that: (a) the execution, delivery, and performance of this
Amendment and of the Security Agreement, as amended by this Amendment, are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or regulation,
or any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its charter or bylaws, or
of any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected; (b) this Amendment and the Security
Agreement, as amended by this Amendment, constitute FRI-MRD's legal, valid, and
binding obligation, enforceable against FRI-MRD in accordance with its terms.
5. Effect on Security Agreement. The Security Agreement, as amended
----------------------------
by this Amendment, shall be and remain in full force and effect in accordance
with its respective terms and hereby is ratified and confirmed in all respects.
The execution, delivery, and performance of this Amendment shall not operate as
a waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Foothill under the Security Agreement, as in effect
prior to the date hereof.
6. Miscellaneous.
-------------
a. Upon the effectiveness of this Amendment, each reference in the
Security Agreement to "this Agreement", "hereunder", "herein", "hereof" or words
of like import referring to the Security Agreement shall mean and refer to the
Security Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in the
Loan Documents to the "Security Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Security Agreement shall mean and refer
to the Security Agreement as amended by this Amendment.
-3-
<PAGE>
c. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this Amendment by signing any such
counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
[Signature page to follow.]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first written above.
FRI-MRD CORPORATION,
a Delaware corporation
By__________________________________
Title_______________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By__________________________________
Title_______________________________
-5-
<PAGE>
EXHIBIT 10(ff)
AMENDMENT NUMBER ONE TO
STOCK PLEDGE AGREEMENT
This AMENDMENT NUMBER ONE TO STOCK PLEDGE AGREEMENT (this "Amendment")
is entered into as of October 30, 1998, by and between Foothill Capital
Corporation, a California corporation ("Foothill"), and FRI-MRD CORPORATION, a
Delaware corporation ("FRI-MRD") with reference to the following facts:
A. Foothill, on the one hand, and El Torito Restaurant's, Inc. ("El
Torito"), a Delaware corporation, Chi-Chi's, Inc., a Delaware
Corporation (collectively with El Torito, "Borrower"), FRI-MRD, and
certain of their Affiliates, on the other hand, heretofore have
entered into that certain Loan and Security Agreement, dated as of
January 10, 1997 (as heretofore amended, supplemented, or otherwise
modified, the "Loan Agreement");
B. Foothill and FRI-MRD have heretofore entered into that certain
Stock Pledge Agreement, dated as of January 10, 1997 (the "Stock
Pledge Agreement"), pursuant to which FRI-MRD pledged, granted,
transferred, and assigned to Foothill a security interest in the
Collateral (as therein defined) to secure the Secured Obligations (as
therein defined), as provided therein;
C. Borrower, FRI-MRD, and Foothill have heretofore entered into that
certain Amendment Number Four to Loan and Security Agreement (the
"Fourth Amendment") to permit, inter alia, (a) FRI-MRD's issuance of
----------
new Senior Secured Discount Notes in the original principal amount of
up to $24,000,000 (yielding gross proceeds of approximately
$21,000,000) to be secured by a pledge of the Pledged HGI Collateral,
and (b) the merger of FRI-Sub, Inc., a Delaware corporation ("FRI-
Sub"), into Koo Koo Roo, Inc., a Delaware corporation ("KKR"), with
KKR as the survivor.
D. Borrower and FRI-MRD have requested Foothill to amend the Stock
Pledge Agreement to permit the foregoing transactions; and
E. Foothill is willing to so modify the Stock Pledge Agreement in
accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill and FRI-MRD hereby agree as follows:
1. DEFINITIONS FOR THIS AMENDMENT.
------------------------------
Any and all initially capitalized terms used herein shall have the
meanings ascribed thereto in the Stock Pledge Agreement, as amended hereby. For
purposes of this Amendment only, the following initially capitalized terms shall
have the following meanings:
<PAGE>
"Effective Date" means the date on which Foothill acknowledges, in
--------------
writing, that each of the conditions contained in Section 3 have been fulfilled
---------
or waived.
"HGI Closing Date" shall have the meaning ascribed thereto in the
----------------
Fourth Amendment.
"KKR Closing Date" shall have the meaning ascribed thereto in the
----------------
Fourth Amendment.
2. AMENDMENTS TO THE STOCK PLEDGE AGREEMENT TO FACILITATE THE HGI
ACQUISITION.
a. Section 1(a) of the Stock Pledge Agreement hereby is amended
------------
by modifying the following definition:
"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, not including HGI, 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.
3. AMENDMENTS TO THE STOCK PLEDGE AGREEMENT TO FACILITATE THE KKR
MERGER.
a. Schedule A of the Stock Pledge Agreement is hereby amended,
----------
restated, and replaced in its entirety by the Schedule A attached hereto.
----------
4. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF SECTION 2 TO THIS
AMENDMENT.
The effectiveness of the provisions of Section 2 of this Amendment is
---------
subject to the fulfillment, to the satisfaction of Foothill and its counsel, of
each of the following conditions:
a. Foothill shall have received each of the following documents,
in form and substance satisfactory to Foothill and its counsel, duly executed,
and each such document shall be in full force and effect:
-2-
<PAGE>
(1) this Amendment; and
(2) the Fourth Amendment;
b. Foothill shall have received a certificate from the Secretary
of FRI-MRD attesting to the resolutions of FRI-MRD's Board of Directors
authorizing its execution, delivery, and performance of this Amendment and
authorizing specific officers of FRI-MRD to execute the same;
c. All conditions to the effectiveness of Section 3 of the Fourth
---------
Amendment shall have been fulfilled or waived, and the same shall be in full
force and effect.
d. As of the HGI Closing Date, no injunction, writ, restraining
order, or other order of any nature prohibiting, directly or indirectly, the
consummation of the transactions contemplated herein shall have been issued and
remain in force by any governmental authority against Borrower, FRI-MRD, any
Guarantor, Foothill, or any of their Affiliates; and
e. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance reasonably satisfactory
to Foothill and its counsel.
5. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF SECTION 3 TO THIS
AMENDMENT.
The effectiveness of the provisions of Section 3 of this Amendment is
---------
subject to the fulfillment, to the satisfaction of Foothill and its counsel, of
each of the following conditions:
a. Foothill shall have received each of the following documents,
in form and substance satisfactory to Foothill and its counsel, duly executed,
and each such document shall be in full force and effect:
(1) this Amendment; and
(2) the Fourth Amendment.
b. All conditions to the effectiveness of Section 4 of the Fourth
---------
Amendment shall have been fulfilled or waived, and the same shall be in full
force and effect.
c. Foothill shall have received a certificate from the Secretary
of FRI-MRD attesting to the resolutions of FRI-MRD's Board of Directors
authorizing its execution, delivery, and performance of this Amendment and
authorizing specific officers of FRI-MRD to execute the same;
d. As of the KKR Closing Date, no injunction, writ, restraining
order, or other order of any nature prohibiting, directly or indirectly, the
consummation of the
-3-
<PAGE>
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower, FRI-MRD, any Guarantor, Foothill,
or any of their Affiliates; and
e. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance reasonably satisfactory
to Foothill and its counsel.
6. REPRESENTATIONS AND WARRANTIES. FRI-MRD hereby represents and
------------------------------
warrants to Foothill that: (a) the execution, delivery, and performance of this
Amendment and of the Stock Pledge Agreement, as amended by this Amendment, are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or regulation,
or any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its charter or bylaws, or
of any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected; (b) this Amendment and the Stock Pledge
Agreement, as amended by this Amendment, constitute FRI-MRD's legal, valid, and
binding obligation, enforceable against FRI-MRD in accordance with its terms.
7. EFFECT ON STOCK PLEDGE AGREEMENT. The Stock Pledge Agreement, as
--------------------------------
amended by this Amendment, shall be and remain in full force and effect in
accordance with its respective terms and hereby is ratified and confirmed in all
respects. The execution, delivery, and performance of this Amendment shall not
operate as a waiver of or, except as expressly set forth herein, as an
amendment, of any right, power, or remedy of Foothill under the Stock Pledge
Agreement, as in effect prior to the date hereof.
8. MISCELLANEOUS.
-------------
a. Upon the effectiveness of this Amendment, each reference in
the Stock Pledge Agreement to "this Agreement", "hereunder", "herein", "hereof"
or words of like import referring to the Stock Pledge Agreement shall mean and
refer to the Stock Pledge Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Stock Pledge Agreement", "thereunder", "therein",
"thereof" or words of like import referring to the Stock Pledge Agreement shall
mean and refer to the Stock Pledge Agreement as amended by this Amendment.
c. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this Amendment by signing any such
counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
-4-
<PAGE>
[Signature page to follow.]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first written above.
FRI-MRD CORPORATION,
a Delaware corporation
By________________________________
Title:____________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By________________________________
Title:____________________________
-6-
<PAGE>
SCHEDULE A
----------
TO
STOCK PLEDGE AGREEMENT
----------------------
Pledgor: FRI-MRD CORPORATION
Pledged Shares
--------------
<TABLE>
<CAPTION>
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. 100 common 3 100% Delaware
CHI-CHI'S INC. 1000 common 5 100% Delaware
FRI-ADMIN CORPORATION 100 common 3 100% Delaware
EL TORITO FRANCHISING COMPANY 100 common 1 100% Delaware
KOO KOO ROO, INC. -------- common ------- 100% Delaware
</TABLE>
-7-
<PAGE>
EXHIBIT 10(gg)
GENERAL CONTINUING GUARANTY
---------------------------
KOO KOO ROO, INC.
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of October 30,
1998, is executed and delivered by KOO KOO ROO, INC., 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 have
heretofore entered into the Loan Agreement; and
WHEREAS, in order to induce Guarantied Party to continue 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.
"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.
<PAGE>
"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 January 10, 1997 (as heretofore amended, supplemented, or
otherwise modified), 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 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
-2-
<PAGE>
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 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
-3-
<PAGE>
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
(S)(S) 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
-4-
<PAGE>
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 IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S)
2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847,
2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 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
-5-
<PAGE>
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.
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.
-6-
<PAGE>
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.
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: KOO KOO ROO, 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
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<PAGE>
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
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
-8-
<PAGE>
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.
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 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.
----------
-9-
<PAGE>
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.
- remainder of page intentionally left blank -
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
KOO KOO ROO, INC.,
a Delaware corporation
By _____________________________
Title: __________________________
-11-
<PAGE>
EXHIBIT 10(hh)
SECURITY AGREEMENT
------------------
(KOO KOO ROO, INC.)
This SECURITY AGREEMENT (this "Agreement"), is entered into as of
October 30, 1998 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 KOO KOO ROO, 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 have
heretofore entered 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.
"Agreement" means this Security Agreement and any
-----------
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Security Agreement.
<PAGE>
"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.
"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,
-2-
<PAGE>
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 9115 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 January 10, 1997 (as heretofore amended, supplemented, or
otherwise modified), among 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.
-3-
<PAGE>
"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 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
-4-
<PAGE>
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.
-5-
<PAGE>
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.
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).
-6-
<PAGE>
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.]
-7-
<PAGE>
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
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:
-8-
<PAGE>
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. As of the KKR Closing
-----------------------------------------
Date, the chief executive office of Guarantor is at the address indicated in the
first paragraph of this Agreement. Guarantor's FEIN is 22-3132583.
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.
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.
-9-
<PAGE>
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.]
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
-10-
<PAGE>
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.
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.
-11-
<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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;]
(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
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<PAGE>
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 Guarantor
--------
shall immediately return such Flagstar Bonds 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;]
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<PAGE>
(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
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.
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<PAGE>
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 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
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<PAGE>
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
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 (S)(S) 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,
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<PAGE>
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 (S)(S) 2808, 2809,
2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE
EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 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>
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.
13. GENERAL PROVISIONS.
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<PAGE>
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.
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
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<PAGE>
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.
- Remainder of page intentionally left blank -
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed at Los Angeles, California.
KOO KOO ROO, INC.,
a Delaware corporation
By: ----------------------------------------
Its ----------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By ----------------------------------------
Its ----------------------------------------
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<PAGE>
EXHIBIT 10(ii)
Amended and Restated
Employment Agreement for Kevin Relyea
This Amended and Restated Employment Agreement ("Agreement") is entered into as
of _________, 1998, by and between Kevin Relyea ("Executive") and Koo Koo Roo
Enterprises, Inc., a Delaware corporation ("KKRE", formerly known as Family
Restaurants, Inc. ("FRI")), Chi-Chi's, Inc., a Delaware corporation ("Chi-
Chi's"), El Torito Restaurants, Inc., a Delaware corporation ("El Torito"), and
Koo Koo Roo, Inc., a Delaware corporation ("KKR") (KKRE, Chi-Chi's, El Torito
and KKR are hereinafter collectively referred to as "the Company").
RECITALS
--------
A. Executive and FRI, Chi-Chi's and El Torito entered into that certain
employment agreement dated January 1, 1996 ("Original Agreement") which
Original Agreement set forth the terms of Executive's employment until
January 1, 1999.
B. On December 15, 1997, the Boards of Directors of FRI, Chi-Chi's and El
Torito amended the Original Agreement to (i) provide Executive with five
percent (5%) salary increases on January 1, 1998 and January 1, 1999; and
(ii) extend the term of employment covered by the Original Agreement until
January 1, 2000.
C. Executive and the Company now desire to amend and restate the Original
Agreement to provide for various modifications to the Original Agreement as
more particularly set forth below, such that the Original Agreement shall
be superseded by this Agreement.
Now, therefore, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
AGREEMENTS
----------
1. POSITION AND DUTIES
- ----------------------
(a) The Company hereby agrees to employ Executive, and Executive hereby accepts
and agrees to employment by the Company, on the terms and conditions set
forth herein.
(b) Executive will hold the positions and titles of President, Chief Executive
Officer ("CEO"), and Chairman of KKRE, CEO of Chi-Chi's, CEO of El Torito
and CEO of KKR from the date of this Agreement and for the period of time
specified in this Agreement. Executive reports to the Board of Directors
(the "Board") of KKRE and will assist the Board in developing and
implementing KKRE's ongoing business strategy and objectives, including
those of its subsidiaries, El Torito, Chi-Chi's and KKR. The Executive may
have
1
<PAGE>
additional powers and duties as prescribed from time to time by the
Board.
(c) 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 business
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 ("Effective Date") through December 31, 2001 ("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.
4. COMPENSATION AND BENEFITS
- ----------------------------
(a) Salary
- ----------
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid an annual base salary as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(i) Effective Date - December 31, 1998: $420,000
(ii) January 1, 1999 - December 31, 1999: $475,000
(iii) January 1, 2000 - December 31, 2000: $498,750
(iv) January 1, 2001 - December 31, 2001: $523,687
</TABLE>
Executive's annual base salary shall 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 other
periodic increases in base salary as determined by the Board in its sole and
absolute discretion.
2
<PAGE>
(b) Annual Incentive Compensation
- ---------------------------------
During the Period of Employment, the Executive will participate in the Company's
Management Incentive Compensation Plan (the "Bonus Plan") as currently
established and as modified from time to time. Under the terms of the current
Bonus 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 Bonus Plan or successor plans. The
Company reserves the right to modify, amend, or discontinue the Bonus Plan at
any time; however, if the Bonus 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 and shall be granted stock options thereunder as approved by
KKRE's Board. With regard to any grant(s) of stock options, notwithstanding the
vesting provisions of such grant(s) or the provisions of the stock incentive
plan, all options granted to Executive shall immediately vest upon (i) any
"Change of Control" as defined in the Indenture, dated January 27, 1994, between
FRI, as issuer, and IBJ Schroder Bank & Trust Company, as trustee, or (ii) any
termination without "Cause" (as hereinafter defined), or (iii) any termination
for "Good Reason" (as hereinafter defined).
(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 benefit 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, in the amount of six (6) weeks vacation per
year. Executive shall be entitled to accrue up to a maximum of six weeks of
paid vacation. If Executive has accrued six weeks of vacation, Executive shall
cease to accrue vacation days until the amount of such accrued vacation is less
than six weeks. Without the prior consent of the Board, Executive shall not
take more than six weeks of vacation in any calendar year.
3
<PAGE>
(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 Eighteen Thousand Dollars ($18,000.00) 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; and
(ii) a pro rata portion of the Executive's annual incentive award, if any,
to which he is entitled through the date of termination.
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 or long
term incentive award for the period in which Termination for Cause occurs.
4
<PAGE>
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, without "Cause" (as defined in Section
5(b) above) and without liability. If Executive's employment is terminated
without Cause by the Company as described in the preceding sentence:
(i) The Company will pay the Executive his base salary and car allowance at
the rate in effect at the time of termination for the remainder of the Period of
Employment or one (1) year from the date of termination, whichever is greater;
(ii) If termination occurs in 1999, 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, 1999, 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 (1) year, whichever is greater; and,
(iii) The Company will continue to cover the Executive in the Company"s
benefit programs through the end of Period of Employment or one (1) year from
the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments, exclusive of benefit programs, in a lump sum equal to the present
value of the future monthly payments (assuming a 7% discount rate).
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
5
<PAGE>
(d) Voluntary Termination
- -------------------------
The Executive may terminate employment at any time by giving the Company one (1)
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 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 without his consent other
than those contemplated by this Agreement or in accordance with those typically
assumed by a President, CEO and Chairman 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 annual base salary below the amounts set forth in
Section 4(a) per relevant year which is not agreed to by Executive.
If Executive terminates employment for "Good Reason," the Company will pay the
Executive:
(x) his base salary and car allowance at the rate in effect at the time of
termination for the remainder of the Period of Employment or one (1) year from
the date of termination, whichever is greater;
(y) If termination occurs in 1999, 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, 1999, 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 (1) year, whichever is greater;
(z) The Company will continue to cover the Executive in the Company's
benefit programs through the end of the Period of Employment or one (1) year
from the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments exclusive of benefit programs in a lump sum equal to the present value
of the future monthly payments (assuming a 7% discount rate).
6
<PAGE>
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
6. PROPRIETARY INFORMATION
- --------------------------
Executive understands that, by virtue of Executive's employment with the
Company, Executive will acquire and be exposed to Proprietary Information
(defined below). "Proprietary Information" means all ideas, information and
materials, tangible or intangible, not generally known to the public or
restaurant industry executives, relating in any manner to the business of the
Company, affiliates, personnel (including partners, principals, employees and
contractors), clients or others with whom it does business that Executive learns
of or acquires during the period of Executive's employment with the Company.
Proprietary Information includes, but is not limited to, manuals, documents,
computer programs, compilations of technical, financial, legal or other data,
client or prospective client lists, names of suppliers, specifications, designs,
business or marketing plans, forecasts, financial information, work in progress,
and other technical or business information.
Executive agrees to hold in trust and confidence all Proprietary Information
during Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company. Executive shall not disclose any Proprietary Information to anyone
outside the Company without the approval of the Board or use any Proprietary
Information for any purpose other than for the benefit of the Company as
required by Executive's authorized duties for the Company as an employee. For
three (3) years immediately following the termination of Executive's employment
with the Company, Executive shall not use Proprietary Information for any
purpose. Upon termination of employment, Executive shall not retain or take
with Executive any Proprietary Information in a Tangible Form (defined below),
and Executive shall immediately deliver to the Company any Proprietary
Information in a Tangible Form that Executive may then or thereafter hold or
control, as well as all other property, equipment, documents or things that
Executive was issued or otherwise received or obtained during Executive's
employment with the Company. "Tangible Form" includes ideas, information or
materials in written or graphic form, on a computer disc or other medium, or
otherwise stored in or available through electronic or other form.
7. NON-SOLICITATION
- --------------------
During Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company, Executive shall not, directly or indirectly, (i) solicit, induce, or
attempt to solicit or induce, any person known to Executive to be an employee of
the Company or any of its affiliates (each such person, a "Company Person"), to
terminate his or her employment or other relationship with the Company or such
affiliate for the purpose of associating with (A) any entity of which Executive
is or becomes a partner, stockholder, member, officer, director, principal,
agent, trustee or consultant, or (B) any competitor of the Company or any such
affiliate or (ii) otherwise encourage any Company Person
7
<PAGE>
to terminate his or her employment or other relationship with the Company or
such affiliate for any other purpose or no purpose.
8. ASSIGNMENT
- -------------
The Executive's rights and obligations under this Agreement may not be assigned,
and any attempted assignment shall be null and void. Subject to the termination
provisions herein, the Company may assign this Agreement, but only to a
successor or affiliated organization.
9. 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 92612, or to the Executive at 17403 Tam O'Shanter Drive, Poway,
California 92064.
10. 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 provided, however, the terms of benefit plans and long
term incentive plans referred to herein may require referral to such documents.
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.
11. 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.
12. 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.
13. 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.
8
<PAGE>
14. 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. Until any
dispute hereunder is resolved, the Company shall pay all fees and expenses of
the Arbitrator and shall pay to Executive all reasonable expenses and legal fees
incurred by Executive in connection with such arbitration. Such payments shall
be made within five (5) days after the Executive's request for payment,
accompanied with such evidence of fees and expenses incurred as the Company may
require. If the Company substantially prevails on substantially all of the
claims at arbitration, the Company shall be entitled to recover its costs and
expenses including the reasonable fees of its attorneys and the legal fees and
expenses of Executive paid by the Company in the arbitrated dispute from
Executive. Such payments shall be made within five (5) days after the Company's
request for payment, accompanied with such evidence of fees and expenses as
Executive may reasonably request. 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 constitution, 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.
15. 280G CAP
- -------------
If the Company determines that any severance payments hereunder, when added to
any other payment or benefit received or to be received by Executive in
connection with a change in control or the termination of Executive's
employment, will be subject to the excise tax imposed by section 4999 of the
Internal Revenue Code (or any similar tax that may hereafter be imposed), the
Company shall reduce the severance payments (but not below zero) to the maximum
amount that will result in no portion of the severance payments being subject to
such tax.
9
<PAGE>
In witness whereof, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer.
- ----------------------------------
Kevin Relyea
Koo Koo Roo Enterprises, Inc. El Torito Restaurants, Inc.
By: By:
------------------------------ ------------------------------
Robert T. Trebing, Jr. Robert T. Trebing, Jr.
Executive Vice President and CFO Vice President
Chi-Chi's, Inc. Koo Koo Roo, Inc.
By: By:
------------------------------- ------------------------------
Robert T. Trebing, Jr. Robert T. Trebing, Jr.
Vice President Vice President
10
<PAGE>
EXHIBIT 10(jj)
Amended and Restated
Employment Agreement for Roger Chamness
This Amended and Restated Employment Agreement (Agreement) is entered into as of
_________, 1998, by and between Roger Chamness (Executive) and Koo Koo Roo
Enterprises, Inc., a Delaware corporation (KKRE, formerly known as Family
Restaurants, Inc. (FRI)), Chi-Chi's, Inc., a Delaware corporation (Chi-Chi's),
El Torito Restaurants, Inc., a Delaware corporation (El Torito), and Koo Koo
Roo, Inc., a Delaware corporation (KKR) (KKRE, Chi-Chi's, El Torito and KKR are
hereinafter collectively referred to as the Company).
RECITALS
--------
A. Executive and FRI, Chi-Chi's and El Torito entered into that certain
employment agreement dated March 1, 1996 (Original Agreement) which
Original Agreement set forth the terms of Executive's employment until
January 1, 1999.
B. On November 26, 1997, the Boards of Directors of FRI, Chi-Chi's and El
Torito amended the Original Agreement to (i) provide Executive with five
percent (5%) salary increases on January 1, 1998 and January 1, 1999; and
(ii) extend the term of employment covered by the Original Agreement until
March 1, 2000.
C. Executive and the Company now desire to amend and restate the Original
Agreement to provide for various modifications to the Original Agreement as
more particularly set forth below, such that the Original Agreement shall
be superseded by this Agreement.
Now, therefore, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
AGREEMENTS
----------
1. POSITION AND DUTIES
- ----------------------
(a) The Company hereby agrees to employ Executive, and Executive hereby accepts
and agrees to employment by the Company, on the terms and conditions set
forth herein.
(b) Executive will hold the positions and titles of Executive Vice President
(EVP) of KKRE 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 KKRE 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
1
<PAGE>
(Board) of KKRE.
(c) 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 business
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 (Effective Date) through December 31, 2001 (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
- ----------------------------
(a) Salary
- ----------
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid an annual base salary as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(i) Effective Date - December 31, 1998: $288,750
(ii) January 1, 1999 - December 31, 1999: $304,000
(iii) January 1, 2000 - December 31, 2000: $319,200
(iv) January 1, 2001 - December 31, 2001: $335,160
</TABLE>
Executive's annual base salary shall 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 KKRE's 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 Bonus Plan) as currently
established and as modified from time to time. Under the terms of the current
Bonus Plan, Executive's annual incentive award is based upon one or more
performance measures, such as Division sales performance, Division
2
<PAGE>
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 Bonus
Plan or successor plans. The Company reserves the right to modify, amend, or
discontinue the Bonus Plan at any time; however, if the Bonus 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 and shall be granted stock options thereunder as approved by
KKRE's Board. With regard to any grant(s) of stock options, notwithstanding the
vesting provisions of such grant(s) or the provisions of the stock incentive
plan, all options granted to Executive shall immediately vest upon (i) any
Change of Control as defined in the Indenture, dated January 27, 1994, between
FRI, as issuer, and IBJ Schroder Bank & Trust Company, as trustee, or (ii) any
termination without Cause (as hereinafter defined), or (iii) any termination
for Good Reason (as hereinafter defined).
(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 benefit 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
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 Eighteen Thousand Dollars ($18,000.00) 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
3
<PAGE>
duties in accordance with the Company's general policies, as may be amended from
time to time.
4
<PAGE>
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; and
(ii) a pro rata portion of the Executive's annual incentive award, if any,
to which he is entitled through the date of termination.
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 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;
5
<PAGE>
(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, without Cause (as defined in Section
5(b) above) and without liability. If Executive's employment is terminated
without Cause by the Company as described in the preceding sentence:
(i) The Company will pay the Executive his base salary and car allowance at
the rate in effect at the time of termination for the remainder of the Period of
Employment or one (1) year from the date of termination, whichever is greater;
(ii) If termination occurs in 1999, 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, 1999, 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 (1) year, whichever is greater; and,
(iii) The Company will continue to cover the Executive in the Company's
benefit programs through the end of Period of Employment or one (1) year from
the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments, exclusive of benefit programs, in a lump sum equal to the present
value of the future monthly payments (assuming a 7% discount rate).
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 (1)
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 for the year in which he terminates his
employment.
6
<PAGE>
(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 without his consent 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 annual base salary below the amounts set forth in
Section 4(a) per relevant year which is not agreed to by Executive.
If Executive terminates employment for Good Reason, the Company will pay the
Executive:
(x) his base salary and car allowance at the rate in effect at the time of
termination for the remainder of the Period of Employment or one (1) year from
the date of termination, whichever is greater;
(y) If termination occurs in 1999, 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, 1999, 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 (1) year, whichever is greater;
(z) The Company will continue to cover the Executive in the Company's
benefit programs through the end of the Period of Employment or one (1) year
from the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments exclusive of benefit programs in a lump sum equal to the present value
of the future monthly payments (assuming a 7% discount rate).
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
6. PROPRIETARY INFORMATION
- --------------------------
Executive understands that, by virtue of Executive's employment with the
Company, Executive will acquire and be exposed to Proprietary Information
(defined below). Proprietary Information means all ideas, information and
materials, tangible or intangible, not generally
7
<PAGE>
known to the public or restaurant industry executives, relating in any manner to
the business of the Company, affiliates, personnel (including partners,
principals, employees and contractors), clients or others with whom it does
business that Executive learns of or acquires during the period of Executive's
employment with the Company. Proprietary Information includes, but is not
limited to, manuals, documents, computer programs, compilations of technical,
financial, legal or other data, client or prospective client lists, names of
suppliers, specifications, designs, business or marketing plans, forecasts,
financial information, work in progress, and other technical or business
information.
Executive agrees to hold in trust and confidence all Proprietary Information
during Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company. Executive shall not disclose any Proprietary Information to anyone
outside the Company without the approval of the Board or use any Proprietary
Information for any purpose other than for the benefit of the Company as
required by Executive's authorized duties for the Company as an employee. For
three (3) years immediately following the termination of Executive's employment
with the Company, Executive shall not use Proprietary Information for any
purpose. Upon termination of employment, Executive shall not retain or take
with Executive any Proprietary Information in a Tangible Form (defined below),
and Executive shall immediately deliver to the Company any Proprietary
Information in a Tangible Form that Executive may then or thereafter hold or
control, as well as all other property, equipment, documents or things that
Executive was issued or otherwise received or obtained during Executive's
employment with the Company. Tangible Form includes ideas, information or
materials in written or graphic form, on a computer disc or other medium, or
otherwise stored in or available through electronic or other form.
7. NON-SOLICITATION
- --------------------
During Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company, Executive shall not, directly or indirectly, (i) solicit, induce, or
attempt to solicit or induce, any person known to Executive to be an employee of
the Company or any of its affiliates (each such person, a Company Person), to
terminate his or her employment or other relationship with the Company or such
affiliate for the purpose of associating with (A) any entity of which Executive
is or becomes a partner, stockholder, member, officer, director, principal,
agent, trustee or consultant, or (B) any competitor of the Company or any such
affiliate or (ii) otherwise encourage any Company Person to terminate his or her
employment or other relationship with the Company or such affiliate for any
other purpose or no purpose.
8. ASSIGNMENT
- -------------
The Executive's rights and obligations under this Agreement may not be assigned,
and any attempted assignment shall be null and void. Subject to the termination
provisions herein, the Company may assign this Agreement, but only to a
successor or affiliated organization.
8
<PAGE>
9. 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 92612, or to the Executive at 10200 Linn Station Road, Louisville,
Kentucky 40223.
10. 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 provided, however, the terms of benefit plans and long
term incentive plans referred to herein may require referral to such documents.
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.
11. 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.
12. 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.
13. 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.
14. 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. Until any
dispute hereunder is resolved, the Company shall pay all fees and expenses of
the Arbitrator and shall pay to Executive all reasonable expenses and legal fees
incurred by Executive in connection with such
9
<PAGE>
arbitration. Such payments shall be made within five (5) days after the
Executive's request for payment, accompanied with such evidence of fees and
expenses incurred as the Company may require. If the Company substantially
prevails on substantially all of the claims at arbitration, the Company shall be
entitled to recover its costs and expenses including the reasonable fees of its
attorneys and the legal fees and expenses of Executive paid by the Company in
the arbitrated dispute from Executive. Such payments shall be made within five
(5) days after the Company's request for payment, accompanied with such evidence
of fees and expenses as Executive may reasonably request. 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 constitution, 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.
15. 280G CAP
- -------------
If the Company determines that any severance payments hereunder, when added to
any other payment or benefit received or to be received by Executive in
connection with a change in control or the termination of Executive's
employment, will be subject to the excise tax imposed by section 4999 of the
Internal Revenue Code (or any similar tax that may hereafter be imposed), the
Company shall reduce the severance payments (but not below zero) to the maximum
amount that will result in no portion of the severance payments being subject to
such tax.
10
<PAGE>
In witness whereof, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer.
- -------------------------------
Roger Chamness
Koo Koo Roo Enterprises, 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. Koo Koo Roo, Inc.
By: By:
--------------------------------- -------------------------------
Kevin S. Relyea Robert T. Trebing, Jr.
Chief Executive Officer Vice President
11
<PAGE>
EXHIBIT 10(kk)
Amended and Restated
Employment Agreement for William Burt
This Amended and Restated Employment Agreement ("Agreement") is entered into as
of , 1998, by and between William Burt ("Executive") and Koo Koo Roo
------------
Enterprises, Inc., a Delaware corporation ("KKRE", formerly known as Family
Restaurants, Inc. ("FRI")), Chi-Chi's, Inc., a Delaware corporation ("Chi-
Chi's"), El Torito Restaurants, Inc., a Delaware corporation ("El Torito"), and
Koo Koo Roo, Inc., a Delaware corporation ("KKR") (KKRE, Chi-Chi's, El Torito
and KKR are hereinafter collectively referred to as "the Company").
RECITALS
--------
A. Executive and FRI, Chi-Chi's and El Torito entered into that certain
employment agreement dated April 8, 1996 ("Original Agreement") which
Original Agreement set forth the terms of Executive's employment until
January 1, 1999.
B. On November 26, 1997, the Boards of Directors of FRI, Chi-Chi's and El
Torito amended the Original Agreement to (i) provide Executive with five
percent (5%) salary increases on January 1, 1998 and January 1, 1999; and
(ii) extend the term of employment covered by the Original Agreement until
April 8, 2000.
C. Executive and the Company now desire to amend and restate the Original
Agreement to provide for various modifications to the Original Agreement as
more particularly set forth below, such that the Original Agreement shall
be superseded by this Agreement.
Now, therefore, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
AGREEMENTS
----------
1. POSITION AND DUTIES
- ----------------------
(a) The Company hereby agrees to employ Executive, and Executive hereby accepts
and agrees to employment by the Company, on the terms and conditions set
forth herein.
(b) Executive will hold the positions and titles of Executive Vice President
("EVP") of KKRE 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 KKRE 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 KKRE.
(c) Executive agrees to devote all of his business time, skill, attention, and
best efforts to the
1
<PAGE>
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 business 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 ("Effective Date") through December 31, 2001 ("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.
4. COMPENSATION AND BENEFITS
- ----------------------------
(a) Salary
- ----------
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid an annual base salary as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(i) Effective Date - December 31, 1998: $236,250
(ii) January 1, 1999 - December 31, 1999: $270,000
(iii) January 1, 2000 - December 31, 2000: $283,500
(iv) January 1, 2001 - December 31, 2001: $297,675
</TABLE>
Executive's annual base salary shall 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 KKRE's 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 "Bonus Plan") as currently
established and as modified from time to time. Under the terms of the current
Bonus 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 Bonus Plan or
successor plans. The Company reserves the right
2
<PAGE>
to modify, amend, or discontinue the Bonus Plan at any time; however, if the
Bonus 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 and shall be granted stock options thereunder as approved by
KKRE's Board. With regard to any grant(s) of stock options, notwithstanding the
vesting provisions of such grant(s) or the provisions of the stock incentive
plan, all options granted to Executive shall immediately vest upon (i) any
"Change of Control" as defined in the Indenture, dated January 27, 1994, between
FRI, as issuer, and IBJ Schroder Bank & Trust Company, as trustee, or (ii) any
termination without "Cause" (as hereinafter defined, or (iii) any termination
for "Good Reason" (as hereinafter defined).
(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 benefit 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
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 Eighteen Thousand Dollars ($18,000.00) 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.
3
<PAGE>
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; and
(ii) a pro rata portion of the Executive's annual incentive award, if any,
to which he is entitled through the date of termination.
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 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.
4
<PAGE>
(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, without "Cause" (as defined in Section
5(b) above) and without liability. If Executive's employment is terminated
without Cause by the Company as described in the preceding sentence:
(i) The Company will pay the Executive his base salary and car allowance
at the rate in effect at the time of termination for the remainder of the Period
of Employment or one (1) year from the date of termination, whichever is
greater;
(ii) If termination occurs in 1999, 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, 1999, 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 (1) year, whichever is greater; and,
(iii) The Company will continue to cover the Executive in the Company's
benefit programs through the end of the Period of Employment or one (1) year
from the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments, exclusive of benefit programs, in a lump sum equal to the present
value of the future monthly payments (assuming a 7% discount rate).
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 (1)
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 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 without his consent 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
5
<PAGE>
an increase in Executive's normal commute of more than 50 miles which is not
agreed to by Executive; or,
(iii) any reduction in annual base salary below the amounts set forth in
Section 4(a) per relevant year which is not agreed to by Executive.
If Executive terminates employment for "Good Reason," the Company will pay the
Executive:
(x) his base salary and car allowance at the rate in effect at the time of
termination for the remainder of the Period of Employment or one (1) year from
the date of termination, whichever is greater;
(y) If termination occurs in 1999, 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, 1999, 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 (1) year, whichever is greater;
(z) The Company will continue to cover the Executive in the Company's
benefit programs through the end of the Period of Employment or one (1) year
from the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments exclusive of benefit programs in a lump sum equal to the present value
of the future monthly payments (assuming a 7% discount rate).
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
6. PROPRIETARY INFORMATION
- --------------------------
Executive understands that, by virtue of Executive's employment with the
Company, Executive will acquire and be exposed to Proprietary Information
(defined below). "Proprietary Information" means all ideas, information and
materials, tangible or intangible, not generally known to the public or
restaurant industry executives, relating in any manner to the business of the
Company, affiliates, personnel (including partners, principals, employees and
contractors), clients or others with whom it does business that Executive learns
of or acquires during the period of Executive's employment with the Company.
Proprietary Information includes, but is not limited to, manuals, documents,
computer programs, compilations of technical, financial, legal or other data,
client or prospective client lists, names of suppliers, specifications, designs,
business or marketing plans, forecasts, financial information, work in progress,
and other technical or business information.
Executive agrees to hold in trust and confidence all Proprietary Information
during Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company. Executive shall not disclose any Proprietary Information to anyone
outside the Company without the approval of the Board or use any
6
<PAGE>
Proprietary Information for any purpose other than for the benefit of the
Company as required by Executive's authorized duties for the Company as an
employee. For three (3) years immediately following the termination of
Executive's employment with the Company, Executive shall not use Proprietary
Information for any purpose. Upon termination of employment, Executive shall not
retain or take with Executive any Proprietary Information in a Tangible Form
(defined below), and Executive shall immediately deliver to the Company any
Proprietary Information in a Tangible Form that Executive may then or thereafter
hold or control, as well as all other property, equipment, documents or things
that Executive was issued or otherwise received or obtained during Executive's
employment with the Company. "Tangible Form" includes ideas, information or
materials in written or graphic form, on a computer disc or other medium, or
otherwise stored in or available through electronic or other form.
7. NON-SOLICITATION
- --------------------
During Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company, Executive shall not, directly or indirectly, (i) solicit, induce, or
attempt to solicit or induce, any person known to Executive to be an employee of
the Company or any of its affiliates (each such person, a "Company Person"), to
terminate his or her employment or other relationship with the Company or such
affiliate for the purpose of associating with (A) any entity of which Executive
is or becomes a partner, stockholder, member, officer, director, principal,
agent, trustee or consultant, or (B) any competitor of the Company or any such
affiliate or (ii) otherwise encourage any Company Person to terminate his or her
employment or other relationship with the Company or such affiliate for any
other purpose or no purpose.
8. ASSIGNMENT
- -------------
The Executive's rights and obligations under this Agreement may not be assigned,
and any attempted assignment shall be null and void. Subject to the termination
provisions herein, the Company may assign this Agreement, but only to a
successor or affiliated organization.
9. 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 92612 or to the Executive at 25 Mahogany Drive, Irvine, California
92620.
10. 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 provided, however, the terms of benefit plans and long
term incentive plans referred to herein may require referral to such documents.
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.
7
<PAGE>
11. 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.
12. 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.
13. 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.
14. 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. Until any
dispute hereunder is resolved, the Company shall pay all fees and expenses of
the Arbitrator and shall pay to Executive all reasonable expenses and legal fees
incurred by Executive in connection with such arbitration. Such payments shall
be made within five (5) days after the Executive's request for payment,
accompanied with such evidence of fees and expenses incurred as the Company may
require. If the Company substantially prevails on substantially all of the
claims at arbitration, the Company shall be entitled to recover its costs and
expenses including the reasonable fees of its attorneys and the legal fees and
expenses of Executive paid by the Company in the arbitrated dispute from
Executive. Such payments shall be made within five (5) days after the Company's
request for payment, accompanied with such evidence of fees and expenses as
Executive may reasonably request. 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 constitution, 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.
8
<PAGE>
15. 280G CAP
- -------------
If the Company determines that any severance payments hereunder, when added to
any other payment or benefit received or to be received by Executive in
connection with a change in control or the termination of Executive's
employment, will be subject to the excise tax imposed by section 4999 of the
Internal Revenue Code (or any similar tax that may hereafter be imposed), the
Company shall reduce the severance payments (but not below zero) to the maximum
amount that will result in no portion of the severance payments being subject to
such tax.
In witness whereof, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer.
- -----------------------------------
William Burt
Koo Koo Roo Enterprises, 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. Koo Koo Roo, Inc.
By: By:
-------------------------------- ------------------------------
Kevin S. Relyea Robert T. Trebing, Jr.
Chief Executive Officer Vice President
9
<PAGE>
EXHIBIT 10(LL)
Employment Agreement for Gayle A. DeBrosse
This Employment Agreement (Agreement) is entered into as of November 1, 1998,
by and between Gayle A. DeBrosse (Executive) and Koo Koo Roo Enterprises, Inc.,
a Delaware corporation (KKRE), Chi-Chi's, Inc., a Delaware corporation (Chi-
Chis), El Torito Restaurants, Inc., a Delaware corporation (El Torito), and Koo
Koo Roo, Inc. (KKR) (KKRE, Chi-Chi=s, El Torito and KKR 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 KKRE and President of KKR from the date of this Agreement and for the period
of time specified in this Agreement. As the President of KKR, Executive reports
to the President and Chief Executive Officer of KKRE and will assist the
President and Chief Executive Officer in developing and implementing KKRs
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 KKRE.
Executive agrees to devote all of her business time, skill, attention, and best
efforts to the Company's business and to discharge and fulfill the
responsibilities assigned to her by the Company during her employment under this
Agreement. Executive further agrees that she will not render business services
to any other person or entity without the prior written consent of the Company,
and that she will not engage in any activity which conflicts or interferes with
the performance of the duties and responsibilities of her position.
2. TERM OF EMPLOYMENT
- ---------------------
This Agreement covers the Executives employment with the Company from the date
of this Agreement through December 31, 2001 (Period of Employment), or such
earlier termination date as provided for in Section 5 below.
3. LOCATION
- -----------
Executive will be based at the Companys executive offices in Irvine,
California, and will be expected to travel to the Companys offices and
restaurants at other locations as needed for the performance of her duties and
responsibilities.
1
<PAGE>
4. COMPENSATION AND BENEFITS
- ----------------------------
(a) Salary
- ----------
During the Period of Employment, in consideration of services to be rendered,
Executive will be paid an annual base salary as follows:
(i) Executive's initial annual base salary will be $190,000. Executive's
annual base salary will be increased by $9,500 on January 1, 2000, and by
an additional $9,975 on January 1, 2001.
(ii) If EBITDA (as defined below) for KKR (which includes the Hamburger Hamlet
restaurant group) for any twelve fiscal month period beginning on or
after November 1, 1998, and ending on or before June 30, 2000, equals or
exceeds $10,000,000, then from and after the last day of the first such
period, Executive's annual base salary will, on a one time basis, be
increased by $25,000.
(iii)If EBITDA (as defined below) for KKR (which includes the Hamburger
Hamlet restaurant group) for any twelve fiscal month period beginning on
or after November 1, 1998, and ending on or before December 31, 2000,
equals or exceeds $18,000,000, then from and after the last day of the
first such period, Executive's annual base salary will, on a one time
basis, be increased by $25,000.
AEBITDA shall be calculated within twenty (20) days after the end of each fiscal
month in a manner consistent with the Company's key data reports as such key
data reports are prepared on the date hereof. In the event the restaurant
businesses comprising KKR (i.e., Koo Koo Roo California Kitchen restaurants and
Hamburger Hamlet restaurants) changes, Executive and the Company shall negotiate
in good faith new EBITDA targets for sections 4(a) (ii) and 4(a) (iii) above.
Executive's annual base salary shall 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 KKRE's 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 Bonus Plan) as currently established
and as modified from time to time. Under the terms of the current Bonus Plan,
Executive's annual incentive award is based upon one or more performance
measures, such as Division sales performance, Division EBITDA performance, and
personal objectives. Executive will have an annual target incentive equal to 80%
of her annual base salary. Actual incentives payable will be determined by the
terms of the Bonus Plan or successor plans. The Company reserves the right to
modify, amend, or discontinue the Bonus Plan at any time; however, if the Bonus
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.
2
<PAGE>
c) Long Term Incentive Compensation
- -----------------------------------
The Executive will be eligible to participate in the Company's long term
incentive plan and shall be granted stock options thereunder as approved by
KKRE's Board. With regard to any grant(s) of stock options, notwithstanding the
vesting provisions of such grant(s) or the provisions of the stock incentive
plan, all options granted to Executive shall immediately vest upon (i) any
Change of Control as defined in the Indenture, dated January 27, 1994, between
FRI, as issuer, and IBJ Schroder Bank & Trust Company, as trustee, or (ii) any
termination without Cause (as hereinafter defined), or (iii) any termination
for Good Reason (as hereinafter defined).
(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 benefit 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
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 Eighteen Thousand Dollars ($18,000.00) 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 her in the performance of her 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 her Estate:
3
<PAGE>
(i) the salary to which she is entitled through the date of termination; and,
(ii) a pro rata portion of the Executive's annual incentive award, if any, to
which she is entitled through the date of termination.
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 she 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 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 she 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 her 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; or
(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, without Cause (as defined in Section
5(b) above) and without liability. If Executive's employment is terminated
without Cause by the Company as described in the preceding sentence:
(i) The Company will pay the Executive her base salary and car allowance at
the rate in effect at the time of termination for the remainder of the Period of
Employment or one (1) year from the date of termination, whichever is greater;
4
<PAGE>
(ii) If termination occurs in 1999, the Company shall pay to Executive her
maximum annual incentive award(s) for the remainder of the Period of Employment.
If termination occurs after December 31, 1999, 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 (1) year, whichever is greater; and,
(iii) The Company will continue to cover the Executive in the Company's
benefit programs through the end of Period of Employment or one (1) year from
the date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments, exclusive of benefit programs, in a lump sum equal to the present
value of the future monthly payments (assuming a 7% discount rate).
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 (1)
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 for the year in which she terminates her
employment.
(e) Termination for Good Reason
- -------------------------------
The Executive may also terminate her employment for Good Reason. For purposes
of this Agreement, Good Reason shall mean:
(i) any assignment to the Executive of duties without her consent 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 fifty (50)
miles which is not agreed to by Executive; or
(iii) any reduction in annual base salary below the amounts set forth in
Section 4(a) per relevant year which is not agreed to by Executive.
If Executive terminates employment for Good Reason, the Company will pay the
Executive:
5
<PAGE>
(x) her base salary and car allowance at the rate in effect at the time of
termination for the remainder of the Period of Employment or one (1) year from
the date of termination, whichever is greater;
(y) If termination occurs in 1999, the Company shall pay to Executive her
maximum annual incentive award(s) for the remainder of the Period of Employment.
If termination occurs after December 31, 1999, 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 (1) year, whichever is greater; and,
(z) The Company will continue to cover the Executive in the Company's benefit
programs through the end of the Period of Employment or one (1) year from the
date of termination, whichever is greater.
The Company may elect, in its sole and absolute discretion, to pay severance
payments, exclusive of benefit programs, in a lump sum equal to the present
value of the future monthly payments (assuming a 7% discount rate).
After payment of termination benefits, the Company's obligations under this
Agreement will then cease.
6. PROPRIETARY INFORMATION
- --------------------------
Executive understands that, by virtue of Executive's employment with the
Company, Executive will acquire and be exposed to Proprietary Information
(defined below). Proprietary Information means all ideas, information and
materials, tangible or intangible, not generally known to the public or
restaurant industry executives, relating in any manner to the business of the
Company, affiliates, personnel (including partners, principals, employees and
contractors), clients or others with whom it does business that Executive learns
of or acquires during the period of Executive's employment with the Company.
Proprietary Information includes, but is not limited to, manuals, documents,
computer programs, compilations of technical, financial, legal or other data,
client or prospective client lists, names of suppliers, specifications, designs,
business or marketing plans, forecasts, financial information, work in progress,
and other technical or business information.
Executive agrees to hold in trust and confidence all Proprietary Information
during Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company. Executive shall not disclose any Proprietary Information to anyone
outside the Company without the approval of the Board or use any Proprietary
Information for any purpose other than for the benefit of the Company as
required by Executive's authorized duties for the Company as an employee. For
three (3) years immediately following the termination of Executive's employment
with the Company, Executive shall not use Proprietary Information for any
purpose. Upon termination of employment, Executive shall not retain or take
with Executive any Proprietary Information in a Tangible Form (defined below),
and Executive shall immediately deliver to the Company any Proprietary
Information in a Tangible
6
<PAGE>
Form that Executive may then or thereafter hold or control, as well as all other
property, equipment, documents or things that Executive was issued or otherwise
received or obtained during Executive's employment with the Company. Tangible
Form includes ideas, information or materials in written or graphic form, on a
computer disc or other medium, or otherwise stored in or available through
electronic or other form.
7. NON-SOLICITATION
- --------------------
During Executive's employment with the Company and for three (3) years
immediately following the termination of Executive's employment with the
Company, Executive shall not, directly or indirectly, (i) solicit, induce, or
attempt to solicit or induce, any person known to Executive to be an employee of
the Company or any of its affiliates (each such person, a Company Person), to
terminate his or her employment or other relationship with the Company or such
affiliate for the purpose of associating with (A) any entity of which Executive
is or becomes a partner, stockholder, member, officer, director, principal,
agent, trustee or consultant, or (B) any competitor of the Company or any such
affiliate or (ii) otherwise encourage any Company Person to terminate his or her
employment or other relationship with the Company or such affiliate for any
other purpose or no purpose.
8. ASSIGNMENT
- -------------
The Executive's rights and obligations under this Agreement may not be assigned,
and any attempted assignment shall be null and void. Subject to the termination
provisions herein, the Company may assign this Agreement, but only to a
successor or affiliated organization.
9. 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 92612 or to the Executive at 10 Lessay, Newport Coast, California
92657-1060.
10. 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 provided, however, the terms of benefit plans and long
term incentive plans referred to herein may require referral to such documents.
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.
11. 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
7
<PAGE>
failure to exercise and no delay in exercising any right, remedy, or power
hereunder shall operate as a waiver thereof.
12. 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.
13. 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.
14. 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. Until any
dispute hereunder is resolved, the Company shall pay all fees and expenses of
the Arbitrator and shall pay to Executive all reasonable expenses and legal fees
incurred by Executive in connection with such arbitration. Such payments shall
be made within five (5) days after the Executive's request for payment,
accompanied with such evidence of fees and expenses incurred as the Company may
require. If the Company substantially prevails on substantially all of the
claims at arbitration, the Company shall be entitled to recover its costs and
expenses including the reasonable fees of its attorneys and the legal fees and
expenses of Executive paid by the Company in the arbitrated dispute from
Executive. Such payments shall be made within five (5) days after the Company's
request for payment, accompanied with such evidence of fees and expenses as
Executive may reasonably request. 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 constitution, 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.
15. 280G CAP
- -------------
8
<PAGE>
If the Company determines that any severance payments hereunder, when added to
any other payment or benefit received or to be received by Executive in
connection with a change in control or the termination of Executive's
employment, will be subject to the excise tax imposed by section 4999 of the
Internal Revenue Code (or any similar tax that may hereafter be imposed), the
Company shall reduce the severance payments (but not below zero) to the maximum
amount that will result in no portion of the severance payments being subject to
such tax.
9
<PAGE>
In witness whereof, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer.
_______________________________
Gayle A. DeBrosse
Koo Koo Roo Enterprises, Inc. El Torito Restaurants, Inc.
By:____________________________ By:_______________________________
Kevin S. Relyea
President and Chief Executive Officer _______________
William D. Burt
President
Chi-Chi's, Inc. Koo Koo Roo, Inc.
By:____________________________ By:_______________________________
Kevin S. Relyea Robert T. Trebing, Jr.
Chief Executive Officer Vice President
10
<PAGE>
EXHIBIT 10(mm)
NOMINATING AGREEMENT
This Nominating Agreement (this "Agreement") is made and entered into
---------
as of December ___, 1998 by and among (i) Koo Koo Roo Enterprises, Inc., a
Delaware corporation (the "Company"), and (ii) AIF II, L.P. (together and its
-------
Related Persons (as defined below) the "Shareholders").
------------
This Agreement is made in order to induce Apollo Advisors, L.P. to
agree to the termination of its Management Services Agreement with the Company
(the "Management Services Agreement") and the waiver of all fees thereunder
accruing on or after November 20, 1995.
SECTION 1. Definitions. Unless the context otherwise requires,
-----------
(1) "Affiliate" has the meaning given to that term in Rule 12b-2
---------
under the Securities Exchange Act of 1934, as amended.
(2) "owner" of a security (and correlative terms) shall mean any
-----
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has any of (i) the power to vote, or
to direct the voting of, such security (ii) the power to dispose, or to direct
the disposition of, such security or (iii) a direct or indirect pecuniary
interest in such security.
(3) "person" means any individual, corporation, general or
------
limited partnership, joint venture, trust or other entity or association,
including without limitation any governmental authority.
(4) "Related Person" means, with respect to any person, (i) any
--------------
affiliate of such person, (ii) any investment manager, investment advisor or
partner, or any principal thereof, of such person, and (iii) any investment
fund, investment account or investment entity whose investment manager,
investment advisor or general partner, or any principal thereof, is such person
or a Related Person of such person.
(5) "Requisite Number" means (a) 4 until the date on which the
----------------
Shareholders own, collectively, less than 47,916,000 Shares and (b) 2
thereafter.
<PAGE>
(6) "Shares" means, subject to Section 4.5, the shares of Common
------
Stock of the Company on the date hereof.
SECTION 2. Board Representation.
--------------------
(1) Until the date on which the Shareholders own, collectively,
less than 23,958,000 Shares (the "Shareholder Designee Period"):
---------------------------
(1) The Board of Directors of the Company (the "Board of
--------
Directors") shall consist of no more than seven directors.
- ---------
(2) The Company shall support the nomination of, and use its
best efforts to cause the Board of Directors to include in the slate of nominees
recommended to shareholders for election as directors, no fewer than the
Requisite Number of persons designated by the Shareholders (the "Shareholder
-----------
Designees").
- ---------
(3) If any vacancy (whether by death, retirement,
disqualification, removal from office or other cause) is created by a
Shareholder Designee ceasing to serve as a director (other than by reason of the
Requisite Number being reduced from 4 to 2), the Board of Directors shall
appoint a person designated by the Shareholders to fill such vacancy, and such
person shall be a Shareholder Designee for purposes of this Agreement.
(4) The Shareholders shall be entitled to have at least one
Shareholder Designee serve on each committee of the Board of Directors other
than any committee formed solely for the purpose of considering matters relating
to the Shareholders (a "Non-Shareholder Committee"). So long as the Requisite
Number is 4, the Shareholders shall be entitled to have Shareholder Designee's
constitute a majority of the members of each committee of the Board of Directors
other than a Non-Shareholder Committee.
(2) If requested by any party, the provisions of this Section
shall be further effected pursuant to an amendment to the Company's Bylaws in a
form reasonably acceptable to the parties to this Agreement, which provisions
shall not be further amended during the Shareholder Designee Period.
<PAGE>
(3) Notwithstanding the provisions of this Section, the
Shareholders shall not be entitled to designate any person to the Board of
Directors (or any committee thereof) if the Company receives a written opinion
of its outside counsel that such person would not be qualified under any
applicable law, rule or regulation to serve as a director of the Company. The
Company shall use its reasonable best efforts to notify the Shareholders of any
objection to a Shareholder Designee sufficiently in advance of the date on which
proxy materials are mailed by the Company in connection with such election of
directors to enable the Shareholders to propose a replacement Shareholder
Designee in accordance with the terms of this Agreement.
(4) Each Shareholder Designee serving on the Board of Directors
shall be entitled to all compensation and stock incentives granted to directors
who are not employees of the Company on the same terms provided to such
directors.
(5) The provisions of this Section 2 shall terminate on the last
day of the Shareholder Designee Period.
SECTION 3. TERMINATION OF MANAGEMENT SERVICES AGREEMENT. Each party
--------------------------------------------
hereto hereby agrees to the termination of the Management Services Agreement as
of November 20, 1995. Without limiting the foregoing, no fees shall be deemed
to accrue thereunder on or after November 20, 1995.
SECTION 4. MISCELLANEOUS
-------------
4.1 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed given (i) when made,
if made by hand delivery, (ii) upon confirmation, if made by telecopier, or
(iii) one business day after being deposited with a reputable next-day courier,
postage prepaid, to the parties, at their address set forth under their
respective signatures on the execution pages hereof, or to such other address as
any party may have furnished to the other parties in writing in accordance
herewith.
4.2 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein.
3
<PAGE>
4.3 Amendment and Waiver. This Agreement may be amended, modified or
--------------------
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by each of the
parties hereto. Notwithstanding anything to the contrary contained herein, a
waiver that does not adversely affect all of the parties hereto may, in lieu of
complying with the first sentence of this Section 7.6, be executed only by all
of the adversely affected parties.
4.4 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
4.5 Recapitalization, Exchanges, etc. If any capital stock or other
--------------------------------
securities are issued in respect of, in exchange for, or in substitution of, any
Shares by reason of any reorganization, recapitalization, reclassification,
merger, consolidation, spin-off, partial or complete liquidation, stock
dividend, split-up, sale of assets, distribution to stockholders or combination
of the Shares or any other change in capital structure of the Company,
appropriate adjustments shall be made with respect to the relevant provisions of
this Agreement so as to fairly and equitably preserve, as far as practicable,
the original rights and obligations of the parties hereto under this Agreement
and the term "Shares" as used herein shall be deemed to include shares of such
capital stock or other securities, as appropriate. Without limiting the
foregoing, whenever a particular number of Shares is specified herein such
number shall be adjusted to reflect stock dividends, stock-splits, combinations
or other reclassifications of stock or any similar transactions.
4.6 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, illegal, void or unenforceable.
4
<PAGE>
4.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, as applied to contracts
made and performed within the State of Delaware, without regard to principles of
conflict of laws.
4.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and by the 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 one and the same agreement.
4.9 Specific Performance. Each party hereto agrees that irreparable
--------------------
harm, for which there may be no adequate remedy at law and for which the
ascertainment of damages would be difficult, would occur in the event any of the
provisions of this Agreement were not performed in accordance with its specific
terms or were otherwise breached. Each party hereto accordingly agrees that
each other party hereto shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement, or any agreement
contemplated hereunder and to enforce specifically the terms and provisions
hereof in any court of the United States or any state thereof having
jurisdiction, in each instance without being required to post bond or other
security and in addition to, and without having to prove the adequacy of, other
remedies at law.
4.10 Further Assurances. Each party hereto agrees to use all
------------------
reasonable efforts to obtain all consents and approvals, and to do all other
things, necessary for the transactions contemplated by this Agreement. The
parties agree to take such further action and to deliver or cause to be
delivered any additional agreements or instruments as any of them may reasonably
request for the purpose of carrying out this Agreement and the agreements and
transactions contemplated hereby.
4.11 Dispute Resolution. The parties hereto will use their reasonable
------------------
best efforts to resolve any disputes hereunder through good faith negotiations.
Any such dispute that cannot be so resolved within 30 calendar days (or such
other period to which the parties may agree) will be submitted to a panel of
arbitrators (with each party to the dispute being entitled to select one
arbitrator and, if necessary to prevent the possibility of deadlock, one
additional arbitrator being selected by such arbitrators selected by the parties
to the dispute). Except as otherwise provided herein or as the parties to the
dispute may otherwise agree, such arbitration will be conducted in accordance
with the then-existing rules of the American Arbitration
5
<PAGE>
Association. The decision of the arbitrators, or of a majority thereof, made in
writing will be final and binding upon the parties hereto as to the questions
submitted, and the parties will abide by and comply with such decision;
provided, however, the arbitrators shall not be empowered to award punitive
- -------- -------
damages. Unless the decision of the arbitrators provides for a different
allocation of costs and expenses determined by the arbitrators to be equitable
under the circumstances, the prevailing party or parties in any arbitration will
be entitled to recover all reasonable fees and expenses incurred by it or them
in connection with such arbitration from the nonprevailing party or parties.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
KOO KOO ROO ENTERPRISES, INC.
By:
_______________________________________________________
Name: ______________________________________________
Title: ______________________________________________
ADDRESS FOR NOTICES:
------------------------------------
---------------------------------------------
---------------------------------------------
APOLLO FRI PARTNERS, L.P.,
By: AIF II, L.P.
its general partner
By: APOLLO ADVISORS, L.P.,
its general partner
By: APOLLO CAPITAL MANAGEMENT, INC.,
its general partner
By: _______________________________________________________
Name: _______________________________________________
Title: _______________________________________________
ADDRESS FOR NOTICES:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
6
<PAGE>
EXHIBIT 10(nn)
AMENDMENT NUMBER SIX TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER SIX TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of February 26th, 1999, among Foothill Capital
Corporation, a California corporation ("Foothill"), on the one hand, and FRI-MRD
Corporation, a Delaware corporation ("FRI-MRD"), El Torito Restaurants, Inc., a
Delaware corporation ("El Torito"), and Chi-Chi's, Inc., a Delaware corporation
("Chi-Chi's"), on the other hand, with reference to the following facts:
A. Foothill, on the one hand, and El Torito, Chi-Chi's, FRI-MRD, and
certain of their Affiliates, on the other hand, heretofore have
entered into that certain Loan and Security Agreement, dated as of
January 10, 1997, (as heretofore amended, supplemented, or otherwise
modified, the "Agreement");
B. El Torito and Chi-Chi's (individually and collectively, jointly
and severally, "Borrower") and FRI-MRD have requested that Foothill
waive any Default under Section 7.4 of the Agreement resulting from
-----------
the failure of Borrower to notify Foothill of the acquisition of 2
parcels of real property, Unit No. ET 233 located at 1161 West Avenue
"P", Palmdale, CA, and Unit No. ET 245 located at 5070 Redwood Drive,
Rohnert Park, CA (collectively, the "Additional ET Properties"), the
Additional ET Properties having been acquired for the purpose of the
construction and sale-leaseback of El Torito restaurants, and that
Foothill amend the Agreement to: (i) to increase the amount of
Indebtedness permitted under Section 7.1 of the Agreement with respect
to capital leases and purchase money financings for Equipment from
$5,000,000 to $10,000,000, (ii) to permit additional Indebtedness in
the amount of $1,800,000 representing L/C support for a new food
distribution contract with SYSCO Foods through an amendment to
Schedule 7.1, (iii) to permit further additional indebtedness in the
------------
original principal amount of $1,600,000 payable by Koo Koo Roo Florida
102 J, Limited, a Florida limited partnership, and Koo Koo Roo Florida
103 J, Limited, a Florida limited partnership, to City National Bank
of Florida and guaranteed by KKR through a further amendment to
Schedule 7.1, and the grant of Liens by Koo Koo Roo Florida 102 J,
------------
Limited and Koo Koo Roo Florida 103 J, Limited to secure such
additional Indebtedness through an amendment to Schedule P-1, and (iv)
------------
permit the sale-lease-back of certain properties owned by KKR and HGI
through an amendment to Schedule P-2;
------------
C. Foothill is willing to waive such Default under Section 7.4 of the
-----------
Agreement and to so modify the Agreement in accordance with the terms
and conditions hereof; and
1
<PAGE>
D. All capitalized terms used herein and not defined herein shall
have the meanings ascribed to them in the Agreement, as amended
hereby.
NOW, THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill, Borrower and FRI-MRD hereby agree as
follows:
1. Definitions for this Amendment.
------------------------------
Any and all initially capitalized terms used herein shall have the
meanings ascribed thereto in the Agreement, as amended hereby. For purposes of
this Fourth Amendment only, the following initially capitalized terms shall have
the following meanings:
"Additional ET Properties" has the meaning set forth in Recital B
----------------------------------------------------------------
hereof.
- -------
2. Amendments to the Agreement.
---------------------------
a. The definition of "Permitted Liens" contained in Section 1.1
-----------
of the Agreement is amended and restated in its entirety to
read as follows:
"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 Amended and
-----------
Restated 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
2
<PAGE>
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, and (o) the pledge of the Pledged HGI Collateral pursuant to
the Senior Secured Discount Note Agreement.
b. The definition of "Permitted Sale and Lease-backs" contained in
Section 1.1 of the Agreement is amended by deleting clause (b) thereof in its
- -----------
entirety and inserting the following in replacement thereof:
"(b) in respect of Chi-Chi's restaurant located in Greenfield,
Wisconsin, the 5 existing El Torito restaurants identified on Schedule P-2,
------------
and the properties of HGI and KKR identified on Schedule P-2."
------------
3
<PAGE>
c. Section 7.1(b) of the Agreement is amended and restated in
--------------
its entirety as follows:
(b) Indebtedness as set forth on the Third Amended and Restated
--------------------------
Schedule 7.1;
------------
d. Section 7.1(g) of the Agreement hereby is amended and
--------------
restated in its entirety to read as follows:
(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 principal amount of such Indebtedness outstanding at any one time
does not exceed $10,000,000; and (ii) Indebtedness in respect of capital
leases or purchase money financings for Real Property (and the related
improvements thereto) acquired after the Closing Date; and
e. Schedule 7.1 of the Agreement hereby is amended, restated,
------------
and replaced in its entirety by the Third Amended and
-----------------
Restated Schedule 7.1 attached hereto.
---------------------
f. Schedule P-1 of the Agreement hereby is amended, restated,
------------
and replaced in its entirety by the Amended and Restated
--------------------
Schedule P-1 attached hereto.
------------
g. Schedule P-2 of the Amendment hereby is amended, restated,
------------
and replaced in its entirety by the Amended and Restated P-2
------------------------
attached hereto.
3. Waiver of Event of Default. Foothill hereby waives any Default or
Event of Default resulting from the failure of Borrower to notify Foothill of
the acquisition of the Additional ET Properties (the "Designated Event of
Default"). Such waiver is specific in time and in intent and does not
constitute, nor should it be construed as constituting, except to the extent
expressly set forth herein, a waiver or modification of any term of, or right,
power, or privilege under, the Agreement, the other Loan Documents, or any
agreement, contract, indenture, documents, or instrument mentioned therein.
Nothing herein constitutes a waiver of any Event of Default, or any potential
Event of Default related or preliminary thereto, based on facts or occurrences
other than those on which the Designated Event of Default specifically were
premised. Such waiver does not preclude any exercise or further exercise of any
other right, power, or privilege under any Loan Document, including without
limitation, the taking of any action or remedy based upon an Event of Default
other than the Designated Event of Default.
4. Conditions Precedent to the Effectiveness of this Amendment.
The effectiveness of this Amendment is subject to the fulfillment, to
the satisfaction of Foothill and its counsel, of each of the following
conditions:
4
<PAGE>
a. Foothill shall have received each of the following
documents, in form and substance satisfactory to Foothill
and its counsel, duly executed, and each such document shall
be in full force and effect:
(1) this Amendment;
(2) the Reaffirmation and Consent (as hereinafter defined);
(3) the Third Amended and Restated Schedule 7.1 to the
---------------------------------------
Agreement;
(5) the Amended and Restated Schedule P-1 to the Agreement;
---------------------------------
and
(6) the Amended and Restated Schedule P-2 to the Agreement.
---------------------------------
b. Foothill shall have received an amendment fee of $15,000,
which fee is earned in full by Foothill, due and payable by
Borrower to Foothill on the date hereof, and non-refundable
when paid;
c. The representations and warranties in Section 5 of this
Amendment, the Agreement as amended by Section 2 of this
Amendment, and the other Loan Documents shall be true and
correct in all material respects on and as of the date
hereof, as though made on such date (except to the extent
that such representations and warranties relate solely to an
earlier date);
d. After giving effect hereto, no Event of Default or event
which with the giving of notice or passage of time would
constitute an Event of Default shall have occurred and be
continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein;
e. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the
consummation of the transactions contemplated herein shall
have been issued and remain in force by any governmental
authority against Borrower, FRI-MRD, any Guarantor,
Foothill, or any of their Affiliates;
f. No material adverse change shall have occurred in the
financial condition of Borrower, FRI-MRD, any Guarantor, or
in the value of the Collateral; and
g. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been
5
<PAGE>
delivered or executed or recorded and shall be in form and
substance reasonably satisfactory to Foothill and its
counsel.
5. Representations and Warranties. Each Borrower party hereto and
------------------------------
FRI-MRD hereby represents and warrants to Foothill that: (a) the execution,
delivery, and performance of this Amendment and of the Agreement, as amended by
this Amendment, are within its corporate powers, have been duly authorized by
all necessary corporate action, and are not in contravention of any law, rule,
or regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected; and (b) this Amendment and the
Agreement, as amended by this Amendment, constitute each Borrower party hereto
and FRI-MRD's legal, valid, and binding obligation, enforceable against each
Borrower party hereto and FRI-MRD in accordance with their terms.
6. Reaffirmation and Consent. Concurrently herewith, FRI-MRD and
-------------------------
Borrower shall cause each current Guarantor to execute and deliver to Foothill
the Reaffirmation and Consent attached hereto as Exhibit A (the "Reaffirmation
---------
and Consent").
7. Choice of Law and Venue; Jury Trial Waiver. Section 13 of the
------------------------------------------
Loan Agreement is incorporated herein by this reference as though fully set
forth herein.
8. Miscellaneous.
-------------
a. Upon the effectiveness of this Amendment, each reference in
the Agreement to "this Agreement", "hereunder", "herein",
"hereof" or words of like import referring to the Agreement
shall mean and refer to the Agreement as amended by this
Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Agreement", "thereunder",
"therein", "thereof" or words of like import referring to
the Agreement shall mean and refer to the Agreement as
amended by this Amendment.
c. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute
one and the same instrument and any of the parties hereto
may execute this Amendment by signing any such counterpart.
Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a
manually executed counterpart of this Amendment. Any party
delivering an executed counterpart of this Amendment by
telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a
manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Amendment.
6
<PAGE>
[remainder of page intentionally left blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first written above.
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:
-----------------------------
8
<PAGE>
EXHIBIT A
---------
Reaffirmation and Consent
All capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed to them in that certain Amendment Number Six to
Loan and Security Agreement, dated as of February 26th, 1999 (the "Amendment").
Each of the undersigned hereby (a) represents and warrants to Foothill that the
execution, delivery, and performance of this Reaffirmation and Consent are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or regulation,
or any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its charter or bylaws, or
of any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected; (b) consents to the amendment of the
Agreement by the Amendment; (c) acknowledges and reaffirms its obligations owing
to Foothill under the Guaranty and any other Loan Documents to which it is
party; and (d) agrees that each of the Guaranty and any other Loan Documents to
which it is a party is and shall remain in full force and effect. Although each
of the undersigned has been informed of the matters set forth herein and has
acknowledged and agreed to same, it understands that Foothill has no obligation
to inform it of such matters in the future or to seek its acknowledgement or
agreement to future amendments, and nothing herein shall create such a duty.
This Reaffirmation and Consent 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 Reaffirmation and Consent.
Delivery of an executed counterpart of this Reaffirmation and Consent by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Reaffirmation and Consent. Any party delivering an executed
counterpart of this Reaffirmation and Consent by telefacsimile also shall
deliver an original executed counterpart of this Reaffirmation and Consent but
the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Reaffirmation and Consent.
This Reaffirmation and Consent shall be governed by internal laws of the State
of California as more fully set forth in Section 13 of the Loan Agreement.
FAMILY RESTAURANTS, INC.,
a Delaware corporation
FRI-MRD CORPORATION,
a Delaware corporation
FRI-ADMIN CORPORATION,
a Delaware corporation
EL TORITO FRANCHISING COMPANY,
a Delaware corporation
CCMR OF TIMONIUM, INC.,
a Delaware corporation
CCMR OF MARYLAND, INC.,
a Delaware corporation
CHI-CHI'S OF KANSAS, INC.,
9
<PAGE>
a Kansas corporation
CHI-CHI'S OF GREENBELT, INC.,
a Kentucky corporation
CHI-CHI'S FRANCHISE OPERATIONS CORPORATION,
a Kentucky corporation
CCMR OF CATONSVILLE, INC.,
a Kentucky corporation
CCMR OF GREENBELT, INC.,
a Kentucky corporation
CCMR OF RITCHIE HIGHWAY, INC.,
a Kentucky corporation
CHI-CHI'S MANAGEMENT CORPORATION,
a Kentucky corporation
CCMR OF HARFORD COUNTY, INC.,
a Kentucky corporation
CHI-CHI'S OF SOUTH CAROLINA, INC.,
a Kentucky corporation
MAINTENANCE SUPPORT GROUP, INC.,
a Kentucky corporation
CCMR OF FREDERICK, INC.,
a Kentucky corporation
CCMR OF INNER HARBOR, INC.,
a Kentucky corporation
CHI-CHI'S OF WEST VIRGINIA, INC.,
a Kentucky corporation
CCMR ADVERTISING AGENCY, INC.,
a Kentucky corporation
CCMR OF GOLDEN RING, INC.,
a Kentucky corporation
KOO KOO ROO, INC.,
a Delaware corporation
THE HAMLET GROUP, INC.,
a California corporation
By _____________________________
Title: ___________________________
CCMR OF CUMBERLAND, INC.,
a Kentucky corporation
10
<PAGE>
By _____________________________
Title: Authorized Signatory
11
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
THIRD AMENDED AND RESTATED SCHEDULE 7.1
Indebtedness
Add the following to existing Schedule 7.1:
Indebtedness of Koo Koo Roo Florida 102J, Limited and Koo Koo Roo Florida 103J,
Limited in an aggregate principal amount of $1,600,000 and guarantees thereof by
KKR.
13
<PAGE>
AMENDED AND RESTATED SCHEDULE P-1
Permitted Liens
Add to existing P-1:
Liens on leasehold interests of Koo Koo Roo Florida 102J, Limited and Koo Koo
Roo Florida 103J, Limited and Liens and other personal real property of Koo Koo
Roo Florida 102J, Limited and Koo Koo Roo Florida 103J, Limited related to such
leasehold interests.
14
<PAGE>
AMENDED AND RESTATED SCHEDULE P-2
Permitted Sale and Lease-backs of Existing Restaurants
Add to existing P-2:
Property of KKR located at or adjacent to 262 South Beverly Drive, Beverly
Hills, CA 90212
Property of HGI located at or adjacent to (i) 122 South Beverly Drive, Beverly
Hills, CA 90212 and (ii) 4419 Van Nuys Blvd., Sherman Oaks, CA 91403.
15
<PAGE>
EXHIBIT 21(a)
KOO KOO ROO ENTERPRISES, INC.
LIST OF SUBSIDIARIES
Parent Company: Koo Koo Roo Enterprises, Inc.
FRI-Admin Corporation
FRI-MRD Corporation
Mexican Restaurant Division: El Torito Restaurants, Inc.
El Torito Franchising Company
Chi-Chi's, Inc.
Chi-Chi's of Greenbelt, Inc.
Chi-Chi's of Kansas, Inc.
Chi-Chi's of South Carolina, Inc.
Chi-Chi's of West Virginia, Inc.
Chi-Chi's Franchise Operations Corporation
Chi-Chi's Management Corporation
Maintenance Support Group, Inc.
CCMR Advertising Agency, Inc.
CCMR of Catonsville, Inc.
CCMR of Cumberland, Inc.
CCMR of Frederick, Inc.
CCMR of Golden Ring, Inc.
CCMR of Greenbelt, Inc.
CCMR of Harford County, Inc.
CCMR of Inner Harbor, Inc.
CCMR of Maryland, Inc.
CCMR of Ritchie Highway, Inc.
CCMR of Timonium, Inc.
Koo Koo Roo Division: Koo Koo Roo, Inc.
Koo Koo Roo Licensing Systems, Inc.
Arrosto Coffee Company, Inc.
Arrosto Coffee Company Franchising, Inc.
Caulk 'N Paw, Inc.
CMM Dissolution, Inc.
Food-Eez, Inc.
Lean Chick -- 792 Lexington, Inc.
1170060 Ontario Limited
Hamburger Hamlet Division: The Hamlet Group, Inc.
H.H. of Maryland, Inc.
H.H.K. of Virginia, Inc.
<PAGE>
Florida Joint Ventures: RAC/KKR/LP Florida, Ltd.
RAC/KKR/G.P., L.C.
Koo Koo Roo Florida, 102J, Ltd.
RAC 102J, L.C.
Koo Koo Roo Florida, 103J, Ltd.
RAC 103J, L.C.
Koo Koo Roo Florida, 104J, Ltd.
RAC 104J, L.C.
Koo Koo Roo Florida, 107J, Ltd.
RAC 107J, L.C.
<PAGE>
EXHIBIT 21(b)
NAMES UNDER WHICH KKRE SUBSIDIARIES DO BUSINESS:
------------------------------------------------
Carrows
Charley Brown's
Chi-Chi's
Hometown Buffet
Casa Gallardo
Casa Gallardo Grill
El Torito Restaurant
El Torito Grill
El Torito Express
Guadala Harry's
Hola Amigos
Keystone Grill
Las Brisas
Tequila Willie's
Who Song & Larry's
Hamburger Hamlet
Koo Koo Roo
Portner's
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Koo Koo Roo Enterprises, Inc.
We consent to incorporation by reference in the Registration Statement (No.
333-67149) on Form S-8 of Koo Koo Roo Enterprises, Inc. of our report dated
March 1, 1999, relating to the consolidated balance sheets of Koo Koo Roo
Enterprises, Inc. and its subsidiaries as of December 27, 1998 and December 28,
1997 and the related consolidated statements of operations, common stockholders'
equity (deficit) and cash flows and related financial statement schedule for the
years ended December 27, 1998, December 28, 1997 and December 29, 1996 which
report appears in the December 27, 1998 annual report on Form 10-K of Koo Koo
Roo Enterprises, Inc.
KPMG LLP
Orange County, California
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR 12 MONTHS ENDED DECEMBER 27, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10K FOR THE YEAR ENDED
DECEMBER 27, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 17,707
<SECURITIES> 0
<RECEIVABLES> 9,106
<ALLOWANCES> 0
<INVENTORY> 5,020
<CURRENT-ASSETS> 35,790
<PP&E> 286,399
<DEPRECIATION> 85,085
<TOTAL-ASSETS> 348,186
<CURRENT-LIABILITIES> 128,560
<BONDS> 237,151
0
0
<COMMON> 1,781
<OTHER-SE> (22,918)
<TOTAL-LIABILITY-AND-EQUITY> 348,186
<SALES> 472,653
<TOTAL-REVENUES> 472,653
<CGS> 126,788
<TOTAL-COSTS> 510,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,659
<INCOME-PRETAX> (62,733)
<INCOME-TAX> 400
<INCOME-CONTINUING> (63,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,133)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
