<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 1995
REGISTRATION STATEMENT NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
DAKA INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 5812 04-3024178
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification No.)
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ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MA 01923-4001
508-774-9115
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Office)
------------------------
WILLIAM H. BAUMHAUER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DAKA INTERNATIONAL, INC.
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MASSACHUSETTS 01923-4001
(508) 774-9115
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of
Agent for Service)
------------------------
Copies to:
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RICHARD E. FLOOR, P.C. GREGORY G. FREITAG, ESQ.
ETTORE A. SANTUCCI, P.C. DOBSON WEST, ESQ.
GOODWIN, PROCTER & HOAR FREDRIKSON & BYRON
EXCHANGE PLACE 1100 INTERNATIONAL CENTRE
BOSTON, MA 02109-2881 900 SECOND AVENUE SOUTH
(617) 570-1000 MINNEAPOLIS, MN 55402-3397
(612) 347-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of CEI Acquisition Corp., a wholly-owned subsidiary
of DAKA International, Inc. ("DAKA"), with and into Champps Entertainment, Inc.
("Champps") pursuant to an Agreement and Plan of Merger dated as of October 10,
1995 described in the enclosed Joint Proxy Statement-Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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Common Stock, par value $.01 per
share................................. 2,235,974 $20.08 $44,893,576.88 $5,511.56
============================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of common stock of DAKA to
be issued to stockholders of Champps in connection with the merger of CEI
Acquisition Corp., a wholly owned subsidiary of DAKA, with and into Champps.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) and based on the $9.0625 average of the high
and low sale price per share of common stock of Champps on December 21,
1995, as quoted on the Nasdaq National Market, multiplied by 4,953,774
shares of Champps common stock outstanding on such date. If the Merger
described herein is consummated, a maximum of one share of the common stock
of DAKA will be issued for every two and thirty-three hundredths (2.33)
shares of the common stock of Champps.
(3) Representing the Registration Statement fee of $15,480.54, reduced by
$9,968.98 which was previously paid by the Registrant with respect to the
transaction described herein pursuant to Section 14(g) of the Securities
Exchange Act of 1934.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
DAKA INTERNATIONAL, INC.
Cross-Reference Sheet Pursuant to Rule 404(a) of Regulation C and Item
501(b) of Regulation S-K Showing the Location in the Joint Proxy
Statement-Prospectus of the Information Required by Part I of Form S-4.
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LOCATION OR HEADING IN
JOINT PROXY
ITEM OF S-4 STATEMENT-PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page of Registration
Statement; Outside Front Cover
of Joint Proxy
Statement-Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Available Information;
Incorporation of Certain
Documents by Reference; Table
of Contents
3. Risk Factors and Other Information........... *
4. Terms of the Transaction..................... Summary; The Merger and Related
Transactions; Terms of the
Merger; Comparison of the
Rights of Holders of DAKA
Common Stock and Champps Common
Stock
5. Pro Forma Financial Information.............. Summary; Pro Forma Condensed
Combined Financial Statements
6. Material Contacts with the Company Being Ac-
quired....................................... Summary; The Merger and Related
Transactions; Terms of the
Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters.............................. *
8. Interests of Named Experts and Counsel....... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.................................. Summary; The Merger and Related
Transactions; Business of
Champps; Champps Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Index to Champps
Consolidated Financial
Statements
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Docu-
ments by Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. *
13. Incorporation of Certain Information by
Reference.................................... *
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................. *
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<PAGE> 3
<TABLE>
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LOCATION OR HEADING IN
JOINT PROXY
ITEM OF S-4 STATEMENT-PROSPECTUS
--------------------------------------------- -------------------------------
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies.... *
16. Information with Respect to S-2 or S-3
Companies.................................... *
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies.................... Summary; The Merger and Related
Transactions; Business of
Champps; Champps Management's
Discussion and Analysis of
Results of Operations and
Financial Condition; Index to
Champps Consolidated Financial
Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Outside Front Cover Page of
Joint Proxy
Statement-Prospectus; Available
Information; Summary; Voting
and Proxies, The Merger and
Related Transactions; Business
of DAKA; Business of Champps;
Principal and Management
Stockholders of Champps
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or in
an Exchange Offer............................ *
</TABLE>
- ---------------
* Item is omitted because answer is negative or Item is inapplicable.
<PAGE> 4
CHAMPPS ENTERTAINMENT, INC.
153 EAST LAKE STREET
WAYZATA, MINNESOTA 55391
(612) 449-4841
, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of Champps Entertainment, Inc. ("Champps") to be held on , 1996 at
10:00 a.m. local time at Minnesota (the "Champps Special
Meeting").
At the Champps Special Meeting, you will be asked to consider and vote upon
a proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement") dated as of October 10, 1995 among Champps, DAKA International, Inc.
("DAKA") and CEI Acquisition Corp., a wholly-owned subsidiary of DAKA ("Merger
Subsidiary"), pursuant to which Merger Subsidiary will merge with and into
Champps, whereupon Champps will become a wholly-owned subsidiary of DAKA (the
"Merger"). Upon the effectiveness of the Merger, each outstanding share of
Champps common stock, par value $.01 per share, will be converted into the right
to receive four-tenths (.40) of one share of DAKA's common stock, par value $.01
per share, subject to possible adjustment as more fully described in the
enclosed Joint Proxy Statement-Prospectus. A copy of the Merger Agreement is
attached as Appendix A to the accompanying Joint Proxy Statement-Prospectus.
Enclosed are a Notice of Special Meeting of Stockholders and a Joint Proxy
Statement-Prospectus that describes, among other things, the Merger, the
background to the transaction, the businesses of DAKA and Champps and the
factors the Board of Directors of Champps considered in approving the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION APPROVING THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
APPROVING THE MERGER AGREEMENT. In reaching this decision, the Board of
Directors considered many factors, including, but not limited to, the terms of
the Merger Agreement, the earnings, management, reputation, financial condition,
business and future prospects of DAKA, the earnings, cash flow, financial
condition and stock price of Champps, the future value of the common stock of
the combined companies, and the October 10, 1995 opinion of Montgomery
Securities, Champps' financial advisor, that the consideration to be received by
Champps' stockholders in the Merger was fair to such stockholders, from a
financial point of view, as of that date.
A form of proxy solicited by the Board of Directors is enclosed for your
convenience. PLEASE PROMPTLY SIGN AND RETURN YOUR PROXY CARD IN THE ENVELOPE
PROVIDED WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. If you attend the
Champps Special Meeting, you may vote in person if you wish, even if you have
previously returned your proxy card.
If approved, promptly after the Merger a letter of transmittal will be
mailed to all holders of record of shares of Champps common stock to use in
connection with surrendering their stock certificates. PLEASE DO NOT SEND YOUR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD OR TO THE EXCHANGE AGENT UNTIL
YOU RECEIVE THE LETTER OF TRANSMITTAL, WHICH WILL INCLUDE INSTRUCTIONS AS TO THE
PROCEDURE TO BE USED IN SENDING YOUR STOCK CERTIFICATES.
I strongly support the Merger and join with the other members of the Board
of Directors in recommending the Merger to you. I urge you to vote in favor of
approval and adoption of the Merger Agreement.
Very truly yours,
Dean P. Vlahos
President and Chief Executive Officer
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE CHAMPPS SPECIAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE CHAMPPS SPECIAL MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE CHAMPPS SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN
IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 5
CHAMPPS ENTERTAINMENT, INC.
153 EAST LAKE STREET
WAYZATA, MINNESOTA 55391
(612) 449-4841
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1996
A Special Meeting of Stockholders of Champps Entertainment, Inc., a
Minnesota corporation ("Champps"), will be held at 10:00 a.m. local time on
, 1996 at , Minnesota (together with all adjournments and
postponements thereof, the "Champps Special Meeting") for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of October 10, 1995 (the "Merger
Agreement"), by and among Champps, DAKA International, Inc., a Delaware
corporation ("DAKA"), and CEI Acquisition Corp., a Minnesota corporation
and a wholly-owned subsidiary of DAKA ("Merger Subsidiary"), pursuant to
which Merger Subsidiary will be merged with and into Champps (the "Merger")
whereupon Champps will become a wholly-owned subsidiary of DAKA. At the
effective time of the Merger, each then outstanding share of common stock,
par value $.01 per share, of Champps ("Champps Common Stock") will be
converted into the right to receive four-tenths (.40) of one share of the
common stock, par value $.01 per share, of DAKA, subject to possible
adjustment as more fully described in the enclosed Joint Proxy
Statement-Prospectus. A copy of the Merger Agreement is attached as
Appendix A to the accompanying Joint Proxy Statement-Prospectus.
2. To transact such other business as may properly come before the
Champps Special Meeting.
The Board of Directors has fixed the close of business on ,
1996 as the record date (the "Champps Record Date") for determination of
stockholders entitled to notice of and to vote at the Champps Special Meeting. A
list of such stockholders will be available at the main office of Champps'
transfer agent, Norwest Stock Transfer, South St. Paul, Minnesota, for a period
of ten days prior to the date of the Champps Special Meeting. Only holders of
shares of Champps Common Stock of record at the close of business on the Champps
Record Date will be entitled to notice of and to vote at the Champps Special
Meeting.
In the event there are not sufficient votes to approve the foregoing
proposal at the time of the Champps Special Meeting, the Champps Special Meeting
may be adjourned in order to permit further solicitations of proxies by Champps.
Record and beneficial holders of shares of Champps Common Stock are
entitled to dissent from the Merger, and to receive payment in cash of the fair
value of their shares in lieu of the consideration they would receive under the
Merger Agreement, if they comply with certain procedures specified in the
Minnesota Business Corporation Act and described in the accompanying Joint Proxy
Statement-Prospectus. A copy of Sections 302A.471 and 302A.473 of said Act,
relating to dissenters' rights, is attached to the Joint Proxy
Statement-Prospectus as Appendix D.
THE BOARD OF DIRECTORS OF CHAMPPS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors,
Shaun P. Nugent
Secretary
Wayzata, Minnesota
, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE CHAMPPS SPECIAL MEETING IN PERSON,
YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE CHAMPPS SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 6
DAKA INTERNATIONAL, INC.
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MASSACHUSETTS 01923
(508) 774-9115
, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
DAKA International, Inc., a Delaware corporation ("DAKA"), to be held at 10:00
a.m. local time on , 1996 at Tara's Ferncroft Conference Resort,
50 Ferncroft Road, Danvers, Massachusetts (the "DAKA Annual Meeting").
At this meeting, stockholders will be asked to (i) approve the issuance of
additional shares of DAKA common stock, par value $.01 per share ("DAKA Common
Stock"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of October 10, 1995 among DAKA, CEI Acquisition Corp., a wholly-owned
subsidiary of DAKA, and Champps Entertainment, Inc. ("Champps"); (ii) approve
and adopt an amendment to DAKA's Certificate of Incorporation, as amended, to
increase the number of shares of authorized DAKA Common Stock from 20,000,000 to
30,000,000 shares; and (iii) elect one director to the DAKA Board of Directors.
The Merger Agreement, which is described in the accompanying Joint Proxy
Statement-Prospectus, provides for the merger of CEI Acquisition Corp. with and
into Champps (the "Merger") whereupon Champps will become a wholly-owned
subsidiary of DAKA and Champps stockholders will receive shares of DAKA Common
Stock in exchange for shares of Champps Common Stock.
On behalf of the management and directors of DAKA, I am pleased to be able
to send you the enclosed Joint Proxy Statement-Prospectus which includes
information about DAKA and Champps and details about the proposed Merger.
Additionally, the Joint Proxy Statement-Prospectus includes information about
the proposed election of a director to the DAKA Board of Directors and the
proposal to increase the number of authorized shares of DAKA Common Stock. I
urge you to read these materials carefully.
Your Board of Directors believes that the Merger is in the best interests
of the stockholders of DAKA and has unanimously approved the Merger Agreement
and related transactions. In reaching this decision, the Board of Directors
considered a number of factors, including the growth potential of Champps,
particularly when combined with DAKA's experience and expertise in restaurant
operations, and the opinion of Piper Jaffray Inc. as to the fairness to DAKA
from a financial point of view of the exchange ratio at which Champps Common
Stock will be exchanged pursuant to the Merger Agreement into DAKA Common Stock.
The written opinion of Piper Jaffray Inc., dated the date hereof, is reproduced
in full as Appendix C to the accompanying Joint Proxy Statement-Prospectus, and
I urge you to read the opinion carefully.
We appreciate the loyalty and support our stockholders have demonstrated in
the past. We hope that you will continue this support by voting FOR these
proposals. Regardless of the number of shares you may own, it is important that
your shares be represented at the meeting. Accordingly, PLEASE PROMPTLY SIGN AND
RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING. If you attend the meeting, you may vote in person whether or
not you have previously returned your proxy.
Very truly yours,
William H. Baumhauer
Chairman and Chief Executive Officer
<PAGE> 7
DAKA INTERNATIONAL, INC.
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MASSACHUSETTS 01923
(508) 774-9115
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1996
An Annual Meeting of Stockholders of DAKA International, Inc., a Delaware
corporation ("DAKA"), will be held at 10:00 a.m. local time on ,
1996 at Tara's Ferncroft Conference Resort, 50 Ferncroft Road, Danvers,
Massachusetts (together with all adjournments and postponements thereof, the
"DAKA Annual Meeting"), for the following purposes:
1. To consider and vote upon a proposal to issue additional shares of
common stock, par value $.01 per share, of DAKA ("DAKA Common Stock")
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
as of October 10, 1995, by and among Champps Entertainment, Inc., a
Minnesota corporation ("Champps"), DAKA and CEI Acquisition Corp., a
Minnesota corporation and wholly-owned subsidiary of DAKA ("Merger
Subsidiary"). Pursuant to the Merger Agreement, upon the consummation of
the merger of Merger Subsidiary with and into Champps, Champps will become
a wholly-owned subsidiary of DAKA and each then outstanding share of common
stock, par value $.01 per share, of Champps will be converted into the
right to receive four-tenths (.40) of one share of DAKA Common Stock,
subject to possible adjustment as described more fully in the accompanying
Joint Proxy Statement-Prospectus.
2. To consider and vote upon a proposal to approve and adopt an
amendment to DAKA's Certificate of Incorporation, as amended, to increase
the number of authorized shares of DAKA Common Stock from 20,000,000 to
30,000,000.
3. To elect one Class I director to the Board of Directors.
4. To transact such other business as may properly come before the
DAKA Annual Meeting.
The Board of Directors has fixed the close of business on as the
record date for determination of stockholders of DAKA Common Stock or DAKA
Series A Preferred Stock, par value $.01 per share, entitled to notice of and to
vote at the DAKA Annual Meeting.
In the event there are not sufficient votes to approve any of the foregoing
proposals at the time of the DAKA Annual Meeting, the DAKA Annual Meeting may be
adjourned in order to permit further solicitations of proxies by DAKA.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE FOREGOING PROPOSALS.
By Order of the Board of Directors,
Charles W. Redepenning, Jr.
Secretary
Danvers, Massachusetts
, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE DAKA ANNUAL MEETING IN PERSON, YOU
ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE DAKA ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
NOR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED DECEMBER 28, 1995
JOINT PROXY STATEMENT-PROSPECTUS
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CHAMPPS ENTERTAINMENT, INC. DAKA INTERNATIONAL, INC.
153 EAST LAKE STREET ONE CORPORATE PLACE
WAYZATA, MINNESOTA 55391 55 FERNCROFT ROAD
(612) 449-4841 DANVERS, MASSACHUSETTS 01923
(508) 774-9115
PROXY STATEMENT PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1996 TO BE HELD ON , 1996
</TABLE>
------------------------
DAKA INTERNATIONAL, INC.
PROSPECTUS
COMMON STOCK, $0.01 PAR VALUE
------------------------
This Joint Proxy Statement-Prospectus is being furnished to holders of
common stock, par value $.01 per share ("Champps Common Stock"), of Champps
Entertainment, Inc., a Minnesota corporation ("Champps"), in connection with the
solicitation of proxies by the Board of Directors of Champps (the "Champps
Board") for use at a Special Meeting of Stockholders of Champps to be held at
10:00 a.m. local time on , , 1996 at , Minnesota
(together with any adjournments or postponements thereof, the "Special
Meeting"). At the Champps Special Meeting, the holders of Champps Common Stock
will consider and vote upon a proposal to adopt an Agreement and Plan of Merger,
dated October 10, 1995 (the "Merger Agreement") by and among Champps, DAKA
International, Inc., a Delaware corporation ("DAKA"), and CEI Acquisition Corp.,
a wholly-owned subsidiary of DAKA ("Merger Subsidiary"), pursuant to which
Merger Subsidiary will merge with and into Champps whereupon Champps will become
a wholly-owned subsidiary of DAKA (the "Merger"). Upon consummation of the
Merger, each share of Champps Common Stock issued and outstanding immediately
prior to the effective time of the Merger (the "Effective Time") will be
converted into the right to receive four-tenths (.40) of one share of DAKA
common stock, par value $.01 per share ("DAKA Common Stock"), subject to
possible adjustment to forty-three hundredths (.43) of one share of DAKA Common
Stock if the average per share closing price of DAKA Common Stock as reported on
the Nasdaq National Market over the twenty (20) trading days immediately
preceding the second trading day prior to the closing date of the Merger (the
"DAKA Average Trading Price") is less than $30.00 per share, or thirty-seven
hundredths (.37) of one share of DAKA Common Stock if the DAKA Average Trading
Price is more than $35.00 per share.
This Joint Proxy Statement-Prospectus is also being furnished to holders of
DAKA Common Stock and DAKA Series A Preferred Stock, par value $0.01 per share
("Series A Preferred Stock" and, with the DAKA Common Stock, "DAKA Capital
Stock"), in connection with the solicitation of proxies by the Board of
Directors of DAKA (the "DAKA Board") for use at the 1995 Annual Meeting of
Stockholders of DAKA to be held at 10:00 a.m. local time on , ,
1996 at Tara's Ferncroft Conference Resort, 50 Ferncroft Road, Danvers,
Massachusetts (together with any adjournments or postponements thereof, the
"Annual Meeting" and, with the Special Meeting, the "Stockholders Meetings"). At
the DAKA Annual Meeting, stockholders of DAKA will vote on proposals regarding
(i) the issuance of DAKA Common Stock pursuant to the Merger Agreement (such
shares as may be issued, the "DAKA Merger Shares"), (ii) an amendment to DAKA's
Certificate of Incorporation, as amended (the "DAKA Certificate"), to increase
the number of authorized shares of DAKA Common Stock from 20,000,000 to
30,000,000, and (iii) the election of one Director to the DAKA Board.
The Annual Report to DAKA stockholders for the fiscal year ended July 1,
1995 is being mailed to stockholders of DAKA with this Joint Proxy
Statement-Prospectus. A detailed description of the proposals presented at the
Stockholders Meetings is included in this Joint Proxy Statement-Prospectus.
This Joint Proxy Statement-Prospectus is also the prospectus of DAKA
covering the offering and issuance of the DAKA Merger Shares pursuant to the
Merger.
All information contained in this Joint Proxy Statement-Prospectus with
respect to DAKA has been supplied by DAKA and all information with respect to
Champps has been supplied by Champps.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Joint Proxy Statement-Prospectus is , 1996 and
it is first being mailed or delivered to DAKA and Champps stockholders on or
about that date.
<PAGE> 9
AVAILABLE INFORMATION
Each of DAKA and Champps is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC" or the "Commission"). Proxy
statements, reports and other information concerning either DAKA or Champps can
be inspected and copied at the SEC's office at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and the SEC's Regional Offices in New
York (7 World Trade Center, Suite 1300, New York, New York 10048) and Chicago
(CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661),
and copies of such material can be obtained from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Each of the DAKA Common Stock and Champps Common Stock is listed on the Nasdaq
National Market. Consequently, reports, proxy statements and other information
concerning DAKA and Champps may also be inspected at the offices of the National
Association of Securities Dealers, Inc. (the "NASD") at 1735 K Street, N.W.,
Washington, D.C. 20006. This Joint Proxy Statement-Prospectus is part of a
registration statement on Form S-4 filed with the SEC (the "Registration
Statement") and does not contain all the information set forth in the
Registration Statement and exhibits thereto which DAKA has filed with the SEC
under the Exchange Act, which Registration Statement and exhibits thereto may be
obtained from the Public Reference Section of the SEC at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed
fees, and to which reference is hereby made.
Statements contained herein or in any document incorporated herein by
reference as to the contents of any contract or other document referred to
herein or therein are not necessarily complete and, in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document incorporated herein by
reference. Each such statement is qualified in its entirety by the information
contained in such document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by DAKA with the SEC pursuant to
the Exchange Act are incorporated into this Joint Proxy Statement-Prospectus by
reference: (i) DAKA's Annual Report on Form 10-K for the fiscal year ended July
1, 1995 as amended by Form 10-K/A (ii) DAKA's Form 8-K dated October 10, 1995,
(iii) DAKA's quarterly report on Form 10-Q for the quarter ended September 30,
1995, and (iv) the description of DAKA's Common Stock contained in DAKA's
Registration Statement on Form 8-A dated October 11, 1988, including any
amendment or report filed for the purpose of amending such description.
All documents filed by DAKA pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Joint Proxy
Statement-Prospectus and prior to the filing of a post-effective amendment
hereto that indicates that all securities offered hereunder have been sold or
that deregisters all such securities then remaining unsold shall be deemed to be
incorporated by reference in this Joint Proxy Statement-Prospectus and to be a
part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement-Prospectus to the extent that a
statement contained herein (or in an applicable Prospectus Supplement) or in any
subsequently filed document that is incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Joint Proxy Statement-Prospectus or
any supplement thereto, except as so modified or superseded.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT
<PAGE> 10
PROXY STATEMENT-PROSPECTUS IS DELIVERED UPON REQUEST FROM, IN THE CASE OF
DOCUMENTS RELATING TO DAKA, LOUIS PSALLIDAS, VICE PRESIDENT, FINANCE, DAKA
INTERNATIONAL, INC., ONE CORPORATE PLACE, 55 FERNCROFT ROAD, DANVERS,
MASSACHUSETTS 01923-4001, TELEPHONE (508) 774-9115, AND IN THE CASE OF DOCUMENTS
RELATING TO CHAMPPS, FROM SHAUN P. NUGENT, CHIEF FINANCIAL OFFICER, CHAMPPS
ENTERTAINMENT, INC., 153 EAST LAKE STREET, WAYZATA, MINNESOTA 55391 (TELEPHONE:
(612) 449-4841). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY , 1996. [5 BUSINESS DAYS PRIOR TO MEETING]
<PAGE> 11
TABLE OF CONTENTS
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SUMMARY............................................................................... 1
Introduction........................................................................ 1
The Parties......................................................................... 1
Terms of The Merger and The Merger Agreement........................................ 2
The Stockholders Meetings........................................................... 3
Management and Operations after the Merger.......................................... 4
Dissenters' Rights.................................................................. 4
Certain Differences in the Rights of Stockholders................................... 4
Reasons for the Recommendations of the Boards of Directors.......................... 4
Opinion of Financial Advisors....................................................... 5
Amendment and Waiver of the Merger Agreement; Extensions............................ 5
Interim Financing Arrangements...................................................... 5
Other Transactions.................................................................. 5
Regulatory Approvals................................................................ 6
Certain Federal Income Tax Consequences............................................. 6
Accounting.......................................................................... 6
Comparative Stock Prices............................................................ 7
Pro Forma Per Share Data............................................................ 8
SUMMARY FINANCIAL DATA................................................................ 9
VOTING AND PROXIES.................................................................... 12
The Stockholders Meetings........................................................... 12
Record Dates........................................................................ 12
Purposes of the Stockholders Meetings............................................... 12
Votes Required at the Stockholders Meetings......................................... 12
Proxies, Voting and Revocations..................................................... 13
Solicitation Expenses............................................................... 14
RIGHTS OF DISSENTING STOCKHOLDERS..................................................... 14
Procedure to Preserve Dissenters' Rights............................................ 14
Procedures Following an Assertion of Dissenters' Rights............................. 15
THE MERGER AND RELATED TRANSACTIONS................................................... 17
General............................................................................. 17
Background of the Merger............................................................ 17
Reasons for the Champps Board's Recommendation...................................... 18
Reasons for the DAKA Board's Recommendation......................................... 19
Recommendations of the Boards of Directors of DAKA and Champps...................... 19
Management and Operations after the Merger.......................................... 20
Opinion of Financial Advisor to Champps............................................. 20
Opinion of Financial Advisor to DAKA................................................ 24
TERMS OF THE MERGER................................................................... 28
Effective Time of the Merger; Closing Date.......................................... 28
Conversion of Shares of Champps Stock Pursuant to Merger; Treatment of
Options and Warrants............................................................. 28
The Surviving Corporation........................................................... 28
Conduct of Business Pending the Merger.............................................. 29
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Interim Financing Arrangements...................................................... 29
Conditions to Consummation of the Merger............................................ 30
Material Federal Income Tax Consequences............................................ 31
Accounting Treatment................................................................ 32
Regulatory Approvals................................................................ 33
Termination of the Merger Agreement................................................. 33
Other Transactions; Termination Fees................................................ 33
Expenses............................................................................ 34
Amendment and Waiver of the Merger Agreement; Extensions............................ 34
Effect on Employee Benefits......................................................... 34
Exchange of Certificates in the Merger.............................................. 35
Representations and Warranties...................................................... 35
Interests of Certain Persons in the Merger.......................................... 36
The Stockholders Agreement.......................................................... 37
Resale of DAKA Common Stock......................................................... 37
CHAMPPS SPECIAL MEETING PROPOSAL...................................................... 39
Approval and Adoption of the Merger Agreement....................................... 39
DAKA ANNUAL MEETING PROPOSALS......................................................... 40
Proposal 1--Issuance of DAKA Common Stock Pursuant to the Merger Agreement.......... 40
Proposal 2--Increase in the Authorized Shares of DAKA Common Stock.................. 40
Proposal 3--Election of Class I Director............................................ 41
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS..................................... 42
CHAMPPS SELECTED FINANCIAL DATA....................................................... 51
CHAMPPS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION........................................................................... 52
BUSINESS OF DAKA...................................................................... 56
BUSINESS OF CHAMPPS................................................................... 58
General............................................................................. 58
History............................................................................. 58
Concept and Strategy................................................................ 59
Expansion Strategy.................................................................. 60
Restaurant Operations............................................................... 61
Competition......................................................................... 61
Franchises.......................................................................... 62
Government Regulation............................................................... 64
Trademarks and Service Marks........................................................ 64
Employees........................................................................... 65
Properties.......................................................................... 65
Legal Proceedings................................................................... 65
PRINCIPAL AND MANAGEMENT STOCKHOLDERS OF CHAMPPS...................................... 66
COMPARISON OF THE RIGHTS OF HOLDERS OF CHAMPPS COMMON STOCK AND DAKA COMMON STOCK..... 67
THE DAKA ANNUAL MEETING--OTHER INFORMATION............................................ 72
Composition of DAKA Board........................................................... 72
Appointment of Director............................................................. 72
Incumbent Directors................................................................. 72
Meetings and Committees............................................................. 74
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Directors' Compensation............................................................. 74
Executive Compensation.............................................................. 75
Employment Agreements............................................................... 76
Compensation Committee Report....................................................... 77
Performance Graph................................................................... 80
Principal and Management Stockholders of DAKA....................................... 81
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.................. 83
AUDITORS.............................................................................. 83
STOCKHOLDER PROPOSALS................................................................. 83
EXPERTS............................................................................... 84
LEGAL OPINIONS........................................................................ 84
INDEX TO CHAMPPS CONSOLIDATED FINANCIAL STATEMENTS.................................... F-1
Appendices:
Appendix A. Agreement and Plan of Merger
Appendix B. Opinion of Montgomery Securities
Appendix C. Opinion of Piper Jaffray Inc.
Appendix D. Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
</TABLE>
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<PAGE> 14
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement-Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained herein
and the exhibits hereto. Each stockholder of Champps and DAKA is urged to read
this Joint Proxy Statement-Prospectus with care.
INTRODUCTION
The DAKA Board and the Champps Board have each unanimously adopted and
approved the Merger Agreement, pursuant to which Merger Subsidiary will be
merged with and into Champps if the stockholders of Champps adopt and approve
the Merger Agreement, the stockholders of DAKA approve the issuance of the DAKA
Merger Shares, and certain regulatory approvals are received and certain other
conditions are satisfied. Champps will be the surviving corporation in the
Merger and will become a wholly-owned subsidiary of DAKA. As a result of the
Merger, each share of Champps Common Stock issued and outstanding immediately
prior to the effective time of the Merger (other than shares as to which
dissenters' rights are properly exercised) will be converted into the right to
receive four-tenths (.40) of one share of DAKA Common Stock, subject to possible
adjustment as more fully described herein, with holders receiving cash in lieu
of fractional shares of DAKA Common Stock.
THE PARTIES
Champps. Champps owns and operates six casual dining restaurants under the
name "Champps Americana" located in Minnesota, Texas, New Jersey, Indiana and
California. Champps also has a total of twelve additional restaurants in
operation pursuant to franchise or license agreements in the following areas:
Minneapolis-St. Paul metropolitan area; Sioux Falls, South Dakota; Milwaukee,
Wisconsin; Charlotte, North Carolina; Cleveland, Ohio; and Omaha, Nebraska.
Champps plans to continue to expand its concept nationally by establishing
additional Champps-owned restaurants. Champps has signed leases to open three
additional Champps-owned restaurants in Reston, Virginia, Denver, Colorado and
Hempstead, New York. Champps has also entered into various license, franchise
and development agreements, some of which are on an exclusive basis, which grant
third parties rights to open and operate Champps Americana restaurants in
various territories. The principal executive offices of Champps are located at
153 East Lake Street, Wayzata, Minnesota 55931.
DAKA. DAKA is a diversified foodservice and restaurant company formed in
1988 pursuant to the merger of Daka, Inc. ("Daka") and Fuddruckers, Inc.
("Fuddruckers") and operates in the contract foodservice management industry and
in the restaurant industry. Daka provides restaurant-style contract foodservice
management at a variety of schools and colleges, corporate offices, factories,
healthcare facilities, museums and government offices. Fuddruckers owns,
operates and franchises Fuddruckers restaurants, which specialize in
moderately-priced, casual dining for families and adults. In 1994, Casual Dining
Ventures, Inc. ("CDVI"), a wholly-owned subsidiary of DAKA, acquired a 57%
voting interest in Americana Dining Corp. ("ADC"), a newly formed company which
acquired two restaurants located in Richfield and New Brighton, Minnesota
operating under the name "Champps Americana" pursuant to a license from Champps.
ADC has the exclusive right to develop Champps Americana restaurants in Ohio,
Florida and seven Illinois counties. The principal executive offices of DAKA are
located at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923.
Merger Subsidiary. Merger Subsidiary is a Minnesota corporation recently
formed by DAKA for the sole purpose of facilitating the Merger. Merger
Subsidiary is a wholly-owned subsidiary of DAKA with no assets (other than those
received in connection with its initial capitalization) or liabilities. The
principal executive offices of Merger Subsidiary are located at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923.
<PAGE> 15
TERMS OF THE MERGER AND THE MERGER AGREEMENT
A copy of the Merger Agreement is attached hereto as Appendix A and is
summarized more fully herein under "Terms of the Merger." Pursuant to the Merger
Agreement, upon fulfillment (or waiver) of the conditions set forth therein, at
the time the Merger becomes effective (the "Effective Time") and in accordance
with the relevant provisions of Minnesota law, Merger Subsidiary will be merged
with and into Champps. As a result of the Merger, the separate corporate
existence of Merger Subsidiary will cease and Champps will continue as the
surviving corporation after the Merger (the "Surviving Corporation"). On October
10, 1995, the sole director of Merger Subsidiary approved the Merger Agreement
and DAKA, as sole stockholder of Merger Subsidiary, approved and adopted the
Merger Agreement.
At the Effective Time of the Merger, each outstanding share of Champps
Common Stock will be converted into the right to receive four-tenths (.40) of
one share of DAKA Common Stock, subject to adjustment to forty-three hundredths
(.43) of one share of DAKA Common Stock if the DAKA Average Trading Price is
less than $30.00 or to thirty-seven hundredths (.37) of one share of DAKA Common
Stock if the DAKA Average Trading Price is more than $35.00, as discussed more
fully herein (as such ratio may be so adjusted, the "Exchange Ratio"). See
"Terms of the Merger--Conversion of Shares of Champps Stock pursuant to Merger;
Treatment of Options and Warrants."
Consummation of the Merger is subject to various conditions, including,
among other things, the approval and adoption of the Merger Agreement by the
stockholders of Champps and the approval of the issuance of the DAKA Merger
Shares by the stockholders of DAKA; receipt by Champps and DAKA of opinions of
counsel as to the treatment of the Merger as a tax-free reorganization for
federal income tax purposes; receipt by DAKA from Deloitte & Touche LLP, its
independent auditors, and receipt by Champps from Arthur Andersen LLP, its
independent auditors, of a letter to the effect that pooling-of-interests
accounting (under Accounting Principles Board Opinion No. 16) is appropriate for
the Merger, provided that the Merger is consummated in accordance with the terms
and conditions of the Merger Agreement; the lack of any materially adverse
changes concerning Champps or DAKA; and other customary closing conditions. See
"Terms of the Merger--Conditions to Consummation of the Merger."
Upon the occurrence of certain conditions, the Merger Agreement may be
terminated. Champps will be obligated to pay DAKA a fee of $2,800,000 to
reimburse DAKA for costs and expenses incurred in connection with the Merger
(the "Termination Fee") in the event DAKA terminates the Merger Agreement due to
(i) a breach of the Merger Agreement by Champps, (ii) a failure by the Champps
Board to recommend to Champps stockholders approval of the Merger Agreement,
(iii) consummation by a third party of a tender offer for 20% or more of Champps
shares, or (iv) (unless the average per share closing price of DAKA Common Stock
on the Nasdaq National Market over the twenty (20) trading days immediately
preceding the originally scheduled date of the Champps Special Meeting is less
than $22.50 (the "Floor Price")) the failure of the Champps stockholders to
approve the Merger. The likelihood that the Merger will be consummated in the
event that the Floor Price is reached cannot be determined, as consummation of
the Merger depends on a number of factors, including (i) whether the affirmative
vote of the stockholders of DAKA and Champps with respect to the Merger is
obtained, which will be influenced by considerations such as the relative prices
of the companies' stock, the prospects of Champps as an independent company as
compared to the prospects of the combined DAKA-Champps enterprise, and general
changes in the level of broad-based stock indices, and (ii) satisfaction (or
waiver) of all conditions precedent to the obligation of each of Champps and
DAKA to consummate the Merger. The Termination Fee could discourage a third
party from pursuing an acquisition of Champps because the cost of such
acquisition, if successful, would be increased by the amount of the Termination
Fee. See "Terms of the Merger--Termination of the Merger Agreement" and "--Other
Transactions; Termination Fees." The Termination Fee payable to DAKA will be
reduced, dollar for dollar, by any payments actually made to DAKA under the
Stockholders Agreement. See "Terms of the Merger--The Stockholders Agreement."
2
<PAGE> 16
THE STOCKHOLDERS MEETINGS
Champps. The Champps Special Meeting will be held on , 1996 at
10:00 a.m. local time at , Minnesota. At the Champps Special
Meeting, Champps stockholders will consider and vote upon a proposal to approve
and adopt the Merger Agreement. The Champps Board has fixed the close of
business on as the record date (the " Champps Record Date") for
determination of stockholders entitled to notice of and to vote at the Champps
Special Meeting. At the close of business on the Champps Record Date,
shares of Champps Common Stock were outstanding and entitled to vote. The
affirmative vote of the holders of at least a majority of the outstanding shares
of Champps Common Stock is required to approve and adopt the Merger Agreement.
Stockholders of Champps are entitled to one vote at the Champps Special Meeting
for each share of Champps Common Stock held of record at the close of business
on the Champps Record Date. On the Champps Record Date, directors and executive
officers of Champps beneficially owned shares, or %, of the
outstanding shares of Champps Common Stock. Dean Vlahos, Walter Henrion and
Robert Taylor, directors of Champps, have entered into a Stockholders Agreement
dated October 10, 1995 (the "Stockholders Agreement") with DAKA, the purpose of
which is to assure that an aggregate of 990,000 shares, or 19.98% of the
outstanding shares of Champps Common Stock, owned by such individuals is voted
in favor of the Merger. See "Terms of the Merger--The Stockholders Agreement."
DAKA. The DAKA Annual Meeting will be held on , 1996 at 10:00
a.m. local time at Tara's Ferncroft Conference Resort, 50 Ferncroft Road,
Danvers, Massachusetts. At the DAKA Annual Meeting, holders of DAKA Capital
Stock will consider and vote upon (i) a proposal to issue the DAKA Merger Shares
pursuant to the Merger Agreement, (ii) a proposal to approve and adopt an
amendment to the DAKA Certificate to increase the number of authorized shares of
DAKA Common Stock from 20,000,000 to 30,000,000, and (iii) a proposal to elect
one director to the DAKA Board. Stockholder approval of the proposal to issue
the DAKA Merger Shares pursuant to the Merger is required by the rules and
regulations of the Nasdaq National Market, on which the DAKA Common Stock is
listed for trading, and is not being sought in response to or in fulfillment of
any provision of the Delaware General Corporation Law. Such approval is not
sought for the purpose of limiting or precluding any liability which DAKA or its
officers or directors may have with respect to the Merger under any applicable
laws or to prevent any shareholder from contesting the Merger, but DAKA does not
know whether such would be the effect. The DAKA Board has fixed the close of
business on as the record date (the "DAKA Record Date") for
determination of stockholders entitled to notice of and to vote at the DAKA
Annual Meeting. At the close of business on the DAKA Record Date there were
shares of DAKA Common Stock outstanding and entitled to vote and
shares of Series A Preferred Stock outstanding and entitled to vote.
The terms of the Series A Preferred Stock provide that holders of such class of
stock are entitled to vote with the holders of DAKA Common Stock upon any matter
submitted to a vote of the holders of DAKA Common Stock, but under Delaware law
each of the aforementioned classes may also be entitled to separate class votes
under certain circumstances. On any matter submitted to a vote of the DAKA
stockholders, holders of DAKA Common Stock are entitled to one vote per share of
DAKA Common Stock and holders of Series A Preferred Stock are entitled to
approximately 22.22 votes per share of Series A Preferred Stock (representing
the number of shares of DAKA Common Stock into which each share of Series A
Preferred Stock is convertible).
Because a subsidiary of DAKA, and not DAKA itself, is a party to the
Merger, the approval of stockholders of DAKA is not required to approve and
adopt the Merger Agreement. However, the By-laws of the NASD require the
affirmative vote of a majority of the votes cast in person or by proxy at the
DAKA Annual Meeting to approve the issuance of the DAKA Merger Shares pursuant
to the Merger Agreement. The affirmative vote of the holders of at least a
majority of the issued and outstanding shares of DAKA Common Stock voting as a
separate class, as well as the affirmative vote of at least a majority of the
votes eligible to be cast by holders of DAKA Common Stock and Series A Preferred
Stock voting together, are required to approve the amendment to the DAKA
Certificate to increase the number of authorized shares of DAKA Common Stock.
With respect to the election of a director, DAKA's By-laws provide that such
election shall be determined by a plurality of the votes cast by holders of DAKA
Capital Stock.
3
<PAGE> 17
The approval of the Merger Agreement by the Champps stockholders and the
approval of the issuance of the DAKA Merger Shares by the DAKA stockholders are
conditions to the consummation of the Merger. See "Voting and Proxies."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Immediately following the Merger, Champps will be operated as a
wholly-owned subsidiary of DAKA. The Merger Agreement provides that after the
Merger the Champps Board will consist of William H. Baumhauer, Chairman and
Chief Executive Officer of DAKA, Dean P. Vlahos, currently Chief Executive
Officer and President of Champps, and one other person to be mutually designated
by Messrs. Baumhauer and Vlahos. Mr. Vlahos has entered into an employment
agreement with DAKA and Champps, dated October 10, 1995. The terms of such
employment agreement were negotiated after an understanding as to what the
Exchange Ratio would be was determined and discussed with the Champps Board.
Such employment agreement provides for Mr. Vlahos' employment for a term of five
years after the Merger as Chairman of the Board, Chief Executive Officer and
President of Champps. Under such employment agreement, Mr. Vlahos will receive
an annual base salary of $350,000 plus, subject to the achievement of
performance targets relating to DAKA and to Champps, a performance bonus of
between 50% and 100% of base salary. See "The DAKA Annual Meeting--Other
Information--Employment Agreements" for a summary of the other terms of such
employment agreement.
DISSENTERS' RIGHTS
A record or beneficial owner of shares of Champps Common Stock whose shares
are not voted in favor of approval of the Merger will be entitled to receive the
fair market value of his or her shares in cash in lieu of the consideration
contemplated by the Merger Agreement if he or she complies with certain
procedures specified in the Minnesota Business Corporation Act (the "MBCA")
relating to dissenters' rights. See "Rights of Dissenting Stockholders." ANY
STOCKHOLDER WHO WISHES TO EXERCISE SUCH DISSENTERS' RIGHTS OR WHO WISHES TO
PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW THE DISCUSSION UNDER "RIGHTS OF
DISSENTING STOCKHOLDERS" HEREIN AND APPENDIX D CAREFULLY BECAUSE FAILURE TO
TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED WILL RESULT IN THE LOSS
OF DISSENTERS' RIGHTS UNDER THE MBCA.
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Champps are currently governed by the
Minnesota Business Corporation Act, Champps' Articles of Incorporation, as
amended (the "Champps Articles"), and Champps' restated by-laws (the "Champps
By-laws"). Upon consummation of the Merger, Champps' stockholders will become
holders of DAKA Common Stock and their rights will be governed by the Delaware
General Corporation Law ("Delaware law"), the DAKA Certificate and DAKA's
By-laws (the "DAKA By-laws"). The differences in the rights of Champps
stockholders and DAKA stockholders include (i) Champps stockholders holding
sufficient voting power can call a stockholders meeting while DAKA stockholders
cannot call a stockholders meeting, (ii) the DAKA Board is classified into three
classes while the Champps Board is unclassified, and (iii) Champps is subject to
a "control share acquisition" statute (which can have the effect of limiting
purchases of a company's stock by a person or group above certain thresholds)
while DAKA is not. See "Comparison of the Rights of Holders of Champps Common
Stock and DAKA Common Stock" for a more complete summary of the differences in
the rights of Champps and DAKA stockholders.
REASONS FOR THE RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The DAKA Board and the Champps Board each believes that the Merger is in
the best interests of its respective company and stockholders.
In reaching its determination that the Merger is in the best interests of
the Champps stockholders and unanimously recommending that the Champps
stockholders approve the Merger, the Champps Board considered a number of
factors, including the beneficial effects the Merger would have on Champps'
financial condition and expansion plans; the financial and other terms and tax
consequences of the Merger; the business strengths of DAKA; the increased
liquidity the Merger should provide Champps' stockholders; and the
4
<PAGE> 18
opinion of Montgomery Securities ("Montgomery") regarding the fairness, from a
financial point of view, of the consideration to be received by stockholders of
Champps pursuant to the Merger. A special committee of the Champps Board,
comprised of six non-management directors (the "Special Committee"), unanimously
approved the Merger. The Champps Board ratified such approval by the Special
Committee and unanimously approved the Merger.
In reaching its determination that the Merger is in the best interests of
the DAKA stockholders, and unanimously recommending that the DAKA stockholders
approve the issuance of the DAKA Merger Shares, the DAKA Board considered a
number of factors, including the growth potential of the Champps Americana
concept, particularly when combined with DAKA's ability to rapidly expand the
number of Champps Americana restaurants as a result of its expertise in the
areas of site selection, real estate development and construction, and finance;
Mr. Dean Vlahos' experience in implementing the Champps Americana concept and
his five year employment agreement; DAKA's experience in the restaurant
industry; and the opinion of Piper Jaffray Inc. ("Piper Jaffray") that the
Exchange Ratio is fair to DAKA from a financial point of view.
See "The Merger and Related Transactions--Background of the Merger,"
"--Reasons for the DAKA Board's Recommendation" and "--Reasons for the Champps
Board's Recommendation."
OPINION OF FINANCIAL ADVISORS
Montgomery has delivered to the Champps Board written opinions that, as of
October 10, 1995 and the date of this Joint Proxy Statement-Prospectus, the
consideration to be received by Champps stockholders pursuant to the Merger is
fair to such stockholders from a financial point of view. A copy of Montgomery's
opinion dated as of the date of this Joint Proxy Statement-Prospectus is
attached hereto as Appendix B and should be read in its entirety.
Piper Jaffray has delivered to the DAKA Board its written opinions, dated
as of October 9, 1995 and the date of this Joint Proxy Statement-Prospectus,
that the Exchange Ratio is fair, from a financial point of view, to DAKA. A copy
of Piper Jaffray's opinion dated as of the date of this Joint Proxy
Statement-Prospectus is attached hereto as Appendix C and should be read in its
entirety.
See "The Merger and Related Transactions--Background of the Merger"
"--Opinion of Financial Advisor to Champps" and "--Opinion of Financial Advisor
to DAKA."
AMENDMENT AND WAIVER OF THE MERGER AGREEMENT; EXTENSIONS
The Merger Agreement may be amended by DAKA and Champps, by action taken by
or on behalf of their respective Boards, at any time prior to the Effective
Time, except that after approval of the Merger by the stockholders of Champps,
or after approval of the issuance of the DAKA Merger Shares by the stockholders
of DAKA, no amendment that under applicable law may not be made without the
approval of the stockholders of DAKA or Champps may be made without such
approval. At any time prior to the Effective Time, DAKA and Champps may (i)
extend the time for the performance of any of the obligations of the other party
under the Merger Agreement, (ii) waive any inaccuracies in the representations
and warranties of the other party contained in the Merger Agreement or (iii)
waive compliance by the other party with any of the agreements or conditions
contained therein. See "Terms of the Merger--Amendment and Waiver of the Merger
Agreement; Extensions."
INTERIM FINANCING ARRANGEMENTS
In order to allow Champps to continue to develop and construct new
restaurants, pursuant to the Merger Agreement DAKA has entered into a loan
agreement with a newly formed wholly-owned subsidiary of Champps whereby DAKA
has committed to provide loans to such subsidiary up to an aggregate principal
amount of $3,000,000. Approximately $710,000 has been loaned by DAKA to such
subsidiary to date. The loans bear interest at a fixed rate of 10% per annum
with principal due on October 10, 2000 and are subject to other terms as are
normal and customary for loans of this type. If the Merger Agreement is
terminated,
5
<PAGE> 19
DAKA will not be obligated to make additional loans, but existing loans will
remain outstanding. See "Champps Management's Discussion and Analysis of Results
of Operations and Financial Condition."
OTHER TRANSACTIONS
Dean Vlahos, Walter Henrion and Robert Taylor, members of the Champps
Board, all of whom are also stockholders of Champps, negotiated and entered into
the Stockholders Agreement contemporaneously with the negotiation and execution
of the Merger Agreement. The purpose of the Stockholders Agreement is to assure
that an aggregate of 990,000 shares of Champps Common Stock, or 19.98% of the
outstanding shares of Champps Common Stock, owned by such individuals is voted
in favor of the Merger. See "Terms of the Merger--The Stockholders Agreement."
In the event the Merger Agreement is terminated because of a failure by
Champps stockholders to approve the Merger, and the average per share closing
price of DAKA Common Stock on the Nasdaq National Market over the twenty (20)
trading days immediately preceding the originally scheduled date of the Champps
Special Meeting was equal to or greater than $22.50, then Messrs. Vlahos,
Henrion and Taylor shall be required to pay to DAKA $1,000,000 in the aggregate
to reimburse DAKA for costs incurred in connection with the Merger (with such
fee to be allocated among Messrs. Vlahos, Henrion and Taylor in proportion to
the number of their shares subject to the Stockholders Agreement ($693,939,
$94,742, and $211,319, respectively) and with such fee to be subject to
reduction on a dollar for dollar basis by the amount of the Termination Fee
actually paid by Champps). See "Terms of the Merger--Conditions to Consummation
of the Merger," "--Termination of the Merger."
REGULATORY APPROVALS
Champps and DAKA are not aware of any government or regulatory requirements
relating to consummation of the Merger or the proposals to be considered at the
DAKA Annual Meeting other than compliance with applicable federal and state
securities laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Neither DAKA nor Champps has requested nor will they receive an advance
ruling from the Internal Revenue Service as to the tax consequences of the
Merger. As contemplated by the Merger Agreement, it is a condition to closing of
the Merger that counsel for each of DAKA and Champps deliver opinions, dated on
or about the date that is two business days prior to the mailing of this Joint
Proxy Statement-Prospectus, which opinions are based on customary conditions and
qualifications, that for federal income tax purposes the Merger will constitute
a tax free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). Stockholders of Champps should
consult their own tax advisors as to the tax consequences of the Merger to them
under federal, state, local or any other applicable law. See "Terms of The
Merger--Material Federal Income Tax Consequences."
ACCOUNTING
It is the intention of the parties that the Merger shall qualify as a
pooling-of-interests for accounting and financial reporting purposes. In
addition, it is a condition to consummation of the Merger that DAKA shall have
received from Deloitte & Touche LLP, its independent auditors, and Champps shall
have received from Arthur Andersen LLP, its independent public accountants, a
letter to the effect that pooling-of-interests accounting (under Accounting
Principles Board Opinion No. 16) is appropriate for the Merger, provided that
the Merger is consummated in accordance with the terms and conditions of the
Merger Agreement.
6
<PAGE> 20
COMPARATIVE STOCK PRICES
The shares of DAKA Common Stock and Champps Common Stock are quoted on the
Nasdaq National Market under the symbols DKAI and CHPP, respectively. The table
below sets forth the quarterly high and low sale prices for DAKA Common Stock
and Champps Common Stock as reported on the Nasdaq National Market for the
periods indicated.
DAKA
<TABLE>
<CAPTION>
LOW HIGH
------ ------
<S> <C> <C>
FISCAL YEAR 1994:
First Quarter ended October 2, 1993.............................. $ 9.00 $11.00
Second Quarter ended January 1, 1994............................. 8.50 11.50
Third Quarter ended April 2, 1994................................ 11.25 13.63
Fourth Quarter ended July 2, 1994................................ 11.38 13.88
FISCAL YEAR 1995:
First Quarter ended October 1, 1994.............................. 13.50 15.50
Second Quarter ended December 31, 1994........................... 12.88 16.25
Third Quarter ended April 1, 1995................................ 14.50 18.00
Fourth Quarter ended July 1, 1995................................ 17.00 23.88
FISCAL YEAR 1996:
First Quarter ended September 30, 1995........................... 23.00 33.75
Second Quarter ended December 30, 1995...........................
Third Quarter (through January , 1996).........................
</TABLE>
CHAMPPS
<TABLE>
<CAPTION>
LOW HIGH
------ ------
<S> <C> <C>
CALENDAR YEAR 1994:
Second Quarter (trading commenced April 6, 1994) ended June 30,
1994............................................................ $ 4.50 $ 7.50
Third Quarter ended September 30, 1994............................. 4.50 6.50
Fourth Quarter ended December 31, 1994............................. 4.75 6.25
FISCAL YEAR 1995:
First Quarter ended April 2, 1995.................................. 4.75 6.38
Second Quarter ended July 2, 1995.................................. 5.38 6.25
Third Quarter ended October 1, 1995................................ 5.75 10.75
Fourth Quarter ended December 31, 1995.............................
FISCAL YEAR 1996:
First Quarter ended March 31, 1996 (through January , 1996)......
</TABLE>
On October 9, 1995, the last business day immediately preceding the public
announcement of the proposed Merger, the closing sale price for DAKA Common
Stock as reported on the Nasdaq National Market was $33.25 per share and the
closing sale price for Champps Common Stock as reported on the Nasdaq National
Market was $11.75 per share. Based on the closing price for DAKA Common Stock on
October 9, 1995, and assuming the applicable Exchange Ratio will be .40, the
value of the DAKA Common Stock to be received for each share of Champps Common
Stock in the Merger is $13.30.
7
<PAGE> 21
PRO FORMA PER SHARE DATA
The following unaudited information reflects certain comparative per share
data related to book value per share and income per share from continuing
operations for each of DAKA and Champps. DAKA has never paid dividends on DAKA
Common Stock and Champps has not paid dividends on Champps Common Stock since
December 31, 1993. The information set forth below is presented (i) on a
historical basis for DAKA and Champps; (ii) on a pro forma combined basis for
DAKA and Champps, assuming consummation of the Merger; and (iii) on an
equivalent pro forma basis per share of Champps Common Stock assuming
consummation of the Merger. The equivalent pro forma per share data for Champps
has been computed by multiplying the pro forma DAKA amounts by the maximum
Exchange Ratio of .43.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto of DAKA incorporated herein
by reference and (ii) the consolidated financial statements and notes thereto of
Champps and the pro forma condensed combined financial statements including the
respective notes thereto, each of which is contained in this Joint Proxy
Statement-Prospectus.
<TABLE>
<CAPTION>
DAKA
----------------------------------
EQUIVALENT
HISTORICAL PRO FORMA PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Income per share from continuing operations:
Primary:
Three months ended September 30, 1995...................... $ .36 $ .27 $ .12
Year ended July 1, 1995.................................... $ 2.03 $1.38 $ .59
Year ended July 2, 1994.................................... $ 1.55 $1.14 $ .49
Year ended June 26, 1993................................... $ 1.36 $1.01 $ .43
Fully Diluted:
Three months ended September 30, 1995...................... $ .27 $ .22 $ .09
Year ended July 1, 1995.................................... $ 1.18 $ .96 $ .41
Year ended July 2, 1994.................................... $ .96 $ .84 $ .36
Year ended June 26, 1993................................... $ .80 $ .69 $ .30
Book Value per share(1):
September 30, 1995......................................... $ 8.56 $7.51 $3.23
July 1, 1995............................................... $ 8.34 $7.33 $3.15
</TABLE>
The following table presents Champps historical and the DAKA and Champps
combined equivalent pro forma per share amounts of income from continuing
operations and book value. Such equivalent pro forma per share amounts were
computed by multiplying the historical pro forma combined amounts by the maximum
Exchange Ratio of .43
<TABLE>
<CAPTION>
CHAMPPS EQUIVALENT
HISTORICAL PRO FORMA
---------- ----------
<S> <C> <C>
Income per share from continuing operations:
Primary:
Thirty-nine weeks ended October 1, 1995.............................. $ 0.04 $ 0.43
Year ended December 31, 1994......................................... $ 0.05 $ 0.53
Year ended December 31, 1993......................................... $ 0.12 $ 0.47
Year ended December 31, 1992......................................... $ 0.09 $ 0.45
Fully Diluted:
Thirty-nine weeks ended October 1, 1995.............................. $ 0.04 $ 0.32
Year ended December 31, 1994......................................... $ 0.05 $ 0.39
Year ended December 31, 1993......................................... $ 0.12(2) $ 0.36
Year ended December 31, 1992......................................... $ 0.09(2) $ 0.32
Book value per share(1):
October 1, 1995...................................................... $ 1.85 $ 3.23
December 31, 1994.................................................... $ 1.78 $ 2.98
</TABLE>
- ---------------
(1) Book value per share was calculated using stockholders' equity as reflected
in the historical and pro forma financial statements (and, for DAKA, the
outstanding balance of certain convertible subordinated notes) divided by
the number of shares of common stock outstanding(which, for DAKA includes
shares of DAKA Common Stock issuable upon conversion of DAKA Series A
Preferred Stock and such convertible subordinated notes).
(2) Represents pro forma earnings per share after giving effect to a pro forma
provision for income taxes as a result of Champps' election to be taxed as
an S corporation in 1993 and 1992.
8
<PAGE> 22
SUMMARY FINANCIAL DATA
DAKA INTERNATIONAL, INC.
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents summarized historical income statement and
balance sheet data of DAKA. The balance sheet data presented below as of July 1,
1995, July 2, 1994, June 26, 1993, June 29, 1992 and June 30, 1991 and the
income statement data presented below for each fiscal year in the aforementioned
five-year period are derived from DAKA's audited consolidated financial
statements. The balance sheet data and income statement data presented below as
of and for the three-month periods ended September 30, 1995 and October 1, 1994
are derived from DAKA's unaudited consolidated financial statements. In the
opinion of management, the unaudited consolidated financial statements have been
prepared on a basis consistent with the audited consolidated financial
statements and contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods. The operating results for the three
months ended September 30, 1995 and October 1, 1994 are not necessarily
indicative of the results that may be expected for the entire fiscal year. The
summarized historical financial data should be read in conjunction with the
consolidated financial statements and related notes thereto for DAKA and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included in DAKA's Annual Report on Form 10-K/A for the fiscal year
ended July 1, 1995 and in DAKA's quarterly report on Form 10-Q for the three
months ended September 30, 1995, incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
-------------------------- ----------------------------------------------------
SEPTEMBER 30, OCTOBER 1, JULY 1, JULY 2, JUNE 26, JUNE 29, JUNE 30,
1995 1994 1995 1994 1993 1992 1991
------------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Foodservice............................. $ 49,908 $ 35,878 $197,107 $156,489 $105,477 $107,908 $113,836
Restaurant.............................. 37,352 29,133 123,498 93,326 77,186 56,309 43,593
------ ------ ------ ------ ------ ------ ------
Total................................. 83,260 65,011 320,605 249,795 182,663 164,217 157,429
------ ------ ------ ------ ------ ------ ------
Income from operations before selling
general and administrative expenses:
Foodservice............................. 7,152 5,545 27,835 25,132 20,671 20,320 17,695
Restaurant.............................. 6,368 4,773 20,785 16,020 11,821 9,758 7,204
------ ------ ------ ------ ------ ------ ------
Total................................. 13,520 10,318 48,620 41,152 32,492 30,078 24,899
------ ------ ------ ------ ------ ------ ------
Income from continuing operations......... 2,144 1,582 9,116 6,902 4,647 4,239 3,312
Discontinued operations, net.............. (863)
Extraordinary gain, net................... 462 1,570
------ ------ ------ ------ ------ ------ ------
Net income................................ 2,144 1,582 9,116 6,902 5,109 4,239 4,019
Preferred Stock Dividend.................. 400 800
------ ------ ------ ------ ------ ------ ------
Net income available to common
stockholders............................ $ 2,144 $ 1,582 $ 8,716 $ 6,102 $ 5,109 $ 4,239 $ 4,019
====== ====== ====== ====== ====== ====== ======
Earnings per share:
Primary:
Income from continuing operations....... $ .36 $ .40 $ 2.03 $ 1.55 $ 1.36 $ 1.24 $ .88
Net income available to common
stockholders.......................... $ .36 $ .40 $ 2.03 $ 1.55 $ 1.49 $ 1.24 $ 1.07
Fully diluted:
Income from continuing operations....... $ .27 $ .22 $ 1.18 $ .96 $ .80 $ .96 $ .88
Net income available to common
stockholders.......................... $ .27 $ .22 $ 1.18 $ .96 $ .87 $ .96 $ 1.07
Weighted average shares outstanding:
Primary................................. 5,879 4,003 4,290 3,933 3,423 3,411 3,765
Fully diluted........................... 8,847 8,634 8,728 8,579 6,311 4,407 3,765
BALANCE SHEET DATA:
Total assets.............................. $ 185,248 $128,967 $167,780 $118,855 $ 89,273 $ 74,893 $ 60,403
Long-term debt and capital leases......... 58,423 26,744 48,959 18,702 2,686 26,797 22,775
7% Convertible Subordinated Notes......... 15,500 28,750 20,538 28,750 28,750
Stockholders' Equity...................... 57,057 34,436 49,736 32,780 26,504 15,934 7,989
</TABLE>
9
<PAGE> 23
CHAMPPS ENTERTAINMENT, INC.
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents summarized historical statement of operations
and balance sheet data of Champps. The balance sheet data presented below as of
December 31, 1994 and 1993 and the statement of operations data presented below
for each of the years in the three-year period ended December 31, 1994 are
derived from Champps' audited consolidated financial statements. The balance
sheet data as of December 31, 1992 was derived from Champps' unaudited combined
financial statements. The balance sheet data as of October 1, 1995 and September
30, 1994 and statement of operations data for the thirty-nine weeks ended
October 1, 1995 and for the nine month period ended September 30, 1994,
presented below are derived from Champps' unaudited consolidated financial
statements, which, in the opinion of Champps management, contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The operating results for the thirty-nine weeks ended October 1, 1995
and for the nine months ended September 30, 1994 are not necessarily indicative
of the results that may be expected for the entire year. The summarized
historical financial data should be read in conjunction with the consolidated
financial statements and related notes thereto for Champps and "Champps
Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
THIRTY- NINE NINE
WEEKS MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
OCTOBER 1, SEPTEMBER 30, -------------------------
1995(1) 1994 1994 1993(2) 1992(2)
----------- ------------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales by Champps-owned restaurants.......... $12,284 $ 4,681 $ 7,900 $6,199 $6,554
Franchise and other revenues................ 526 465 720 397 337
------- ------ ------- ------ ------
Total revenues........................... 12,810 5,146 8,620 6,596 6,891
------- ------ ------- ------ ------
Net income.................................... $ 177 $ 222 $ 233 $ 458 $ 355
Net income per share.......................... $ .04 $ .05 $ .05 $ .12 $ .09
Weighted average shares outstanding........... 4,974 4,798 4,808 3,902 3,902
BALANCE SHEET DATA:
Total assets.................................. $14,047 $ 9,610 $10,572 $3,262 $1,571
Long-term debt and capital leases............. 2,377 -- 610 474 1,455
Shareholders' Investment...................... 9,155 8,400 8,493 981 (159)
</TABLE>
- ---------------
(1) Effective January 1, 1995, Champps changed its year from a calendar year end
to a 52/53 week year.
(2) Prior to 1994, Champps and its predecessors had elected to be treated as S
corporations for purposes of federal and state income tax reporting. As an S
corporation, Champps generally was not subject to federal and state income
taxes with respect to its earnings and profits. Instead the shareholders of
Champps were taxed on their allocable share of Champps' taxable income at
such shareholders' individual federal and state income tax rates.
Accordingly, there was no provision for income taxes recorded by Champps in
1993 and 1992. Effective January 1, 1994, Champps and its subsidiaries
elected to be taxed as C corporations for federal and state income tax
purposes and have been subject to federal and state income taxes subsequent
to that date. Net income and net income per share for 1993 and 1992 include
an unaudited pro forma provision for income taxes to reflect income taxes as
if Champps had been taxed as a C corporation in 1993 and 1992.
10
<PAGE> 24
DAKA INTERNATIONAL, INC.
PRO FORMA COMBINED SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents summarized pro forma combined historical
income statement and balance sheet data for DAKA and Champps as of July 1, 1995,
July 2, 1994 and June 26, 1993 and for each fiscal year in the aforementioned
three-year period. The following table also presents summarized pro forma
combined historical income statement and balance sheet data for DAKA and Champps
as of September 30, 1995 and October 1, 1994 and for the three months then
ended. Such pro forma combined historical income statement and balance sheet
data were derived from: (i) the audited consolidated financial statements of
DAKA as of and for the fiscal years ended July 1, 1995 July 2, 1994, and June
26, 1993; (ii) the unaudited consolidated financial statements of DAKA as of and
for the three months ended September 30, 1995 and October 1, 1994,; (iii) the
unaudited consolidated financial statements of Champps for the fifty-two weeks
ended July 2, 1995 and as of and for the four quarters ended June 30, 1994 and
June 30, 1993; and (iv) the unaudited consolidated financial statements of
Champps as of and for the thirteen weeks ended October 1, 1995 and as of and for
the three months ended September 30, 1994. Such unaudited consolidated financial
statements of DAKA and Champps, in the opinion of DAKA and Champps management,
respectively, contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEARS ENDED
---------------------------- --------------------------------
SEPTEMBER 30, OCTOBER 1, JULY 1, JULY 2, JUNE 26,
1995 1994 1995 1994 1993
------------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Foodservice........................................... $ 49,908 $ 35,878 $197,107 $156,469 $105,477
Restaurant............................................ 42,931 30,899 135,968 100,175 83,724
-------- -------- -------- -------- --------
Total............................................... 92,839 66,777 333,075 256,644 189,201
-------- -------- -------- -------- --------
Income from operations before selling general and
administrative expenses
Foodservice........................................... 7,152 5,545 27,835 25,132 20,671
Restaurant............................................ 6,979 5,160 22,948 17,681 13,333
-------- -------- -------- -------- --------
Total............................................... 14,131 10,705 50,783 42,813 34,004
-------- -------- -------- -------- --------
Income from continuing operations....................... 2,185 1,643 9,325 7,330 5,145
Extraordinary gain, net................................. 462
-------- -------- -------- -------- --------
Net income.............................................. 2,185 1,643 9,325 7,330 5,607
Preferred Stock Dividend................................ 400 800
-------- -------- -------- -------- --------
Net income available to common stockholders............. $ 2,185 $ 1,643 $ 8,925 $ 6,530 $ 5,607
======== ======== ======== ======== ========
Earnings per share:
Primary:
Income from continuing operations..................... $ .27 $ .26 $ 1.38 $ 1.14 $ 1.01
Net income available to common
stockholders........................................ $ .27 $ .26 $ 1.38 $ 1.14 $ 1.10
Fully diluted:
Income from continuing operations..................... $ .22 $ .18 $ .96 $ .84 $ .69
Net income available to common
stockholders........................................ $ .22 $ .18 $ .96 $ .84 $ .75
Weighted average shares outstanding:
Primary............................................... 8,036 6,281 6,451 5,743 5,101
Fully diluted......................................... 11,004 10,912 10,889 10,389 7,989
BALANCE SHEET DATA:
Total assets............................................ $ 199,295 $ 138,577 $180,100 $128,513 $ 89,273
Long-term debt and capital leases....................... 60,800 26,744 49,234 19,176 2,686
7% Convertible Subordinated Notes....................... 15,500 28,750 20,538 28,750 28,750
Stockholders' Equity(1)................................. 64,164 42,836 58,835 41,133 26,504
</TABLE>
- ---------------
(1) Stockholders equity as of September 30, 1995 reflects the $2,048 pro forma
after-tax Merger expenses.
11
<PAGE> 25
VOTING AND PROXIES
THE STOCKHOLDERS MEETINGS
Champps. The Champps Special Meeting will be held on , 1996 at
10:00 a.m. local time at , Minnesota.
DAKA. The DAKA Annual Meeting will be held on , 1996 at 10:00
a.m. local time at Tara's Ferncroft Conference Resort, 50 Ferncroft Road,
Danvers, Massachusetts.
RECORD DATES
Champps. The Champps Board has fixed the close of business on
as the Champps Record Date. Only holders of record of shares of Champps Common
Stock at the close of business on the Champps Record Date will be entitled to
notice of and to vote at the Champps Special Meeting (including any adjournments
or postponements thereof). At the Champps Record Date, shares of
Champps Common Stock were outstanding and entitled to vote.
DAKA. The DAKA Board has fixed the close of business on as the
DAKA Record Date for voting on the proposals presented at the DAKA Annual
Meeting. Only holders of record of shares of DAKA Common Stock and Series A
Preferred Stock at the close of business on the DAKA Record Date will be
entitled to notice of and to vote at the DAKA Annual Meeting (including any
adjournments or postponements thereof). At the DAKA Record Date,
shares of DAKA Common Stock and shares of Series A Preferred Stock
were outstanding and entitled to vote. Holders of Series A Preferred Stock are
entitled to approximately 22.22 votes per share (representing the number of
shares of DAKA Common Stock into which each share of Series A Preferred Stock is
convertible) and holders of DAKA Common Stock are entitled to one vote per
share.
PURPOSES OF THE STOCKHOLDERS MEETINGS
Champps. At the Champps Special Meeting, Champps stockholders will
consider and vote upon a proposal to approve and adopt the Merger Agreement.
DAKA. At the DAKA Annual Meeting, DAKA stockholders will consider and vote
upon proposals to (i) approve the issuance of the DAKA Merger Shares pursuant to
the Merger Agreement; (ii) approve and adopt an amendment to the DAKA
Certificate to increase the number of authorized shares of DAKA Common Stock
from 20,000,000 to 30,000,000; and (iii) elect one Class I director to the DAKA
Board. Stockholder approval of the proposal to issue the DAKA Merger Shares
pursuant to the Merger is required by the rules and regulations of the Nasdaq
National Market, on which the DAKA Common Stock is listed for trading, and is
not being sought in response to or in fulfillment of any provision of the
Delaware General Corporation Law. Such approval is not sought for the purpose of
limiting or precluding any liability which DAKA or its officers or directors may
have with respect to the Merger under any applicable laws or to prevent any
shareholder from contesting the Merger, but DAKA does not know whether such
would be the effect. The DAKA Board is not aware of any other matter to be
presented for action at the Annual Meeting, however, if any other matter is
properly presented it is the intention of the persons named in the enclosed form
of proxy to vote in accordance with their judgment on such matter. DAKA's Annual
Report to Stockholders for fiscal year 1995 is being mailed to stockholders with
this Joint Proxy Statement-Prospectus. Additional information is contained in
DAKA's Annual Report on Form 10-K/A for the fiscal year ended July 1, 1995,
including the consolidated financial statements and notes thereto incorporated
herein by reference. DAKA will furnish, without charge to any stockholder, a
copy of its Annual Report on Form 10-K/A upon written request to: Investor
Relations Department, DAKA International, Inc., One Corporate Place, 55
Ferncroft Road, Danvers, Massachusetts 01923-4001.
VOTES REQUIRED AT THE STOCKHOLDERS MEETINGS
Champps. The affirmative vote of the holders of at least a majority of the
outstanding shares of Champps Common Stock is required to approve and adopt the
Merger Agreement. Stockholders of Champps are entitled to one vote at the
Champps Special Meeting for each share of Champps Common Stock held of record at
the close of business on the Champps Record Date. On , 1996,
directors and executive
12
<PAGE> 26
officers of Champps and their affiliates beneficially owned shares, or
% of all outstanding Champps Common Stock. Three stockholders who are
directors of Champps have entered into the Stockholders Agreement, the purpose
of which is to assure that an aggregate of 990,000 shares of Champps Common
Stock, representing 19.98% of the outstanding shares of Champps Common Stock,
owned by such individuals is voted in favor of the Merger at the Champps Special
Meeting. See "Terms of the Merger Agreement--The Stockholders Agreement."
The presence in person or by proxy, of at least a majority of the total
number of outstanding shares of Champps Common Stock issued and outstanding and
entitled to a vote is necessary to constitute a quorum for the transaction of
business at the Champps Special Meeting. Abstentions, votes withheld with
respect to director nominees and "broker non-votes" (i.e., shares represented at
the Champps Special Meeting held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
such shares and with respect to which the broker or nominee does not have
discretionary voting power to vote such shares) shall be treated as shares that
are present and entitled to vote for purposes of determining whether a quorum is
present. With respect to the Merger Agreement, Minnesota law requires the
affirmative vote of a majority of the outstanding shares of Champps Common Stock
in order to be approved. Therefore, abstentions and broker non-votes will have
the effect of votes cast against the proposal.
DAKA. Pursuant to the DAKA By-laws, the presence, in person or by proxy,
of at least a majority of the total number of outstanding shares of DAKA Capital
Stock issued and outstanding and entitled to vote is necessary to constitute a
quorum for the transaction of business at the DAKA Annual Meeting. Abstentions,
votes withheld with respect to director nominees and "broker non-votes" (i.e.,
shares represented at the Annual Meeting held by brokers or nominees with
respect to which instructions have not been received from the beneficial owners
or persons entitled to vote such shares and with respect to which the broker or
nominee does not have discretionary voting power to vote such shares) shall be
treated as shares that are present and entitled to vote for purposes of
determining whether a quorum is present. With respect to the election of
directors the DAKA By-laws provide that such election shall be determined by a
plurality of the votes cast by stockholders, and thus shares represented by a
proxy that withholds authority to vote for the DAKA Board's nominee and broker
non-votes will have no effect on the outcome. With respect to the issuance of
the DAKA Merger Shares, the NASD By-laws require the affirmative vote of at
least a majority of the total "votes cast" in the proposal in order to approve
the issuance of the DAKA Merger Shares; thus, abstentions will have the effect
of votes cast against the proposal while broker non-votes will have no effect on
the outcome. With respect to the amendment to the DAKA Certificate to increase
the number of authorized shares of DAKA Common Stock from 20,000,000 to
30,000,000, under the DAKA Certificate and the Delaware General Corporation Law
an affirmative vote of at least a majority of the outstanding shares of DAKA
Common Stock voting as a separate class, as well as the affirmative vote of a
majority of the votes eligible to be cast by the holders of DAKA Common Stock
and Series A Preferred Stock voting together, is required for approval.
Therefore, abstentions and broker non-votes will have the effect of votes
against such proposal.
PROXIES, VOTING AND REVOCATIONS
Champps. Shares represented by a properly executed proxy received prior to
the vote at the Champps Special Meeting and not revoked will be voted at the
Champps Special Meeting as directed in the proxy. IF A PROPERLY EXECUTED PROXY
IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The persons named as proxies by a Champps stockholder may propose and vote
for one or more adjournments or postponements of the Champps Special Meeting to
permit further solicitation of proxies in favor of the proposals to be
considered at the Champps Special Meeting.
A holder of record of Champps Common Stock may revoke a proxy by filing an
instrument of revocation with Shaun P. Nugent, Secretary, Champps Entertainment,
Inc., 153 East Lake Street, Wayzata, MN 55391. Such stockholder may also revoke
a proxy by filing a duly executed proxy bearing a later date, or by appearing at
the Champps Special Meeting in person, notifying the Secretary, and voting by
ballot at the Champps Special Meeting. Any stockholder of record attending the
Champps Special Meeting may vote in person whether or not a proxy has been
previously given, but the mere presence (without notifying the Secretary) of a
stockholder at the Champps Special Meeting will not constitute revocation of a
previously given proxy.
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DAKA. Shares represented by a properly executed proxy received prior to
the vote at the DAKA Annual Meeting and not revoked will be voted at the DAKA
Annual Meeting as directed in the proxy. IF A PROPERLY EXECUTED PROXY IS
SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED "FOR" THE
APPROVAL AND ADOPTION OF THE PROPOSALS TO BE CONSIDERED AT THE DAKA ANNUAL
MEETING.
A holder of record of DAKA Capital Stock may revoke a proxy by filing an
instrument of revocation with Charles W. Redepenning, Jr., Secretary, DAKA
International, Inc., One Corporate Place, 55 Ferncroft Road, Danvers,
Massachusetts 01923. Such stockholder may also revoke a proxy by filing a duly
executed proxy bearing a later date, or by appearing at the DAKA Annual Meeting
in person, notifying the Secretary, and voting by ballot at the DAKA Annual
Meeting. Any stockholder of record attending the DAKA Annual Meeting may vote in
person whether or not a proxy has been previously given, but the mere presence
(without notifying the Secretary) of a stockholder at the DAKA Annual Meeting
will not constitute revocation of a previously given proxy.
SOLICITATION EXPENSES
Each of Champps and DAKA will bear the cost of soliciting proxies from
their respective stockholders and each will pay one-half of all printing costs
in connection with this Joint Proxy Statement-Prospectus. In addition to the use
of the mails, proxies may be solicited by the directors, officers and certain
employees of Champps and DAKA, and by personal interview, telephone or telegram.
Such directors, officers and employees will not receive additional compensation
for such solicitation but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection therewith. In addition, DAKA may retain
to assist in soliciting proxies for the DAKA Annual Meeting at a fee
estimated to be approximately $ plus out-of-pocket expenses. Each of
Champps and DAKA may also make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of Champps Common Stock and DAKA Capital Stock,
respectively. Each of Champps and DAKA may reimburse such custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred in connection
therewith.
RIGHTS OF DISSENTING STOCKHOLDERS
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the MBCA and is qualified in its entirety by
reference to the full text of Section 302A.471 and 302A.473 of the MBCA attached
to this Proxy Statement as Appendix D. ANY STOCKHOLDER WHO WISHES TO EXERCISE
SUCH DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO
SHOULD REVIEW THE FOLLOWING DISCUSSION AND APPENDIX D CAREFULLY BECAUSE FAILURE
TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED WILL RESULT IN THE
LOSS OF DISSENTERS' RIGHTS UNDER THE MBCA.
PROCEDURE TO PRESERVE DISSENTERS' RIGHTS
Under Minnesota law, any holder of Champps Common Stock who follows the
procedures set forth in Section 302A.473 of the MBCA will be entitled to receive
payment in cash of the "fair value" of such stockholder's shares.
Under Section 302A.473 of the MBCA, if a corporation calls a stockholder
meeting at which a plan of merger to which such corporation is a party is to be
voted upon, the notice of the meeting must inform each stockholder of the right
to dissent and must include a copy of sections 302A.471 and 302A.473 of the MBCA
and a brief description of the procedures to be followed under such sections.
This Joint Proxy Statement-Prospectus constitutes such notice to the
stockholders of Champps and the applicable statutory provisions of the MBCA are
attached to this Joint Proxy Statement-Prospectus as Appendix D.
The Merger Agreement must be approved by the holders of a majority of the
outstanding shares of Champps Common Stock. A stockholder who wishes to exercise
dissenters' rights must file with Champps before the vote on the Merger
Agreement a written notice of intent to demand the fair value of the shares
owned by such stockholder and must not vote his or her shares in favor of the
Merger Agreement.
The "fair value of the shares" means the value of the shares of Champps
immediately before the effective date of the Merger.
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After the proposed Merger has been approved by the Champps Board and the
Champps stockholders, Champps must send a written notice to all stockholders who
have not voted their shares in favor of the Merger Agreement and who have filed
with Champps before the vote on the Merger Agreement a written notice of intent
to demand the fair value of the shares owned by such stockholder. The notice
from Champps must contain:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertified shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the stockholder, or
the beneficial owner on whose behalf the stockholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of sections 302A.471 and 302A.473 of the MBCA and a brief
description of the procedures to be followed under such sections.
In order to receive the fair market value of the shares, a dissenting
stockholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a stockholder
until the Merger takes effect.
A stockholder may not assert dissenters' rights as to less than all of the
shares registered in the name of the stockholder, unless the stockholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the stockholder and discloses the name and
address of each beneficial owner on whose behalf the stockholder dissents. In
that event, the rights of the dissenter will be determined as if the shares as
to which the stockholder has dissented and the other shares were registered in
the names of different stockholders.
A beneficial owner of shares who is not the stockholder may assert
dissenters' rights with respect to shares held on behalf of such beneficial
owner, and will be treated as a dissenting stockholder under the terms of
sections 302A.471 and 302A.473 of the MBCA, if the beneficial owner submits
written consent of the stockholder holding such beneficial owner's shares to
Champps at the time of or before the assertion of the rights.
PROCEDURES FOLLOWING AN ASSERTION OF DISSENTERS' RIGHTS
After the Merger takes effect, or after Champps receives a valid demand for
payment, whichever is later, Champps must remit to each dissenting stockholder
who has not voted his or her shares in favor of the proposed Merger and has
filed with Champps before the vote on the proposed Merger a written notice of
intent to demand the fair value of the shares owned by such stockholder, the
amount Champps estimates to be the fair value of the shares, plus interest
("interest" commences five days after the effective date of the Merger up to and
including the date of payment, calculated at a rate provided under Minnesota law
for interest on verdicts and judgments), accompanied by:
(1) Champps' balance sheet and statement of operations for a fiscal
year ending not more than 16 months before the effective date of the
Merger, together with the latest available interim financial statements;
(2) An estimate by Champps of the fair value of the shares and a brief
description of the method used to reach the estimate; and
(3) A copy of sections 302A.471 and 302A.473 of the MBCA, and a brief
description of the procedures to be followed in demanding supplemental
payment.
Champps may withhold the above-described remittance from a person who was
not a stockholder on the date the Merger Agreement was first announced to the
public or who is dissenting on behalf of a person who was not a beneficial owner
on that date. If such dissenter has not voted his or her shares in favor of the
proposed Merger Agreement and has filed with Champps before the vote on the
proposed Merger Agreement a written notice of intent to demand the fair value of
the shares owned by such stockholder, Champps must forward to such dissenter the
materials described in the preceding paragraph, a statement of reason for
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withholding the remittance, and an offer to pay to such dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. Such dissenter may decline the offer and demand payment of such
dissenter's own estimate of the fair value of the shares, plus interest, by
written notice to Champps. Failure to do so entitles such dissenter only to the
amount offered. If such dissenter makes demand, the procedures, costs, fees and
expenses described below for petitioning the court shall apply.
If Champps fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertified shares,
it must return all deposited certificates and cancel all transfer restrictions.
However, Champps may require deposit or restrict transfer at a later time and
again give notice that contains:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the stockholder, or
the beneficial owner on whose behalf the stockholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of sections 302A.471 and 302A.473 of the MBCA and a brief
description of the procedures to be followed under such sections.
If a dissenter believes that the amount remitted by Champps is less than
the fair value of the shares plus interest, the dissenter may give written
notice to Champps of the dissenter's own estimate of the fair value of shares,
plus interest, within 30 days after Champps mails the remittance, and demand
payment of the difference (a "Demand"). Otherwise, a dissenter is entitled only
to the amount remitted by Champps.
If Champps receives a Demand, it must, within 60 days after receiving the
Demand, either pay to the dissenter the amount demanded, or an amount agreed to
by the dissenter after discussion with Champps, or file in court a petition
requesting that the court determine the fair value of the shares, plus interest.
The petition must be filed in Hennepin County, Minnesota. The petition must name
as parties all dissenters who made a Demand and who have not reached agreement
with Champps. The jurisdiction of the court is plenary and exclusive. The court
may appoint appraisers, with powers and authorities the court deems proper, to
receive evidence on and recommend the amount of the fair value of the shares.
The court must determine whether the stockholder or stockholders in question
have fully complied with the requirements of section 302A.473 of the MBCA, and
must determine the fair value of the shares, taking into account any and all
factors the court finds relevant, computed by any method or combination of
methods that the court, in its discretion, sees fit to use, whether or not used
by Champps or by a dissenter. The fair value of the shares as determined by the
court is binding on all stockholders, wherever located. A dissenter is entitled
to judgment for the amount by which the fair value of the shares as determined
by the court, plus interest, exceeds the amount, if any, remitted by Champps,
but shall not be liable to Champps for the amount, if any, by which the amount,
if any, remitted to the dissenter exceeds the fair value of the shares as
determined by the court, plus interest.
The court must determine the costs and expenses of any appraisers of a
proceeding under the preceding paragraph, including the reasonable expenses and
compensation of any appraisers appointed by the court, and must assess those
costs and expenses against Champps, except that the court may assess part or all
of those costs and expenses against a dissenter whose Demand is found to be
arbitrary, vexatious, or not in good faith.
If the court finds that Champps has failed to comply substantially with
section 302A.473 of the MBCA, the court may assess all fees and expenses of any
experts or attorneys as the court deems equitable. These fees and expenses may
also be assessed against a person who has acted arbitrarily, vexatiously, or not
in good faith in bringing the proceeding, and may be awarded to a party injured
by those actions.
The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides that, subject to the satisfaction or waiver
(where permissible) of certain conditions, which are described more fully
herein, Merger Subsidiary will be merged with and into Champps whereupon Champps
will become a wholly-owned subsidiary of DAKA. In connection with the Merger
each outstanding share of Champps Common Stock will be converted into the right
to receive four-tenths (.40) of one share of DAKA Common Stock, subject to
possible adjustment as described herein. See "Terms of the Merger--Conversion of
Shares of Champps Stock Pursuant to the Merger; Treatment of Options and
Warrants."
BACKGROUND OF THE MERGER
In December 1993, Mr. William H. Baumhauer, Chairman and Chief Executive
Officer of DAKA, was contacted by persons acting on behalf of the owners of two
Champps Americana restaurants located in the Minneapolis/St. Paul area which
were operating under license agreements with Champps. The two Champps Americana
restaurants were managed, pursuant to a management agreement, by Champps
Development Group ("CDG"), which also held exclusive rights to develop Champps
Americana restaurants in Ohio, Florida, and seven Illinois counties. As a result
of subsequent negotiations, in March 1994, CDVI, a wholly-owned subsidiary of
DAKA, invested $2.8 million in ADC. Simultaneously, ADC acquired the two
restaurants and CDG's exclusive development rights. CDVI's interest in ADC
represents a 57% voting interest; the other stockholders of ADC were, and
remain, CDG and the former owner of the restaurants and certain advisors or
affiliates thereof. DAKA has received a letter from two minority stockholders of
ADC claiming that DAKA breached certain obligations to ADC by pursuing the
Merger. DAKA believes this claim is without merit.
In April 1994, Champps, which at the time operated one Champps-owned
restaurant, completed an initial public offering of its common stock whereby it
received approximately $7.2 million in net proceeds to be used to construct new
Champps Americana restaurants. By August 1995, Champps had opened its fourth
restaurant and had begun to analyze its funding alternatives for its 1996/1997
expansion plans. In August 1995, Champps retained Montgomery to: (i) assist
Champps in exploring various methods of obtaining additional financing to
continue its planned expansion of Champps-owned restaurants; and (ii) to advise
Champps in connection with the possible acquisition of the development rights
held by ADC.
In late September 1995, DAKA and Champps began general discussions
regarding a range of potential transactions, including the sale to Champps of
CDVI's interest in ADC and a merger between DAKA and Champps.
Over the course of several meetings between Champps and DAKA, the
alternatives were discussed and, at a meeting on September 28, 1995, Mr. Vlahos
communicated to Mr. Baumhauer that the Champps Board had directed him to
negotiate to purchase CDVI's interest in ADC or to pursue a merger with DAKA. At
such meeting, DAKA conveyed that it was not interested in the sale of CDVI's
interest in ADC, but that a merger could be considered.
In the following days, DAKA and Champps discussed the consideration to be
given in a stock-for-stock merger and reached an understanding regarding the
Exchange Ratio. On October 2, 1995 DAKA engaged Piper Jaffray to prepare a
fairness opinion from a financial point of view to DAKA of the proposed exchange
ratio at which Champps Common Stock would be exchanged for DAKA Common Stock
pursuant to the proposed merger. Similarly, Champps asked Montgomery to prepare
a fairness opinion from a financial point of view to the Champps stockholders.
On October 5, 1995 DAKA convened a special meeting of the DAKA Board to
discuss the potential Merger of a subsidiary of DAKA with and into Champps.
During the meeting the proposed terms of the Merger as well as the benefits to
DAKA were discussed and materials relating to the proposed transactions were
reviewed in detail. After discussion it was determined that a second meeting of
the DAKA Board be convened on October 9, 1995 to further discuss the transaction
and to review the results of an analysis being finalized by Piper Jaffray.
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On October 5, 1995, Champps convened a special meeting of its Board of
Directors to discuss the potential Merger. Montgomery presented the general
terms of the Merger as well as an analysis of the consideration to be received
by the stockholders of Champps therefrom. After discussion it was determined
that the Special Committee be appointed to review the proposed Merger and Merger
Agreement and determine if they should be approved. The Special Committee was
formed, consisting of the six non-management directors of Champps.
On October 9, 1995, DAKA held a second meeting of its Board of Directors to
further discuss the terms of the Merger and to review and discuss Piper
Jaffray's analysis as well as a draft of the fairness opinion prepared by Piper
Jaffray. Upon review of such analysis and of the fairness opinion and further
discussion of the terms of the Merger and benefits to DAKA, the DAKA Board
unanimously voted to approve the Merger and the Merger Agreement and to
recommend to stockholders that the issuance of shares of DAKA Common Stock
pursuant to the Merger be approved at the upcoming annual stockholders' meeting.
On October 9, 1995, the Special Committee appointed by the Champps Board
reviewed and discussed the proposed Merger. The Special Committee after its
discussion determined that a subsequent meeting should be held to further review
the proposed Merger Agreement and Merger and determine if they should be
approved.
On October 10, 1995, the Special Committee reconvened and reviewed the
terms of the Merger and after discussion unanimously voted to approve the Merger
and Merger Agreement and to recommend to the full Champps Board that the Merger
be approved. A meeting of the full Champps Board was convened on such date and
by unanimous vote the actions of the Special Committee were ratified and it was
agreed to recommend to stockholders that the Merger and Merger Agreement be
approved at a special meeting of the stockholders. At the October 10, 1995
meeting, Montgomery delivered to the Champps Board its oral opinion,
subsequently confirmed in writing as of such date and as of the date of this
Joint Proxy Statement-Prospectus, that the consideration to be received by the
stockholders of Champps in the Merger is fair to such stockholders from a
financial point of view as of such dates.
On October 10, 1995 the Merger Agreement and related agreements were signed
and DAKA and Champps issued a joint press release announcing the Merger of DAKA
and Champps as well as the key terms of the Merger.
REASONS FOR THE CHAMPPS BOARD'S RECOMMENDATION
In deciding to approve the Merger Agreement the Champps Board and Special
Committee considered many factors, including, but not limited to, the terms of
the Merger Agreement; the Champps Board's knowledge of the business and future
prospects of DAKA; Champps' historical, current and potential future earnings
and cash flow, its financial condition, and the prices at which Champps' Common
Stock had been trading; the reputation of DAKA and its management; the
historical, current and potential future earnings of DAKA and the effect thereof
on the future value of DAKA's Common Stock; DAKA's financial condition,
including the amount of indebtedness in relation to stockholder's equity; and
the October 10, 1995 opinion of Montgomery that the consideration was fair to
the Champps stockholders from a financial point of view as of such date. The
Champps Board and Special Committee also considered the following:
- Since its initial public offering in 1994, Champps has invested heavily
in the development of new restaurants and the growth of its corporate
structure. In order to stay on the level of new restaurant growth which
is consistent with Champps' strategic business plan, Champps requires
additional capital. The Merger would give Champps access to significant
amounts of capital at a cost well below what Champps would be able to
obtain on a stand-alone basis, allowing it to expand faster than it would
have otherwise been able to.
- The Merger would create significant operating benefits to Champps through
access to DAKA's corporate infrastructure. Such access would enable
Champps to reduce the cost of expansion and help it execute its business
strategy. The Merger is expected to provide opportunities for increased
efficiencies and cost savings as a result of the elimination of
duplicative functions and to enhance purchasing power through the
combined entities.
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- Currently only a small portion of outstanding Champps Stock is actively
traded on the Nasdaq National Market. The Merger would give Champps
stockholders a significant amount of liquidity, which did not previously
exist, in a security of a company that is covered by the research
analysts of several nationally recognized investment banking firms.
- As of the day prior to the date of the Merger Agreement and for the
average of the four week period preceding the date of the Merger
Agreement the consideration to be paid by DAKA to the Champps
stockholders represented an approximate 13.2% and 29.8% premium over the
market price of Champps' Common Stock on such day and for such period,
respectively, and that the consideration to be paid to Champps
stockholders in the Merger would be received by Champps stockholders on a
tax-deferred basis;
- The Merger will allow stockholders and employees of the combined
companies to participate in potential future growth of DAKA, which will
have substantially greater business and financial resources than each
company individually.
REASONS FOR THE DAKA BOARD'S RECOMMENDATION
The DAKA Board believes that the Merger is in the best interests of DAKA's
stockholders and has unanimously voted in favor of recommending approval of the
issuance of DAKA Common Stock in connection with the Merger.
The DAKA Board believes that the Champps Americana concept has significant
growth potential, complements DAKA's existing business and provides DAKA with a
strategic growth vehicle. Since its inception in 1984 in the Minneapolis/St.
Paul area, the Champps Americana concept has generated average unit volumes
significantly higher than the restaurant industry average. In addition, new
restaurants opened in Texas, New Jersey and Indiana have demonstrated that the
Champps Americana concept is viable outside of the Minneapolis/St. Paul area.
The DAKA Board also believes that the Champps Americana concept, which combines
generous portions of high quality food made from fresh ingredients, outstanding
service and a vibrant, energetic atmosphere created by various forms of
entertainment, has the potential to be one of the leaders in the large and
rapidly expanding casual dining segment of the restaurant industry.
The DAKA Board believes that DAKA's expertise in the areas of site
selection, real estate development and construction, and finance will enable
DAKA to rapidly expand the Champps concept in a cost effective manner.
The DAKA Board also considered that, in connection with the Merger, Mr.
Dean Vlahos, President and Chief Executive Officer of Champps and creator of the
Champps Americana concept, has entered into a five-year employment agreement
with DAKA whereby Mr. Vlahos will be the Chairman and Chief Executive Officer of
Champps. The DAKA Board feels that Mr. Vlahos will make an important
contribution to the successful expansion of the Champps Americana concept.
In approving the Merger Agreement, the DAKA Board also considered the
October 9, 1995 opinion of Piper Jaffray that the Exchange Ratio was fair to
DAKA from a financial point of view.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF DAKA AND CHAMPPS
THE BOARD OF DIRECTORS OF EACH OF DAKA AND CHAMPPS UNANIMOUSLY BELIEVES
THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THEIR RESPECTIVE
COMPANIES AND STOCKHOLDERS.
THE CHAMPPS BOARD UNANIMOUSLY RECOMMENDS THAT THE CHAMPPS STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE MERGER AGREEMENT.
THE DAKA BOARD UNANIMOUSLY RECOMMENDS THAT THE DAKA STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE ISSUANCE OF DAKA COMMON STOCK IN CONNECTION WITH THE MERGER.
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MANAGEMENT AND OPERATIONS AFTER THE MERGER
Immediately following the Merger, Champps will be operated as a
wholly-owned subsidiary of DAKA. The Merger Agreement provides that after the
Merger the Champps Board will consist of William H. Baumhauer, Chairman and
Chief Executive Officer of DAKA, Dean P. Vlahos, currently President and Chief
Executive Officer of Champps, and one other person to be mutually designated by
Messrs. Baumhauer and Vlahos. Mr. Vlahos has entered into an employment
agreement with DAKA and Champps which provides for his employment for a term of
five years after the Merger as Chairman of the Board, Chief Executive Officer
and President of Champps. The terms of such employment agreement were negotiated
after an understanding as to what the Exchange Ratio would be was determined and
discussed with the Champps Board. Under such employment agreement, Mr. Vlahos
will receive an annual base salary of $350,000 plus, subject to the achievement
of performance targets relating to DAKA and to Champps, a performance bonus of
between 50% and 100% of base salary. See "The DAKA Annual Meeting--Other
Information--Employment Agreements" for a summary of the other terms of such
employment agreement. The Merger will entail the combination of certain aspects
of two companies that have operated independently and there can be no assurance
that the operations, managements and personnel of DAKA and Champps will be
compatible or that the combined businesses will not experience loss of key
personnel. Champps is largely dependent upon the efforts of Mr. Vlahos and there
can be no assurance that his services will continue to be available for the term
of his employment agreement.
DAKA currently intends to expand the number of Champps restaurants in
operation subsequent to the Merger. In this regard, DAKA, as a result of its
existing operations in the restaurant and foodservice industry, has in place a
corporate infrastructure which includes, among other things, real estate
development and site selection, construction supervision, human resources, and
training functions which will be used to facilitate the expansion of the Champps
concept upon consummation of the Merger. Subsequent to the Merger, DAKA and
Champps will seek to capitalize on the existing corporate infrastructure of DAKA
wherever possible and to eliminate duplicate functions where practical. However,
due to the relatively small size of Champps' existing corporate infrastructure,
the cost savings will be relatively small in relation to historical spending
levels. However, DAKA expects that as Champps grows, the combined company will
benefit through the ability of DAKA's existing corporate infrastructure to
service such growth without a proportionate increase in overhead. In addition,
Champps is expected to benefit through participation in DAKA's national
purchasing and distribution programs, which combine the purchasing power of all
of DAKA's businesses.
The growth of the Champps concept subsequent to the Merger will be financed
by DAKA. With total combined equity in excess of $60 million after the Merger,
Champps will have access to significant amounts of capital at a lower cost than
it could otherwise obtain on a stand-alone basis, as well as access to
alternative financing sources such as sale-leaseback financing and increased
landlord contributions as a result of enhanced creditworthiness.
OPINION OF FINANCIAL ADVISOR TO CHAMPPS
Pursuant to an engagement letter dated October 4, 1995 (the "Engagement
Letter"), which superseded an earlier letter dated August 21, 1995, Champps
retained Montgomery as its financial advisor in connection with the
consideration by the Champps Board of a possible sale of Champps. Montgomery is
a nationally recognized firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Champps
selected Montgomery as its financial advisor on the basis of its experience and
expertise in transactions similar to the Merger and its reputation in the
restaurant and investment communities.
At the October 10, 1995, meeting of the Champps Board, Montgomery delivered
its oral opinion, subsequently confirmed in writing as of such date and as of
the date of this Joint Proxy Statement-Prospectus, that the consideration to be
received by Champps stockholders pursuant to the Merger was fair to Champps'
stockholders, from a financial point of view, as of such dates. The amount of
such consideration was
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determined pursuant to negotiations between Champps and DAKA and not pursuant to
recommendations of Montgomery. Champps gave no specific instructions to
Montgomery in connection with its engagement and no limitations were imposed by
Champps on Montgomery with respect to the investigations made or procedures
followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE CHAMPPS BOARD (THE
"MONTGOMERY OPINION") DATED AS OF THE DATE OF THIS JOINT PROXY
STATEMENT-PROSPECTUS IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED HEREIN
BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH
THIS JOINT PROXY STATEMENT-PROSPECTUS. THE FOLLOWING SUMMARY OF MONTGOMERY'S
OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. MONTGOMERY'S OPINION IS ADDRESSED TO THE CHAMPPS BOARD ONLY AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY CHAMPPS STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. IN FURNISHING ITS OPINION,
MONTGOMERY DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM
"EXPERT" AS USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER, OR THAT ITS OPINION CONSTITUTES A REPORT OR VALUATION WITHIN THE
MEANING OF SECTION 11 OF THE SECURITIES ACT AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER, AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT
OF MONTGOMERY'S WRITTEN OPINION.
In connection with its opinions, Montgomery, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Champps and DAKA, including the consolidated financial statements for recent
years and interim periods to July 2, 1995 and July 1, 1995, respectively, and
certain other relevant financial and operating data relating to Champps and DAKA
made available to Montgomery from published sources and from the internal
records of Champps and DAKA; (ii) reviewed a preliminary draft of the Merger
Agreement provided to Montgomery by Champps; (iii) reviewed certain historical
market prices and trading volumes of Champps Common Stock and DAKA Common Stock
as reported on the Nasdaq National Market; (iv) compared Champps and DAKA from a
financial point of view with certain other companies in the restaurant industry
that Montgomery deemed to be relevant; (v) considered the financial terms, to
the extent publicly available, of selected business combinations of companies in
the restaurant industry that Montgomery deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
management of Champps and DAKA certain information of a business and financial
nature regarding Champps and DAKA, including financial forecasts and related
assumptions (a) of Champps for 1996 and 1997, furnished to Montgomery by Champps
management, (b) of DAKA for fiscal 1996, furnished to Montgomery by DAKA
management, and (c) of DAKA for fiscal 1997, obtained by Montgomery from
securities analysts; (vii) made inquiries regarding and discussed the Merger and
the Merger Agreement and other matters related thereto with Champps' counsel;
and (viii) performed such other analyses and examinations as Montgomery deemed
appropriate.
In connection with its review, Montgomery assumed and relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility to independently verify such information. With respect to the
financial forecasts for Champps and DAKA provided to Montgomery by their
respective managements, and, in the case of the DAKA forecasts for fiscal 1997,
by securities analysts, Montgomery assumed for purposes of its opinions that the
forecasts were reasonably prepared on bases reflecting the best available
estimates and judgments of the respective managements of Champps and DAKA and
such analysts at the time of preparation as to the future financial performance
of Champps and DAKA and that they provided a reasonable basis upon which
Montgomery could form its opinion. Neither Champps nor DAKA publicly discloses
internal management forecasts of the type provided to Montgomery by their
respective managements in connection with Montgomery's review of the Merger.
Such forecasts were not prepared with a view toward public disclosure. In
addition, such forecasts and the forecasts provided by the securities analysts
with respect to DAKA were based upon numerous variables and assumptions that are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such forecasts. Montgomery has assumed no
liability for such forecasts. Montgomery also assumed that there were no
material changes in Champps' or DAKA's assets, financial condition, results of
operations, business or prospects since the respective dates of the last
financial statements made available to Montgomery. Montgomery assumed that the
Merger will be consummated in a manner that complies in all respects with the
applicable provisions of
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the Securities Act and the Exchange Act and all other applicable federal and
state statutes, rules and regulations. In addition, Montgomery did not assume
responsibility for making an independent evaluation, appraisal or physical
inspection of the assets or individual properties of Champps or DAKA, nor was
Montgomery furnished with any such appraisals. Further, Montgomery's oral
opinion was based on economic, monetary and market conditions in effect on, and
the information made available to Montgomery as of, October 10, 1995.
Montgomery also assumed, with the consent of Champps management, that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement without any amendments thereto, and without waiver by Champps or DAKA
of any of the conditions to their respective obligations thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
the Champps Board on October 5, 1995 in connection with the Champps Board's
consideration of the Merger.
Contribution Analysis. Montgomery analyzed the contribution of each of
Champps and DAKA to the projected revenues, earnings before interest and taxes
("EBIT") and net income of the pro forma combined companies for fiscal years
1995 and 1996. This analysis showed, among other things, that based on pro forma
combined income statements for the combined companies, Champps would have
contributed 3.7% and 8.4% of the total revenues, 1.9% and 6.5% of the EBIT and
4.4% and 7.1% of the net income, respectively, of the combined companies in the
periods described above. Assuming an exchange ratio of .40 shares of DAKA Common
Stock for each share of Champps Common Stock, at the closing, Champps
stockholders would own approximately 18.8% of the combined companies.
Dilution Analysis. Using estimates prepared by Champps and DAKA management
and analysts' estimates, Montgomery compared the estimated fiscal year 1996 and
1997 earnings per share of DAKA Common Stock on a stand alone basis to the
estimated fiscal year 1996 and 1997 earnings per share of the common stock of
the pro forma combined companies, assuming (a) an exchange ratio of .40 shares
of DAKA Common Stock for each share of Champps Common Stock and (b) that pro
forma general and administrative expenses related to Champps would be reduced by
50% in all periods. Based on such analysis, the proposed transaction would be
dilutive to DAKA's estimated earnings per share by 8.9% ($0.14 per share) and
2.6% ($0.05 per share) in fiscal 1996 and 1997, respectively.
Analysis of Selected Comparable Publicly Traded Companies. Montgomery
reviewed certain publicly available financial information of certain high growth
companies in the restaurant industry, including Applebee's, Apple South, Boston
Chicken, Inc., Cheesecake Factory, Dave & Buster's, Landry's Seafood
Restaurants, Lone Star Steakhouse, Outback Steakhouse, Papa John's International
and Rock Bottom Restaurants (the "Comparable Companies"). Montgomery calculated
multiples for the Comparable Companies of aggregate value (defined for this
purpose as total equity market capitalization plus total debt minus cash and
cash equivalents) to latest twelve months ("LTM") revenues, aggregate value to
LTM earnings before interest, taxes, depreciation and amortization ("EBITDA")
and aggregate value to LTM earnings before interests and taxes ("EBIT"). This
analysis showed average multiples of 3.7x, 17.7x and 24.2x, respectively, as
compared to multiples for the per share value of the consideration (calculated
based upon assumed values of the consideration of $11.00, $12.00, $13.00 and
$14.00 per share of Champps Common Stock) to Champps LTM revenues, LTM EBITDA
and LTM EBIT of 4.31x, 46.1x and 157.6x, 4.72x, 50.6x and 172.7x, 5.14x, 55.0x
and 187.8x, and 5.55x, 59.4x and 202.9x, respectively. Based upon the $33.25 per
share closing price of DAKA Common Stock on October 9, 1995 and an exchange
ratio of .40 shares of DAKA Common Stock for each share of Champps Common Stock,
the per share value of the consideration as of October 9, 1995 would have been
$13.30.
Analysis of Selected Comparable Acquisition Transactions. Montgomery also
reviewed the financial terms of 55 restaurant industry acquisitions which
Montgomery deemed to be similar to the Merger (the "Comparable Acquisitions").
The Comparable Acquisitions included (listed below as "acquired"/"acquiror"):
DF&R Restaurants/Apple South; Baltimore Bagel Co./Progressive Bagel Concepts,
Inc. (Boston Chicken); Maggiano's/Brinker International, Inc.; Lee's Famous
Recipe/RTM Restaurant Group; Marcus Corp. (Applebee's Division)/Apple South;
Brackman Bros., Inc./Progressive Bagel Con-
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cepts, Inc. (Boston Chicken); Souper Salad, Inc./Saunders Karp & Co.; Innovative
Restaurant Concepts/Applebee's; Long John Silver's Restaurants/Triarc Companies
(canceled); Pub Ventures of New England/Applebee's; Ground Round
Restaurants/Investor Group (canceled); On the Border Cafes/Brinker
International; D'Angelo's/PepsiCo. Inc.; St. Louis Bread Co./Au Bon Pain Co.,
Inc.; Chevy's/PepsiCo., Inc.; NRH Corp. (Tony Roma's)/National Pizza Co.;
Foodmaker Inc. (Chi Chi's)/Investor Group; Two Pesos-Mexican Restaurant/Taco
Cabana, Inc.; Uno Restaurant Corp./Morrison Restaurants, Inc. (canceled); Carl
Karcher/Investment Group (canceled); TW Holdings/KKR; TaCasita & Sombrero
Rosa/Taco Cabana; California Pizza Kitchen, Inc./PepsiCo. Inc.; Del Taco (Taco
Villa)/PepsiCo. Inc.; Zipps Drive Thru Inc./Rally's Inc.; Bayport Restaurant
Group/Acquisition Group; Pizza Management/PepsiCo. Inc.; Bob's Big
Boy/Allie's/Restaurant Enterprises Group; Kentucky Fried Chicken
(Franchises)/PepsiCo. Inc.; Sizzler Restaurants/Collins; Paragon Steak
Houses/Kyotaru Co. Ltd.; Restaurant Associates/Kyotaru Co. Ltd.; Roy
Rogers/Hardee's Food Systems; Dunkin' Donuts/Allied-Lyons PLC; Skipper's
Inc./National Pizza; Jerrico/Investor Group; Ground Round
(Hanson's)/International Proteins; TW Services/Coniston; Winchell's Donut
House/Shato Holdings Ltd.; TGI Fridays/Carlson; S&A Restaurants/Investor Group;
Franchise Enterprises/Investor Group; Church's Fried Chicken/Copeland;
Foodmaker, Inc./Gibbons Green, van Amerongen; Restaurant Management Svc./Golder,
Thoma & Cressey; Shoney's South/TPI Enterprises; Chi Chi's Foodmaker,
International King's Table/Horn & Hardard Co.; Hamburger Hamlets/Weatherly
Restaurant Group; Calny's/PepsiCo. Inc.; Restaurant Assoc. Industry/Management;
Rusty Pelican/Paragon Restaurant Group; Denny's/TW Services; and Pizza
Inn/Pantera Corp.
For the Comparable Acquisitions, Montgomery calculated, among other things,
the aggregate consideration paid in such transactions as a multiple of the
acquired company's LTM revenues and LTM EBITDA. Such calculations yielded the
following median and mean multiples: LTM revenue -- median of 0.8x and mean of
1.0x; and LTM EBITDA -- median of 7.5x and mean of 8.8x. The comparable
multiples for the Merger (calculated based upon assumed values of the
consideration of $11.00, $12.00, $13.00 and $14.00 per share of Champps Common
Stock), were as follows: LTM revenue -- 4.31x, 4,72x, 5.14x and 5.55x,
respectively; and LTM EBITDA -- 46.1x, 50.6x, 55.0x and 59.4x, respectively.
No company or transaction utilized in the above analysis as a comparison is
identical to Champps, DAKA or the Merger. Accordingly, an analysis of the
results of the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of Champps and DAKA and other factors that could affect the
public trading value of such companies or any company to which they or the
Merger are being compared.
In connection with its written opinion dated the date of this Joint Proxy
Statement-Prospectus, Montgomery performed procedures to reconfirm, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses were based and the factors considered in connection
therewith.
The summary set forth above does not purport to be a complete description
of the presentation by Montgomery to the Champps Board or of the analyses
performed by Montgomery. The preparation of a fairness opinion necessarily is
not susceptible to partial analysis or summary description. Montgomery believes
that its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses and of the factors considered,
without considering all analyses and factors, would create an incomplete view of
the process underlying the analyses set forth in its presentation to the Champps
Board. In addition, Montgomery may have given various analyses more or less
weight than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Montgomery's
view of the actual value of Champps or the combined companies. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Champps or DAKA. The
analyses performed by Montgomery are not necessarily indicative of actual values
or
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<PAGE> 37
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the Merger to the stockholders of
Champps and were provided to the Champps Board in connection with the delivery
of Montgomery's opinions. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the future.
Montgomery used in its analyses various projections of future performance
prepared by the managements of Champps and DAKA and, in the case of DAKA, by
securities analysts. The projections are based on numerous variables and
assumptions which are inherently unpredictable and must be considered to be not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, Montgomery's opinions and presentation to the Champps
Board were among the many factors taken into consideration by the Champps Board
in making its determination to approve the Merger.
Pursuant to the Engagement Letter, Champps engaged Montgomery to act as its
financial advisor in connection with the Merger. Montgomery's fee will be equal
to 3% of the first $10 million in consideration involved in the sale, 2% of the
next $10 million and 1% of any amount over $20 million, determined as of the
closing. Champps will be obligated to pay Montgomery its fee contingent upon the
consummation of the transactions contemplated by the Merger Agreement. For
example, if the Merger had been consummated on December 20, 1995, Champps
estimates that the value of the consideration involved in the transaction would
have been approximately $54,000,000 and that Montgomery's fee would have been
approximately $840,000. Champps has also agreed to reimburse Montgomery for its
reasonable out-of-pocket expenses, regardless of whether the Merger is
consummated. Pursuant to a separate letter agreement, Champps has agreed to
indemnify Montgomery, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
OPINION OF FINANCIAL ADVISOR TO DAKA
DAKA retained Piper Jaffray solely in connection with the delivery of an
opinion to the DAKA Board of the fairness, from a financial point of view, to
DAKA of the Exchange Ratio. Piper Jaffray has delivered to the DAKA Board its
written opinions respectively dated October 9, 1995 and the date of this Joint
Proxy Statement-Prospectus that as of those dates the Exchange Ratio was fair,
from a financial point of view, to DAKA.
Piper Jaffray is an investment banking firm engaged, among other things, in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements and valuations for estate, corporation and other purposes. Piper
Jaffray was selected to prepare fairness opinions based upon its experience and
expertise in transactions similar to the Merger and its reputation in the
restaurant and investment banking industries. Except for rendering its opinions
as to the fairness, from a financial point of view, of the Exchange Ratio, Piper
Jaffray has not otherwise acted as financial adviser to DAKA or the DAKA Board
in connection with the Merger and did not participate in the discussions or
negotiations with respect to the Merger. In the ordinary course of its business,
Piper Jaffray actively trades DAKA Common Stock for its own account and for the
accounts of its customers, and, therefore, may from time to time hold a long or
short position in such securities. Piper Jaffray also provides research coverage
for DAKA. DAKA gave no specific instructions to Piper Jaffray in connection with
its engagement and no limitations were imposed by DAKA on Piper Jaffray with
respect to the investigations made or procedures followed in rendering its
opinions.
THE FULL TEXT OF THE OPINION OF PIPER JAFFRAY DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT-PROSPECTUS (THE "PIPER JAFFRAY OPINION") IS ATTACHED
HERETO AT APPENDIX C TO THIS JOINT PROXY STATEMENT-PROSPECTUS. THE FOLLOWING
SUMMARY OF THE PIPER JAFFRAY OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE PIPER JAFFRAY OPINION. DAKA STOCKHOLDERS ARE URGED TO
READ THE OPINION IN
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ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN.
In arriving at its opinions, Piper Jaffray reviewed, analyzed and relied
upon material bearing upon the financial and operating condition and prospects
of DAKA and Champps and material prepared in connection with the Merger, and
considered such financial and other factors as it deemed appropriate under the
circumstances, including, among other things, the following: (i) a draft dated
October 8, 1995 of the Agreement and Plan of Merger by and between DAKA, Champps
and CEI Acquisition Corp.; (ii) the audited financial information for Champps
for the three years ended December 31, 1994; (iii) the financial information for
Champps for the six months ended July 2, 1995; (iv) the audited financial
information for DAKA for the three years ended July 1, 1995; (v) the five-year
financial forecast for DAKA furnished by DAKA management; (vi) the five-year
financial forecast for Champps furnished by Champps management; (vii) the
historical pricing and trading activity for DAKA and Champps common stock; and
(viii) such other studies, analyses and inquiries as Piper Jaffray deemed
appropriate. Piper Jaffray also held discussions with the senior management of
DAKA and Champps concerning their past and current business operations, the
background and rationale for the proposed Merger, the financial condition,
operating performance, balance sheet characteristics and prospects of their
respective businesses independently and the financial and operating prospects
for the combined company after consummation of the proposed Merger. In addition,
in connection with rendering its opinion dated the date of this Joint Proxy
Statement-Prospectus, Piper Jaffray reviewed the executed Agreement and Plan of
Merger dated October 10, 1995 and the Registration Statement which included this
Joint Proxy Statement-Prospectus.
The Piper Jaffray Opinions, which were delivered for use and considered by
the DAKA Board, are directed only to the fairness, from a financial point of
view, of the Exchange Ratio, do not address the value of a share of DAKA Common
Stock, do not address DAKA's underlying business decision to participate in the
Merger and do not constitute a recommendation to any DAKA stockholder as to how
such stockholder should vote with respect to the Merger. Piper Jaffray does not
admit that it is an expert within the meaning of the term "expert" as used in
the Act and the rules and regulations promulgated thereunder, or that its
opinions constitute a report or valuation within the meaning of Section 11 of
the Act and the rules and regulations promulgated thereunder.
As set forth in its opinions, Piper Jaffray relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
or publicly available and did not attempt to independently verify the same. With
respect to financial forecasts, Piper Jaffray assumed that such forecasts were
reasonably prepared on a basis reflecting the best currently available estimates
and judgements of the respective managements of DAKA and Champps that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated and that the Merger would be accounted for as a
pooling of interests under generally accepted accounting principles. Neither
DAKA nor Champps publicly discloses internal management forecasts of the type
provided to Piper Jaffray in connection with Piper Jaffray's review of the
Merger. Such forecasts were not prepared with a view toward public disclosure.
In addition, such forecasts were based upon numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in such forecasts. Piper Jaffray has
assumed no liability for such forecasts. Piper Jaffray also assumed that there
were no material changes in DAKA's or Champps' assets, financial condition,
results of operations, business or prospects since the respective dates of the
last financial statements made available to Piper Jaffray. Piper Jaffray assumed
that the Merger will be consummated in a manner that complies in all respects
with the applicable provisions of the Securities Act and the Exchange Act and
all other applicable federal and state statutes, rules and regulations. Piper
Jaffray did not perform any appraisals or valuations of specific assets of DAKA
or Champps and has not expressed any opinion regarding the liquidation value of
DAKA or Champps.
Piper Jaffray believes that its analyses must be considered as a whole and
that selecting portions of its analyses without considering all factors and
analyses would create an incomplete view of the analyses and process underlying
their opinions. Any estimates contained therein are not necessarily indicative
of actual values, which may be significantly more or less favorable than as set
forth therein. No company or transaction
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used as a comparison in the analyses is identical to DAKA or Champps or to the
Merger. Additionally, estimates of the value of the businesses do not purport to
be appraisals or necessarily reflective of the prices at which the business
actually may be sold. Because such estimates are inherently subject to
uncertainty, neither the DAKA Board, Piper Jaffray or any other person assumes
responsibility for the accuracy of such estimates.
Based on this information, Piper Jaffray performed a variety of financial
and comparative analyses, including those summarized below, which it discussed
with the DAKA Board on October 9, 1995. Piper Jaffray also considered the
following qualitative strategic benefits of the Merger as articulated by the
management of DAKA: (i) the importance to DAKA of owning a second restaurant
concept that is positioned for growth; (ii) that Champps is an attractive,
casual dining concept with high unit volume and strong returns on capital and is
positioned in an attractive segment of the restaurant market; (iii) the
experience and record of Mr. Dean Vlahos, President and founder of Champps.
Piper Jaffray confirmed the appropriateness of its reliance on the described
analyses in connection with its opinion dated the date of this Joint Proxy
Statement-Prospectus by performing procedures to update certain of such analyses
and reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith. The calculations referred to below were made
in connection with rendering the Piper Jaffray Opinions.
Discounted Cash Flow Analysis. Piper Jaffray performed a discounted cash
flow analysis to calculate a range of theoretical values for Champps based on
(i) the net present value of projected free cash flows and (ii) a terminal value
which estimates the value of Champps in the year 2000 by applying certain
multiples of earnings before interest and taxes. Piper Jaffray assumed, among
other things, discount rates of 16% to 20%, which Piper Jaffray deemed
appropriate to the risk associated with such projected cash flows, and terminal
value multiples of earnings before interest and taxes of 8.0x to 10.0x. Piper
Jaffray performed two analyses, with and without the potential cost savings that
may result from the Merger (the "Synergies"), on the operating projections
prepared by the management of Champps. These Synergies were estimated by
management of DAKA with input from Champps management. The analysis without
Synergies resulted in an implied equity valuation range for Champps of $45.9
million to $71.4 million. The analysis with Synergies calculated an implied
valuation range of $58.3 million to $89.1 million. Piper Jaffray considered this
analysis to provide an important justification for fairness, from a financial
point of view, of the Exchange Ratio.
Contribution Analysis. Piper Jaffray reviewed DAKA's and Champps'
historical financial information for the twelve months ended June 30, 1995 and
the financial projections for the years 1996 through 2000. For these periods,
Piper Jaffray analyzed the contributions to revenue, operating income, pre-tax
income, net income and ownership of DAKA and Champps to the combined company.
This analysis shows that Champps would have contributed 4.4% and 4.7% to
combined revenues and net income, respectively, in fiscal 1995. In fiscal 2000,
the Champps contribution increases to 18.2% and 23.8% of revenues and net
income, respectively. Assuming an Exchange Ratio of 0.40 shares of DAKA Common
Stock for each share of Champps Common Stock, Champps stockholders will account
for approximately 18.7% of ownership of the combined company. Piper Jaffray
considered this analysis to provide an important justification for fairness,
from a financial point of view, of the Exchange Ratio.
Premium Analysis. Piper Jaffray reviewed information relating to premiums
over trading price paid in mergers ranging in price from $20 million to $100
million which were completed between January 1, 1994 and October 9, 1995. The
search of mergers covered the acquisition of 100% of the stock of public
companies in all SIC codes except banks, REITs and insurance companies. Based on
its analysis of the selected mergers, Piper Jaffray derived a median range from
31.7% premium above the trading price on the day prior to announcement (compared
to 13.2% for Champps) to 35.6% premium above the trading price four weeks prior
to the announcement (compared to 29.8% for Champps). Piper Jaffray considered
this analysis to provide an important justification for fairness, from a
financial point of view, of the Exchange Ratio.
Combined Company Pro Forma Dilution Analysis. Piper Jaffray reviewed the
pro forma impact of the Champps acquisition on DAKA projected earnings per
share, comparing DAKA's pre-Merger earnings per share to the earnings per-share
following the Merger reflecting the addition of Champps' earnings and the effect
of the Synergies, together with the issuance of DAKA Merger Shares in exchange
for Champps shares. Based on its analysis, Piper Jaffray concluded that the
combination would be dilutive to DAKA in calendar
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1996 and fiscal 1996 and 1997 with Synergies by (9.9%), (16.5%) and (3.6%),
respectively, and without Synergies it would be dilutive in calendar 1996 and
fiscal 1996, 1997 and 1998 by (11.5%), (17.4%), (5.8%) and (1.1%), respectively.
Piper Jaffray concluded the combination would be accretive in fiscal 1998, 1999
and 2000 with Synergies by 2.0%, 7.4% and 12.0%, respectively, and without
Synergies it would be accretive in fiscal 1999 and 2000 by 3.0% and 6.4%,
respectively. Piper Jaffray considered this analysis to provide an important
justification for fairness, from a financial point of view, of the Exchange
Ratio.
Comparable Acquisition Analysis. Piper Jaffray analyzed selected
restaurant industry transactions deemed comparable to the Merger, including
selected restaurant industry mergers. These transactions included completed and
pending transactions since January 1, 1992 whereby the target was 100% acquired.
This search yielded 16 comparable transactions (listed below in
acquired/acquiror format), including: DF&R Restaurants Inc./Apple South Inc.;
Tim Hortons/Wendys; Maggiano's/Brinker International Inc.; Rio Bravo/Applebee's
International; Tia's Inc./Morrison Restaurants Inc.; Marco's Mexican
Restaurants/Billy Blues Food Corp.; Patrizio Restaurants Inc./Sixx Holdings
Inc.; On the Border Cafes Inc./Brinker International Inc.; St. Louis Bread
Co./Au Bon Pain Co. Inc.; Klact Inc., Nack Inc./Back Yard Burgers Inc.; Chevys
Mexican Restaurant/Taco Bell Corp (PepsiCo Inc.); NRII Corp/National Pizza Co.;
Clay-Way Corp/Checkers Drive-In Restaurants; Smith Enterprises of Tampa
Bay/Checkers Drive-In Restaurants; California Pizza Kitchen/PepsiCo., Inc.;
Carmella's Cafe/Magic Restaurants Inc. Based on its analysis of the comparable
transactions, Piper Jaffray derived a mean and median multiple of company value
to revenues of 1.5x and 1.5x, respectively (compared to Champps 1995 estimated
sales multiple of 3.3x and last twelve (12) months sales multiple of 4.5x), of
company value to operating income of 18.2x and 16.6x, respectively (Champps
multiple not meaningful), and of equity value to net income of 30.4x and 20.5x,
respectively (Champps multiple not meaningful). Piper Jaffray, however, advised
the DAKA Board that, in its opinion, it did not believe that such comparable
transaction analysis was material in their review of fair value in analyzing the
Merger because of the relatively small size of Champps and because of the
limitations and analyzing multiples of operating and net income.
Comparable Public Company Analysis. Piper Jaffray analyzed information
relating to 13 publicly traded high growth companies which operate in the casual
dining segment of the restaurant industry, including; Applebee's International
Inc.; Apple South Inc.; Boston Chicken Inc.; Brinker Intl Inc.; Cheesecake
Factory Inc.; Dave & Busters, Inc.; Landry's Seafood Restaurant; Lone Star
Steakhouse Inc.; Outback Steakhouse Inc.; Papa Johns International; Rain Forest
Cafe; Rock Bottom Restaurants; and Starbucks Corp. Based on its analysis, Piper
Jaffray derived a mean and median price/earnings multiple (i) for the latest
twelve (12) months earnings per share (the "LTM EPS") of 34.9x and 34.0x,
respectively, (ii) for calendar 1995 estimated earnings per share ("1995 EPS")
of 31.3x and 30.7x, respectively, and (iii) for calendar 1996 estimated earnings
per share ("1996 EPS") of 22.6x and 23.5x, respectively. Piper Jaffray also
derived a mean and median multiple of price to latest twelve (12) months
revenues ("Price/Revenues") of 4.1x and 2.7x respectively, and of price to
latest twelve (12) months operating income ("Price/Operating Income") of 24.6x
and 24.2x, respectively. Champps' LTM EPS, 1995 EPS and Price/Operating Income
multiples were not considered meaningful; its 1996 EPS and Price/Revenues
multiples were 37.1x and 4.5x, respectively. Piper Jaffray, however, advised the
DAKA Board that, in its opinion, it did not consider such comparable company
analysis to be material in its analysis of fair value because of the small size
of Champps and the limitations of analyzing multiples of operating and net
income.
As compensation for its services, Piper Jaffray has received from DAKA a
fee of $275,000 of which $50,000 was paid at the time of the execution of the
engagement letter with Piper Jaffray, $175,000 was paid upon delivery of its
opinion dated October 9, 1995 and $50,000 was payable upon delivery of its
opinion dated the date of this Joint Proxy Statement-Prospectus. This fee was
not contingent upon the ability of Piper Jaffray to render its opinions relating
to the Merger. DAKA also agreed to reimburse Piper Jaffray for its reasonable
out-of-pocket expenses, including the fees and disbursements of its counsel, and
to indemnify Piper Jaffray against certain liabilities, including liabilities
under the federal securities laws.
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TERMS OF THE MERGER
THE TERMS OF AND CONDITIONS TO THE MERGER ARE CONTAINED IN THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT-PROSPECTUS
AS APPENDIX A AND INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING DESCRIPTION OF
THE TERMS OF AND CONDITIONS TO THE MERGER IS QUALIFIED IN ITS ENTIRETY BY, AND
MADE SUBJECT TO, THE MORE COMPLETE INFORMATION SET FORTH IN THE MERGER
AGREEMENT.
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
If the Merger Agreement is adopted by the requisite vote of Champps
stockholders and the issuance of DAKA Common Stock in connection with the Merger
is approved by the requisite vote of DAKA stockholders, and the other conditions
to the Merger are satisfied or, where permissible, waived, the Merger will be
consummated and become effective when a certificate of merger is filed with the
Secretary of State of the State of Minnesota or at such later date and time as
is specified in such certificate of merger, (the date and time of such filing,
or such later date or time as set forth therein, the "Effective Time"). Under
the terms of the Merger Agreement, the Merger will be consummated as soon as
practicable (and in any event within two business days) after the satisfaction
or waiver of all of the conditions to the Merger set forth in the Merger
Agreement. DAKA and Champps currently anticipate that upon approval of the
proposals presented at the Stockholders Meetings, all conditions to the Merger
will have been satisfied or waived and that the Effective Time will occur on the
date of the Stockholders Meetings or the next business day.
CONVERSION OF SHARES OF CHAMPPS STOCK PURSUANT TO MERGER; TREATMENT OF OPTIONS
AND WARRANTS
At the Effective Time, each outstanding share of Champps Common Stock will
be converted into the right to receive four-tenths (.40) of one share of DAKA
Common Stock, subject to possible adjustment to forty-three hundredths (.43) of
one share of DAKA Common Stock if the average closing price per share of DAKA
Common Stock as reported on the Nasdaq National Market over the twenty trading
days immediately preceding the second trading day prior to the closing date of
the Merger is less than $30.00 per share, or thirty-seven hundredths (.37) of
one share of DAKA Common Stock if the average closing price per share of DAKA
Common Stock as reported on the Nasdaq National Market over the twenty trading
days immediately preceding the second trading day prior to the closing date of
the Merger (the "Determination Period") is more than $35.00. DAKA and Champps
currently anticipate that the Determination Period will end one or two business
days prior to the Stockholders Meetings. Stockholders of DAKA and Champps can,
beginning one or two business days prior to the date of the Stockholders
Meetings, call the following toll-free number established by DAKA to learn the
determination of the Exchange Ratio: 1-800 . As of the Champps Record
Date there were shares of Champps Common Stock outstanding. No fractional
shares of DAKA Common Stock will be issued in the Merger, and in lieu thereof
holders will be paid cash in accordance with the terms of the Merger Agreement.
After the Effective Time, all of the options of Champps
granted under employee stock option plans and outstanding as of the Champps
Record Date and all of the warrants to purchase Champps Common
Stock outstanding as of the Champps Record Date (in each case to the extent such
options or warrants are not exercised or expire prior to the Effective Time)
will continue to have and be subject to the same terms and conditions except
that (i) each such option and warrant will be exercisable for that number of
shares of DAKA Common Stock which equals the number of shares of Champps Common
Stock covered by such option or warrant immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded down to the nearest whole number,
and (ii) the exercise price per share under each such option and warrant shall
equal the exercise price before the Merger divided by the Exchange Ratio and
rounded down to the nearest cent.
THE SURVIVING CORPORATION
Upon the consummation of the Merger, Merger Subsidiary will cease to exist
as a separate corporation and all of the business, assets, liabilities and
obligations of Merger Subsidiary will be merged with and into Champps with
Champps remaining as the Surviving Corporation. Pursuant to the Merger
Agreement, at the
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Effective Time (i) the Articles of Incorporation of Merger Subsidiary shall be
the Articles of Incorporation of the Surviving Corporation except that the name
of the Surviving Corporation shall be "Champps Entertainment, Inc." and (ii) the
By-laws of Merger Subsidiary shall be the By-laws of the Surviving Corporation.
Immediately following the Merger, Champps will be operated as a wholly-owned
subsidiary of DAKA.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Champps and DAKA has agreed that,
prior to the Effective Time, it will carry on its respective businesses in the
ordinary course, use its reasonable best efforts to preserve intact its present
business organization and keep available the services of its present officers
and employees, keep in effect insurance policies in coverage amounts not less
than those in effect as of the date of the Merger Agreement, preserve and
protect its proprietary rights, and preserve its relationships with customers,
suppliers, licensors and other persons with which it has significant business
dealings.
In addition, each of Champps and DAKA have agreed that, except as
contemplated by the Merger Agreement, prior to the Effective Time it will not,
directly or indirectly, do any of the following without the prior written
consent of the other: (i) declare dividends or distributions in respect of any
of its capital stock, or split or reclassify any of its capital stock, or
repurchase, redeem or otherwise acquire any of its capital stock; (ii) authorize
for issuance, issue or commit to issue any shares of stock of any class or any
other securities other than the issuance of capital stock in connection with (a)
the exercise of options, warrants or other similar rights outstanding as of the
date of the Merger Agreement or (b) options granted under DAKA's stock option
plans after the date of the Merger Agreement; (iii) in the case of Champps,
acquire or encumber (other than in connection with the opening of new
Company-owned restaurants) or sell, lease, transfer or dispose of any assets
other than in the ordinary course of business; (iv) in the case of Champps,
other than in connection with the activities consistent with expansion of its
restaurant operations, incur any long-term indebtedness for borrowed money;
guarantee any indebtedness; issue or sell debt securities or warrants or rights
to acquire any debt securities; guarantee or otherwise become liable for the
debt of others; make any loans, advances or capital contributions; encumber any
material assets; or create or suffer any material lien thereupon other than, in
each case, in the ordinary course of business consistent with prior practice, or
incur any short-term indebtedness for borrowed money except for credit
facilities in existence on the date of the Merger Agreement; (v) in the case of
Champps, pay or satisfy any claims or liabilities, other than in the ordinary
course of business consistent with past practice, in connection with the Merger
Agreement, and with respect to liabilities reflected or reserved against in, or
contemplated by, its consolidated financial statements; (vi) change any of the
accounting principles or practices used by it (except as required by generally
accepted accounting principles); (vii) in the case of Champps, increase the
compensation payable to its executive officers or employees, except for
increases in the ordinary course of business, or take certain other actions with
respect to severance pay or benefit plans; (viii) amend its charter or by-laws;
(ix) in the case of Champps, other than in connection with activities consistent
with expansion of its restaurant operations, enter into a new agreement outside
of the ordinary course of business involving payment by Champps of $10,000 or
more or amend any existing agreement in a manner that could reasonably be
expected to have a materially adverse effect on its business, results of
operations or financial condition; (x) in the case of Champps, other than in
connection with activities consistent with expansion of its restaurant
operations, enter into or modify or amend any lease, license agreement,
franchise agreement or development agreement; (xi) knowingly engage in any
transaction or cause any fact or circumstance which would preclude accounting
for the Merger as a pooling of interests; or (xii) enter into an agreement to
take any of the foregoing actions or take any action that would result in any of
the conditions to the Merger not being satisfied.
INTERIM FINANCING ARRANGEMENTS
In order to allow Champps to continue to develop and build restaurants,
DAKA agreed in the Merger Agreement to provide loans to Champps up to the
aggregate principal amount of $3,000,000 bearing interest at a fixed rate of 10%
per annum and maturing on October 10, 2000 and upon such other terms as are
normal and customary for loans of this type. On December 19, 1995 DAKA entered
into a loan agreement (the "DAKA Loan Agreement") with Champps Entertainment of
Wayzata, Inc. ("CEW"), a newly formed wholly-owned
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subsidiary of Champps to which Champps had previously transferred its recently
completed restaurant in Irvine, California, and rights to develop a new
restaurant in Reston, Virginia. The loans are guaranteed by Champps and secured
by the Irvine and Reston restaurants and the capital stock of CEW. As of the
date of this Joint Proxy Statement-Prospectus, approximately $710,000 has been
loaned by DAKA to CEW to refund costs incurred by Champps to build the Irvine
restaurant. Additional loans will be made to CEW as required to fund
construction of the Reston restaurant. If the Merger Agreement is terminated,
DAKA will thereafter not be obligated to make additional loans, but loans made
prior to such termination will remain outstanding under the terms of the DAKA
Loan Agreement. These loans should provide the expansion capital required to
fund Champps' construction efforts through June 1996.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of DAKA, Merger Subsidiary and Champps to
consummate the Merger are subject to satisfaction at or prior to the Effective
Time of a number of conditions, including but not limited to the following, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) The Registration Statement on Form S-4 pertaining to the Merger
shall have been declared effective by the Securities and Exchange
Commission.
(b) The Merger Agreement shall have been adopted by the requisite vote
of the Champps stockholders, and the issuance of the DAKA Merger Shares
pursuant to the Merger Agreement shall have been approved by the requisite
vote of the DAKA stockholders. In addition, the holders of the requisite
number of shares of Champps Common Stock sufficient to preclude accounting
for the Merger as a pooling of interests or to prevent tax-deferred
treatment for the Merger under Section 368(a) of the Internal Revenue Code
shall not have perfected or preserved dissenters' rights under applicable
law with respect to the adoption of the Merger Agreement.
(c) The consummation of the Merger shall not be prohibited by any
injunction or order of court and there shall not have been any action taken
that makes consummation of the Merger illegal.
(d) The applicable waiting period under the HSR Act shall have expired
or been terminated.
(e) Other than the filing of merger documents in accordance with
Delaware and Minnesota law, all authorizations and waivers required to be
obtained, and all filings required to be made, by DAKA and Champps prior to
the consummation of the Merger shall have been obtained from, and made
with, all required governmental entities and all other persons except where
the failure to obtain such authorizations and waivers or make such filings
would not have a material adverse effect, at or after the Effective Time,
on Champps or DAKA.
(f) Receipt by DAKA from Deloitte & Touche LLP, its independent
auditors, and receipt by Champps from Arthur Andersen LLP, its independent
public accountants, of a letter to the effect that pooling-of-interests
accounting (under Accounting Principles Board Opinion No. 16) is
appropriate for the Merger, provided that the Merger is consummated in
accordance with the terms and conditions of the Merger Agreement.
The obligations of DAKA and Merger Subsidiary to effect the Merger are also
subject to a number of conditions, including but not limited to the following,
any or all of which may be waived in whole or in part by DAKA and Merger
Subsidiary in their sole discretion:
(a) Each of the representations and warranties of Champps contained in
the Merger Agreement shall be true and correct in all material respects as
of the date of the Merger Agreement and as of the Effective Time as though
made on and as of the Effective Time.
(b) Champps shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to be
performed or complied with by it on or prior to the Effective Time.
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(c) DAKA and Merger Subsidiary shall have received the opinion of
Goodwin, Procter & Hoar dated on or about the date that is two business
days prior to the date upon which the Joint Proxy Statement-Prospectus is
first mailed to stockholders of DAKA and Champps, reasonably acceptable to
DAKA and Merger Subsidiary, and subject to customary conditions and
qualifications, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code, which opinion shall not have been withdrawn or
modified in any material respect.
(d) Except for any event disclosed in the Champps SEC Reports (as
defined in the Merger Agreement) filed prior to the date of the Merger
Agreement, there shall not have occurred any change concerning Champps or
any of its subsidiaries that, individually or in the aggregate, has had a
material adverse effect on Champps and its subsidiaries taken as a whole
since December 31, 1994.
(e) Champps shall provide a statement dated as of immediately prior to
the Effective Time, to DAKA stating that Champps' Common Stock is not a
"U.S. real property interest," in compliance with Treasury Regulations
Section 1.897-2(h) and 1.1445-2(c)(3).
The obligation of Champps to effect the Merger is also subject to the
satisfaction of a number of conditions, including but not limited to the
following, any or all of which may be waived by Champps in its sole discretion:
(a) Each of the representations and warranties of DAKA and Merger
Subsidiary contained in the Merger Agreement shall be true and correct in
all material respects as of the date of the Merger Agreement and as of the
Effective Time, as though made on and as of the Effective Time.
(b) DAKA and Merger Subsidiary shall have performed or complied in all
material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by DAKA and Merger Subsidiary on
or prior to the Effective Time.
(c) Champps shall have received the opinion of Fredrikson & Byron,
P.A., dated on or about the date that is two business days prior to the
date upon which the Joint Proxy Statement-Prospectus is first mailed to
stockholders of Champps and DAKA, reasonably acceptable to Champps, and
subject to customary conditions and qualifications, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368(a) of the Code, which
opinion shall not have been withdrawn or modified in any material respect.
(d) Except for any event disclosed in the DAKA SEC Reports (as defined
in the Merger Agreement) filed prior to the date of the Merger Agreement,
there shall not have occurred any change concerning DAKA or any of its
subsidiaries that, individually or in the aggregate, has had a material
adverse effect on DAKA and its subsidiaries taken as a whole since July 1,
1995.
In addition, the Merger Agreement may be terminated under certain
circumstances. See "--Termination of the Merger Agreement."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
consequences of the Merger, including certain consequences to stockholders of
Champps who are citizens or residents of the United States and who hold their
shares as capital assets. It does not discuss all aspects of federal income
taxation that may be relevant to a particular Champps stockholder in light of
his or her personal circumstances (for example, a Champps stockholder who
acquired his or her shares of Champps Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation) or to Champps stockholders
subject to special federal income tax treatment (such as insurance companies,
dealers in securities, certain retirement plans, financial institutions, tax
exempt organizations or foreign persons). In addition, this summary does not
address any aspects of state, local, foreign or other tax laws that may be
relevant to holders of Champps Common Stock.
Neither DAKA nor Champps has requested or will receive an advance ruling
from the Internal Revenue Service as to the tax consequences of the Merger.
Consummation of the Merger is conditioned (unless
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waived) on the delivery of opinions of Goodwin, Procter & Hoar and Fredrikson &
Byron, P.A., counsel for each of DAKA and Champps, respectively, dated on or
about the date that is two business days prior to the mailing of this Joint
Proxy Statement-Prospectus. Both the Goodwin, Procter & Hoar and Fredrikson &
Byron, P.A. opinions provide that, for federal income tax purposes, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. The opinion of Fredrikson & Byron, P.A. also provides that the following
would be the material federal income tax consequences to holders of Champps
Common Stock which would result from the Merger:
(a) No gain or loss will be recognized by a Champps stockholder upon
the exchange of his or her Champps Common Stock for DAKA Common Stock,
except that a Champps stockholder who receives cash proceeds in lieu of a
fractional share interest in DAKA Common Stock will recognize gain or loss
equal to the difference between such proceeds and the tax basis allocated
to the fractional share interest, and such gain or loss will constitute
capital gain or loss if such stockholder's Champps Common Stock is held as
a capital asset at the Effective Time;
(b) The tax basis of the DAKA Common Stock received by a Champps
stockholder who exchanges his or her Champps Common Stock for DAKA Common
Stock will be the same as such stockholder's tax basis in the Champps
Common Stock surrendered in exchange therefor, decreased by the tax basis
allocated to any such fractional share interest; and
(c) The holding period of the DAKA Common Stock received by a Champps
stockholder will include the period during which the Champps Common Stock
surrendered in exchange therefor was held (provided that such Champps
Common Stock was held by such Champps stockholder as a capital asset at the
Effective Time).
The Goodwin, Procter & Hoar and Fredrikson & Byron, P.A. opinions are based
on, among other things, certain facts, statements, representations, warranties
and assumptions (including those noted or set forth in such opinions or
contained in the Merger Agreement, this Joint Proxy Statement-Prospectus or
otherwise furnished to counsel by Champps, DAKA and Merger Subsidiary). Without
limiting the generality of the foregoing, the effectiveness of the opinions is
expressly based upon and subject to, among other things, (i) consummation of the
Merger in accordance with the applicable laws of Minnesota and Delaware and the
terms of the Merger Agreement (including satisfaction of all covenants and
conditions to the obligations of the parties without amendment or waiver
thereof) and (ii) the truth, correctness and completeness of all facts,
statements, representations, warranties and assumptions noted or set forth in
such opinion or the Merger Agreement or contained in this Joint Proxy
Statement-Prospectus or otherwise furnished to counsel by DAKA, Champps and
Merger Subsidiary. As of the date of this Joint Proxy Statement-Prospectus the
tax opinions required by the Merger Agreement have been delivered.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS NOT A COMPLETE DESCRIPTION OF ALL THE TAX CONSEQUENCES OF THE MERGER. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED U.S. TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. CHAMPPS
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
It is the intention of the parties that the Merger shall qualify as a
pooling-of-interests for accounting and financial reporting purposes. In
addition, it is a condition to consummation of the Merger that DAKA shall have
received from Deloitte & Touche LLP, its independent auditors, and Champps shall
have received from Arthur Andersen LLP, its independent public accountants, a
letter to the effect that pooling-of-interests accounting (under Accounting
Principles Board Opinion No. 16) is appropriate for the Merger, provided that
the Merger is consummated in accordance with the terms and conditions of the
Merger Agreement.
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REGULATORY APPROVALS
Champps and DAKA are not aware of any governmental or regulatory
requirements relating to consummation of the Merger or the proposals to be
considered at the Champps and DAKA stockholder meetings other than compliance
with applicable federal and state securities laws.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time:
(a) by mutual written consent of DAKA and Champps;
(b) by either DAKA or Champps if a court or other government entity
shall have issued an injunction or order or taken any other action
permanently restraining or otherwise prohibiting the Merger and such
injunction or other action shall have become final and non-appealable;
(c) by DAKA or Champps, upon a breach of any representation, warranty,
covenant or agreement on the part of the other set forth in the Merger
Agreement, or if any representation or warranty of the other shall have
become untrue, in each case such that certain conditions would be incapable
of being satisfied by June 30, 1996; provided that, in any case, a willful
breach shall be deemed to cause such conditions to be incapable of being
satisfied;
(d) by DAKA, if (i) the Champps Board shall have failed to make or
shall withdraw or change its recommendation of the Merger, or (ii) a third
party shall have commenced and consummated a tender offer or exchange offer
for 20% or more of the outstanding Champps shares;
(e) by either DAKA or Champps if (i) the Merger and the Merger
Agreement shall have failed to receive the requisite vote for approval by
the Champps stockholders, or (ii) the issuance of the DAKA Merger Shares
shall have failed to receive the requisite vote for approval by the DAKA
stockholders;
(f) by Champps if (i) DAKA's Board shall have failed to make or shall
withdraw or change its recommendation of the Merger, or (ii) a third party
shall have commenced or shall have filed a Registration Statement under the
Securities Act, with respect to a tender offer or exchange offer for 20% or
more of the outstanding shares of DAKA Common Stock; and
(g) by either DAKA or Champps, if the Merger shall not have been
consummated on or before June 30, 1996.
OTHER TRANSACTIONS; TERMINATION FEES
Champps has agreed that unless and until the Merger Agreement terminates it
will not, directly or indirectly, solicit, knowingly encourage, participate in
negotiations with, provide confidential information to, enter into any agreement
with, or otherwise cooperate in any way in connection with any person other than
DAKA or Merger Subsidiary concerning a Competing Transaction as defined in the
Merger Agreement. A Competing Transaction is defined as any merger,
consolidation, share exchange, business combination, or other similar
transaction; any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 20% or more of the assets of Champps; any tender offer or
exchange offer for 20% or more of the outstanding shares of Champps Common
Stock; or the issuance, sale or other disposal by Champps of securities
representing, or convertible into, 20% or more of the voting power of Champps.
Champps has agreed to notify DAKA of the identity of any person requesting
information or proposing to initiate a Competing Transaction and, if applicable,
the terms of such Competing Transaction.
Under certain circumstances, Champps may become obligated to pay a
Termination Fee of $2,800,000 to DAKA as reimbursement to DAKA for costs
associated with the Merger. Such circumstances include termination of the Merger
Agreement by DAKA because of a willful breach by Champps of a representation,
warranty, covenant or agreement of Champps set forth therein, or because the
Champps Board shall have withdrawn or modified its recommendation of the Merger,
or because of the consummation by a third party of a tender offer for 20% or
more of the outstanding shares of Champps Common Stock, or (unless the average
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per share closing price of DAKA Common Stock as reported on the Nasdaq National
Market over the twenty (20) trading days immediately preceding the date of the
Champps Special Meeting is less than the "Floor Price" of $22.50) because the
Merger Agreement shall have failed to receive the requisite vote for approval by
the Champps stockholders. The likelihood that the Merger will be consummated in
the event that the Floor Price is reached cannot be determined, as consummation
of the Merger depends on a number of factors, including (i) whether the
affirmative vote of the stockholders of DAKA and Champps with respect to the
Merger is obtained, which will be influenced by considerations such as the
relative prices of the companies' stock, the prospects of Champps as an
independent company as compared to the prospects of the combined DAKA-Champps
enterprise, and general changes in the level of broad-based stock indices, and
(ii) satisfaction (or waiver) of all conditions precedent to the obligation of
each of DAKA and Champps to consummate the Merger. In addition, Champps will
become obligated to pay the Termination Fee if Champps enters into an agreement
relating to a Competing Transaction, or the Champps Board recommends approval or
acceptance of a Competing Transaction, in either case within one year after the
Merger Agreement is terminated for certain reasons set forth in the Merger
Agreement.
In connection with the provisions relating to the Termination Fee, Champps
agreed in the Merger Agreement that it would not enter into an agreement
relating to a Competing Transaction within one year of the termination of the
Merger Agreement unless such agreement provides that the third party thereto,
upon execution of such agreement, pays any Termination Fee due DAKA under the
Merger Agreement.
EXPENSES
Fees, expenses and out-of-pocket expenses incurred by DAKA, Champps or
Merger Subsidiary will be borne by the party that incurs such expenses, except
in the event that the Merger is terminated as specified above. Additionally, all
costs and expenses related to printing, filing and mailing the Registration
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement shall be borne equally by DAKA and Champps.
AMENDMENT AND WAIVER OF THE MERGER AGREEMENT; EXTENSIONS
The Merger Agreement may be amended, in writing, with the approval of the
Boards of Directors of DAKA, Champps and Merger Subsidiary at any time prior to
the Effective Time, except that after approval of the Merger by the Champps
stockholders or approval of the issuance of the DAKA Merger Shares by the DAKA
stockholders, no amendment that under applicable law may not be made without the
approval of the stockholders of DAKA or Champps may be made without such
approval. At any time prior to the Effective Time, DAKA and Champps may (i)
extend the time for the performance of obligations of the other party under the
Merger Agreement, (ii) waive any inaccuracies in the representations and
warranties of the other party contained in the Merger Agreement, or (iii) waive
compliance by the other party with any of the agreements or conditions contained
therein. Agreements to extensions or waivers must be in writing.
EFFECT ON EMPLOYEE BENEFITS
The Merger Agreement provides that the Surviving Corporation and its
subsidiaries will provide benefit plans to employees after the Merger that, at
the option of DAKA, either (i) will be no less favorable, in the aggregate, than
those provided by DAKA to its employees or (ii) will be no less favorable in the
aggregate than those provided by Champps and its subsidiaries to employees prior
to the Merger. The Merger Agreement also provides that if any employee of
Champps or any of its subsidiaries becomes a participant in any employee benefit
plan of DAKA, such employee shall be given credit under such plan for all
service prior to the Effective Time with Champps and its subsidiaries or any
predecessor employer (to the extent such credit was given by Champps under a
similar plan) for purposes of eligibility (including, without limitation,
waiting periods), vesting and vacation accrual. In the Merger Agreement, Champps
has also agreed that, except for normal increases in the ordinary course of
business that are consistent with past practices and that do not result in a
material increase in benefits or compensation expense to Champps, Champps will
not adopt or amend any bonus, profit sharing, retirement or other compensation
for the benefit of any director, officer or employee that increases in any
manner the compensation, retirement or other benefits provided thereunder or
take any action or grant any benefit not expressly required under the terms of
any existing agreement, plan or other such arrangement.
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EXCHANGE OF CERTIFICATES IN THE MERGER
As soon as reasonably practicable after the Effective Time, the Exchange
Agent (as defined in the Merger Agreement) will mail a letter of transmittal and
instructions to each holder of record of certificates (the "Certificates") which
evidenced outstanding shares of Champps Common Stock immediately prior to the
Effective Time. The letter of transmittal will be used to forward the
Certificates for surrender in exchange for (i) certificates representing the
number of whole shares of DAKA Common Stock which such holder has the right to
receive pursuant to the Merger, and (ii) cash for any fractional shares of DAKA
Common Stock to which such holder otherwise would be entitled. CHAMPPS
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED BY THEM. After
the Effective Time and until surrendered as provided above, Certificates will be
deemed to represent only the right to receive certificates representing the
number of whole shares of DAKA Common Stock into which the shares of Champps
Common Stock formerly represented by such Certificates were converted in the
Merger, and a cash payment in lieu of any fractional shares. The holders of
Certificates will not be entitled to receive dividends or any other
distributions from DAKA until such Certificates are so surrendered.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
Champps as to (i) its corporate organization, standing and power, (ii) its
compliance with the provisions of its organizational documents, (iii) its
capitalization, (iv) its authority to execute and deliver the Merger Agreement
and its enforceability with respect to Champps, (v) the Merger Agreement's
non-contravention of the Minnesota antitakeover or business combination statutes
or any law or charter or by-law provision applicable to Champps, (vi) the
absence of a violation of or breach of any contract or other instrument or
obligation of Champps, (vii) the absence of the need by Champps for governmental
or third party consents as to the Merger, (viii) Champps' filing of all required
SEC reports since April 6, 1994, (ix) pending or threatened litigation, (x) the
accuracy of Champps' financial statements and information contained in certain
filings by Champps with the SEC, (xi) the conduct of Champps' business in the
ordinary course, and the absence of certain changes since December 31, 1994,
(xii) the absence of defaults under material agreements, (xiii) the
enforceability of Champps' intellectual property, (xiv) possession of all
required licenses and permits, and compliance by Champps with applicable laws,
(xv) employee benefit plans and employee related agreements of Champps, (xvi)
fees of brokers, finders and investment bankers employed by Champps, (xvii)
environmental matters, (xviii) the payment of taxes, (xix) the absence of
certain labor disputes, (xx) disclosure of material transactions among Champps
and its affiliates, (xxi) the receipt of a fairness opinion by Champps'
financial advisor, (xxii) Champps statement that it has no reason to believe
pooling of interest accounting treatment for the Merger would not be available,
and (xxiii) the required vote of Champps stockholders necessary to approve the
Merger.
The Merger Agreement also includes representations and warranties by DAKA
and Merger Subsidiary as to (i) their corporate organization, standing and
power, (ii) their compliance with the provisions of their organizational
documents; (iii) DAKA's capitalization, (iv) DAKA and Merger Subsidiary's
authority to execute and deliver the Merger Agreement, and its enforceability
respect to DAKA and Merger Subsidiary, (v) the Merger Agreement's
non-contravention of any law or charter or by-law provision applicable to DAKA,
(vi) the absence of a violation of or breach of any contract or other instrument
or obligation of DAKA, (vii) the absence of the need by DAKA for governmental or
third party consents as to the Merger, (viii) DAKA's filing of all required SEC
Reports since June 30, 1994, (ix) pending or threatened litigation, (x) the
accuracy of DAKA's financial statements and information contained in certain
filings by DAKA with the SEC, (xi) the conduct of DAKA's business in the
ordinary course, and the absence of certain changes, since July 1, 1995, (xii)
the absence of defaults under material agreements, (xiii) the enforceability of
DAKA's intellectual property, (xiv) possession of all required licenses and
permits, and compliance by DAKA with applicable laws, (xv) fees of brokers,
finders and investment bankers employed by DAKA, (xvi) environmental matters,
(xvii) the payment of taxes, (xvii) lack of knowledge of any pending government
investigation or review, (xix) the absence of certain labor disputes, (xx)
disclosure of material
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<PAGE> 49
transactions among DAKA and its affiliates, (xxi) the receipt of a fairness
opinion by DAKA's financial advisor, (xxii) DAKA's statement that it has no
reason to believe pooling of interest accounting treatment for the Merger would
not be available, and (xxiii) the required vote of DAKA stockholders necessary
to approve issuance of DAKA Common Stock.
The respective representations and warranties of DAKA, Champps and Merger
Subsidiary will terminate at the Effective Time of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger, DAKA has agreed to provide certain benefits
to all employees of Champps and its subsidiaries. See "--Effect on Employee
Benefits." The following section describes other actions DAKA has agreed to take
with respect to certain officers of Champps upon the consummation of the Merger.
Employment Arrangement with Dean P. Vlahos. Champps is a party to an
employment agreement dated as of January 1, 1994 with Dean P. Vlahos (the "1994
Employment Agreement"). Mr. Vlahos has also executed an employment agreement
with Champps and DAKA which provides for the commencement of an employment
relationship with the Surviving Corporation at the Effective Time (the "1995
Employment Agreement"). Under the terms of the 1995 Employment Agreement, once
the 1995 Employment Agreement becomes effective at the Effective Time, the 1994
Employment Agreement will terminate and Mr. Vlahos will provide full time
services to Champps in the capacity of Chairman of the Board of Directors, Chief
Executive Officer and President for a five-year term. In addition, under the
terms of the 1995 Employment Agreement, DAKA has agreed to appoint Mr. Vlahos to
the DAKA Board and, if necessary, to use its best efforts to solicit proxies
from DAKA stockholders to secure his election during the term of employment. Mr.
Vlahos shall continue to maintain the authority to control the operations of
Champps so long as the average annual gross revenues per square foot of the
Champps-owned restaurants is at least $400. During the period of Mr. Vlahos'
full time employment, Champps shall pay him an initial base salary of $350,000
plus a bonus of 50% of his base salary if he attains certain targets established
by the DAKA Board, which amount may be increased up to 100% of his base salary
if he exceeds such performance targets by margins determined by the DAKA Board.
Twenty percent (20%) of bonus payments for Mr. Vlahos shall be related to
performance targets established for DAKA as a whole and eighty percent (80%)
shall be related to performance targets established for Champps. Mr. Vlahos
shall also be entitled to a monthly automobile allowance, annual vacation and
health and life insurance provided by DAKA. If Mr. Vlahos is terminated without
cause during the term of his employment, or if Mr. Vlahos leaves for "good
reason," DAKA will be obligated to pay him the salary and bonus for the
remainder of the term under his contract as severance. In the event that Mr.
Vlahos' employment is terminated for any reason other than for cause by DAKA,
Mr. Vlahos shall be provided the right to establish as a franchisee five (5)
Champps Americana restaurants anywhere in the world, so long as: (i) each is not
within a 20 mile radius of any other Champps restaurant; (ii) none is located in
any territory that has been franchised or licensed by Champps; and (iii) Mr.
Vlahos meets the requirements with respect to Champps franchisees in effect at
such time.
Continuation of Rights to Indemnification; Limitation of Liability. The
Merger Agreement provides that the provisions with respect to indemnification
and limitations on personal liability contained in the certificate of
incorporation and by-laws of the Surviving Corporation will not be amended,
repealed or otherwise modified for a period of six (6) years after the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were directors or
officers of Champps in respect of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions contemplated
by the Merger Agreement), unless such modification is required by law.
Election to DAKA Board of Directors. The Merger Agreement provides that
immediately following the Effective Time, Mr. Vlahos will be appointed to the
DAKA Board.
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THE STOCKHOLDERS AGREEMENT
DAKA and three stockholders of Champps (each a "Major Stockholder") entered
into a Stockholders Agreement dated October 10, 1995 (the "Stockholders
Agreement"). Pursuant to the Stockholders Agreement, each Major Stockholder
agreed that he shall vote or cause to be voted a specified number of shares
owned by such Stockholder in favor of the Merger, and that the Major Stockholder
would vote against any action that would result in a breach in any material
respect of any covenant or obligation of Champps under the Merger Agreement.
Pursuant to the Stockholders Agreement, each Major Stockholder granted to and
appointed DAKA as the Major Stockholder's irrevocable proxy and attorney-in-fact
with the right to vote such specified number of the Major Stockholder's shares
in favor of the Merger. The following Major Stockholders have executed the
Stockholders Agreement committing a total of 990,000 shares of Champps Common
Stock: Dean P. Vlahos, Walter H. Henrion and Robert R. Taylor, all directors of
Champps. Such shares equal approximately 19.98% of the total number of
outstanding shares of Champps Common Stock.
Each Stockholder has agreed to neither directly nor indirectly (except as
may be required by applicable corporate law with respect to the provision of
materials to a stockholder of Champps by a Major Stockholder in his capacity as
an officer or director of Champps), solicit or respond to any inquiries or the
making of any proposal by any person or entity other than DAKA or an affiliate
of DAKA that constitutes or could reasonably be expected to lead to a Competing
Transaction. Each Major Stockholder has agreed to promptly inform DAKA of the
terms and conditions of any proposal or offer received and the identity of the
person making it.
Each Major Stockholder has agreed that he shall not directly or indirectly,
except pursuant to the terms of the Merger Agreement, offer for sale, sell,
transfer, tender, pledge, incumber, assign, or otherwise dispose of or enter
into any contract or arrangement for the assignment or other disposition of any
of such Major Stockholder's shares. Additionally, each Major Stockholder has
agreed not to sell any shares of DAKA Common Stock for a limited period of time
following the Merger.
The covenants and agreements with respect to the Stockholders Agreement
shall terminate on either the Effective Time of the Merger or the date the
Merger Agreement is terminated in accordance with its terms. In the event the
Merger Agreement is terminated due to the failure of the stockholders of Champps
to approve the Merger, the Major Stockholders shall pay to DAKA fees aggregating
$1,000,000 as set forth in the Stockholders Agreement.
The Stockholders Agreement may not be modified, amended, altered or
supplemented except by written agreement by the parties.
RESALE OF DAKA COMMON STOCK
The DAKA Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any Champps
stockholder who may be deemed to be an affiliate (an "Affiliate") of Champps
and/or DAKA for purposes of Rule 145 under the Securities Act. Affiliates would
include persons (generally executive officers and directors) who control, are
controlled by, or are under common control with (i) DAKA or Champps at the time
of the Stockholder Meetings or (ii) DAKA at or after the Effective Time.
Rules 144 and 145 promulgated by the SEC under the Securities Act restrict
the sale of DAKA Common Stock received in the Merger by Affiliates and certain
of their family members and related parties. Generally, during the two years
following the Effective Time, Affiliates of Champps, provided they are not
Affiliates of DAKA, may publicly resell DAKA Common Stock received by them in
the Merger, subject to certain limitations as to the amount of DAKA Common Stock
sold by them in any three-month period and as to the manner of sale. After the
two-year period, such Affiliates of Champps who are not Affiliates of DAKA may
resell their shares without such restrictions so long as there is adequate
current public information with respect to DAKA as required by Rule 144. Persons
who become Affiliates of DAKA prior to, at or after the
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Effective Time may publicly resell the DAKA Common Stock received by them in the
Merger subject to similar limitations and subject to certain filing requirements
specified in Rule 144. The ability of Affiliates to resell shares of DAKA Common
Stock received in the Merger under Rule 144 or 145 as summarized herein
generally will be subject to DAKA having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates also
would be permitted to resell DAKA Common Stock received in the Merger pursuant
to an effective registration statement under the Securities Act or another
available exemption from the Securities Act registration requirements.
This Joint Proxy Statement-Prospectus does not cover any resales of DAKA
Common Stock received by persons who may be deemed to be Affiliates of DAKA or
Champps. The Merger Agreement further provides that Champps shall use its best
efforts to obtain as soon as practicable from Affiliates of Champps a letter
agreement in which such Affiliate agrees and acknowledges that he or she will
only sell such Affiliate's Shares of DAKA Common Stock if (i) the Affiliate
sells the DAKA Common Stock in conformity with certain provisions of Rules 144
and 145, (ii) any subsequent sale of the DAKA Common Stock by the Affiliate has
been registered under the Securities Act or (iii) in the opinion of counsel
reasonably satisfactory to DAKA the proposed sale is exempt.
In connection with the Merger, certain stockholders of Champps transmitted
affiliate letters (the "Affiliate Letters") to DAKA, marked as Exhibit A to the
Merger Agreement. In the Affiliate Letters, such stockholders represented to
DAKA that they would not sell shares of DAKA Common Stock received in connection
with the Merger except pursuant to Rule 145 under the Securities Act, an
effective registration statement, or an exemption from registration under the
Securities Act. Furthermore, and to assure accounting treatment of the Merger as
a pooling of interests such stockholders covenanted to DAKA in the Affiliate
Letters that they would not sell or transfer any shares of DAKA Common Stock or
options with respect thereto, whether or not received in connection with the
Merger, until such time as DAKA has published unaudited financial statements
covering at least thirty (30) days of the combined operations of Champps and
DAKA following the Merger.
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CHAMPPS SPECIAL MEETING PROPOSAL
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
The Champps Special Meeting will be held on , 1996 at 10:00 a.m.
local time at Minnesota. At the Champps
Special Meeting, Champps stockholders will consider and vote upon a proposal to
approve and adopt the Merger Agreement.
Pursuant to the Merger Agreement, Merger Subsidiary will merge with and
into Champps, whereupon Champps will become a wholly-owned subsidiary of DAKA.
At the Effective Time of the Merger, each then outstanding share of Champps
Common Stock will be converted into the right to receive four-tenths (.40) of
one share of DAKA Common Stock, subject to adjustment as more fully defined
herein. Cash will be provided in lieu of fractional shares. See "Terms of the
Merger--Conversion of Shares of Champps Stock Pursuant to Merger; Treatment of
Options and Warrants."
Champps Board has fixed the close of business on as the record
date for the Champps Special Meeting, and any adjournments or postponements
thereof. At the close of business on the Champps Record Date, shares of
Champps Common Stock were outstanding and entitled to vote. The affirmative vote
of the holders of at least a majority of the outstanding shares of Champps
Common Stock is required to approve and adopt the Merger Agreement. Stockholders
of Champps are entitled to one vote at the Champps Special Meeting for each
share of Champps Common Stock held of record at the close of business on the
Champps Record Date.
On the Champps Record Date, directors and executive officers of Champps and
its affiliates beneficially owned shares, or %, of the outstanding shares
of Champps Common Stock. Three directors of Champps have entered into the
Stockholders Agreement, the purpose of which is to assure that an aggregate of
990,000 shares of Champps Common Stock, or 19.98% of the outstanding shares, is
voted in favor of the Merger. See "Stockholders Agreement."
THE CHAMPPS BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER.
PROXIES RECEIVED BY THE CHAMPPS BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS
SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
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DAKA ANNUAL MEETING PROPOSALS
PROPOSAL 1--ISSUANCE OF DAKA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT
At the DAKA Annual Meeting, DAKA stockholders will be asked to consider and
vote upon a proposal to approve and adopt the issuance of the DAKA Merger Shares
pursuant to the Merger Agreement. As of the Champps Record Date, shares
of Champps Common Stock were issued and outstanding. Accordingly, based upon
such number of shares and the unadjusted Exchange Ratio of .40, it is currently
anticipated that approximately shares of DAKA Common Stock will be issued
upon consummation of the Merger, as discussed more fully herein.
THE DAKA BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ISSUANCE OF DAKA
MERGER SHARES. PROXIES RECEIVED BY THE DAKA BOARD WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
PROPOSAL 2--INCREASE IN THE AUTHORIZED SHARES OF DAKA COMMON STOCK
The DAKA Certificate currently provides that DAKA's authorized capital
stock consists of 20,000,000 shares of DAKA Common Stock and 1,000,000 shares of
Series A Preferred Stock, $.01 par value per share. At the DAKA Annual Meeting,
DAKA stockholders will be asked to consider and vote upon a proposal to approve
and adopt an amendment to the DAKA Certificate to increase the number of
authorized shares of DAKA Common Stock to 30,000,000 shares.
The increase in the authorized shares of DAKA Common Stock is being sought,
in part, because of the proposed Merger. On the DAKA Record Date, shares of
DAKA Common Stock were issued and outstanding. As outlined above, it is
anticipated that approximately [917,965] shares of DAKA Common Stock will be
issued in connection with the consummation of the Merger and an additional
shares will be reserved for issuance upon exercise of an outstanding warrant and
the outstanding options to purchase Champps Common Stock assumed by DAKA in
connection with the Merger. Absent the amendment increasing the number of
authorized shares, there would remain only approximately shares of
authorized but unissued shares of DAKA Common Stock following the Effective
Time.
The continued availability of shares of DAKA Common Stock (without the
delay and cost of calling a special stockholders meeting) will provide DAKA with
the flexibility to take advantage of certain opportunities which may arise.
Following the Effective Time, DAKA may from time to time consider (i) the
issuance of DAKA Common Stock as a source of financing; (ii) the acquisition of
other businesses utilizing DAKA Common Stock as consideration; and (iii) the
issuance of additional shares of DAKA Common Stock through stock splits and
stock dividends in appropriate circumstances. The issuance of additional shares
may, among other things, have a dilutive effect on earnings per share and on the
equity and voting power of existing holders of DAKA Common Stock.
The issuance of additional shares may also be deemed to have an
antitakeover effect by making it more difficult to obtain shareholder approval
of various actions, such as a merger or removal of management. Although the DAKA
Board has no present intention of issuing additional shares for such purposes,
the proposed increase in the number of authorized shares of DAKA Common Stock
could also enable the DAKA Board to render more difficult or discourage an
attempt by another person or entity to obtain control of DAKA. For example,
additional shares could be issued by the DAKA Board in a public or private sale,
merger or similar transaction, increasing the number of outstanding shares and
thereby diluting the equity interest and voting power of a party attempting to
obtain control of DAKA. There are at present no plans, understandings,
agreements or arrangements concerning the issuance of additional shares of DAKA
Common Stock, except for the DAKA Merger Shares to be issued pursuant to the
Merger and shares of DAKA Common Stock presently reserved for issuance. If any
plans, understandings, arrangements or agreements are made concerning the
issuance of any such shares, holders of the then outstanding shares of DAKA
Capital Stock may or may not be given the opportunity to vote thereon, depending
upon the nature of any such transaction, the law applicable thereto, the policy
of any stock exchange upon which the DAKA Common Stock may be listed at such
time and the judgment of the DAKA Board regarding the submission thereof to DAKA
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stockholders. This proposal is not in response to any effort of which DAKA is
aware to accumulate DAKA Common Stock of or to obtain control of DAKA.
THE DAKA BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF AN AMENDMENT TO THE
DAKA CERTIFICATE TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF DAKA COMMON
STOCK. PROXIES RECEIVED BY THE DAKA BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS
SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
PROPOSAL 3--ELECTION OF CLASS I DIRECTOR
The DAKA Board is divided into three classes, with the directors of each
class elected to three-year terms. One class stands for election at each annual
meeting of stockholders. At the DAKA Annual Meeting, one Class I director will
be elected to hold office for three years or until his successor is elected and
qualified. Unless otherwise specified in the enclosed proxy, the persons named
in the enclosed proxy intend to vote the shares represented by each properly
executed proxy "FOR" the election of the nominee named below. The DAKA Board has
no reason to believe that the nominee will be unable to serve if elected. In the
event the nominee shall become unavailable for election, the persons named in
the enclosed proxy will vote such shares for the election of such other person
as the DAKA Board may recommend. With respect to the election of directors, the
DAKA By-laws provide that such election shall be determined by a plurality of
the votes cast by stockholders, and thus shares represented by a proxy that
withholds authority to vote for a particular nominee or nominees and broker
non-votes will have no effect on the outcome.
The DAKA Board has nominated the following person for election as a Class I
director for a term expiring in 1999:
E. L. Cox
Mr. Cox has served as a Class I director of DAKA since September 1988 and
as a director of Fuddruckers, Inc. from June 1988 to November 1988. Mr. Cox
served from February, 1990 until his retirement in August, 1995 as Chairman and
Chief Executive Officer of Michigan Accident Fund. Mr. Cox is also a member of
the Board of Directors of Comerica, Inc., a publicly traded financial
institution. For more detailed information regarding Mr. Cox, see "The DAKA
Annual Meeting--Other Information--Directors and Committees."
THE DAKA BOARD RECOMMENDS A VOTE "FOR" THE RE-ELECTION AS A CLASS I
DIRECTOR OF THE NOMINEE. PROXIES RECEIVED BY THE DAKA BOARD WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
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PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On October 10, 1995, DAKA, Merger Subsidiary and Champps entered into the
Merger Agreement pursuant to which Merger Subsidiary will merge with and into
Champps and Champps will become a wholly-owned subsidiary of DAKA. As a result
of the Merger, each share of Champps Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be converted into the
right to receive four-tenths (.40) of one share of DAKA Common Stock, subject to
possible adjustment to forty-three hundredths (.43) of one share of DAKA Common
Stock if the DAKA Average Trading Price is less than $30.00, or thirty-seven
hundredths (.37) of one share of DAKA Common Stock if the DAKA Average Trading
Price is more than $35.00. The Merger will be accounted for using the pooling of
interests method of accounting.
On February 8, 1995, Daka, a wholly-owned subsidiary of DAKA, acquired an
80.01% general partnership interest in a newly-formed limited partnership, Daka
Restaurants, L.P. ("DRLP"), in exchange for cash of $10.1 million.
Simultaneously, DRLP acquired substantially all of the assets and foodservice
contracts comprising the education and corporate foodservice business (the
"Acquired Foodservice Business") of ServiceMaster Management Services L.P.
("SMMSLP") for a purchase price of approximately $21.1 million. The purchase
price was comprised of a cash payment of $10.1 million, the assumption of
approximately $806 thousand of liabilities, a deferred payment of $10.2 million
paid on June 13, 1995 and the issuance of a 19.99% limited partnership interest
in DRLP to SMMSLP. The purchase of the Acquired Foodservice Business was
accounted for using the purchase method of accounting.
The accompanying pro forma condensed combined financial statements reflect
the combined statements of income of DAKA and Champps for the fiscal years ended
July 1, 1995, July 2, 1994 and June 26, 1993 and for the three months ended
September 30, 1995 and October 1, 1994 and the combined balance sheets of DAKA
and Champps as of September 30, 1995 and July 1, 1995. In addition, the
accompanying pro forma condensed combined statement of income for the fiscal
year ended July 1, 1995 reflects the operating results of the Acquired
Foodservice Business, acquired as of the close of business on February 8, 1995,
as if it had been acquired on July 3, 1994, the beginning of the fiscal year.
The accompanying pro forma condensed combined balance sheet as of July 1,
1995 was derived from the audited consolidated balance sheet of DAKA as of July
1, 1995 and from the unaudited consolidated balance sheet of Champps as of July
2, 1995.
The accompanying pro forma condensed combined balance sheets and statements
of income as of and for the three months ended September 30, 1995 and October 1,
1994 are derived from the unaudited consolidated financial statements of DAKA
for the aforementioned periods and from the unaudited consolidated financial
statements of Champps for the thirteen weeks ended October 1, 1995 and for the
three months ended September 30, 1994. Such consolidated financial statements,
in the opinion of each of the respective company's management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such consolidated financial statements.
The accompanying pro forma condensed combined statements of income for the
years ended July 1, 1995, July 2, 1994 and June 26, 1993 were derived from (i)
the audited consolidated statements of income of DAKA for the years ended July
1, 1995, July 2, 1994 and June 26, 1993 and (ii) the unaudited statements of
income of Champps for the fifty-two weeks ended July 2, 1995 and for the four
quarters ended June 30, 1994 and June 30, 1993. Such consolidated unaudited
statements of income of Champps, in the opinion of Champps' management, contain
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods.
The audited consolidated statement of income of DAKA for the year ended
July 1, 1995 includes the operating results of the Acquired Foodservice Business
from February 9, 1995, through July 1, 1995. In addition to the amounts included
in DAKA's historical consolidated statement of income, the accompanying pro
forma condensed combined statement of income for the fiscal year ended July 1,
1995 also includes the operating results of the Acquired Foodservice Business
for the period from July 3, 1994 to December 21, 1994. For purposes of the
accompanying pro forma condensed combined statement of income for the fiscal
year
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ended July 1, 1995 the operating results for the period from December 22, 1994
through February 8, 1995, which are not included therein are not considered
significant.
The accompanying pro forma condensed combined financial statements do not
purport to be indicative of the results of operations or financial condition
that would have been achieved if DAKA and Champps had operated as a combined
company during the periods presented or if the acquisition of the Acquired
Foodservice Business had occurred at the beginning of the fiscal year. In
addition, the accompanying pro forma condensed combined financial statements do
not purport to be indicative of the results of operations or financial condition
which may be achieved in the future.
The accompanying pro forma condensed combined financial statements have
been prepared using the assumptions set forth in the accompanying Notes to Pro
Forma Condensed Combined Financial Statements and should be read in conjunction
with the audited consolidated financial statements and notes thereto of DAKA
incorporated herein by reference and the audited consolidated financial
statements of Champps included elsewhere in this Joint Proxy
Statement-Prospectus.
43
<PAGE> 57
DAKA INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JULY 1, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DAKA CHAMPPS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................... $ 7,236 $ 3,081 $ 10,317
Accounts receivable, net.......................... 29,844 150 29,994
Inventories....................................... 9,295 153 9,448
Prepaid expenses and other current assets......... 1,530 1,136 2,666
-------- ------- ----------- ---------
Total current assets........................... 47,905 4,520 52,425
-------- ------- ----------- ---------
Property and equipment, net......................... 86,513 7,361 93,874
Other assets, net................................... 33,362 439 33,801
-------- ------- ----------- ---------
$167,780 $12,320 $ 180,100
======== ======= =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................. $ 19,492 $ 889 $ 20,381
Accrued expenses.................................. 17,364 819 $ 2,048(3) 20,231
Current portion of long-term debt................. 613 238 851
Deferred income taxes............................. 236 236
-------- ------- ----------- ---------
Total current liabilities...................... 37,705 1,946 2,048 41,699
-------- ------- ----------- --------
Long-term debt...................................... 68,497 1,275 69,772
Other long-term liabilities......................... 11,842 11,842
Stockholders' Equity:
Preferred Stock, $.01 par value................... 1 1
Common Stock, $.01 par value...................... 46 49 (26)(2) 69
Capital in excess of par value.................... 38,848 8,688 26 (2) 47,562
Unrealized loss on marketable securities.......... (8) (8)
Retained earnings................................. 10,841 370 (2,048)(3) 9,163
-------- ------- ----------- ---------
Total stockholders' equity..................... 49,736 9,099 (2,048) 56,787
-------- ------- ----------- ---------
$167,780 $12,320 $ 0 $ 180,100
======== ======= =========== =========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
44
<PAGE> 58
DAKA INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DAKA CHAMPPS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................... $ 10,976 $ 1,534 $ 12,510
Accounts receivable, net.......................... 38,741 485 39,226
Inventories....................................... 10,742 240 10,982
Prepaid expenses and other current assets......... 1,710 1,291 3,001
-------- ------- -------- --------
62,169 3,550 65,719
-------- ------- -------- --------
Property and equipment, net......................... 89,540 9,997 99,537
Other assets, net................................... 33,539 500 34,039
-------- ------- -------- --------
$185,248 $14,047 $ 199,295
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................. $ 23,548 $ 799 $ 24,342
Accrued expenses.................................. 17,051 824 $ 2,048(3) 19,923
Current portion of long-term debt................. 793 860 1,653
Deferred income taxes............................. 236 32 268
-------- ------- -------- --------
41,623 2,515 2,048 46,186
-------- ------- -------- --------
Long-term debt...................................... 73,923 2,377 76,300
Other long-term liabilities......................... 12,645 12,645
Stockholders' Equity:
Common Stock, $.01 par value...................... 70 49 (26)(2) 93
Capital in excess of par value.................... 44,002 8,704 26 (2) 52,732
Unrealized loss on marketable securities.......... (8) (8)
Retained earnings................................. 12,985 410 (2,048)(3) 11,347
-------- ------- -------- --------
Total stockholders' equity..................... 57,057 9,155 (2,048) 64,164
-------- ------- -------- --------
$185,248 $14,047 $ 0 $ 199,295
======== ======= ======== =========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
45
<PAGE> 59
DAKA INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FISCAL YEAR ENDED JULY 1, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRED
FOODSERVICE PRO FORMA
DAKA CHAMPPS(1) SUBTOTAL BUSINESS(6) COMBINED(3)
-------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................................. $309,542 $11,834 $321,376 $43,517 $364,893
Management fees and franchising
income............................. 11,063 636 11,699 11,699
-------- ------- -------- ------- --------
320,605 12,470 333,075 43,517 376,592
-------- ------- -------- ------- --------
COSTS AND EXPENSES:
Cost of sales and operating
expenses........................... 262,017 9,488 271,505 39,906 311,411
Selling, general and administrative
expenses........................... 29,742 2,104 31,846 1,952 33,798
Depreciation and amortization......... 10,820 818 11,638 643 12,281
Interest expense...................... 4,256 66 4,322 441 4,763
Interest income....................... (631) (239) (870) (870)
Other expense (income)................ (8) (8) 203 195
-------- ------- -------- ------- --------
306,196 12,237 318,433 43,145 361,578
-------- ------- -------- ------- --------
Income before income taxes.............. 14,409 233 14,642 372 15,014
Income taxes............................ 5,293 24 5,317 154 5,471
-------- ------- -------- ------- --------
Net income.............................. 9,116 209 9,325 218 9,543
Preferred Stock dividend................ 400 400 400
-------- ------- -------- ------- --------
Net income available to common
stockholders.......................... $ 8,716 $ 209 $ 8,925 $ 218 $ 9,143
======== ======= ======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING(4):
Primary............................... 4,290 2,161 6,451 6,451
Fully diluted......................... 8,728 2,161 10,889 10,889
EARNINGS PER SHARE:
Primary............................... $ 2.03 $ .01 $ 1.38 $ 1.42
Fully diluted......................... $ 1.18 $ .01 $ .96 $ .98
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
46
<PAGE> 60
DAKA INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 2, 1994(1) FISCAL YEAR ENDED JUNE 26, 1993(1)
---------------------------------- ----------------------------------
DAKA CHAMPPS COMBINED(3) DAKA CHAMPPS COMBINED(3)
-------- ------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales............................ $239,352 $6,295 $245,647 $174,015 $6,285 $180,300
Management fees and franchising
income......................... 10,443 554 10,997 8,648 253 8,901
-------- ------ -------- -------- ------ --------
249,795 6,849 256,644 182,663 6,538 189,201
-------- ------ -------- -------- ------ --------
COSTS AND EXPENSES:
Cost of sales and operating
expenses....................... 201,189 5,018 206,207 145,395 4,736 150,131
Selling, general and
administrative expenses........ 27,304 882 28,186 23,434 619 24,053
Depreciation and amortization.... 8,223 170 8,393 5,186 254 5,440
Interest expense................. 2,738 133 2,871 2,361 90 2,451
Interest income.................. (251) (80) (331) (428) (4) (432)
Other expense (income)........... 99 99 76 76
-------- ------ -------- -------- ------ --------
239,302 6,123 245,425 176,024 5,695 181,719
-------- ------ -------- -------- ------ --------
Income before income taxes......... 10,493 726 11,219 6,639 843 7,482
Income taxes....................... 3,591 298 (5) 3,889 1,992 345 (5) 2,337
-------- ------ -------- -------- ------ --------
Income from continuing
operations....................... 6,902 428 7,330 4,647 498 5,145
Preferred Stock dividend........... 800 800
-------- ------ -------- -------- ------ --------
Income available to common
stockholders..................... $ 6,102 $ 428 $ 6,530 $ 4,647 $ 498 $ 5,145
======== ====== ======== ======== ====== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING(4):
Primary.......................... 3,933 1,810 5,743 3,423 1,678 5,101
Fully diluted.................... 8,579 1,810 10,389 6,311 1,678 7,989
EARNINGS PER SHARE:
Primary.......................... $ 1.55 $ .24 $ 1.14 $ 1.36 $ .30 $ 1.01
Fully diluted.................... $ .96 $ .24 $ .84 $ .80 $ .30 $ .69
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
47
<PAGE> 61
DAKA INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1995(1) OCTOBER 1, 1994(1)
--------------------------------- ---------------------------------
DAKA CHAMPPS COMBINED(3) DAKA CHAMPPS COMBINED(3)
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales.............................. $84,218 $5,441 $89,659 $62,883 $1,656 $64,539
Management fees and franchising
income........................... 3,042 138 3,180 2,128 110 2,238
------- ------ ------- ------- ------ -------
87,260 5,579 92,839 65,011 1,766 66,777
------- ------ ------- ------- ------ -------
COSTS AND EXPENSES:
Cost of sales and operating
expenses......................... 70,506 4,487 74,993 52,609 1,320 53,929
Selling, general and administrative
expenses......................... 8,532 556 9,088 6,928 356 7,284
Depreciation and amortization...... 3,501 481 3,982 2,285 59 2,344
Interest expense................... 1,297 36 1,333 782 11 793
Interest income.................... (61) (42) (103) (71) (79) (150)
Other expense (income)............. 27 27 (3) (3)
------- ------ ------- ------- ------ -------
83,802 5,518 89,320 62,530 1,667 64,197
------- ------ ------- ------- ------ -------
Income before income taxes........... 3,458 61 3,519 2,481 99 2,580
Income taxes......................... 1,314 20 1,334 899 38 937
------- ----- ------- ----- ------ -------
Net income........................... $ 2,144 $ 41 $ 2,185 $ 1,582 $ 61 $ 1,643
======= ====== ======= ======= ====== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING(4):
Primary............................ 5,879 2,157 8,036 4,003 2,278 6,281
Fully diluted...................... 8,847 2,157 11,004 8,634 2,278 10,912
EARNINGS PER SHARE:
Primary............................ $ .36 $ .02 $ .27 $ .40 $ .03 $ .26
Fully diluted...................... $ .27 $ .02 $ .22 $ .22 $ .03 $ .18
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
48
<PAGE> 62
DAKA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. FISCAL PERIODS
DAKA's fiscal year ends on the Saturday closest to June 30. Prior to
January 1, 1995, Champps' year end was December 31. On January 1, 1995, Champps
changed its fiscal year to a 52/53 week year ending on the Sunday closest to
December 31. The accompanying pro forma condensed combined financial statements
have been prepared utilizing DAKA's fiscal calendar and are derived from the
historical consolidated financial statements of DAKA and Champps. The amounts
included in the pro forma condensed combined statements of income for Champps
for the years ended July 1, 1995, July 2, 1994 and June 26, 1993 were derived
from the unaudited consolidated statements of income for the fifty-two weeks
ended July 2, 1995 and for the four quarters ended June 30, 1994 and June 30,
1993, respectively.
2. STOCKHOLDERS' EQUITY
The pro forma adjustments to common stock and capital in excess of par
value as of July 1, 1995 and September 30, 1995 reflect the issuance of
2,294,913 shares of DAKA Common Stock for all of the outstanding shares of
Champps Common Stock representing an Exchange Ratio of .43 DAKA shares for each
share of Champps Common Stock. For the purpose of these pro forma condensed
combined financial statements, the number of shares of DAKA Common Stock to be
issued represents the maximum number of shares which may be issued by DAKA
pursuant to the Merger Agreement.
3. MERGER EXPENSES
Under the pooling-of-interests method of accounting, costs associated with
the merger of DAKA and Champps are treated as an expense of the combined
company. The accompanying pro forma condensed combined statements of income do
not reflect the expenses associated with the Merger, which are estimated to be
approximately $3,500 pre-tax and $2,048 after-tax, that will be recorded in the
first period that consolidated financial statements of the combined companies
are presented, since such expenses are non-recurring. The after-tax effect of
these expenses are, however, reflected in the accompanying pro forma condensed
combined balance sheets as of July 1, 1995 and September 30, 1995 as a liability
and a reduction to retained earnings. Merger expenses consist primarily of
professional fees and proxy solicitation costs. The tax effect of the Merger
expenses was calculated using DAKA's effective state income tax rate of 6.5% for
the fiscal year ended July 1, 1995 and the statutory federal income tax rate of
35%.
4. WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average number of outstanding shares of Champps Common Stock
represents the number of equivalent shares of DAKA Common Stock into which such
shares of Champps may be exchanged utilizing the maximum Exchange Ratio of .43,
applied to the historical weighted average number of shares of Champps Common
Stock outstanding.
5. INCOME TAXES
Prior to January 1, 1994, Champps and its Predecessors (the "Companies")
were S corporations. As S corporations, the Companies were generally not subject
to federal or state income taxes. Instead the stockholders were taxed on the
Companies' taxable income at the stockholders' individual federal and state
income tax rates. Accordingly, there was no provision for income taxes recorded
by the Companies. Effective January 1, 1994, the Companies elected to be taxed
as C corporations for federal income tax purposes and were subject to federal
and state income taxes subsequent to that date. Net income for 1992 and 1993
includes a pro forma provision for income taxes to reflect income taxes as if
the Companies had been taxed as C corporations in 1992 and 1993.
49
<PAGE> 63
DAKA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. ACQUIRED FOODSERVICE BUSINESS
The audited consolidated statement of income of DAKA for the year ended
July 1, 1995 includes the operating results of the Acquired Foodservice Business
from February 9, 1995, through July 1, 1995. In addition to the amounts included
in DAKA's historical consolidated statements of income, the accompanying pro
forma condensed combined statement of income for the fiscal year ended July 1,
1995 also includes the operating results of the Acquired Foodservice Business
for the period from July 1, 1994 to December 21, 1994, adjusted to reflect the
pro forma adjustments for interest expense, depreciation and amortization
associated with the new asset basis and SMMSLP's portion of the income of the
Acquired Foodservice Business. For purposes of the accompanying pro forma
condensed combined statement of income for the fiscal year ended July 1, 1995,
the operating results for the period from December 22, 1994 through February 8,
1995, which are not included therein, are not considered significant.
50
<PAGE> 64
CHAMPPS SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected historical statement of operations
and balance sheet data of Champps. The balance sheet data presented below as of
December 31, 1994 and 1993 and the statement of operations data presented below
for each of the years in the three-year period ended December 31, 1994 are
derived from Champps' audited consolidated financial statements. The balance
sheet data as of December 31, 1992 is derived from Champps unaudited combined
financial statements. The balance sheet data as of October 1, 1995 and September
30, 1994 and statement of operations data for the thirty-nine weeks ended
October 1, 1995 and for the nine month period ended September 30, 1994,
presented below are derived from Champps' unaudited consolidated financial
statements, which, in the opinion of Champps' management, contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The operating results for the thirty-nine weeks ended October 1, 1995
and for the nine months ended September 30, 1994 are not necessarily indicative
of the results that may be expected for the entire year. The selected historical
financial data should be read in conjunction with the consolidated financial
statements and related notes thereto for Champps and "Champps Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
THIRTY-NINE NINE
WEEKS MONTHS
ENDED ENDED DECEMBER 31,
OCTOBER 1, SEPTEMBER 30, -------------------------
1995(1) 1994 1994 1993(2) 1992(2)
----------- ------------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales by Champps-owned restaurants............ $12,284 $ 4,681 $ 7,900 $6,199 $6,554
Cost of sales................................. 3,523 1,320 2,275 1,753 1,856
Restaurant operating expenses................. 6,495 2,416 4,099 3,120 3,253
Depreciation and amortization................. 1,021 176 395 224 268
Other revenues................................ (65) (30) (82) (36) (74)
------- ------ ------- ------ ------
Income from restaurant operations........... 1,310 799 1,213 1,138 1,251
------- ------ ------- ------ ------
Royalty and franchise fee revenue............. 461 435 638 362 263
Direct franchising expenses................... 102 77 120 45 29
------- ------ ------- ------ ------
Income from franchising operations.......... 359 358 518 317 234
------- ------ ------- ------ ------
Income from operations before general and
administrative expenses..................... 1,669 1,157 1,731 1,455 1,485
General and administrative expenses........... 1,486 840 1,233 596 472
Severance expense............................. -- -- 280 -- --
Loss on sale of restaurant.................... -- -- -- -- 262
------- ------ ------- ------ ------
Operating income............................ 183 317 218 859 751
Interest expense.............................. 68 100 122 90 179
Interest income............................... (149) (148) (201) (14) (27)
------- ------ ------- ------ ------
Income before income taxes.................... 264 365 297 783 599
Provision for income taxes.................... 87 143 64 325 244
------- ------ ------- ------ ------
Net income.................................... $ 177 $ 222 $ 233 $ 458 $ 355
------- ------ ------- ------ ------
BALANCE SHEET DATA:
Total assets.................................. $14,047 $ 9,610 $10,572 $3,262 $1,571
Long-term debt................................ 2,377 -- 610 474 1,455
Shareholders Investment....................... 9,155 8,400 8,493 981 (159)
</TABLE>
- ---------------
(1) Effective January 1, 1995, Champps changed its year from a calendar year end
to a 52/53 week year.
(2) Prior to 1994, Champps and its predecessors had elected to be treated as S
corporations for purposes of federal and state income tax reporting. As an S
corporation, Champps generally was not subject to federal and state income
taxes with respect to its earnings and profits. Instead the shareholders of
Champps were taxed on their allocable share of Champps' taxable income at
such shareholders' individual federal and state income tax rates.
Accordingly, there was no provision for income taxes recorded by Champps in
1993 and 1992. Effective January 1, 1994, Champps and its subsidiaries
elected to be taxed as C corporations for federal and state income tax
purposes and have been subject to federal and state income taxes subsequent
to that date. Net income and net income per share for 1993 and 1992 include
an unaudited pro forma provision for income taxes to reflect income taxes as
if Champps had been taxed as a C corporation in 1993 and 1992.
51
<PAGE> 65
CHAMPPS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
OVERVIEW OF OPERATIONS
Champps owns and operates a full service casual theme restaurant and bar
concept under the name Champps Americana. Champps began to expand its concept
nationwide with the completion of its initial public offering in April 1994.
Since then, Champps has opened five new Champps-owned restaurants and has
incurred significant costs related to the construction and opening of these new
restaurants. In addition, as a result of the new restaurant development,
Champps' statement of operations has and will reflect the negative effect of
store openings on cost of sales, restaurant operating income and depreciation
and amortization expenses. Champps currently expects that to continue its
expansion strategy it will continue to incur slightly higher cost of sales,
restaurant operating expenses, depreciation and amortization, and interest
expense associated with its development until the point at which the total
number of restaurants that have been open at least eighteen months exceeds the
number of new restaurants under development.
RESULTS OF OPERATIONS
COMPARISON OF THIRTY-NINE WEEKS ENDED OCTOBER 1, 1995 TO NINE MONTHS ENDED
SEPTEMBER 30, 1994
Net Sales by Champps-Owned Restaurants. Net sales by Champps-owned
restaurants increased 162.4% from $4,681 for the nine months ended September 30,
1994 to $12,284 for the thirty-nine weeks ended October 1, 1995. The increase
was primarily attributable to the opening of three new Champps-owned
restaurants: Addison, Texas in October 1994, Edison, New Jersey in May 1995 and
Marlton, New Jersey in August 1995. Comparable store sales in the Minnetonka
restaurant were flat during the thirty-nine weeks ended October 1, 1995 compared
to the nine months ended September 30, 1995. Food sales as a percentage of total
net sales by Champps-owned restaurants decreased from 67.4% for the nine months
ended September 30, 1994 to 59.0% for the thirty-nine weeks ended October 1,
1995 as a result of higher liquor sales in the new restaurants.
Royalty and Franchise Fee Revenue. Royalty and franchise fee revenue
increased 5.9% from $435 for the nine months ended September 30, 1994 to $461
for the thirty-nine weeks ended October 1, 1995. The increase is attributable to
a combination of a $91 increase in royalty income as a result of a 8.2% increase
in comparable restaurant sales at licensed and franchised restaurants and one
additional franchised restaurant in operation during the thirty-nine weeks ended
October 1, 1995 compared to the nine months ended September 30, 1994. This
increase in royalty income was offset, in part, by a $65 decrease in franchise
fee revenue principally due to $80 of revenue recognized in connection with the
sale of a multi-unit development agreement during the nine months ended
September 30, 1994.
Cost of Sales and Restaurant Operating Expenses. Cost of sales which
represent the cost of food, beverage and liquor sales increased from $1,320 for
the nine months ended September 30, 1994 to $3,523 for the thirty-nine weeks
ended October 1, 1995, due to three new restaurants. Cost of sales as a
percentage of net sales by Champps-owned restaurants increased from 28.2% to
28.7%. The increase in cost of sales as a percentage of net sales by
Champps-owned restaurants is attributable to higher costs generally associated
with the initial period of operations of newly opened restaurants offset, in
part, by higher margins resulting from higher liquor sales in Champps' new
restaurants. Restaurant operating expenses increased 168.8% from $2,416 for the
nine months ended September 30, 1994 to $6,495 for the thirty-nine weeks ended
October 1, 1995 as a result of three new restaurants. Restaurant operating
expenses as a percentage of net sales by Champps-owned restaurants increased
from 51.6% to 52.9%. The percentage increase is primarily attributable to higher
operating and occupancy costs for the new restaurants opened in 1995, offset in
part by lower labor costs prevailing in the Texas and New Jersey markets where
these new restaurants operate.
Direct Franchise Expenses. Direct franchise expenses increased 31.4% from
$77 for the nine months ended September 30, 1994 to $102 for the thirty-nine
weeks ended October 1, 1995. This increase is primarily
52
<PAGE> 66
attributable to $32 of expenses incurred in connection with the opening of one
new franchised restaurant in the second quarter of 1995.
Depreciation and Amortization. Depreciation and amortization increased
from $176 for the nine months ended September 30, 1994 to $1,021 for the
thirty-nine weeks ended October 1, 1995, and increased as a percentage of net
sales by Champps-owned restaurants from 3.4% to 8.0%. The increase is
attributable to depreciation associated with Champps' new restaurants and $415
of amortization of preopening costs.
General and Administrative Expenses. General and administrative expenses
increased 76.9% from $840 for the nine months ended September 30, 1994 to $1,486
for the thirty-nine weeks ended October 1, 1995, but decreased as a percentage
of total revenue from 16.3% in 1994 to 11.6% in 1995. The increase in general
and administrative expenses is attributable to increased corporate salaries and
benefits associated with the addition of key management personnel, professional
fees, corporate travel expenses and general office expenses incurred in
anticipation of implementing Champps' expansion strategy.
Interest Expense. Interest expense decreased during the thirty-nine weeks
ended October 1, 1995 due to a loss of $47 recognized during the nine months
ended September 30, 1994 related to certain municipal bond investments.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993
Net Sales by Champps-Owned Restaurants. Net sales by Champps-owned
restaurants increased 27.4% from $6,199 in 1993 to $7,900 in 1994. The increase
was primarily due to sales generated by Champps' second restaurant after its
opening in October 1994 in Addison, Texas. In addition, sales at Champps'
Minnetonka, Minnesota restaurant increased 2.4% in 1994 compared to 1993. Food
sales as a percentage of total net sales by Champps-owned restaurants were 63%
in 1994 and 66% in 1993. The decrease in food sales as a percentage of total
sales in 1994 is due to higher liquor sales in Champps' new restaurant.
Royalty and Franchise Fee Revenue. Royalty and franchise fee revenue
increased 76.5% from $362 in 1993 to $638 in 1994. The increase is attributable
to a $68 increase in franchise fees generated from new franchised restaurants,
$80 of revenue recognized in connection with signing a multi-unit development
agreement in 1994 and a $128 increase in royalty income in 1994. The increase in
royalty income is due to a combination of a 3.7% increase in comparable
restaurant sales at franchised restaurants and three additional franchised
restaurants in operation during 1994 as compared to 1993.
Cost of Sales and Restaurant Operating Expenses. Cost of sales increased
29.8% from $1,753 in 1993 to $2,275 in 1994 due to the opening of Champps' new
restaurant in Addison, Texas. Cost of sales as a percentage of net sales by
Champps-owned restaurants increased to 28.8% in 1994 as compared to 28.3% in
1993. The increase is attributable to higher costs generally associated with the
initial period of operations of newly opened restaurants. Restaurant operating
expenses increased 31.4% from $3,120 in 1993 to $4,099 in 1994, and increased as
a percentage of net sales by Champps-owned restaurants from 50.3% in 1993 to
51.9% in 1994. The increase is attributable to increased marketing and promotion
expenses associated with the opening of the Addison, Texas restaurant and
increased workers' compensation, percentage rent, and repairs and maintenance
expenses during 1994.
Direct Franchise Expenses. Direct franchise expenses increased from $45 in
1993 to $120 in 1994, and increased as a percentage of royalty and franchise fee
revenue from 12.4% in 1993 to 18.8% in 1994. This increase is primarily
attributable to the recognition of direct expenses incurred with respect to the
opening of two new franchised restaurants in 1994 compared to assistance
provided for only one in 1993. The increase is also due to an increase in
franchised restaurant sales, which resulted in increased licensing fees paid by
Champps to the former owner of the "Champps" trade name.
Depreciation and Amortization. Depreciation and amortization increased
76.3% from $224 in 1993 to $395 in 1994 and increased as a percentage of total
revenue from 3.4% in 1993 to 4.6% in 1994. The increase is attributable to
depreciation and amortization of preopening costs associated with Champps' new
restaurant in Addison, Texas.
53
<PAGE> 67
General and Administrative Expenses. General and administrative expenses
increased 106.8% from $596 in 1993 to $1,233 in 1994 and increased as a
percentage of total revenue from 9.0% in 1993 to 14.3% in 1994. The increase is
attributable to increased corporate salaries and benefits associated with the
addition of certain key management personnel, professional fees, corporate
travel expenses and general office expenses incurred in anticipation of
implementing Champps' expansion strategy.
Interest Income and Expense. Interest income increased from $14 in 1993 to
$201 in 1994. The increase in interest income was due to the investment of
unused proceeds from Champps' initial public offering in April 1994. Interest
expense increased 36.4% from $90 in 1993 to $122 in 1994. The increase in
interest expense was due to a $47 loss on its short-term investment portfolio
attributable to the declining value of Champps municipal bond investment,
offset, in part, by a reduction in interest expense due to the repayment of a
portion of outstanding indebtedness with proceeds from Champps' initial public
offering.
COMPARISON OF YEAR ENDED DECEMBER 31, 1993 TO YEAR ENDED DECEMBER 31, 1992
Net Sales by Champps-Owned Restaurants. Net sales by Champps-owned
restaurants decreased 5.4% from $6,554 in 1992 to $6,199 in 1993. The decrease
was primarily due to the sale of a Champps-owned restaurant in February 1992,
which generated $240 in net sales for the seven weeks it was owned by Champps in
1992. Sales at Champps' Minnetonka, Minnesota restaurant decreased 1.8% in 1993
compared to 1992 due to a decrease in liquor sales. Food sales as a percentage
of total net sales by Champps-owned restaurants remained consistent at 67% in
1993 and 1992.
Royalty and Franchise Fee Revenue. Royalty and franchise fee revenue
increased 37.2% from $263 in 1992 to $362 in 1993. Initial franchise fee revenue
recognized in 1993 was $67 compared to $27 in 1992. The increase in franchise
fee revenue in 1993 was attributable to two franchised openings in 1993 compared
to only one in 1992. Royalty revenues increased 25% from $236 in 1992 to $295 in
1993. This increase was due to new franchised restaurants opened during 1993, as
well as increased sales at existing franchised restaurants.
Cost of Sales and Restaurant Operating Expenses. Cost of sales decreased
5.5% from $1,856 in 1992 to $1,753 in 1993. Cost of sales as a percentage of net
sales by Champps-owned restaurants was 28.3% in both 1993 and 1992. Restaurant
operating expenses decreased 4.1% from $3,253 in 1992 to $3,120 in 1993, but
increased as a percentage of net sales by Champps-owned restaurants from 49.6%
to 50.3%. This percentage increase is primarily attributable to a decrease in
sales at Champps' Minnetonka, Minnesota restaurant.
Direct Franchise Expenses. Expenses associated with franchise operations
increased 51.8% from $29 in 1992 to $45 in 1993. The increase is attributable to
the addition of franchise personnel responsible for overseeing Champps
franchised operations.
General and Administrative Expenses. General and administrative expenses
increased 26.3% from $472 in 1992 to $596 in 1993, and increased as a percentage
of total revenue from 6.8% in 1992 to 9.0% in 1993 as a result of costs incurred
to settle certain litigation.
FINANCIAL CONDITION
During the thirty-nine weeks ended October 1, 1995, Champps' operating
activities provided cash flow of approximately $481. The cash flow from Champps'
restaurants was largely offset by pre opening expenses related to the opening of
the third and fourth Champps-owned restaurants in Edison and Marlton, New
Jersey. Champps believes that it will continue to generate cash from operating
activities and anticipates that this cash, along with the cash generated from
Champps' initial public offering and its line of credit, will continue to be
used to fund the development of additional Champps-owned restaurants through
December 1995.
Champps has continued its development efforts and opened its third
Champps-owned restaurant during the quarter ended July 2, 1995 and its fourth
Champps-owned restaurant during the quarter ended October 1, 1995. Approximately
$7.4 million was incurred for the construction of existing and future
restaurants and other fixed asset purchases. Champps expects that it will use a
significant portion of its capital resources to fund new restaurant development
and construction. Additionally, Champps paid approximately $160 in construction
advances to expand its corporate offices.
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Champps generated approximately $462 in cash from financing activities
during the thirty-nine weeks ended October 1, 1995. The funds were obtained from
borrowings under its line of credit and $270 of proceeds received from the
exercise of warrants and stock options. Champps also expended approximately $343
to repay a portion of its long-term debt.
Champps plans to open two new Champps Americana restaurants during the
fourth quarter of 1995 and has entered into noncancellable lease agreements for
each of these restaurants. The estimated cash required to complete these
restaurants, including pre-opening expenses, is approximately $2,700.
In August 1995, Champps entered into a $1,500 revolving line of credit
agreement with a bank. The purpose of the credit facility is to provide working
capital for new restaurant development. The line of credit expires on August 10,
1996 and bears interest at a variable rate equal to the bank's prime rate plus
1%. As of October 1, 1995, borrowings under this line of credit were $535.
In August 1995, Champps entered into a multi-site sale leaseback financing
agreement with a third party finance company to provide sale leaseback financing
to Champps for up to 6 new restaurant sites in which the Company owns the real
estate. Such agreement expires on December 31, 1997. Such new site must be
approved by the third party prior to any funding under the agreement.
Champps anticipates that the remaining net proceeds of its 1994 initial
public offering, cash flow from operations, availability of funds under its line
of credit agreement, it's sale leaseback financing agreement and equipment
financing agreements will be sufficient to fund planned expansion through
December 1995.
In order to allow Champps to continue to develop and build restaurants,
DAKA agreed in the Merger Agreement to provide loans to Champps up to the
aggregate principal amount of $3,000 bearing interest at a fixed rate of 10% per
annum and maturing on October 10, 2000 and upon such other terms as are normal
and customary for loans of this type. On December 19, 1995 DAKA entered into a
loan agreement (the "DAKA Loan Agreement") with Champps Entertainment of
Wayzata, Inc. ("CEW"), a newly formed wholly-owned subsidiary of Champps to
which Champps had previously transferred its recently completed restaurant in
Irvine, California, and rights to develop a new restaurant in Reston, Virginia.
The loans are guaranteed by Champps and secured by the Irvine and Reston
restaurants and the capital stock of CEW. As of the date of this Joint Proxy
Statement-Prospectus, approximately $710 has been loaned by DAKA to CEW to
refund costs incurred by Champps to build the Irvine restaurant. Additional
loans will be made to CEW as required to fund construction of the Reston
restaurant. If the Merger Agreement is terminated, DAKA will thereafter not be
obligated to make additional loans, but loans made prior to such termination
will remain outstanding under the terms of the DAKA Loan Agreement. These loans
should provide the expansion capital required to fund Champps' construction
efforts through June 1996.
If the Merger between Champps and DAKA is not consummated for any of the
reasons described in Note 5 of the Notes to Consolidated Financial Statements as
of October 1, 1995, Champps anticipates the need to raise additional debt or
equity capital in order to fund the construction of new restaurants in 1996.
IMPACT OF INFLATION
The primary inflationary factors affecting Champps' operations include
food, beverage and labor costs. Labor costs are generally affected by changes in
the labor market and, due to the fact that a large portion of Champps' employees
are paid at federal and state established minimum wage levels, changes in such
wage laws affect Champps' labor costs. In addition, most of Champps' leases
require the proportionate payment of taxes, maintenance and repairs and these
costs are subject to inflationary pressures. While Champps believes that the low
levels of inflation in recent years has contributed to the stabilization of food
and beverage costs, there is no assurance that this will continue into the
future.
NEW ACCOUNTING PRONOUNCEMENTS
As described in Note 2 of the Notes to Consolidated Financial Statements
for the year ended December 31, 1994, Champps has adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Champps' adoption of Statement of Financial Accounting
Standards No. 115 did not have a material financial statement impact on Champps
Consolidated Financial Statements.
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BUSINESS OF DAKA
DAKA, formed in 1988 in connection with the merger of Daka and Fuddruckers,
is a diversified foodservice and restaurant company operating in the contract
foodservice management industry and in the restaurant industry. Daka provides
restaurant-style contract foodservice management at a variety of schools and
colleges, corporate offices, factories, healthcare facilities, museums and
government offices. Fuddruckers owns, operates and franchises Fuddruckers
restaurants, which specialize in moderately-priced, casual dining for families
and adults. In 1994, CDVI, a wholly-owned subsidiary of DAKA, acquired a 57%
voting interest in ADC, a newly formed company which acquired two restaurants
operated under the name "Champps Americana" pursuant to a license from Champps.
ADC has the exclusive rights to develop Champps Americana restaurants in Ohio,
Florida and seven Illinois counties.
Founded in 1973, Daka is one of the 10 largest contract foodservice
management companies in the United States. Operating under the name "Daka
Restaurants," Daka seeks to provide a retail restaurant atmosphere for its
guests by operating, among other things, a variety of branded concepts such as
Taco Bell, Burger King, Pizza Hut and Dunkin Donuts pursuant to licensing
arrangements, as well as its own signature concepts within its foodservice
operations. During fiscal 1995 and 1994, Daka focused on executing its three-
year growth plan, announced at the end of fiscal 1993, to double the size of its
existing foodservice business by the end of fiscal 1996. At the beginning of
fiscal 1994, Daka acquired the majority of the assets and foodservice contracts
comprising Service America Corporation's educational foodservice business. The
acquired business provided contract foodservice to a variety of colleges and
universities, and to public and private elementary and secondary schools, many
of which are located in geographic areas where Daka had a significant presence.
In February 1995, Daka, through a newly formed 80.01% owned limited partnership,
Daka Restaurants, L.P., acquired certain educational foodservice and corporate
dining contracts from SMMSLP. The acquired contracts expanded Daka's geographic
presence into the western United States and strengthened its existing presence
in the midwest. As a result of these two acquisitions, Daka achieved its
three-year growth objectives in just nineteen months. Daka believes that, as a
result of current and anticipated cost containment policies, more public and
private educational and healthcare facilities will seek to manage their
foodservice costs by replacing self-operated foodservice operations with
contract foodservice management. Daka intends to pursue these expanding markets
through its internal sales force and by continuing to acquire other contract
foodservice management companies.
Fuddruckers restaurants, with an average check of $6.15 and a "Kids Eat
Free" program after 4:00 p.m. on Monday through Thursday, are designed to appeal
to both families and adults seeking value in a casual dining atmosphere. The
menu prominently features Fuddruckers' signature hamburgers, which are cooked to
order and served on buns baked daily "from scratch" at each restaurant. The
Fuddruckers restaurant decor features an open grill area, a glassed-in butcher
shop and meat display case, an open bakery and a colorful display island of
fresh produce and a variety of condiments, sauces and melted cheeses from which
guests may garnish their own meals. Fuddruckers opened its first restaurant in
1980 in San Antonio, Texas and as of September 30, 1995, has expanded its
operations to include 102 Fuddruckers-owned and 72 franchised restaurants
located throughout the United States and in Canada, the Middle East and
Australia. In fiscal 1995, Fuddruckers opened 22 Fuddruckers-owned restaurants
and 9 franchised restaurants. In fiscal 1996, Fuddruckers plans to open 30
domestic Fuddruckers-owned and 20 franchised restaurants of which up to 5 will
be opened in foreign countries.
Acquisitions have been and are expected to continue to be an important part
of DAKA's growth strategy both in its contract foodservice management and its
restaurant businesses. DAKA believes it has made sufficient recent investments
in its corporate infrastructure and operational systems to support significant
future growth through acquisitions in existing and new markets. In the ordinary
course of its business, DAKA engages in preliminary discussions with other
foodservice and restaurant companies concerning possible acquisitions of their
business, as well as investments in controlling or minority equity interests. In
furtherance of its acquisition strategy, DAKA from time to time enters into
confidentiality agreements and/or non-binding letters of intent while it
conducts a due diligence review of the business it proposes to acquire or make
an investment in and pursues negotiations with respect to terms and conditions
of binding agreements. At any given time DAKA is likely to have one or more such
letters of intent outstanding and to be actively negotiating
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with respect to multiple possible transactions. Two potential transactions have
progressed to the point where they can be considered probable, although binding
obligations of DAKA or any other party with respect to these and any other
transactions will arise only upon the execution of final agreements and,
accordingly, there can be no assurance that these or any other transactions will
be completed in the near future or at all. DAKA has entered into a letter of
intent with respect to the possible acquisition at a purchase price of
approximately $2.5 million of a 60% equity interest in a company engaged in the
business of owning, operating and franchising retail bagel and muffins cafes;
this company currently has 55 franchised and 5 owned stores in the Eastern
United States and annual sales of approximately $1 million. DAKA is also
negotiating the possible acquisition of a minority equity interest in a company
engaged in the business of owning, operating and franchising restaurants that
serve Mexican food in a "taqueria" format; this company currently has 26
franchised and 26 owned stores in California and the South-Western United States
and annual sales of approximately $18 million. The transaction is expected to be
structured as an investment by DAKA in convertible preferred stock representing
a 16.7% equity interest on a fully-diluted basis at a purchase price of
approximately $5 million and warrants to acquire within 18 months convertible
preferred stock representing an additional 13.3% equity interest on a
fully-diluted basis at a purchase price of approximately $7.1 million. These
acquisitions are not expected to constitute significant acquisitions and pro
forma financial information reflecting the result of these acquisitions if
consummated is not and will not be required to be provided.
See Note 13 of Notes to Consolidated Financial Statements for financial
information related to Daka, Fuddruckers and ADC incorporated herein by
reference.
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BUSINESS OF CHAMPPS
GENERAL
Champps owns and operates six vibrant, energetic, casual theme restaurants
under the name "Champps Americana" located in Minnesota, Texas, New Jersey,
Indiana and California. It also has a total of twelve additional restaurants in
operation pursuant to franchise or license agreements in the following areas:
Minneapolis/St. Paul metropolitan area; Sioux Falls, South Dakota; Milwaukee,
Wisconsin; Charlotte, North Carolina; Cleveland, Ohio; and Omaha, Nebraska.
Champps plans to continue to expand its concept nationally by establishing
additional Champps-owned restaurants. Champps has signed leases to open three
additional Champps-owned restaurants in Reston, Virginia, Denver, Colorado and
Hempstead, New York. Champps has also entered into various license, franchise
and development agreements, some of which are on an exclusive basis, which grant
third parties rights to open and operate Champps Americana restaurants in
various territories. See "--Franchises."
The Champps Americana concept is based upon providing the best possible
food, value and service to its customers. Menu items are prepared daily from
scratch using only ingredients from suppliers who meet Champps' quality control
standards. The restaurants' diverse menu has over 120 items including burgers,
pastas, salads, sandwiches, ribs, pizzas, seafood, chicken and a variety of
other dishes all served in generous portions. Customer service is based on a
team approach so that each patron is continually attended to, and employees go
through extensive on-going training to ensure consistent service. Although food
and service are the most important parts of the Champps Americana concept, an
atmosphere that is entertaining, yet comfortable, is also critical. Management
believes the Champps Americana concept enjoys a high level of repeat business
and customer diversity because it provides great food and service in an exciting
and entertaining environment.
The goal of Champps is to promote an entertaining and energetic atmosphere.
In the typical Champps Americana restaurant, customers are provided a choice of
seating in the main dining area, at the diner-type counter, in the bar area, or,
in some locations, outside on the patio. Champps Americana restaurants generally
have multiple levels and open sight lines so that all areas, including the bar
and kitchen, are visible and allow customers to feel a part of all the varied
activities in the restaurant. These activities include watching sporting events
on multiple television screens, listening to music that is selected by a disc
jockey based upon the time of day or season, watching the cooks prepare meals,
playing arcade games in the discreetly located game room, or visiting the
Champps Americana gift shop. In addition, the bar provides a staging area for
on-going promotional events that add to the restaurant's excitement. Although
food and service are considered keys to each restaurant's success, the
entertaining atmosphere provides an added reason for people to eat and drink at
Champps Americana restaurants.
In an industry with intense competition, Champps believes it has
distinguished itself from other restaurants with its service, entertaining
atmosphere and restaurant economics. Champps believes it can take advantage of
its perceived distinctiveness by actively developing its Champps Americana
restaurant concept through the building of new Champps-owned restaurants.
HISTORY
The Champps Americana restaurant concept has been developed and refined
since the first Champps Americana restaurant was opened in St. Paul, Minnesota
in 1984 by Dean P. Vlahos, Champps' founder, President and Chief Executive
Officer. Mr. Vlahos opened a second Champps Americana in Richfield, Minnesota,
in 1986 and owned both restaurants until they were sold in 1989. These two
original restaurants remain franchises/licensees of Champps. The sale of the two
original Champps Americana restaurants allowed Mr. Vlahos to open his larger,
prototype Champps Americana restaurant in Minnetonka, Minnesota in November
1990.
On May 23, 1990, Champps was formed to franchise the Champps Americana
concept. Champps of Minnetonka, Inc. owned the Champps Americana restaurant in
Minnetonka, Minnesota and Champps Franchising, Inc. was formed for the specific
purpose of establishing a Milwaukee, Wisconsin franchise. Prior
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to February 14, 1994, Champps was comprised of three separate companies each
under common ownership and control. Pursuant to a merger agreement, all three of
these companies were combined into one company, Champps of Minnetonka, Inc., and
this company changed its name to Champps Entertainment, Inc. (which, with its
subsidiaries, is referred to as "Champps" in this Joint Proxy
Statement-Prospectus). All operations, including the operation of Champps-owned
restaurants and franchising, are performed by Champps.
CONCEPT AND STRATEGY
General. The Champps Americana restaurant concept attracts a broad
customer base, including families, and offers a wide variety of quality food in
an exciting, entertaining and service-oriented environment. Champps believes
that it differentiates its restaurants by emphasizing the following strategic
elements:
(a) Quality food items prepared from scratch daily, emphasizing freshness,
variety, generous portions and attractive presentation.
(b) Outstanding service which is the result of intensive employee training
and supervision that is intended to create motivated, service-oriented
employees working toward strong customer satisfaction.
(c) An entertaining and energetic environment providing more than just a
place to simply eat or drink.
Food. The food offerings at Champps Americana restaurants combine a
variety of freshly prepared core menu items with unique daily specials. Menu
items include a wide selection of appetizers, soups, salads, innovative
sandwiches, pizza, burgers, entrees including chicken, beef, fish and pasta and
desserts. Selections reflect a variety of ethnic and regional cuisines and
traditional favorites. Because Champps' menu is not tied to any particular type
of food, Champps can introduce and eliminate items based on current consumer
trends without altering its theme. Champps Americana restaurants also offer
daily specials which allows for changing food choices. Champps considers its
extensive menu selection to be an important factor in the appeal of Champps
Americana restaurants and, accordingly, continuous attention is devoted to the
development of the menu items.
Portion sizes are generous and each dish is attractively presented. Champps
believes that these qualities give customers a sense of value. Entree prices
currently range from $4.50 to $14.25.
Champps emphasizes freshness and quality in its food preparation. Fresh
sauces, dressings, and mixes are prepared on the premises, generally from
original ingredients with fresh produce. Champps invests substantial time in
training and testing kitchen employees to maintain consistent food preparation.
Strict food standards at Champps-owned restaurants have also been established to
maintain quality. These standards include the establishment of several food
purchasing criteria, such as purchasing from acceptable suppliers and purchasing
produce only of specified quality. Franchisees must also maintain these same
standards and enter into similar supply arrangements.
Service. The customer's experience is enhanced by the attitude and
attention of restaurant personnel. Accordingly, Champps emphasizes prompt
greeting of arrivals, frequent visits to customer tables to monitor customer
satisfaction and service, and friendly treatment of its customers. Service is
based upon a team concept so that customers are made to feel that any employee
can help them, and they are never left unattended. Success of the Champps
Americana restaurants depends upon employee adherence to these standards. To
maintain these standards, Champps seeks to hire and train personnel who will
work in accordance with Champps' philosophy and frequently rewards individual
and restaurant achievement through several recognition programs intended to
build and maintain employee morale.
All of the service personnel at each Champps Americana restaurant meet with
the managers at two daily pre-shift motivational meetings. Restaurant
promotions, specials and quality control are all discussed and explained during
these meetings. Also, employee enthusiasm is raised so that the employees can
help increase the energy level and excitement of the restaurant.
Restaurant Design and Decor. Champps-owned, franchised and licensed
restaurants are designed and decorated in a casual theme, although they differ
somewhat from each other. Champps' standard restaurant
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features a bar, open kitchen and dining on multiple levels including a
diner-type counter. Customers can also dine at the bar or outside on the patio,
where available. The spacious design facilitates efficient service, encourages
customer participation in entertainment and promotional events and allows
customers to view the kitchen, dining area, and bar. Strategically placed
television screens stimulate customer perception of activity and contribute to
the total entertainment experience and excitement of the restaurant. Champps
believes that as it expands it can adopt its core concept to fit the demands and
opportunities of many locations.
Entertainment. An important part of the Champps Americana dining
experience is the entertainment. Patrons may watch one of several sporting
events that are being broadcast, or listen to a variety of music played by the
disc jockey, which music is changed for the time of day and season of the year.
The exposed kitchen offers customers the opportunity to observe the cooks, and
in certain locations a discreetly located game room is provided for arcade
games.
The entertainment aspects of the Champps Americana restaurants are designed
to encourage repeat visits, increase the length of a customer's stay and attract
customers outside of normal peak hours. Along with the basic activities
described in the preceding paragraph, a variety of creative promotions and
activities are conducted such as "Family Bingo," "Spring Time Big Bike Give
Away" and Karaoke. These promotions and activities allow for customer
participation and are continually changing. Change of the ambiance is also
experienced in each restaurant when they are decorated for the holidays and when
the dress of the restaurant staff is changed for the seasons. The different
looks and activities of the restaurant provide customers a different feel each
time they visit, thus encouraging repeat business.
Champps sells merchandise such as t-shirts, hats and sweatshirts bearing
the Champps name. Although not currently a significant source of revenue, the
sale of its merchandise is believed to be an effective means of promoting the
Champps name.
EXPANSION STRATEGY
Champps' long-term objective is to expand the Champps Americana restaurant
concept nationally by opening additional Champps-owned and operated restaurants.
Champps does not anticipate significant expansion through new franchise
agreements, but expects that new franchise locations will open pursuant to
existing franchise development and licensing agreements.
Development of Champps-owned restaurants will be concentrated in selected
markets with population density levels sufficient to support the restaurants. As
of October 20, 1995, Champps has a total of six Champps-owned restaurants
located in the following cities: Minnetonka, Minnesota; Addison, Texas; Edison
and Marlton, New Jersey; Indianapolis, Indiana and Irvine, California. Champps
has leased space to open three new Champps-owned restaurants in Reston,
Virginia, Denver, Colorado and Hempstead, New York. Champps is currently
negotiating contracts to lease space to open additional Champps-owned
restaurants. Champps believes its concept can be adapted to a variety of
locations, both in terms of market demographics and configuration of the
restaurant. Champps-owned restaurants are expected to be completed at a cost of
approximately $2,300,000, less landlord concessions, per restaurant for space
that was not previously a restaurant location and possibly less if the space was
previously a restaurant. The typical restaurant size will be approximately 8,000
to 12,000 square feet.
The locations of Champps Americana restaurants are very important.
Potential sites are reviewed for a variety of factors, including trading-area
demographics, such as target population density and household income levels; an
evaluation of site characteristics, including visibility, accessibility, traffic
volume and available parking; proximity to activity centers, such as shopping
malls and offices; and an analysis of potential competition. Champps will locate
its restaurants in either shopping centers, such as its Champps-owned Minnetonka
and Edison restaurants, and those of some of its franchisees, or in
free-standing buildings in locations adjacent to a shopping center such as its
Addison, Texas; Marlton, New Jersey; and Indianapolis, Indiana restaurants.
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RESTAURANT OPERATIONS
General. Champps Americana restaurants are generally open from 11:00 a.m.
to 1:00 a.m. seven days a week serving lunch, dinner and late night appetizers.
Closing times of Champps Americana restaurants will vary based upon state laws
concerning operating hours. Sunday brunch is served beginning at 10:00 a.m. Each
Champps Americana restaurant maintains standardized food preparation and service
manuals which are designed to enhance consistency of operations among the
restaurants. Although Champps Americana restaurants differ in some respects,
Champps attempts to have each Champps-owned and franchised restaurant operating
under uniform standards and specifications.
Management and Employees. The management staff of a Champps Americana
restaurant are divided into three areas, the General Manager, Front-of-House
managers and Back-of-House managers. The General Manager has responsibility for
the entire restaurant. Front-of-House management consists of an associate
manager, two floor managers and a bar manager. Back-of-House management consists
of a kitchen manager, two to three assistant kitchen managers and a daily
specials chef. The Front-of-House managers spend time in the dining and bar area
supervising the staff and providing service to customers while the kitchen
manager supervises all aspects of food preparation.
Supervision and Training. Although restaurant managers have responsibility
for their Champps Americana restaurant, Champps officers spend considerable time
reviewing restaurant operations. Management training of restaurant managers
involves an intensive five week program in which managers are educated in all
facets of the Champps Americana concept. Front-of-House managers spend four
weeks on Front-of-House training and one week on Back-of-House training. Kitchen
managers spend four weeks in Back-of-House training and one week in
Front-of-House training. Further, each restaurant conducts a significant amount
of training in accordance with the detailed policy and procedure manuals that
provide a blueprint for restaurant operations for all levels of employees.
Managers are evaluated every six months using a two-pronged program of
self-evaluation and a structured review. Employees are reviewed by managers on
an as-needed basis. Where appropriate, part of their review focuses on the
secret shopper reports which are performed on a regularly scheduled basis to
evaluate performance of employees and overall operations of the restaurant.
Managers are compensated based on salary plus monthly bonus. The bonus is
calculated based on achieving restaurant sales and profit goals. Other employees
are paid on an hourly basis.
Purchasing. Champps has established several purchasing criteria, including
acceptable suppliers, product quality, and distribution channels. National
suppliers are used when advantageous, as in the areas of meat, cheese, seafood,
and operating supplies. Produce and certain perishable items are obtained
locally to ensure freshness. Other than Champps' exclusive supply contract with
Coca-Cola, Champps does not have any long-term contracts with, and is not
dependent on, any single supplier. Champps believes that adequate supplies and
alternative sources are available for all of its food and beverage items.
Champps does not have a food distribution center or commissary and does not
intend to establish either in the future. As Champps expands it intends to
continue to use its current suppliers when economical and find new local
suppliers that will meet Champps' standards.
Advertising and Marketing. Champps has achieved its historical success
while expending minimal amounts on advertising and marketing. Champps Americana
restaurants have relied on location and customer word-of-mouth. However,
Champps-owned restaurants expend a different amount of resources on in-
restaurant marketing and promotions.
COMPETITION
The restaurant business is highly competitive and is affected by changes in
taste and eating habits of the public, local and national economic conditions
affecting spending habits, demographic trends, location of competing restaurants
and traffic patterns. The principal competitive factors in the restaurant
industry are the quality and price of the food and service provided. Restaurant
location, name recognition, advertising and restaurant decor are also important.
Champps Americana restaurants compete on a general basis with a large variety of
national and regional restaurant operations and restaurant chains as well as
locally owned restaurants and other establishments. The greatest competition to
Champps Americana restaurants comes from the
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American casual theme segment of the industry. Many companies operating
competitive restaurants and engaged in competitive franchising programs have
greater financial resources, operational experience, marketing capability and
name recognition than Champps.
FRANCHISES
Future Franchises. Prior to Champps' initial public offering in 1994,
Champps lacked consistency in its franchise agreement terms. Since then Champps
has focused its franchise operations, and new franchisees enter into agreements
with Champps on generally identical terms. Under the new arrangements, a typical
franchisee pays an initial fee of $75,000 per restaurant, of which a part may be
associated with a development fee, a continuing royalty fee of 3 1/4% of gross
sales, and a regional and/or national advertising fee of 1/2% of gross sales at
such time as Champps establishes a regional/national advertising program. Among
the services and materials that Champps provides to franchisees are site
selection assistance, assistance in design development, an operating manual that
includes quality control and service procedures, training, on-site pre-opening
supervision and consultation relating to the operation of the franchised
restaurants. Champps grants both single and multi-restaurant development rights
depending upon market factors and franchisee capabilities. With respect to
multi-restaurant agreements, the franchisee's continuing right to obtain
franchises is contingent upon the franchisee's continuing compliance with the
restaurant development schedule.
All franchisees are required to operate their restaurants in accordance
with Champps' standards and specifications, including controls over menu
selection and food quality and preparation. Champps approves all restaurant site
selections and applies the same criteria used for its own restaurant sites.
Champps requires all new franchisees to provide at least annual financial
statements reviewed by an independent certified public accountant and conducts
its own audit of the franchisee's books and records. Periodic on-site
inspections are conducted to assure compliance with Champps standards and to
assist franchisees with operational issues. Franchisees bear all direct costs
involved in the development, construction and operation of their restaurants.
Development Agreements. Champps and ADC, in which CDVI has a 57% interest,
are parties to a Service Mark License Agreement (the "ADC Agreement") whereby
ADC has the exclusive right to use Champps' licensed marks including the
"Champps" name to develop restaurants in the states of Florida and Ohio and in
the city of Chicago and its suburbs (the "ADC Territory"). Champps is not
required to perform any services for ADC. ADC must maintain the overall Champps
standards in its restaurants.
ADC is not required to pay a front-end fee per restaurant but is required
to pay a monthly restaurant royalty payment equal to the greater of $5,000 per
year for each restaurant, or 1 1/4% of a restaurant's monthly gross sales for
each restaurant with annual gross sales of less than $4,000,000, which monthly
fee increases to 1 3/4% of all annual gross sales once the $4,000,000 threshold
is attained. If ADC sells any restaurant to a third party and does not retain an
ownership interest of at least 15%, or does not continue to manage the
restaurant pursuant to the Agreement, then such assignee must pay a flat royalty
fee of 2 1/4% of gross sales.
ADC must have at least 12 restaurants open and operating on or before
January 1, 2004. If ADC fails to open at least 12 restaurants by 2004, Champps
will have the right and option to terminate the Agreement. However, ADC will
have the right to keep its existing restaurants and will continue to be required
to pay the monthly royalty fees. Even if the Agreement is terminated, ADC will
continue to have the right to develop restaurants within the city limits of a
city located in the ADC Territory in which ADC has developed two or more
restaurants that are open and operating. If ADC fails to have two or more
restaurants opened and operating within such city limits by 2004, Champps will
have the right to develop a restaurant in that city. Champps has no obligation
to assist ADC with training managers or opening its restaurant.
In June 1993, Champps entered into a development agreement with a
franchisee who agreed to open and operate three restaurants in the greater
Milwaukee Metropolitan area by March 1997. The franchisee paid an initial fee of
$75,000 on the first restaurant in Greenfield, Wisconsin and has prepaid $25,000
for each of the next two restaurants. The franchisee pays a royalty fee of
3 1/4% of weekly gross sales and an advertising fee of 1/2%, which will be paid
on each restaurant when Champps begins an advertising program. The franchisee
has one restaurant in operation in Greenfield, Wisconsin.
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On June 30, 1994, Champps entered into a Development Agreement which gives
the franchisee the exclusive right to develop four franchises in South Carolina
and North Carolina. The franchisee paid Champps a development fee of $80,000 for
the rights to the territory. The franchisee is obligated to develop the four
restaurants by June 30, 2001. The franchisee will pay an initial fee of $55,000
for each of the first three restaurants and $30,000 for the fourth restaurant.
The franchisee pays a royalty fee of 3 1/4% of weekly gross sales from the first
three restaurants and 3% of such sales from the fourth. In addition, the
Franchisee is required to pay an advertising fee of 1/2% of gross sales for each
restaurant at such time as Champps establishes an advertising program.
Other Franchisees. There are other existing individual franchise
agreements for Champps restaurants in St. Paul, Maplewood, Burnsville,
Minneapolis and Maple Grove, Minnesota; Sioux Falls, South Dakota; and Omaha,
Nebraska and existing license agreements in New Brighton and Richfield,
Minnesota and Cleveland, Ohio. Currently, the Richfield and St. Paul franchisees
do not pay Champps a royalty fee. However, from May 1999 through May 2009 the
St. Paul franchisee will pay a fee equal to 1% of the franchisee's weekly gross
sales. The Maplewood franchisee pays a royalty fee of 1% of weekly gross sales.
Burnsville and Sioux Falls franchisees pay a 1 1/4% royalty fee of weekly gross
sales. The Omaha franchisee pays a fee of 2 1/4% on weekly gross sales and is
required to pay an advertising fee of 1/2% of weekly gross sales at such time
as Champps establishes an advertising program. The New Brighton franchisee pays
Champps a monthly fee equal to 1 1/4% of monthly gross sales; and if annual
sales are greater than $4 million, the franchisee pays a fee equal to 1 3/4% of
monthly gross sales. The Minneapolis franchisee pays a royalty fee of 1 3/4% of
monthly gross sales. The Maple Grove franchisee pays a royalty fee equal to
1 3/4% of monthly gross sales. The Cleveland, Ohio franchisee pays a monthly fee
equal to 1 1/4% of monthly gross sales; and if annual sales are greater than $4
million, the franchisee pays a fee equal to 1 3/4% of monthly gross sales.
Generally, Champps is required to provide the franchisees with assistance in the
overall operation of the franchised restaurants, including training managers,
assisting in the opening of new restaurants and developing promotions. The
franchisees are required to maintain the standards of operation as set forth by
Champps, including recipes, menu items, uniforms and suppliers.
In February 1994, Champps entered into a preliminary agreement with the
affiliates of the franchisee of the Minneapolis restaurant to develop a
restaurant in Rochester, Minnesota. The terms of the franchise agreement, when
entered into, will be on terms identical to the Minneapolis franchise. However,
if the franchisee decides not to develop a restaurant in Rochester, it can
request a change of location to develop a restaurant in a city with a total
population of less than one million people, but Champps has the right to refuse
the request.
Regulation of Franchising Activities. Champps is subject to Federal Trade
Commission ("FTC") rules and certain state laws which regulate the offer and
sale of franchises. Champps is also subject to a number of state laws which
regulate substantive aspects of the franchisor-franchisee relationship.
The FTC Trade Regulation Rule relating to Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures (the "FTC
Rule") requires Champps to furnish to prospective franchisees a franchise
offering circular containing information prescribed by the FTC Rule. Fourteen
states presently regulate the offer and sale of franchises by laws requiring
both disclosure to prospective franchisees and registration of the franchise
offerings with state authorities. Champps has registered its franchise in all of
these states.
The laws in many states regulate the substantive aspects of the
franchisor-franchisee relationship by restricting the ability of a franchisor to
terminate, cancel, refuse to renew or substantially change the competitive
circumstances of its franchisees. Other laws relate to fair dealing,
discrimination and market protection in the franchisor-franchisee relationship.
To the extent that the terms of Champps' agreements with any of its franchisees
violate any such law applicable to their relationship, the provisions of such
law will govern.
Champps believes that its operations comply in all material respects with
the FTC Rule and applicable state franchise laws. Champps cannot predict,
however, the effect on its operations of future legislation or regulations which
might have an adverse impact on the franchise industry generally.
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GOVERNMENT REGULATION
Champps is subject to various federal, state and local laws and regulations
affecting the operation of its restaurants. Champps Americana restaurants are
subject to licensing and/or regulation by various fire, health, sanitation and
safety agencies in the applicable state and/or municipality. The suspension of
or inability to renew a license could interrupt operations at an existing
restaurant. In addition, difficulties or failures in obtaining the required
licenses or other regulatory approvals could delay or prevent the opening of a
new restaurant.
Champps Americana restaurants are subject to state and local licensing and
regulation with respect to selling and serving alcoholic beverages, which
accounted for approximately 37% of Champps Americana restaurants' total sales
during the year ended December 31. 1994. The failure to receive or retain, or a
delay in obtaining, a liquor license in a particular location could adversely
affect Champps' or a franchisee's operations in that location and could impair
Champps' or such franchisee's ability to obtain licenses elsewhere. Typically
licenses must be renewed annually and may be revoked or suspended for cause.
Champps' liquor licenses are issued by various municipalities which may or may
not have similar provisions for transfer of these licenses upon consummation of
the Merger difficulty or failure to retain or obtain required licenses or other
regulatory approvals to operate Champps restaurants after the Merger could have
a material adverse effect on Champps' current operations or delay or prevent the
opening of new restaurants. There is no assurance that all of the municipalities
will approve transfer of Champps' liquor licenses upon consummation of the
Merger.
Champps is subject to "dram shop" statutes at its current restaurants which
generally give a person injured by an intoxicated person the right to recover
damages from the establishment that has wrongfully served alcoholic beverages to
the intoxicated person, and Champps will be subject to such statutes in certain
other states where it locates restaurants. Champps carries liquor liability
coverage in the amount of $1 million, with a $10 million umbrella policy.
However, a judgment against Champps under a dram shop statute in excess of
Champps' liability coverage, or any inability to continue to obtain such
insurance coverage at reasonable costs, could have a material adverse effect on
DAKA and Champps.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Champps is subject to federal and state fair labor standards statutes and
regulations, which govern such matters as minimum wages, overtime and other
working conditions. A significant number of food service personnel are paid at
rates based on applicable federal and state minimum wages. Significant
additional government-imposed increases in minimum wages, paid leaves of
absence, mandated health care benefits and increased tax payments with respect
to employees who receive gratuities could have an adverse effect on particular
Champps Americana restaurants and Champps as a whole.
TRADEMARKS AND SERVICE MARKS
Effective February 1, 1994, Champps entered into a Master Agreement with
Champs Restaurants, Inc. ("CRI"), an unrelated corporation located in San
Antonio, Texas, whereby CRI assigned to Champps all of its right, title, and
interest in and to certain "Champ's" and "Champps" service marks, trademarks and
trade names, along with the goodwill of CRI's business that was associated with
such marks and names. As a result of the Master Agreement and the previous
activities of Champps, Champps now owns outright all of the names and marks
"Champ's," "Champps," "Champps Americana," "Champps American Sports Cafe" and
"Champps Entertainment" (collectively, the "Marks") in connection with providing
bar and restaurant services, and in connection with the sale of related food
products. Champps has also obtained the right from CRI to sue any third party
for any past infringements of the Marks.
Pursuant to the Master Agreement, Champps issued to CRI 18,824 shares of
Champps' Common Stock along with certain piggyback registration rights. In
addition, Champps pays CRI a fee equal to one-quarter of one percent ( 1/4%) of
the gross sales of Champps' restaurants, excluding four pre-existing Champps
restaurants in Minnesota. The maximum fee that Champps is obligated to pay CRI
is equal to the prior year's maximum fee, which was $250,000, increased by a
percentage that is the lesser of the percentage increase in the Consumer Price
Index for that prior year, or four percent (4%). Champps is obligated to pay CRI
a minimum of $40,000 a year in fees.
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In connection with the Master Agreement, Champps has granted an exclusive
paid-up license to CRI to use the name "Champ's" (but not any variation thereof,
including "Champps") in conjunction with the advertising, promotion and
operation of any existing CRI restaurants in Houston, Texas and any future CRI
restaurants having the same concept and trade dress as the existing CRI
restaurants. CRI's rights to develop future CRI restaurants under the name
"Champ's" is limited to the State of Texas. Under the license granted by
Champps, CRI has the right to use the Champ's name indefinitely, as long as CRI
has existing or future restaurants in operation and complies with standards of
quality of service satisfactory to Champps. Both CRI and Champps have agreed not
to open, operate, franchise or license any restaurants within a one mile radius
of any restaurant being operated by the other party in Houston, Texas.
Champps vigorously enforces the Marks against any third parties who
infringe upon the Marks by promoting and operating establishments under the
Marks or similar names where such activities are likely to cause confusion as to
source, sponsorship, affiliation or endorsement between Champps and any such
third party. Champps believes that its service marks and name have significant
value and are important to the marketing of its restaurants. There can be no
assurance, however, that Champps will be successful in enforcing its rights
under its service marks and preventing others from using its name. There also
can be no assurance that the use of such marks does not, or will not, violate
the trademarks of others, that the registrations of Champps' marks would be
upheld if challenged, or that Champps would not be prevented from using its
marks in certain areas of the country where others might have established bona
fide prior rights, any of which events could have an adverse effect on the
combined operations of Champps.
EMPLOYEES
As of October 27, 1995, Champps had approximately 1,000 employees,
including 17 corporate and administrative personnel, 79 restaurant management
personnel, and 902 restaurant hourly employees.
Champps has experienced little or no difficulty in attracting employees and
management believes that relations between Champps and its employees are good.
None of Champps' employees are covered by a collective bargaining agreement.
PROPERTIES
Champps has entered into noncancelable lease agreements for restaurants in
Minnetonka, Minnesota; Addison, Texas; Edison and Marlton, New Jersey; Reston,
Virginia; Indianapolis, Indiana; and Irvine, California. Generally the leases
provide between 8,000 to 12,000 square feet of space with terms of 15 to 20
years and require Champps to pay an annual base rental fee and a percentage rent
fee, based upon Champps' defined gross sales. In addition, Champps typically
pays its proportionate share of operating expenses, taxes, and common area
charges.
Champps leases its corporate office, located in Wayzata, Minnesota, a
suburb of Minneapolis, pursuant to a five year lease at a monthly rate of
$5,897. Champps also leases approximately 1,200 square feet adjacent to the
Minnetonka restaurant, pursuant to a lease expiring in 2000. This space is used
by Champps' management and support staff.
LEGAL PROCEEDINGS
Champps Entertainment, Inc. v. Tom Munson (Hennepin County, Minnesota
District Court) Munson, who was formerly affiliated with a franchisee of
Champps, asserted, among other matters, that Champps had offered to him a
franchise and that he had incurred expenses in reliance on such alleged offer.
Champps filed for declaratory judgment against Munson and the court granted
summary judgment in Champps' favor on all counts except a counterclaim by Munson
that he was entitled to reimbursement of expenses incurred based on a promise
that he would be awarded a franchise. Champps believes that Munson's claim is
without merit and that Champps has meritorious defenses, and Champps intends to
vigorously defend such suit. The case is set for trial at the end of January
1996 and Champps believes that its maximum exposure is approximately $50,000.
Champps is not a party to any other material litigation.
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PRINCIPAL AND MANAGEMENT STOCKHOLDERS OF CHAMPPS
The following table sets forth the number of shares of Champps' Common
Stock beneficially owned as of October 29, 1995 by each person known to be the
beneficial owner of 5% or more of Champps' Common Stock by the Chief Executive
Officer of Champps (who was the only executive officer whose salary and bonus
during fiscal 1995 exceeded $100,000), and by each director of Champps, and by
all directors and executive officers as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------
PERCENTAGE
NAME AND ADDRESS NUMBER OF OF
OF BENEFICIAL OWNER SHARES(1) COMMON STOCK
----------------------------------------------------------------- --------- ------------
<S> <C> <C>
Dean P. Vlahos(2)................................................ 1,969,800 39.8%
Walter S. Henrion(3)............................................. 273,000(4) 5.5%
Robert R. Taylor(5).............................................. 650,000(6) 13.1%
Richard M. Berc(7)............................................... 29,000(4) *
Clifford F. Lake, Jr.(8)......................................... 8,000(4) *
Bruce H. Hallett(9).............................................. 5,000(4) *
Phillip L. Levin(10)............................................. 2,000(11) *
All executive officers and directors as a group (9 persons)...... 2,937,300(12) 59.5%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended. Accordingly, a
beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise has or shares the power to vote such security or the power to
dispose of such security. The amounts set forth in the table as
beneficially owned include shares owned, if any, by spouses and relatives
living in the same home as to which beneficial ownership may be disclaimed.
The amounts set forth in the table as beneficially owned include shares of
Champps Common Stock which directors and executive officers have the right
to acquire pursuant to previously granted options exercisable within 60
days of October 29, 1995.
(2) The address of the beneficial owner is 153 E. Lake Street, Wayzata,
Minnesota 55391.
(3) The address of the beneficial owner is 5460 Surrey Circle, Dallas, Texas
75209.
(4) Includes options to purchase 4,000 shares of Champps Common Stock.
(5) The address of the beneficial owner is 49-105 Calle Flora, LaQuinta,
California 92253.
(6) Includes 50,000 shares owned by Mr. Taylor's wife.
(7) The address of the beneficial owner is 2001 Killebrew Drive, Suite 310,
Minneapolis, Minnesota 55424.
(8) The address of the beneficial owner is 275 Cottage Downs, Hopkins,
Minnesota 55343.
(9) The address of the beneficial owner is 1712 Crockett Circle, Irving, Texas
75038.
(10) The address of the beneficial owner is 6716 Kasha Circle, Paradise Valley,
Arizona 85253.
(11) Includes options to purchase 2,000 shares of Champps Common Stock.
(12) Includes options to purchase 68,000 shares of Champps Common Stock.
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COMPARISON OF THE RIGHTS OF HOLDERS OF
CHAMPPS COMMON STOCK AND DAKA COMMON STOCK
As a result of the Merger, holders of Champps Common Stock will become
holders of DAKA Common Stock. Such persons will have different rights as
stockholders of DAKA than they had as stockholders of Champps. These differences
are due to (i) differences in the respective charters and by-laws of Champps and
DAKA and (ii) differences between the corporate laws of Delaware, where DAKA is
incorporated and by whose laws it is governed, and the corporate laws of
Minnesota, where Champps is incorporated and by whose laws it is governed.
The following is a summary of certain significant differences between the
charter documents of Champps and DAKA and between the laws of Minnesota and
Delaware. This summary is not intended to be exhaustive, nor is it a detailed
description of such differences. It is qualified in its entirety by the
respective charter and by-laws of DAKA and Champps and the corporate laws of
Delaware and Minnesota, to which holders of Champps Common Stock are referred.
SPECIAL MEETINGS OF STOCKHOLDERS
Minnesota law provides that special meetings of stockholders may be called
by: (i) the chief executive officer; (ii) the chief financial officer; (iii) two
or more directors; (iv) stockholders holding 10% or more of the voting power of
all shares entitled to vote (except that the voting power needed to demand a
special meeting to directly or indirectly effect a business combination is 25%);
or (v) any other person authorized in the articles or by-laws. The Champps
By-laws provide that special meetings of stockholders may be called by the
parties listed in items (i) through (iv) above. Delaware law provides that
special meetings of stockholders may be called only by the directors or by any
other person as may be authorized by the corporation's certificate of
incorporation or by-laws. The DAKA By-laws provide that special meetings of
stockholders may be called by either of DAKA's Chairman or President, and shall
be called by any such officer at the request in writing of a majority of the
DAKA Board.
DIVIDENDS AND REPURCHASES OF STOCK
The Champps Board, under Minnesota law, may declare dividends without
stockholder approval so long as the corporation will be able to pay its debts in
the ordinary course of business after making the distribution. Delaware law
permits a corporation, in general, to declare and pay dividends out of surplus
or out of net profits for the current and/or preceding fiscal year, and, in
general, to redeem or repurchase shares of its stock if the capital of the
corporation is not impaired and such redemption or repurchase will not impair
the capital of the corporation. The directors of a Delaware corporation may be
jointly and severally liable to the corporation for a willful or negligent
violation of such provisions of Delaware law.
INSPECTION RIGHTS
Under Minnesota law, a stockholder has an "absolute right", upon written
demand, to examine the following corporate documents: (i) the share register;
(ii) records of all proceedings of shareholders for the last three years; (iii)
records of all proceedings of the board for the last three years; (iv) the
corporation's articles and all amendments currently in effect; (v) the
corporation's bylaws and all amendments currently in effect; (vi) certain
financial statements and the financial statement for the most recent interim
period prepared in the course of the operation of the corporation for
distribution to the shareholders or to a governmental agency as a matter of
public record; (vii) reports made to shareholders generally within the last
three years; (viii) a statement of the names and usual business addresses of its
directors and principal officers; (ix) voting trust agreements; (x) shareholder
control agreements; and (xi) a copy of agreements, contracts, or other
arrangements or portions of them fixing the rights of a class or series of
securities issued by the company. Under Delaware law, stockholders, upon the
demonstration of a proper purpose, have the right to inspect a corporation's
stock ledger, stockholder list, and other books and records.
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AMENDMENTS TO CHARTER
Minnesota law provides that the Champps Articles may be amended by the
holders of a majority of the voting power of the shares present at a meeting of
stockholders, unless a greater proportion is required by such Articles. The
Champps Articles do not require a greater proportion. Under Delaware law,
charter amendments require the approval of the directors and the vote of the
holders of a majority of the outstanding stock and a majority of each class of
stock outstanding and entitled to vote thereon as a class, unless the
certificate of incorporation requires a greater proportion. The DAKA Certificate
provides that approval of 80% of the voting power present at a meeting of
stockholders is required to amend certain provisions of the DAKA Certificate.
AMENDMENT OF BY-LAWS
Minnesota law provides that the Champps By-laws may be amended by the
holders of a majority of the voting power of the shares present at a meeting of
stockholders, unless a greater proportion is specified. The Champps By-laws
provide that such By-laws may be amended by the Champps Board, subject to the
power of Champps' stockholders to change or repeal such By-laws. The Champps
By-laws provide that the Champps Board shall not make or alter any By-Laws
fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies on the Champps Board, or fixing the
number of directors or their classifications, qualifications or terms of office,
but the Champps Board may adopt or amend a By-law to increase the number of
directors. Under Delaware law, the power to adopt, amend or repeal by-laws lies
in stockholders entitled to vote; provided, however, that any corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
by-laws upon the directors. The DAKA By-laws provide that the DAKA Board has the
power to amend the DAKA By-laws, and that DAKA stockholders may not amend the
DAKA By-laws except upon the affirmative vote of the holders of record of shares
of voting stock representing at least 80% of the votes entitled to be cast by
the holders of all of the then outstanding shares of voting stock, voting
together as a single class.
PREEMPTIVE RIGHTS.
The Champps Articles and the DAKA Certificate deny preemptive rights to
stockholders of Champps and DAKA, respectively.
DIRECTORS.
Under Minnesota law and the governing documents of Champps, directors hold
office until the next annual meeting of stockholders of the election and
qualification of their successors.
The DAKA By-laws provide that the DAKA Board shall consist of at least
three, but no more than seven members and that such number shall be determined
by the DAKA Board. DAKA's directors are divided into three classes: one director
will serve until the 1995 Annual Meeting of Stockholders (Class I); two
directors will serve until the 1996 Annual Meeting of Stockholders (Class II);
and one director will serve until the 1997 Annual Meeting of Stockholders (Class
III), and in all cases, until their respective successors are duly elected and
qualified. Holders of Series A Preferred Stock have the right to elect two
directors to serve annually, if more than 50% of such stock is outstanding and
one director if more than 25% of such stock is outstanding. Currently, there is
less than 25% of such stock outstanding. The classification of directors will
have the effect of making it more difficult to change the composition of the
DAKA Board. At least two annual meetings of stockholders, instead of one, will
be required for stockholders to effect a change in the control of the DAKA
Board.
The DAKA By-laws provide that any increase or decrease in the number of
directors, whether instituted by the directors or by the stockholders at an
annual meeting, be apportioned among the classes so as to maintain, as nearly as
possible, an equal number of directors in each class and that no decrease in the
number of directors can result in the elimination of an entire class of
directors, cause any class of directors to contain a number of directors that is
two or more greater than any other class or shorten the term of any incumbent
director. A vacancy on the DAKA Board requires the two-thirds vote of the
remaining directors to fill such vacancy. The DAKA By-laws further provide that
directors may be removed only for cause by vote of the
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stockholders or for cause by a vote of a majority of the entire DAKA Board. Such
By-law provisions relating to directors may be amended only by the affirmative
vote of the holders of not less than two-thirds of the voting power of all
shares of stock of DAKA entitled to vote.
The DAKA By-law provisions with respect to the DAKA Board were designed to
ensure continuity of the DAKA Board to promote the long-term goals of and
orderly changes in control of the DAKA Board. These provisions could, however,
operate to discourage or prevent takeovers, including mergers, tender offers or
proxy contests, or changes in management of DAKA which are proposed to be
effected without approval of the DAKA Board, whether or not such takeover or
change in control are detrimental to DAKA or its stockholders. The DAKA By-law
provisions could delay stockholders who are not in agreement with the policies
of the DAKA Board from removing a majority of the DAKA Board for two years,
unless such stockholders could show cause to justify such removal.
PERSONAL LIABILITY OF DIRECTORS.
Article 11 of the DAKA Certificate, in conjunction with Delaware law, will
limit or eliminate a director's personal liability to the corporation or its
stockholders for breach of fiduciary duty. Such provision will not, however,
limit or eliminate a director's monetary liability for: (i) a breach of the
director's duty of loyalty; (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (iii) corporate
distributions such as dividends; (iv) any transaction from which the director
derived an improper personal benefit; (v) any act or omission occurring prior to
the date such Certificate of Incorporation became effective; or (vi) violation
of federal or Delaware securities laws. Minnesota law generally permits a
Minnesota corporation's articles to eliminate or limit a director's personal
liability to the corporation or its shareholders for monetary damages for
breaches of a director's duty as a director. However, the articles cannot
deprive the corporation or its shareholders of the right to enjoin transactions
which violate a director's duty of care. Moreover, the articles cannot limit
liability for any breach of the director's duty of loyalty, for transactions
resulting in an improper personal benefit to the director or for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law. In addition, liability for illegal dividends, stock
repurchases or other distributions to shareholders or for violations of
Minnesota's securities statutes cannot be limited. The Champps by-laws provide
that Champps shall indemnify directors to the extent permitted under Minnesota
law.
INDEMNIFICATION.
Article 5 of the Champps's By-laws provides for mandatory indemnification
of directors, officers, employees and agents of Champps to the full extent
permitted by Minnesota law. Minnesota law provides for mandatory indemnification
of a person acting in an official capacity on behalf of the corporation
(including a director, officer, employee or agent) if such person acted in good
faith, received no improper personal benefit, acted in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
Delaware law permits, but does not require, a corporation to indemnify
officers, directors, employees or agents and expressly provides that the
indemnification provided for under Delaware law shall not be deemed exclusive of
any indemnification right under any by-law, vote of stockholders or
disinterested directors, or otherwise. Delaware law permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of DAKA,
provided that each such person acted in good faith and in a manner that he
reasonably believed was in or not opposed to DAKA's best interests and in the
case of a criminal proceeding, had no reasonable cause to believe his conduct
was unlawful. Delaware law does not allow indemnification of directors in the
case of an action by or in the right of DAKA (including stockholder derivative
suits) unless the directors successfully defend the action or indemnification is
ordered by the court.
However, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Champps and DAKA, Champps and DAKA have been advised
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<PAGE> 83
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable.
CONTROL SHARE ACQUISITIONS.
Champps is subject to the Minnesota Control Share Acquisition Act (the
"MCSAA"). The MCSAA provides that any person (an "acquiring person") proposing
to make a "control share acquisition" must disclose certain information to the
target corporation and the target corporation's stockholders must thereafter
approve the control share acquisition or certain of the shares acquired in the
control share acquisition shall not have voting rights and shall be subject to
redemption by the target corporation for a specified period of time at the
market value of such shares. A "control share acquisition" is an acquisition of
shares of issuing public corporation which results in the acquiring person
having voting power that exceeds one of the following thresholds: (i) at least
20 percent but less than 33 1/3 percent; (ii) at least 33 1/3 percent but less
than or equal to 50 percent; and (iii) over 50 percent. The definition of a
"control shares acquisition" specifically excludes acquisition of shares from
the corporation issuing such shares, and acquisitions pursuant to plans of
merger or exchange which are approved by the stockholders of the corporation.
The MCSAA applies to a control share acquisition with respect to an issuing
public corporation unless otherwise expressly provided in the issuing public
corporation's articles of incorporation or in by-laws approved by the
stockholders. The Champps Articles do not provide that the MCSAA will not apply
to Champps. There are no provisions of Delaware law which are analogous to the
MCSAA.
BUSINESS COMBINATIONS.
The MBCA provides that Champps may not engage in any "business combination"
with any "interested stockholder" or affiliate or associate of an interested
stockholder for a period of four years after the interested stockholder's "share
acquisition date" unless either the business combination or the acquisition of
shares by the interested stockholder on his share acquisition date is approved
by a disinterested committee of the Champps Board before such interested
stockholder's share acquisition date. The Delaware Business Combination Act
("DBCA") restricts publicly-held corporations from engaging in any "business
combination" with any "interested stockholder" or affiliate or associate of an
"interested stockholder" for a period of three years, after the date on which
such person becomes an "interested stockholder" unless (i) prior to such date
the board of directors approved the "business combination" or transaction making
the stockholder "interested," or (ii) upon consummation of such transaction the
"interested stockholder" owned at least 85% of the outstanding voting stock, or
(iii) the "business combination" is approved by the board and by the two-thirds
vote of the shares (exclusive of the shares held by the "interested
stockholder") at a meeting.
For purposes of the MBCA, an "interested stockholder" is a 10% or more
beneficial owner of voting shares of such corporation, or a person who is an
associate and an affiliate of the corporation and who at any time within the
four year period preceding the date in question was a 10% or more beneficial
owner of voting shares of such corporation. An "interested stockholder" under
the DBCA is the beneficial owner of 15% or more of the outstanding voting stock
or was at any time within the preceding three years such a holder.
The MBCA and DBCA apply to any business combination of a corporation with
any interested stockholder unless otherwise expressly provided in such
corporation's articles of incorporation or by-laws, or other restrictions on
applicability exist as set forth in the DBCA. Neither the Articles nor the
By-laws of Champps or DAKA provide that such corporation will not be subject to
the MBCA or the DBCA, respectively. Furthermore, the DAKA Certificate provides
that a business combination requires the approval of 80% of the votes entitled
to be cast by the holders of DAKA Capital Stock.
RIGHTS OF DISSENTING STOCKHOLDERS.
Under Section 302A.473 of the MBCA, if a corporation calls a stockholder
meeting to approve a merger to which such corporation is a party, the sale of
substantially all of the assets of the corporation, or in certain other
circumstances, the notice of the meeting must inform each stockholder of the
right to dissent from such action and must include a copy of section 302A.471
and section 302A.473 of the MBCA and a brief
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<PAGE> 84
description of the procedure to be followed under such sections. A stockholder
who wishes to exercise dissenters' rights in such circumstances is entitled to
demand the fair value of the shares owned by such stockholder.
Under Delaware law, stockholders have the right, in some circumstances, to
dissent from mergers and consolidations by demanding payment in cash for their
shares equal to the fair value (excluding any appreciation or depreciation as a
consequence or in expectation of the transaction), as determined by agreement
with the corporations or by an independent appraiser appointed by a court in an
action timely brought by the dissenters. No appraisal rights exist, however, for
shares listed on a national securities exchange or held of record by more than
2,000 stockholders unless the certificate of incorporation provides otherwise or
the stockholders receive anything other than: (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or held of record by more than 2,000 stockholders; (iii) cash in lieu of
fractional shares of the corporation described in the foregoing clauses (i) and
(ii); or (iv) any combination of (i), (ii) or (iii).
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<PAGE> 85
THE DAKA ANNUAL MEETING--OTHER INFORMATION
This Joint Proxy Statement-Prospectus is being used by DAKA in connection
with its Annual Meeting of Stockholders to be held on , 1996. As such,
and in accordance with SEC rules and regulations, set forth below is information
regarding DAKA's directors, management, executive compensation, stock price
performance and other matters.
COMPOSITION OF DAKA BOARD
The DAKA Board currently consists of seven members, two of whom were
elected by the holders of Series A Preferred Stock for one-year terms, pursuant
to the terms of the Series A Preferred Stock. The terms of these two directors
will expire at the close of the DAKA Annual Meeting and thereafter holders of
Series A Preferred Stock will not be entitled to elect directors. The remaining
five directors are divided into three classes, with the directors of each class
elected to three-year terms. One class stands for election at each annual
meeting. One Class I director will be elected at the DAKA Annual Meeting to hold
office for three years or until his successor is elected and qualified. Two
Class II and Class III directors who are currently in office have one year and
two years remaining in their respective terms.
APPOINTMENT OF DIRECTOR
Pursuant to the Merger Agreement, DAKA has agreed to appoint Dean P. Vlahos
to the DAKA Board immediately following the Effective Time, and it is expected
that immediately after consummation of the Merger, Mr. Vlahos will become a
Class I director of DAKA. Mr. Vlahos was the founder, and has been a director
and the President and Chief Executive Officer of Champps since its inception in
October 1988. Mr. Vlahos also served as Chief Financial Officer of Champps from
its inception to March 1994. Prior to establishing Champps, he started, owned
and operated the original Champps Americana restaurants in St. Paul (opened
January 1983) and Richfield, Minnesota (opened February 1986). Mr. Vlahos, 44
years old, has over 20 years of experience in the restaurant industry.
INCUMBENT DIRECTORS
The following table sets forth certain information regarding current
members of the Board of Directors:
<TABLE>
<CAPTION>
PRINCIPAL DIRECTOR EXPIRATION
NAME AGE OCCUPATION SINCE OF TERM CLASS
- ---------------------------------- --- --------------------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
William H. Baumhauer.............. 47 Chairman, Chief Executive September 1997 III
Officer and Director of 1988
DAKA and President of
Fuddruckers, Inc.
Allen R. Maxwell.................. 56 President, Chief Operating September 1997 III
Officer and Director of 1988
DAKA and President of Daka,
Inc.
Erline Belton..................... 51 President and Chief December 1996 II
Executive Officer of The 1993
Lyceum Group
Alan D. Schwartz.................. 45 Senior Managing Director of September 1996 II
Corporate Finance for Bear, 1988
Stearns & Co., Inc.
E.L. Cox.......................... 68 Chairman of the Board and September 1995* I
Chief Executive Officer of 1988
the Michigan Accident Fund,
Retired
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
PRINCIPAL DIRECTOR EXPIRATION
NAME AGE OCCUPATION SINCE OF TERM CLASS
- ---------------------------------- --- --------------------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Eric C. Larson.................... 40 Managing Director, First January 1995 **
Chicago Equity Capital, a 1992
division of the First
National Bank of Chicago
Timothy A. Dugan.................. 29 Vice President, First January 1995 **
Chicago Equity Capital, a 1992
division of the First
National Bank of Chicago
</TABLE>
- ---------------
* Nominee for re-election at the DAKA Annual Meeting.
** The holders of the Series A Preferred Stock had the right to elect two
directors so long as more than 50% of the Series A Preferred Stock
originally issued remained outstanding, and to elect one director if 25% to
50% of such Series A Preferred Stock remained outstanding. Currently, less
than 25% of the Series A Preferred Stock originally issued remains
outstanding. The director denoted by this footnote was elected by the
holders of Series A Preferred Stock for a one-year term expiring at the
completion of the DAKA Annual Meeting.
The name, age principal occupation during the past five years and other
information concerning each director are set forth below:
William H. Baumhauer, 47, has served as Chairman of the Board and Chief
Executive Officer of DAKA since November 1990 and as a Class III Director since
September 1988. He served as President and Chief Operating Officer of DAKA from
September 1988 to November 1990. He has also served Fuddruckers, Inc. as
Chairman of the Board since March 1985, President since January 1985 and as a
director since July 1983.
Allen R. Maxwell, 56, has served as President and Chief Operating Officer
of DAKA since November 1990 and as a Class III Director since September 1988.
Mr. Maxwell, one of the original founders of Daka, Inc., has also served as its
President since November 1988.
Erline Belton, 51, has served as a Class II director of DAKA since December
1993. She has served as President and Chief Executive Officer of The Lyceum
Group, a human resource consulting firm, since September 1992. She served as
Senior Vice President of Human Resource and Organizational Development for
Progressive Insurance Companies from April 1991 through September 1992. She also
served as International Human Relations Director, as well as several other human
resources positions, with Digital Equipment Corporation from 1978 through April
1991. Ms. Belton serves on the Board of Directors of: The National Leadership
Coalition on AIDS; National Minority AIDS Coalition; Museum of African American
History; Civil Rights Project, Inc.; Cleveland Museum of Contemporary Art;
Cleveland International Film Society; The Greater Cleveland Chapter of the
American Red Cross; Cleveland Council on World Affairs and the Ohio State
University Visiting Committee.
Alan D. Schwartz, 45, has served as a Class II director of DAKA since
September 1988 and as a director of Fuddruckers, Inc. from September 1984 until
November 1988. Mr. Schwartz is Senior Managing Director-Corporate Finance of
Bear, Stearns & Co., Inc., and a director of its parent, The Bear Stearns
Companies, Inc. He has been associated with such investment banking firm for
more than five years. Mr. Schwartz is also a director of Protein Databases, Inc.
and a member of the Board of Visitors of the Fuqua School of Business at Duke
University.
E. L. Cox, 68, served as a Class I director of DAKA since September 1988
and as a director of Fuddruckers, Inc. from June 1988 until November 1988. Mr.
Cox served as Chairman and Chief Executive Officer of the Michigan Accident Fund
from February 1990 until his retirement in August 1995. Prior thereto Mr. Cox
served as Chairman and Chief Executive Officer of Michigan Mutual/Amerisure
Companies and its affiliated insurance companies from May 1981 through January
1990. Mr. Cox is also a member of the Board of Directors of Comerica, Inc., a
publicly-traded financial institution, and a director of various trade
associations in the insurance industry.
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<PAGE> 87
Eric C. Larson, 40, has served as a director of DAKA since January 1992 and
has been employed by the First National Bank of Chicago and its affiliates in
various capacities since May 1984. Mr. Larson is Managing Director of First
Chicago Equity Capital. Prior thereto, he served as a Vice President of the
First Chicago Merchant Bank and a Senior Investment Manager of First Chicago
Venture Capital. Mr. Larson is also a general partner of Cross Creek Partners I,
an investment partnership composed of individual officers of First Chicago. Mr.
Larson is also a director of M-Wave, Inc.
Timothy A. Dugan, 29, has served as a director of DAKA since January 1992
and has been employed by the First National Bank of Chicago and its affiliates
in various capacities since July 1987. Mr. Dugan is a Vice President of First
Chicago Equity Capital. Prior thereto, he was an Investment Officer of the First
Chicago Merchant Bank. Mr. Dugan is also a general partner of Cross Creek
Partners I, an investment partnership composed of individual officers of First
Chicago. Mr. Dugan is also a director of M-Wave, Inc.
MEETINGS AND COMMITTEES
The DAKA Board has an Audit Committee, a Compensation Committee, an
Executive Committee and a Nominating Committee. During the fiscal year ended
July 1, 1995, the DAKA Board held six meetings, the Audit Committee held two
meetings, and the Compensation Committee held two meetings. The Nominating
Committee does not meet separately and its business is conducted at meetings of
the DAKA Board. Each director, except Mr. Schwartz, attended 75% or more of the
aggregate of (a) the total number of meetings of the DAKA Board during fiscal
year 1995, and (b) the total number of meetings held by all committees of the
DAKA Board on which such director served during fiscal year 1995.
The Audit Committee has the responsibility of selecting DAKA's independent
auditors and communicating with DAKA's independent auditors on matters of
auditing and accounting. The Audit Committee is currently composed of Ms. Belton
and Messrs. Cox, Dugan, Larson and Schwartz.
The Compensation Committee has the responsibility of reviewing on an annual
basis all officer and employee compensation. The Compensation Committee is
currently composed of Ms. Belton and Messrs. Cox, Dugan, Larson and Schwartz.
The Compensation Committee also acts as the Stock Option Committee, and has the
responsibility of administering the Incentive Stock Option Plan, the
Non-Qualified Stock Option Plan, the Executive Stock Option Plan and the 1994
Equity Incentive Plan (collectively, the "Stock Option Plans").
The Executive Committee has the authority to exercise substantially all
powers of the DAKA Board which may be legally delegated to it by the DAKA Board
in the management and direction of business and affairs of DAKA. The Executive
Committee is currently composed of Mr. Baumhauer.
The Nominating Committee has the responsibility of nominating persons to
serve as directors of DAKA and is comprised of the DAKA Board acting as a whole.
DIRECTORS' COMPENSATION
Directors receive $1,000 per meeting plus travel expenses. Under the 1994
Equity Incentive Plan, each year each non-employee director receives options to
purchase 1,500 shares of DAKA Common Stock at an exercise price equal to the
fair market value of DAKA Common Stock as of the date of grant.
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<PAGE> 88
EXECUTIVE COMPENSATION
The following tables provide information as to compensation paid by DAKA
during each of the three previous fiscal years ending with the fiscal year ended
July 1, 1995 to DAKA's Chief Executive Officer and the four other most highly
compensated executive officers whose total salary and bonus for fiscal year 1995
exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
NAME AND ------------------- OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS(1) COMPENSATION(2)
- --------------------------- ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer....... 1995 $325,000 $230,000 $ 380,000
Chairman and Chief 1994 303,708 161,000 9,000
Executive Officer 1993 281,500 100,000
Allen R. Maxwell........... 1995 248,850 50,000 $ 60,000(3) 5,000
President and Chief 1994 256,036 80,500 60,000(3)
Operating Officer 1993 237,000 25,000 60,000(3)
David G. Parker............ 1995 171,500 30,000 1,500
Senior Vice President and 1994 174,798 36,750 1,500
Chief Administrative
Officer 1993 164,671 10,000 1,500
Louis A. Kaucic............ 1995 154,500 25,000 1,500
Senior Vice President 1994 157,471 36,750 1,500
Human Resources 1993 150,000 29,822 11,500
Michael A. Woodhouse(4).... 1995 160,000 20,000 1,500
Senior Vice President, 1994 149,553 34,125 13,524 21,500
Chief Financial Officer 1993 6,154
and Treasurer
</TABLE>
- ---------------
(1) Represents the number of options to acquire DAKA Common Stock granted during
the fiscal year.
(2) Represents amount earned pursuant to a long-term incentive plan. The amount
earned under such plan vests on June 30, 1997 and is payable in either cash
or stock at the option of DAKA. No portion of the amount earned under the
plan vests or is payable until June 30, 1997.
(3) In lieu of the receipt of senior executive stock options in fiscal 1992 in
connection with the recapitalization of DAKA, DAKA provides to Allen R.
Maxwell an annuity for which DAKA pays to an insurance company $60,000 per
year for five years, which payments commenced in fiscal year 1992.
(4) Mr. Woodhouse resigned effective December 6, 1995 to become the Chief
Financial Officer of Cracker Barrel Old Country Store, Inc.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
% OF OPTION APPRECIATION
TOTAL OPTIONS FOR OPTION TERM
GRANTED TO EXERCISE (10 YEARS)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5%($) 10%($)
- ---------------------------------- ------- ------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Allen R. Maxwell.................. 5,000 3.2% $ 12.88 12/11/04 $40,500 $102,650
David G. Parker................... 1,500 1.0% 12.88 12/11/04 12,150 30,795
Louis A. Kaucic................... 1,500 1.0% 12.88 12/11/04 12,150 30,795
Michael A. Woodhouse.............. 1,500 1.0% 12.88 12/11/04 12,150 30,795
</TABLE>
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<PAGE> 89
AGGREGATE OPTION EXERCISES IN FISCAL 1995
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF OUTSTANDING IN-THE-
NUMBER OF BENEFICIAL MONEY OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR-END YEAR-END(1)
ACQUIRED VALUE --------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer....... -- -- 159,400 27,600 $ 3,000,405 $ 514,050
Allen R. Maxwell........... -- -- 35,000 669,975
David G. Parker............ -- -- 34,900 7,600 618,498 141,550
Louie A. Kaucic............ -- -- 13,000 218,548
Michael A. Woodhouse(2).... -- -- 23,000 297,735
</TABLE>
- ---------------
(1) Based on the closing bid price on the Nasdaq National Market of $23.13 per
share on July 1, 1995.
(2) Mr. Woodhouse resigned effective December 6, 1995 to become the Chief
Financial Officer of Cracker Barrel Old Country Store, Inc.
LONG-TERM INCENTIVE PLAN--AWARD IN FISCAL 1995
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE OR UNDER NON-STOCK PRICE-BASED
SHARES, UNITS OTHER PERIOD PLANS
OR OTHER UNTIL MATURATION -----------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---------------------------------------- ------------- ---------------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
William H. Baumhauer.................... (1) June 30, 1997
</TABLE>
- ---------------
(1) The Long-Term Incentive Plan implemented by DAKA's Board of Directors on
July 3, 1994 for the Chief Executive Officer is designed to provide an
incentive payment, payable, at DAKA's option, in the form of either cash or
stock, equal to 2% of the increase in the market value of DAKA, as
determined by the average 30 day trading price of the common stock and the
weighted average number of shares outstanding, from July 3, 1994 to June 30,
1997 in excess of 15% of the market value at June 30, 1994. The incentive
payment vests on June 30, 1997.
EMPLOYMENT AGREEMENTS
Mr. Baumhauer and Mr. Maxwell are each employed by DAKA pursuant to
separate five (5) year employment agreements which commenced in each case on
January 1, 1992 and provide for initial annual base salaries of $280,000 and
$237,000, respectively. Any adjustments to these amounts are at the discretion
of the DAKA Board. Each of the agreements provides that in the event DAKA
terminates the executive's employment without "cause" (as defined therein) or
the executive terminates his employment for "good reason" (as defined therein),
DAKA shall pay the executive an amount equal to the executive's base salary for
the remainder of the term of the contract or for three years, whichever is
greater. "good reason" is defined in each agreement as (i) an assignment to the
executive of duties other than those contemplated by the agreement, or a
limitation on the powers of the executive not contemplated by the agreement,
(ii) the removal of the executive from or failure to elect the executive to his
named position, or (iii) a reduction in the executive's rate of compensation or
level of fringe benefits. "Cause" is defined in each agreement as the
executive's (i) theft from or fraud on DAKA, (ii) conviction of a felony, (iii)
violation of the terms of the agreement, (iv) conscious disregard or neglect of
his duties, or (v) demonstrated unwillingness to perform his duties under the
agreement. If the employment contracts of each of Messrs. Baumhauer and Maxwell
were terminated without cause by DAKA or for good reason by Messrs. Baumhauer
and Maxwell as of December 31, 1995, Messrs. Baumhauer and Maxwell would have
been entitled to certain payments in consideration of the termination of the
remaining term of their employment agreements. Mr. Baumhauer would have received
a lump sum payment in the amount of $1,110,000 (equal to his base salary for a
period of three years because as of such date only one year would remain in the
term of Mr. Baumhauer's employment contract), plus a lump sum payment of
approximately $945,000 representing a pro rata portion of amounts earned under
his long term incentive plan (which would not otherwise be paid until June 1,
1997 and
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<PAGE> 90
would not be paid at all if Mr. Baumhauer voluntarily terminated his employment
without good reason or was terminated for cause). Mr. Maxwell would have
received a lump sum payment in the amount of $765,000 (equal to his base salary
for a period of three years because as of such date only one year would remain
in the term of Mr. Maxwell's employment contract).
Under the terms of the 1995 Employment Agreement among DAKA, Champps and
Mr. Vlahos, after the Effective Time Mr. Vlahos will provide full-time services
to Champps in the capacity of Chairman of the Board, Chief Executive Officer and
President of Champps, for a five (5) year term, and will be appointed to the
DAKA Board. Mr. Vlahos shall continue to maintain the authority to control the
operations of Champps so long as the average annual gross revenues per square
foot of the Champps-owned restaurants is at least $400. During the period of Mr.
Vlahos's full time employment, Champps shall pay Mr. Vlahos an initial base
salary of $350,000 plus a bonus of 50% of his base salary if he attains certain
targets established by the DAKA Board, which amount may be increased up to 100%
of his base salary if he exceeds such performance targets by margins determined
by the DAKA Board. Twenty percent (20%) of the potential bonus payments for Mr.
Vlahos shall be related to performance targets established for DAKA as a whole
and eighty percent (80%) shall be related to performance targets established for
Champps. If Mr. Vlahos leaves for "good reason", or is terminated by DAKA
without "cause", during the term of his employment contract, DAKA will be
obligated to pay him his remaining salary and bonus as severance. "Good reason"
is defined in the agreement as (i) an assignment to Mr. Vlahos of duties other
than those contemplated by the agreement, or a limitation on the powers of Mr.
Vlahos not contemplated by the agreement, (ii) the removal of Mr. Vlahos from or
failure to elect Mr. Vlahos to his named position, or (iii) a reduction in Mr.
Vlahos' rate of compensation or level of fringe benefits. "Cause" is defined in
the agreement as Mr. Vlahos' (i) theft from or fraud on DAKA, (ii) conviction of
a felony, (iii) violation of the terms of the agreement, (iv) conscious
disregard or neglect of his duties, or (v) demonstrated unwillingness to perform
his duties under the agreement. In the event that Mr. Vlahos' employment is
terminated for any reason other than by DAKA for cause, Mr. Vlahos shall be
provided the right to establish a franchise for up to five (5) Champps Americana
restaurants anywhere in the world, but no such restaurant may be within a 20
mile radius of any other Champps restaurant, or in any territory that has been
franchised or licensed by Champps, and provided that Mr. Vlahos meets the
requirements applicable to Champps franchisees at such time and provided that
Mr. Vlahos pays the required franchise fees and royalties. If Mr. Vlahos'
employment contract were terminated without cause by DAKA or for good reason by
Mr. Vlahos as of December 31, 1995 (assuming that the contract had become
effective as of such date), Mr. Vlahos would receive $3,500,000 over five years
(because five years would remain in the term of Mr. Vlahos' employment
contract).
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviews and approves compensation levels for
DAKA's executive officers and oversees and administers DAKA's executive
compensation programs. All members of the Compensation Committee, listed at the
end of this report, are outside directors who are not eligible to participate in
the compensation programs that the Compensation Committee oversees except for
non-discretionary option grants. See "--Directors' Compensation."
Philosophy. The Compensation Committee believes that the interests of its
shareholders are best served when compensation is directly aligned with DAKA's
financial performance. Therefore, the Compensation Committee has approved
overall compensation programs which award a competitive base salary, and then
encourage exceptional performance through meaningful incentive awards, both
short and long term, which are tied to DAKA's performance.
Responsibilities. The responsibilities of the Compensation Committee
include:
- developing compensation programs that are consistent with and are
linked to DAKA's strategy;
- assessing the performance of and determining an appropriate
compensation package for the Chief Executive Officer; and
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<PAGE> 91
- ensuring that compensation for the other executive officers reflects
individual, team, and DAKA performance appropriately.
Purpose. DAKA's executive compensation programs are designed to:
- attract, retain, and motivate key executive officers;
- link the interests of executive officers with stockholders by
encouraging stock ownership;
- support DAKA's goal of providing superior value to its stockholders
and customers; and
- provide appropriate incentives for executive officers, based on
achieving key operating and organizational goals.
The Compensation Committee believes that DAKA's executive compensation
policies should be reviewed during the first quarter of the fiscal year when the
financial results of the prior fiscal year become available. The policies should
be reviewed in light of their consistency with DAKA's financial performance, its
business plan and its position within the foodservice and restaurant industries,
as well as the compensation policies of similar companies in the foodservice and
restaurant businesses. The compensation of individual executives is reviewed
annually by the Compensation Committee in light of its executive compensation
policies for that year.
In setting and reviewing compensation for the executive officers, the
Compensation Committee considers a number of different factors designed to
assure that compensation levels are properly aligned with DAKA's business
strategy, corporate culture and operating performance. Among the factors
considered are the following:
Comparability -- The Compensation Committee considers the compensation
packages of similarly situated executives at companies deemed comparable to
DAKA. The objective is to maintain competitiveness in the marketplace in
order to attract and retain the highest quality executives. This is a
principal factor in setting base levels of compensation.
Pay for Performance -- The Compensation Committee believes that
compensation should in part be directly linked to operating performance. To
achieve this link with regard to short-term performance, the Compensation
Committee has relied on cash bonuses which have been determined on the
basis of certain objective criteria and recommendations of the Chief
Executive Officer.
Equity Ownership -- The Compensation Committee believes that
equity-based, long-term compensation aligns executives' long-range
interests with those of the stockholders. These long-term incentive
programs are principally reflected in DAKA's stock option plans. The
Compensation Committee believes that significant stock ownership is a major
incentive in building stockholder value and reviews grants of options with
that goal in mind.
Qualitative Factors -- The Compensation Committee believes that in
addition to corporate performance and specific business unit performance,
in setting and reviewing executive compensation it is appropriate to
consider the personal contributions that a particular individual may make
to the overall success of DAKA. Such qualitative factors as leadership
skills, planning initiatives and employee development have been deemed to
be important qualitative factors to take into account in considering levels
of compensation.
Annual Cash Compensation. Annual cash compensation for the executive
officers consists of a base salary and a variable, at-risk incentive bonus under
DAKA's Management Annual Incentive Plan.
It is DAKA's general policy to pay competitive base compensation to its
executive officers. The Compensation Committee annually reviews and, if
appropriate, adjusts executive officers' salaries, based on an evaluation of
each executive officer's performance as well as the performance of DAKA as a
whole and, where applicable, the performance of specific business units.
The Compensation Committee annually reviews base salary. In making
individual base salary recommendations, the Compensation Committee considers the
executive's experience, management and leadership
78
<PAGE> 92
ability and technical skills, his or her compensation history, DAKA's or its
subsidiaries' performance and individual performance. In fiscal year 1995, base
salaries for executives were favorably affected by DAKA's record financial
performance.
Under the Management Annual Incentive Plan, each executive is assigned a
target incentive award. This incentive award, or some portion thereof, is
'earned' through a combination of four factors: DAKA's performance, business
unit performance, attainment of predetermined individual goals, and the level of
personal/leadership impact. This evaluation process is not strictly
quantitative, but is largely based on qualitative judgments made by the Chief
Executive Officer related to individual, team, and DAKA's performance. In fiscal
year 1995, annual incentive awards for executives were favorably affected by
DAKA's record financial performance.
Long Term Incentives. The Compensation Committee believes that the
granting of stock options to its executive officers and key employees provides a
powerful incentive for them to make decisions which are in the long-term best
interests of DAKA and strengthens the link between executive compensation and
the long-term performance of DAKA.
Under the CEO Long Term Incentive Plan Mr. Baumhauer is eligible to earn a
percentage of an increase in DAKA's value, as measured by stock appreciation
above a predetermined rate of return, over a specified three-year period. The
Compensation Committee may, at its option, pay any amount due under the CEO Long
Term Incentive Plan in cash or in DAKA stock. Any amount due under the CEO Long
Term Incentive Plan will vest 100% at the end of the three-year period. Fiscal
1995 was the first year of the three-year vesting period.
The Management Long Term Incentive Plan, developed by the Compensation
Committee effective for fiscal year 1996 and beyond, will grant stock options to
senior management and certain other managers. The options will vest 100% on the
third anniversary of the date of grant and will have an exercise price equal to
the fair market value of the DAKA Common Stock as of the date of grant with
respect to one third of the options granted and equal to such fair market value
plus a predetermined rate of appreciation with respect to the remaining two
thirds of the options granted. The Compensation Committee has discretion in
awarding grants under this plan based upon the executive's level and direct line
responsibility.
Chief Executive Officer Compensation. Mr. Baumhauer is employed by DAKA
pursuant to a five-year employment contract which commenced January 1, 1992. He
participates in the compensation programs as outlined above. Mr. Baumhauer's
total compensation for 1995 reflects the Compensation Committee's view of his
outstanding performance and leadership in creating enhanced returns to
stockholders, in executing expansion plans for future growth, and in
articulating a clear and sound approach to an innovative growth strategy. Mr.
Baumhauer was awarded an annual incentive award of $230,000, compared to
$161,000 the prior year. Mr. Baumhauer's salary was increased to $370,000 from
$325,000, representing a 13.8% increase. His long term incentive award, although
not vested until June 30, 1997, has, as of July 1995, a value of approximately
$380,000. This long term incentive award represents the largest single component
of the total compensation package, reflecting the Compensation Committee's
philosophy that variable, at-risk pay should comprise a significant portion of
overall executive compensation.
Compensation of Other Officers. DAKA's executive compensation program for
other executive officers is described above, although the Corporate, business
unit and individual performance goals and the relative weighting of the
quantitative performance factors described above varies, depending upon the
responsibilities of particular officers.
Erline Belton
E. L. Cox
Timothy A. Dugan
Eric C. Larson
Alan D. Schwartz
79
<PAGE> 93
PERFORMANCE GRAPH
The following graph presents a five-year comparison of total cumulative
returns on DAKA Common Stock, the S&P 500 Index and a DAKA-selected peer group
consisting of businesses in the foodservice and restaurant industries, assuming
an initial investment of $100 and reinvestment of all dividends:
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P 500 IN-
(FISCAL YEAR COVERED) DAKA DEX PEER GROUP
<S> <C> <C> <C>
6/20/90 100 100 100
6/28/91 100 107 92
6/26/92 149 141 103
6/25/93 193 136 120
7/2/94 247 141 131
7/1/95 435 177 132
</TABLE>
The companies included in the peer group are: Bertucci's, Inc., Ground
Round Restaurants, Inc., Hamburger Hamlet Restaurants, Inc., Morrison, Inc.,
Sizzler International, Inc. and Uno Restaurant Corporation. The returns of each
issuer in the foregoing group have been weighted according to the respective
company's stock market capitalization as of the end of each period.
The DAKA Common Stock prices shown are neither indicative nor determinative
of future stock price performance.
80
<PAGE> 94
PRINCIPAL AND MANAGEMENT STOCKHOLDERS OF DAKA
The following table sets forth certain information, as of October 29, 1995,
with respect to each person known by DAKA to be the beneficial owner of more
than 5% of any class of the voting stock of DAKA, each director of DAKA,
executive officers included in the Summary Compensation Table above, and all
directors and executive officers of DAKA as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------
PERCENTAGE
-------------------
NAME AND ADDRESS OF NUMBER OF COMMON VOTING
BENEFICIAL OWNER SHARES(1) STOCK STOCK(2)
- ---------------------------------------------------------- --------- ------ --------
<S> <C> <C> <C>
William H. Baumhauer(3)................................... 159,400(4) 2.3% 2.2%
Allen R. Maxwell(3)....................................... 392,766(5) 5.7 5.5
E. L. Cox(6).............................................. 5,500(7) * *
Erline Belton(8).......................................... 3,500(9) * *
Alan D. Schwartz(10)...................................... 7,000(11) * *
Eric C. Larson(12)(13).................................... 30,909(14) * *
Timothy A. Dugan(13)(15).................................. 30,909(14) * *
David G. Parker(3)........................................ 34,900(16) * *
Louis A. Kaucic(3)........................................ 14,500(17) * *
Michael A. Woodhouse(3)................................... 3,000(18) * *
T. Rowe Associates, Inc.(19)(20).......................... 444,249(19)(20) 6.4 6.2
All directors and executive officers as a group (10
persons)................................................ 652,975(21) 9.4%(14) 9.1%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 promulgated
under the Exchange Act. Accordingly, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares the
power to vote such security or the power to dispose of such security. The
amounts set forth in the table as beneficially owned include shares owned,
if any, by spouses and relatives living in the same home as to which
beneficial ownership may be disclaimed. The amounts set forth in the table
as beneficially owned include (i) shares of DAKA Common Stock which
directors and executive officers have the right to acquire pursuant to
previously granted options exercisable within 60 days of October 29, 1995,
and (ii) shares of DAKA Common Stock which may be acquired upon conversion
of shares of Series A Preferred Stock outstanding as of October 29, 1995.
Each share of Series A Preferred Stock is entitled to one vote on each
matter submitted to a vote of stockholders for each share of DAKA Common
Stock issuable upon conversion of the share of Series A Preferred Stock at
the time the vote is taken.
(2) Includes all outstanding shares of DAKA Common Stock and the 11,911.5
shares of Series A Preferred Stock remaining outstanding. For purposes of
determining the percentages set forth in the table, each outstanding share
of Series A Preferred Stock is counted as the equivalent of 22.22 shares of
DAKA Common Stock into which it can be converted, because it is entitled to
one vote on each matter submitted to a vote of stockholders for each share
of DAKA Common Stock issuable upon conversion.
(3) The address of the beneficial owner is One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923-4001. Mr. Woodhouse resigned effective December 6,
1995 to become the Chief Financial Officer of Cracker Barrel Old Country
Store, Inc.
(4) Includes 159,400 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(5) Includes 35,000 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(6) The address of the beneficial owner is 2215 Covey Court, Grand Rapids, MI
49546.
(7) Includes 5,500 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(8) The address of the beneficial owner is 41 Hawthorne Street, Roxbury, MA
02119.
81
<PAGE> 95
(9) Includes 2,500 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(10) The address of the beneficial owner is 245 Park Avenue, New York, NY 10167.
(11) Includes 7,000 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(12) Mr. Larson is a general partner of Cross Creek Partners I, in investment
partnership composed of individual officers of The First National Bank of
Chicago, an affiliate of First Capital Corporation of Chicago ("FCCC"). Mr.
Larson is the beneficial owner of a portion of the 1,323.4 shares of Series
A Preferred Stock held by Cross Creek Partners I by virtue of his general
partnership interest therein.
(13) The address of the beneficial owner is The First National Bank of Chicago,
Three First National Plaza, Chicago, IL 60670.
(14) Assumes conversion of all outstanding shares of Series A Preferred Stock
owned by the beneficial owner, and includes 1,500 shares of DAKA Common
Stock granted under the Stock Option Plans.
(15) Mr. Dugan is general partner of Cross Creek Partners I, an investment
partnership composed of individual officers of The First National Bank of
Chicago, an affiliate of FCCC. Mr. Dugan is the beneficial owner of a
portion of the 1,323.4 shares of Series A Preferred Stock held by Cross
Creek Partners I by virtue of his general partnership interest therein.
(16) Includes 34,900 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(17) Includes 14,500 shares of DAKA Common Stock issuable upon exercise of
options granted under the Stock Option Plans.
(18) Includes 3,000 shares of DAKA Common Stock issuable under options granted
under the Stock Option Plans.
(19) The address of the beneficial owner is 100 E. Pratt Street, Baltimore, MD
21202.
(20) This information is based on a Schedule 13G, dated May 10, 1995, filed by
T. Rowe Associates, Inc. with the SEC.
(21) Includes 264,800 shares of DAKA Common Stock issuable upon exercise of
stock options previously granted and 29,409 shares of DAKA Common Stock
issuable upon conversion of 1,323.4 shares of Series A Preferred Stock held
by Cross Creek Partners I, of which each of Messrs. Larson and Dugan is a
general partner.
82
<PAGE> 96
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires DAKA's executive officers,
directors and persons who own more than 10% of a registered class of DAKA's
equity securities to file reports of ownership and changes in ownership with the
SEC and to furnish copies thereof to DAKA. Based upon a review of the reports
furnished to DAKA and representations made to DAKA by its officers and
directors, DAKA believes that, during fiscal 1995, its officers, directors and
10% beneficial owners complied with all applicable reporting requirements.
AUDITORS
The Board of Directors has selected the firm of Deloitte & Touche LLP as
auditors for DAKA for the 1996 fiscal year. Representatives of Deloitte & Touche
LLP are expected to be present at the DAKA Annual Meeting and will have an
opportunity to make a statement if they desire to do so, and they will be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder desiring to present a proposal for inclusion in DAKA's
proxy statement in connection with its 1997 annual meeting of stockholders must
submit the proposal so as to be received by the Secretary of DAKA at the
principal executive offices of DAKA located at One Corporate Place, 55 Ferncroft
Road, Danvers, Massachusetts 01923-4001, not later than August 9, 1996. In
addition, in order to be included in the proxy statement, such a proposal must
comply with the requirements as to form and substance established by applicable
laws and regulations.
83
<PAGE> 97
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement-Prospectus by reference to the DAKA Annual Report on Form 10-K/A for
the year ended July 1, 1995 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference in reliance upon the report of such firm, given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Champps and its subsidiaries as of
December 31, 1994, and for the three-year period ended December 31, 1994,
included herein have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
LEGAL OPINIONS
The legality of the shares of DAKA Common Stock to be issued to the Champps
stockholders pursuant to the Merger will be passed upon by Goodwin, Procter &
Hoar, Boston, Massachusetts. The Merger Agreement also provides that it is a
condition to the obligation of DAKA and Merger Subsidiary to consummate the
Merger that they receive the opinion of Goodwin, Procter & Hoar to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any effect.
In addition, the Merger Agreement provides that it is a condition to the
obligation of Champps to consummate the Merger that it receive the opinion of
Fredrikson & Byron, Minneapolis, Minnesota to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code, which opinion shall not have been
withdrawn or modified in any effect.
84
<PAGE> 98
INDEX TO CHAMPPS CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
CHAMPPS ENTERTAINMENT, INC.
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993........................ F-3
Consolidated Statements of Operations for the years ended December
31, 1994, 1993 and 1992........................................................... F-4
Consolidated Statements of Cash Flows for the years ended December
31, 1994, 1993 and 1992........................................................... F-5
Consolidated Statements of Shareholders' Investment for the years ended December 31,
1994, 1993 and 1992............................................................... F-6
Notes to Consolidated Financial Statements--December 31, 1994....................... F-7
Consolidated Balance Sheets as of October 1, 1995 (unaudited) and December 31,
1994.............................................................................. F-15
Consolidated Statements of Operations for the thirty-nine weeks ended October 1,
1995 and for the nine months ended September 30, 1994 (unaudited)................. F-16
Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 1,
1995 and for the nine months ended September 30, 1994 (unaudited)................. F-17
Notes to Consolidated Financial Statements--October 1, 1995 (unaudited)............. F-18
</TABLE>
F-1
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Champps Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Champps
Entertainment, Inc. (a Minnesota corporation) and Subsidiaries as of December
31, 1994 and 1993, the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of Champps Entertainment, Inc.
and Subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 27, 1995
F-2
<PAGE> 100
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 6,466,419 $ 2,149,040
Marketable securities (Note 2).................................. 170,000 --
Inventories..................................................... 112,150 58,238
Accounts receivable............................................. 166,062 25,239
Prepaid expenses and other current assets....................... 131,201 23,947
Preopening costs, net........................................... 262,156 --
Note receivable from shareholder, current....................... -- 25,500
----------- -----------
Total current assets.................................... 7,307,988 2,281,964
----------- -----------
Property, Equipment and Leasehold Improvements, net............... 2,923,438 894,675
Other Assets...................................................... 340,289 85,240
----------- -----------
$10,571,715 $ 3,261,879
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3)................... $ 471,034 $ 1,294,730
Accounts payable................................................ 196,123 22,190
Accrued expenses--
Payroll and related benefits................................. 222,730 97,440
Other........................................................ 404,252 229,548
Deferred income taxes........................................... 31,646 --
Deferred franchise fee revenue.................................. 143,000 163,000
----------- -----------
Total current liabilities............................... 1,468,785 1,806,908
----------- -----------
Long-Term Debt (Note 3)........................................... 610,000 473,511
----------- -----------
Commitments and Contingencies (Note 9)
Shareholders' Investment (Notes 1 and 5):
Common stock.................................................... 47,801 5,221
Additional paid-in capital...................................... 8,230,498 2,591,862
Unrealized loss on marketable securities, net of tax effect
(Note 2)..................................................... (18,300) --
Retained earnings............................................... 232,931 (1,615,623)
----------- -----------
Total shareholders' investment.......................... 8,492,930 981,460
----------- -----------
$10,571,715 $ 3,261,879
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 101
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net sales by Company-owned restaurants............... $7,900,068 $6,199,050 $6,554,240
Royalty and franchise fee revenue.................... 637,940 361,522 263,458
Other revenues....................................... 81,695 35,528 73,579
-------- -------- --------
Total revenues............................... 8,619,703 6,596,100 6,891,277
-------- -------- --------
COST AND EXPENSES:
Cost of sales........................................ 2,274,742 1,752,863 1,855,564
Restaurant operating expenses........................ 4,099,440 3,119,650 3,252,780
Direct franchise expenses............................ 119,879 44,908 29,593
Depreciation and amortization........................ 394,524 223,769 268,182
General and administrative expenses.................. 1,232,766 596,254 471,952
Severance expense (Note 7)........................... 280,377 -- --
Loss on sale of restaurant (Note 6).................. -- -- 261,551
-------- -------- --------
Total cost and expenses...................... 8,401,728 5,737,444 6,139,622
-------- -------- --------
Income from Operations................................. 217,975 858,656 751,655
Interest Expense....................................... (122,304) (89,688) (178,856)
Interest Income........................................ 201,260 14,288 26,667
-------- -------- --------
Income before provision for income taxes............... 296,931 783,256 599,466
Provision for Income Taxes............................. 64,000 -- --
-------- -------- --------
Net Income............................................. $ 232,931 $ 783,256 $ 599,466
======== ======== ========
Net Income per Common Share............................ $ .05 -- --
======== ======== ========
Weighted Average Shares Outstanding.................... 4,807,559 -- --
======== ======== ========
UNAUDITED PRO FORMA INFORMATION (NOTE 10):
Income before provision for income taxes............... -- $ 783,256 $ 599,466
Provision for income taxes............................. -- 325,000 244,000
-------- -------- --------
Net income............................................. -- $ 458,256 $ 355,466
======== ======== ========
Net income per common share............................ -- $ .12 $ .09
======== ======== ========
Weighted average shares outstanding.................... -- 3,901,900 3,901,900
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 102
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................. $ 232,931 $ 783,256 $ 599,466
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 394,524 223,769 268,182
Noncash severance expense (Note 7)................................... 102,000
Deferred income tax benefit.......................................... (64,779) -- --
Loss on sale of property............................................. -- 3,514 261,551
Changes in other operating items:
Inventories........................................................ (53,912) 2,560 (2,517)
Accounts receivable................................................ (140,823) (9,412) (15,827)
Prepaid expenses and other......................................... (247,150) (8,557) 22,881
Preopening costs................................................... (344,187) -- --
Accounts payable................................................... 173,933 (48,108) 23,195
Accrued expenses................................................... 299,994 122,903 19,999
Deferred franchise fee revenue..................................... (20,000) 163,000 --
----------- ----------- -----------
Net cash provided by operating activities........................ 332,531 1,232,925 1,176,930
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements, net....... (2,324,784) (91,935) (69,364)
Purchase of marketable securities...................................... (200,000) -- --
Proceeds from sale of assets........................................... 758,981 38,000 (29,121)
----------- ----------- -----------
Net cash used for investing activities............................. (1,765,803) (53,935) (98,485)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from initial public offering of common stock.............. 7,196,839 -- --
Borrowings of long-term obligations.................................... -- 500,000 --
Payments on long-term obligations...................................... (1,446,185) (186,975) (478,139)
Cash proceeds from common stock issuances.............................. -- 1,575,000 --
Cash dividends paid.................................................... -- (1,221,000) --
Proceeds from sale of warrants......................................... -- 3,250 --
Redemption of common stock............................................. -- -- (200)
Advances to majority shareholder....................................... -- -- (437,349)
Loan to shareholder/officer............................................ -- (102,000) --
----------- ----------- -----------
Net cash provided by (used for) financing activities............... 5,750,651 568,275 (915,688)
----------- ----------- -----------
Net increase in cash and cash equivalents.............................. 4,317,379 1,747,265 162,757
Cash and Cash Equivalents, beginning of year........................... 2,149,040 401,775 239,018
----------- ----------- -----------
Cash and Cash Equivalents, end of year................................. $ 6,466,419 $ 2,149,040 $ 401,775
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................................... $ 75,902 $ 89,688 $ 178,556
Income taxes paid...................................................... $ 223,075 $ -- $ --
Noncash transaction--
Issuance of common stock to purchase trade name...................... $ 100,000 $ -- $ --
Cancellation of a note receivable.................................... $ 102,000 $ -- $ --
Equipment acquired pursuant to capital lease arrangements............ $ 758,981 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 103
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
YEARS ENDED DECEMBER 31, 1992, 1993, 1994
<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNREALIZED
------------------------------- ADDITIONAL EARNINGS LOSS ON
CMI/THE PAID-IN (ACCUMULATED MARKETABLE SHAREHOLDERS'
COMPANY CHAMPPS CFI TOTAL AMOUNT CAPITAL DEFICIT) SECURITIES INVESTMENT
--------- ---------- ------ --------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER
31, 1991........ 13,333 1,787,500 -- 1,800,833 $ 1,133 $ 390,600 $ (472,935) -- $ (81,202)
Redemption of
stock........... -- (536,250) -- (536,250) (300) 100 -- -- (200)
Dividends to
shareholder..... -- -- -- -- -- -- (83,330) -- (83,330)
Issuance of stock
purchase
warrant......... -- -- -- -- -- 1,000 -- -- 1,000
Net income........ -- -- -- -- -- -- 599,466 -- 599,466
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1992........ 13,333 1,251,250 -- 1,264,583 833 391,700 43,201 -- 435,734
Initial
capitalization
of CFI.......... -- -- 1,000 1,000 10 149,990 -- -- 150,000
Cash dividends to
shareholders
(Note 8)........ -- -- -- -- -- -- (1,221,000) -- (1,221,000)
Noncash dividends
to shareholders
(Note 8)........ -- -- -- -- -- -- (1,221,080) -- (1,221,080)
Conversion to
equity of
amounts due to
shareholder..... -- -- -- -- -- 477,300 -- -- 477,300
Issuance of stock
purchase
warrant......... -- -- -- -- -- 2,250 -- -- 2,250
Exercise of stock
purchase
warrant......... 1,428 133,975 107 135,510 1,355 73,645 -- -- 75,000
Sale of common
stock........... 3,184 298,830 239 302,253 3,023 1,496,977 -- -- 1,500,000
Net income........ -- -- -- -- -- -- 783,256 -- 783,256
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1993........ 17,945 1,684,055 1,346 1,703,346 5,221 2,591,862 (1,615,623) -- 981,460
Conversion to C
Corporation for
tax purposes
(Note 4)........ -- -- -- -- -- (1,615,623) 1,615,623 -- --
Effects of Merger
Agreement (Note
5).............. 3,363,355 (1,684,055) (1,346) 1,677,954 28,592 (28,592) -- -- --
Initial public
offering, net of
expenses (Note
5).............. 1,380,000 -- -- 1,380,000 13,800 7,183,039 -- -- 7,196,839
Issuance of common
stock (Note
9).............. 18,824 -- -- 18,824 188 99,812 -- -- 100,000
Unrealized loss on
marketable
securities (Note
2).............. -- -- -- -- -- -- -- $(18,300) (18,300)
Net income........ -- -- -- -- -- -- 232,931 -- 232,931
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1994........ 4,780,124 -- -- 4,780,124 $47,801 $8,230,498 $ 232,931 $(18,300) $ 8,492,930
========= ========== ====== ========= ======= ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 104
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
Champps Entertainment, Inc. ("Champps") owns and operates a full-service,
casual theme restaurant and bar concept under the name Champps Americana. As of
December 31, 1994, Champps had two Champps-owned restaurants in operation in
Minnesota and Texas and 11 franchised restaurants.
On April 6, 1994, Champps completed an initial public offering of its
common stock. In order to facilitate this offering, the owners of the various
predecessor companies under common control and ownership agreed to exchange
their ownership interests for shares of Champps pursuant to the terms of an
Agreement and Plan of Merger (the "Champps Merger Agreement") dated February 14,
1994 (see Note 5). The predecessor companies consisted of the following:
- Champps Entertainment, Inc. ("former Champps"), a Minnesota corporation,
organized to obtain trade names and licensing rights as well as to
develop and franchise Champps restaurants.
- Champps of Minnetonka, Inc. ("CMI"), a Minnesota corporation, organized
to develop and operate a Champps Americana restaurant in Minnetonka,
Minnesota.
- Champps Franchising, Inc. ("CFI"), a Minnesota corporation, organized for
the specific purpose of establishing a franchise. The operations of CFI
include expenses incurred in connection with the development of new
franchises and the related franchise fee revenue.
As discussed in Note 5, former Champps and CFI merged into CMI. The
surviving corporation changed its name to Champps Entertainment, Inc. The
accompanying 1994 financial statements have been consolidated as discussed in
Note 2. The 1993 and 1992 financial statements have been presented on a combined
basis and contain the financial position and results of operations because the
predecessor companies were under common control.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Champps and its two wholly owned subsidiaries, Champps
Entertainment of Texas, Inc. and Champps Entertainment of Edison, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consist of cash and
highly liquid investments with original maturities of three months or less.
Champps has pledged cash equivalents valued at $750,000 as collateral for a
letter of credit issued by a bank in the amount of $300,000 (see Note 9).
MARKETABLE SECURITIES -- Champps adopted Financial Accounting Standard No.
115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS
115) as of January 1, 1994. At December 31, 1993, Champps had no investments in
marketable securities. Thus, there was no effect on the financial statements
upon adoption of SFAS 115 as of January 1, 1994. SFAS 115 requires the
classification of debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading and
available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding gains and
losses, net of related tax effect, on available-for-sale securities are reported
as a separate component of shareholders' investment until realized.
All marketable securities held by Champps at December 31, 1994, were
classified as current and available-for-sale. As of December 31, 1994, Champps
has recorded an unrealized loss as a result of a decrease in fair market value
below original cost, net of tax effect, of $18,300. This unrealized loss has
been
F-7
<PAGE> 105
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
reflected as a separate component of shareholders' investment in the
accompanying consolidated balance sheets. Marketable securities consist entirely
of auction rate preferred stock with an original cost of $200,000.
INVENTORIES--Inventories are stated at the lower of cost (first-in
first-out) or market and consist principally of food and beverages.
PREOPENING COSTS--Preopening costs include the direct and incremental costs
typically associated with the opening of a new restaurant which primarily
consists of costs incurred to recruit and develop new restaurant management
teams, travel and lodging for both the training and opening unit management
teams, and the food, beverage and supplies costs incurred to perform role-play,
testing of all equipment, concept systems and recipes. These costs are
capitalized and amortized over the first 12 months of the restaurant's
operations.
RESTAURANT OPERATIONS--Food and beverage revenues from Champps-owned
restaurants are recognized at the time of sale. Restaurant revenues are reported
net of applicable sales and excise taxes. Restaurant cost of sales consists of
food and beverage costs. Restaurant operating expenses include all on-site
labor, occupancy and direct overhead costs.
FRANCHISE OPERATIONS--Royalty fees received from franchisees are recognized
when earned and are based primarily on a contractual percentage of restaurant
revenue. Initial franchise fees are included in franchise revenue when the
franchised restaurant commences operations. Fees received pursuant to multiple
unit development agreements are nonrefundable and recognized as revenue when
received based on the fact that no additional services are required to be
performed by Champps in connection with the development agreement. Direct
franchise expenses include franchise development and support costs and on-site
restaurant management expenses as well as a fee paid to the former owner of the
"Champps" trade name (see Note 9).
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS--Property, equipment and
leasehold improvements are recorded at cost less accumulated depreciation and
amortization as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Equipment and furniture............................ $ 1,315,252 $ 981,347
Leasehold improvements............................. 1,591,944 664,590
Equipment under capital leases..................... 758,981 --
Construction in progress........................... 295,855 --
------- -------
3,962,032 1,645,937
Accumulated depreciation and amortization.......... (1,038,594) (751,262)
------- -------
$ 2,923,438 $ 894,675
======= =======
</TABLE>
Champps uses the straight-line method of depreciation for financial
reporting purposes and accelerated methods for income tax reporting purposes.
Equipment and furniture are depreciated over their estimated useful lives, which
range from 5 to 10 years. Leasehold improvements are amortized over the life of
the lease term, generally 10 to 15 years.
INCOME TAXES--Effective January 1, 1994, Champps adopted FASB Statement No.
109, "Accounting for Income Taxes" (SFAS 109), which requires the asset and
liability approach for financial accounting and reporting for deferred income
taxes. The cumulative effect of adopting SFAS 109 was not material.
Prior to January 1, 1994, each of the affiliated legal entities described
in Note 1 had elected those provisions of the Internal Revenue Code and state
laws which provide for the income of the entities to be taxed at the shareholder
level. Accordingly, the consolidated statements of operations for the years
ended December 31, 1993 and 1992 do not include a provision for income taxes.
F-8
<PAGE> 106
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
NET INCOME PER COMMON SHARE--Net income per common share is computed by
dividing net income by the weighted average number of shares of common and
dilutive common equivalent shares assumed to be outstanding during the period.
Common equivalent shares consist of dilutive options and warrants to purchase
common stock.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1993 and
1992 financial statements to conform with the 1994 presentation. These
reclassifications had no effect on stockholders' investment or net income as
previously presented.
3. DEBT
Debt consisted of the following as of December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Notes payable to bank, interest at 8.5% minimum
monthly payments of $23,000 due April 30, 1995.... $ 354,522 $ 933,781
Capital lease obligations collateralized by
equipment, interest at 7.5%, maturing in October
1999.............................................. 726,512 --
Borrowings from a non-affiliate, paid in full in
December, 1994.................................... -- 500,000
Borrowings from a former shareholder, paid in full
in April, 1994.................................... -- 334,460
---------- ----------
Total..................................... 1,081,034 1,768,241
Less-current maturities of long-term debt........... 471,034 1,294,730
---------- ----------
Long-term debt............................ $ 610,000 $ 473,511
========== ==========
</TABLE>
Maturities of long-term debt as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995..................................................... $ 471,034
1996..................................................... 125,671
1997..................................................... 138,427
1998..................................................... 150,021
1999..................................................... 195,881
----------
Total.......................................... $1,081,034
==========
</TABLE>
4. INCOME TAXES
The components of the provision for income taxes for the year ended
December 31, 1994 are as follows:
<TABLE>
<S> <C>
Current payable:
Federal................................................. $ 96,746
State................................................... 32,033
Deferred.................................................. (64,779)
--------
Total........................................... $ 64,000
========
</TABLE>
F-9
<PAGE> 107
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
A reconciliation of the statutory federal income tax rate to Champps'
effective income tax rate for the year ended December 31, 1994 is as follows:
<TABLE>
<S> <C>
Federal statutory income tax rate..................................... 34.0%
State income taxes, net of federal benefits........................... 5.8
Effect of termination of S corporation election....................... (8.0)
FICA tax credit....................................................... (7.0)
Tax-exempt interest income............................................ (4.7)
Other................................................................. 1.5
----
Effective income tax rate............................................. 21.6%
====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1994 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Property and equipment.......................................... $ 60,650
Deferred franchise revenue...................................... 45,200
Other........................................................... 2,275
--------
$108,125
========
Deferred tax liabilities
Pre-opening costs............................................... $ 31,646
========
</TABLE>
The deferred tax asset is included as a component of other assets in the
accompanying consolidated balance sheets.
Management has determined, based on Champps' current taxable income and the
anticipation of sufficient future taxable income, that Champps will more likely
than not be able to realize the full value of the deferred tax asset. Thus, no
valuation allowance has been recorded as of December 31, 1994.
Unaudited pro forma income taxes represent the estimated income taxes that
would have been reported had Champps been a C corporation for the years ended
December 31, 1993 and 1992. The following summarizes the unaudited pro forma
provision for income taxes:
<TABLE>
<CAPTION>
1993 1992
--------- --------
<S> <C> <C>
Currently payable:
Federal..................................................... $ 354,077 $200,026
State....................................................... 85,650 48,481
Deferred...................................................... (114,727) (4,507)
--------- --------
Unaudited pro forma provision for income taxes................ $ 325,000 $244,000
========= ========
</TABLE>
The unaudited pro forma provision for income taxes on adjusted historical
income differs from the amounts computed by applying the applicable federal
statutory rates due to state income taxes. The components of the pro forma
deferred income taxes are principally depreciation and deferred franchise fees.
5. SHAREHOLDERS' INVESTMENT
REORGANIZATION--On February 14, 1994, former Champps, CMI and CFI were
consolidated into Champps of Minnetonka, Inc., and this corporation changed its
name to Champps Entertainment, Inc. Pursuant to the Champps Merger Agreement,
all outstanding shares of former Champps common stock were
F-10
<PAGE> 108
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
converted to CMI stock; all outstanding shares of CMI stock were converted on a
ratio of 87.08 to 1; and all outstanding shares of CFI common stock were
converted to CMI stock on a ratio of 100 to 1. Total outstanding shares
subsequent to this merger were 3,381,300. In addition, the Champps Merger
Agreement authorized 15,000,000 shares of common stock with a par value of $.01
and 1,000,000 shares of $.01 preferred stock. No shares of preferred stock have
been issued.
SALE OF COMMON STOCK--On December 31, 1993, Champps sold 302,253 shares of
common stock (600,000 shares after giving effect to the merger described above)
to a then unrelated investor for $1,500,000 pursuant to a stock purchase
agreement.
On March 29, 1994, the Securities and Exchange Commission declared
effective a Registration Statement relating to the initial public offering of
1,200,000 shares of Champps' common stock. Champps received net proceeds of
$6,650,000 on April 6, 1994 and $990,000 upon exercise of the underwriter's
overallotment option of 180,000 shares on April 25, 1994. The accompanying
consolidated financial statements reflect the effect of this offering net of
transaction-related expenses.
STOCK PURCHASE WARRANTS--On April 1, 1992, Champps sold a stock purchase
warrant to a consultant for $1,000. The warrant gave the holder the right to
purchase 5% of the capital stock of Champps for $75,000, fair market value at
the issuance date. On August 19, 1993, the warrant was exercised. Pursuant to
the merger described above, the certificates initially issued upon the exercise
of the warrant were canceled and new certificates which reflected the dilution
associated with the sale of the warrant and common stock described above were
issued. Total shares issued represented 135,510 shares as of December 31, 1993
and 269,000 as of December 31, 1994.
STOCK OPTION PLANS--Up to 260,000 shares of common stock may be issued for
stock options to employees and directors under Champps' 1994 Incentive Stock
Option and Outside Director Stock Option Plans. Such options may be granted from
time to time at the discretion of the Champps Board of directors at option
prices equal to the fair market value of the shares for incentive stock options.
The option price may be less than fair market value for nonstatutory stock
options granted. Options generally have a 10-year term and vest over various
periods.
During 1994, 198,000 options were granted at prices ranging from $5.25 to
$6.25 per share. No options were canceled or exercised during 1994.
6. SALE OF NEW BRIGHTON RESTAURANT
On February 12, 1992, former Champps entered into an agreement to sell its
interest in the New Brighton, Minnesota, restaurant. Former Champps repurchased
the minority shares held by the buyer group of the restaurant, gave its
ownership rights in principally all assets and was released of its obligations
to pay account payables, accrued expenses and long-term debt. Former Champps
recognized a loss of approximately $262,000 as a result of this transaction.
Approximately $240,000 in sales from this restaurant are included in "Net sales
by Champps-owned restaurants" in the accompanying consolidated statements of
operations for the year ended December 31, 1992.
7. SEVERANCE EXPENSE
In January, 1995, Champps reached a settlement agreement with its former
chief executive officer related to his November 1994 departure from Champps. The
settlement included the cancellation of a $102,000 note receivable and resulted
in a net charge to 1994 operations of $280,377.
F-11
<PAGE> 109
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
8. RELATED-PARTY TRANSACTIONS
The following is a summary of transactions between Champps and related
parties in addition to those described elsewhere in the Notes to Consolidated
Financial Statements:
<TABLE>
<CAPTION>
DISTRIBUTIONS
NONCASH -------------------------
DESCRIPTION OF TRANSACTION CONTRIBUTIONS CASH NONCASH
- ------------------------------------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
CHAMPPS OF MINNETONKA, INC.
- - Dividend to shareholder in February 1993 in
satisfaction of note receivable from this
shareholder......................................... $ -- $ -- $ 736,620
- - Cash dividend to shareholder in March 1993, used by
shareholder to repurchase a 25% minority interest in
Champps............................................. -- 375,000 --
- - Assumption of note payable to a former
shareholder......................................... -- -- 334,460
- - Cash dividends to shareholders in December 1993 for
the payment of 1993 individual income taxes......... -- 498,000 --
- - Other cash dividends paid to shareholder for
personal purposes................................... -- 38,000 --
CHAMPPS FRANCHISING, INC.
- - Contribution of initial capital in February 1993.... 150,000 -- --
- - Dividend to shareholder in February 1993 to repay
financing of original stock purchase................ -- -- 150,000
- - Cash dividend to shareholder in December 1993 for
the payment of 1993 individual income taxes......... -- 80,000 --
CHAMPPS ENTERTAINMENT, INC.
- - Conversion of a personal note from Champps to
capital by majority shareholder in January 1993..... 477,300 -- --
- - Cash dividend to shareholder to make payments on
note to a former shareholder........................ -- 180,000 --
- - Cash dividend to shareholder in December 1993 for
the payment of 1993 individual income taxes......... -- 50,000 --
--------- ---------- ----------
$ 627,300 $1,221,000 $1,221,080
========= ========== ==========
</TABLE>
All related-party transactions which occurred during the year ended
December 31, 1994 have been disclosed elsewhere in the Notes to Consolidated
Financial Statements.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS--Champps conducts its operations principally from leased
restaurant facilities, all of which have noncancelable operating leases with
various expiration dates through 2011. The restaurant leases generally include
land and building, require contingent rent above the minimum lease payment based
on a percentage of sales ranging from 3% to 5%, as well as various expenses
incidental to the use of the property. Most leases have renewal options.
In connection with certain lease agreements, Champps has entered into
separate agreements for the use of liquor licenses from the landlord. In
consideration for the licenses, Champps has issued promissory notes aggregating
$390,000. These promissory notes require monthly interest payments based on
interest rates of 7% and 12% annually. Champps may discharge the indebtedness at
any time by returning the license to the landlord and is obligated to return the
license at lease termination at which time the indebtedness would be
F-12
<PAGE> 110
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
canceled. Accordingly, this obligation has not been reflected in the
accompanying consolidated balance sheets. Interest payments have been included
in future minimum lease payments throughout the lease terms.
The aggregate minimum annual lease payments under noncancelable leases,
including those for restaurants which are not yet open, at December 31, 1994
were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1995......................................................... $ 166,723 $ 642,205
1996......................................................... 166,723 936,366
1997......................................................... 169,910 941,154
1998......................................................... 170,573 946,074
1999......................................................... 203,527 951,128
Thereafter................................................... -- 8,413,903
--------- -----------
Total minimum lease commitments.............................. $ 877,456 $12,830,830
===========
Less-amount representing interest............................ (150,944)
---------
Present value of obligations................................. 726,512
Less-current portion......................................... (116,512)
---------
Long-term obligations under capital leases................... $ 610,000
=========
</TABLE>
Rent expense charged to operations on operating leases was as follows for
each of the three years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Base rent.............................................. $230,526 $145,336 $141,081
Contingent rent........................................ 59,010 28,855 22,623
Other charges.......................................... 70,561 44,066 47,504
-------- -------- --------
Total................................................ $360,097 $218,197 $211,208
======== ======== ========
</TABLE>
PURCHASE OF TRADE NAME--On February 1, 1994, Champps purchased the
exclusive rights to use the "Champps" trade name from a third party by agreeing
to pay a fee of 1/4% of gross sales, excluding four pre-existing Champps
restaurants in Minnesota, up to a maximum of $250,000 per year, adjusted
annually for inflation, or a minimum of $40,000 per year. In addition, Champps
issued 18,824 shares of its common stock as additional consideration for the
trade name.
LETTER OF CREDIT AGREEMENTS--A standby letter of credit in the amount of
$300,000 has been issued by Champps' bank to secure Champps' obligations under a
capital lease for certain restaurant equipment. This letter of credit and the
related security agreement terminate in April 1996 upon the satisfaction of
certain financial covenants. As security for this standby letter of credit,
Champps has pledged certain cash equivalents held at the bank (see Note 2).
EMPLOYMENT AND CONSULTING AGREEMENTS--On January 1, 1994, Champps entered
into an employment agreement with its president that continues through December
31, 1998. The agreement requires a base salary of $236,000 per year and a
maximum annual bonus of up to $100,000. The agreement also requires Champps to
pay 50% of his salary and bonus to his estate if employment is terminated due to
death or one year's salary as severance in the event of a change in control of
Champps.
On January 1, 1994, Champps entered into two consulting agreements with a
shareholder. Champps agreed to pay the shareholder/consultant $50,000 at the
completion of an initial public offering in
F-13
<PAGE> 111
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
consideration for his management consulting services directly associated with
the offering. Champps also agreed to pay the shareholder/consultant an amount no
less than $50,000 and no more than $150,000 in any year, equal to the sum of .5%
of new Company-owned restaurants' sales and .25% of new franchised restaurants'
sales. He is also to receive a one-time payment of $50,000 upon the opening of a
Champps-owned restaurant in early 1995. Champps paid the shareholder/consultant
$83,000 during the year ended December 31, 1994 pursuant to these agreements.
10. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information is provided to show the
significant effects on the historical financial information had Champps operated
as a single consolidated C corporation throughout all periods presented. Net
income per common share is calculated using adjusted net income.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common and common equivalent shares which were issued or became
issuable during the 12 months immediately preceding the initial public offering
have been included in the calculation as if they were outstanding for all
periods prior to the initial public offering using the treasury stock method and
the initial public offering price.
F-14
<PAGE> 112
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 1,534,303 $ 6,466,419
Marketable securities............................................. 180,000 170,000
Inventories....................................................... 239,530 112,150
Accounts receivable............................................... 484,468 166,062
Pre opening costs, net............................................ 582,836 262,156
Prepaid expenses and other current assets......................... 529,115 131,201
------------ ------------
Total current assets...................................... 3,550,252 7,307,988
Property, equipment and leasehold improvements, net................. 9,997,398 2,923,438
Other assets, net................................................... 499,621 340,289
------------ ------------
$ 14,047,271 $ 10,571,715
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt.............................. $ 324,566 $ 471,034
Borrowings on line of credit...................................... 535,000 --
Accounts payable.................................................. 799,381 196,123
Accrued expenses --
Payroll and related benefits................................... 209,750 222,730
Other.......................................................... 531,342 404,252
Deferred income taxes............................................. 31,646 31,646
Deferred revenue.................................................. 83,000 143,000
------------ ------------
Total current liabilities................................. 2,514,685 1,468,785
Long-Term Debt...................................................... 2,377,119 610,000
Commitments and contingencies
Shareholders' Investment
Common Stock...................................................... 49,537 47,801
Additional paid-in capital........................................ 8,704,082 8,230,498
Unrealized loss on marketable securities, net of tax effect....... (8,300) (18,300)
Retained earnings................................................. 410,148 232,931
------------ ------------
Total shareholders' investment............................ 9,155,467 8,492,930
------------ ------------
$ 14,047,271 $ 10,571,715
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-15
<PAGE> 113
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTY-
NINE WEEKS FOR THE NINE
ENDED MONTHS ENDED
OCTOBER 1, SEPTEMBER 30,
1995 1994
--------------- -------------
<S> <C> <C>
REVENUES:
Net sales by Company-owned restaurants.................... $12,283,527 $ 4,680,664
Royalty and franchise fee revenue......................... 460,822 435,143
Other revenue............................................. 65,067 29,928
--------------- -------------
Total revenues......................................... 12,809,416 5,145,735
--------------- -------------
COST AND EXPENSES:
Cost of sales............................................. 3,522,998 1,319,546
Restaurant operating expenses............................. 6,495,001 2,416,130
Direct franchise expenses................................. 101,579 77,285
Depreciation and amortization............................. 1,020,781 175,698
General and administrative expenses....................... 1,485,608 839,910
--------------- -------------
Total cost and expenses................................ 12,625,967 4,828,569
--------------- -------------
Income from Operations...................................... 183,449 317,166
Interest Expense............................................ (68,059) (99,583)
Interest Income............................................. 148,340 147,756
--------------- -------------
Income before provision for income taxes.................... 263,730 365,339
Provision For Income Taxes.................................. 86,513 143,643
--------------- -------------
Net Income.................................................. $ 177,217 $ 221,696
============== =============
Net Income Per Common Share................................. $ 0.04 $ 0.05
============== =============
Weighted Average Shares Outstanding......................... 4,974,337 4,798,071
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 114
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTY-NINE FOR THE NINE MONTHS
WEEKS ENDED ENDED
OCTOBER 1, 1995 SEPTEMBER 30, 1994
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 177,217 $ 221,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,020,781 175,698
Changes in other operating items:
Inventories and accounts receivable........... (445,786) (5,445)
Prepaid expenses and other.................... (928,091) (545,255)
Accounts payable.............................. 603,258 28,914
Accrued expenses.............................. 114,110 143,676
Deferred franchise fee revenue................ (60,000) 5,000
------------------- -------------------
Net cash provided by operating activities... 481,489 24,284
------------------- -------------------
INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold
improvements..................................... (7,445,358) (1,640,208)
Payments made for non current assets............... (206,712) --
Proceeds from sale of assets....................... 1,776,154 --
------------------- -------------------
Net cash used for investing activities...... (5,875,916) (1,640,208)
------------------- -------------------
FINANCING ACTIVITIES:
Borrowings of line of credit, net.................. 535,000 --
Payments on long-term debt......................... (342,852) (1,262,676)
Exercise of warrants and options................... 270,163 --
Net proceeds from initial public offering of common
stock............................................ -- 7,212,715
------------------- -------------------
Net cash provided by financing activities........ 462,311 5,950,039
------------------- -------------------
Net increase (decrease) in cash and cash
equivalents...................................... (4,932,116) 4,334,115
------------------- -------------------
Cash and cash equivalents, beginning of period..... 6,466,419 2,149,040
------------------- -------------------
Cash and cash equivalents, end of period........... $ 1,534,303 $ 6,483,155
================== ===================
Noncash transactions--
Tax benefit from exercise of warrants............ $ 205,157 --
Equipment acquired pursuant to capital lease
obligation.................................... $ 1,963,503 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 115
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- The accompanying
consolidated financial statements have been prepared by Champps Entertainment,
Inc. ("Champps"), without audit, in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although Champps
believes that the disclosures made are adequate to make the information not
misleading.
The unaudited consolidated balance sheet as of October 1, 1995 and
September 30, 1994 and the unaudited consolidated statements of operations and
cash flows for the thirty-nine weeks ended October 1, 1995 and nine months ended
September 30, 1994 include, in the opinion of management, all adjustments,
consisting solely of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations for the
respective interim periods and are not necessarily indicative of results of
operations to be expected for the entire fiscal year ending December 31, 1995.
The accompanying interim consolidated financial statements have been prepared
under the presumption that users of the interim financial information have
either read, or have access to the audited consolidated financial statements and
notes thereto included in Champps' annual report for the year ended December 31,
1994. Accordingly, footnote disclosures which would substantially duplicate the
disclosures contained in the December 31, 1994 audited financial statements have
been omitted from these interim consolidated financial statements except for the
disclosures below. It is suggested that these unaudited interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto for Champps included elsewhere in
their Joint Proxy Statement/Prospectus.
FISCAL PERIODS -- Effective January 1, 1995, Champps changed its fiscal
year from a calendar year end to a 52/53 week year. Accordingly, the three
quarters ended October 1, 1995 consisted of thirty-nine weeks and 2 days and the
three quarters ended September 30, 1994 consisted of thirty-nine weeks. All
future quarterly periods will consist of thirteen weeks. Champps believes that
the change in reporting periods does not have a material effect on the
comparability of the accompanying consolidated financial statements.
2. SHAREHOLDERS' INVESTMENT
On March 29, 1994, the Securities and Exchange Commission declared
effective a Registration Statement on Form SB-2 relating to the initial public
offering of 1,200,000 shares of Champps' common stock. Following the effective
date of the Registration Statement, Champps issued 1,200,000 shares at $6.25 per
share. Champps received net proceeds of $6,650,000 on April 6, 1994 and $990,000
upon exercise of the underwriter's over-allotment option on April 25, 1994. The
accompanying consolidated financial statements reflect the effect of this
offering net of transaction related expenses.
As of December 31, 1994, there were warrants outstanding to purchase
171,250 shares of Champps' common stock at $1.50 per share which were granted to
Champps' former chief executive officer in connection with his employment
agreement. On January 9, 1995, 68,500 shares were exercised and the remaining
102,750 shares were exercised on February 3, 1995. None of these shares are
currently held by the former officer. The exercise of these warrants resulted in
receipt by Champps of approximately $257,000. In connection with the
transaction, Champps recognized a noncash tax benefit of approximately $205,000.
F-18
<PAGE> 116
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 1, 1995
(UNAUDITED)
3. DEBT
In August 1995, Champps entered into a $1.5 million revolving line of
credit agreement with its bank. The purpose of the credit facility is to provide
working capital for new restaurant development. The line of credit expires on
August 10, 1996 and bears a variable interest rate equal to the bank's reference
rate plus 1% (9.75% on October 1, 1995). The line of credit is collateralized by
substantially all of Champp's assets which are not encumbered by capital lease
obligations. As of October 1, 1995, borrowings under this line of credit were
$535,000.
4. COMMITMENTS AND CONTINGENCIES
In August 1995, Champps entered into a noncancellable capital lease
agreement for the restaurant audio/visual and point of sale equipment installed
in the Champp's Marlton, New Jersey restaurant. The lease has a five-year term
and an implicit interest rate of 10.2%. Total borrowings at the inception of the
lease were approximately $917,000.
In August 1995, Champps entered into an Interim Financing Agreement (the
"Agreement") with a third party lender. Under the terms of the Agreement,
Champps has the ability to borrow up to $925,000 to fund the cost of new
restaurant, audio/visual and point of sale equipment during the new restaurant
construction period. As of October 1, 1995, borrowings under this facility were
approximately $421,000. Capital lease financing is in place such that all
outstanding balances will be converted to permanent lease financing within
thirty days of each new restaurant opening.
Champps is involved from time to time in legal proceedings incidental to
the normal course of business. Although the ultimate outcome of any of these
proceedings cannot be determined at any particular time, management believes
there are no current legal proceedings, the final disposition of which, would
have a material adverse effect on the financial position or results of
operations of Champps.
In August 1995, Champps entered into a multi-site sale leaseback financing
agreement with a third party finance company to provide sale leaseback financing
to Champps for up to 6 new restaurant sites in which the Company owns the real
estate. Such agreement expires on December 31, 1997. Such new site must be
approved by the third party prior to any funding under the agreement.
5. SUBSEQUENT EVENT
In October 1995, Champps and DAKA International, Inc. (DAKA) announced that
they had entered into a definitive merger agreement (the "Merger Agreement")
whereby Champps would become a wholly owned subsidiary of DAKA. Under the terms
of the Merger Agreement, each outstanding share of Champps common stock will be
converted into the right to receive approximately four-tenths (0.4) of one share
of DAKA common stock, subject to adjustment to forty-three hundredths (0.43) of
one share of DAKA common stock if the average per share closing price of DAKA
common stock as reported on the Nasdaq National Market over the twenty trading
days immediately preceding the second trading day prior to the closing date of
the Merger (the "DAKA Average Trading Price") is less than $30.00 per share, or
thirty-seven hundredths (0.37) of one share of DAKA common stock if the DAKA
average trading price is more than $35.00 per share. Consummation of the merger
is subject to various conditions, including among other things, the approval by
Champp's shareholders of the merger and by DAKA's shareholders to the issuance
of stock pursuant to the Merger Agreement; receipt by Champps and DAKA of
opinions of counsel as to the treatment of the merger as a tax-free
reorganization for federal income tax purposes; qualification of the Merger as a
pooling of interests for accounting purposes; and other customary closing
conditions. The transaction is anticipated to close in February 1996.
F-19
<PAGE> 117
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN
OF MERGER
AMONG
CHAMPPS ENTERTAINMENT, INC.,
DAKA INTERNATIONAL, INC.
AND CEI ACQUISITION CORP.
DATED AS OF OCTOBER 10, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER........................................................................ A-1
1.01 The Merger.................................................................. A-1
1.02 Closing..................................................................... A-1
1.03 Effective Time.............................................................. A-1
1.04 Effect of the Merger........................................................ A-2
1.05 Articles of Incorporation and By-laws....................................... A-2
1.06 Directors................................................................... A-2
1.07 Officers.................................................................... A-2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES................................ A-2
2.01 Conversion of Securities.................................................... A-2
2.02 Exchange of Certificates and Cash........................................... A-3
2.03 Stock Transfer Books........................................................ A-4
2.04 Stock Options............................................................... A-4
2.05 Warrants.................................................................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... A-5
3.01 Organization................................................................ A-5
3.02 Articles of Incorporation and By-laws....................................... A-6
3.03 Capitalization.............................................................. A-6
3.04 Authority Relative to this Agreement........................................ A-6
3.05 Consents and Approvals; No Violations....................................... A-7
3.06 Compliance.................................................................. A-7
3.07 SEC Reports................................................................. A-8
3.08 Absence of Certain Changes.................................................. A-8
3.09 Environmental Matters....................................................... A-9
3.10 Litigation.................................................................. A-9
3.11 ERISA Compliance............................................................ A-9
3.12 Trademarks, Patents and Copyrights.......................................... A-11
3.13 Taxes....................................................................... A-11
3.14 Labor Matters............................................................... A-12
3.15 Affiliate Transactions...................................................... A-12
3.16 Opinion of Financial Advisor................................................ A-12
3.17 Vote Required............................................................... A-12
3.18 Brokers..................................................................... A-12
3.19 Contracts and Other Agreements.............................................. A-12
3.20 Subsidiaries................................................................ A-13
3.21 Insurance................................................................... A-13
3.22 Disclosure.................................................................. A-13
3.23 Definition of Company's Knowledge........................................... A-14
</TABLE>
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<PAGE> 119
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.................................. A-14
4.01 Organization................................................................ A-14
4.02 Certificate of Incorporation and By-laws.................................... A-14
4.03 Capitalization.............................................................. A-14
4.04 Authority Relative to this Agreement........................................ A-15
4.05 Consents and Approvals; No Violations....................................... A-15
4.06 Compliance.................................................................. A-15
4.07 SEC Reports................................................................. A-16
4.08 Absence of Certain Changes.................................................. A-16
4.09 Environmental Matters....................................................... A-17
4.10 Litigation.................................................................. A-17
4.11 ERISA Compliance............................................................ A-17
4.12 Trademarks, Patents and Copyrights.......................................... A-18
4.13 Taxes....................................................................... A-19
4.14 Labor Matters............................................................... A-19
4.15 Affiliate Transactions...................................................... A-19
4.16 Opinion of Financial Advisor................................................ A-19
4.17 Vote Required............................................................... A-20
4.18 Brokers..................................................................... A-20
4.19 Disclosure.................................................................. A-20
4.20 Insurance................................................................... A-20
4.21 Definition of Parent's Knowledge............................................ A-20
ARTICLE V
COVENANTS......................................................................... A-20
5.01 Conduct of Respective Businesses of the Company and Parent Pending the A-20
Merger......................................................................
5.02 No Solicitations............................................................ A-22
5.03 Access to Information; Confidentiality...................................... A-22
5.04 Indemnification and Insurance............................................... A-22
5.05 Certain Benefits............................................................ A-23
5.06 Registration Statement; Joint Proxy Statement............................... A-23
5.07 Stockholders' Meetings...................................................... A-24
5.08 Letters of Accountants...................................................... A-24
5.09 Further Action; Reasonable Best Efforts..................................... A-25
5.10 Public Announcements........................................................ A-26
5.11 Affiliates of the Company................................................... A-26
5.12 Conveyance Taxes............................................................ A-26
5.13 Notification of Certain Matters............................................. A-26
5.14 Tax Opinion Matters......................................................... A-26
5.15 Interim Financing Arrangement............................................... A-26
ARTICLE VI
CONDITIONS........................................................................ A-26
6.01 Conditions to Each Party's Obligation to Effect the Merger.................. A-26
6.02 Additional Conditions to Obligations of Parent and Sub...................... A-27
6.03 Additional Conditions to Obligations of the Company......................... A-28
</TABLE>
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<PAGE> 120
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE VII
TERMINATION AND AMENDMENT......................................................... A-29
7.01 Termination................................................................. A-29
7.02 Effect of Termination....................................................... A-30
7.03 Amendment................................................................... A-31
7.04 Extension; Waiver........................................................... A-31
ARTICLE VIII
MISCELLANEOUS..................................................................... A-31
8.01 Effectiveness of Representations, Warranties and Agreements................. A-31
8.02 Notices..................................................................... A-31
8.03 Descriptive Headings........................................................ A-32
8.04 Counterparts................................................................ A-32
8.05 Entire Agreement; Assignment................................................ A-32
8.06 Governing Law............................................................... A-32
8.07 Specific Performance........................................................ A-32
8.08 Expenses.................................................................... A-32
8.09 Parties in Interest......................................................... A-33
8.10 Severability................................................................ A-33
8.11 Certain Definitions......................................................... A-33
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A Form of Affiliate Letter
EXHIBIT B Interim Financing Arrangements
</TABLE>
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<PAGE> 121
<TABLE>
<CAPTION>
DEFINITION SECTION
- --------------------------------------------------------------------------- -----------------
<S> <C>
Affiliate.................................................................. 8.11
Articles of Merger......................................................... 1.03
Assumed Options............................................................ 2.04
Beneficial Owner........................................................... 8.11
Benefit Plan............................................................... 3.11
Certificates............................................................... 2.02
COBRA...................................................................... 3.11
Closing Date............................................................... 1.02
Closing Price.............................................................. 2.01(a)
Code....................................................................... Introduction
Company.................................................................... Introduction
Company Affiliate Transaction.............................................. 3.15
Company 1994 Balance Sheet................................................. 3.13
Company Common Stock....................................................... Introduction
Company Disclosure Volume.................................................. 2.04
Company Material Adverse Effect............................................ 3.01 and 3.11
Company Parties............................................................ 5.04
Company Permits............................................................ 3.06
Company Preferred Stock.................................................... 3.03
Company Proprietary Rights................................................. 3.12
Company SEC Reports........................................................ 3.07
Company Stock Options...................................................... 3.03
Competing Transaction...................................................... 7.01
Control.................................................................... 8.11
Disserting Shares.......................................................... 2.01(a)
Effective Time............................................................. 1.03
ERISA...................................................................... 3.11
Exchange Act............................................................... 3.05
Exchange Agent............................................................. 2.02
Exchange Fund.............................................................. 2.02
Exchange Ratio............................................................. 2.01
Existing Company Options................................................... 2.04
Form S-4................................................................... 5.06
Governmental Entity........................................................ 3.05
Hazardous Materials........................................................ 3.09
HSR Act.................................................................... 3.05
Injunction................................................................. 6.01
IRS........................................................................ 3.11
Issue...................................................................... 5.01(b)
Knowledge.................................................................. 3.22, 4.20
Material Adverse Effect.................................................... 8.11
Merger..................................................................... Introduction
Merger Consideration....................................................... 2.02
Parent..................................................................... Introduction
Parent 1995 Balance Sheet.................................................. 4.13
Parent Affiliate Transaction............................................... 4.15
Parent Common Stock........................................................ Introduction
Parent Disclosure Volume................................................... 4.03
</TABLE>
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<TABLE>
<CAPTION>
DEFINITION SECTION
- --------------------------------------------------------------------------- -----------------
<S> <C>
Parent Material Adverse Effect............................................. 4.01
Parent Permits............................................................. 4.06
Parent Preferred Stock..................................................... 4.03
Parent SEC Reports......................................................... 4.07
Parent Vote Matter......................................................... 4.04
Person..................................................................... 8.11
Proceeding................................................................. 7.02(f)
Proxy Statement............................................................ 5.06
Respective Representatives................................................. 5.03
Registration Statement..................................................... 5.06
Rule 145................................................................... 5.11
SEC........................................................................ 2.04
Securities Act............................................................. 3.03
Sub........................................................................ Introduction
Stockholders' Meeting...................................................... 5.09(c)
Stockholder Agreement...................................................... 5.09
Subsidiary................................................................. 8.11
Surviving Corporation...................................................... 1.01
Third Party................................................................ 5.02
Warrants................................................................... 3.03
Welfare Plan............................................................... 3.11
</TABLE>
(v)
<PAGE> 123
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 10, 1995 (the
"Agreement"), by and among Champps Entertainment, Inc., a Minnesota corporation
(the "Company"), DAKA International, Inc., a Delaware corporation ("Parent"),
and CEI Acquisition Corp., a Minnesota corporation and a wholly-owned subsidiary
of Parent ("Sub").
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Minnesota Business Corporation Act ("Minnesota Law"),
Parent, Sub and the Company will enter into a business combination transaction
pursuant to which Sub will merge with and into the Company (the "Merger") and in
connection therewith each stockholder of the Company will be entitled to receive
a share or shares of Common Stock, par value $.01 per share, of Parent ("Parent
Common Stock") in exchange for each share of Common Stock, par value $.01 per
share, of the Company ("Company Common Stock") that such stockholder owns (and
cash in lieu of any fractional share of Parent Common Stock that such
stockholder would otherwise be entitled to);
WHEREAS, the Board of Directors of the Company has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of the Company and is fair to, and in the best interests of, the Company and the
holders of Company Common Stock and has approved and adopted this Agreement, has
approved the Merger and the other transactions contemplated hereby and has
recommended approval and adoption of this Agreement and of the Merger by the
stockholders of the Company;
WHEREAS, the Board of Directors of Parent has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and is fair to, and in the best interests of, Parent and its stockholders and
has approved and adopted this Agreement, has approved the Merger and the other
transactions contemplated hereby and recommended approval and adoption of the
Parent Vote Matter (as defined in Section 4.04 of this Agreement) by holders of
Parent Common Stock;
WHEREAS, it is intended that the Merger qualify as (i) a "pooling of
interests" under generally accepted accounting principles; and (ii) a tax-free
reorganization under the provisions of Sections 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company, Parent and Sub hereby agree as follows.
ARTICLE I
THE MERGER
Section 1.01 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the relevant provisions of
Minnesota Law, at the Effective Time (as defined in Section 1.03), Sub shall be
merged with and into the Company. As a result of the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation").
Section 1.02 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI at the offices of Goodwin,
Procter & Hoar, Exchange Place, Boston, Massachusetts, unless another date, time
or place is agreed to in writing by the parties hereto. The date of such
consummation is hereinafter referred to as the "Closing Date".
Section 1.03 Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VI, the parties hereto shall cause the Merger to be consummated by filing
articles of merger (the "Articles of Merger") with the Secretary of State of the
State of Minnesota in such
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<PAGE> 124
form as required by, and executed in accordance with the relevant provisions of,
Minnesota Law (the date and time of such filing, or such later date or time as
set forth therein, being the "Effective Time").
Section 1.04 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Minnesota Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all of the property,
rights, privileges, powers and franchises of the Company and Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.05 Articles of Incorporation and By-laws. (a) At the Effective
Time, the Articles of Incorporation of Sub as in effect immediately prior to the
Effective Time, shall become the Articles of Incorporation of the Surviving
Corporation, except that the name of the Surviving Corporation shall be amended
to be "Champps Entertainment, Inc."
(b) The By-laws of Sub as in effect immediately prior to the Effective Time
shall become the By-laws of the Surviving Corporation.
Section 1.06 Directors. The directors of Sub immediately after the
Effective Time shall be William Baumhauer, Dean Vlahos and one other person to
be mutually designated by Messrs. Baumhauer and Vlahos. The directors of Parent
immediately after the Effective Time shall include Mr. Vlahos.
Section 1.07 Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation subsequent
to the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01 Conversion of Securities. At the Effective Time and without
any action on the part of Parent, Sub, the Company or the holders of any of the
securities of any of these corporations, each of the following shall occur:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company
Common Stock to be canceled pursuant to Section 2.01(b) and shares, if any,
held by persons who in accordance with Sections 302A.471 and 302A.473 of
the Minnesota Business Corporation Act have taken all actions prior to the
Effective Time to perfect or preserve their rights to demand an appraisal
of their shares ("Dissenting Shares")) shall be converted, subject to the
provision of Section 2.02(d), into the right to receive .40 of one share of
Parent Common Stock; provided, however, that in the event that at the
Effective Time the Closing Price (as such term is hereinafter defined) of a
share of Parent Common Stock is less than $30.00 per share, then each share
of Company Common Stock will be converted into the right to receive .43 of
one share of Parent Common Stock; and provided, further, that in the event
that at the Effective Time the Closing Price of a share of Parent Common
Stock is more than $35.00 per share, then each share of Company Common
Stock will be converted into the right to receive .37 of one share of
Parent Common Stock (such fraction of a share of Parent Common Stock as
each share of Company Common Stock shall convert into the right to receive
pursuant hereto, the "Exchange Ratio"). For purposes of this Agreement, the
term "Closing Price" shall mean the average per share closing price of
Parent Common Stock as reported on the Nasdaq National Market System over
the twenty (20) trading days immediately preceding the second trading day
prior to the Closing Date. Notwithstanding the foregoing, if between the
date of this Agreement and the Effective Time the outstanding shares of
Parent Common Stock or Company Common Stock shall have been changed into a
different number of shares or a different class or series, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Exchange Ratio and the Closing
Prices of Parent Common Stock that determine the Exchange Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares. All such shares of Company Common
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<PAGE> 125
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to receive,
upon the surrender of such certificate in accordance with the provisions of
Section 2.02, certificates evidencing such number of whole shares of Parent
Common Stock into which such Company Common Stock was converted in
accordance with the Exchange Ratio. The holders of such certificates
previously evidencing such shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Common Stock except as otherwise provided
herein or by law. No fractional shares of Parent Common Stock shall be
issued in connection with the Merger, and in lieu thereof, a cash payment
shall be made in accordance with the provisions of Section 2.02(d).
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Parent or any
direct or indirect wholly-owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall automatically be canceled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(c) Each share of capital stock of Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share
of common stock of the Surviving Corporation and thereafter each stock
certificate of Sub shall evidence ownership of shares of common stock of
the Surviving Corporation.
Section 2.02 Exchange of Certificates and Cash. (a) At or prior to the
Effective Time, Parent shall deposit, or shall cause to be deposited, with or
for the account of a bank or trust company designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with this Article
II, (i) certificates evidencing the shares of Parent Common Stock issuable
pursuant to Section 2.01 in exchange for outstanding shares of Company Common
Stock and (ii) upon the request of the Exchange Agent, cash in an amount
sufficient to make any cash payment due under Section 2.02(d) hereof (such
certificates for shares of Parent Common Stock and cash being hereafter
collectively referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver Parent Common Stock contemplated
to be issued pursuant to Section 2.01 out of the Exchange Fund to holders of
shares of Company Common Stock. Except as contemplated by Section 2.02(d)
hereof, the Exchange Fund shall not be used for any other purpose. Any interest,
dividends or other income earned on the investment of cash or other property
held in the Exchange Fund shall be for the account of Parent.
(b) As soon as reasonably practicable after the Effective Time, Parent will
instruct the Exchange Agent to mail to each holder of record of a certificate or
certificates that, immediately prior to the Effective Time, evidenced
outstanding shares of Company Common Stock (the "Certificates") (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions to effect the
surrender of the Certificates in exchange for the certificates evidencing shares
of Parent Common Stock and cash, if applicable. Upon surrender of a Certificate
for cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor (A) a stock certificate evidencing that number of whole
shares of Parent Common Stock that such holder has the right to receive in
accordance with the Exchange Ratio in respect of the shares of Company Common
Stock formerly evidenced by such Certificate, and (B) cash in lieu of fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.02(d) (the shares of Parent Common Stock and cash described in clauses
(A) and (B) being, collectively, the "Merger Consideration"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Common Stock that is not registered
in the transfer records of Company, shares of Parent Common Stock may be issued
and paid in accordance with this Article II to a transferee if the Certificate
evidencing such shares of Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed any time after the Effective Time to evidence only the right to
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<PAGE> 126
receive the Merger Consideration upon such surrender. On or after the Effective
Time, any Certificates presented to the Exchange Agent or Parent for any reason
shall be converted into the Merger Consideration.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock they are entitled to receive until
the holder of such Certificate shall surrender such Certificate.
(d) No fraction of a share of Parent Common Stock shall be issued in
connection with the Merger. In lieu of any such fractional shares, each holder
of Company Common Stock upon surrender of a Certificate for exchange pursuant to
this Section 2.02 shall be paid an amount in cash (without interest), rounded to
the nearest cent, determined by multiplying (i) the Closing Price of a share of
Parent Common Stock by (ii) the fraction of a share of Parent Common Stock to
which such holder would otherwise be entitled to receive under Section 2.01 of
this Agreement.
(e) Any portion of the Exchange Fund that remains undistributed to the
holders of Company Common Stock as of that date which is six months after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Company Common Stock who have not theretofore complied with this Article II
shall thereafter look only to Parent for the Merger Consideration to which they
are entitled pursuant to this Article II.
(f) None of the Surviving Corporation, Parent or the Company shall be
liable to any holder of, or person otherwise entitled to receive, shares of
Parent Common Stock for any such shares of Parent Common Stock (or dividends or
distributions with respect thereto) from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(g) Parent and the Exchange Agent shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement to
any holder of shares of Company Common Stock such amounts as Parent or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the Code or any provision of state, local or foreign tax law.
To the extent that amounts are so withheld by Parent or the Exchange Agent, (i)
such withheld amounts shall be paid over to the proper authority or authorities
in a reasonably commercial manner and time and (ii) such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent or the Exchange Agent.
Section 2.03 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Parent for any reason shall be converted into
the Merger Consideration.
Section 2.04 Stock Options. Prior to the Effective Time, the Company and
Parent shall take such actions with respect to each stock option (each, an
"Existing Company Options") set forth in Schedule 3.03 of the volume of
disclosure schedules delivered by the Company to Parent on October 10, 1995 (the
"Company Disclosure Volume") as may be necessary to cause such Existing Company
Option to be assumed by Parent (such options after such assumption, the "Assumed
Options"), subject to the amendments described in this Section 2.04. Each
Assumed Option shall continue to have, and be subject to, the same terms and
conditions (including, without limitation, the applicable vesting schedule, as
modified to reflect the change in the number of shares covered by such option as
described herein) as set forth in the stock option plan and agreement (as in
effect immediately prior to the Effective Time) pursuant to which such Existing
Company Option was issued, except that (i) all references to the Company shall
be deemed to be references to Parent (or, with respect to employment, Parent or
its subsidiaries), (ii) each option shall be exercisable for that number of
whole shares of Parent Common Stock equal to the product of the number of shares
of Company Common Stock covered by such option immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounded down to the nearest
whole number of shares of Parent Common Stock and (iii) the exercise price per
share of Parent Common Stock under such option shall be equal to the exercise
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price per share of Company Common Stock under the Existing Company Option
divided by the Exchange Ratio and rounded down to the nearest cent. The
adjustment provided herein with respect to any Existing Company Options that are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner that is consistent with Section 424(a) of
the Code. Parent shall (i) reserve for issuance the number of shares of Parent
Common Stock that will become issuable upon the exercise of such Assumed Options
pursuant to this Section 2.04 and (ii) promptly after the Effective Time issue
to each holder of an outstanding Existing Company Option a document evidencing
the assumption by Parent of the Company's obligations with respect thereto under
this Section 2.04. Nothing in this Section 2.04 shall affect the schedule of
vesting with respect to Company Stock Options to be assumed by Parent as
provided in this Section 2.04. Promptly after the Effective Time, Parent shall
file a registration statement on Form S-8 with the Securities and Exchange
Commission (the "SEC") covering the shares of Parent Common Stock to be issued
upon exercise of the Assumed Options, shall use reasonable best efforts to cause
such registration statement to become and remain effective so long as any
Assumed Options are outstanding, and shall reserve a sufficient number of shares
of Parent Common Stock for issuance upon exercise thereof.
Section 2.05 Warrants. At the Effective Time, the Company's obligations
with respect to each outstanding warrant to purchase shares of Company Common
Stock set forth in Schedule 3.03 of the Company Disclosure Volume, that will not
automatically terminate by its terms at the Effective Time, shall be assumed by
Parent, subject to the amendments described in this Section 2.05. The Company's
warrants so assumed by Parent shall continue to have, and be subject to, the
same terms and conditions as set forth in such warrants as in effect immediately
prior to the Effective Time, except that (A) each such warrant shall be
exercisable for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock into which such warrant
was exercisable immediately prior to the Effective Time multiplied by the
Exchange Ratio and rounded to the nearest whole number of shares of Parent
Common Stock and (B) the exercise price per share of Parent Common Stock under
such warrant shall be equal to the exercise price per share of Company Common
Stock under such warrant immediately prior to the Effective Time divided by the
Exchange Ratio and rounded to the nearest cent. The duration and other terms of
the new warrant shall be the same as the original warrant, except that all
references to the Company shall be deemed to be references to Parent. Parent
shall (i) reserve for issuance the number of shares of Parent Common Stock that
will become issuable upon the exercise of such warrant pursuant to this Section
2.05 and (ii) promptly after the Effective Time, issue to each holder of such an
outstanding warrant a document evidencing the assumption by Parent of Company's
obligations with respect thereto under this Section 2.05.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.01 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
Each of the Company's subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization. The Company and each of its subsidiaries have the
requisite power and authority and all necessary governmental approvals to own,
lease and operate their properties and to conduct their businesses as currently
conducted, except where the failure to have such power, authority or
governmental approval would not, individually or in the aggregate, have a
Company Material Adverse Effect (as defined below). Each of the Company and its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Company Material Adverse Effect. The term "Company
Material Adverse Effect" means any change or effect that is or would be
materially adverse to the business, results of operations or financial condition
of the Company and its subsidiaries taken as a whole.
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Section 3.02 Articles of Incorporation and By-laws. The Company has
previously delivered to Parent a true, complete and correct copy of the Articles
of Incorporation and the By-laws or equivalent organizational documents, each as
amended to date, of the Company and each of its subsidiaries. Such Articles of
Incorporation, By-laws and equivalent organizational documents are in full force
and effect. Neither the Company nor any of its subsidiaries is in violation of
any provision of its Articles of Incorporation, By-laws or equivalent
organizational documents.
Section 3.03 Capitalization. The authorized capital stock of the Company
consists of (i) 15,000,000 shares of Company Common Stock and (ii) 1,000,000
shares of preferred stock, $.01 par value per share (the "Company Preferred
Stock"). As of the date of this Agreement, (i) 4,953,774 shares of Company
Common Stock are issued and outstanding, (ii) 263,000 shares of Company Common
Stock are issuable upon the exercise of outstanding stock options granted
pursuant to the Company's employee stock option plans, ("Company Stock
Options"), (iii) 120,000 shares of Company Common Stock are issuable upon
exercise of the Company's outstanding warrants, (iv) no shares of Company Common
Stock are held in the treasury of the Company and (v) no shares of Company
Preferred Stock are issued or outstanding. The actions necessary under Section
2.04 to cause such options to become Assumed Options are permitted under the
terms of the agreements and plans under which such options were issued. Schedule
3.03 of the Company Disclosure Volume sets forth a complete and accurate list of
all outstanding Company Stock Options or any other options to purchase shares of
Company Common Stock, including with respect to each such option: (i) its grant
date, (ii) the per share exercise price, (iii) the termination date, and (iv)
the vesting schedule for such option, including whether or not the vesting of
such option will be accelerated as a result of the transactions contemplated by
this Agreement. Schedule 3.03 of the Company Disclosure Volume sets forth a
complete and accurate list of all outstanding warrants (the "Warrants") to
purchase shares of Company Common Stock, including with respect to each such
Warrant: (i) its grant date, (ii) the per share exercise price, (iii) the
termination date, and (iv) a summary of any rights of the holder of such Warrant
to have the Company register the shares issuable upon exercise of the Warrant
under the Securities Act of 1933, as amended (the "Securities Act"). Except as
set forth in Schedule 3.03 of the Company Disclosure Volume, at the Effective
Time, all of the Warrants will automatically terminate by their terms, the
holders thereof will have no further rights thereunder, including no right to
receive the Merger Consideration, and no person will have any right from and
after the Effective Time to obligate the Company, the Surviving Corporation, the
Parent or any other person to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company, the
Surviving Corporation or any other person pursuant to the Warrants. The Company
has no restricted Company Common Stock that is subject to vesting or a
restricted stock grant. All of the outstanding shares of Company Common Stock
has been duly authorized and validly issued and are fully paid and
non-assessable and free of preemptive rights. Except as set forth in this
Section 3.03 or Schedule 3.03 of the Company Disclosure Volume, the Company does
not have any outstanding options, warrants, subscriptions or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
subsidiaries. The Company owns all of the outstanding shares of capital stock of
each of its subsidiaries, and such shares are duly authorized, validly issued,
fully paid and non-assessable, and free and clear of all preemptive rights and
all liens, charges, encumbrances, equities, claims and options of any kind
whatsoever. There are no agreements or understandings to which the Company is a
party with respect to the voting of any shares of Company Common Stock or which
restrict the transfer of any such shares, nor does the Company have knowledge of
any such agreements or understandings with respect to the voting of any such
shares or which restrict the transfer of such shares. There are no outstanding
contractual obligations of the Company or any subsidiary of the Company to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any subsidiary of the Company. Except as set forth in Schedule 3.03
of the Company Disclosure Volume, neither the Company nor any subsidiary of the
Company is under any obligation, contingent or otherwise, by reason of any
agreement to register any of its securities under the Securities Act.
Section 3.04 Authority Relative to this Agreement. The Company has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
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consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of the Company, and no
other corporate proceedings or action on the part of the Company are necessary
to authorize this Agreement or to consummate the transactions contemplated by
this Agreement (other than the approval and adoption of the Merger and this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock and the filing and recordation of appropriate merger documents as
required by Minnesota Law). This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Sub, constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
Section 3.05 Consents and Approvals; No Violations. (a) The Board of
Directors of the Company has approved the Merger and this Agreement, and the
execution and enforceability of this Agreement and the acquisition of shares of
Company Common Stock pursuant hereto are not affected by or prohibited under any
antitakeover or business combination statute under Minnesota law (provided that
no representation is made with respect to Section 302A.671 of the Minnesota
Business Corporation Act).
(b) Except as set forth on Schedule 3.05 of the Company Disclosure Volume,
the execution and delivery of this Agreement by the Company do not, and the
performance of the transactions contemplated by this Agreement by the Company
will not, require any filing with or notification to, or any consent, approval,
authorization or permit from, any governmental or regulatory authority, domestic
or foreign (a "Governmental Entity") or any other person except (i) for (A)
applicable requirements of the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and state securities or "blue sky" laws,
(B) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), and (C) the filing and recordation of Articles of Merger as
required by Minnesota Law, or (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
(X) would not prevent or delay consummation of the Merger in any material
respect, (Y) would not otherwise prevent or delay the Company from performing
its obligations under this Agreement in any material respect or (Z) would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(c) Except as set forth on Schedule 3.05 of the Company Disclosure Volume,
the execution and delivery of this Agreement by the Company do not, and the
performance of the transactions contemplated by this Agreement by the Company
will not, (i) conflict with or violate the Articles of Incorporation, By-laws or
equivalent documents of the Company or any of its subsidiaries, (ii) conflict
with or violate any order, writ, injunction, decree, statute, treaty, law, rule
or regulation applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries is bound or
affected, or (iii) result in a violation or a breach of, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or result in the loss of a benefit under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
or any of any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any property or
asset of the Company or any of its subsidiaries is bound or affected, except, in
the case of clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences that (A) would not prevent or delay
consummation of the Merger in any material respect or otherwise prevent or delay
the Company from performing its obligations under this Agreement in any material
respect or (B) would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.06 Compliance. (a) The Company and its subsidiaries have all
licenses, permits, franchises, orders or approvals of any federal, state, local
or foreign governmental or regulatory body or other Governmental Entity material
to the conduct of the business of the Company (collectively, "Company Permits"),
and such Company Permits are in full force and effect and no proceeding is
pending or, to the best knowledge of the Company, threatened to revoke or limit
any Company Permit. Except as set forth on Schedule 3.06 of the Company
Disclosure Volume, the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not
adversely affect any Company Permit or result in any Company Permit being either
revoked or limited in any material respect. The Company has made available for
review by Parent all material Company Permits.
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(b) Neither the Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, ordinance, regulation, order,
judgment or decree applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (including, without limitation, any of the same that apply to
franchisors and the offering and sale of franchises) or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any its subsidiaries or any property or
asset of the Company or any of its subsidiaries is bound or affected, except for
any such conflicts, defaults or violations that would not, individually or in
the aggregate, have a Company Material Adverse Effect. No investigation or
review by any Governmental Entity or any other person concerning any such
possible violations by the Company or any of its subsidiaries is pending or, to
the knowledge of the Company, threatened, nor has any Governmental Entity or any
other person indicated an intention to conduct the same in each case other than
those the outcome of which would not have, or that, insofar as reasonably can be
foreseen, in the future are not reasonably likely to have, a Company Material
Adverse Effect.
Section 3.07 SEC Reports. (a) The Company has filed all forms, reports and
documents required to be filed by it with the SEC since April 6, 1994, and has
heretofore provided to Parent, in the form filed with the SEC (including any
exhibits thereto), (i) its Annual Reports on Form 10-KSB for the fiscal year
ended December 31, 1994, (ii) its Quarterly Reports on Form 10-QSB filed with
the SEC since April 6, 1994, (iii) all proxy statements relating to the
Company's meetings of stockholders (whether annual or special) held since April
6, 1994 and (iv) all other forms, reports, registration statements and other
documents filed by the Company with the SEC since April 6, 1994 (the forms,
reports, registration statements and other documents referred to in clauses (i),
(ii), (iii) and (iv) above being referred to herein, collectively, as the
"Company SEC Reports"). The Company SEC Reports and any other forms, reports and
other documents filed by the Company with the SEC after the date of this
Agreement (i) were or will be prepared in accordance with the requirements of
the Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder and (ii) did not at the time they were filed, or will not
at the time they are filed, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were or are made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and cash flows of the Company and its consolidated subsidiaries,
as the case may be, as at the respective dates thereof and for the respective
periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments that were not and are not expected,
individually or in the aggregate, to be material in amount).
(c) Except as set forth in the Company SEC Reports filed with the SEC prior
to the date of this Agreement, the Company and its subsidiaries do not have any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) other than liabilities and obligations that would not, individually
or in the aggregate, have a Company Material Adverse Effect.
Section 3.08 Absence of Certain Changes. Since December 31, 1994, except
as disclosed in any Company SEC Report, there has not been (i) a Company
Material Adverse Effect, (ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of any shares of any capital stock of
the Company or any of its subsidiaries, or any redemption, purchase or other
acquisition of any of their respective securities other than dividends by a
subsidiary to the Company, (iii) any entry into any agreement, commitment or
transaction by the Company or any of its subsidiaries that is material to the
Company and its subsidiaries taken as a whole, except agreements, commitments or
transactions in the ordinary course of business and lease and other agreements
relating to the opening of new Company-owned restaurants, (iv) any change by the
Company in accounting methods, principles or practices, or (v) any damage,
destruction or loss (whether or not covered by insurance) with respect to any
property or asset of the Company or any of its
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subsidiaries and having, individually or in the aggregate, a Company Material
Adverse Effect. To the best knowledge of the Company, the Company has disclosed
to Parent all facts and circumstances regarding the Company and the transactions
it has engaged in which could reasonably be expected to adversely affect or
preclude accounting for the Merger (as structured by this Agreement, the
Stockholders Agreement and the Employment Agreement of even date herewith with
Mr. Vlahos (the "Employment Agreement")) as a pooling of interest if consummated
at any time from the date hereof through June 30, 1996. As of the date hereof,
to the best knowledge of the Company based on the facts and circumstances known
to it, the Company has no reason to believe that accounting for the Merger as a
pooling of interests if consummated at any time from the date hereof through
June 30, 1996 would not be available.
Section 3.09 Environmental Matters. The Company and its subsidiaries are
in compliance with all Environmental Laws, except for any noncompliance that,
either singly or in the aggregate, could not have a Company Material Adverse
Effect. "Environmental Laws" shall mean all federal, state and local laws,
rules, regulations, ordinances and orders that purport to regulate the release
of hazardous substances or other materials into the environment, or impose
requirements relating to environmental protection. The Company has previously
furnished to Parent a true and correct list of all Hazardous Materials (as
hereinafter defined) generated, used, handled or stored by the Company or any of
its subsidiaries, the proper disposal of which will require any material
expenditure by the Company or any of its subsidiaries. "Hazardous Materials"
means any "hazardous waste" as defined in either the United States Resource
Conservation and Recovery Act or regulations adopted pursuant to said act, any
"hazardous substances" or "hazardous materials" as defined in the United States
Comprehensive Environmental Response, Compensation and Liability Act and, to the
extent not included in the foregoing, any medical waste. The Company has
previously made available to Parent copies of all documents concerning any
environmental or health and safety matter adversely affecting the Company and
copies of any environmental audits or risk assessments, site assessments,
documentation regarding off-site disposal of Hazardous Materials, spill control
plans and material correspondence with any Governmental Entity regarding the
foregoing.
Section 3.10 Litigation. Except as set forth in Schedule 3.10 of the
Company Disclosure Volume, there is no litigation, claim, suit, action,
proceeding, investigation or complaint pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign (including, without limitation, any litigation, claim,
suit, action, proceeding, investigation, or complaint in which any person
alleges (i) the release, threat of release or placement of any hazardous
substance in connection with the business of the Company or any subsidiary of
the Company, (ii) the generation, transportation, storage, treatment or disposal
of any hazardous substance, hazardous waste, pollutant, contaminant or other
substance listed or regulated under the Environmental Laws in connection with
the business of the Company or any subsidiary of the Company or (iii) any
failure of the Company or a subsidiary of the Company to comply with any of the
Environmental Laws).
Section 3.11 ERISA Compliance, etc. (a) The Company has delivered to
Parent true and complete copies of all "employee welfare benefit plans"
("Welfare Plans") (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and all other bonus, deferred
compensation, pension, profit-sharing, retirement, medical, group life,
disability income, stock purchase, stock option or other "employee pension
benefits plans" (as defined in Section 3(2) of ERISA), or any bonus or incentive
plan, stock option plan, restricted stock plan, stock bonus plan, deferred bonus
plan, salary reduction agreement, change-of-control agreement, employment
agreement, consulting agreement, severance agreement or plan, material fringe
benefit plan or payroll practice, whether or not written or terminated
(sometimes referred to herein collectively as "Benefit Plans") currently
maintained or contributed to, or required to be maintained or contributed to, by
the Company or any other person or entity that, together with the Company, is
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
(each a "Commonly Controlled Entity") or for which the Company could have any
material liability of any nature and which is for the benefit of any current or
former employees, officers or directors or independent contractors (or the
dependents or beneficiaries thereof) of the Company or any of its Commonly
Controlled Entities. The Company has delivered to Parent true, complete and
correct copies of (x) the three (3) most recent annual
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reports on Form 5500 filed with the Internal Revenue Service (the "IRS") with
respect to each Benefit Plan (if any such report was required), (y) the most
recent summary plan description for each Benefit Plan for which such summary
plan description is required or if no such summary plan description is required,
a written summary of the material terms of each such Benefit Plan and (z) each
funding vehicle or arrangement relating to any Benefit Plan.
(b) Except as would not give rise either singly or in the aggregate to a
Company Material Adverse Effect:
(i) Each Benefit Plan has been administered in accordance with its
terms. The Company, any Commonly Controlled Entity and each Benefit Plan
are in compliance with all applicable provisions of ERISA and the Code.
(ii) All Benefit Plans intended to be qualified under Section 401(a)
of the Code have been the subject of determination letters from the
Internal Revenue Service to the effect that such Benefit Plans are
qualified and exempt from federal income taxes under Section 401(a) and
501(a), respectively, of the Code and no such determination letter has been
revoked nor, to the knowledge of the Company or any Commonly Controlled
Entity, has revocation been threatened, nor has any such Benefit Plan been
amended (or failed to be amended) since the date of its most recent
determination letter or application therefor in any respect that would
result in a loss of qualification or exempt status of any such Benefit
Plan.
(iii) No person has engaged in a non-exempt "prohibited transaction"
(as such term is defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility that could subject
the Company, any of its subsidiaries, any officer of the Company or any of
its subsidiaries or any Benefit Plan service provider to tax or penalty
under ERISA, the Code or other applicable law. There has been no
"reportable event" (as that term is defined in Section 4043 of ERISA) with
respect to any Benefit Plan during the last five years.
(iv) With respect to any Benefit Plan that is a Welfare Plan, (Y) no
such Benefit Plan is funded through a "welfare benefit fund," as such term
is defined in Section 419(a) of the Code, and (Z) each such Benefit Plan
complies in all material respects with the applicable requirements of
Section 4980B(f) of the Code, Part 6 of Subtitle B of Title I of ERISA and
any applicable state continuation coverage requirements ("COBRA").
(v) With respect to each Benefit Plan, there are no actions, suits or
investigations or claims pending or, to the knowledge of the Company or any
of its Commonly Controlled Entities, threatened with respect to the assets
thereof (other than routine claims for benefits), and there are no facts
that could give rise to any liability, action, suit, investigation, or
claim against any Benefit Plan, any fiduciary or plan administrator or
other person dealing with any Benefit Plan or the assets of any such
Benefit Plan.
(vi) Each Benefit Plan may be amended, terminated, modified or
otherwise revised by the Company or any of its Commonly Controlled Entities
as of the Effective Time, including the elimination of any and all benefits
under any Benefit Plan (except claims incurred but not reported under any
Welfare Plan or any benefit described in Section 411(d)(6) of the Code or
benefits under cash bonus plans, stock option and stock incentive plans,
employment agreements, consulting agreements and change-of-control
agreements; provided that copies of such plans and agreements have been
provided to Parent's counsel).
(vii) There is no accrued liability with respect to a Benefit Plan
except for which there exists a separate funding vehicle, with assets equal
to such liability, or an equal accrual on the balance sheets (except for
liabilities under cash bonus plans, stock option and stock incentive plans,
employment agreements, consulting agreements and change-of-control
agreements (provided that copies of such plans and agreements have been
provided to Parent's counsel), and, except as set forth on Schedule 3.11 of
the Company Disclosure Volume, for accruals in respect of earned vacation
pay).
(c) The Company and any Commonly Controlled Entity do not maintain or
contribute to or have any other liability of any nature with respect to any
Benefit Plan that is subject to Title IV of ERISA, subject to
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Code Section 412, a "multiemployer plan" as defined in Section 4001 of ERISA, a
"multiemployer plan" within the meaning of Section 3(37) of ERISA, a "multiple
employer plan" within the meaning of Code Section 413(c) or a "multiple employer
welfare arrangement" within the meaning of Section 3(40) of ERISA. No Benefit
Plan provides post-retirement medical or life insurance benefits, except as may
be required by COBRA.
(d) No payment will be made to any "disqualified individual" as defined in
Section 280G(c) of the Code as a result of the Merger that will result in a loss
of deduction by Parent or the Surviving Corporation as a result of the
provisions of Section 280G of the Code.
(e) For purposes of this Section 3.11, "Company Material Adverse Effect"
shall mean a material adverse effect on the business, results of operations or
financial condition of the Company and its subsidiaries taken as a whole, after
taking into account the liabilities of the Company and its subsidiaries and any
other liabilities arising with respect to any Benefit Plan, either to such
Benefit Plan or any fiduciary, participant, beneficiary or agent thereof
(whether or not the Company and its subsidiaries are obligated directly or
indirectly for such liabilities).
Section 3.12 Trademarks, Patents and Copyrights. The Company and its
subsidiaries own, or possess adequate licenses or other valid rights to use, all
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, copyrights, service marks, service mark rights, trade secrets,
applications to register and registrations for, the foregoing patents,
trademarks, service marks, know-how and other proprietary rights and information
used in connection with the business of the Company and its subsidiaries as
currently conducted (the "Company Proprietary Rights"), and no assertion or
claim has been made in writing challenging the validity of any of the Company
Proprietary Rights. To the best knowledge of the Company, the conduct of the
business of the Company and its subsidiaries as currently conducted does not
conflict in any way with any patent, patent rights, license, trademark,
trademark right, trade name, trade name right, service mark, copyright or other
proprietary right of any other person, the Company has received no claim or
threat that any such conflict exists, and no litigation, claim, suit, action,
proceeding, or complaint concerning the foregoing has been filed or is ongoing.
Except as set forth in Schedule 3.12 of the Company Disclosure Volume, the
Company and its subsidiaries have the unencumbered right to sell their products
and services (whether now offered for sale or under development) free from any
royalty or other obligations to any third parties.
Section 3.13 Taxes. The Company and its subsidiaries have timely filed all
material federal, state, local and foreign tax returns and reports required to
be filed by them through the date hereof and shall timely file all returns and
reports required on or before the Effective Time. Such reports and returns are
and will be true, correct and complete in all material respects. The Company and
its subsidiaries have paid and discharged all federal, state, local and foreign
taxes due from them, other than such taxes that are being contested in good
faith by appropriate proceedings and are adequately reserved for as shown in the
audited consolidated balance sheet of the Company dated December 31, 1994 (the
"Company 1994 Balance Sheet") and its most recent quarterly financial
statements, except for such failures to so pay and discharge that would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Neither the IRS nor any other taxing authority or agency, domestic or foreign,
is now asserting or, to the best knowledge of the Company, threatening to assert
against the Company or any of its subsidiaries any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith that,
if such deficiencies or claims were finally resolved against the Company and its
subsidiaries, would, individually or in the aggregate, have a Company Material
Adverse Effect. The accruals and reserves for taxes (including interest and
penalties, if any, thereon) reflected in the Company 1994 Balance Sheet and the
most recent quarterly financial statements are adequate in accordance with
generally accepted accounting principles. The Company and its subsidiaries have
withheld or collected and paid over to the appropriate governmental authorities
or are properly holding for such payment all taxes required by law to be
withheld or collected, except for such failures to have so withheld or collected
and paid over to be so holding for payment that would not, individually or in
the aggregate, have a Company Material Adverse Effect. There are no material
liens for taxes upon the assets of the Company and its subsidiaries. Neither the
Company nor any of its subsidiaries has agreed to or is required to make any
adjustment under Section 481(a) of the Code. Neither the Company nor any of its
subsidiaries has made an election under
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Section 341(f) of the Code. For purposes of this Section 3.13, where a
determination of whether a failure by the Company or any of its subsidiaries to
comply with the representations herein has a Company Material Adverse Effect is
necessary, such determination shall be made on an aggregate basis with all other
failures within this Section 3.13. As of today no payments are due under, and
the Company knows of no facts or circumstances that exist and which could give
rise to the obligation of the Company to make payments under, any agreement to
which the Company is subject and under which the Company has agreed to indemnify
persons for tax liabilities.
Section 3.14 Labor Matters. There is not currently, and within the last
three years neither the Company nor any subsidiary of the Company has
experienced, any strike, picketing, boycott, work stoppage or slow down or union
organization activity. No employee of the Company or any subsidiary of the
Company is represented by a union or any similar entity and there is no request
for representation pending. The Company has no knowledge (i) of any allegation,
charge or complaint of unfair labor practice, employment discrimination or other
matter relating to the employment of labor pending or threatened against the
Company or any subsidiary of the Company, (ii) of any basis for any such
allegation, charge or complaint or (iii) that it, or any subsidiary of the
Company, has not complied with all applicable laws relating to the employment of
labor that could reasonably be expected to have, either individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.15 Affiliate Transactions. The Company has set forth in Schedule
3.15 of the Company Disclosure Volume each material transaction involving the
transfer of any cash, property or rights to or from the Company or any
subsidiary of the Company from, to or for the benefit of any affiliate or former
affiliate of the Company or any subsidiary of the Company or any officer,
director, employee or greater than five percent stockholder of the Company
("Company Affiliate Transactions") during the period commencing March 29, 1994
through the date hereof and any existing commitments of the Company or any
subsidiary of the Company to engage in the future in any material Company
Affiliate Transactions.
Section 3.16 Opinion of Financial Advisor. The Company has received the
opinion of Montgomery Securities, Inc. ("Montgomery"), dated as of the date
hereof, to the effect that, as of such date, the Merger Consideration is fair to
the stockholders of the Company from a financial point of view, a copy of which
opinion has been delivered to Parent.
Section 3.17 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote is
the only vote of the holders of any class or series of the Company's capital
stock necessary to approve the Merger, this Agreement and the transactions
contemplated by this Agreement.
Section 3.18 Brokers. No broker, finder or investment banker (other than
Montgomery) is entitled to any brokerage, finder's or other fee or commission
from the Company in connection with the transactions contemplated by this
Agreement. The Company has heretofore furnished to Parent a complete and correct
copy of all agreements between the Company and Montgomery pursuant to which such
firm would be entitled to any payment relating to the transactions contemplated
by this Agreement.
Section 3.19 Contracts and Other Agreements. Neither the Company nor any
of its subsidiaries is a party to or bound by, and neither they nor any of their
properties or assets are bound or subject to, any contract or other agreement
required to be disclosed in, or filed as exhibit to, the Company SEC Reports
which is not filed in the Company SEC Reports. All such contracts and other
agreements and each of the contracts set forth in Schedule 3.19 of the Company
Disclosure Volume are valid, existing, in full force and effect, binding upon
the Company or its subsidiaries, as the case may be, and to the best knowledge
of the Company, binding upon the other parties thereto in accordance with their
terms, and the Company and its subsidiaries have paid in full or accrued all
amounts now due from them thereunder and have satisfied in full or provided for
all of their liabilities and obligations thereunder which are presently required
to be satisfied or provided for, and are not in default under any of them, nor,
to the best knowledge of the Company, is any other party to any such contract or
other agreement in default thereunder, nor does any condition exist that with
notice or lapse of time or both would constitute a default thereunder.
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Schedule 3.19 of the Company Disclosure Volume sets forth a list of the
following contracts and other agreements to which the Company or any of its
subsidiaries is a party or by or to which they or their assets or properties are
bound or subject:
(a) any agreement that individually requires aggregate expenditures by
the Company or any of its subsidiaries in any one year of more than
$10,000;
(b) any indenture, trust agreement, loan agreement or note that
involves or evidences outstanding indebtedness, obligations or liabilities
for borrowed money in excess of $10,000;
(c) any lease, sublease, installment purchase or similar arrangement
for the purchase, use or occupancy of real or personal property (i) that
individually requires aggregate expenditures by the Company or any of its
subsidiaries in any one year of more than $10,000, or (ii) pursuant to
which the Company or any of its subsidiaries is the lessor of any real
property which has rentals over $5,000 per year, together with the date of
termination of such leases, the name of the other party and the annual
rental payments required to be made under such leases;
(d) any agreement of surety, guarantee or indemnification, other than
(i) an agreement in the ordinary course of business with respect to
obligations in an amount not in excess of $10,000, or (ii) indemnification
provisions contained in leases not otherwise required to be disclosed;
(e) any agreement, including without limitation employment agreements
and bonus plans, relating to the compensation of, or obligating the Company
to make payments (whether such payments are fixed in amount or contingent
upon revenues of, or opening of, a restaurant or other factors) to, (i)
officers, (ii) employees, (iii) former employees, (iv) consultants, (v)
advisors or (vi) any person who was promised such payments in consideration
of helping the Company establish or promote restaurants;
(f) any agreement containing covenants of the Company not to compete
in any line of business, in any geographic area or with any person or
covenants of any other person not to compete with the Company or in any
line of business of the Company;
(g) any agreement granting or restricting the right of the Company or
any of its subsidiaries to use a trade name, trade mark, logo or the
Company Proprietary Rights;
(h) any agreement with any customer or supplier that cannot be
terminated without penalty in excess of $10,000 by the Company or any of
its subsidiaries within one year; and
(i) any franchise, licensing or development agreement.
True and complete copies of all of the contracts and other agreements set
forth in Schedule 3.19 of the Company Disclosure Volume (or required to be set
forth therein) have been previously provided to Parent.
Section 3.20 Subsidiaries. Set forth on Schedule 3.20 to the Company
Disclosure Volume is a list of all subsidiaries of the Company, their
jurisdiction of incorporation or organization, and the location of their
principal offices. Such subsidiaries are wholly owned by the Company and no
person has a right to acquire an interest therein. Other than such subsidiaries,
the Company does not have any interest, direct or indirect, in any partnership,
joint venture or other business entity.
Section 3.21 Insurance. During the last five years (or, with respect to
any particular type of claim, the applicable statute of limitations with respect
to such claim) the Company has maintained liability insurance policies of a
commercially reasonable amount and nature consistent for a company of its size
and with its operations at such time.
Section 3.22 Disclosure. To the best knowledge of the Company, all
material facts relating to the business, operations, properties, assets,
liabilities (contingent or otherwise), and financial condition of the Company
and its subsidiaries have been disclosed to Parent in or in connection with this
Agreement. The representations, warranties and statements made by the Company in
this Agreement and in the certificates delivered pursuant hereto do not contain
any untrue statement of a material fact, and, when taken together, do
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not omit to state any material fact necessary to make such representations,
warranties and statements, in light of the circumstances under which they are
made, not misleading.
Section 3.23 Definition of Company's Knowledge. As used in this Agreement,
the phrase "to the knowledge of the Company" or "to the best knowledge of the
Company" (or words of similar import) means the knowledge or the best knowledge
of those individuals identified in Schedule 3.23 of the Company Disclosure
Volume, and includes any fact, matter or circumstance which any of such
individuals, as an ordinary and prudent business person employed in the same
capacity in the same type and size of business as the Company, should have
known.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 4.01 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent's subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Each of Parent and its subsidiaries has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to conduct its business as it is currently conducted, except
where the failure to have such power, authority or governmental approval would
not, individually or in the aggregate, have a Parent Material Adverse Effect (as
defined below). Each of Parent and its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a Parent
Material Adverse Effect. The term "Parent Material Adverse Effect" means any
change or effect that is or would be materially adverse to the business, results
of operations or financial condition of the Parent and its subsidiaries taken as
a whole. Sub is a newly-formed, wholly-owned subsidiary of Parent, formed solely
for the purpose of consummating the transactions described herein, and has no
assets (other than those received in connection with its initial capitalization)
or liabilities.
Section 4.02 Certificate of Incorporation and By-laws. Parent has made
available to the Company a true, complete and correct copy of the Certificate of
Incorporation, the By-laws or equivalent organizational documents, each as
amended to date, of Parent and each of its subsidiaries. Such Certificate of
Incorporation, By-laws and equivalent organizational documents are in full force
and effect. Neither Parent nor any of its subsidiaries is in violation of any
provision of its Certificate of Incorporation, By-laws or equivalent
organizational documents.
Section 4.03 Capitalization. The authorized capital stock of Parent
consists of 20,000,000 shares of Parent Common Stock and 1,000,000 shares of
preferred stock, $.01 par value per share ("Parent Preferred Stock"). As of the
date of this Agreement, (i) 6,924,419 shares of Parent Common Stock are issued
and outstanding, (ii) 755,883 shares of Parent Common Stock are issuable upon
the exercise of outstanding stock options granted pursuant to Parent's employee
stock option plans, (iii) no shares of Parent Common Stock are held in the
treasury of Parent, and (iv) 11,911.545 shares of Parent Preferred Stock are
issued and outstanding and 264,701 shares of Parent Common Stock are issuable
upon conversion of such shares, and (v) 1,291,667 shares of Parent Common Stock
are issuable upon conversion of outstanding convertible subordinated notes. All
of the outstanding shares of Parent Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable and free of preemptive
rights. Except as set forth in Schedule 4.03 of the volume of disclosure
schedules delivered by the Parent to the Company on October 10, 1995 (the
"Parent Disclosure Volume"), Parent does not have any outstanding options,
warrants, subscriptions or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock of Parent or
any of its subsidiaries or obligating Parent or any of its subsidiaries to issue
or sell any shares of capital stock of, or other equity interests in, Parent or
any of its subsidiaries. Parent owns all of the outstanding shares of capital
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stock of each of its subsidiaries, and such shares are duly authorized, validly
issued, fully paid and non-assessable, and free and clear of all preemptive
rights and all liens, charges, encumbrances, equities, claims and options of any
kind whatsoever.
Section 4.04 Authority Relative to this Agreement. Except as set forth on
Schedule 4.05, each of Parent and Sub has all necessary power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Parent and Sub and the sole stockholder of Sub, and no
other corporate proceedings or action on the part of Parent and Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated by this Agreement (other than, with respect to consummation of the
Merger, (i) the approval by Parent's stockholders, in accordance with applicable
rules of the Nasdaq National Market System, of the issuance of shares of Parent
Common Stock (the "Parent Vote Matter") and (ii) filing and recordation of the
appropriate merger documents by Sub as required by Minnesota Law). This
Agreement has been duly and validly executed and delivered by parent and Sub, as
the case may be, and, assuming the due authorization, execution and delivery by
the Company, constitute the valid and binding agreements of parent and Sub, as
the case may be, enforceable against parent and Sub in accordance with their
terms.
Section 4.05 Consents and Approvals; No Violations. (a) The Board of
Directors of each of Parent and Sub and the sole stockholder of Sub have
approved the Merger and this Agreement.
(b) Except as set forth in Schedule 4.05 of the Parent Disclosure Volume,
the execution and delivery of this Agreement by Parent and Sub do not, and the
performance of the transactions contemplated by this Agreement by Parent and Sub
will not, require any filing with or notification to, or any consent, approval,
authorization or permit from, any Governmental Entity or any other person except
(i) for (A) applicable requirements of the Securities Act, the Exchange Act and
state securities or "blue sky" laws, (B) the pre-merger notification
requirements of the HSR Act, and (C) the filing and recordation of the Articles
of Merger, as required by Minnesota Law, or (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, (X) would not prevent or delay consummation of the Merger in any
material respect or otherwise prevent or delay either Parent or Sub from
performing its obligations under this Agreement in any material respect, (Y)
would not otherwise prevent or delay Parent from performing its obligations
under this Agreement in any material respect or (Z) would not, individually or
in the aggregate, have a Parent Material Adverse Effect.
(c) Except as set forth in Schedule 4.05 of the Parent Disclosure Volume,
the execution and delivery of this Agreement by Parent and Sub do not, and the
performance of the transactions contemplated by this Agreement by Parent and Sub
will not, (i) conflict with or violate the Certificate of Incorporation, By-laws
or equivalent documents of Parent or of any of its subsidiaries, (ii) conflict
with or violate any order, writ, injunction, decree, statute, treaty, law, rule
or regulation applicable to Parent or any of its subsidiaries or by which any
property or asset of Parent or any of its subsidiaries is bound or affected or
(iii) result in a violation or a breach of, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
result in the loss of a benefit under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent or
any of any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which or
any of its subsidiaries or any property or asset of Parent or any of its
subsidiaries is bound or affected, except, in the case of clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences that (A) would not prevent or delay consummation of the Merger in
any material respect or otherwise prevent or delay either Parent or Sub from
performing its obligations under this Agreement in any material respect or (B)
would not, individually or in the aggregate, have a Parent Material Adverse
Effect.
Section 4.06 Compliance. (a) Parent and its subsidiaries have all
licenses, permits, franchises, orders or approvals of any federal, state, local
or foreign governmental or regulatory body or other Governmental
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Entity material to the conduct of the business of Parent (collectively, "Parent
Permits"), and such Parent Permits are in full force and effect and no
proceeding is pending or, to the best knowledge of Parent, threatened to revoke
or limit any Parent Permit. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not
adversely affect any Parent Permit or result in any Parent Permit being either
revoked or limited in any material respect.
(b) Neither Parent nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which any property
or asset of Parent or any of its subsidiaries is bound or affected, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any its subsidiaries or any
property or asset of Parent or any of its subsidiaries is bound or affected,
except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Parent Material Adverse Effect. No
investigation or review by any Governmental Entity or any other person
concerning any such possible violations by Parent or any of its subsidiaries is
pending or, to the knowledge of Parent, threatened, nor has any Governmental
Entity or any other person indicated an intention to conduct the same in each
case other than those the outcome of which would not have, or that insofar as
reasonably can be foreseen, in the future are not reasonably likely to have, a
Parent Material Adverse Effect.
Section 4.07 SEC Reports. (a) Parent has filed all forms, reports and
documents required to be filed by it with the SEC since June 30, 1994 and has
heretofore made available to the Company, in the form filed with the SEC
(excluding any exhibits thereto), (i) its Annual Report on Form 10-K for the
fiscal year ended July 1, 1995, and (ii) all other forms, reports, registration
statements and other documents filed by Parent with the SEC since July 1, 1995
(the forms, reports, registration statements and other documents referred to in
clauses (i) and (ii) above being referred to herein, collectively, as the
"Parent SEC Reports"). The Parent SEC Reports and any other forms, reports and
other documents filed by Parent with the SEC after the date of this Agreement
(i) were or will be prepared in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder and (ii) did not at the time they were filed, or will not
at the time they are filed, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were or are made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Parent SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and cash flows of Parent and its consolidated subsidiaries as the
case may be, as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments that were not and are not expected, individually
or in the aggregate, to be material in amount).
(c) Except as set forth in the Parent SEC Reports filed with the SEC prior
to the date of this Agreement, Parent and its subsidiaries do not have any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) other than liabilities and obligations that would not, individually
or in the aggregate, have a Parent Material Adverse Effect.
Section 4.08 Absence of Certain Changes. Since July 1, 1995, except as
disclosed in any Parent SEC Report, there has not been (i) a Parent Material
Adverse Effect, (ii) any declaration, setting aside or payment of any dividend
or other distribution in respect of any shares of any capital stock of Parent or
any of its subsidiaries, or any redemption, purchase or other acquisition of any
of their respective securities other than dividends by a subsidiary to Parent,
(iii) any entry into any agreement, commitment or transaction by Parent or any
of its subsidiaries that is material to Parent and its subsidiaries taken as a
whole, except agreements, commitments or transactions in the ordinary course of
business, (iv) any change by Parent in accounting methods, principles or
practices, or (v) any damage, destruction or loss (whether or not covered by
insurance) with respect to any property or asset of Parent or any of its
subsidiaries and having, individually or in the aggregate, a Parent Material
Adverse Effect. To the best knowledge of Parent, Parent has disclosed to the
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Company all facts and circumstances regarding Parent and the transactions it has
engaged in which could reasonably be expected to adversely affect or preclude
accounting for the Merger (as structured by this Agreement, the Stockholders
Agreement and the Employment Agreement) as a pooling of interests if consummated
at any time from the date hereof through June 30, 1996. As of the date hereof,
to the best knowledge of Parent based on the facts and circumstances known to
it, Parent has no reason to believe that accounting for the Merger as a pooling
of interests if consummated at any time from the date hereof through June 30,
1996 would not be available.
Section 4.09 Environmental Matters. Parent and its subsidiaries are in
compliance with all Environmental Laws, except for any noncompliance that,
either singly or in the aggregate, would not have a Parent Material Adverse
Effect. "Environmental Laws" shall mean all federal, state and local laws,
rules, regulations, ordinances and orders that purport to regulate the release
of hazardous substances or other materials into the environment, or impose
requirements relating to environmental protection.
Section 4.10 Litigation. There is no litigation, claim, suit, action,
proceeding, investigation or complaint pending or, to the best knowledge of
Parent, threatened against Parent or any of its subsidiaries before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign (including, without limitation, any litigation, claim, suit,
action, proceeding, investigation, or complaint in which any person alleges (i)
the release, threat of release or placement of any hazardous substance in
connection with the business of Parent or any subsidiary of Parent, (ii) the
generation, transportation, storage, treatment or disposal of any hazardous
substance, hazardous waste, pollutant, contaminant or other substance listed or
regulated under the Environmental Laws in connection with the business of Parent
or any subsidiary of Parent or (iii) any failure of Parent or a subsidiary of
Parent to comply with any of the Environmental Laws) which are expected,
individually or in the aggregate, to have a Parent Material Adverse Effect.
Section 4.11 ERISA Compliance. (a) Parent has made available to the
Company true and complete copies of all Welfare Plans and all other bonus,
deferred compensation, pension, profit-sharing, retirement, medical, group life,
disability income, stock purchase, stock option or other "employee pension
benefits plans" (as defined in Section 3(2) of ERISA), or any bonus or incentive
plan, stock option plan, restricted stock plan, stock bonus plan, deferred bonus
plan, salary reduction agreement, change-of-control agreement, employment
agreement, consulting agreement, severance agreement or plan, material fringe
benefit plan or payroll practice, whether or not written or terminated
(sometimes referred to herein collectively as "Parent Benefit Plans") currently
maintained or contributed to, or required to be maintained or contributed to, by
Parent or any other person or entity that, together with Parent, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (each a
"Parent Commonly Controlled Entity") or for which Parent could have any material
liability of any nature and that is for the benefit of any current or former
employees, officers or directors or independent contractors (or the dependents
or beneficiaries thereof) of Parent or any of the Parent Commonly Controlled
Entities. Parent has made available to the Company true, complete and correct
copies of (x) the most recent annual report on Form 5500 filed with the IRS with
respect to each Parent Benefit Plan (if any such report was required), (y) the
most recent summary plan description for each Parent Benefit Plan for which such
summary plan description is required or if no such summary plan description is
required, a written summary of the material terms of each such Parent Benefit
Plan and (z) each funding vehicle or arrangement relating to any Parent Benefit
Plan.
(b) Except as would not give rise either singly or in the aggregate to a
Parent Material Adverse Effect:
(i) Each Parent Benefit Plan has been administered in accordance with
its terms. Parent, any Parent Commonly Controlled Entity and each Parent
Benefit Plan are in compliance with all applicable provisions of ERISA and
the Code.
(ii) All Parent Benefit Plans intended to be qualified under Section
401(a) of the Code have been the subject of determination letters from the
Internal Revenue Service to the effect that such Parent Benefit Plans are
qualified and exempt from federal income taxes under Section 401(a) and
501(a), respectively, of the Code and no such determination letter has been
revoked nor, to the knowledge of Parent any Parent Commonly Controlled
Entity, has revocation been threatened, nor has any such Parent Benefit
Plan been amended (or failed to be amended) since the date of its most
recent determination
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letter or application therefor in any respect that would result in a loss
of qualification or exempt status of any such Parent Benefit Plan.
(iii) No person has engaged in a non-exempt "prohibited transaction"
(as such term is defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility that could subject
Parent, any of its subsidiaries, any officer of Parent or any of its
subsidiaries or any Parent Benefit Plan service provider to tax or penalty
under ERISA, the Code or other applicable law. There has been no
"reportable event" (as that term is defined in Section 4043 of ERISA) with
respect to any Parent Benefit Plan during the last five years.
(iv) With respect to any Parent Benefit Plan that is a Welfare Plan,
(Y) no such Parent Benefit Plan is funded through a "welfare benefit fund,"
as such term is defined in Section 419(a) of the Code, and (Z) each such
Parent Benefit Plan complies in all material respects with the applicable
requirements of COBRA.
(v) With respect to each Parent Benefit Plan, there are no actions,
suits or investigations or claims pending or, to the knowledge of Parent or
any of its Parent Commonly Controlled Entities, threatened with respect to
the assets thereof (other than routine claims for benefits), and there are
no facts that would give rise to any liability, action, suit,
investigation, or claim against any Parent Benefit Plan, any fiduciary or
plan administrator or other person dealing with any Parent Benefit Plan or
the assets of any such Parent Benefit Plan.
(vi) Each Parent Benefit Plan may be amended, terminated, modified or
otherwise revised by Parent or any Parent Commonly Controlled Entities as
of the Effective Time, including the elimination of any and all benefits
under any Parent Benefit Plan (except claims incurred but not reported
under any Welfare Plan or any benefit described in Section 411(d)(6) of the
Code or benefits under cash bonus plans, stock option and stock incentive
plans, employment agreements, consulting agreements and change-of-control
agreements; provided that copies of such plans and agreements have been
provided to the Company's counsel).
(vii) There is no accrued liability with respect to a Parent Benefit
Plan except for which there exists a separate funding vehicle, with assets
equal to such liability, or an equal accrual on the balance sheets (except
for liabilities under cash bonus plans, stock option and stock incentive
plans, employment agreements, consulting agreements and change-of-control
agreements; provided that copies of such plans and agreements have been
provided to the Company's counsel).
(c) Parent and any Parent Commonly Controlled Entity do not maintain or
contribute to or have any other liability of any nature with respect to any
Parent Benefit Plan that is subject to Title IV of ERISA, subject to Code
Section 412, a "multiemployer plan" as defined in Section 4001 of ERISA, a
"multiemployer plan" within the meaning of Section 3(37) of ERISA, a "multiple
employer plan" within the meaning of Code Section 413(c) or a "multiple employer
welfare arrangement" within the meaning of Section 3(40) of ERISA. No Parent
Benefit Plan provides post-retirement medical or life insurance benefits, except
as may be required by COBRA.
(d) For purposes of this Section 4.11, "Parent Material Adverse Effect"
shall mean a material adverse effect on the business, results of operations or
financial condition of Parent and its subsidiaries taken as a whole, after
taking into account the liabilities of Parent and its subsidiaries and any other
liabilities arising with respect to any Parent Benefit Plan, either to such
Parent Benefit Plan or any fiduciary, participant, beneficiary or agent thereof
(whether or not Parent and its subsidiaries are obligated directly or indirectly
for such liabilities).
Section 4.12 Trademarks, Patents and Copyrights. Parent and its
subsidiaries own, or possess adequate licenses or other valid rights to use, all
patents, patent rights, patents, trademarks, trademark rights, trade names,
trade name rights, copyrights, service marks, service mark rights, trade
secrets, applications to register and registrations for, the foregoing
trademarks, service marks, know-how and other proprietary rights and information
used in connection with the business of Parent and its subsidiaries as currently
conducted (the "Parent Proprietary Rights"), and no assertion or claim has been
made in writing challenging the validity of
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any of the Parent Proprietary Rights. To the best knowledge of Parent, the
conduct of the business of Parent and its subsidiaries as currently conducted
does not conflict in any way with any patent, patent rights, license, trademark,
trademark right, trade name, trade name right, service mark, copyright or other
proprietary right of any other person. Except as set forth in Schedule 4.12 of
the Parent Disclosure Volume, Parent and its subsidiaries have the unencumbered
right to sell their products and services (whether now offered for sale or under
development) free from any royalty or other obligations to any third parties.
Section 4.13 Taxes. Parent and its subsidiaries have timely filed all
federal, state, local and foreign tax returns and reports required to be filed
by them through the date hereof and shall timely file all returns and reports
required on or before the Effective Time. Such reports and returns are and will
be true, correct and complete in all material respects. Parent and its
subsidiaries have paid and discharged all federal, state, local and foreign
taxes due from them, other than such taxes that are being contested in good
faith by appropriate proceedings and are adequately reserved as shown in the
audited consolidated balance sheet of Parent dated July 1, 1995 (the "Parent
1995 Balance Sheet"), except for such failures to so pay and discharge which
would not, individually or in the aggregate, have a Parent Material Adverse
Effect. Neither the IRS nor any other taxing authority or agency, domestic or
foreign, is now asserting or, to the best knowledge of Parent, threatening to
assert against Parent or any of its subsidiaries any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith that,
if such deficiencies or claims were finally resolved against Parent and its
subsidiaries, would, individually or in the aggregate, have a Parent Material
Adverse Effect. The accruals and reserves for taxes (including interest and
penalties, if any, thereon) reflected in the Parent 1995 Balance Sheet are
adequate in accordance with generally accepted accounting principles. Parent and
its subsidiaries have withheld or collected and paid over to the appropriate
governmental authorities or are properly holding for such payment all taxes
required by law to be withheld or collected, except for such failures to have so
withheld or collected and paid over to be so holding for payment that would not,
individually or in the aggregate, have a Parent Material Adverse Effect. There
are no material liens for taxes upon the assets of Parent and its subsidiaries.
Neither Parent nor any of its subsidiaries has agreed to or is required to make
any adjustment under Section 481(a) of the Code. Neither Parent nor any of its
subsidiaries has made an election under Section 341(f) of the Code. For purposes
of this Section 4.13, where a determination of whether a failure by Parent or
any of its subsidiaries to comply with the representations herein has a Parent
Material Adverse Effect is necessary, such determination shall be made on an
aggregate basis with all other failures within this Section 4.13.
Section 4.14 Labor Matters. There is not currently, and within the last
three years neither Parent nor any subsidiary of Parent has experienced, any
strike, picketing, boycott, work stoppage or slow down or union organization
activity. No employee of Parent or any subsidiary of Parent is represented by a
union or any similar entity and there is no request for representation pending.
Parent has no knowledge (i) of any allegation, charge or complaint of unfair
labor practice, employment discrimination or other matter relating to the
employment of labor pending or threatened against Parent or any subsidiary of
Parent, (ii) of any basis for any such allegation, charge or complaint or (iii)
that it, or any subsidiary of Parent, has not complied with all applicable laws
relating to the employment of labor that could reasonably be expected to have,
either individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.15 Affiliate Transactions. Parent has set forth in Schedule 4.15
of the Parent Disclosure Volume each material transaction involving the transfer
of any cash, property or rights to or from Parent or any subsidiary of Parent
from, to or for the benefit of any affiliate or former affiliate of Parent or
any subsidiary of Parent or any officer, director, employee or greater than five
percent stockholder of the Company ("Parent Affiliate Transactions") during the
period from July 2, 1994 through the date hereof and any existing commitments of
Parent or any subsidiary of Parent to engage in the future in any material
Parent Affiliate Transactions.
Section 4.16 Opinion of Financial Advisor. Parent has received the opinion
of Piper Jaffray, Inc. ("Piper Jaffray"), dated as of the date hereof, to the
effect that, as of such date, the Merger Consideration is fair to the
stockholders of Parent from a financial point of view, a copy of which opinion
has been delivered to the Company.
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Section 4.17 Vote Required. The affirmative vote of the holders of a
majority of the shares of Parent Common Stock cast at the Parent Stockholders
Meeting, provided that the total vote cast on the Parent Vote Matter represents
over 50% of the outstanding shares of Parent Common Stock, is the only vote of
the holders of any class or series of Parent's capital stock necessary to
approve the Parent Vote Matter. The sole stockholder of Sub has approved this
Agreement and the Merger and no further vote of such stockholder is required
with respect to such matters.
Section 4.18 Brokers. No broker, finder or investment banker (other than
Piper Jaffray) is entitled to any brokerage, finder's or other fee or commission
from Parent in connection with the transactions contemplated herein by this
Agreement. The Parent has heretofore furnished to the Company a complete and
correct copy of all agreements between Parent and Piper Jaffray pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated by this Agreement.
Section 4.19 Disclosure. To the best knowledge of Parent and Sub, all
material facts relating to the business, operations, properties, assets,
liabilities (contingent or otherwise) and financial condition of Parent and its
subsidiaries have been disclosed to the Company in or in connection with this
Agreement. The representations, warranties and statements made by Parent and Sub
in this Agreement and in the certificates delivered pursuant hereto do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state any material fact necessary to make such representations,
warranties and statements, in light of the circumstances under which they are
made, not misleading.
Section 4.20 Insurance. During the last five years (or, with respect to
any particular type of claim, the applicable statute of limitations with respect
to such claim) Parent has maintained liability insurance policies of a
commercially reasonable amount and nature consistent for a company of its size
and with its operations at such time.
Section 4.21 Definition of Parent's Knowledge. As used in this Agreement,
the phrase "to the knowledge of Parent" or "to the best knowledge of Parent" (or
words of similar import) means the knowledge or the best knowledge of those
individuals identified in Schedule 4.21 of the Parent Disclosure Volume, and
includes any fact, matter or circumstance which any of such individuals, as an
ordinary and prudent business person employed in the same capacity in the same
type and size of business as Parent, should have known.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Respective Businesses of the Company and Parent
Pending the Merger. Each of the Company and Parent covenants and agrees as to
itself and each of its subsidiaries that between the date of this Agreement and
the Effective Time, it shall carry on its respective businesses in the usual,
regular and ordinary course, consistent with past practice, and each of them
shall use its reasonable best efforts to preserve intact its present business
organizations, keep available the services of its present officers and
employees, keep in effect casualty, public liability, worker's compensation and
other insurance policies in coverage amounts not less than those in effect as of
the date of this Agreement, to preserve and protect the Company Proprietary
Rights (in the case of the Company) and the Parent Proprietary Rights (in the
case of Parent) and preserve its relationships with customers, franchisees,
suppliers, licensors and other persons with which it has significant business
dealings. Without limiting the generality of the foregoing, neither the Company
nor Parent nor any of their respective subsidiaries shall, between the date of
this Agreement and the Effective Time, directly or indirectly, do, or propose or
agree to do, any of the following without the prior written consent of the
other:
(a) (i) Declare, set aside or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in respect of
any of its capital stock, except for any dividend from a subsidiary to Parent or
the Company, as the case may be, (ii) split, combine, reclassify or subdivide
any of its capital stock or (iii) repurchase, redeem or otherwise acquire any of
its capital stock;
(b) Authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
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otherwise) (collectively, "Issue") any shares of stock of any class or any other
securities (including indebtedness having the right to vote) or equity
equivalents (including, without limitation, phantom stock or stock appreciation
rights), other than (i) the issuance of capital stock in connection with (X) the
exercise of options, warrants, convertible debentures, convertible preferred
stock or other similar rights outstanding as of the date of this Agreement and
in accordance with the terms of such options, warrants, convertible debentures,
convertible preferred stock or other rights in effect on the date of this
Agreement or (Y) options granted under Parent's stock option plans after the
date of this Agreement, or (ii) is otherwise permitted to be issued pursuant to
this Agreement;
(c) In the case of the Company, acquire or encumber (other than in
connection with the opening of new Company-owned restaurants) or sell, lease,
transfer or dispose of any assets other than in the ordinary course of business;
(d) In the case of the Company, other than in connection with activities
consistent with expansion of Company's restaurant operations, incur any
long-term indebtedness for borrowed money, guarantee any indebtedness, issue or
sell debt securities or warrants or rights to acquire any debt securities,
guarantee (or otherwise become liable or potentially liable for) any debt of
others, make any loans, advances or capital contributions; mortgage, pledge or
otherwise encumber any material assets; or create or suffer any material lien
thereupon other than in the ordinary course of business consistent with prior
practice or incur any short-term indebtedness for borrowed money except for
credit facilities in existence on the date hereof;
(e) In the case of the Company, pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than any payment, discharge or satisfaction (i)
in the ordinary course of business consistent with past practice, (ii) in
connection with the transactions contemplated by this Agreement, or (iii) in
accordance with their terms, of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto) of
the Company and its consolidated subsidiaries or Parent and its consolidated
subsidiaries, as the case may be;
(f) Change any of the accounting principles or practices used by it (except
as required by generally accepted accounting principles);
(g) In the case of the Company, increase the compensation payable or to
become payable to its officers or employees, except for increases in the
ordinary course of business in accordance with past practice, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director or officer of it or any of its subsidiaries, or
establish, adopt, enter into or amend in any material respect or take action to
accelerate any rights or benefits under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(h) Amend or otherwise change the Company's Articles of Incorporation or
By-laws (in the case of the Company) Parent's Certificate of Incorporation or
By-laws (in the case of Parent) or Sub's Articles of Incorporation or By-laws
(in the case of Parent);
(i) In the case of the Company, other than in connection with activities
consistent with expansion of Company's restaurant operations, (i) enter into a
new agreement, contract or commitment involving payment to or by the Company of
$10,000 or more or (ii) amend any existing agreement that could reasonably be
expected to have a Company Material Adverse Effect;
(j) In the case of the Company, other than in connection with activities
consistent with expansion of the Company's restaurant operations, enter into or
modify or amend any lease, license agreement, franchise agreement or development
agreement;
(k) Knowingly engage in any transaction or cause any fact or circumstance
to occur which would preclude accounting for the Merger (as structured by this
Agreement, the Stockholders Agreement and the Employment Agreement) as a pooling
of interests if consummated at any time from the date hereof through June 30,
1996; or
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(l) Enter into an agreement to take any of the foregoing actions or take,
or enter into an agreement to take, any action that would result in any of the
conditions to the Merger set forth in Article VI not being satisfied.
Section 5.02 No Solicitations. (a) Unless and until this Agreement shall
have terminated in accordance with its terms, neither the Company nor any of its
subsidiaries shall (and the Company and each of its subsidiaries shall use its
best efforts to cause all of its officers, directors, employees, agents,
representatives and advisors, including, without limitation, investment bankers,
attorneys and accountants, not to), directly or indirectly, solicit, initiate,
knowingly encourage or enter into any agreement with respect to or participate
in negotiations with, provide any confidential information to, enter into any
agreement with or (except, as advised in a written opinion of Fredrikson &
Byron, P.A. or other counsel reasonably acceptable to Parent, as may be required
by applicable state corporate law with respect to the provisions of materials to
a stockholder of the Company) otherwise cooperate in any way in connection with,
any Third Party (as hereinafter defined) concerning any Competing Transaction
(as defined in Section 7.01). For purposes of this Agreement, "Third Party"
shall mean any corporation, partnership, person or "group" (as defined in
Section 13(d)(3) of the Exchange Act and the Rules and Regulations thereunder)
other than Parent, Sub, any affiliate of Parent or Sub or any of their
respective directors, officers, employees, representatives, advisors and agents.
The Company agrees to terminate, immediately following the execution of this
Agreement, all pending discussions or negotiations with any Third Party with
respect to any possible Competing Transaction (as defined in Section 7.01).
(b) The Company will notify Parent and Sub orally, within twenty-four
hours, and in writing, as promptly as practicable (i) of the identity of any
Third Party from which it or any of its subsidiaries or any of their respective
officers, directors, employees, agents, representative or advisors receives any
request for information, any inquiry or any proposal to initiate discussions or
negotiations with respect to, or relating to, a Competing Transaction or any of
the other matters set forth in Section 5.02(a) and (ii) if applicable, the terms
of such Competing Transaction. If such request, inquiry or proposal is in
writing, the Company will deliver to Parent and Sub a copy of such request,
inquiry or proposal within twenty-four hours of its receipt.
Section 5.03 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, each of the Company and Parent shall (and shall
cause its subsidiaries and officers, directors, employees, auditors and agents
to) afford the officers, employees and agents of the other party (the
"Respective Representatives") reasonable access at all reasonable times to its
officers, employees, agents, properties, offices, plants and other facilities,
books and records, and shall furnish such Respective Representatives with all
financial, operating and other data and information as may be reasonably
requested.
(b) All information obtained by the Company or Parent pursuant to this
Section 5.03 shall be kept confidential in accordance with the terms of the
agreement or agreements covering confidentiality of materials entered into
between each party or between a party and a financial advisor to a party in
connection with a contemplated transaction between the parties.
(c) No investigation pursuant to this Section 5.03 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 5.04 Indemnification and Insurance. (a) The provisions in the
charter and by-laws of each of the Surviving Corporation and Parent with respect
to indemnification of officers and directors and limitations on their personal
liability shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors or officers of the Company ("Company Parties") in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by law. Parent shall guarantee the obligations of
the Surviving Corporation arising out of such provisions or, at its option, in
the alternative shall purchase a one-year directors' and officers' "tail"
insurance policy covering the obligations of the Surviving Corporation in such
regard.
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(b) This Section 5.04 is intended for the irrevocable benefit of, and to
grant third party rights to, the Company Parties and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation.
Each of the Company Parties shall be entitled to enforce the covenants contained
in this Section 5.04.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person or entity, then, and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation assume the obligations set forth in this Section 5.04.
Section 5.05 Certain Benefits. (a) Parent and Sub agree that the Company
and its subsidiaries, and the Surviving Corporation and its subsidiaries after
the Effective Time, will provide benefit plans to employees of the Company and
its subsidiaries that, at the option of the Parent, either (i) will be no less
favorable, in the aggregate, than those provided by Parent and its subsidiaries
to their employees or (ii) will, in the aggregate, be no less favorable than
those provided by the Company and its subsidiaries to their employees prior to
the date of this Agreement. Nothing contained in this Section 5.05(a) shall be
construed to grant any right of continued employment to any present employee of
the Company or any of its subsidiaries.
(b) If any employee of the Company or any of its subsidiaries becomes a
participant in any employee benefit plan, practice or policy of Parent, any of
its affiliates or the Surviving Corporation, such employee shall be given credit
under such plan for all service prior to the Effective Time with the Company and
its subsidiaries or any predecessor employer (to the extent such credit was
given by the Company under a similar plan) for purposes of eligibility
(including, without limitation, waiting periods), vesting and vacation accrual.
(c) Except for normal increases in the ordinary course of business that are
consistent with past practices and that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, the
Company will not, and will not permit any of its Commonly Controlled Entities
to, adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other employee benefit agreements, trusts, plans, funds or other
arrangements for the benefit or welfare of any director, officer or employee
that increase in any manner the compensation, retirement, welfare or fringe
benefits of any director, officer or employee or pay any benefit not required by
any existing plan or arrangement (including without limitation the granting of
stock options) or take any action or grant any benefit not expressly required
under the terms of any existing agreements, trusts, plans, funds or other such
arrangements or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
Section 5.06 Registration Statement; Joint Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) Parent and
the Company shall prepare and file with the SEC a joint proxy statement relating
to the meetings of the stockholders of Parent and the Company to be held in
connection with the Merger and the Parent Vote Matter (together with any
amendments thereof or supplements thereto, the "Proxy Statement") and (ii)
Parent shall prepare and file with the SEC a registration statement on Form S-4
(the "Form S-4") in which the Proxy Statement shall be included as part
(together with the Proxy Statement and all amendments to the Proxy Statement and
the Form S-4, the "Registration Statement") in connection with the registration
under the Securities Act of the shares of Parent Common Stock to be issued to
the stockholders of the Company pursuant to the Merger. Each of the Company and
Parent shall use their reasonable best efforts to have or cause the Registration
Statement to become effective as promptly as practicable, and shall take all or
any action required under any applicable federal or state securities laws in
connection with the issuance of shares of Parent Common Stock pursuant to the
Merger. Each of the Company and Parent shall furnish all information concerning
itself to the other as the other may reasonably request in connection with such
actions and the preparation of the Registration Statement. As promptly as
practicable after the Registration Statement shall have become effective, each
of Parent and the Company shall mail the Registration Statement to its
respective stockholders. The Registration Statement shall include the
recommendation of the Board of Directors of each of Parent and the Company in
favor of the Merger, the Merger Agreement and the Parent Vote Matter, as the
case may be; provided, however, that nothing
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contained in this Section 5.06 shall prohibit the Board of Directors of the
Company or Parent from failing to make the recommendation if the Board of
Directors of Parent or the Company, as the case may be, has determined in good
faith, after consultation with and based upon the written advice of independent
legal counsel, that such action is necessary for such Board of Directors to
comply with its fiduciary duties to its stockholders under applicable law.
(b) The information supplied by Parent for inclusion in the Registration
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Registration Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of Parent and the
Company, (iii) the time of each of the Stockholders Meetings (as defined in
Section 5.07), and (iv) the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Effective Time any event or circumstance relating to Parent or
any of its subsidiaries, or any of their respective officers or directors,
should be discovered by Parent which should be set forth in an amendment or a
supplement to the Registration Statement, Parent shall promptly inform the
Company.
(c) The information supplied by the Company for inclusion in the
Registration Statement shall not, at (i) the time the Registration Statement is
declared effective, (ii) the time the Registration Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Company and Parent, (iii) the time of each of the Stockholders Meetings (as
defined in Section 5.07), and (iv) the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event or circumstance
relating to the Company or any its subsidiaries, or any of their respective
officers or directors, should be discovered by the Company that should be set
forth in an amendment or a supplement to the Registration Statement, the Company
shall promptly inform Parent.
Section 5.07 Stockholders' Meetings. Parent shall call and hold a meeting
of its stockholders, and the Company shall call and hold a meeting of its
stockholders (collectively, the "Stockholders' Meetings") as promptly as
practicable for the purpose of voting upon the approval, in the case of the
Company, of the Merger and the Merger Agreement and, in the case of Parent, of
the Parent Vote Matter, and Parent and the Company shall use their reasonable
best efforts to hold the Stockholders' Meetings on the same day and as soon as
practicable after the date on which the Registration Statement becomes
effective. The Company and Parent shall use their reasonable best efforts to
solicit from their stockholders proxies in favor of the approval of the Merger
and Merger Agreement or the Parent Vote Matter, as the case may be, and shall
take all other action necessary or advisable to secure the vote or consent of
stockholders required by Delaware Law or Minnesota law, as the case may be, to
obtain such approvals. Parent shall vote the shares of Company Common Stock for
which it will act as proxy at the Company's Stockholder Meeting pursuant to the
Stockholders Agreement in favor of approval of the Merger and the Merger
Agreement.
Section 5.08 Letters of Accountants. Provided Parent gives to Arthur
Andersen LLP a customary representation letter, the Company shall deliver to
Parent "comfort" letters of Arthur Andersen LLP, the Company's independent
public accountants, dated and delivered the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
Parent, in form and substance reasonably satisfactory to Parent, to the effect
that:
(i) they are independent accountants within the meaning of the
Securities Act and the Exchange Act;
(ii) in their opinion, the financial statements of the Company
included in the Registration Statement that were reported on by such firm
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Exchange Act;
(iii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries; their
limited review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited interim
financial information for the period since December 31, 1994, carrying out
certain specified procedures (but not an examination in
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accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the comments set
forth in such letter; a reading of the minutes of the meetings of the
stockholders, the board of directors and the executive, compensation, and
audit committees of the board of directors; and inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries as to transactions
and events subsequent to December 31, 1994, nothing came to their attention
which caused them to believe that:
(1) any unaudited financial statements included in the Registration
Statement do not comply in form in all material respects with applicable
accounting requirements of the Act and with the published rules and
regulations of the Commission with respect to registration statements on
Form S-4; or that any material modifications should be made to such
unaudited financial statements for them to be in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
included in the Registration Statement,
(2) with respect to the period subsequent to the unaudited interim
balance sheet of the Company set forth in the Registration Statement,
there were any changes, at a specified date not more than five business
days prior to the date of the letter, in the long-term debt or notes
payable of the Company and its subsidiaries or capital stock of the
Company or increases in the accumulated deficit of the Company as
compared with the amounts shown on such balance sheet included in the
Registration Statement, or for the period from the date of such balance
sheet to such specified date there were any decreases, as compared with
the corresponding period in the preceding quarter, in operating
revenues, or any decreases, as compared with the corresponding period in
the preceding year, in operating income or net income before income
taxes or in total or per share amounts of net income of the Company,
except in all instances for changes or decreases set forth in such
letter, in which case the letter shall be accompanied by an explanation
by the Company as to the significance thereof unless such explanation is
not deemed necessary by Parent; and
(iv) they have performed certain other specified procedures as a
result of which they determined that certain information (including
specified dollar amounts, numbers of shares, and percentages of revenues
and earnings) of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived from
the general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement, agrees with the accounting records of
the Company and its subsidiaries, excluding any questions of legal
interpretation.
Section 5.09 Further Action; Reasonable Best Efforts. (a) Upon the terms
and subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions under the HSR Act with respect to the transactions contemplated
herein, (ii) use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated herein including, without limitation,
using its reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and all parties to contracts with Parent and the Company and their respective
subsidiaries as are necessary for the consummation of the transactions
contemplated herein. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
their reasonable best efforts to take all such action. Each party shall promptly
consult with the other with respect to, provide any necessary information with
respect to and provide the other (or its counsel) with copies of, (i) all
filings made by such party with any Governmental Entity or any other person in
connection with the execution of this Agreement and the consummation of the
transactions contemplated hereby and (ii) all other written materials submitted
or prepared by any such party concerning obtaining all licenses, permits,
consents, approvals, authorizations and orders that are required to be obtained
in connection with the execution of this Agreement and the consummation of the
transactions contemplated by this Agreement.
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(b) Each party shall use its best efforts not to take any action, or enter
into any transaction, that would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement.
(c) The Company will take no action to assert or cooperate (other than as
required by law) with a Third Party who asserts that the voting rights of the
shares of common stock of the Company that are subject to that certain
stockholders Agreement of even date herewith among certain Stockholders of the
Company and Parent (the "Stockholders Agreement") are adversely affected by the
execution and delivery of the Stockholders' Agreement as a result of the
provisions of Section 302A.671 of the Minnesota Business Corporation Act or any
other antitakeover or business combination statute under Minnesota law.
Section 5.10 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated herein
and shall not issue any such press release or make any such public statement
without the prior consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may be required by law if it has used all reasonable efforts to
consult with the other party and to obtain such party's consent but has been
unable to do so in a timely manner.
Section 5.11 Affiliates of the Company. Within 30 days after the date of
this Agreement, (a) the Company shall deliver to Parent a letter identifying all
persons who may be deemed affiliates of the Company under Rule 145 of the
Securities Act ("Rule 145"), including, without limitation, all directors and
executive officers of the Company and (b) the Company shall advise the persons
identified in such letter of the resale restrictions imposed by applicable
securities laws. The Company shall use its best efforts to obtain as soon as
practicable from any person who may be deemed to have become an affiliate of the
Company after the Company's delivery of the letter referred to above and prior
to the Effective Time, a written agreement substantially in the form of Exhibit
A.
Section 5.12 Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
Section 5.13 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to Company, of (i)
the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (ii) any failure of the Company or Parent, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.14 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.14 Tax Opinion Matters. Each of Parent, Sub and the Company will
deliver to counsel to the parties hereto a document containing, to the extent
reasonably required, the representations, warranties and agreements necessary
for counsel to the parties to render the opinions described in Sections 6.02(c)
and 6.03(c).
Section 5.15 Interim Financing Arrangement. Parent and Company shall
promptly negotiate and enter into a financing arrangement on the terms set forth
on Exhibit B.
ARTICLE VI
CONDITIONS
Section 6.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the
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satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall have
been initiated or, to the knowledge of Parent or the Company, threatened by the
SEC.
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company,
and the Parent Vote Matter shall have been approved and adopted by the requisite
vote of the stockholders of Parent. In addition, the holders of the requisite
number of shares of Company Common Stock sufficient, either alone or in
combination with other factors (including payment of cash in lieu of fractional
shares), to preclude accounting for the Merger as a pooling of interests or to
obtain tax free treatment for the Merger under Section 368(a) of the Code shall
not have perfected or preserved dissenters' rights under applicable law with
respect to the adoption of this Agreement.
(c) No Injunction or Restraints; Illegality. The consummation of the
Merger shall not be prohibited by any injunction, order, decree or ruling (an
"Injunction") of a United States federal or state court of competent
jurisdiction (each party agreeing to use its best efforts to have any such
Injunction stayed or reversed), and there shall not have been any action taken
or any statute, rule or regulation enacted, promulgated or deemed applicable to
the Merger, or any executive order or decree issued, by any Government Entity
that is in effect and that makes consummation of the Merger illegal.
(d) HSR Act. The applicable waiting period under the HSR Act shall have
expired or been terminated.
(e) Approvals; Consents. Other than the filing of merger documents in
accordance with Minnesota Law, all authorizations, consents (including the
consent of Parent's lender as set forth in Schedules 4.04 and 4.05), waivers,
orders and approvals required to be obtained, and all filings, notices and
declarations required to be made, by Parent and the Company prior to the
consummation of the Merger and the transactions contemplated hereunder shall
have been obtained from, and made with, all required Governmental Entities and
all other persons except for such authorizations, consents, waivers, orders,
approvals, filings, notices or declarations the failure to obtain or make would
not have a Material Adverse Effect (as defined in Section 8.11), at or after the
Effective Time, on (i) the Company and its subsidiaries taken as a whole or (ii)
Parent and its subsidiaries taken as a whole.
(f) Accountants' Letters. Each of Parent and the Company shall have
received letters, dated as of the Effective Time, from Deloitte & Touche LLP and
Arthur Andersen LLP to the effect that the Merger will qualify for pooling of
interests accounting treatment under Accounting Principles Board Opinion No. 16
if closed and consummated in accordance with this Agreement.
Section 6.02 Additional Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger and the transactions
contemplated herein are also subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by Parent and
Sub in their sole discretion:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time as though made on and as of their Effective Time (except for such
representations and warranties which are qualified by their terms by a reference
to materiality or a Company Material Adverse Effect, which representations and
warranties as so qualified shall be correct in all respects as of the date of
this Agreement and as of the Effective Time as though made on and as of the
Effective Time). Parent and Sub shall have received a certificate signed on
behalf of the Company by the Chief Executive Officer and Chief Financial Officer
of the Company to the foregoing effect.
(b) Agreement and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it
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on or prior to the Effective Time. Parent and Sub shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer and
Chief Financial Officer of the Company to the foregoing effect.
(c) Tax Opinion. Parent and Sub shall have received the opinion of
Goodwin, Procter & Hoar dated on or about the date that is two business days
prior to the date the Registration Statement is first mailed to stockholders of
Parent and the Company, reasonably acceptable to Parent and Sub, and subject to
customary conditions and qualifications, to the effect that the Merger will be
treated for federal income tax purposes as a tax-free reorganization qualifying
under the provisions of Sections 368(a) of the Code, which opinion shall not
have been withdrawn or modified in any material respect.
(d) Material Adverse Change. Except for any event disclosed in the
Company's SEC Reports filed prior to the date of this Agreement, there shall not
have occurred any change concerning the Company or any of its subsidiaries that,
individually or in the aggregate, has had a Material Adverse Effect on the
Company and its subsidiaries taken as a whole since December 31, 1994, and
Parent and Sub shall have received a certificate signed on behalf of the Company
by the Chief Executive Officer and Chief Financial Officer of the Company to the
foregoing effect.
(e) Additional Tax Statement. Parent shall have received a statement dated
as of immediately prior to the Effective Time, from the Company to the effect
that the Company Common Stock is not a "U.S. real property interest." Such
statement shall be in compliance with Treasury Regulations Sections 1.897-2(h)
and 1.1445-2(c)(3).
Section 6.03 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the satisfaction of following
conditions, any or all of which may be waived by the Company in its sole
discretion:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Time, as though made on and as of the Effective Time (except for such
representations and warranties which are qualified by their terms by a reference
to materiality or a Parent Material Adverse Effect, which representations and
warranties as so qualified shall be correct in all respects as of the date of
this Agreement and as of the Effective Time as though made on and as Effective
Time). The Company shall have received a certificate signed on behalf of the
Parent and Sub by the Chief Executive Officers and Chief Financial Officers of
Parent and Sub to the foregoing effect.
(b) Agreements and Covenants. Parent and Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time. The Company shall have received a certificate signed on behalf
of the Parent and Sub by the Chief Executive Officers and Chief Financial
Officers of Parent and Sub to the foregoing effect.
(c) Tax Opinion. The Company shall have received the opinion of Fredrikson
& Byron, P.A. dated on or about the date that is two business days prior to the
date the Registration Statement to first mailed to stockholders of the Company
and Parent, reasonably acceptable to the Company, and subject to customary
conditions and qualifications, to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization qualifying under the
provisions of Sections 368(a) of the Code, which opinion shall not have been
withdrawn or modified in any material respect.
(d) Material Adverse Change. Except for any event disclosed in Parent's
SEC Reports filed prior to the date of this Agreement, there shall not have
occurred any change concerning Parent or any of its subsidiaries that,
individually or in the aggregate, has had a Material Adverse Effect on Parent
and its subsidiaries taken as a whole since July 1, 1995, and the Company shall
have received a certificate signed on behalf of Parent and Sub by the Chief
Executive Officers and Chief Financial Officers of Parent and Sub to the
foregoing effect.
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ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01 Termination. (a) This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval and adoption of
this Agreement by the stockholders of the Company or the approval by the
stockholders of Parent of the Parent Vote Matter:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any United States federal or state
court of competent jurisdiction or other Government Entity shall have issued an
Injunction or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such Injunction or other action shall have
become final and non-appealable;
(c) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in each case
such that the conditions set forth in Section 6.02(a) or Section 6.02(b), as the
case may be, would be incapable of being satisfied by June 30, 1996; provided
that, in any case, a willful breach shall be deemed to cause such conditions to
be incapable of being satisfied for purposes of this Section 7.01(c);
(d) by the Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent or Sub set forth in this Agreement, or if any
representation or warranty of Parent or Sub shall have become untrue, in either
case such that the conditions set forth in Section 6.03(a) or Section 6.03(b),
as the case may be, would be incapable of being satisfied by June 30, 1996;
provided that, in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this Section
7.01(d);
(e) by Parent, if (i) the Board of Directors of the Company shall have
failed to make or shall withdraw, modify or change its recommendation of this
Agreement or the Merger or shall have resolved to do any of the foregoing, or
(ii) a Third Party shall have commenced (as such term is defined in Rule 14d-2
of the Exchange Act) and consummated a tender offer or exchange offer for 20% or
more of the outstanding shares of Company Common Stock;
(f) by either Parent or the Company if (i) the Merger and the Merger
Agreement shall have failed to receive the requisite vote for approval and
adoption by the stockholders of the Company (except that Parent may not
terminate under this clause 7.01(f)(i) if Parent failed to vote for such matters
the shares of Company Common Stock with respect to which it had authority to act
as proxy at the Company Stockholder Meeting and such matters would have been
approved had such shares been voted for such matters) or (ii) the Parent Vote
Matter shall have failed to receive the requisite vote for approval and adoption
by the stockholders of Parent; or
(g) by either Parent or the Company, if the Merger shall not have been
consummated on or before June 30, 1996; or
(h) by Company if (i) the Board of Directors of Parent shall have failed to
make or shall withdraw, modify or change its recommendation of this Agreement or
the Merger or shall have resolved to do any of the foregoing, or (ii) a Third
Party shall have commenced (as such term is defined in Rule 14d-2 of the
Exchange Act), or shall have filed a Registration Statement under the Securities
Act, with respect to a tender offer or exchange offer for 20% or more of the
outstanding shares of Parent Common Stock.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective employees, officers,
directors, agents, representatives or advisors, whether prior to or after the
execution of this Agreement. For purposes of this Agreement, a "Competing
Transaction" shall mean any of the following involving the Company or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction, (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 20% or more of the assets of
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the Company and its subsidiaries taken as a whole, in a single transaction or
series of transactions, (iii) any tender offer or exchange offer for 20% or more
of the outstanding shares of Company Common Stock or the filing of a
registration statement under the Securities Act in connection therewith, (iv)
the issuance, sale or other disposal by the Company (including by way of merger,
consolidation, share exchange or any similar transaction) of securities
representing, or convertible into or exercisable for the acquisition of, 20% or
more of the voting power of the Company or any of its subsidiaries or (v) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
Section 7.02 Effect of Termination. (a) Except as set forth in Section
8.01, in the event of the termination and abandonment of this Agreement pursuant
to Section 7.01 hereof, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party hereto or its affiliates,
directors, officers or stockholders and all rights and obligations of any party
hereto shall cease; provided that nothing contained in this Section 7.02 shall
relieve any party from liability for any breach of this Agreement except as
provided in Section 7.02(f) or shall relieve the Company from liability under
this Section 7.02 except as provided in Section 7.02(f).
(b) If Parent terminates this Agreement pursuant to Section 7.01(c) or
pursuant to Section 7.01(e) or 7.01(f)(i), then, within ten (10) days of the
date of such termination (or within 45 days of such termination if Company
acknowledges to Parent in writing within ten days of such termination that it is
obligated to pay the Termination Fee with no right of offset for counterclaims,
but such 45 day period shall end if a Proceeding (as defined below) should
occur), the Company shall pay to Parent the Termination Fee (as defined below);
provided, that, no such Termination Fee will be due in the event of a
termination of this Agreement pursuant to Section 7.01(f)(i) if the average per
share closing price of Parent Common Stock on the Nasdaq National Market System
over the twenty (20) trading days immediately preceding the originally scheduled
date of the Company's Stockholder Meeting was less than $22.50.
(c) If at any time prior to or within one year after termination of this
Agreement (unless such termination was pursuant to Section 7.01(a), (b), (d),
(g), (h), (f)(ii) or, if the average per share closing price of Parent Common
Stock on the Nasdaq National Market System over the twenty (20) trading days
immediately preceding the date of the Company's Stockholder Meeting was less
than $22.50, f(i)) the Company enters into an agreement relating to a Competing
Transaction with a Third Party or the Company's Board of Directors recommends or
resolves to recommend to the Company's stockholders approval or acceptance of a
Competing Transaction with a Third Party then, upon the entry into such
agreement or the making of such recommendation or resolution the Company shall
pay to Parent the Termination Fee.
(d) At any time prior to or within one year after termination of this
Agreement, the Company shall not enter into any agreement relating to a
Competing Transaction with a Third Party unless such agreement provides that
such Third Party shall, upon the execution of such agreement, pay any
Termination Fee due Parent under this Section 7.02.
(e) As used herein, the term "Termination Fee" means the sum of $2,800,000
paid in cash in immediately available funds to an account designated by Parent,
provided that the Termination Fee shall be reduced, on a dollar for dollar
basis, to the extent that payments are made to Parent under the certain
Stockholder's Agreement on account of Stockholder Fees (as defined therein). The
parties acknowledge and agree that the provisions for payment of a Termination
Fee are included herein in order to reimburse Parent for incurring the costs and
expenses related to entering into this Agreement and consummating the
transactions contemplated by this Agreement. No more than one Termination Fee
shall be paid under this Section 7.02. The parties hereto agree that any
Termination Fee that is paid to or due Parent shall not be deemed to be
liquidated damages, and that, subject to Section 7.02(f), Parent's right to
payment of the Termination Fee shall be in addition to any other rights or
remedies under contract, at law or in equity to which Parent may be entitled.
(f) In the event of a termination giving rise to the right of Parent to
receive a Termination Fee, Company shall have no liability to Parent other than
the payment of such Termination Fee so long as (x) such Termination Fee is paid
in full when due, (y) there is no pending or threatened suit or complaint
brought by or on behalf of any stockholder of the Company against Parent or Sub
arising out of any matter relating to this
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Agreement or the transactions contemplated in connection herewith (a
"Proceeding"), and (z) the Company and the persons who are parties to the
Stockholders Agreement have given a full release of any rights or claims they
then or may thereafter have arising out of this Agreement and have waived all
rights to instigate or pursue any Proceeding; provided that if at any time a
Proceeding is initiated by any stockholder of the Company or by or on behalf of
the Company (other than on behalf of the Company by Parent or a stockholder of
the Company controlled by Parent), then, during the existence of such
Proceeding, Parent's rights shall not be limited by this clause (f).
Section 7.03 Amendment. This Agreement may be amended by the parties
hereto, by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger or the Parent Vote Matter by the stockholders of Parent or the
Company, no amendment that under applicable law may not be made without the
approval of the stockholders of Parent or the Company may be made without such
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 7.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Effectiveness of Representations, Warranties and
Agreements. Except as set forth in Section 8.01(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VII; except that the agreements set forth in Articles I, II
and VIII and Sections 5.04, 5.05(a) and (b) shall survive the Effective Time and
those set forth in Sections 5.03(b) and 7.02 and Article VIII hereof shall
survive termination.
Section 8.02 Notices. All notices and other communications hereunder shall
be in writing (and shall be deemed given upon receipt) if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923-4001
Attn: Charles W. Redepenning, Jr.
General Counsel
Tel: (508) 774-9115
Fax: (508) 774-8765
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with a copy to
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109-2881
Attn: Ettore Santucci, P.C.
Tel: (617) 570-1260
Fax: (617) 523-1231
(b) if to the Company, to
Champps Entertainment, Inc.
153 East Lake Street
Wayzata, MN 55391
Attn: Dean P. Vlahos
President
Tel: (612) 449-4841
Tel: (612) 449-4938
with a copy to
Fredrikson & Byron, P.A.
1100 International Center
900 2nd Ave. South
Minneapolis, MN 55402-3397
Attn: Gregory G. Freitag
Tel: (612) 347-7153
Fax: (612) 347-7077
Section 8.03 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
Section 8.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.05 Entire Agreement; Assignment. This Agreement (together with
the Confidentiality Agreement, the Company Disclosure Volume, the Parent
Disclosure Volume, the exhibits hereto and the other documents delivered
pursuant hereto) (a) constitute the entire agreement of the parties and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and (b) shall not be
assigned by operation of law or otherwise, provided that Parent may cause Sub to
assign its rights and obligations to Parent or any other direct or indirect
wholly-owned subsidiary of Parent that becomes a party to this Agreement and
agrees to perform and assume the obligations of Sub hereunder, but no such
assignment shall relieve either Parent or Sub of its obligations hereunder if
such assignee does not perform such obligations.
Section 8.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Minnesota without regard to any
applicable principles of conflicts of law.
Section 8.07 Specific Performance. Except when Section 7.02(f) limits the
remedies of Parent and Sub, the parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, without the posting of any bond whatsoever in addition to any other
remedy at law or equity.
Section 8.08 Expenses. Fees, expenses and all out-of-pocket costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred by the parties
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hereto shall be borne solely and entirely by the party that has incurred such
costs and expenses; provided, however, that all costs and expenses related to
printing, filing and mailing the Registration Statement and all SEC and other
regulatory filing fees (including, without limitation, under the HSR Act)
incurred in connection with the Registration Statement shall be borne equally by
the Company and Parent.
Section 8.09 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement, except pursuant to Sections 5.04 and 5.05 hereof.
Parent shall cause Sub to perform its obligations hereunder and shall be fully
liable, severally and jointly, for any failure of Sub to perform such
obligations.
Section 8.10 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 8.11 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control with,
the first mentioned person;
(b) With respect to any shares of Company Common Stock, a person shall be
deemed to be the "beneficial owner" of such shares (i) that such person or any
of its affiliates or associates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) beneficially owns, directly or indirectly,
(ii) that such person or any of its affiliates or associates has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time or the satisfaction of
certain conditions), pursuant to any agreement, arrangement or understanding or
upon the exercise of consideration rights, exchange rights, warrants or options
or otherwise or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) that are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its affiliates or associates,
or any person with whom such person or any of its affiliates or associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares, and with respect to any shares of
capital stock of any person other than the Company, beneficial ownership shall
be determined in accordance with the provisions of Rule 13(d)(3) of the Exchange
Act;
(c) "control" (including the terms "controlled," "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "subsidiary" or "subsidiaries" of Parent, the Company, the Surviving
Corporation or any other person means any corporation, partnership, joint
venture or other legal entity of which Parent, the Company, the Surviving
Corporation or such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or more
of the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity;
(e) "person" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or government or any
agency or political subdivision thereof or any other entity; and
(f) "Material Adverse Effect" shall mean, when used with respect to any
person, a material adverse effect on the business, operations, results of
operations or financial condition of such person.
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<PAGE> 156
IN WITNESS WHEREOF, the Company, Parent and Sub have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
<TABLE>
<S> <C>
Attest: CHAMPPS ENTERTAINMENT, INC.
By: /s/ DEAN P. VLAHOS
------------------------------------------- -----------------------------------------
Secretary Name: Dean P. Vlahos
Title: CEO & President
Attest: DAKA INTERNATIONAL, INC.
Charles W. Redepenning, Jr.
------------------------------------------- By: /s/ WILLIAM H. BAUMHAUER
Secretary -----------------------------------------
Name:
Title:
Attest: CEI ACQUISITION CORP.
Charles W. Redepenning, Jr. By: /s/ MICHAEL A. WOODHOUSE
------------------------------------------- -----------------------------------------
Secretary Name:
Title:
</TABLE>
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<PAGE> 157
EXHIBIT A -- FORM OF AFFILIATE LETTER
, 1995
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923
Gentlemen:
The undersigned, a holder of shares and/or options to purchase shares of
common stock, par value $.01 per share (collectively, the "Champps Shares"), of
Champps Entertainment, Inc. ("Champps"), is entitled to receive shares and/or
options to purchase shares of common stock, $.01 par value per share
(collectively, the "Daka Stock"), of DAKA International, Inc. ("Daka"), in
connection with the merger ("the Merger") of CEI Acquisition Corp. ("Sub"), a
wholly-owned subsidiary of Daka, into Champps as contemplated by the Agreement
and Plan of Merger dated October , 1995 (the "Merger Agreement") among Daka,
Sub and Champps. The Daka Stock into which the undersigned's Champps Shares will
convert pursuant to the Merger shall be referred to herein as "Daka Shares."
Rule 145. The undersigned has been advised that the issuance of the Daka
Shares in the Merger has been registered with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), on a
Registration Statement on Form S-4. However, the undersigned has also been
advised that, since at the time the Merger is submitted for a vote of Champps
stockholders the undersigned may be an "affiliate" of Champps (although nothing
contained herein should be construed as an admission of such fact), as that term
is used in Rule 145(c) promulgated under the Act ("Rule 145"), the Daka Shares
may be offered for sale, sold, assigned, transferred, distributed or otherwise
disposed of (any of such transactions being referred to hereinafter as a "sale")
by the undersigned only if (i) the undersigned sells the Daka Shares in
conformity with certain provisions of Rule 144 promulgated under the Act as made
applicable pursuant to paragraph (d) of Rule 145, (ii) any subsequent sale of
the Daka Shares by the undersigned has been registered under the Act, or (iii)
in the opinion of counsel, reasonably satisfactory to Daka, some other exemption
from registration under the Act is available with respect to any sale of the
Daka Shares.
The undersigned understands that the requirements of Rule 145(d) will
differ depending upon how long the undersigned holds the Daka Shares and whether
the undersigned is or recently was an affiliate of Daka at the time of sale. The
undersigned understands that, in general, the provisions of Rule 145(d) will
permit resale of the Daka Shares within two years following the Merger only in
brokers' transactions where the aggregate number of shares sold at any time,
together with all sales of the undersigned's Daka Stock during the preceding
three-month period, does not exceed the greater of (i) one percent (1%) of the
total number of shares of Daka Stock outstanding or (ii) the average weekly
volume of trading in shares of Daka Stock on all national securities exchanges
during the four-week period preceding any such sale.
The undersigned hereby represents to and covenants to Daka that the
undersigned will not sell the Daka Shares except pursuant to the provisions of
Rule 145, an effective registration statement or an exemption from registration
under the Act.
In the event that the undersigned intends to sell Daka Shares other than
(i) pursuant to Rule 145 or (ii) pursuant to an effective registration
statement, at least two business days prior to effecting any such sale the
undersigned will furnish Daka with an opinion of counsel, reasonably
satisfactory to Daka (the "Legal Opinion"), to the effect that some other
exemption from registration is available with respect to such sale.
Pooling of Interest. The undersigned acknowledges that Daka and Champps
contemplate that the Merger will be treated as pooling of interests" under
generally accepted accounting principles. In connection therewith, the
undersigned hereby represents and warrants to and covenants with Daka that the
undersigned
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<PAGE> 158
will not, directly or indirectly, sell, transfer or otherwise dispose of any
shares of Daka Stock including the Daka Shares, or cause any shares of Daka
Stock including the Daka Shares, to be sold, transferred or otherwise disposed
of, until such time as unaudited financial statements covering at least 30 days
of the combined operations of Champps and Daka following the Merger have been
published by Daka.
Representation. The undersigned represents and warrants to Daka as
follows:
(a) Set forth below the undersigned's signature hereto are the exact
numbers of Champps Shares which the undersigned owns of record only,
beneficially only and of record and beneficially; and
(b) Such ownership is free and clear of any security interest, lien,
encumbrance, charge, equity, claim or restriction whatsoever, except as set
forth below the undersigned's signature hereto and as may be imposed by reason
of the Act or the General Rules and Regulations thereunder.
The undersigned understands that Daka may, within the two-year period
immediately following the Merger, instruct its transfer agent to withhold the
transfer of any Daka Shares by the undersigned, but if the transfer is pursuant
to an effective registration statement or Rule 145 or if Daka receives a Legal
Opinion (in the case of a sale made pursuant to an exemption from registration
other than Rule 145) the transfer agent shall effect such transfer.
The undersigned acknowledges that the undersigned has carefully read this
letter, has had the opportunity to discuss this letter with counsel and
understands the requirements hereof and the limitations imposed upon the sale of
the Daka Shares.
<TABLE>
<S> <C>
Very truly yours,
, 1995 ---------------------------------------------
Signature
---------------------------------------------
Name
Champps Shares Owned of Record Only:
Champps Shares Owned Beneficially Only:
Champps Shares Owned Beneficially and
of Record:
Encumbrances Noted:
------------------------------
</TABLE>
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<PAGE> 159
EXHIBIT B -- INTERIM FINANCING AGREEMENT
SUMMARY OF INTERIM FINANCING ARRANGEMENT
Parent will, or will cause one of its subsidiaries to, provide to the
Company additional financing for the development of Champps restaurants subject
to the terms and conditions outlined below:
1. Amount and Terms of Additional Financing: up to $3,000,000 aggregate
principal amount, with each loan bearing interest at the rate of 10% per year,
interest on all loans payable quarterly in arrears and principal of all loans
payable in a single installment on October 10, 2000 (or such earlier date to
which maturity is accelerated pursuant to paragraph 4 below). In the
alternative, Parent may satisfy its commitment by providing credit enhancements
to induce third parties to provide financing to the Company upon terms and
conditions no less favorable than those described herein.
2. Conditions of Each Loan: (i) consent of the Company's lender, if
required, including an agreement to subordinate with respect to liens described
in paragraph 3 below, and (ii) delivery of customary documentation in form and
substance reasonably satisfactory to Parent and the Company.
3. Form of and Collateral for Each Loan: Loans shall be provided by Parent
from time to time as required with respect to the development by the Company of
specific proposed Champps restaurants ("Approved Projects"), so long as the site
and plans for such proposed new restaurant (including without limitation the
terms of any lease) are approved by Parent, which approval shall not be
unreasonably withheld. Parent shall provide such loans with respect to any
Approved Project in such amount and in form as is reasonably acceptable to
Parent giving due regard to the circumstances affecting the development of such
restaurant, it being understood that such form is presently contemplated to be a
mortgage loan secured by a first priority lien on and collateral assignment of
all real estate leases (or owned real estate, if any) with respect to each
Approved Project, a security interest in all furniture, fixtures and equipment
at such Approved Project (which may be junior to any purchase money lien to the
extent such property is financed through loans from third parties), collateral
assignments of all licenses, permits and approvals and a license upon reasonably
acceptable terms and conditions with respect to the "Champps" trademark and
trade dress effective in the event of foreclosure. The subsidiaries of the
Company will guarantee all obligations of the Company to Parent.
4. Termination; Prepayment; Acceleration: No further financing will be
made available by Parent in the event that the Merger Agreement terminates. All
principal of outstanding loans may be (a) repaid at any time at the option of
the Company and (b) declared immediately due and payable by Parent (i) in the
event that a majority change of control occurs with respect to the Company or
(ii) upon the happening of usual and customary events of default with respect to
payment collateral, cross-defaults and insolvency and grace periods.
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<PAGE> 160
APPENDIX B
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- --------------------------------------------------------------------------------
FAIRNESS OPINION OF MONTGOMERY SECURITIES
DATED JANUARY , 1996
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<PAGE> 161
DRAFT
January , 1996
Members of the Board of Directors
Champps Entertainment, Inc.
153 East Lake Street
Wayzata, MN 55391
Gentlemen:
We understand that Champps Entertainment, Inc., a Minnesota corporation
(the "Company"), DAKA International, Inc., a Delaware corporation ("Parent"),
and CEI Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Parent ("Sub"), propose to enter into an Agreement and Plan of Merger, dated as
of October 10, 1995 (the "Merger Agreement"), pursuant to which Sub will be
merged with and into the Company, which will be the surviving entity (the
"Merger"). Pursuant to the Merger, as more fully described in the Merger
Agreement, we understand that each outstanding share of the common stock of the
Company, par value $.01 per share ("Company Common Stock"), not owned directly
or indirectly by the Company or Parent, will be converted into .40 shares (the
"Exchange Ratio") of the common stock of Parent, par value $.01 per share
("Parent Common Stock"), subject to adjustment as described below (the
"Consideration"). If the average per share closing price of Parent Common Stock
as reported on the Nasdaq National Market over the twenty (20) trading days
immediately preceding the second trading day prior to the closing date of the
Merger is (a) less than $30.00 per share, the Exchange Ratio will be adjusted to
.43 shares of Parent Common Stock for each share of Company Common Stock, or (b)
more than $35.00 per share, the Exchange Ratio will be adjusted to .37 shares of
Parent Common Stock for each share of Company Common Stock.
You have asked for our opinion as to whether the Consideration to be
received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company
and Parent, including the consolidated financial statements for recent years and
interim periods to July 2, 1995 and June 30, 1995, respectively, and certain
other relevant financial and operating data relating to the Company and Parent
made available to us from published sources and from the internal records of the
Company and Parent; (ii) reviewed a draft of the Merger Agreement provided to us
by the Company; (iii) reviewed certain historical market prices and trading
volumes of the Company Common Stock and the Parent Common Stock as reported on
the Nasdaq National Market; (iv) compared the Company and Parent from a
financial point of view with certain other companies in the restaurant industry
that we deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in the
restaurant industry that we deemed to be comparable, in whole or in part, to the
Merger; (vi) reviewed and discussed with representatives of the management of
the Company and Parent certain information of a business and financial nature
regarding the Company and Parent, furnished to us by them, including financial
forecasts and related assumptions of the Company and Parent; (vii) made
inquiries regarding and discussed the Merger and the Merger Agreement and other
matters related thereto with the Company's counsel; and (viii) performed such
other analyses and examinations as we have deemed appropriate.
[CITING OF ADDITIONAL "BRING-DOWN" DUE DILIGENCE]
In connection with our review, we have assumed and relied upon the accuracy
and completeness of the foregoing information and we have not assumed any
responsibility for independent verification of such information. With respect to
the financial forecasts for the Company and Parent provided to us by their
respective managements, we have assumed for purposes of our opinion that the
forecasts have been reasonably prepared on bases reflecting the best available
estimates and judgments of their respective managements at the
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<PAGE> 162
time of preparation as to the future financial performance of the Company and
Parent and that they provide a reasonable basis upon which we can form our
opinion. We have also assumed that there have been no material changes in the
Company's or Parent's assets, financial condition, results of operations,
business or prospects since the respective dates of their last financial
statements made available to us. We have relied on advice of counsel and
independent accountants to the Company as to all legal and financial reporting
matters with respect to the Company, the Merger and the Merger Agreement. We
have assumed that the Merger will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended,
and all other applicable federal and state statutes, rules and regulations. In
addition, we have not assumed responsibility for making an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of the Company or Parent, nor have we been furnished with any such
appraisals. Finally, our opinion is based on economic, monetary and market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have further assumed, with your consent, that the Merger will be
consummated in accordance with the terms described in the Merger Agreement
without any amendments thereto, and without waiver by the Company or Parent of
any of the conditions to their respective obligations thereunder.
Based upon the foregoing and in reliance thereon, it is our opinion that
the Consideration to be received by the stockholders of the Company pursuant to
the Merger is fair to such stockholders from a financial point of view, as of
the date hereof.
This opinion is furnished pursuant to our engagement letter, dated October
4, 1995. This opinion is addressed to the Board of Directors of the Company only
and is not intended to be and shall not be deemed to be a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger.
Except as provided in such engagement letter, this opinion may not be used or
referred to by the Company, or quoted or disclosed to any person in any manner,
without our prior written consent. In furnishing this opinion, we do not admit
that we are experts within the meaning of the term "experts" as used in the
Securities Act and the rules and regulations promulgated thereunder, nor do we
admit that this opinion constitutes a report or valuation within the meaning of
Section 11 of the Securities Act.
Very truly yours,
MONTGOMERY SECURITIES
B-2
<PAGE> 163
APPENDIX C
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- --------------------------------------------------------------------------------
FAIRNESS OPINION OF PIPER JAFFRAY INC.
DATED JANUARY , 1996
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<PAGE> 164
DRAFT
January , 1996
Board of Directors
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923-4001
Members of the Board:
This letter relates to the issuance of shares of common stock of DAKA
International, Inc. ("DAKA") in exchange for all of the outstanding shares of
common stock of Champps Entertainment, Inc. ("Champps") pursuant to the
Agreement and Plan of Merger referred to below (the "Transaction"). The
aggregate consideration to be paid by DAKA will be based on a fixed exchange
ratio of 0.40 of a DAKA share of common stock for each Champps' share of common
stock if the Closing Price (as defined below) of DAKA common stock is equal to
or more than $30.00 but not more than $35.00; 0.43 of a share of DAKA common
stock for each share of Champps common stock if the Closing Price of DAKA common
stock is less than $30.00; and 0.37 of a share of DAKA common stock if the
Closing Price of DAKA common stock is more than $35.00 (the "Exchange Ratio").
As used herein, "Closing Price" means the average per share closing price of
DAKA common stock as reported on the Nasdaq National Market System over the
twenty (20) trading days immediately preceding the second trading day prior to
the closing date of the Transaction. You have requested our opinion as to the
fairness to DAKA, from a financial point of view, of the Exchange Ratio in the
Transaction.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. Piper Jaffray makes a market in the Common Stock
of DAKA and also provides research coverage for DAKA. For our services in
rendering this opinion, DAKA will pay us a fee and indemnify us against certain
liabilities. The fee is not contingent upon the consummation of the Merger.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed a draft dated October 8, 1995 of the Agreement and Plan of
Merger by and between DAKA, Champps and CEI Acquisition Corp.
2. Reviewed the audited Financial Information for Champps for the three
years ended December 31, 1994.
3. Reviewed the Financial Information for Champps for the six months ended
June 30, 1995.
4. Reviewed the audited Financial Information for DAKA for the three years
ended July 1, 1995.
5. Reviewed five-year financial forecasts for DAKA furnished by DAKA
management.
6. Reviewed five-year financial forecasts for Champps furnished by Champps
management.
7. Conducted discussions with members of senior management of Champps,
including the President/Chief Executive Officer and the Vice President
of Finance/Chief Financial Officer. Topics discussed included, but were
not limited to, the background and rationale of the proposed
Transaction, the financial condition, operating performance, and the
balance sheet characteristics of Champps and the prospects for the
combined company after consummation of the proposed Transaction.
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<PAGE> 165
8. Conducted discussions with members of senior management of DAKA,
including the Chairman and Chief Executive Officer, Chief Financial
Officer and Controller. Topics discussed included, but were not limited
to, the background and rationale for the proposed Transaction, the
financial condition, operating performance, balance sheet
characteristics and prospects of DAKA's business independently and the
financial and operating prospects for the combined company after
consummation of the proposed Transaction.
9. Reviewed the historical prices and trading activity for DAKA and
Champps common stock.
10. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant.
11. Performed discounted cash flow analysis on five-year financial
forecasts for Champps furnished by Champps' management.
12. Considered the proforma effect of the proposed Transaction on DAKA's
earnings per share for calendar 1996 and the five fiscal years ending
June 30, 2000.
13. Compared certain financial and securities data of Champps and DAKA with
certain financial and securities data of companies deemed similar to
Champps and DAKA or representative of the business sector in which both
companies operate.
14. Analyzed the premiums paid in recent acquisitions of public company
stock.
15. Calculated the projected contribution of DAKA and Champps to the
combined company by revenue, income and ownership for six fiscal years
beginning July 1, 1995.
16. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and
appropriate under the circumstances.
[CITING OF ADDITIONAL "BRING DOWN" DUE DILIGENCE.]
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by DAKA and Champps or
otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of DAKA's and
Champps's managements that the information provided has been prepared on a
reasonable basis and, with respect to financial planning data, reflects the best
currently available estimates and that they are not aware of any information or
facts that would make the information provided to us incomplete or misleading.
In that regard, we have assumed with your consent that any projections or
forecasts, including without limitation, any projected cost savings and
operating synergies resulting from the Transaction, reflect best currently
available estimates and judgments of the respective managements of DAKA and
Champps and that such projections and forecasts will be realized in the amounts
and in the time periods currently estimated by the managements of DAKA and
Champps. Furthermore, we have assumed that neither DAKA nor Champps is a party
to any pending transaction, including external financings, recapitalizations,
acquisitions or merger discussions, other than the Transaction or in the
ordinary course of business.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets of DAKA or Champps and express no opinion
regarding the liquidation value of DAKA or Champps. Our opinion is necessarily
based upon information available to us, facts and circumstances and economic,
market and other conditions as they exist and are subject to evaluation on the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We have not undertaken to reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof. We express no opinion herein as to the prices at which shares of
DAKA common stock may trade at any future time.
This opinion is for benefit of the Board of Directors of DAKA and shall not
be relied upon, published or otherwise used, nor shall any public references to
Piper Jaffray be made without our written consent, except for inclusion in the
full proxy/prospectus to be sent to all stockholders of DAKA and Champps and in
any filings or disclosures required by law.
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Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the Exchange Ratio in the
Transaction is fair, from a financial point of view, to DAKA.
Sincerely,
PIPER JAFFRAY INC.
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<PAGE> 167
APPENDIX D
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- --------------------------------------------------------------------------------
SECTIONS 302A.471 AND 302A.473 OF THE
MINNESOTA BUSINESS CORPORATION ACT
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<PAGE> 168
302A.471 RIGHTS OF DISSENTING SHAREHOLDER.
Subdivision 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new
class or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the by-laws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
Subdivision 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than all
of the shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name and
address of each beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter shall be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subdivision 3. RIGHTS NOT TO APPLY. Unless the articles, the by-laws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subdivision 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in
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subdivision 1 set aside or rescinded, except when the corporate action is
fraudulent with regard to the complaining shareholder or the corporation.
HISTORY: 1981 c 270 s 80; 1987 c 203 s 2,3; 1988 c 629 s 10; 1991 c 49 s
16; 1992 c 517 art 1 s 15; 1993 c 17 s 40; 1994 c 417 s 5
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
Subdivision 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this subdivision
have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subdivision 2. NOTICE OF ACTION. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subdivision 3. NOTICE OF DISSENT. If the proposed action must be approved
by the shareholders, a shareholder who wishes to exercise dissenters' rights
must file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the share owned by the shareholder
and must not vote the shares in favor of the proposed action.
Subdivision 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders who
have complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subdivision 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation shall
remit to each dissenting shareholder who has complied with
D-2
<PAGE> 170
subdivisions 3 and 4 the amount the corporation estimates to be the fair value
of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date
of the corporate action, together with the latest available interim
financial statements;
(2) an estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subdivision 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
Subdivision 7. PETITION; DETERMINATION. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section; and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use; whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, but which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
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<PAGE> 171
Subdivision 8. COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expense of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expense
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expense to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
HISTORY: 1981 c 270 s 81; 1987 c 104 s 30-33; 1993 c 17 s 41, 42
D-4
<PAGE> 172
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Registrant is a Delaware corporation. Reference is made to Section
145(a) and Section 145(b) of the Delaware General Corporation Law, which enables
a corporation to 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 he
or she is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorney's fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
A corporation may also 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 he or she was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation and 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 145 further provides: that a Delaware corporation is required to
indemnify a director, officer, employee or agent against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with any
action, suit or proceeding or in defense of any claim, issue or matter therein
as to which such person has been successful on the merits or otherwise; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that
indemnification provided for by Section 145 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators. A Delaware corporation may provide
indemnification only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct. Such
determination is to be made (i) by the board of directors by vote of directors
who were not party to such action, suit or proceeding, or (ii) if such a quorum
is not obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (iii) by the
stockholders of the Registrant.
The Restated Certificate of Incorporation and By-laws of the Registrant
provide for indemnification of directors and officers of the Registrant to the
fullest extent permitted by law, as now in effect or later amended. The By-laws
also provide that expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the Registrant in
advance of final disposition upon receipt of an undertaking by or on behalf of
such person to repay such amount if it ultimately is determined that he is not
entitled to be indemnified by the Registrant. The By-laws further provide that
such indemnification provisions are not exclusive.
II-1
<PAGE> 173
Additionally, the Registrant's Restated Articles of Incorporation eliminate
the personal liability of the Registrant's directors to the Registrant or the
stockholders of the Registrant to the fullest extent permitted by the provisions
of Section 102 of the Delaware General Corporation Law, as the same may be
amended and supplemented.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among Champps Entertainment, Inc. ("Champps"),
DAKA International, Inc. ("DAKA" or the "Registrant") and CEI Acquisition
Corp., dated as of October 10, 1995, annexed as Appendix A to the Joint Proxy
Statement-Prospectus included in Part I of this Registration Statement and
incorporated herein by reference. Pursuant to Item 601(b)(2) of Regulation S-K,
the Schedules to the Agreement and Plan of Merger are omitted. The Registrant
hereby undertakes to furnish supplementally a copy of any omitted Schedule to
the Commission upon request.
3.1 -- Certificate of Incorporation of the Registrant, as amended, incorporated herein
by reference to Registrant's Registration Statement on Form S-4 (No. 33-24819)
(the "1988 DAKA Form S-4").
3.2 -- By-laws of Registrant incorporated herein by reference to the 1988 DAKA Form
S-4.
3.3 -- Articles of Incorporation of Champps as amended by the Articles of Merger and
the Agreement and Plan of Merger dated January 31, 1994 among Champps of
Minnetonka, Inc., Champps' Entertainment, Inc. and Champps Franchising, Inc.,
incorporated herein by reference to Champps' Registration Statement on Form
SB-2 (No. 33-75596C) (the "Champps Form SB-2").
3.4 -- Champps Restated By-laws, incorporated herein by reference to the Champps Form
SB-2.
4.1 -- Certificate of Designation, Preferences and Rights of Preferred Stock by
Resolution of the Board of Directors Providing for the Issue of 100,000 Shares
of Preferred Stock Designated the Series A Preferred Stock, incorporated herein
by reference to the Registrant's Registration Statement on Form S-2 (No.
33-57554) (the "DAKA Form S-2").
4.2 -- Specimen Certificate for DAKA Common Stock, incorporated herein by reference to
the 1988 DAKA Form S-4.
4.3 -- Form of 7% Convertible Subordinated Note due 2003 (included as Exhibit A to
Exhibit 4.4).
4.4 -- Form of Indenture between the Registrant and The First National Bank of Boston,
as Trustee, incorporated herein by reference to the DAKA Form S-2.
5.1 -- Form of Opinion of Goodwin, Procter & Hoar as to legality of the securities
being offered.
8.1 -- Opinion of Goodwin, Procter & Hoar as to federal income tax matters.
8.2 -- Opinion of Fredrikson & Byron, P.A. as to federal income tax matters.
10.1 -- Employment Agreement dated January 1, 1992 between DAKA and William H.
Baumhauer, incorporated herein by reference to the DAKA Form S-2.
10.2 -- Employment Agreement dated January 1, 1992 between DAKA and Allen R. Maxwell,
incorporated herein by reference to the DAKA Form S-2.
10.3 -- Employment Agreement dated October 10, 1995 by and among DAKA, Dean P. Vlahos,
and Champps, incorporated herein by reference to the Registrant's Current
Report on Form 8-K, dated October 13, 1995.
10.4 -- Amended and Restated Trust Agreement dated as of October 1, 1984 and the Second
through Seventh Amendments thereto most recently dated September 15, 1990,
relating to the Daka Thrift Plan, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1990.
10.5 -- Incentive Stock Option Plan of DAKA, incorporated herein by reference to the
1988 DAKA Form S-4.
</TABLE>
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<PAGE> 174
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<S> <C>
10.6 -- Non-Qualified Stock Option Plan of DAKA, incorporated herein by reference to
the 1988 DAKA Form S-4.
10.7 -- Senior Executive Stock Option Plan of DAKA, incorporated herein by reference to
the DAKA Form S-2.
10.8 -- Primary Distribution Agreement effective December 1, 1992 between the
Registrant and Kraft Foodservice, Inc., incorporated herein by reference to the
DAKA Form S-2.
10.9 -- Preferred Stock Purchase Agreement dated as of October 23, 1991 and amended by
Amendment No. 1 dated as of December 19, 1991, among the Registrant, First
Capital Corporation of Chicago and Cross Creek Partners I, incorporated herein
by reference to the Registrant's Current Report on Form 8-K dated January 17,
1992.
10.10 -- Registration Agreement dated January 17, 1992, among the Registrant, First
Capital Corporation of Chicago and Cross Creek Partners I, incorporated herein
by reference to the DAKA Form S-2.
10.11 -- Amended and Restated Credit Agreement dated April 29, 1994 between the
Registrant and the Chase Manhattan Bank, as agent, and related notes and
security agreements, incorporated herein by reference to the DAKA Form S-2.
10.12 -- Americana Dining Corporation Stock Purchase Agreement (formerly Champps
Development Corporation) dated March 3, 1994, incorporated herein by reference
to the Registrant's Annual Report on Form 10-K for the fiscal year ended July
2, 1994.
10.13 -- Financing Commitment from Casual Dining Ventures, Inc., a wholly owned
subsidiary, to Americana Dining Corporation (formerly Champps Development
Corporation), incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 2, 1994.
10.14 -- First Amendment Agreement dated as of December 30, 1994 among DAKA
International, Inc. and the Chase Manhattan Bank, N.A., incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1994.
10.15 -- Business Transfer Agreement by and between Daka Restaurants, L.P. as Transferee
and ServiceMaster Management Services L.P. as Transferor as of February 8,
1995, incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated February 23, 1995.
10.16 -- Limited Partnership Agreement of Daka Restaurants, L.P. as of February 8, 1995,
incorporated herein by reference to the Registrant's Current Report on Form 8-K
dated February 23, 1995.
10.17 -- Put and Call Agreement by and between DAKA International, Inc. and
ServiceMaster Management Services L.P. as of February 8, 1995, incorporated
herein by reference to the Registrant's Current Report on Form 8-K dated
February 23, 1995.
10.18 -- Second Amendment Agreement dated as of March 21, 1995 among DAKA International,
Inc. and the Chase Manhattan Bank, N.A., incorporated herein by reference to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 1,
1995.
10.19 -- Asset Purchase Agreement between Discuss Corporation and certain of its
subsidiaries as sellers and Fuddruckers, Inc. as buyer dated April 15, 1994,
incorporated herein by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 2, 1994.
10.20 -- Consulting Agreement dated January 3, 1994 between Champps and Walter S.
Henrion, incorporated herein by reference to the Champps Form SB-2.
10.21 -- Exclusive License Agreement dated as of February 1, 1994 between Champps
Entertainment, Inc. and Champps Restaurants, Inc., incorporated herein by
reference to the Champps Form SB-2.
10.22 -- Master Agreement dated as of February 1, 1994 between Champps Restaurants, Inc.
and Champps Entertainment, Inc., incorporated herein by reference to the
Champps Form SB-2.
</TABLE>
II-3
<PAGE> 175
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<S> <C>
10.23 -- Service Mark License Agreement dated February 12, 1992 between Champps
Entertainment, Inc., Steven J. Wagenheim and Arthur E. Pew III, incorporated
herein by reference to the Champps Form SB-2.
10.24 -- Franchise Development Agreement between Champps and Bluemound Restaurant Corp.
Dated June 1, 1993, incorporated herein by reference to the Champps Form SB-2.
10.25 -- Franchise Agreement between Champps and Baz, Inc. Dated October 25, 1993,
incorporated herein by reference to the Champps Form SB-2.
10.26 -- Loan Agreement by and among DAKA, Champps and Champps of Wayzata, Inc. dated
December , 1995.
11.1 -- Statement regarding computation of earnings per share for the Registrant,
incorporated herein by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
21.1 -- Subsidiaries of the Registrant, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended July 1, 1995.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Arthur Anderson LLP
23.3 -- Consent of Piper Jaffray Inc.
23.4 -- Consent of Montgomery Securities.
24.1 -- Powers of Attorney, included in the signature page hereto.
99.1 -- Stockholders Agreement dated as of October 10, 1995 among DAKA, Dean P. Vlahos,
Walter S. Henrion and Robert Taylor, incorporated herein by reference to the
Registrant's Current Report on Form 8-K dated October 13, 1995.
99.2 -- Consent of Dean Vlahos to be named as a person to be appointed a Director of
the Registrant in this Registration Statement.
99.3 -- Form of proxy of the Registrant
99.4 -- Form of proxy of Champps
</TABLE>
- ---------------
ITEM 22. UNDERTAKINGS.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to this Registration Statement, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequently to the effective date of the registration statement through
the date of responding to the request; and
II-4
<PAGE> 176
(iv) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Danvers, the Commonwealth of Massachusetts, on
December 27, 1995.
DAKA INTERNATIONAL, INC.
By: /s/ WILLIAM H. BAUMHAUER
------------------------------------
William H. Baumhauer
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
Each person whose signature appears below constitutes and appoints William
H. Baumhauer and Louis Psallidas and each of them, as her or his true and lawful
attorney-in-fact and agent, with full power of substitution, for her or him and
in her or his name, place and stead, in any and all capacities to sign any or
all amendments or post-effective amendments to this registration statement, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or her or his substitute may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
<S> <C> <C>
/s/ WILLIAM H. BAUMHAUER Chairman, Chief Executive Officer December 27, 1995
- ---------------------------------------- and Director (Principal Executive
William H. Baumhauer Officer)
/s/ ALLEN R. MAXWELL President and Chief Operating December 27, 1995
- ---------------------------------------- Officer
Allen R. Maxwell
/s/ LOUIS PSALLIDAS Vice President, Finance December 27, 1995
- ---------------------------------------- (Principal Financial and
Louis Psallidas Accounting Officer)
/s/ ERLINE BELTON Director December 27, 1995
- ----------------------------------------
Erline Belton
/s/ E.L. COX Director December 27, 1995
- ----------------------------------------
E. L. Cox
/s/ TIMOTHY A. DUGAN Director December 27, 1995
- ----------------------------------------
Timothy A. Dugan
/s/ ERIC C. LARSON Director December 27, 1995
- ----------------------------------------
Eric C. Larson
Director December , 1995
- ----------------------------------------
Alan D. Schwartz
</TABLE>
II-6
<PAGE> 1
GOODWIN, PROCTER & HOAR
Exchange Place
Boston, MA 02109
December 28, 1995
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Re: DAKA International, Inc. Registration Statement on Form S-4
-----------------------------------------------------------
Dear Ladies and Gentlemen:
This opinion relates to shares of Common Stock, par value $.01 per
share (the "Shares"), of DAKA International, Inc., a Delaware corporation (the
"Company"), which may be issued in connection with the proposed acquisition by
the Company of Champps Entertainment, Inc. ("Champps"), a Minnesota
corporation, pursuant to the Agreement and Plan of Merger dated as of October
10, 1995 (the "Merger Agreement") by and among the Company, Champps and CEI
Acquisition Corp., a Minnesota corporation and a wholly owned subsidiary of the
Company. The Shares are the subject matter of a Registration Statement on Form
S-4 filed with the Securities and Exchange Commission (the "SEC") this day (the
"Registration Statement"). We have acted as counsel to the Company in
connection with the preparation and filing with the SEC of the Registration
Statement.
For purposes of this opinion we have reviewed the Company's
Certificate of Incorporation and By-Laws, each as amended to date. We have
also examined records of corporate proceedings of the Company and such other
certificates and documents as we have deemed necessary to enable us to render
this opinion.
We are attorneys admitted to practice in The Commonwealth of
Massachusetts. We express no opinion herein concerning the laws of any
jurisdictions other than the laws of the United States of America and The
Commonwealth of Massachusetts and the Delaware General Corporation Law.
Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, it is our opinion that, upon the
issuance of the certificates representing the
<PAGE> 2
Shares in accordance with the provisions of the Merger Agreement, the Shares
will be duly authorized, validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the prospectus contained
in such Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR
<PAGE> 1
GOODWIN, PROCTER & HOAR
Exchange Place
Boston, MA 02109
As of December 28, 1995
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923
Ladies and Gentlemen:
We have acted as counsel to DAKA International, Inc., a Delaware
corporation ("DAKA"), in connection with the planned merger (the "Merger") of
CEI Acquisition Corp. ("Sub"), a Minnesota corporation and a wholly owned
subsidiary of DAKA, with and into Champps Entertainment, Inc., a Minnesota
corporation ("Champps"), pursuant to an Agreement and Plan of Merger dated as
of October 10, 1995 among DAKA, Sub and Champps (the "Merger Agreement").
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the Loan Agreement, entered into pursuant to
Section 5.15 of the Merger Agreement, between Champps Entertainment of Wayzata,
Inc., as Borrower, and DAKA, as Lender, (iii) the Stockholders Agreement, dated
as of October 10, 1995, among DAKA and the other parties signatory thereto, (iv)
the Employment Contract, dated October 10, 1995, by and among DAKA, Champps, and
Dean P. Vlahos, (v) the final Joint Proxy Statement-Prospectus included in the
Registration Statement filed this day by DAKA with the Securities and Exchange
Commission (the "Registration Statement") in connection with the issuance of
shares of DAKA common stock pursuant to the Merger (the "Joint Proxy
Statement-Prospectus"), and (vi) such other documents, records and instruments
as we have deemed necessary or appropriate as a basis for our opinion. In
addition, in rendering our opinion we have relied upon certain statements,
representations and warranties made by DAKA, Sub and Champps (including, without
limitation, those contained in certain certified representations (the "Certified
Representations") and in the Merger Agreement and the Joint Proxy
Statement-Prospectus), which we have neither investigated nor verified. We have
assumed that such statements, representations and warranties are true, correct,
complete and not breached and will continue to be so through the date of the
Merger, and that no actions that are inconsistent with such statements,
representations and warranties will be taken. We also have assumed that all
representations made in the Certified Representations "to the best knowledge of"
any person(s) or party(ies) are true, correct and complete as if made without
such qualification.
In addition, we have assumed that (i) the Merger will be consummated in
accordance with the Merger Agreement and as described in the Joint Proxy
Statement-Prospectus (including satisfaction of all covenants and conditions to
the obligations of the parties without
<PAGE> 2
DAKA International, Inc.
December 28, 1995
Page 2
amendment or waiver thereof); (ii) the Merger will qualify as a merger under the
applicable laws of Minnesota; (iii) each of DAKA, Sub and Champps will comply
with all reporting obligations with respect to the Merger required under the
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
regulations thereunder; (iv) the Merger Agreement and all other documents and
instruments referred to therein or in the Joint Proxy Statement-Prospectus are
valid and binding in accordance with their terms and (v) any financing provided
by DAKA to Champps or its affiliates prior to the Effective Time (as defined in
the Merger Agreement) constitutes "indebtedness" for federal income tax
purposes.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, warranties and assumptions or any change after the date hereof
in applicable law could adversely affect our opinion. No ruling has been (or
will be) sought from the Internal Revenue Service by DAKA, Sub or Champps as to
the federal income tax consequences of any aspect of the Merger.
Based upon and subject to the foregoing, as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
law, that the Merger of Sub with and into Champps will be a tax-free
reorganization within the meaning of Section 368(a) of the Code.
No opinion is expressed as to any matter not specifically addressed
above. Also, no opinion is expressed as to the tax consequences of any of the
transactions under any foreign, state, or local tax law. Furthermore, our
opinion is based on current federal income tax law and administrative practice,
and we do not undertake to advise you as to any changes after the Effective
Time (as defined in the Merger Agreement) in federal income tax law or
administrative practice that may affect our opinion unless we are specifically
retained to do so.
We hereby consent to the filing of this opinion as an exhibit to the
aforementioned Registration Statement and to the reference to this firm under
the captions "Certain Federal Income Tax Consequences" and "Legal Opinions" in
the Registration Statement and the Joint Proxy Statement-Prospectus which is a
part thereof.
<PAGE> 3
DAKA International, Inc.
December 28, 1995
Page 3
This opinion has been delivered to you as contemplated by the Merger
Agreement and for the purpose of being included as an exhibit to the
Registration Statement and is intended solely for your benefit. It may not be
relied upon for any other purpose or by any other person or entity.
Very truly yours,
/s/ Goodwin, Procter & Hoar
<PAGE> 1
FREDRIKSON & BYRON, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
December 28, 1995
Champps Entertainment, Inc.
153 East Lake Street
Wayzata, Minnesota 55391
Re: Merger of Champps Entertainment, Inc.
Ladies and Gentlemen:
You have requested that we render an opinion with respect to certain
United States income tax considerations relating to the merger (the "Merger")
of CEI Acquisition Corp., a Minnesota corporation ("Sub"), into Champps
Entertainment, Inc., a Minnesota corporation (the "Company"). Sub is a wholly
owned subsidiary of DAKA International, Inc., a Delaware corporation
("Parent").
In the course of our representation and for purposes of rendering this
opinion, we have examined the following documents and have relied on the
representations and warranties contained therein as true without our having
performed an independent verification as to the accuracy of such
representations and warranties:
1. The Agreement and Plan of Merger, dated as of October 10, 1995
by and among Company, Parent and Sub.
2. The Stockholders' Agreement dated as of October 10, 1995 by and
between Parent, and the other parties signatory thereto (each, a
"Stockholder").
3. The Form S-4 Registration Statement (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC") on
December 28, 1995 under the Securities Act of 1933, as amended which
Registration Statement includes a Proxy Statement and a Prospectus.
As to matters of fact material to this opinion, we have relied upon (1)
facts within our actual knowledge after an inquiry of the attorneys and legal
assistants of this firm who have provided legal services to Company within the
past twelve (12) months; (2) facts represented to us in certificates of
officers of Company; and the recitals, agreements, representations and
warranties contained in or made pursuant to the documents cited above. We
have also relied upon financial documents and other corporate records
provided to us by Company and represented to us to be accurate and complete.
We have also assumed the due authorization by all requisite action of the
execution and delivery by such parties of such documents and the validity and
binding effect thereof on such parties. We have made no other inquiry or
investigation as to factual matters.
<PAGE> 2
Champps Entertainment, Inc.
December 28, 1995
Page 2
A summary of the facts known to us relating to the Merger is set forth
below:
Parent is a Delaware corporation with 6,924,419 shares voting common
stock outstanding as of October 10, 1995. Parent also has 755,883 shares of
Parent common stock issuable upon exercise of outstanding stock options granted
pursuant to Parent's employee stock option plans, and 11,911,545 shares of
Parent's par value $0.01 preferred stock outstanding.
Company is a Minnesota corporation. As of October 10, 1995, Company has
4,953,774 shares of common stock outstanding. Company also has 263,000 shares
of Company common stock issuable upon the exercise of outstanding stock options
granted pursuant to Company's employee stock option plans, 120,000 shares of
Company common stock issuable upon exercise of outstanding warrants to purchase
Company common stock and no shares of Company's preferred stock outstanding.
The following transactions are proposed:
(i) Pursuant to the Merger Agreement and Minnesota law, Parent will
acquire all of the stock of Company through the Merger of Sub into Company.
(ii) Each share of Company common stock owned by a non-dissenting
shareholder at the time of the exchange will be converted into a number of
shares of Parent common stock determined pursuant to the Merger Agreement.
Each issued and outstanding share of Sub stock will be converted into one share
of Company common stock.
(iii) No fractional shares of Parent will be issued. Any holder of
Company common stock entitled to a fractional share of Parent will receive cash
in lieu of Parent issuing a fractional share of its common stock.
(iv) Under Minnesota law, shareholders of Company who dissent to
the proposed transaction have the right to receive the fair market value of
their shares from Company.
(v) Any options to purchase Company common stock granted pursuant
to Company's stock option plans which are outstanding and unexercised
immediately prior to the Effective Time of the Merger (the "Prior Options"),
shall be converted automatically into options to purchase shares of Parent
common stock (the "New Options") in accordance with the terms of such options,
as adjusted according to the Merger Agreement.
<PAGE> 3
Champps Entertainment, Inc.
December 28, 1995
Page 3
The following representations have been made in connection with the
proposed transaction:
(a) There is no plan or intention by Company's shareholders who own
5 percent or more of Company common stock, and to the best of the knowledge of
the management of Company, there is no plan or intention on the part of the
remaining Company shareholders, to sell, exchange, or otherwise dispose of a
number of shares of Parent common stock received in the Merger that would
reduce Company's shareholders' ownership of Parent common stock to a number of
shares having a value, as of the date of the Merger, of less than 50 percent of
the value of all the formerly outstanding shares of Company common stock as of
the same date. For purposes of this representation, shares of Company common
stock exchanged for cash in lieu of fractional shares of Parent common stock
will be treated as outstanding Company common stock on the date of the Merger.
Moreover, shares of Company common stock and shares of Parent common stock held
by Company shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger will be considered in making this representation.
(b) The fair market value of Company common stock to be surrendered
in the merger will, in each instance, be approximately equal to the fair market
value of Parent common stock (or cash, in the case of dissenters) exchanged
therefor.
(c) Following the Merger, Company will hold assets representing at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets of Sub and Company held
immediately before the transfer. For purposes of this representation, all
amounts used by Company to pay any reorganization expenses (including payments
to dissenting shareholder), and all redemptions and distributions including
amounts paid in lieu of issuing fractional shares of Parent common stock
(except for normal distributions) made preceding the transfer will be
considered assets held by Company immediately prior to the transfer.
(d) Parent has no plan or intention redeem or reacquire any of its
stock to be issued in the proposed transaction.
(e) On the date of the Merger, the fair market value of the assets
of each of Company and Sub will exceed the sum of its liabilities plus the
amount of liabilities to which its assets are subject.
<PAGE> 4
Champps Entertainment, Inc.
December 28, 1995
Page 4
(f) Following the Merger, Company will continue its historic
business or use a significant portion of its historic business assets in a
business.
(g) Parent has no plan or intention to sell or otherwise dispose of
any Company common stock, to liquidate or merge Company, or to cause Company to
sell or otherwise dispose of any of its assets (including the assets acquired
in the Merger) except for dispositions made in the ordinary course of business.
(h) No two parties to the Merger are "investment companies" as
described in Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of
1986, as amended (the "Code").
(i) Each of Company, Parent, Sub and the shareholders of Company
will pay its or their own expenses, if any, incurred in connection with the
Merger.
(j) There is no intercompany debt between Parent and Company or Sub
and Company which was issued, acquired or will be settled at a discount as a
result of the Merger.
(k) In the Merger, an amount of Company common stock constituting
control of Company within the meaning of Section 368(c) of the Code, will be
acquired solely for Parent voting common stock. For purposes of this
representation, shares of Company common stock surrendered by dissenters or
exchanged for cash in lieu of fractional shares of Parent common stock, will be
treated as outstanding Company stock on the date of the transaction. Moreover,
shares of Company common stock otherwise sold, redeemed, or disposed of prior
or subsequent to the Merger will be considered in making the determination.
(l) No dividends or distributions, other than regular dividends or
distributions, will be made with respect to Company common stock immediately
preceding the Merger.
(m) The Company is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(n) None of the compensation received by any shareholder-employees
of Company will be separate consideration for, or allocable to, any of their
shares of Company common stock; none of the shares of Parent common stock
received by any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
<PAGE> 5
Champps Entertainment, Inc.
December 28, 1995
Page 5
(o) The payment of cash in lieu of fractional shares is solely to
save Parent the expense and inconvenience of issuing and transferring
fractional shares of Parent stock and will not represent separately bargained
for consideration. The total cash consideration that will be paid in the
Merger to Company shareholders in lieu of issuing fractional share interests of
Parent common stock will not exceed one percent of the total consideration that
will be given in the Merger to Company shareholders in exchange for their shares
of Company common stock. The fractional share interests of each Company
shareholder will be aggregated and no Company shareholder will receive cash in
an amount greater than the value of one full share of Parent common stock.
(p) Parent does not beneficially own, nor has it owned for the past
5 years, directly or indirectly, any of the outstanding capital stock of
Company.
(q) The Company has no plan or intention to issue additional shares
of its stock subsequent to the consummation of the Merger that would cause
Parent to lose control of Company within the meaning of Section 368(c) of the
Code.
(r) No redemptions have been made with respect to Company common
stock prior to the Merger.
(s) At the time of the Merger, Company will not have outstanding
any warrants, options, convertible securities or any type of right pursuant to
which any person could acquire Company common stock which, if exercised or
converted, would affect Parent's acquisition or retention of control of
Company, as defined in Section 368(c) of the Code.
(t) Prior to the Merger, Parent will be in control of Sub within the
meaning of 368(c) of the Code.
(u) Sub has no liabilities to be assumed by Company, and will not
transfer to Company any assets subject to liabilities in the Merger.
We have also examined such matters of law, including the provisions of
the Code, proposed and finalized Treasury Regulation promulgated thereunder
("Regulations"), and judicial and administrative decisions, rulings and
interpretations thereof currently in effect, as we have deemed appropriate as a
basis for the opinion set forth below.
Based solely on the factual information described above and our
analysis and examination of applicable federal income tax laws, rulings,
regulations and judicial precedents described
<PAGE> 6
Champps Entertainment, Inc.
December 28, 1995
Page 6
above, and assuming further that the Merger is carried out in the manner set
forth in the Merger Agreement, we are of the opinion that, for federal
income tax purposes:
(1) Provided that the proposed Merger qualifies under Minnesota
law, and after the Merger, Company holds substantially all of
its assets and substantially all of the assets of Sub, and in
the transaction, Company shareholders exchange an amount of
stock constituting control of Company within the meaning of
Section 368(c) of the Code solely for Parent voting common
stock, the transaction will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The
reorganization is not disqualified by reason of the fact that
the stock of Parent will be used in the transaction (Section
368(a)(2)(E) of the Code). For purposes of this opinion,
"substantially all" means at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of
the gross assets of each Company and Sub. The Company, Parent
and Sub will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by a Company shareholder
upon the exchange of his or her Company common stock for Parent
common stock, except that a Company shareholder who receives
cash proceeds in lieu of a fractional share interest in Parent
common stock will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated to
the fractional share interest, and such gain or loss will
constitute capital gain or loss if such shareholder's Company
common stock is held as a capital asset at the Effective Time.
(3) The tax basis of Parent common stock received by a Company
shareholder who exchanges his or her Company common stock for
Parent common stock will be the same as such shareholders' tax
basis in Company common stock surrendered in exchange therefor,
decreased by the tax basis allocated to any fractional share
interest.
(3) The holding period of Parent common stock received by a Company
shareholder will include the period during which Company common
stock surrendered in exchange therefor was held (provided that
such Company common stock was held by such Company shareholder
as a capital asset at the Effective Time.)
<PAGE> 7
Champps Entertainment, Inc.
December 28, 1995
Page 7
No opinion is expressed about the tax treatment of the Merger under
other provisions of the Code and the Regulations or about the tax treatment of
any conditions existing at the time of, or effects resulting from, the proposed
transaction that are not specifically covered by the above opinion.
An opinion of legal counsel represents an expression of legal counsel's
professional judgment regarding the subject matter of the opinion and, unlike
private letter rulings issued by the Internal Revenue Service, is not bindng
upon the Internal Revenue Service and has no official status of any kind. We
can give no assurance that the Internal Revenue Service will not challenge the
opinion expressed herein or that in the event the Internal Revenue Service
challenges the opinion expressed herein that it will not ultimately prevail.
Our opinion does not cover the application of state, local, foreign or
other tax laws. You are advised that applicable statutes of some states differ
in some respects from their counterparts in the Code. Further, our opinion is
rendered as of the date hereof and is based upon existing laws, regulations,
administrative authorities and judicial decisions, all of which could change at
any time with retroactive effect.
Our opinion is being rendered to Company pursuant to Section 6.03(c) of
the Merger Agreement. We consent to the use of this opinion as an exhibit to
the Registration Statement and the related Proxy Statement and Prospectus and to
the reference to us in such Prospectus. No other individual or entity may rely
upon this opinion without the express, prior written consent of the undersigned.
Very truly yours,
FREDRIKSON & BYRON, P.A.
By /s/ Dobson West
---------------------------------
Dobson West
<PAGE> 1
LOAN AGREEMENT
Dated as of December ___, 1995
between
CHAMPPS ENTERTAINMENT OF WAYZATA, INC.
as Borrower
and
DAKA INTERNATIONAL, INC.
as Lender
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
<S> <C>
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION........................ 1
Section 1.1 Definitions..................................... 1
Section 1.2 Principles of Construction...................... 9
II. GENERAL TERMS.................................................. 9
Section 2.1 Loan Amount..................................... 9
Section 2.2 Use of Proceeds................................. 9
Section 2.3 The Note........................................ 10
Section 2.4 Interest........................................ 10
Section 2.5 Loan Repayments and Prepayments................. 10
Section 2.6 Making of Payments.............................. 10
III. CONDITIONS PRECEDENT........................................... 11
Section 3.1 Conditions Precedent to Advances................ 11
Section 3.2 Completion of the Merger........................ 13
IV. REPRESENTATIONS AND WARRANTIES................................. 13
Section 4.1 Borrower Representations........................ 13
Section 4.2 Survival of Representations..................... 18
V. AFFIRMATIVE COVENANTS.......................................... 18
Section 5.1 Borrower Covenants.............................. 18
Section 5.2 Liquor Licenses................................. 25
VI. NEGATIVE COVENANTS............................................. 26
Section 6.1 Borrower Negative Covenants..................... 26
Section 6.2 Permitted Transactions.......................... 28
VII. SPECIAL PROVISIONS............................................. 28
Section 7.1 Insurance....................................... 28
Section 7.2 Casualty and Application of Proceeds............ 28
Section 7.3 Condemnation and Application of Proceeds........ 30
Section 7.4 Pledge and Grant of Security Interest........... 30
Section 7.5 Permitted Encumbrances.......................... 31
VIII. DEFAULTS ...................................................... 31
Section 8.1 Event of Default................................ 31
Section 8.2 Remedies........................................ 33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
IX. MISCELLANEOUS.................................................. 34
Section 9.1 Survival........................................ 34
Section 9.2 Lender's Discretion............................. 34
Section 9.3 Governing Law................................... 34
Section 9.4 Modification, Waiver in Writing................. 34
Section 9.5 Delay Not a Waiver.............................. 35
Section 9.6 Notices......................................... 35
Section 9.7 Trial by Jury................................... 36
Section 9.8 Headings........................................ 36
Section 9.9 Severability.................................... 36
Section 9.10 Waiver of Notice................................ 36
Section 9.11 Intentionally Omitted........................... 36
Section 9.12 Indemnity....................................... 36
Section 9.13 Exhibits Incorporated........................... 37
Section 9.14 Offsets, Counterclaims and Defenses............. 37
Section 9.15 No Joint Venture or Partnership................. 38
Section 9.16 Waiver of Marshaling of Assets.................. 38
Section 9.17 Waiver of Counterclaim.......................... 38
Section 9.18 Conflict; Construction of Documents............. 38
Section 9.19 Prior Agreements................................ 38
Section 9.20 Usury Laws...................................... 39
Section 9.21 Collateral Assignment........................... 39
</TABLE>
EXHIBITS
--------
Exhibit A List of the Restaurants
Exhibit B Insurance Requirements
SCHEDULES
---------
Schedule 1 Litigation
Schedule 2 Lack of Compliance with Legal Requirements
Schedule 3 Certain Contracts
Schedule 4 Material License and Permits
Schedule 5 Material Agreements
ii
<PAGE> 4
LOAN AGREEMENT
This Loan Agreement, dated as of December ____, 1995 (as amended,
restated, replaced, supplemented or otherwise modified from time to time, this
"Agreement"), is by and between CHAMPPS ENTERTAINMENT OF WAYZATA, INC., a
Minnesota corporation (together with its successors and assigns, the "Borrower")
having an address of 153 East Lake Street, Wayzata, Minnesota 55391 and DAKA
INTERNATIONAL, INC., a Delaware corporation (together with its successors and
assigns, the "Lender") having an address of One Corporate Place, 55 Ferncroft
Road, Danvers, Massachusetts 01923-4001.
All capitalized terms used in this Agreement shall have the respective
meanings set forth in Section 1 hereof.
W I T N E S S E T H
WHEREAS, the Borrower desires to obtain the Loan from the Lender;
WHEREAS, the Lender is willing to establish and make the Loan to the
Borrower, subject to and in accordance with the terms of this Agreement and the
other Loan Documents;
NOW, THEREFORE, in consideration of the making of the Loan by the Lender
and the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
set forth below.
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
SECTION 1.1 DEFINITIONS. For all purposes of this Agreement, except
as otherwise expressly required or unless the context clearly indicates a
contrary intent:
"Additional Receipts" means, with respect to any period, all amounts
received by the Borrower during such period from (i) receivables of the
Restaurants collected during such period; (ii) proceeds from the sale of any
asset which is included in the definition of Restaurant Property during any such
period; (iii) interest received during such period on account of any investment
of any rent, income, working capital or other asset (and all proceeds thereof)
of the Restaurant Property; and (iv) other non-recurring sources such as refunds
of security deposits, payments of insurance proceeds and tax refunds during such
period.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person, is a director or officer of such Person or of an Affiliate of such
Person or any other Person directly or indirectly holding 10% or more of any
class of the capital stock or other equity interests (including options,
warrants, convertible securities and similar rights) of that Person.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
<PAGE> 5
"Annual Operating Budget" means, with respect to any calendar year, a
detailed, itemized written budget for each Restaurant, subject to approval by
Lender pursuant to Section 4.1(k).
"Assignment of Licenses and Permits" shall mean that certain first
priority Assignment of Contracts, Licenses and Permits, Agreements, Warranties
and Approvals dated as of the date hereof from Borrower, as assignor, to Lender,
as assignee, assigning to Lender to the extent assignable all of Borrower's
interest in and to any licenses, permits, warranties, authorizations or other
consents affecting the Restaurant Property or Borrower's business therein, as
the same may be amended, restated, replaced, supplemented or otherwise modified
from time to time.
"Basic Carrying Costs" shall mean the sum of the following costs
associated with the Restaurant Property: (i) real property taxes, (ii) insurance
premiums and (iii) rent under all Ground Leases.
"Borrower" has the meaning specified in the first paragraph of this
Agreement.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which banks are not open for business.
"Cash from Operations before Fixed Charges" means, with respect to any
calendar year or Interest Period, all income received by the Borrower on account
of the operation of the Restaurant Property.
"Casualty" has the meaning specified in Section 7.2.
"Casualty Insurance Proceeds" has the meaning specified in Section 7.2.
"Change of Control" shall mean any event following which Parent shall
fail to own directly all of the issued and outstanding capital stock of
Borrower.
"Closing Date" means the date of execution of the Note.
"Consolidated" or "consolidated" has the meaning specified in accordance
with GAAP.
"Deductible Disbursements" means amounts disbursed by the Borrower
during any calendar year or Interest Period for the following: (i) the required
consideration under the Ground Lease during such period; (ii) payments of
Impositions due during such period; (iii) payments of insurance premiums
necessary to meet the Insurance Requirements during such period; and (iv) all
other payments made during such period for Operating Expenses.
"Default" means the occurrence of any event hereunder or under any other
Loan Document which, but for the giving of notice or passage of time, or both,
would be an Event of Default.
2
<PAGE> 6
"Default Rate" has the meaning set forth in the Note.
"Environmental Laws" means all statutes, ordinances, orders, rules,
regulations and policies relating to (i) environmental matters, including,
without limitation, those relating to fines, injunctions, penalties, damages,
contribution, cost recovery compensation, losses or injuries resulting from the
Release or threatened Release of Hazardous Materials, (ii) the generation, use,
storage, transportation or disposal of Hazardous Materials, or (iii)
occupational safety and health, industrial hygiene, land use or the protection
of human, plant or animal health or welfare, in any manner applicable to
Borrower or any of its respective properties, including, without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
[SECTION] 9601 ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C.
[SECTION] 1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C.
[SECTION] 6901 ET SEQ.), the Federal Water Pollution Control Act ( 33 U.S.C.
[SECTION] 1251 ET SEQ.), the Clean Air Act (42 U.S.C. [SECTION] 7401 ET SEQ.),
the Toxic Substances Control Act (15 U.S.C. [SECTION] 2601 ET SEQ.), the Federal
Pesticide, Fungicide and Rodenticide Act (7 U.S.C. [SECTION]136 ET SEQ.), the
Occupational Safety and Health Act (29 U.S.C. [SECTION] 651 ET SEQ.) and the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. [SECTION] 11001 ET
SEQ.), each as amended or supplemented, and any analogous future or present
local, state and federal statutes and regulations promulgated pursuant thereto,
each as in effect as of the date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"Event of Default" has the meaning set forth in Section 8.1.
"FF&E" means furniture, fixtures and equipment.
"Filings" means any of the following events or occurrences: if Borrower
(a) files with any bankruptcy court or is the subject of any petition under
Title 11 of the U.S. Code, as amended (and with respect to involuntary petitions
only (so long as no officer, director, Affiliate of Borrower, related party
and/or any other insider of such Borrower is a part of the petitioning creditor
group), such petition is not dismissed within one hundred twenty (120) days),
(b) is the subject of any order for relief issued under such Title 11 of the
U.S. Code, as amended, (c) files or is the subject of any petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future act or law relating
to bankruptcy, insolvency, or other relief for debtors under the laws of the
United States, or any state thereof, (and with respect to involuntary petitions
only (so long as no officer, director, affiliate of Borrower, related party
and/or any other insider of such Borrower is a part of the petitioning creditor
group), such petition is not dismissed within one hundred twenty (120) days),
(d) has sought or consented to or acquiesced in the appointment of any trustee,
receiver, conservator, or liquidator of any Borrower, or (e) is the subject of
any order, judgment, or decree entered by any court of competent jurisdiction
approving a petition filed against such party for any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future federal or
3
<PAGE> 7
state act or law relating to bankruptcy, insolvency, or relief for debtors
under the laws of the United States, or any state thereof.
"Fiscal Year" means each twelve month period commencing on January 1 and
ending on December 31 during each year of the term of the Loan.
"GAAP" means generally accepted accounting principles in the United
States of America as of the date of the applicable financial report or
determination, consistently applied.
"Governmental Authority" means any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit of any
country (federal, state, county, district, municipal, city or otherwise) whether
now or hereafter in existence.
"Ground Lease" means each ground lease to which Borrower is a party, of
land upon which any portion of the Restaurant Property is located, as each may
from time to time be amended or otherwise modified, renewed or extended in
accordance with the terms of this Agreement.
"Guaranty" means that certain unconditional Guaranty of Parent of even
date guarantying all of the Borrower's obligations under this Agreement and the
other Loan Documents.
"Hazardous Materials" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "infectious waste", "toxic substances" or any
other terms intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental Laws;
(ii) any oil, petroleum, petroleum fraction or petroleum derived substance;
(iii) any drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (iv) any flammable substances or explosives; (v) any radioactive
materials; (vi) asbestos in any form; (vii) urea formaldehyde foam insulation;
(viii) electrical equipment which contains any oil or dielectric fluid
containing polychlorinated biphenyls; (ix) pesticides; and (x) any other
chemical material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority or which may or could pose a hazard to
health or safety.
"Impositions" means all real estate and personal property taxes, water,
sewer and vault charges and all other taxes, levies, assessments and other
similar charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, of every kind and nature whatsoever, which at any time prior to, at
or after the execution hereof may be assessed, levied or imposed by, in each
case, a Governmental Authority upon the Restaurant Property or the Property
Income from the Restaurant Property or the ownership, use, occupancy or
enjoyment thereof, and any interest, costs or penalties with respect to any of
the foregoing.
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"Improvements" means the buildings, structures, fixtures, additions,
enlargements, extensions, modifications, repairs, replacements and improvements
now or hereafter located at the Restaurants.
"Indebtedness" means all obligations, contingent and otherwise, that in
accordance with GAAP, determined on a consolidated basis, should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect (including, without limitation, accounts payable and working capital
liabilities); (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements of notes and other
similar obligations and other contingent obligations, whether direct or
indirect, in respect of indebtedness or obligations of others, including any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase indebtedness, or to assure the owner of
indebtedness against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of the
indebtedness held by such owner or otherwise, and the obligations to reimburse
the issuer in respect of any letters of credit.
"Insurance Requirements" means all material terms of any insurance
policy required pursuant to this Agreement or the other Loan Documents, all
requirements of the issuer of any such policy, and all regulations and then
current standards applicable to or affecting the Restaurant Property or any part
thereof or any use or condition thereof, which may, at any time, be recommended
by the Board of Fire Underwriters, if any, having jurisdiction over the
Restaurant Property, or such other body exercising similar functions.
"Interest Payment Date" means the last Business Day of each calendar
quarter, or in the case of the final Interest Period for the Loan, the Maturity
Date.
"Interest Period" means each consecutive three (3) month period, or
portion thereof during each calendar year. Each Interest Period shall be a
period commencing on an Interest Payment Date through and including the date
immediately preceding the next following Interest Payment Date; provided,
however, that the first Interest Period shall be the period commencing on the
date of the first Advance of the Loan through and including the last Business
Day of March, 1996.
"Interest Rate" means, with respect to any Interest Period, the
applicable contract rate of interest payable under and in accordance with the
Note and described in Section 2.4.
"Irvine Restaurant" means the Restaurant located in Irvine, California
and listed as item Number 1 on Exhibit A to this Agreement.
"Legal Requirements" means (i) all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and
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injunctions of Governmental Authorities (including, without limitation,
Environmental Laws) affecting the Restaurant Property or any part thereof or the
construction, use, alteration or operation thereof, or any part thereof, whether
now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and (ii) all covenants,
restrictions, encumbrances and other similar agreements to the extent
enforceable against Borrower, contained in any instruments, either of record
or known to the Borrower, at any time in force materially affecting the
Restaurant Property or any part thereof, including, without limitation, any
which may (a) require repairs, modifications or alterations in or to the
Restaurant Property or any part thereof, or (b) in any way limit the use and
enjoyment thereof.
"Lender" has the meaning specified in the first paragraph hereof.
"Lien" means any mortgage, deed of trust, lien, pledge, hypothecation,
assignment, security interest, or any other encumbrance, charge or transfer of,
on or affecting the Restaurant Property or any portion thereof, or any interest
therein, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, the filing of any financing statement, and
mechanic's, materialmen's and other similar liens and encumbrances.
"Liquor Licenses" means any and all licenses and permits required by any
Governmental Authorities having jurisdiction over the Restaurant Property for
the sale or service of alcoholic beverages at the Restaurant Property in
compliance with all Legal Requirements, whether the same have been issued to or
are hereafter acquired by Borrower.
"Loan" means the loan made by Lender to Borrower under the terms of this
Agreement as evidenced by the Note and secured by the other Loan Documents
executed and delivered by the Borrower.
"Loan Amount" has the meaning provided in Section 2.1.
"Loan Documents" means, collectively, this Agreement, the Note, the
Assignment of Licenses and Permits, the Security Agreement, the UCC-1 Financing
Statements and all other documents or instruments now or hereafter executed or
delivered in connection with the Loan.
"Material Adverse Effect" means any change, circumstance, fact or event
that (i) impairs the validity, priority, perfection or enforceability of any of
the Loan Documents (unless such effect shall result directly from any activity
or inactivity of Lender), (ii) has or could have a material adverse effect on
the ability of Borrower and Guarantor collectively to pay the Obligations or
(iii) has or could have a material adverse effect on the physical or financial
condition of the Restaurant Property or on the condition (financial or
otherwise), operations, business, management or assets of the Borrower taken as
a whole.
"Material Agreements" means (i) any Ground Lease; (ii) each equipment or
personal property lease or other contract to which Borrower is a party, and
(iii) all executory construction, engineering, architectural, maintenance and
other similar contracts or other
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agreements affecting the Restaurant Property. Contracts and agreements listed
in items (ii) and (iii) shall be included in Material Agreements only if they
represent obligations of the Borrower in excess of $25,000.00.
"Material License" means each material certificate, permit and license
of any Governmental Authority, including certificates of occupancy, innkeepers'
licenses and Liquor Licenses necessary or desirable for the operation in the
ordinary course of business of the Restaurant Property.
"Maturity Date" means the date on which the final payment of principal
of and interest on the Note becomes due and payable as herein and therein
provided, whether at stated maturity, by declaration of acceleration, or
otherwise, but in no event later than October 10, 2000.
"Merger Agreement" means that certain Agreement and Plan of Merger
between Parent, Lender and CEI Acquisition Corp., dated as of October 10, 1995.
"Merger Transaction" means the proposed merger of Parent and Lender
pursuant to the terms of the Merger Agreement.
"Note" means that certain Promissory Note made by Borrower in favor of
Lender of even date herewith evidencing the Loan, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.
"Obligations" means the repayment of the Loan evidenced by the Note
together with all other obligations and liabilities of the Borrower due or to
become due to the Lender in respect of the Loan in accordance with any of the
Loan Documents, all amounts, sums and expenses paid by or payable to the Lender
pursuant to any of the Loan Documents, and all other covenants, obligations and
liabilities of the Borrower in respect of the Loan pursuant to any of the Loan
Documents, together with all interest thereon and all other sums due in
connection therewith.
"Officer's Certificate" means a certificate delivered to the Lender by
the Borrower which is signed by an authorized officer of the Borrower.
"Operating Expenses" means, with respect to each Fiscal Year and any
Interest Period all ordinary, customary and necessary expenses, determined in
accordance with GAAP, with respect to such period in connection with the
operation, and maintenance of the Restaurant Property, in accordance with the
applicable Annual Operating Budget, but excluding depreciation, amortization and
payments of interest, principal, or other amounts in respect of any borrowed
money.
"Parent" means Champps Entertainment, Inc., a Minnesota corporation.
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"Payment Date" means the date on which interest is due hereunder or as
stated in the Note.
"Permitted Encumbrances" means, collectively, (a) the Liens and security
interests created by the Loan Documents, (b) all Liens, encumbrances and other
matters previously disclosed in writing to and approved by Lender, (c) Liens, if
any, for Impositions imposed by any Governmental Authority not yet delinquent or
being contested in good faith and by appropriate proceedings in accordance with
the applicable provisions of the Loan Documents.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"Policies" has the meaning specified in Section 7.1.
"Property Income" with respect to any period means (a) the sum of (i)
Cash from Operations before Fixed Charges derived in any way from the Restaurant
Property during each such period and (ii) the Additional Receipts (except to the
extent any such Additional Receipt was previously included in the calculation of
Cash from Operations before Fixed Charges) during such period.
"Release" means any release, spill, emission, leading, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials into the indoor or outdoor environment
(including, without limitation, the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous Materials), or
into or out of any parcel of land or improvements thereon, including the
movement of any Hazardous Material through the air, soil, surface water,
groundwater or property.
"Reports" means any study or report of existing conditions at the
Restaurants including environmental, engineering, zoning, structural, traffic,
survey, plan, or any other type of report or study prepared in connection with
the analysis of any Restaurant Property now or hereafter possessed by Borrower
or Parent.
"Request for Advance" has the meaning set forth in Section 3.1.
"Restaurant Property" means all of Borrower's interest of every kind and
description, now existing or hereafter acquired, in the restaurants listed in
Exhibit A (the "Restaurants"), including, but not limited to, all of Borrower's
interest in the Ground Lease, Improvements, FF&E, rents, all personal property,
goods, accounts, contract rights, insurance proceeds, leases, inventory,
goodwill, licenses, permits, approvals, intangibles and all appurtenant rights
to each of the foregoing. "Restaurant Property" shall be deemed to include
property rights in the Reston Restaurant as the same are developed, created and
acquired by Borrower.
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"Reston Restaurant" means the Restaurant to be developed in Reston,
Virginia at the location listed as Number 2 on Exhibit A to this Agreement.
"Restoration" has the meaning set forth in Section 7.2.
"Security Agreement" shall mean the agreement of even date between
Borrower and Lender granting the Lender a first priority security interest in
all of the Restaurant Property and all proceeds thereof (subject only to the
Permitted Encumbrances).
"State" means the state, respectively, in which each Restaurant Property
is located.
"Stock Pledge Agreement" means that certain Stock Pledge Agreement of
even dated executed by Parent and evidencing a security interest in all of the
stock of Borrower in favor of Lender as security for the Guaranty.
"Survey" means a survey of the real property portion of the Restaurant
Property, prepared by a surveyor licensed in the State, which survey is
satisfactory to the Lender, and containing a certification of such surveyor
satisfactory to the Lender.
"UCC" or "Uniform Commercial Code" means the Uniform Commercial Code as
in effect in the applicable State.
SECTION 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, unless otherwise specified. All meanings attributed to defined terms
herein shall be equally applicable to both the singular and plural forms of the
terms so defined, unless otherwise specified. All accounting terms not
specifically defined herein shall be construed and interpreted, all accounting
determinations shall be made, and all financial statements required to be
delivered by any Person pursuant to this Agreement shall be prepared in
accordance with GAAP, as modified herein.
II. GENERAL TERMS
SECTION 2.1 LOAN AMOUNT. Lender agrees to lend to Borrower a
principal sum not to exceed $3,000,000, to be advanced to Borrower in accordance
with the terms of the Note and this Agreement (the "Loan Amount"), and Borrower
agrees to borrow and repay to Lender on or before the Maturity Date the Loan
Amount together with interest thereon, all pursuant to and in accordance with
the terms and conditions contained in the Note and in this Agreement.
SECTION 2.2 USE OF PROCEEDS. All proceeds of the Loan shall be
advanced to the Borrower, who shall use the proceeds of the Loan solely for (a)
refunding to Parent its costs incurred in connection with development of the
Irvine Restaurant and (b) costs related to the
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development of the Reston Restaurant in accordance with the proposed
disbursements recited in the appropriate Draw Request submitted to Lender
requesting such Advance.
SECTION 2.3 THE NOTE. The Loan shall be evidenced by the Note. The
Loan shall bear interest as provided in the Note and in Section 2.4 hereof. The
Note shall be construed in accordance with this Agreement, and shall be secured
by the Loan Documents and guaranteed by the Guaranty.
SECTION 2.4 INTEREST.
(a) Interest on the Loan Amount and overdue payments thereof
shall be computed on the basis of a 360 day year and the actual number of days
elapsed with respect to each Advance. During each Interest Period, the
principal balance of the Loan Amount that is outstanding from time to time
shall bear interest at a rate of ten (10%) percent per annum.
(b) Overdue principal and, to the extent permitted by
applicable law, overdue interest and every other overdue amount payable under
this Agreement or any other Loan Document shall bear interest at a rate equal
to fourteen (14%) percent per annum (the "Default Rate"). Payment of interest
at the Default Rate on overdue amounts will be due and payable on demand.
(c) Interest on the daily principal balance of the Loan
outstanding shall accrue daily and shall be payable quarterly in arrears,
commencing on the first Payment Date and thereafter on each succeeding Payment
Date; provided, however, that notwithstanding anything to the contrary
contained herein, the final payment of accrued interest hereunder shall be paid
on the Maturity Date.
SECTION 2.5 LOAN REPAYMENTS AND PREPAYMENTS.
(a) REPAYMENTS. The Borrower shall repay the outstanding Loan
Amount in full on the Maturity Date of the Loan, together with all accrued
interest and other charges to and including the date of repayment.
(b) VOLUNTARY PREPAYMENTS OF THE LOAN. The Borrower may prepay
the Loan in whole or in part, by wire transfer to the Lender of (i) the portion
of the Loan Amount then being prepaid, (ii) all interest accrued and unpaid on
such amount to and including the date of prepayment as determined by the Lender
and (iii) all other charges and sums due under the Loan to and including the
date of prepayment, as determined by the Lender. Any such prepayments shall be
without penalty or premium.
SECTION 2.6 MAKING OF PAYMENTS. Each payment by the Borrower
hereunder or under the Note shall be made in funds immediately available to the
Lender on the date such payment is due. Whenever any payment hereunder or under
the Note shall be stated to be due on a day which is not a Business Day, such
payment shall be made on the immediately preceding Business Day.
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III. CONDITIONS PRECEDENT
SECTION 3.1 CONDITIONS PRECEDENT TO ADVANCES. The obligation of the
Lender to make Advances of the Loan ("Advances") hereunder is subject to the
fulfillment by the Borrower, to the reasonable satisfaction of Lender, of the
following conditions precedent, any of which conditions may be waived by Lender
in its sole discretion (the making of such Advance by Lender being deemed a
temporary waiver of such conditions, but in no event shall the making of any
Advances be deemed a waiver of any conditions to subsequent Advances):
(a) REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH CONDITIONS.
The representations and warranties of the Borrower contained in this Agreement
and the other Loan Documents shall be true and correct in all material respects
on and as of the Closing Date and on the date of each Advance and no event
shall have occurred and be continuing that would constitute, by reason of the
execution, delivery and performance of this Agreement or the other Loan
Documents, the grant of the Lien on the Restaurant Property contemplated
hereby, the making of any Advance, or the consummation of the other
transactions contemplated by this Agreement or the other Loan Documents, a
Default, or an Event of Default and no Default or Event of Default would occur
as a result of the making of the Loan; and the Borrower shall be in compliance
in all material respects with all terms and conditions set forth in this
Agreement and in each other Loan Document on its part to be observed or
performed.
(b) REQUEST FOR ADVANCE. At such time as Borrower shall desire
to obtain an Advance, Borrower shall submit to Lender the following documents
and materials at least three (3) Business Days prior to the date of the
requested Advance, and no more frequently than once each week (each such
submission being referred to herein as a "Request for Advance" or "Request"):
(i) a written request for the amount of the Advance
desired (not to exceed, together with all other advances previously
requested, the Loan Amount);
(ii) with respect to Requests for Advances for the Reston
Restaurant, a complete and itemized list of the amounts, parties and
purposes for and to whom disbursements of the Advance shall be made by
Borrower, together with supporting documents reasonably justifying such
disbursements, including a current statement of actual consolidated
cashflows, uses and needs and Borrower's projections for the period
preceding the next anticipated Advance;
(iii) a certification that all representations and
warranties of Borrower contained in this Agreement and the Loan Documents
remain true as of the date of such Draw Request;
(iv) with respect to Requests for Advances for the Reston
Restaurant only, such other information, documentation and certification
as the Lender
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may reasonably request, evidencing that the conditions described herein
have been satisfied.
(c) APPROVAL. Lender shall review each Request for Advance and
on or before the third (3rd) Business Day following submission of such Request
for Advance Lender shall either (i) approve such Request for Advance and
advance to Borrower the amount stated in such Request, or (ii) deliver to
Borrower a written statement explaining the reasons for refusing such Request,
including a list of any documents or other materials which Lender shall
reasonably require before making the Advance referenced in such Request.
(d) SECURITY AGREEMENT AND ASSIGNMENT OF LICENSES AND PERMITS.
The Lender shall have received from the Borrower fully executed and
acknowledged counterparts of the Assignment of Licenses and Permits and the
UCC-1 financing statements for recording or filing, in the judgment of the
Lender, so as to effectively create upon such recording or filing a valid and
enforceable first Lien valid and enforceable first lien or valid and
enforceable first priority security interest, as the case may be, upon the
Restaurant Property in favor of the Lender, subject only to the Permitted
Encumbrances.
(e) INSURANCE. The Lender shall have received valid
certificates of insurance for all of the policies of insurance required by this
Agreement to be carried pursuant to Section 7.1 hereof.
(f) DELIVERY OF ORGANIZATIONAL DOCUMENTS. On or before the
Closing Date, the Borrower shall deliver or cause to be delivered to Lender (i)
copies, certified by the Borrower of all organizational documentation related
to Borrower, (ii) original counterparts of good standing and/or qualification
of Borrower to do business, and such other certificates as the Lender may
reasonably request, each issued by the appropriate Governmental Authority and
(iii) corporate resolutions and incumbency certifications authorizing the
applicable officer of the Borrower to obtain the Loan and to enter into the
Loan Documents.
(g) OPINIONS OF THE BORROWER'S COUNSEL. The Lender shall have
received an opinion of counsel for the Borrower (who shall be satisfactory to
the Lender), in form and substance reasonably satisfactory to the Lender, dated
as of the Closing Date and addressing the corporate power and authority of the
Borrower, the execution, delivery and enforceability of the Note, this
Agreement, the other Loan Documents, the Guaranty and the Stock Pledge
Agreement and addressing such other matters as the Lender may reasonably
request.
(h) COMPLETION OF PROCEEDINGS. All corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and the other Loan Documents and all documents
incidental thereto shall be satisfactory in form and substance to the Lender,
and the Lender shall have received all such counterpart originals or certified
copies of such documents as the Lender may reasonably request.
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(i) DELIVERY OF REPORTS. Borrower shall have delivered copies
of all Reports to Lender.
(j) CONSENT OF LANDLORD. The written consent of the landlord
under the respective Ground Lease, in form reasonably satisfactory to Lender,
evidencing such landlord's consent to the assignment of the Ground Lease from
Parent to Borrower, the pledge of the stock of Borrower to Lender pursuant to
the Stock Pledge Agreement, and the collateral assignment of the tenant's
interest under the respective Ground Lease by Borrower to Lender.
(k) CONSENT OF BORROWER AND GUARANTOR'S LINE CREDITOR. The
written consent and agreement of the lender providing an operating line of
credit to Parent ("Line Creditor"), in form reasonably satisfactory to Lender,
evidencing (i) the Line Creditor's consent to the assignments and collateral
assignments of the Restaurant Property made in connection with the Loan, (ii)
agreeing to the release by the Line Creditor of all liens encumbering the
Restaurant Property (together with duly executed UCC-3's evidencing the release
of such liens), and (iii) agreeing that the Guaranty of Parent given to Lender
in connection with the Loan shall enjoy priority that is pari passu with the
obligations of Parent to the Line Creditor.
(l) BASIC CARRYING COSTS. The Borrower shall have paid, or
cause to be paid, all Basic Carrying Costs and other Impositions which are
currently due and payable.
(m) BUDGETS. Borrower shall have delivered, and Lender shall
have reasonably approved, the Annual Operating Budget for each Restaurant
Property.
(n) NO LITIGATION, ETC. No action, suit, proceeding or
investigation, at law or in equity, shall be pending against Borrower or
Parent, or in any way with respect to the Restaurant Property before any court,
arbitration board or tribunal, public board or body or other Governmental
Authority which, if adversely determined, would have a Material Adverse Effect.
Any such action, suit, proceeding or investigation is disclosed on SCHEDULE 1.
(o) LICENSES AND PERMITS. Borrower shall have delivered to
Lender copies of all Material Licenses in connection with the operation of the
Irvine Restaurant and, in connection with any Advance with respect to the
Reston Restaurant, all Material Licenses for the Reston Restaurant.
SECTION 3.2 COMPLETION OF THE MERGER. The Lender shall be under no
obligation to make any Advances of the Loan following the termination of the
Merger Agreement for any reason (other than the consummation of the Merger
Transaction contemplated thereby).
IV. REPRESENTATIONS AND WARRANTIES
SECTION 4.1 BORROWER REPRESENTATIONS. The Borrower represents and
warrants that:
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(a) ORGANIZATION. The Borrower has been duly organized and is
validly existing with requisite power and authority to own its properties and
to transact the businesses in which it is now engaged. The Borrower is in good
standing and is duly qualified to do business in each jurisdiction where it is
required to be so qualified in connection with its properties, businesses and
operations, and the execution and delivery of this Agreement and each other
Loan Document to which it is a party and each of the transactions contemplated
hereby and thereby. The Borrower possesses all rights, licenses, permits and
authorizations, governmental or otherwise, necessary to entitle it to own its
properties and to transact the businesses in which it is now engaged and is not
in violation of any such rights, licenses, permits and authorizations.
(b) PROCEEDINGS. The Borrower has taken all necessary action
to authorize the execution, delivery and performance of this Agreement and the
other Loan Documents. All Loan Documents have been duly executed and delivered
by or on behalf of the Borrower and constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and
similar laws affecting rights of creditors generally.
(c) NO CONFLICTS. The execution, delivery and performance by
Borrower of this Agreement and the other Loan Documents will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the
property or assets of Borrower pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement, partnership agreement or other
agreement or instrument to which the Borrower is a party or by which any of the
Borrower's property or assets is subject nor will such action result in any
violation of the provisions of any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Borrower
or any properties or assets of the Borrower, and any consent, approval,
authorization, order, registration or qualification of or with any court or any
such regulatory authority or other governmental agency or body required for the
execution, delivery and performance by the Borrower of this Agreement or any
other Loan Documents has been obtained and is in full force and effect.
(d) LITIGATION. There are no actions, suits or proceedings at
law or in equity by or before any Governmental Authority or other agency or any
claims, arbitrations or investigations now pending or threatened against or
affecting the Borrower which actions, suits, proceedings, claims, arbitrations
or investigations, if determined against the Borrower or the Restaurant
Property, would have a Material Adverse Effect. Except as and to the extent
noted therein, all of such actions, suits or proceedings set forth on SCHEDULE
1 are covered by valid insurance policies.
(e) AGREEMENTS. Borrower is not in default in any material
respect in the performance, observance or fulfillment of any of the material
obligations, covenants or conditions contained in any material agreement or
instrument to which it is a party or by which the Borrower or any or all of
its properties are bound.
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(f) TITLE. The Borrower is the holder of the tenant's interest
under the Ground Leases to the portion of the Restaurant Property constituting
real property and has good, clear and marketable title to its personalty and
all other aspects of the Restaurant Property which does not constitute real
property, free and clear of all Liens whatsoever except the Permitted
Encumbrances. There are no claims for payment for work, labor or materials
affecting the Restaurant Property which are or may become a Lien prior to, or
of equal priority with, the Lien created by the Loan Documents, other than
inchoate Liens which the Borrower shall pay in the ordinary course of business.
(g) NO BANKRUPTCY FILING. Borrower is not contemplating either
a Filing or the liquidation of all or a major portion of the Borrower's assets
or property, and Borrower has no knowledge of any Person contemplating such a
Filing against it. Borrower has not made and is not the subject of any Filing.
(h) FULL AND ACCURATE DISCLOSURE. No statement of fact made by
the Borrower in this Agreement or in any of the other Loan Documents, and no
documents, information and materials delivered by Borrower to the Lender in
connection with the Loan, contains any untrue statement of a material fact or
omits to state any material fact necessary to make statements contained herein
or therein not materially misleading. There is no fact presently known to the
Borrower which has not been disclosed in writing to Lender and which is likely
to have a Material Adverse Effect.
(i) NO PLAN ASSETS. Borrower is not an "employee benefit
plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and
none of the assets of any Borrower constitutes or will constitute "plan assets"
of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101.
(j) COMPLIANCE. Except as set forth on SCHEDULE 2, the
Borrower and the Restaurant Property and the use thereof comply in all material
respects with all applicable Legal Requirements, including, without limitation,
building and zoning ordinances the violation of which would have a Material
Adverse Effect. Borrower is not in default or violation and has not received
notice of a default of any order, writ, injunction, decree or demand of any
Governmental Authority, the violation of which would have a Material Adverse
Effect.
(k) CONTRACTS. Except as set forth on SCHEDULE 3, there are no
Material Agreements which are not terminable on one month's notice or less
without cause and without penalty or premium, and there are no defaults under
any material contracts affecting or relating to the Restaurant Property.
(l) FINANCIAL INFORMATION. All financial data, including,
without limitation, the statements of cash flow and income and operating
expense, that have been delivered to the Lender (i) are true, complete and
correct in all material respects, (ii) accurately represent the financial
condition of the Restaurant Property as of the date of such reports in all
material respects, and (iii) have been prepared in accordance with GAAP, each
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consistently applied throughout the periods covered (but omitting footnoted
disclosures). Except as otherwise disclosed in such financial statements or
notes thereto, there has been no material adverse change in the financial
condition of the Borrower or on the results of operations of the Restaurant
Property which has a Material Adverse Effect.
(m) CONDEMNATION. No condemnation or other taking or eminent
domain proceeding has been commenced or, to the Borrower's best knowledge, is
contemplated with respect to all or any portion of the Restaurant Property or
for the relocation of roadways providing access to the Restaurant Property.
(n) NO OBLIGATIONS. Borrower has not incurred any Indebtedness
which is prohibited by this Agreement or the other Loan Documents.
(o) USE OF PROCEEDS. The proceeds from this Loan have been
used by Borrower solely for the purposes described in Section 2.2 hereof.
(p) UTILITIES AND PUBLIC ACCESS. The Restaurant Property has
rights of access to public ways and is served by water, sewer, sanitary sewer
and storm drain facilities adequate to service the Restaurant Property for its
intended use. All public utilities necessary or convenient to the full use and
enjoyment of the Restaurant Property are available at the perimeter of the
Restaurant Property.
(q) REPORTS. All Reports have been previously delivered to
Lender. No Report contains any information identifying facts or circumstances
that are likely to result in a Material Adverse Effect.
(r) ENFORCEABILITY. The Loan Documents executed by or
otherwise binding upon Borrower are enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency and similar laws
affecting the rights of creditors generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law), and are not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, including the defense
of usury, and Borrower has not asserted any right of rescission, set-off,
counterclaim or defense with respect thereto.
(s) INTENTIONALLY OMITTED.
(t) INSURANCE. The Borrower has obtained, or caused to be
obtained, and has delivered to Lender the evidence of insurance required under
Section 7.1 of this Agreement.
(u) USE OF RESTAURANT PROPERTY. The Restaurant Property is
used exclusively as a restaurant and other appurtenant and related uses.
(v) INTENTIONALLY OMITTED.
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(w) FLOOD ZONE. Borrower is carrying flood insurance in
commercially reasonable amounts covering any portion of the Restaurant Property
that is located in a flood hazard area as defined by the Federal Insurance
Administration.
(x) PHYSICAL CONDITION. With respect to the Irvine Restaurant,
the Restaurant Property, including, without limitation, all buildings,
improvements, parking facilities, sidewalks, storm drainage system, roof,
plumbing system, HVAC system, fire protection system, electrical system,
equipment, elevators, exterior sidings and doors, landscaping, irrigation
systems and all structural components (i) is in good condition, order and
repair in all material respects, (ii) have no structural or other material
defects whether latent or otherwise, and Borrower has not received notice from
any insurance company, bonding company, tenant, Governmental Authority or other
Person, of any defects or inadequacies in the Restaurant Property, or any part
thereof, which would adversely affect the value of the Restaurant Property, the
insurability of the same or cause the imposition of extraordinary premiums or
charges thereon or of any termination or threatened termination of any policy
of insurance or bond, and (iii) are structurally and physically sound.
(y) INTENTIONALLY OMITTED.
(z) INTENTIONALLY OMITTED.
(aa) MATERIAL LICENSES. SCHEDULE 4 accurately and completely
lists each Material License necessary or desirable for the operation of the
Restaurant Property, including alcohol beverage licenses and other related
permits, agreements, leases or management agreements necessary or desirable for
the provision of alcohol at the Restaurant Property. Except as otherwise set
forth in SCHEDULE 4 (as the same may be updated from time to time), each such
alcohol beverage license and other agreements and all of the other Material
Licenses are validly issued and in full force and effect, and each of the
holders of such licenses and agreements have fulfilled and performed in all
material respects all of their respective obligations with respect thereto and
have all requisite corporate or other power and authority to operate
thereunder. Except as otherwise set forth on SCHEDULE 5 (as the same may be
updated from time to time), there is no outstanding notice from any
Governmental Authority to the effect that any such holder fails to hold any
Material License necessary for the operation of the Restaurant Property or of
any violation by any party of any Material License or other similar agreements
(other than violations that are not material), and no such Material License is
presently suspended or subject to any pending or overtly threatened legal,
administrative or investigatory proceeding that could result in a suspension or
revocation of such Material License.
(bb) MATERIAL AGREEMENTS. SCHEDULE 5 accurately and completely
lists all executory Material Agreements affecting the Restaurant Property.
Except as otherwise set forth on SCHEDULE 5 (as the same may be updated from
time to time), the Borrower is not in default, nor does the Borrower know of
any claim by any Person that Borrower is or, upon the passage of time or giving
of notice or both, will be in default under any material term of any Material
Agreement to which the Borrower is a party or by which the Borrower or the
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Restaurant Property may be bound, except for such defaults that will not result
in a Material Adverse Effect. Except as set forth on SCHEDULE 5 (as the same
may be updated from time to time), all of the Material Agreements relating to
the Restaurant Property are valid, subsisting agreements of the parties thereto
and are in full force and effect. Except as otherwise set forth on SCHEDULE 5
(as the same may be updated from time to time), to the knowledge of the
Borrower, there exists no violation or breach of any material term of any
Material Agreement on the part of any Person (other than Borrower as provided
above) that is a party to such agreement, which violation or breach will, or in
the reasonable business judgment of the Borrower, is likely to have a Material
Adverse Effect. Except as otherwise set forth on SCHEDULE 5, none of the
Material Agreements listed therein contains any provision restricting the
incurring of indebtedness by the Borrower or that, in the reasonable business
judgment of the Borrower, is likely to result in a Material Adverse Effect.
SECTION 4.2 SURVIVAL OF REPRESENTATIONS. The Borrower agrees that
all of the representations and warranties of the Borrower set forth in Section
4.1 and elsewhere in this Agreement and in the other Loan Documents shall
survive for so long as any Obligations remain outstanding under any of the Loan
Documents, including for so long as any amount remains owing to the Lender under
this Agreement or any of the other Loan Documents by the Borrower. All
representations, warranties, covenants and agreements made in this Agreement or
in the other Loan Documents by the Borrower shall be deemed to have been relied
upon by the Lender notwithstanding any investigation heretofore or hereafter
made by the Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
SECTION 5.1 BORROWER COVENANTS. From the date hereof and until
payment and performance in full of all Obligations, the Borrower hereby
covenants and agrees with the Lender that:
(a) EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS; INSURANCE.
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its existence, rights, licenses, permits and
franchises and comply with all Legal Requirements applicable to it. Borrower
shall at all times maintain, preserve and protect all franchises and trade
names and preserve all the remainder of its property used or useful in the
conduct of its business and keep the Restaurant Property in good working order
and repair, and from time to time make, or cause to be made, all necessary
repairs, renewals, replacements, betterments and improvements thereto, as
provided herein and in the other Loan Documents. The Borrower shall keep the
Restaurant Property insured at all times, by insurers satisfactory to the
Lender, to such extent and against such risks, and maintain liability and such
other insurance, as is more fully provided in this Agreement.
(b) IMPOSITIONS AND OTHER CHARGES. The Borrower shall pay and
discharge or cause to be paid and discharged all Impositions, now or hereafter
levied or assessed or imposed against the Restaurant Property or any part
thereof and shall pay all ground rents, maintenance charges, and license fees,
now or hereafter levied or assessed or
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imposed against the Restaurant Property or any part thereof (the "Other
Charges") prior to delinquency but subject to Borrower's right to contest such
amounts as set forth below. The Borrower will deliver to the Lender, promptly
upon the Lender's reasonable request, evidence satisfactory to the Lender that
the Impositions and Other Charges have been so paid or are not then delinquent.
The Borrower shall not suffer, and the Borrower shall promptly cause to be paid
and discharged, any Lien or charge whatsoever which may be or become a Lien or
charge against the Restaurant Property except only as and to the extent the same
may be contested hereunder and shall promptly pay, or cause to be paid, all
utility services provided to the Restaurant Property. The Borrower shall
furnish to the Lender or its designee receipts for the payment of the
Impositions and Other Charges prior to the date the same shall become
delinquent. After prior written notice to the Lender, the Borrower, at its own
expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount or validity or
application in whole or in part of any Impositions or Other Charges, provided
that (i) no Event of Default has occurred and remains uncured, (ii) such
proceeding shall suspend the collection of the Impositions or Other Charges,
(iii) such proceeding shall be permitted under and be conducted in accordance
with the provisions of any other instrument to which Borrower is subject and
shall not constitute a default thereunder, (iv) neither the Restaurant Property
nor any part thereof or interest therein will be in danger of being sold,
forfeited, terminated, canceled or lost, and (v) the Borrower shall have
furnished such security as may be required in the proceeding, or as may be
requested by the Lender to insure the payment of any such Impositions or Other
Charges, together with all interest and penalties thereon.
(c) LITIGATION. The Borrower shall give prompt written notice
after obtaining knowledge thereof to the Lender of any litigation or
governmental proceedings pending or threatened against Borrower, Parent or the
Restaurant Property which would have a Material Adverse Effect on the condition
(financial or otherwise) of such Person or the Restaurant Property, as the case
may be.
(d) ACCESS TO PREMISES. The Borrower shall permit agents,
representatives and employees of the Lender, on one occasion per quarter and
with twenty-four hours' advance notice (i) to inspect all or any part of the
Restaurant Property and (ii) to have access to the books and records for the
Restaurant Property, PROVIDED, however, that Lender and its agents,
representatives and employees shall have the unlimited right to inspect the
Restaurant Property and the Borrower's books and records following an Event of
Default. Borrower shall furnish Lender, within ten (10) days of Borrower's
receipt, copies of all inspection reports on the Restaurant Property by or on
behalf of any governmental or quasi-governmental agency, insurance company or
any other Person.
(e) NOTICE OF DEFAULT. The Borrower shall promptly (and in any
event, within 48 hours of any such occurrence) advise the Lender of any change,
occurrence or event which has or could be expected to have a Material Adverse
Effect or the occurrence of any default or Event of Default of which the
Borrower has knowledge. If any Person, other than the Lender, shall give any
notice or take any other action in respect to (x) a claimed default (whether or
not constituting an Event of Default) under this Agreement or (y) a
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claimed failure by Borrower to comply with any term, condition or provision of
or under any note, evidence of Indebtedness, indenture or other obligation to
which or with respect to which Borrower is a party or obligor, whether as
principal or surety, the Borrower shall forthwith give written notice thereof to
the Lender describing the notice or action and the nature of the claimed
failure to comply.
(f) ENVIRONMENTAL EVENTS. The Borrower will promptly give
notice in writing to the Lender (i) upon obtaining knowledge of any violation
of any Environmental Law regarding the Restaurant Property (ii) upon obtaining
knowledge of any known Release in violation of any Legal Requirements, of any
Hazardous Material at, from or into the Restaurant Property which it reports in
writing or is reportable by it in writing to any Governmental Authority or
which is material in amount or nature or which could materially affect the
value of the Restaurant Property; (iii) upon receipt of any notice of material
violation of any Environmental Laws or of any Release of Hazardous Materials in
violation of any Environmental Laws, including a notice or claim of liability
or potential responsibility from any third party (including without limitation
any federal, state or local governmental officials) and including notice of any
formal inquiry, proceeding, demand, investigation or other action with regard
to (A) contamination on, from or into the Restaurant Property, or (B)
investigation or remediation of off-site locations at which Borrower or any of
its predecessors are alleged to have directly or indirectly disposed of
Hazardous Materials; or (iv) upon obtaining knowledge that any expense or loss
has been incurred by such Governmental Authority in connection with the
assessment, containment, removal or remediation of any Hazardous Materials with
respect to which Borrower may be liable or for which a lien may be imposed on
the Restaurant Property.
(g) ENVIRONMENTAL INDEMNITY. Borrower shall protect,
indemnify, and hold harmless Lender from and against all liabilities,
obligations, claims, demands, damages, penalties, causes of action, losses,
fines, costs and expenses (including without limitation reasonable attorneys'
fee and disbursements), imposed upon or incurred by or asserted against Lender
by reason of (a) the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release, or threatened release of any Hazardous Substance
on, from or affecting the Restaurant Property; (b) any personal injury
(including wrongful death) or property damage (real or personal) arising out of
or related to such Hazardous Substance; (c) any lawsuit brought or threatened,
settlement reached, or government order relating to such Hazardous Substance;
and (d) any violation of the Environmental Laws, which are based upon or in any
way related to such Hazardous Substance including, without limitation, the
costs and expenses of any remedial work, attorney and consultant fees and
disbursements, investigation and laboratory fees, court costs, and litigation
expenses.
(h) COOPERATE IN LEGAL PROCEEDINGS. Borrower shall cooperate
fully with Lender with respect to any proceedings before any court, board or
other Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the Loan Documents and,
in connection therewith, permit Lender, at its election, to participate in any
such proceedings. Provided, however, nothing contained in
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the preceding sentence shall require Borrower to cooperate with Lender in any
such proceeding where Borrower's interests are adverse to those of Lender.
(i) INSURANCE BENEFITS. The Borrower shall cooperate with the
Lender in obtaining for the Lender (subject to disbursement by Lender as
provided herein) the benefits of any insurance proceeds lawfully or equitably
payable to Borrower in connection with the Restaurant Property or any part
thereof, and the Lender shall be reimbursed for any reasonable expenses
incurred in connection therewith (including attorneys' fees and disbursements)
out of such insurance proceeds.
(j) FURTHER ASSURANCES; SUPPLEMENTAL AFFIDAVITS. (i) The
Borrower shall, at its sole cost and expense:
(i) execute and deliver to the Lender such documents,
instruments, certificates, assignments and other writings, and do such
other acts necessary or desirable, to evidence, preserve and/or protect
the collateral at any time securing or intended to secure the obligations
of the Borrower under the Loan Documents, as the Lender may reasonably
require; and
(ii) do and execute all and such further lawful acts,
conveyances and assurances for the better and more effective carrying out
of the intent and purposes of this Agreement and the other Loan Documents,
as the Lender shall reasonably require from time to time.
(iii) pay all state, county and municipal recording and
all other taxes imposed upon the execution and recordation of any and all
Loan Documents.
(k) MANAGEMENT OF PROPERTY. The Borrower shall manage the
Restaurant Property in a first-class manner, and in the manner that an
experienced and reputable, independent third-party manager would manage a
first-class Restaurant property similar to the Restaurant Property. The
Borrower covenants and agrees that it shall at all times during the term of the
Loan maintain worker's compensation insurance to the extent required by
Governmental Authorities with respect to the management of the Restaurant
Property. The Borrower shall keep the Restaurant Property in good working
order and condition, ordinary wear and tear accepted. The Borrower shall
comply, and shall cause the Restaurant Property to comply with the requirements
of all Governmental Authorities and Legal Requirements.
(l) FINANCIAL REPORTING.
(i) The Borrower will furnish to the Lender monthly,
within forty-five (45) days following the end of each month, for the
period beginning on the first day and ending on the last day of the
preceding month (the "Reporting Period") internal management reports
prepared by Borrower (if any) with respect to the Restaurant Property.
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(ii) The Borrower will keep and maintain or will cause to
be kept and maintained on a Fiscal Year basis, in accordance with GAAP
(but omitting footnoted disclosures), proper and accurate books, records
and accounts reflecting all of the financial affairs of the Borrower and
all items of income and expense in connection with the operation of the
Restaurant Property and in connection with any services, equipment or
furnishings provided in connection with the operation of the Restaurant
Property. After the occurrence and during the continuation of an Event of
Default, the Borrower shall pay any costs and expenses incurred by the
Lender to examine the Borrower's accounting records with respect to the
Restaurant Property, as the Lender shall determine to be necessary or
appropriate in the protection of the Lender's interest.
(iii) The Borrower shall furnish to the Lender, within
ten (10) Business Days after request, such further detailed information
with respect to the operation of the Restaurant Property and the financial
affairs of the Borrower as may be maintained by Borrower reasonably
requested by the Lender. Together with the financial statements and
information required under this Section 5.1(l), the Borrower shall furnish
to the Lender an Officer's Certificate certifying as of the date thereof
(A) that such financial statements and information accurately represent
the financial condition of the Borrower and the Restaurant Property, and
(B) whether there exists an event or circumstance which constitutes a
default or Event of Default under the Loan Documents and if such default
or Event of Default exists, the nature thereof, the period of time it has
existed and the action then being taken to remedy the same.
(iv) As soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter, the Borrower
will deliver to Lender the consolidated and consolidating balance sheets
of Borrower as at the end of such fiscal quarter and the related
consolidated and consolidating statements of income, stockholders' equity,
a calculation of Cash from Operations before Fixed Charges, Property
Income, Deductible Disbursements, Additional Receipts, together with a
reconciliation of cash in the form of a statement of changes in financial
position, setting forth in each case in comparative form the corresponding
figures for the corresponding periods of the previous fiscal year and the
corresponding figures from the Annual Operating Budget for the current
Fiscal Year, all in reasonable detail and certified by the Chief Financial
Officer of the Borrower as fairly presenting the official condition of
Borrower on the dates indicated and the results of its operations and its
cash flows for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments.
(v) As soon as available and in any event within ninety
(90) days after the end of each Fiscal Year, the Borrower will deliver to
Lender the consolidated and consolidating balance sheets of the Borrower
and for the Restaurant Property as at the end of such Fiscal Year and the
related consolidated and consolidating statements of income, stockholders'
equity, cash flows, and a calculation of Cash from Operations before Fixed
Charges, Property Income, Deductible
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Disbursements, and Additional Receipts, for such Fiscal Year, together with
a reconciliation to cash in the form of a statement of changes in financial
position, setting forth in each case in comparative form the corresponding
figures for the previous fiscal year and the corresponding figures from the
Annual Operating Budget for the Fiscal Year covered by such financial
statements, all in reasonable detail and certified by the Chief Financial
Officer of Borrower as fairly presenting the financial condition of
Borrower on the dates indicated and the results of its operations and
its cash flows for the periods indicated.
(vi) In addition, at least forty-five (45) days prior to
the end of any Fiscal Year, Borrower shall deliver to Lender a proposed
Annual Operating Budget which Annual Operating Budget shall include,
without limitation, monthly projected balance sheets and statements of
income, and cash flows for such Fiscal Year, annual projected statements
of income and cash flows, and projected Property Income for such Fiscal
Year itemized as to revenue source, in each case signed by the Chief
Financial Officer of Borrower. Within thirty (30) days after receipt
thereof, Lender shall give notice to Borrower whether the Lender approves
or disapproves each such proposed Annual Operating Budget, which approval
shall not be unreasonably withheld or delayed. In a case of disapproval,
such notice shall state the reasons for such disapproval and shall
indicate the changes the Lender requires thereto, and within ten (10) days
after receipt of any such notice of disapproval, Borrower shall deliver to
the Lender a proposed Annual Operating Budget revised in accordance with
such notice. Borrower may from time to time deliver to the Lender
proposed modifications to any Annual Operating Budget which modifications
shall be subject to the Lender's approval as provided above and shall, in
any event, promptly deliver to Lender copies of any other significant
projections that Borrower prepares or receives and revisions of all such
projections. Borrower shall use reasonable efforts at all times to
operate and maintain the Restaurant Property, or cause the Restaurant
Property to be operated and maintained, in a manner consistent with the
applicable Annual Operating Budget.
(vii) Borrower will furnish to Lender, within twenty
(20) days after the date requested, such further detailed information with
respect to the operation of the Restaurant Property and the financial
affairs of Borrower as may be reasonably requested by Lender.
(m) BUSINESS AND OPERATIONS. The Borrower will qualify to do
business and will remain in good standing under the laws of each jurisdiction
as and to the extent the same are required for the ownership, maintenance,
management and operation of the Restaurants.
(n) TITLE TO PROPERTIES. The Borrower will warrant and defend
(i) the title to the Restaurant Property and every part thereof, subject only
to Permitted Encumbrances, and (ii) the validity and priority of the lien of
the Loan Documents subject only to Permitted Encumbrances, in each case against
the claims of all Persons whomsoever. Borrower shall reimburse the Lender for
any losses, costs, damages or reasonable expenses
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(including reasonable attorneys' fees and court costs) incurred by the Lender
if an interest in all or any part of the Restaurant Property, other than as
permitted hereunder, is claimed by another Person.
(o) COSTS OF ENFORCEMENT. In the event (i) that the Lender
exercises its rights under this Agreement or any Loan Documents for collection,
suit, action or foreclosure, (ii) of the bankruptcy, insolvency, rehabilitation
or other similar proceeding in respect of Borrower or an assignment by Borrower
for the benefit of its creditors, Borrower, its successors or assigns, shall be
chargeable with and agree to pay all costs of collection and defense, including
reasonable attorneys' fees in connection therewith and in connection with any
appellate proceeding or post-judgment action involved therein, which shall be
due and payable together with all required service or use taxes.
(p) ESTOPPEL STATEMENT. The Borrower within 10 days after
request from the Lender, shall from time to time furnish to the Lender a
statement, duly acknowledged and certified by Borrower, setting forth (a) the
amount then owing by the Borrower in respect of the Indebtedness under this
Agreement, (b) the date through which interest on the Loan has been paid, and
(c) any offsets, counterclaims, credits or defenses to the payment of the
Borrower's obligations under the Loan Documents and acknowledging that this
Agreement and the other Loan Documents executed and delivered by, or applicable
to, the Borrower are legal, valid and binding obligations of the Borrower and
have not been modified or, if modified, giving the particulars of such
modification.
(q) LOAN PROCEEDS. Borrower shall use the proceeds of the Loan
received by it only for the purposes set forth in Section 2.2.
(r) PERFORMANCE BY THE BORROWER. Borrower shall in a timely
manner observe, perform and fulfill each and every covenant, term and provision
of each loan document executed and delivered by, or applicable to, Borrower
with respect to this Loan and all other obligations for borrowed money.
Borrower shall in a timely manner observe, perform and fulfill each and every
material covenant, term and provision of any agreement or contract relating to
any other Indebtedness of the Borrower.
(s) LEASING MATTERS. Borrower shall not enter into, amend,
terminate or otherwise modify any lease or any material obligation thereunder
without the prior written consent of the Lender having been received in each
case.
(t) PRINCIPAL PLACE OF BUSINESS. The Borrower shall not change
its name or principal place of business without first giving the Lender thirty
(30) days' prior written notice.
(u) APPRAISALS. If, at any time, Borrower shall prepare or
cause to be prepared or shall receive any appraisal or other third party
assessment or report of value for any of the Restaurant Property for any
purpose, Borrower shall immediately provide or cause to be provided to the
Lender a copy of such appraisal, assessment or report.
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(v) COMPLIANCE. Borrower shall operate the Restaurant Property
(i) in accordance with the terms and conditions of this Agreement, and (ii) all
Legal Requirements. Borrower shall immediately notify Lender (a) upon the
receipt of any notice regarding a default under any of the foregoing and (b) if
it has knowledge of the existence of any such default.
(w) OPERATING PERMITS AND LIQUOR AND FOOD LICENSES. Unless
otherwise approved in writing by Lender, Borrower shall obtain and maintain all
operating permits and liquor (subject to the terms of Section 5.2) and food
licenses required to operate the Restaurant Property as a full service
restaurant in accordance with the Legal Requirements and this Agreement.
Borrower shall promptly upon receipt submit to Lender copies of all inspection
reports, including, but not limited to, health and fire inspection reports, and
all other notices and/or operating permits and licenses from applicable
Governmental Authorities to Borrower immediately upon receipt.
(x) TERMINATION OF MATERIAL LICENSES AND MATERIAL AGREEMENTS.
The Borrower shall keep in full force and effect and not terminate, surrender
or amend any Material License or any Material Agreement, the loss, termination,
surrender or amendment of which would, after giving effect to any replacement
license or agreement then or theretofore obtained, result in a Material Adverse
Effect. The foregoing covenant shall be subject to the terms of Section 5.2 to
the extent Borrower has not yet obtained Liquor Licenses issued in its own
name.
(y) HANDICAPPED ACCESS. Borrower agrees that the Restaurant
Property shall at all times strictly comply, to the extent applicable, with the
requirements of the Americans with Disabilities Act of 1990, the Fair Housing
Amendments Act of 1988 (if applicable), all state and local laws and ordinances
related to handicapped access and all rules, regulations, and orders issued
pursuant thereto including, without limitation, the Americans with Disabilities
Act Accessibility Guidelines for Buildings and Facilities.
SECTION 5.2 LIQUOR LICENSES. Borrower covenants to use its best
efforts to obtain (at its own expense) from the appropriate Governmental
Authorities having jurisdiction over the Restaurant Property all Liquor
Licenses, properly issued in the name of Borrower and shall deliver copies
thereof to Lender upon its receipt thereof but in no event later than May 15,
1996. On or before May 31, 1996, Borrower shall execute such documents or
agreements as Lender shall reasonably request in order to create an enforceable,
perfected, first priority security interest in the Liquor Licenses in favor of
Lender (subject only to the Permitted Encumbrances) as further security for the
performance of Borrower's obligations under this Agreement and the other Loan
Documents. If security interests in Liquor Licenses are prohibited by the
State, then, at the election of Lender, Borrower shall enter into a
lease/management agreement arrangement, evidenced by documents approved by
Lender, in order to insure the continued service of alcoholic beverages at the
Restaurant Property following the exercise of any of Lender's remedies following
a default under this Agreement or any other Loan Documents, until such time as
Lender or Lender's designee shall receive new Liquor Licenses issued in the name
of Lender or Lender's designee.
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VI. NEGATIVE COVENANTS
SECTION 6.1 BORROWER NEGATIVE COVENANTS. From the date hereof until
payment and performance in full of all Obligations, the Borrower covenants and
agrees with the Lender that it will not do, directly or indirectly, or permit,
directly or indirectly, any of the following:
(a) INDEBTEDNESS. Borrower shall not, without the prior
written consent of Lender, incur any Indebtedness other than the Loan.
(b) LIENS. The Borrower shall not, without the prior written
consent of the Lender, create, incur, assume, guarantee or suffer to exist any
Lien on the Restaurant Property or any portion thereof, except:
(i) Permitted Encumbrances;
(ii) Liens for taxes, assessments or other governmental
charges not yet delinquent or which are being diligently contested in good
faith and by appropriate proceedings as permitted hereunder, if (A)
reserves in an amount not less than the tax, assessment or governmental
charge being so contested shall have been deposited in cash (or cash
equivalents) with the Lender to be held during the pendency of such
contest, or such contested amount shall have been duly bonded by the
Borrower in accordance with applicable law, (B) no risk of sale,
forfeiture or loss of any interest in the Restaurant Property or any part
thereof arises during the pendency of such contest and (C) such contest
does not have an adverse effect on the Restaurant Property;
(iii) Carriers', warehousemen's, mechanic's,
materialmen's, repairman's and other similar Liens arising in the ordinary
course of business and which are being diligently contested in good faith
and by appropriate proceedings in accordance with the provisions here of
or of the Loan Documents, as applicable, if (A) (i) reserves in an amount
not less than the claim secured by such Lien which is the subject of such
contest shall have been deposited in cash (or cash equivalents) with the
Lender, to be held during the pendency of such contest, or (ii) the
Borrower has caused such contested Lien to be duly bonded in accordance
with applicable law, (B) no risk of sale, forfeiture or loss of any
interest in the Restaurant Property or any part thereof arises during the
pendency of such contest and (C) such contest does not have an adverse
effect on such Restaurant Property; and
(iv) Provided that no Event of Default shall have occurred
and be continuing, Borrower shall have the right to lease or acquire FF&E
subject to leases, loan documents and other agreements as may be consented
to by Lender, such consent not to be unreasonably withheld or delayed,
provided further that any such additional agreements shall be entered into
with a Person in the ordinary course of business and upon arm's-length
commercially reasonable terms and conditions.
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(c) DISSOLUTION; ISSUE OF STOCK. Borrower shall not dissolve,
terminate, liquidate, merge with or consolidate into another Person. Borrower
shall not issue any shares of Borrower's stock other than those shares that
have been issued to Parent as of the date hereof.
(d) CHANGE IN BUSINESS. Borrower shall not enter into any line
of business other than its current business, or make any material change in the
scope or nature of its business objectives, purposes or operations, or
undertake or participate in activities, directly or through Persons in which it
owns interests, other than the continuance of its present business.
(e) DEBT CANCELLATION. Borrower shall not cancel or otherwise
forgive or release any claim or debt owed to Borrower by any Person, except for
adequate consideration and in such Borrower's prudent business judgment.
(f) AFFILIATE TRANSACTIONS. Borrower shall not enter into, or
be a party to, any transaction with an Affiliate except in the ordinary course
of business and on terms which are fully disclosed in writing to the Lender in
advance and are no less favorable to Borrower than would be obtained in a
comparable arm's-length transaction with an unrelated third party.
(g) ZONING. Borrower shall not initiate or consent to any
zoning reclassification of any portion of the Restaurant Property or seek any
variance under any existing zoning ordinance or use or permit the use of any
portion of the Restaurant Property in any manner that could result in such use
becoming a non-conforming use under any applicable zoning ordinance or any
other applicable land use law, rule or regulation, without the prior consent of
the Lender.
(h) ORGANIZATIONAL DOCUMENTS; PROPERTY AGREEMENTS, ETC.
Borrower shall not enter into, acquiesce in, suffer or permit any amendment,
restatement or other modification of any of its respective organizational
documents and other agreements without the prior written consent of Lender, if
such amendment, restatement or modification could reasonably be expected to
have a Material Adverse Effect, or if such amendment, restatement or
modification violates (or would cause the violation of) any term of any Loan
Document.
(i) RESTRICTION ON DISPOSITIONS, TRANSFERS. Borrower shall not
sell, assign, lease, transfer, convey, encumber or otherwise dispose of or
enter into any agreement for the sale, assignment, lease, transfer, conveyance,
encumbrance or other disposition, directly or indirectly, the Restaurant
Property or any portion thereof, FF&E or any interest therein, without in each
case obtaining the prior written consent of the Lender except for the
disposition of personal property in the ordinary course of business which is
replaced with personal property of equal or greater value and utility.
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SECTION 6.2 PERMITTED TRANSACTIONS. During such time as there exists
no Event of Default, no provision of this Agreement or any of the other Loan
Documents shall be deemed to prohibit, or to require the Lender's consent to,
transfers of Property Income between the Borrower and Parent.
VII. SPECIAL PROVISIONS
SECTION 7.1 INSURANCE.
(a) The Borrower shall, at its sole cost and expense, keep the
Restaurant Property insured during the entire term of this Agreement for the
mutual benefit of Borrower and the Lender by insurance policies with coverages
and in the amounts shown on Exhibit B (the "Policies").
(b) In the event the Borrower fails, to provide, maintain, keep
in force, or deliver and furnish to the Lender evidence of the Policies
required hereunder, the Lender may procure such insurance for such risks
covering the Lender's interest, and the Borrower will reimburse the Lender for
all premiums paid by the Lender, together with interest thereon at the Default
Rate from the date of demand, promptly upon demand by the Lender. Until such
payment is made by the Borrower, the amount of all such premiums, together with
interest thereon at the Default Rate, shall be a part of the Indebtedness and
secured by the Loan Documents.
SECTION 7.2 CASUALTY AND APPLICATION OF PROCEEDS.
(a) The Borrower shall give prompt written notice to the Lender
of damage to or destruction of all or any portion of the Restaurant Property
(any such event being herein referred to as a "Casualty"). Any insurance
proceeds in respect of a Casualty with respect to the Restaurant Property, net
of costs and expenses incurred by the Lender in collecting the same, shall be
referred to herein as "Casualty Insurance Proceeds." All Casualty Insurance
Proceeds shall be applied and disbursed in accordance with the provisions of
this Section.
(b) Any amount of the Casualty Insurance Proceeds received by
the Lender may, in the Lender's discretion, be either retained and applied by
the Lender toward payment of the Loan in such priority and proportion as the
Lender in its discretion shall deem proper or, at the discretion of the Lender,
either in whole or in part to pay for the costs and expenses of restoring,
replacing, rebuilding and repairing the Restaurant Property in question as
nearly as possible to the condition Restaurant Property was in immediately
prior to such fire or other casualty upon such terms and conditions as the
Lender shall designate.
(c) Notwithstanding the foregoing, in the event of a casualty
with respect to the Restaurant Property, the net amount of all insurance
proceeds received by the Lender with respect to such damage or destruction,
after deduction of the costs and expenses
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incurred by the Lender in collecting the same (the "Net Proceeds") shall be
disbursed by the Lender in accordance with the terms and conditions set forth
herein to pay for the costs and expenses of the Restoration (hereinafter
defined) provided (i) no Default or Event of Default has occurred and remains
uncured under this Agreement, the Note or any of the other Loan Documents, (ii)
the Borrower proceeds promptly after the insurance claims are settled with the
restoration, replacement, rebuilding or repair of the Restaurant Property as
nearly as possible to the condition the Restaurant Property was in immediately
prior to such fire or other casualty (the "Restoration"), (iii) the Restoration
shall be done in compliance with all applicable laws, rules and regulations, the
Ground Lease and the Permitted Encumbrances, (iv) plans and specifications in
connection with the Restoration shall be submitted to the Lender and shall be
subject to the Lender's prior reasonable approval, (v) the Borrower carries
builder's risk insurance satisfactory to the Lender, (vi) all costs and expenses
incurred by the Lender in connection with making the Net Proceeds available for
the Restoration of the Restaurant Property including, without limitation,
counsel fees and inspecting engineer fees incurred by the Lender, shall be paid
by the Borrower, (vii) the Restaurant Property as restored, in the judgment of
the Lender, will generate sufficient income to pay all expenses in connection
with the operation thereof and (viii) Lender shall have received evidence
satisfactory to it that, during the period of the Restoration, the sum of (A)
income derived from the Restaurant Property, as determined by the Lender, plus
(B) proceeds of business interruption insurance, if any, to be paid will equal
or exceed expenses in connection with the operation of the Restaurant Property
all as determined by the Lender in its sole discretion.
(d) The Net Proceeds shall be held in trust by the Lender in an
interest-bearing account with all interest thereon to be used in connection
with the Restoration as herein set forth, or applied to the Obligations as set
forth below, and shall be paid by the Lender to, or as directed by the
applicable Borrower less customary retainage, from time to time during the
course of the Restoration (but not more frequently than once per month), upon
receipt of evidence, satisfactory to the Lender, that (i) all materials
installed and work and labor performed (except to the extent they are to be
paid for out of the requested payment) in connection with the Restoration have
been paid for in full, (ii) no mechanics' or other liens or encumbrances on the
Restaurant Property arising out of the Restoration exist which have not been
bonded or otherwise discharged or released, and (iii) the balance of the Net
Proceeds plus the balance of any deficiency deposits given by the Borrower to
the Lender pursuant to the provisions of this paragraph hereinafter set forth
shall be sufficient to pay in full the balance of the cost of the Restoration.
(e) The excess, if any, of the Net Proceeds shall be applied by
Lender to the balance of the Loan. If at any time the Net Proceeds, or the
undisbursed balance thereof, shall not in the opinion of the Lender be
sufficient to pay in full the balance of the cost of the Restoration, the
Borrower shall deposit the deficiency with the Lender in an interest-bearing
account before any further disbursement of the Net Proceeds shall be made.
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SECTION 7.3 CONDEMNATION AND APPLICATION OF PROCEEDS.
(a) The Borrower shall promptly give the Lender notice of the
actual or threatened commencement of any condemnation or eminent domain
proceeding relating to any portion of the Restaurant Property and shall deliver
to the Lender copies of any and all papers served in connection with such
proceedings. All proceeds or awards resulting from any condemnation or eminent
domain proceeding relating thereto shall be paid to the Lender. Any
condemnation award or proceeds received by the Lender may, in the Lender's
discretion, be retained and applied by the Lender toward payment of the Loan in
such priority and proportions as the Lender in its discretion shall deem
proper.
(b) Notwithstanding any taking by any public or quasi-public
authority through eminent domain or otherwise (including but not limited to any
transfer made in lieu of or in anticipation of the exercise of such taking),
the Borrower shall continue to pay the Loan at the time and in the manner
provided for its payment in the Note and the Loan shall not be reduced until
any award or payment therefor shall have been actually received and applied by
the Lender, after the deduction of expenses of collection, to the reduction or
discharge of the Loan. The Lender shall not be limited to the interest paid on
the award by the condemning authority but shall be entitled to receive out of
the award interest at the rate or rates provided herein and in the Note.
SECTION 7.4 PLEDGE AND GRANT OF SECURITY INTEREST. As collateral
security for its obligations under the Loan Documents, including, without
limitation, its obligations in respect of the Loan, Borrower hereby (i) grants
to Lender the right to receive all Property Income to be received by or on
behalf of Borrower from the Restaurant Property and (ii) pledges and assigns to
Lender a continuing possessory lien upon and security interest in all of
Borrower's right, title and interest in and to the Property Income from the
Restaurant Property. Borrower's grant, pledge and assignment contained in the
preceding sentence shall only be effective following an Event of Default.
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SECTION 7.5 PERMITTED ENCUMBRANCES. Any capitalized lease
encumbering any FF&E located at either of the Restaurants shall be deemed to be
a Permitted Encumbrance hereunder only upon satisfaction of the following
conditions:
(a) Borrower shall have executed and delivered such lease in
its own name and delivered a copy of such lease to Lender;
(b) such lease (i) shall encumber only FF&E located at a single
Restaurant, (ii) shall contain no provision which would have the effect of
cross-collateralizing such lease with collateral located anywhere other than at
such Restaurant, and (iii) shall contain no provision which would have the
effect of cross-defaulting such lease with the obligations of Borrower or any
other Person contained in any agreement other than such lease;
(c) the total amount of Borrower's financial obligations under
such lease shall not exceed $900,000.00; and
(d) Borrower shall collaterally assign such lease to Lender,
and Lender shall have received from the lessor under the lease a written
consent to such collateral assignment, together with an acknowledgment that
Lender may succeed to the Borrower's interest under such lease provided Lender
performs the obligations of Borrower thereunder.
VIII. DEFAULTS
SECTION 8.1 EVENT OF DEFAULT. In case of the occurrence of any of
the following events (each, an "Event of Default"):
(i) if the Borrower fails to make any payment of interest
on the Loan or any other amount payable by the Borrower hereunder or under
any Loan Document within fifteen (15) days after the delivery to Borrower
of notice by Lender making demand therefor;
(ii) if the Borrower fails to pay any portion of the
principal, interest or other amounts owing with respect to the Loan on the
Maturity Date;
(iii) if any representation or warranty made by
Borrower herein, in any other Loan Document or in any report, certificate,
financial statement, other instrument, agreement or document furnished by
the Borrower in connection with this Agreement or any other Loan Document,
shall be false or misleading in any material respect as of the date such
representation or warranty was made and the same is likely to have a
Material Adverse Effect; PROVIDED, HOWEVER, that if such materially
inaccurate or misleading representation or warranty was not intentionally
made by Borrower, an Event of Default shall occur hereunder only if
Borrower shall not remedy the circumstance or state of facts causing such
representation or warranty to be materially inaccurate or misleading
within ten (10) days after notice from Lender to
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Borrower if the same can be remedied by the payment of a sum of money, or
within thirty (30) days after notice from Lender to Borrower if the same
cannot be remedied by the payment of a sum of money; and PROVIDED, FURTHER,
that if such circumstance or state of facts can be remedied but such
remediation cannot reasonably be completed within such 30-day period; and
PROVIDED, FURTHER, that Borrower shall have commenced such remediation
within such 30-day period and thereafter diligently and expeditiously
proceed to cure the same, such 30-day period shall be extended for an
additional time as it is reasonably necessary for Borrower in the
exercise of due diligence to complete such remediation, such additional
period shall not exceed 90 days;
(iv) if there is a Filing, or if Borrower shall generally
not be paying its debts as they become due;
(v) if Borrower (a) attempts to assign or transfer or
encumber or (b) does assign, transfer or encumber, in contravention of the
Loan Documents (i) its respective rights under this Agreement or under any
of the other Loan Documents or (ii) any interest herein or therein or
(iii) any interest in the Restaurant Property;
(vi) if Borrower breaches any covenant or agreement
contained in this Agreement or the other Loan Documents and such breach is
likely to have a Material Adverse Effect; PROVIDED, HOWEVER, that if such
breach arises for reasons out of the reasonable control of Borrower,
Borrower shall have the right diligently and expeditiously to cure the
same if (A) such breach is susceptible of cure by Borrower, (B) Borrower
commences such cure immediately upon obtaining knowledge of the occurrence
of such breach and thereafter diligently prosecute such cure to
completion, and (C) such breach is cured by Borrower within thirty (30)
days after obtaining knowledge of its occurrence;
(vii) if any default or breach that is likely to have a
Material Adverse Effect shall occur under any Loan Document and any notice
and/or grace period provided therein shall expire without a cure, or if
any other event shall occur or condition shall exist, if the effect of
such event or condition is to accelerate the maturity of any portion of
the Obligations or to permit the Lender to accelerate the maturity of all
or any portion of the Obligations;
(viii) if the Policies required to be procured and
maintained by the Borrower pursuant to Section 7.1 hereof are not so
maintained in accordance with the terms hereof and such failure continues
for thirty (30) days after notice from Lender to Borrower;
(ix) if any Change of Control occurs for any reason without
the Lender's prior written consent;
(x) immediately upon written notice from Lender, if any
food or beverage service (including, without limitation, alcohol sales) is
terminated or
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suspended at the Restaurant Property for any reason (other than as a result
of a Casualty or in connection with the continuous remodeling of such
Restaurant Property) for a period of sixty (60) consecutive calendar days
(or any sixty (60) days within any ninety (90) day period) without the
Lender's prior written consent;
(xi) the Lender reasonably determines that there exists any
fact or circumstances that could have a Material Adverse Effect and such
fact or circumstances is not remedied to the reasonable satisfaction of
the Lender within thirty (30) days after notice thereof;
(xii) the validity or enforceability of any provision
contained in any Loan Document is contested by the Borrower or the
Borrower denies its obligations to observe or perform any provision to be
observed or performed;
(xiii) an Event of Default under any Ground Lease;
then and in every such Event of Default and at any time thereafter during the
continuance thereof, the Lender may, in addition to any other rights or
remedies available to it pursuant to this Agreement and the other Loan
Documents or at law or in equity, take such action, without notice or demand,
that the Lender deems advisable to protect and enforce its rights against the
Borrower and in and to all or any of the Restaurant Property, including,
without limitation, declaring the Obligations to be immediately due and
payable, and may enforce or avail itself of any or all rights or remedies
provided in the Loan Documents against the Borrower and including, without
limitation, all rights or remedies available at law or in equity; and upon any
Event of Default described in clause (iv) above, the Obligations and all other
obligations of the Borrower hereunder and under the other Loan Documents shall
immediately and automatically become due and payable, without notice or demand,
and the Borrower hereby expressly waives any such notice or demand, anything
contained herein or in any other Loan Document to the contrary notwithstanding.
SECTION 8.2 REMEDIES.
(a) Upon the occurrence and during the continuation of an Event
of Default, all or any one or more of the rights, powers, privileges and other
remedies available to the Lender against the Borrower under this Agreement or
any of the other Loan Documents, or at law or in equity may be exercised by the
Lender at any time and from time to time, whether or not all or any of the
Obligations shall be declared due and payable, and whether or not the Lender
shall have commenced any foreclosure proceeding or other action for the
enforcement of its rights and remedies under any of the Loan Documents with
respect to the Restaurant Property or any portion thereof. Any such actions
taken by the Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as the Lender may determine in its sole discretion, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of the Lender permitted by law, equity or contract or as
set forth herein or in the other Loan Documents. A waiver of one default or
Event of Default shall not
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be construed to be a waiver of any subsequent default or Event of Default or to
impair any remedy, right or power resulting as a consequence of such default
or Event of Default.
(b) Nothing contained herein or in any other Loan Document
shall be construed as requiring the Lender to resort to any portion of the
Restaurant Property for the satisfaction of any of the Obligations in
preference or priority to any other portion of the Restaurant Property, and the
Lender may seek such satisfaction in its absolute discretion in respect of the
Obligations.
IX. MISCELLANEOUS
SECTION 9.1 SURVIVAL. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by the Lender of the Loan and the
execution and delivery to the Lender of the Note, and shall continue in full
force and effect so long as all or any of the Obligations are outstanding and
unpaid. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the legal representatives, successors
and assigns of such party. All covenants, promises and agreements in this
Agreement contained, by or on behalf of the Borrower, shall inure to the benefit
of the respective legal representatives, successors and assigns of the Lender.
SECTION 9.2 LENDER'S DISCRETION. Whenever pursuant to this
Agreement, the Lender exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to the Lender, the judgment of
the Lender to approve or disapprove or to decide whether arrangements or terms
are satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be exercised in a commercially reasonable manner. Lender
agrees to exercise commercially reasonable judgement in connection with its
activities regarding the Loan and its exercise of remedies under the Loan
Documents.
SECTION 9.3 GOVERNING LAW. This Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts. To the fullest extent permitted by
law, Borrower hereby unconditionally and irrevocably waives any claim to assert
that the law of any other jurisdiction governs this Agreement, the Note, and the
other Loan Documents.
SECTION 9.4 MODIFICATION, WAIVER IN WRITING. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, or of the Note, or of any other Loan Document, nor consent to any
departure by any Borrower therefrom, shall in any event be effective unless the
same shall be in a writing signed by the party against whom enforcement is
sought, and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to, or demand on the Borrower, shall entitle the
Borrower to any other or future notice or demand in the same, similar or other
circumstances.
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SECTION 9.5 DELAY NOT A WAIVER. Neither any failure nor any delay on
the part of the Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note or under any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Note or any
other Loan Document, the Lender shall not be deemed to have waived any right
either to require prompt payment when due of all other amounts due under this
Agreement, the Note or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.
SECTION 9.6 NOTICES. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, or (c) facsimile transmission (with
answer back acknowledged), addressed if to the Lender at its address set forth
below, and if to any Borrower, to such Borrower's address set forth below, or at
such other address and person as shall be designated from time to time by any
party hereto, as the case may be, in a written notice to the other parties
hereto in the manner provided for in this Section. A notice shall be deemed to
have been given: in the case of hand delivery, at the time of delivery; in the
case of registered or certified mail, when delivered or the first attempted
delivery on a Business Day; or in the case of expedited prepaid delivery or
facsimile, upon the first attempted delivery on a Business Day.
If to Borrower: Champps Entertainment, Inc.
153 East Lake Street
Wayzata, MN 55391
Attn: Dean P. Vlahos, President
Tel: (612) 449-4841
Tel: (612) 449-4938
with a copy to: Fredrikson & Byron
1100 International Center
900 2nd Ave South
Minneapolis, MN 55402-3397
Attn: Dobson West, Esq.
Tel: (612) 347-7111
Fax: (612) 347-7077
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If to Lender: DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923-4001
Attn: Charles W. Redepenning, Jr.
General Counsel
Tel: (508) 774-9115
Fax: (508) 774-8765
with a copy to: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109-2881
Attn: Ettore Santucci, P.C.
Tel: (617) 570-1260
Fax: (617) 523-1231
SECTION 9.7 TRIAL BY JURY. BORROWER AND LENDER, TO THE FULLEST
EXTENT THAT EACH MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY
HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS.
SECTION 9.8 HEADINGS. The Article and/or Section headings and the
Table of Contents in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
SECTION 9.9 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
SECTION 9.10 WAIVER OF NOTICE. The Borrower shall not be entitled to
any notices of any nature whatsoever from the Lender except with respect to
matters for which this Agreement or the other Loan Documents specifically and
expressly provide for the giving of notice by the Lender to the Borrower and
except with respect to matters for which the Borrower is not, pursuant to
applicable Legal Requirements, permitted to waive the giving of notice. The
Borrower hereby expressly waives the right to receive any notice from the Lender
with respect to any matter for which this Agreement or the other Loan Documents
do not specifically and expressly provide for the giving of notice by the Lender
to the Borrower.
SECTION 9.11 INTENTIONALLY OMITTED.
SECTION 9.12 INDEMNITY. The Borrower agrees to indemnify, pay and hold
harmless the Lender and any of its successors and/or assigns and any subsequent
holder of the Note
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(collectively the "Indemnitees"), and each of them, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgements,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel for such Indemnitee in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
such Indemnitee shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against such Indemnitee in any manner relating to or
arising out of the Loan or any information provided by or on behalf of Borrower,
or contained in any documentation approved by Borrower (collectively, the
"Indemnified Liabilities"); provided, however, that the Borrower shall not have
any obligation to an Indemnitee hereunder to the extent that such Indemnified
Liabilities arise from gross negligence, illegal acts, fraud or willful
misconduct of such Indemnitee, or from any derivative action brought by the
shareholders of Lender. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in the preceding sentence may be unenforceable
because it violates any law or public policy, the Borrower shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them. The Borrower hereby acknowledges and agree that
each Indemnitee is an intended third-party beneficiary of this Section 9.12 and
that each such Indemnitee has agreed to enter into the Loan Documents and to
perform its obligations thereunder, based on and in reliance upon this Section
9.12.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, IT IS SPECIFICALLY
INTENDED BY THE BORROWER AND THE LENDER THAT ALL INDEMNITY OBLIGATIONS AND
LIABILITY ASSUMED BY THE BORROWER HEREUNDER BE WITHOUT LIMIT AND WITHOUT REGARD
TO CAUSE OR CAUSES THEREOF, STRICT LIABILITY OF AN INDEMNIFIED PARTY, OR THE
NEGLIGENCE OF ANY PARTY OR PARTIES (INCLUDING THE LENDER) WHETHER SUCH
NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE. THE PARTIES
SPECIFICALLY INTEND THAT LENDER IS TO BE INDEMNIFIED AGAINST LENDER'S OWN
NEGLIGENCE EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN.
All indemnities set forth herein or in any other Loan Document shall
survive the execution and delivery of this Agreement and other Loan Documents,
the making and repayment of the Loan hereunder, and the termination of this
Agreement.
SECTION 9.13 EXHIBITS INCORPORATED. The Exhibits annexed hereto are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
SECTION 9.14 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of the
Lender's interest in and to this Agreement, the Note and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims or
defenses which are unrelated to such documents which the Borrower may otherwise
have against any assignor of such documents, and no such unrelated counterclaim
or defense shall be interposed or asserted by the Borrower in any
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action or proceeding brought by any such assignee upon such documents and any
such right to interpose or assert any such unrelated offset, counterclaim
or defense in any such action or proceeding is hereby expressly waived by the
Borrower.
SECTION 9.15 NO JOINT VENTURE OR PARTNERSHIP. The Borrower and the
Lender intend that the relationships created hereunder and under the other Loan
Documents be solely that of borrower and lender. Nothing herein or therein is
intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between the Borrower and the Lender nor to grant the Lender
any interest in the Restaurant Property other than that of creditor or lender.
The Borrower specifically acknowledges and agree that Borrower and its
Affiliates and Lender and its Affiliates have engaged in certain other business
activities with each other and that, notwithstanding such other business
activities, Lender shall not have, and shall not be deemed to have, any
fiduciary duty or other similar obligation to Borrower hereunder or under the
other Loan Documents.
SECTION 9.16 WAIVER OF MARSHALING OF ASSETS. The Lender shall have no
obligation to marshal any assets in favor of the Borrower or any other party or
against or in payment of any or all of the obligations of the Borrower pursuant
to this Agreement, the Note or any other Loan Document. To the fullest extent
Borrower may legally do so, Borrower waives all rights to a marshaling of the
assets of the Borrower and the Borrower's Affiliates, and others with interests
in any of the Borrower, and of the Restaurant Property and other assets of the
Borrower, or to a sale in inverse order of alienation in the event of
foreclosure of the interests hereby created, and agrees not to assert any right
under any laws pertaining to the marshaling of assets, the sale in inverse order
of alienation, homestead exemption, the administration of estates of decedents,
or any other matters whatsoever to defeat, reduce or affect the right of the
Lender under the Loan Documents to a sale of any or all of the Restaurant
Property and other assets of the Borrower for the collection of the Indebtedness
without any prior or different resort for collection, or the right of the Lender
or any deed of trust trustee to the payment of the Obligations out of the
proceeds of the Restaurant Property in preference to every other claimant
whatsoever.
SECTION 9.17 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right
to assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by the Lender or its agents.
SECTION 9.18 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of any
conflict between the provisions of this Agreement and the Note or any of the
other Loan Documents, the provisions of this Agreement shall control. The
parties hereto acknowledge that they were represented by sophisticated counsel
in connection with the negotiation and drafting of the Loan Documents and that
such Loan Documents shall not be subject to the principle of construing their
meaning against the party which drafted same.
SECTION 9.19 PRIOR AGREEMENTS. This Agreement and the other Loan
Documents contain the entire agreement of the parties hereto and thereto in
respect of the Loan, and all prior agreements among or between such parties,
whether oral or written, including, without
38
<PAGE> 42
limitation, any term sheets are superseded by the terms of this Agreement and
the other Loan Documents.
SECTION 9.20 USURY LAWS. It is not intended hereby to charge interest
at a rate in excess of the maximum rate permitted to be charged to Borrower
under applicable law, and if interest in excess of said maximum rate shall be
paid hereunder or under the Note, the excess shall be applied by Lender to the
reduction of the principal balance of the Loan.
SECTION 9.21 COLLATERAL ASSIGNMENT. Borrower acknowledges and
consents to the collateral assignment by Lender of any or all of the Note, this
Agreement, the Guaranty, the Stock Pledge Agreement, or any other Loan Documents
to any creditor of Lender.
39
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
LENDER:
WITNESS: DAKA INTERNATIONAL, INC., a Delaware
corporation
By:
- ------------------------------- ----------------------------------
Name:
Title:
BORROWER:
CHAMPPS ENTERTAINMENT OF WAYZATA, INC.,
a Minnesota corporation
/s/ By: /s/ Dean P. Vlahos
- ------------------------------- ----------------------------------
Name: Dean P. Vlahos
Title: President
40
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
LENDER:
WITNESS: DAKA INTERNATIONAL, INC., a Delaware
corporation
By: /s/ Charles W. Redepenning, Jr.
- ------------------------------- ----------------------------------
Name: Charles W. Redepenning, Jr.
Title: Sr. Vice President &
General Counsel
BORROWER:
CHAMPPS ENTERTAINMENT OF WAYZATA, INC.,
a Minnesota corporation
By:
- ------------------------------- ----------------------------------
Name:
Title:
40
<PAGE> 45
EXHIBIT A
---------
Restaurants
-----------
1. The Chammps restaurant located in the Irvine Entertainment Center,
Irvine, California, operated in the premises more particularly described
in that certain lease dated May 4, 1995 between Irvine Retail Properties
Company, as Landlord, and Chammps Entertainment, Inc., as Tenant (as the
same may be amended from time to time).
2. The Chammps restaurant to be located in Reston, Virginia, operated in
the premises more particularly described in that certain lease dated
January 23, 1995 between Plaza America Development Corporation, as
Landlord, and Chammps Entertainment, Inc., as Tenant (as the same may
be amended or assigned from time to time).
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
DAKA International, Inc. on Form S-4 of our report dated August 29, 1995,
appearing in the Annual Report on Form 10-K/A of DAKA International, Inc. for
the year ended July 1, 1995 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
December 27, 1995
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in this DAKA International, Inc.
Registration Statement on Form S-4 pertaining to DAKA International, Inc.'s
merger with Champps Entertainment, Inc.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota
December 28, 1995
<PAGE> 1
[Company Logo]
Piper Jaffray Companies, Inc.
222 South Ninth Street
Minneapolis, MN 55402-3804
612 342-6000
December 18, 1995
We hereby consent to the references to our firm and the inclusion of
our fairness opinion in the prospectus included in this registration statement
on Form S-4 of DAKA International, Inc. filed under the Securities Act of 1933.
PIPER JAFFRAY INC.
/s/ Piper Jaffray Inc.
----------------------
<PAGE> 1
[company logo]
Montgomery
December 27, 1995
Members of the Board of Directors
Champps Entertainment, Inc.
153 East Lake Street
Wayzata, Minnesota 55391
Gentlemen:
We hereby consent to the use of our opinion letter to the Board of
Directors of Champps Entertainment, Inc., attached as Appendix B to the Joint
Proxy Statement-Prospectus which forms part of the Registration Statement on
Form S-4 of DAKA International, Inc., and to the references therein to our firm
and to such opinion under the headings "SUMMARY--Opinion of Financial
Advisors" and "THE MERGER AND RELATED TRANSACTIONS--Background of the Merger"
and "Opinion of Financial Advisor to Champps." In giving such consent, we do
not admit and we hereby disclaim (i) that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended (the "Act"), or the rules and regulations of the Securities
and Exchange Commission thereunder, and (ii) that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
MONTGOMERY SECURITIES
/s/ Montgomery Securities
MONTGOMERY SECURITIES
Investment Banking, Brokerage, Asset Management
600 Montgomery Street, San Francisco, California 94111 Telephone 415 627-2000
<PAGE> 1
Exhibit 99.2
I hereby consent to be named as a person to become a director of DAKA
International, Inc., a Delaware corporation ("DAKA"), in the registration
statement on Form S-4 filed by DAKA with the Securities and Exchange Commission
with respect to a proposed merger of Champps Entertainment, Inc., a Minnesota
corporation, with CEI Acquisition Corp., a Minnesota corporation and
wholly-owned subsidiary of DAKA.
/s/ Dean P. Vlahos
---------------------
Dean P. Vlahos
December 27, 1995
<PAGE> 1
DAKA INTERNATIONAL, INC.
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MA 01923
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William H. Baumhauer and Allen R.
Maxwell, and each of them, as proxies (the "Proxies"), each with the power to
appoint his substitute, and hereby authorizes each of them to represent and to
vote all the shares of Common Stock and Series A Preferred Stock of DAKA
International, Inc. (the "Corporation") held of record by the undersigned on
_______________, 1996, at the Annual Meeting of Stockholders to be held on
_______________, 1996 or any adjournment of postponement thereof.
IF NO DIRECTION IS MADE, THIS PROXY IF PROPERLY EXECUTED AND SUBMITTED
WILL BE VOTED FOR THE NOMINEE FOR DIRECTOR, FOR THE ISSUANCE OF THE
CORPORATION'S COMMON STOCK PURSUANT TO THE MERGER DESCRIBED IN THE ACCOMPANYING
PROXY MATERIALS AND FOR AMENDMENT OF THE CORPORATION'S CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF THE CORPORATION'S COMMON
STOCK. A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATION NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE STAMPED
ENVELOPE PROVIDED.
The undersigned hereby acknowledge(s) receipt of a copy of the
accompanying Notice of Annual Meeting of Stockholders, the Proxy Statement with
respect thereto and the Corporation's Annual Report to Stockholders for Fiscal
Year 1995 and hereby revoke(s) any proxy or proxies heretofore given. This
proxy may be revoked at any time before it is exercised.
(CONTINUED AND TO BE DATED AND SIGNED ON THE REVERSE SIDE)
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C>
WITHHELD
FOR FROM
THE NOMINEE THE NOMINEE NOMINEE: E.L. Cox
1. ELECTION FOR AGAINST ABSTAIN
OF [ ] [ ] 2. Approval of the issuance of the Corporation's
CLASS I common stock pursuant to the merger [ ] [ ] [ ]
DIRECTOR described in the accompanying proxy materials.
3. Approval of an amendment to increase the
authorized shares of the Corporation's
common stock, as described in the accompanying [ ] [ ] [ ]
proxy statement.
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
CHECK HERE FOR CHECK
IF YOU PLAN TO [ ] HERE FOR [ ]
ATTEND THE MEETING ADDRESS
New Address:____________________________________________________________
________________________________________________________________________
________________________________________________________________________
Sign, Date and Return the Proxy Card Promptly using the Enclosed Envelope.
SIGNATURE________________________________________ DATE___________ SIGNATURE______________________________________ DATE__________
Note: Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full
corporation name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
</TABLE>
<PAGE> 1
CHAMPPS ENTERTAINMENT, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints DEAN P. VLAHOS and SHAUN P. NUGENT, or either of
them acting alone, with full power of substitution, as proxies to represent and
vote, as designated below, all shares of Common Stock of Champps Entertainment,
Inc. registered in the name of the undersigned, at the Special Meeting of
Stockholders to be held on , , 1996, at 10:00 a.m.,
Central Standard Time, at , Minnesota and at all adjournments of
such meeting (the "Special Meeting"). The undersigned hereby revokes all proxies
previously granted with respect to such meeting.
The Board of Directors recommends that you vote "FOR" the following proposal:
(1) APPROVE THE MERGER DESCRIBED IN
THE ENCLOSED PROXY MATERIALS: / / FOR / / AGAINST / / ABSTAIN
(2) OTHER MATTERS: In their discretion, the appointed proxies are authorized to
vote upon such other business as may properly come before the Special
Meeting.
(Continued, and to be completed and signed on the reverse side)
(Continued from the other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL.
Date , 1996
-----------------------------
-----------------------------
PLEASE DATE AND SIGN ABOVE
exactly as name appears at
the left, indicating, where
appropriate, official
position or representative
capacity. If stock is held in
joint tenancy, each joint
owner should sign.
