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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
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DAKA INTERNATIONAL, INC.
(Name of Subject Company)
DAKA INTERNATIONAL, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
234068-20-3
(CUSIP Number of Class of Securities)
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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 and Telephone Number of Person Authorized to
Receive Notice and Communications on Behalf of the Person(s) Filing Statement)
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With a Copy to:
ETTORE A. SANTUCCI, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109
(617) 570-1000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is DAKA International, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts
01923-4001. The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 ("Schedule 14D-9")
relates is the common stock ("Common Stock"), par value $.01 per share, of the
Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer (the "Offer") being made by
Compass Holdings, Inc., a Delaware corporation ("Purchaser") and an indirect,
wholly owned subsidiary of Compass Group PLC, a public limited company
incorporated in England and Wales ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated as of May 29, 1997 (the "Schedule 14D-1"),
for all of the outstanding Shares for a per Share consideration of $7.50 (the
"Offer Price") net in cash to the seller, upon the terms and subject to the
conditions set forth in the Agreement and Plan of Merger, dated as of May 27,
1997, by and among the Company, Parent, Purchaser, and Compass Interim, Inc., a
Delaware corporation ("Compass Interim") and a wholly owned subsidiary of
Purchaser (the "Merger Agreement").
Pursuant to the provisions of the Reorganization Agreement (the
"Reorganization Agreement"), dated as of May 27, 1997, by and among the Company,
Daka, Inc., a Massachusetts corporation ("Daka") and a wholly owned subsidiary
of the Company, Unique Casual Restaurants, Inc., a newly formed Delaware
corporation and a wholly owned subsidiary of the Company ("New International"),
Purchaser and Parent, immediately prior to the time of the consummation of the
Offer (the "Offer Closing Time"), the Company intends (i) to undertake a series
of transactions to transfer all of the restaurant operations and franchising
businesses of the Company and its subsidiaries, including the Fuddruckers and
Champps restaurant chains, (the "Restaurant Business") to New International (the
"Contribution") and (ii) to declare a dividend (conditioned upon the
satisfaction or waiver by Purchaser of all of the conditions to the Offer other
than the condition that the Distribution be consummated) of one share of common
stock, par value $.01 per share, of New International (the "New International
Shares") for each Share held of record as of June 24, 1997 or such later date
that is the earliest reasonably practicable date after Purchaser notifies the
Company of the Offer Closing Time (the "Distribution Record Date") determined by
the Board of Directors of the Company (the "Board"). The distribution of New
International Shares referred to in clause (ii) of the previous sentence is
hereinafter referred to as the "Distribution." After giving effect to the
foregoing transactions, the assets of the Company will consist only of the food
catering, contract catering and vending businesses of the Company as conducted
primarily by Daka (the "Foodservice Business").
Pursuant to the Merger Agreement, as soon as practicable after the Offer
Closing time (as hereinafter defined), Compass Interim will be merged with and
into the Company (the "Merger"), and the Company will become a wholly owned
subsidiary of Purchaser (the "Surviving Corporation"). At the effective time of
the Merger (the "Merger Effective Time"), each Share then outstanding (other
than Dissenting Shares (as hereinafter defined)) not owned by Parent, Purchaser,
the Company or any of their subsidiaries will be converted into the right to
receive $7.50 in cash or any higher price per Share paid in the Offer, without
interest. A copy of the Merger Agreement is being filed with the Securities and
Exchange Commission (the "Commission") as EXHIBIT 1 hereto and is incorporated
by reference.
Based on the information in the Schedule 14D-1, the principal executive
offices of Purchaser are located at 2400 Yorkmont Road, Charlotte, North
Carolina 28217, and the principal executive offices of Parent are located at
Cowley House, Guildford Street, Chertsey, Surrey, England, KT169BA.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are set forth in Item 1 above. All information
contained in this Schedule 14D-9 or incorporated herein by reference concerning
Purchaser, Parent, Compass Interim or their affiliates, or actions or events
with respect
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to any of them, was provided by Purchaser or Parent, and the Company takes no
responsibility for such information.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and (i) the Company, its executive officers,
directors or affiliates or (ii) Purchaser, its executive officers, directors or
affiliates are described at pages 6 through 12 of the Company's Proxy Statement,
dated October 28, 1996, relating to the Company's 1996 Annual Meeting of
Stockholders (the "1996 Proxy Statement"). Copies of such pages are filed as
EXHIBIT 2 hereto, and copies of the agreements described therein are filed as
EXHIBITS 3, 4 and 7 hereto, all of which Exhibits are incorporated herein by
reference. A copy of the 1996 Proxy Statement has been sent within one year of
the date hereof by the Company to each of the then holders of the Shares and has
been filed with the Commission. As of the date hereof, except as described below
or as set forth in either ANNEX I to this Schedule 14D-9 or pages 6 through 12
of the 1996 Proxy Statement (each of which is incorporated herein by reference),
there exists no material contract, agreement, arrangement or understanding and
no actual or potential conflict of interest between the Company or its
affiliates and (i) the Company, its executive officers, directors or affiliates,
or (ii) Purchaser or Purchaser's executive officers, directors or affiliates.
COMPENSATORY ARRANGEMENTS WITH EXECUTIVE OFFICERS
Employment Agreements
William H. Baumhauer, Chairman, Chief Executive Officer and Director of the
Company, and Allen R. Maxwell, President, Chief Operating Officer and Director
of the Company, are each employed by the Company pursuant to separate employment
agreements which commenced on January 1, 1997 and provide for an initial term of
three years and automatic renewal each year so that the residual term of each
agreement is never less than three years. The agreements provide for initial
annual base salaries of $450,500 for Mr. Baumhauer and $265,000 for Mr. Maxwell.
Any adjustments to these amounts are at the discretion of the Board. Each of the
agreements provides that in the event the Company terminates the executive's
employment without "cause" (as defined therein) or the executive terminates his
employment for "good reason" (as defined therein), the Company shall pay the
executive an amount equal to the executive's cash compensation for three years.
The foregoing summaries of the employment agreements with Messrs. Baumhauer
and Maxwell do not purport to be complete and are qualified in their entireties
by reference to the text of such employment agreements, copies of which are
filed herewith, respectively, as EXHIBITS 3 and 4 hereto and are incorporated
herein by reference.
After the distribution, New International will assume and the Company will
be released from the employment agreement with Mr. Baumhauer, with an amendment
to such agreement such that its effective date will be June 30, 1997, but
otherwise on substantially the same terms.
Mr. Maxwell entered into a Termination and General Release Agreement (the
"Release") with the Company and New International as of May 27, 1997. Pursuant
to the Release and conditioned upon the consummation of the Offer, (i) Mr.
Maxwell will terminate his employment agreement with the Company as of the Offer
Closing Time, (ii) each of the Company and Mr. Maxwell will release the other
from the claims it may have under the employment agreement as of the Offer
Closing Time and (iii) New International will pay Mr. Maxwell $500,000 over a
three-year period that commences on January 1, 1998.
The foregoing summary of the Release does not purport to be complete and is
qualified in its entirety by reference to the text of the Release, a copy of
which is filed herewith as EXHIBIT 5 hereto and is incorporated herein by
reference.
On May 23, 1997, Mr. Maxwell entered into an employment agreement (the "New
Maxwell Employment Agreement") by and among Compass Group USA, Inc. ("Compass
US"), the Company and Daka. Pursuant to the New Maxwell Employment Agreement,
Mr. Maxwell will act as the president of Daka and will be an officer and a
member of senior management of Compass US during the term of the agreement. The
agreement provides for an initial term commencing on the Merger Effective Time
and ending on Septem-
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ber 30, 1999 and for a continuing term until the agreement is terminated in
accordance with the terms thereof. Under the New Maxwell Employment Agreement,
Mr. Maxwell receives an annual base salary of $280,000 and other customary
benefits, and is eligible to receive a discretionary bonus at year-end for his
services rendered during the initial term. The agreement further provides that
in the event Mr. Maxwell's employment is terminated without "cause" (as defined
therein), he shall be paid a severance amount equal to one and one-half times
his compensation package under the agreement over an eighteen-month period. The
New Maxwell Employment Agreement is contingent upon the consummation of the
Merger.
The foregoing summary of the New Maxwell Employment Agreement does not
purport to be complete and is qualified in its entirety by reference to the text
of the New Employment Agreement, a copy of which is filed herewith as EXHIBIT 6
hereto and is incorporated herein by reference.
Under the terms of an employment agreement among the Company, Champps
Entertainment, Inc., a subsidiary of the Company ("Champps"), and Dean P.
Vlahos, which commenced on February 21, 1996, Mr. Vlahos provides full-time
services to Champps in the capacity of Chairman of the Board, Chief Executive
Officer and President, for a five-year term. During the period of Mr. Vlahos'
full-time employment, Champps pays Mr. Vlahos an initial base salary of $350,000
plus a variable percentage-based bonus of his base salary if he attains certain
targets established by the Board. The agreement provides that if Mr. Vlahos
leaves for "good reason" (as defined therein) or is terminated by the Company
without "cause" (as defined therein) during the term of his employment contract,
the Company will be obligated to pay him his remaining salary and bonus as
severance. In the event that Mr. Vlahos' employment is terminated for any reason
other than by the Company for cause, Mr. Vlahos will be provided the right,
subject to certain obligations to the Company, to establish a franchise for up
to five Champps Americana restaurants anywhere in the world, subject to certain
limitations. Following the Distribution, New International will succeed the
Company as guarantor under the employment agreement with Mr. Vlahos with
substantially the same terms and conditions.
The foregoing summary of the employment agreement with Mr. Vlahos does not
purport to be complete and is qualified in its entirety by reference to the text
of such employment agreement, a copy of which is filed herewith as EXHIBIT 8 and
is incorporated herein by reference.
DAKA International, Inc. 1994 Equity Incentive Plan
The Company's executive officers and employee directors are eligible to
participate in the DAKA International, Inc. 1994 Equity Incentive Plan (the
"1994 Omnibus Plan"). The 1994 Omnibus Plan was approved by the Company's
stockholders in December of 1994. The following summary of the 1994 Omnibus Plan
does not purport to be complete and is qualified in its entirety by reference to
the text of the 1994 Omnibus Plan, a copy of which is filed herewith as EXHIBIT
8 and is incorporated herein by reference. The Compensation Committee of the
Board (the "Committee") has full power to select, from among the employees
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms of
each award, subject to the provisions of the 1994 Omnibus Plan. Persons eligible
to participate in the 1994 Omnibus Plan are those employees of the Company and
its subsidiaries who are responsible for or contribute to the management, growth
or profitability of the Company and its subsidiaries, as selected from time to
time by the Committee. Directors of the Company are eligible for certain awards
under the 1994 Omnibus Plan.
The 1994 Omnibus Plan permits the granting of (i) options to purchase
Common Stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and (ii) options that do not so qualify ("Non-Qualified Options").
The option exercise price of each option is determined by the Committee, but may
not be less than 100% of the fair market value of the Common Stock on the date
of grant, except as set forth below with respect to options granted upon
conversion of cash bonuses. The term of each option may not exceed ten years
from date of grant in the case of an Incentive Option. The Committee may permit
an employee to elect each calendar year to convert his or her bonus, which is
otherwise payable in cash, into discount Non-Qualified Options with a discounted
exercise price determined by the Committee, which shall not, however, be less
than 50% of the fair market value of the Common Stock on the date of grant. To
qualify as Incentive Options, options must meet
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additional federal income tax requirements, including limits on the value of
shares subject to Incentive Options which first become exercisable in any one
year, and a shorter term and higher minimum exercise price in the case of
certain large stockholders.
The 1994 Omnibus Plan provides for the automatic grant of Non-Qualified
Options to non-employee directors. Each non-employee director who is serving as
a director of the Company on the fifth business day after each annual meeting of
stockholders will automatically be granted on such day a Non-Qualified Option to
acquire 1,500 shares with an exercise price equal to the fair market value of
the Common Stock on the date of grant. Each such Non-Qualified Option will vest
one year from the date of grant. The Committee may also award shares of Common
Stock to officers and other employees subject to such conditions and
restrictions, and at such price as the Committee may determine ("Restricted
Stock"). The Committee may also grant shares (at no cost or for a purchase price
determined by the Committee) which are free from any restrictions under the 1994
Omnibus Plan for, among other things, recognition of past services or as an
award for meeting certain performance goals or in lieu of cash bonuses, and such
other reasons as the Committee shall determine. Except as otherwise determined
by the Committee, rights under a Performance Share Award not yet earned will
terminate upon a participant's termination of employment.
The Board may at any time amend or discontinue the 1994 Omnibus Plan and
the Committee may at any time amend or cancel outstanding awards for the purpose
of satisfying changes in the law or for any other lawful purpose. However, no
such action may be taken which adversely affects any rights under outstanding
awards without the holder's consent.
The 1994 Omnibus Plan provides for the Committee to make appropriate
adjustments in outstanding awards to reflect stock dividends, stock splits and
similar events. In the event of a merger, liquidation, sale of the Company or
similar event, the Committee, in its discretion, may provide for substitution or
adjustments of outstanding options, or may terminate all unexercised options
with or without payment of cash consideration.
Senior Executive Stock Option Plan
The following summary of the Senior Executive Stock Option Plan does not
purport to be complete and is qualified in its entirety by reference to the text
of the Senior Executive Stock Option Plan, a copy of which is filed herewith as
EXHIBIT 9 and is incorporated herein by reference. On January 17, 1992, the
Company adopted a non-qualified stock option plan to issue senior executive
stock options (the "Executive Option Plan") to four of its executive officers
and an officer of Daka. The Company granted options to purchase a total of
250,000 Shares at an exercise price of $4.50, which options have a ten-year term
and vest ratably over a five-year period, commencing upon the date of grant.
Each optionee may exercise any or all of their vested options at any time during
the ten-year period, upon written notice accompanied by payment of the exercise
price. These options are not transferable. An option may be exercised within the
three-month period following the optionee's termination of employment or death,
to the extent the option was then vested and exercisable. The Executive Option
Plan is administered by the Committee, which also acts as the Stock Option
Committee.
DAKA International, Inc. 1988 Incentive Stock Option Plan
The Company's executive officers hold options granted under the DAKA
International, Inc. Incentive Stock Option Plan (the "1988 Incentive Plan")
under which options may be granted to full-time employees of the Company or any
subsidiary for the purchase of Common Stock. The 1988 Incentive Plan was
approved by the Company's stockholders in November 1988. The following summary
of the 1988 Incentive Plan does not purport to be complete and is qualified in
its entirety by reference to the text of the 1988 Incentive Plan, a copy of
which is filed herewith as EXHIBIT 10 and is incorporated herein by reference.
The maximum number of Shares approved for issuance under the 1988 Incentive Plan
is 200,000 (subject to adjustment in certain events). Options granted under the
Incentive Plan are intended to qualify as Incentive Options. Options may be
granted for a term not to exceed ten years (five years with respect to a 10%
stockholder) and are not transferrable other than by will or the laws of descent
and distribution. An option may be exercised within the three-month period
following the optionee's termination of employment, disability or death, to the
extent the option was then vested and exercisable. The 1988 Incentive Plan will
terminate on November 1, 1998. The
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Board may, however, terminate the 1988 Incentive Plan at any time prior to such
date, provided that such termination not, subject to certain conditions, alter
or impair any of the rights or obligations pursuant to any option theretofore
granted under the 1988 Incentive Plan.
Daka International, Inc. 1988 Non-Qualified Stock Option Plan
The Company's executive officers also hold options granted under the DAKA
International, Inc. Non-Qualified Stock Option Plan (the "1988 Non-Qualified
Plan") under which options may be granted to full-time employees of the Company
or any subsidiary for the purchase of Common Stock. The 1988 Non-Qualified Plan
was approved by the Company's stockholders in November 1988. The following
summary of the 1988 Non-Qualified Plan does not purport to be complete and is
qualified in its entirety by reference to the text of the 1988 Non-Qualified
Plan, a copy of which is filed herewith as EXHIBIT 11 and is incorporated herein
by reference. The maximum number of Shares approved for issuance under the 1988
Non-Qualified Plan is 200,000 (subject to adjustment in certain events). The
terms of the 1988 Non-Qualified Plan generally provide that the optionee may
exercise all or stated increments of the total number of Shares granted
thereunder during a five-year period upon written notice of the optionee's
intent to exercise accompanied by payment of the exercise price. The options are
not transferrable. An option may be exercised within the three-month period
following the optionee's termination of employment or death to the extent the
option was then vested and exercisable. The 1988 Non-Qualified Plan will
terminate on November 1, 1998. The Board may, however, terminate such Plan at
any time prior to such date, provided that such termination not, subject to
certain conditions, alter or impair any of the rights or obligations pursuant to
any option theretofore granted under the 1988 Non-Qualified Plan.
OTHER STOCK OPTION PLANS
In addition to the 1994 Omnibus Plan, the Executive Option Plan, the 1988
Incentive Plan and the 1988 Non-Qualified Plan (collectively the "DAKA Stock
Option Plans"), certain executive officers of the Company hold stock options
that were converted from stock options granted under the Champps Entertainment,
Inc. Plan (the "Champps Plan" and together with the DAKA Stock Option Plans, the
"Stock Option Plans").
OPTIONS HELD BY EXECUTIVE OFFICERS AND DIRECTORS
Information describing stock options held by the Company's five most highly
compensated executive officers as of the fiscal year ended June 29, 1996 is set
forth in the pages of the 1996 Proxy Statement which are incorporated herein by
reference. Pursuant to the 1994 Omnibus Plan, Manuel Leitao was granted an
option to acquire 9,000 Shares on March 31, 1997; Donald C. Moore was granted an
option to acquire 30,000 Shares on January 14, 1997 and each of E.L. Cox, Erline
Belton, Joe O'Donnell and Alan D. Schwartz was granted an option, as
non-employee Directors of the Company, to acquire 1,500 Shares. As of May 27,
1997, the executive officers and directors of the Company held, as a group,
options to purchase an aggregate of 434,500 shares of Common Stock. Exercise
prices applicable to these options range from $2.50 per Share to $35.90 per
Share.
Treatment of Stock Options After Distribution
The treatment of outstanding stock options upon consummation of the Offer
is discussed below under the headings "The Reorganization Agreement--Treatment
of Stock Options."
Management Annual Incentive Plan
The Management Annual Incentive Plan consists of a performance target that
is payable to executive officers (other than the Chief Executive Officer of the
Company and the Chief Operating Officer of the Company, for whom all relevant
determinations are made by the Compensation Committee), based on performance, as
of the close of each fiscal year, and is determined on a discretionary basis by
the CEO of the Company on a fiscal year basis.
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CEO Long Term Incentive Award.
The long-term incentive plan implemented by the Board on July 3, 1994 for
the Chief Executive Officer was designed to provide an incentive payment,
payable at the Company's option in the form of either cash or stock, equal to 2%
of the increase in the market value of the Company, 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. Pursuant to the long-term incentive plan ("LTIP")
Mr. Baumhauer has been granted a right ("Performance Award") to be paid an
amount in cash, shares or a combination equal to 2% of the excess (if any) of
(A) the market value of the Company as of June 30, 1997 (determined based on the
average aggregate trading price of the Company's outstanding Shares during the
period beginning June 1, 1997 and ending June 30, 1997) over (B) $137,776,000.
Pursuant to its right to adjust the Performance Award if it determines that
external changes or other unanticipated business conditions have materially
affected the intended operation of the LTIP, the Committee has amended the terms
of the Performance Award such that Mr. Baumhauer's right to receive the Award
shall instead be treated as though Mr. Baumhauer were the holder of an option
expiring immediately after the Offer Closing Time to acquire 228,260 Shares at
an exercise price of $12.07 ("Deemed LTIP Option"). Upon consummation of the
Offer, after the conversion pursuant to the terms of the Reorganization
Agreement (the "Conversion") of the outstanding options to acquire Common Stock
into (x) options to acquire an equal number of New International Shares and (y)
options to acquire an equal number of Shares of Common Stock of the Company, Mr.
Baumhauer's rights pursuant to the amended Performance Award will be determined
as though the Deemed LTIP Option were converted pursuant to the Conversion
giving Mr. Baumhauer deemed options, regarding which (I) the Company will
purchase Mr. Baumhauer's deemed option to purchase Common Stock of the Company
into which the Deemed LTIP Option was converted for an amount equal to the
product of (i) 228,260 and (ii) the excess, if any, of the Offer Price over the
exercise price for such deemed option determined pursuant to the Conversion and
(II) New International will purchase Mr. Baumhauer's deemed option to purchase
New International Shares into which the Deemed LTIP Option was converted in
exchange for that number of New International Shares that is equal to the
quotient obtained by dividing (i) the product of (A) 228,260 and (B) the excess,
if any, of the per-share fair market value of New International Shares, based on
the average closing price of the New International Shares over the three-
consecutive-day trading period immediately following the date the Offer is
consummated (the "New International LTIP Price") over the exercise price for
such deemed option determined pursuant to the Conversion divided by (ii) the New
International LTIP Price.
DAKA International, Inc. Employee Stock Purchase Plan.
The Company's executive officers and employee directors participate in the
DAKA International, Inc. Employee Stock Purchase Plan (the "Stock Purchase
Plan"). The Stock Purchase Plan was approved by the Company's stockholders in
December 1996. The following summary of the Stock Purchase Plan does not purport
to be complete and is qualified in its entirety by reference to the text of the
Stock Purchase Plan, a copy of which is filed herewith as EXHIBIT 12 and is
incorporated herein by reference. All employees of the Company and its
subsidiaries who are customarily employed by the Company or one of its
subsidiaries for more than 20 hours per week are eligible to participate in the
Stock Purchase Plan, which provides an opportunity for such employees to
purchase Shares, at a discount, through regular payroll deductions and cash
purchases. Generally, all employees who are customarily employed for more than
20 hours per week as of the first day of the applicable offering are eligible to
participate in the Stock Purchase Plan. On the last day of each offering (which
generally are for three-month periods), the employee's accumulated payroll
deductions and other payments will be used to purchase a maximum of 600 Shares
(or other predetermined maximum) of Common Stock at a price equal to a
predetermined percentage (between 85% and 100%) of the fair market value of the
Common Stock on the first or last day of the offering, whichever is lower. Under
applicable tax rules, an employee may purchase no more than $25,000 worth of
Common Stock in any calendar year (determined on the first day of the
offering(s) in which such stock is purchased). In addition, certain other tax
limitations may apply.
The Board has the discretion to determine the percentage discount reflected
in the purchase price of Common Stock for any offering and has the discretion to
designate the subsidiaries of the Company whose
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employees are eligible to participate in the Stock Purchase Plan from time to
time. The Board may at any time amend the Stock Purchase Plan, subject to the
approval of the stockholders if required by the Code, to preserve the favorable
tax treatment of participants, and may at any time discontinue the Stock
Purchase Plan. The Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" as defined in Section 423 of the Code, which provides that
an employee will not have income for federal income tax purposes at the start of
an offering or upon receipt of shares of Common Stock at the end of an offering.
The employee is, however, required to pay federal income tax on the difference,
if any, between the price at which he or she sells the shares and the price he
or she paid for them. The Company generally will not be entitled to a tax
deduction upon either the purchase or sale of Shares issued under the Stock
Purchase Plan if certain holding period requirements are met.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF NEW INTERNATIONAL
It is anticipated that the members of the Board will become members of the
Board of Directors of New International, and that Mr. Baumhauer will serve as
Chairman and Chief Executive Officer of New International, with compensation
arrangements that are substantially similar to his existing arrangements with
Company and such changes as Mr. Baumhauer and the Compensation Committee of the
Board of Directors of New International shall agree. Certain senior executive
officers of Company are expected to serve similarly as senior executive officers
of New International.
INDEMNIFICATION
Certificate and Bylaw Provisions
Pursuant to Section 145 of the Delaware General Corporation Law ("DGCL"),
corporations incorporated under the laws of the State of Delaware are permitted
to indemnify their current and former directors, officers, employees and agents
under certain circumstances against certain liabilities and expenses incurred by
them by reason of their serving in such capacities, if such persons acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporations, and with respect to any criminal action
or proceeding, had no reason to believe their conduct as unlawful.
The Bylaws of the Company (the "Bylaws") provide that directors and
officers of the Company shall be, and, in the discretion of the Board,
non-officer employees may be, indemnified by the Company to the fullest extent
authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of the Company. The Bylaws also provide that the right
of directors and officers to indemnification shall be a contract right and shall
not be exclusive of any other right now possessed or hereafter acquired under
any bylaw, agreement, vote of stockholders or otherwise. The Company's
Certificate of Incorporation (the "Certificate") contains a provision permitted
by Delaware law that generally eliminates the personal liability of directors
for monetary damages for breaches of their fiduciary duty, including breaches
involving negligence or gross negligence in business combinations, unless the
director has breached his or her duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or a knowing violation of law or obtained an
improper personal benefit. This provision does not alter a director's liability
under the federal securities laws. In addition, this provision does not affect
the availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
Indemnification Agreements
New International intends to enter into Indemnification Agreements with
certain of the executive officers of New International and members of the Board
of Directors of New International who are not officers of New International (the
"Indemnitees"), pursuant to which New International has agreed to advance
expenses and indemnify such Indemnitees against certain liabilities incurred in
connection with their services as executive officers and/or directors of New
International and in connection with their services as executive officers and/or
directors of the Company prior to the consummation of the Offer (and, with
respect to the Independent Directors (as defined below), prior to the
consummation of the Merger). In the event of a proceeding brought against an
Indemnitee by or in the right of Company or New International, such Indemnitee
shall not be entitled to indemnification if such Indemnitee is adjudged to be
liable to the Company
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or New International, as the case may be, if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by New International in such event
if, and only to the extent that, the Court of Chancery of the State of Delaware,
or another court in which such proceeding shall have been brought or is pending,
shall determine.
Under the terms of each Indemnification Agreement, New International shall
advance all reasonable expenses incurred by or on behalf of such Indemnitee in
connection with any proceeding in which Indemnitee is involved by reason of
Indemnitee's service to New International or by reason of Indemnitee's service
to the Company prior to the consummation of the Offer (and, with respect to the
Independent Directors, prior to the consummation of the Merger). Such statement
shall include, among other things, an undertaking by or on behalf of such
Indemnitee to repay any expenses so advanced if it shall be ultimately
determined that such Indemnitee is not entitled to indemnification for such
expenses.
The preceding description of the indemnification obligations of New
International pursuant to the Indemnification Agreements does not purport to be
complete and is qualified in its entirety by reference to the text of the form
of the Indemnification Agreements, a copy of which is filed herewith as EXHIBIT
13 and is incorporated herein by reference.
THE MERGER AGREEMENT
The following summary of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the Merger
Agreement, a copy of which is filed herewith as EXHIBIT 1 hereto and is
incorporated herein by reference.
The Offer
The Merger Agreement provides for the making of the Offer by Purchaser.
Purchaser has agreed to accept for payment and pay for all Shares tendered
pursuant to the Offer as soon as practicable following the Distribution Record
Date. The Distribution Record Date is expected to be June 24, 1997. Subject only
to the condition that no statute, rule, regulation, decree or injunction
initiated by a governmental entity would prohibit Purchaser from consummating
the Offer or the Merger, prohibit New International from consummating the
Distribution, or have a Material Adverse Effect on the Company and Daka as a
whole, Purchaser has agreed to extend the period of time the Offer is open until
the first business day following the Distribution Record Date. The obligation of
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer is subject to the satisfaction of the Distribution Condition (as defined
below), the Minimum Condition (as defined below) and certain other conditions
that are described below under "--Certain Conditions to the Offer." Purchaser
has agreed that, without the written consent of the Company, no amendment to the
Offer may be made which changes the form of consideration to be paid or
decreases the price per Share or the number of Shares sought in the Offer or
which imposes conditions to the Offer in addition to the Distribution Condition,
the Minimum Condition and the other conditions described in Section 15 of the
Merger Agreement or broadens the scope of such conditions, and no other
amendment may be made in the terms or conditions of the Offer which is adverse
to holders of Shares.
Certain Conditions to the Offer. Notwithstanding any other provision of
the Offer, Purchaser will not be required to purchase any Shares tendered, and
may terminate the Offer, if (i) immediately prior to the expiration of the Offer
(as extended in accordance with the terms of the Offer), (a) any applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Act") and the Exon-Florio Amendment to the Defense Production Act (the
"Exon Florio Amendment") shall not have expired or been terminated, (b) the
condition that the Distribution Record Date has been set (the "Distribution
Condition") shall not have been satisfied, (c) the condition that there have
been validly tendered (including for this purpose Shares that remain subject to
guaranteed delivery procedures) and not withdrawn prior to the Expiration Date
(as defined below) a number of Shares which represents at least two-thirds of
the sum of the total number of Shares then outstanding plus the Shares issuable
upon conversion of outstanding Shares of the Company's Series A Preferred Stock
and two-thirds of the voting power of all Shares of capital stock of the Company
that would be entitled to vote with respect to the Merger (the "Minimum
Condition") shall not
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have been satisfied, or (ii) prior to the acceptance for payment of Shares, any
of the following events shall occur:
(a) any of the representations or warranties of the Company contained
in the Merger Agreement shall not have been true and correct at the date
when made or (except for those representations and warranties made as of a
particular date which need only be true and correct as of such date) shall
cease to be true and correct at any time prior to consummation of the
Offer, except (i) where the Company has delivered to Parent a certificate
(the "Company Bring-Down Certificate") dated as of the Offer Closing Date
that (x) updates any section of the Disclosure Schedule previously
delivered to Parent pursuant to the Merger Agreement so long as such
updated schedules taken as a whole do not constitute a Material Adverse
Change (as defined in the Merger Agreement) compared to the original
schedules, or (y) sets forth events or conditions that have occurred since
the date of the Merger Agreement which, if they had occurred or been in
existence as of the date of the Merger Agreement would be required to be
disclosed, so long as such events or conditions taken as a whole do not
constitute a Material Adverse Change or (ii) where the failure to be so
true and correct would not have a Material Adverse Effect (as defined in
the Merger Agreement) on the Company and Daka, taken as a whole, and Parent
shall not have received a certificate signed on behalf of the Company by
the chief financial officer to such effect; or
(b) any of the representations or warranties of the Company contained
in Sections 4.2(b), (c), (d), (e), (p) and (s) of the Merger Agreement
shall not have been true and correct at the date when made or (except for
those representations and warranties made as of a particular date which
need only be true and correct as of such date) shall cease to be true and
correct at any time prior to the consummation of the Offer, and Parent
shall not have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer to such effect;
or
(c) the Company shall have breached any of its covenants or agreements
contained in the Merger Agreement or any Ancillary Agreement, provided,
however, that if any such breach is curable by the Company or Daka through
the exercise of best efforts within five business days and so long as the
Company or Daka continues to use such best efforts, Purchaser may not
terminate the Offer until such five business day period has expired without
the breach being cured; or
(d) there shall be any statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced, or any legal or
administrative proceeding initiated by any United States federal or state
government, governmental authority or court (other than the routine
application to the Offer, the Merger or the Distribution of waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the Exon-Florio Amendment to the Defense Production Act
(the "Exon-Florio Amendment") or review by the Commission of the Schedule
14D-1, Schedule 14D-9 or Form 10), which would (i) prohibit Purchaser from
consummating the Offer or the Merger, (ii) prohibit New International from
consummating the Distribution or (iii) have a Material Adverse Effect on
the Company and Daka as a whole (provided that the provisions of this
clause (iii) shall only apply in the event of any statute, rule,
regulation, decree, order or injunction (A) which is enacted or entered
into following the date of the Merger Agreement and (B) the substantive
provisions of which were initially proposed for enactment following the
date of the Merger Agreement); or
(e) there shall have occurred (i) any general suspension of trading in
securities on the New York Stock Exchange, Inc. or Nasdaq, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, or (iii) a commencement of a war or
armed hostilities involving the United States, which in the case of any of
the foregoing clauses (i), (ii) or (iii) would have a Material Adverse
Effect on the Company and Daka taken as a whole; or
(f) either the Merger Agreement or the Reorganization Agreement shall
have been terminated in accordance with its terms; or
(g) the Company shall have failed to enter into license agreements for
each of the "French Quarter Coffee", "Leo's Deli" and "Good Natured Cafe"
names and marks, as provided in the Reorganization Agreement; or
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<PAGE> 11
(h) Parent shall not have received an opinion dated the Closing Date
of Goodwin, Procter & Hoar LLP, counsel to the Company, in substantially
the form attached to the Merger Agreement; or
(i) there shall have been a Material Adverse Change (as defined in the
Merger Agreement), or an event shall have occurred which could reasonably
be expected to result in a Material Adverse Change; or
(j) Parent shall not have received all consents or releases related to
the Foodservice Business or otherwise, necessary or appropriate to effect
the Contribution, the Distribution and the Merger and to release the
Company, Daka, Parent, Purchaser and Compass Interim and the assets of the
Foodservice Business from any obligation or liability, including, without
limitation, the Indebtedness (as defined in the Merger Agreement) except as
may be otherwise expressly permitted in the Merger Agreement or in the
Ancillary Agreements; or
(k) any approval by a governmental entity in connection with the
transaction contemplated by the Merger Agreement and by the Ancillary
Agreements, including, without limitation, any approval under the HSR Act
or the Exon-Florio Amendment shall contain a requirement for the sale or
disposition of assets or conditions or limitations in connection with
Parent's acquisition of the Foodservice Business or operation of its
existing business and operations or the Foodservice Business after the
Offer Closing Time; or
(l) Allen R. Maxwell shall have indicated to the Company, Daka or
Parent that he does not intend to abide by the terms of the New Employment
Agreement; or
(m) the Distribution shall not have become effective in accordance
with the terms of the Reorganization Agreement and each of the agreements
contemplated thereby; or
(n) New International shall fail to have delivered to Parent
indemnification agreements in substantially the form attached as an exhibit
to the Reorganization Agreement concerning each executive officer and
director of New International in form and substance reasonably satisfactory
to Parent; or
(o) Parent shall be unable to pay in full the aggregate amount of
principal, accrued but unpaid interest and fees due under the Credit
Facility or such amount shall exceed $110,000,000); or
(p) releases of claims and indemnification rights in forms reasonably
satisfactory to Parent from each of William H. Baumhauer, Allen R. Maxwell,
Charles W. Redepenning, Jr., David G. Parker, Louis A. Kaucic, Donald C.
Moore and Dean P. Vlahos shall not have been delivered to Parent; or
(q) letters of resignation from each executive officer and director of
the Company other than Erline Belton and Joseph O'Donnell shall not have
been delivered to Parent; or
(r) the Company shall not have paid to Parent the amounts set forth in
Section 6.7 of the Merger Agreement, net of any amounts due from Parent
thereunder; or
(s) New International shall have failed to enter into the Transition
Agreement as provided in the Post-Closing Covenants Agreement; or
(t) the Company shall have failed to have assigned or transferred to
New International the Headquarters Lease (as defined in the Merger
Agreement).
The term "Expiration Date" means 12:00 Midnight, New York City time, on
June 25, 1997, unless and until Purchaser, as provided below, will have extended
the period of time for which the Offer is open, in which event the term
"Expiration Date" means the latest time and date at which the Offer, as so
extended by Purchaser, will expire. The foregoing conditions are for the sole
benefit of Parent and may be asserted by Parent regardless of the circumstances
giving rise to such conditions, or may be waived by Parent in whole or in part
at any time and from time to time in its sole discretion; provided that the
conditions set forth in clauses (i)(a), (b), (c) and (ii)(d) and (m) above may
be waived only by mutual consent of Purchaser and the Company.
No assurance can be given that all of these considerable conditions to the
consummation of the Offer will be fulfilled or waived by Parent or that the
Offer will be consummated.
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The Merger
The Merger Agreement provides that, following the purchase of Shares
pursuant to the Offer, and the satisfaction or waiver of the other conditions to
the Merger, Compass Interim will be merged with and into the Company. The Merger
Agreement provides that the Merger will become effective and the Merger
Effective Time will occur immediately following the Distribution upon the filing
of certificates of merger or other appropriate documents (in any such case, the
"Certificate of Merger") with the Delaware Secretary of State or at such other
time as agreed to by the Company and Purchaser and approved by the independent
directors of the Company. The Merger Agreement provides that the closing of the
Merger (the "Merger Closing") will take place within five business days after
the satisfaction or waiver of the conditions to the Merger or such other date
established by Purchaser and approved by the independent directors of the
Company. The parties have agreed to use reasonable best efforts to cause the
Merger Closing to occur immediately after the Offer Closing Time. Otherwise
Purchaser has agreed to use reasonable best efforts to cause the Merger Closing
to occur as soon as practicable after the Offer Closing. The date of the Merger
Closing is referred to in the Merger Agreement as the "Merger Closing Date."
At the Merger Effective Time, (i) except as provided in (ii) below, each
Share issued and outstanding immediately prior to the Merger Effective Time will
be converted into the right to receive $7.50 in cash, or any higher price paid
per Share in the Offer, without interest (the "Merger Price"); (ii)(a) each
Share held in the treasury of the Company or held by any wholly owned subsidiary
of the Company (but not any Benefit Plan (as defined in the Merger Agreement))
and each Share held by Purchaser, Compass Interim or any wholly owned subsidiary
of Parent, excluding, in each case, any such shares held by New International,
Purchaser or any of their wholly owned subsidiaries in a fiduciary, custodial or
similar capacity immediately prior to the Merger Effective Time will be canceled
and retired and cease to exist; (b) each Share held by any holder who has not
voted in favor of the Merger or consented thereto in writing and who has
delivered a written demand for appraisal of such Shares and perfected such
appraisal rights, all in accordance with Section 262 of the DGCL will not be
converted into or be exchangeable for the right to receive the Merger Price (the
"Dissenting Shares"); and (iii) each share of common stock of Purchaser issued
and outstanding immediately prior to the Effective Date will be converted into
and exchangeable for one share of common stock of the Surviving Corporation (as
defined in the Merger Agreement).
Conditions to the Merger. The respective obligation of each party to the
Merger Agreement to effect the Merger is subject to the satisfaction or waiver
on or prior to the Merger Closing Date of a number of conditions, including the
following: (a) the Merger Agreement shall have been adopted by the affirmative
vote of the stockholders of the Company by the requisite vote in accordance with
applicable law, if required by applicable law, (b) no statute, rule, regulation,
order, decree, or injunction shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits or restricts the
consummation of the Merger, (c) the Offer shall not have been consummated, (d)
the Distribution shall have become effective in accordance with the terms of the
Reorganization Agreement and each of the agreements contemplated thereby, (e) no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger, the Contribution or the
Distribution shall be in effect and no such litigation or legal action shall
have been threatened or shall be pending. No action, suit or other proceeding
shall be pending by any governmental entity that, if successful, would restrict
or prohibit the consummation of the Merger, the Contribution or the
Distribution; provided, however, that New International will not unreasonably
withhold its waiver of the condition set forth in this sentence upon Parent's
request in the event such an action, suit or other proceeding is pending with
respect to the Merger alone.
Approval of the Company Stockholders. If required by applicable law in
order to consummate the Merger, the Company will duly call, give notice of,
convene and hold a special meeting (the "Special Meeting") of its stockholders
as soon as practicable following the consummation of the Offer for the purpose
of considering and taking action upon the Merger Agreement and the Merger. In
addition to receiving notice of such Special Meeting, stockholders would receive
a Proxy Statement from the Company (the "Proxy Statement") recommending approval
of the Merger Agreement and the Merger at the Special Meeting. Section 253 of
the DGCL would permit the Merger to occur without a vote of New International's
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<PAGE> 13
stockholders (a "short-form merger") if Purchaser were to acquire at least 90%
of all of the outstanding Shares in the Offer. If Purchaser acquires 90% or more
of the outstanding Shares in the Offer, Purchaser intends to cause the Merger to
occur as a short-form merger.
Representations and Warranties. The Merger Agreement includes customary
representations and warranties by the Company and Daka to Parent, Purchaser and
Compass Interim as to corporate organization and power, authorization and
approval of agreements and the transactions contemplated thereby,
noncontravention of laws and agreements, the filing of all required reports,
schedules, forms, statements and other documents with the Commission, the
accuracy of financial statements and filings with the Commission, and the
conduct of the Foodservice Business in the ordinary course and the absence of
any material adverse change with respect to the Company, Daka or the Foodservice
Business.
The Merger Agreement also includes customary representations and warranties
by Parent, Purchaser and Compass Interim to the Company.
Composition of the Board Pending the Merger. The Merger Agreement provides
that, in the event that Purchaser acquires at least two-thirds of the Shares
outstanding pursuant to the Offer, Purchaser shall be entitled to designate for
appointment or election to the Board, upon written notice to the Company, such
number of persons ("Purchaser's Designees") so that Purchaser's Designees
constitute the same percentage (but in no event less than five persons) of the
Board, rounded up to the next whole number, as the percentage of Shares acquired
in connection with the Offer. Prior to the consummation of the Offer, the
Company will obtain the resignations of such number of directors as is necessary
to enable Purchaser's Designees to be elected to the Board and will take all
action required to appoint or elect such Purchaser's Designees.
The Merger Agreement also provides that, in the event that Purchaser's
Designees are elected to the Board after the acceptance for payment of shares
pursuant to the Offer, until the Merger Effective Time, the Board will have at
least two directors who are directors on the date hereof (the "Independent
Directors"), provided that, in such event, if the number of Independent
Directors shall be reduced below two for any reason whatsoever, any remaining
Independent Directors (or Independent Director, if there is only one remaining)
shall be entitled to designate persons to fill such vacancies who shall be
deemed to be Independent Directors for purposes of the Merger Agreement or, if
no Independent Director then remains, the other directors shall designate two
persons to fill such vacancies who will not be stockholders, affiliates or
associates of Parent, Purchaser or Compass Interim and such persons will be
deemed to be Independent Directors for purposes of the Merger Agreement. In the
event that Purchaser's Designees are elected to the Board after the acceptance
for payment of Shares pursuant to the Offer and prior to the Merger Effective
Time, the Merger Agreement provides that the affirmative vote of a majority of
the Independent Directors shall be required to (i) amend or terminate the Merger
Agreement by the Company, (ii) exercise or waive any of the Company's rights,
benefits or remedies under the Merger Agreement, (iii) extend the time for
performance of Parent's, Purchaser's or Interim's respective obligations under
the Merger Agreement, (iv) take any other action by the Board under or in
connection with the Merger Agreement or any of the transactions contemplated
thereby or (v) approve any other action by the Company which could adversely
affect the interests of the stockholders of the Company (other than Parent,
Purchaser or Compass Interim and their affiliates) with respect to the
transactions contemplated by the Merger Agreement.
Business of the Company Pending the Merger. The Merger Agreement provides
that, during the period from the date of the Merger Agreement and continuing
until the Offer Closing Time, except for the Contribution, the Distribution and
the other transactions expressly provided for in the Reorganization Agreement
and the Tax Allocation Agreement, as expressly contemplated or permitted by the
Merger Agreement, or to the extent that Parent otherwise consents in writing
(which consent will not be unreasonably withheld), the Company and Daka will
conduct the Foodservice Business in the ordinary course, consistent with past
practice including, without limitation, using reasonable efforts to preserve
beneficial relationships between the Foodservice Business and its suppliers,
employees and customers. The Merger Agreement also includes limitations,
prohibitions and other provisions relating to the conduct of the business of the
Company and its subsidiaries during this period with respect to (a) capital
projects, (b) contracts and agreements outside the ordinary course of business,
(c) sales incentive programs, (d) changes in or issuances, repurchases
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or redemption of capital stock, (e) charter or bylaw amendments, (f)
acquisitions and dispositions, (g) levels of indebtedness as of the Merger
Effective Time, (h) adoption or amendment of benefit plans or arrangements, (i)
actions relating to employment agreements of certain employees of the Company,
(j) changes in accounting principles, policies or procedures, (k) incurrence of
liens, (l) nonwaiver of existing standstill and confidentiality agreements, (m)
defense of pending litigation, (n) increases in the amount of deferred tax
liabilities, or decreases in the amount of deferred assets of the Company or its
subsidiaries other than in the ordinary course of business consistent with past
practice, and (o) provision to Parent and its officers, employees and advisors
of reasonable access, during the period prior to the Offer Closing Time, to the
Company's properties, books, records, reports and personnel relating to the
Foodservice Business.
No Solicitation of Third Party Acquisition Proposals. Pursuant to the
Merger Agreement, neither the Company nor any of its directors, officers or
employees will, and the Company will use its best efforts to ensure that none of
its representatives will, directly or indirectly, solicit, initiate or encourage
any inquiries or proposals from or with any person (other than Parent and its
subsidiaries) or such person's directors, officers, employees, representatives
and agents that constitute, or could reasonably be expected to lead to a Third
Party Acquisition. A "Third Party Acquisition" means (i) the acquisition by any
person of more than 20% of the total assets of the Foodservice Business, (ii)
the acquisition by any person of 20% or more of (A) the Shares or (B) the total
number of votes that may be cast in the election of directors of the Company at
any meeting of stockholders of the Company assuming all the Shares and all other
securities of the Company, if any, entitled to vote generally in the election of
directors were present and voted at such meeting, or (iii) any merger,
consolidation or other combination of the Company or Daka with any person;
provided that "Third Party Acquisition" does not include any transactions which
relate solely to the business to be owned by New International and its
subsidiaries following the Distribution and which would not have a material
adverse effect on the consummation of the Offer, the Merger, the Distribution or
the transactions contemplated by the Merger Agreement. The Merger Agreement
provides that the Company has ceased or caused to be terminated any discussions
or negotiations with any parties other than Parent conducted prior to the date
of the Merger Agreement with respect to any Third Party Acquisition.
Notwithstanding the foregoing, the Company may furnish or cause to be furnished
information (pursuant to confidentiality arrangements no less favorable to the
Company than the Confidentiality Agreement (as defined in the Merger Agreement),
unless already in existence on the date of the Merger Agreement) and may
participate in such discussions and negotiations directly or through its
representatives if another person or group makes an offer or proposal which the
Board believes, in the good faith exercise of its business judgment and based
upon advice of its outside legal and financial advisors, could reasonably be
expected to be consummated and represents a transaction more favorable to its
stockholders than the transactions contemplated by the Merger Agreement (a
"Higher Offer"). Subject to compliance by the Board with their fiduciary duty,
the Company will notify Parent as soon as practicable if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with it,
which notice will provide the identity of the third party or parties and the
terms of any such proposal or proposals. The Board may fail to recommend or fail
to continue to recommend the Offer or the Merger Agreement in connection with
any vote of its stockholders, or withdraw, modify, or change any such
recommendation, or recommend or enter into an agreement regarding a Higher
Offer, if the Board, after receiving the advice of its outside counsel,
determines in good faith that making such recommendation, or the failure to
recommend any other offer or proposal, or the failure to so withdraw, modify, or
change its recommendation, or the failure to recommend or enter into an
agreement regarding a Higher Offer, could constitute a breach of the Directors'
fiduciary duties under applicable law. In such event, notwithstanding anything
contained in the Merger Agreement to the contrary, any such failure to
recommend, withdrawal, modification, or change of recommendation or
recommendation of such other offer or proposal, or the entering by the Company
into an agreement with respect to a Higher Offer (provided that the Company will
have provided Parent notice of its intention to so enter, the terms of the
Higher Offer and the identity of the other party thereto), will not constitute a
breach of the Merger Agreement by the Company. Notwithstanding the foregoing,
the Company will not enter into an agreement with a third party with respect to,
or take any action to approve such transaction under any antitakeover provision
of the Company's Certificate or state law in connection with any Third Party
Acquisition unless and until the Merger Agreement is terminated in accordance
with the provisions contained therein.
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Certain Covenants of Parent. Under the Merger Agreement, Parent has agreed
to limitations, prohibitions and other provisions applicable during the period
from the date of the Merger Agreement and continuing until the Offer Closing
Time relating to the provision of certain information to the Company (or its
counsel) regarding filings with any Governmental Entity (as defined in the
Merger Agreement) in connection with the Merger Agreement and the transactions
contemplated thereby.
Covenants of Parent and Purchaser Regarding Tax Treatment. In the Merger
Agreement, Parent and Purchaser have agreed that each will and each will cause
the Surviving Corporation to, treat the Distribution for purposes of all federal
and state taxes as an integrated transaction with the Offer and the Merger and
thus report the Distribution as a constructive redemption of a number of Shares
equal in value to the value of the shares of New International Common Stock
distributed in the Distribution.
Covenants of Parent Regarding Continued Indemnification of Officers and
Directors. In the Merger Agreement, Parent has agreed that for a period of
three years after the Offer Closing Time, it will not modify the rights of
certain non-employee directors of the Company to indemnification and will cause
the Company and the Surviving Corporation to include in their Certificates of
Incorporation and Bylaws provisions with respect to the right of directors and
officers to indemnification substantially similar to such provisions in the
Certificate and Bylaws of the Company as of the date of the Merger Agreement.
Certain Other Covenants, Agreements and Actions. Subject to the terms and
conditions of the Merger Agreement, the Company has agreed to use its reasonable
best efforts to comply promptly with all legal and regulatory requirements which
may be imposed on it or its subsidiaries with respect to the Offer, the
Distribution, the Contribution, and the Merger and the transactions contemplated
by the Merger Agreement and to obtain any consent, authorization, order or
approval of, or any exemption by, and to satisfy any condition or requirement
imposed by, any Governmental Entity (as defined in the Merger Agreement) or
other public or private third party, required to be obtained, made or satisfied
by the Company or any of its subsidiaries in connection with the Distribution or
the Merger or the taking of any action contemplated thereby or by the Merger
Agreement or the Ancillary Agreements. Likewise, Parent has agreed to use its
reasonable best efforts to comply promptly with all legal and regulatory
requirements which may be imposed on it or its subsidiaries with respect to the
Offer, the Merger and transactions contemplated thereby and by the Merger
Agreement and to obtain any consent, authorization, order or approval of, or any
exemption by, and to satisfy any condition or requirement imposed by, any
Governmental Entity or other public or private third party, required to be
obtained, made or satisfied by Parent or any of its subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by the
Merger Agreement or the Ancillary Agreements. Additionally, (i) an employment
agreement between Allen R. Maxwell, the Company and Daka must have been executed
in the form attached as an exhibit to the Merger Agreement and (ii) Parent must
have received certified Board resolutions of the Company and Daka authorizing
the Distribution and the Merger and the transactions contemplated thereby, and
reflecting its determination that the consummation of such transactions will not
violate applicable insolvency laws.
Indebtedness. In the Merger Agreement, the Company has agreed to take such
action as may be necessary so that, as of the Offering Closing Time, the Company
and Daka, taken as a whole, will not have any indebtedness other than: (A) the
Funded Debt (as defined below), and (B) indebtedness incurred pursuant to a
written agreement that provides that such indebtedness will be assumed by New
International or a subsidiary of New International at or prior to the Offer
Closing Time and that, upon such assumption, the Company and Daka will have no
obligation or liability in respect of such indebtedness.
The term "Funded Debt" means the amount of indebtedness outstanding plus
any accrued but unpaid interest and fees under the terms of the Third Amended
and Restated Credit Agreement dated as of October 15, 1996 among the Company,
subsidiary guarantors, the bank party thereto and The Chase Manhattan Bank,
N.A., as Agent, as amended through the date of the Merger Agreement (the "Credit
Facility"), together with the amount of indebtedness outstanding (consisting of
market to market exposure) plus all other amounts due under any Interest Rate
Protection Agreement (as defined in the Credit Facility), which aggregate amount
will not exceed $110,000,000.
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Simultaneously with the Offer Closing Time, Purchaser will, or will cause
the Company to, repay the Funded Debt and will use its reasonable best efforts
to cause the lenders under the Credit Facility to deliver to New International
such documents or instruments necessary to release or terminate all liens on
assets of the Company, New International or their respective subsidiaries
securing the Funded Debt. The parties must have receipt of reasonably
satisfactory evidence to Parent of the amount of Funded Debt outstanding at the
Offer Closing Time and confirmation that such Funded Debt (as adjusted in
accordance with the terms of the Merger Agreement) has been repaid pursuant to
Parent's wire transfer to The Chase Manhattan Bank, N.A., as Agent for the
Company's lenders, simultaneously with the Merger Closing and that all
obligations or liabilities of the Company and Daka, and all liens related to the
Acquired Assets (as defined in the Merger Agreement), have been satisfied or
released in full.
Stock Option and Stock Purchase Plans. Pursuant to the Merger Agreement,
the Company will make all adjustments and take all steps set forth in the
Reorganization Agreement with respect to options to purchase Common Stock
("Common Stock Options") as a result of the Distribution and other transactions
contemplated by the Merger Agreement and the Reorganization Agreement. After
taking into account all such adjustments to such Common Stock Options and the
other matters set forth in the Reorganization Agreement, all Common Stock
Options which are outstanding immediately prior to Purchaser's acceptance for
payment and payment for Shares pursuant to the Offer will, regardless of whether
such Common Stock Options are vested and exercisable be canceled as of the Offer
Closing Time and the holders thereof will be entitled to receive from New
International, for each share subject to such Common Stock Option, an amount in
cash equal to the excess of the Offer Price over the per share exercise price of
such Common Stock Option, less all applicable withholding taxes, which amount
will be payable by New International not later than 30 days after the Offer
Closing Time.
In addition, the Company will make all adjustments and take all steps set
forth in the Reorganization Agreement with respect to the Stock Purchase Plan
regarding Shares purchasable by participating employees of the Company or its
subsidiaries (the "Participating Employees") under the Stock Purchase Plan with
respect to Offerings thereunder (the "Purchasable Shares"). In lieu of receiving
Purchasable Shares, the Participating Employees shall be entitled to receive
from New International, for each Purchasable Share, in addition to the New
International Common Stock in the Distribution as provided above, an amount in
cash equal to the excess of the Offer Price over the per-share purchase price of
such Purchasable Share under the Stock Purchase Plan, less all applicable
withholding taxes, which amount shall be payable by New International not later
than 30 days after the Offering Closing Time, whereafter all rights of
Participating Employees under the Stock Purchase Plan shall terminate.
The Company will use its reasonable best efforts to ensure that neither the
Company nor any of its subsidiaries is or will be bound by any options,
warrants, rights or agreements which would entitle any person, other than
Parent, Purchaser, Compass Interim or the Company or any of their respective
subsidiaries, to beneficially own, or receive any payments in respect of, any
capital stock of the Company or the Surviving Corporation (other than as
provided in the Merger Agreement or in the Ancillary Agreements).
Offer Closing Date Payments. The Merger Agreement provides that at the
Offer Closing, (a) the Company will deliver to Purchaser in cash or cash
equivalents an amount equal to (i) $1,500,000, plus (ii) $7.50 multiplied by the
sum of (A) the number of outstanding Shares and (B) the outstanding Shares into
which the Company's Series A Preferred Stock, par value $.01 per share (the
"DAKA Preferred Stock"), is convertible, minus $85,000,000 and (b) Parent will
deliver to New International any amount by which the Funded Debt is less than
$110,000,000.
Fees and Expenses. Except as provided in the Merger Agreement with respect
to termination of the Merger Agreement under certain circumstances, all fees and
expenses incurred in connection with the Merger, the Contribution, the
Distribution, the Merger Agreement, the Reorganization Agreement and the
transactions contemplated by the Merger Agreement and the Ancillary Agreements
will be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated. In accordance with the foregoing sentence, New
International agrees to pay the fees and expenses of Bear Stearns and Parent
agrees to pay the fees and expenses of Patricof (as hereinafter defined),
NationsBanc Capital Markets, Inc., MacKenzie
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Partners, Inc., and The Bank of New York, and the filing fees associated with
any filing under the HSR Act. Notwithstanding the foregoing, the Purchaser and
New International have agreed to share equally any transfer taxes imposed in
connection with or as a result of the Merger, other than transfer taxes imposed
on any holder of Shares.
In the event that Parent or the Company terminates the Merger Agreement as
a result of certain acts or omissions by the Board of the Company, as described
in the Merger Agreement, and, at the time of termination there has been made a
proposal relating to a Third Party Acquisition that has become public and,
within 12 months following such termination, the Company or Daka enters into a
definitive agreement with respect to (a) the sale of the Foodservice Business,
(b) the sale of substantially all of the assets of the Company or Daka, or (c)
the merger of the Company or Daka with or into any other entity, or the Company
shall recommend any Third Party Acquisition to its stockholders, then the
Company or Daka will promptly pay to Parent an amount equal to the sum of (i)
$5,800,000 and (ii) the fees and expenses actually incurred by Parent in
connection with the negotiation and preparation of the Merger Agreement and the
Ancillary Agreements to which Parent is a party, the performance of Parent's
covenants therein, and the transactions contemplated thereby, including, without
limitation, all fees and disbursements of Parent's financial advisors, legal
counsel, accountants and other advisors, up to a maximum of an additional
$2,000,000.
Termination. The Merger Agreement provides that such agreement may be
terminated at any time prior to the Offer Closing Time, notwithstanding any
approval of the Merger Agreement by the stockholders of the Company, by:
(a) mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if:
(i) there has been a failure to perform an obligation or satisfy a
condition precedent (regardless of materiality) or an unwaived material
breach of the Merger Agreement by a party, provided that only the
non-breaching party may terminate;
(ii) the Offer shall expire or have been terminated in accordance
with its terms without any Shares being purchased thereunder, or
Purchaser shall not have accepted for payment or paid for Shares validly
tendered pursuant to the Offer (as a result of the conditions to the
Offer not being satisfied or waived by Purchaser) prior to July 31,
1997, unless the failure to consummate the Offer is the result of a
willful and material breach by the party seeking to terminate the Merger
Agreement;
(iii) if any Governmental Entity shall have issued a final and
nonappealable order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Offer;
or
(c) Parent if (i) the Board shall have withdrawn, or modified or
changed, in a manner adverse to Parent, its approval or recommendation of
the transactions contemplated by the Merger Agreement and the Ancillary
Agreements or shall have recommended another offer or proposal with respect
to a Third Party Acquisition, or a Third Party Acquisition has occurred or
any person will have entered into a definitive agreement with the Company
with respect to a Third Party Acquisition; or
(d) the Company if the Board shall have failed to recommend to its
stockholders the approval of the transactions contemplated by the Merger
Agreement and the Ancillary Agreements or will have withdrawn, modified or
changed such recommendation.
THE REORGANIZATION AGREEMENT
The following summary of the Reorganization Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Reorganization Agreement, a copy of which is filed herewith as EXHIBIT 14 and is
incorporated herein by reference.
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The Contribution. Under the terms of the Reorganization Agreement, prior
to the Distribution, the Company, Daka and Daka's subsidiaries (collectively,
the "Company Group") will contribute to New International all of the Company's
and Daka's right, title and interest in, to and under all of the Contributed
Assets (as defined in the Reorganization Agreement), which exclude the
Foodservice Assets (as defined below) to be specifically acquired by Parent
pursuant to the Merger (the "New International Assets"). The Foodservice Assets,
which are listed in a schedule attached to the Reorganization Agreement, will
consist principally of the assets that are used primarily in or held primarily
for the use in or otherwise necessary for the operation, as presently conducted,
of the Foodservice Business, excluding all accounts receivable and accounts
payable. At the same time, New International will assume all of the Company's
liabilities excluding the Foodservice Liabilities (as defined in the
Reorganization Agreement) (the "New International Liabilities"). Notwithstanding
the foregoing, the Reorganization Agreement provides that the Contribution will
not result in the assignment of any lease, license agreement, contract,
agreement, sales order, purchase order, open bid or other commitment or asset if
an assignment or attempted assignment of the same without the consent of the
other party or parties thereto would constitute a breach thereof or in any way
impair the rights of the Company Group or the New International Group
thereunder. In the event any attempted assignment is deemed ineffective for the
reasons set forth in the preceding sentence, the Reorganization Agreement
describes certain alternative methods by which the parties will attempt to place
New International in substantially the same position as if the assignment had
occurred. The Reorganization Agreement provides for certain adjustments to
reflect that the income and expenses attributable to the operation of the
Foodservice Business on or before the Offer Closing Time shall be for the
account of New International and the income and expenses attributable to the
operation of the Foodservice Business after the Offer Closing Time shall be for
the account of the Company.
The purpose and effect of the Contribution is to facilitate the Merger by
separating the New International Assets and the New International Liabilities
from the Foodservice Business of the Company and its subsidiaries, and to
transfer the New International Assets and the New International Liabilities to
New International. Accordingly, following the Contribution and the Distribution,
the Foodservice Business will consist of all of the businesses, assets and
liabilities of the Company at the time of the Merger.
The Distribution. The equity capitalization of New International prior to
the Distribution will consist of 1,000 issued and outstanding shares of New
International Common Stock (the "Existing New International Common Stock"), all
of which are outstanding and owned beneficially and of record by the Company.
Immediately prior to the Offer Closing Time, New International will cause New
International to exchange the Existing New International Common Stock owned by
the Company for a total number of shares of New International Common Stock equal
to the total number of Shares outstanding as of the Distribution Record Date. In
the Distribution, the Company will distribute on a pro rata basis all of the
issued and outstanding New International Shares to the holders of the Shares.
All shares of New International Common Stock issued in the Distribution will be
duly authorized, validly issued, fully paid and nonassessable.
Conditions to the Distribution. The obligations of the Company to
consummate the Contribution and Distribution are subject to the fulfillment of
each of the following conditions: (i) in the case of the Distribution, the
transactions accomplishing the Contribution must have been consummated; (ii)
each of Parent, Purchaser and Compass Interim will have performed in all
material respects all obligations required to be performed by it under the
Reorganization Agreement at or prior to the Offer Closing Time, and the Company
will have received a certificate signed on behalf of Parent by the chief
executive officer and the chief financial officer of Parent to such effect;
(iii) the Company will have received opinions of Smith Helms Mulliss & Moore,
L.L.P. and Freshfields, each dated as of the Offer Closing Time, in
substantially the forms attached as exhibits to the Reorganization Agreement;
(iv) simultaneously with the Offer Closing, Parent will have paid to The Chase
Manhattan Bank N.A. on behalf of the Company all Funded Debt; (v) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Contribution or the Distribution will be in
effect and no such litigation or legal action will have been threatened or will
be pending. No action, suit or other proceeding will be pending by any
governmental entity that, if successful, would restrict or prohibit the
consummation of the Contribution or the Distribution; (vi) any applicable
waiting
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periods under the HSR Act or the Exon-Florio Amendment will have expired or been
terminated; (vii) the Registration Statement on Form 10 filed by New
International with the Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") with respect to the New International Shares being
distributed in the Distribution (the "Form 10") will have been declared
effective by the Commission; (viii) Purchaser will have accepted for payment
pursuant to the Offer a number of validly tendered shares which satisfies the
Minimum Condition; (ix) the representations and warranties of Parent contained
in the Merger Agreement will be true and correct in all material respects; (x)
the non-contravention of laws; (xi) the absence of a Material Adverse Change (as
defined in the Merger Agreement) or any event that could reasonably be expected
to result in a Material Adverse Change; (xii) Allen R. Maxwell will have entered
into an employment agreement with the Company and Daka in form and substance
satisfactory to Parent and Mr. Maxwell will not have indicated that he does not
intend to abide by the terms of such agreement; and (xiii) Parent will have paid
to New International any amount by which the Funded Debt outstanding at the
Offer Closing Time is less than $110,000,000.
Under applicable law, the Contribution and the Distribution would
constitute a "fraudulent transfer" if (i) the Company is insolvent at the Offer
Closing Time or the time of Distribution, (ii) the Contribution or the
Distribution would render the Company insolvent, (iii) the Contribution or the
Distribution would leave the Company engaged in a business or transaction for
which its remaining assets constituted unreasonably small capital or (iv) the
Company intended to incur or believed it would incur debts beyond its ability to
pay as such debts mature. Generally, an entity is considered insolvent if it is
unable to pay its debts as they become due and payable or if the fair value of
its assets is less than the amount of its actual and expected liabilities. In
addition, under Section 170 of the DGCL (which is applicable to the
Distribution), a corporation generally may make distributions to its
stockholders only out of its surplus (net assets minus stated capital) and not
out of stated capital.
If a court, in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that, at the time the
Company effects the Contribution and the Distribution, the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such transaction, (iii) was
engaged in a business or transaction for which the Company's remaining assets
constituted unreasonably small capital or (iv) intended to incur or believed it
would incur debts beyond its ability to pay as such debts matured, such court
could void the Contribution and the Distribution as a fraudulent conveyance and
require that the Company stockholders return the New International Common Stock
to the Company or to a fund for the benefit of the Company's creditors.
Employee Benefits and Labor Matters
General. For purposes of allocating employee benefit liabilities and
obligations, "Foodservice Employee" in the Reorganization Agreement means any
individual who upon the Offer Closing Time is an officer or employee of any
member of either the New International Group or the Company Group and who is set
forth on the disclosure schedules to the Reorganization Agreement (which
schedule will be updated by mutual agreement of New International and Parent
prior to the Offer Closing Time). The schedule will include such officers or
employees who are on approved leave or lay-off (with recall rights) from active
employment, other than any individual who, as of the Closing Date, has been
determined to be permanently disabled under existing benefit plans of New
International.
Also under the Reorganization Agreement, New International and the New
International Group generally will be responsible for claims or proceedings
against the Company or Daka relating to any alleged violation of any legal
requirement pertaining to labor relations or employee matters to the extent that
the allegations relate to any period prior to the Offer Closing Time and for
withdrawal liabilities in connection with a multi-employee plan beyond certain
threshold amounts decided in the Reorganization Agreement.
Furthermore, the Company will take the necessary actions to transfer
ownership of life insurance policies on the lives of its executives (other than
Allen R. Maxwell) to New International, and New International will assume all
liability for earned or accrued vacation pay and banked or earned/accrued sick
leave pay accrued by Foodservice Employees and New International's employees
through the Offer Closing Time. Vacation pay
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and sick leave for Foodservice Employees after the Offer Closing Time will be
provided under Parent's vacation and sick leave policies.
Employee Welfare Plans. In general, the Reorganization Agreement requires
the Company to amend its employee benefit and executive compensation plans to
remove the Company as sponsor and named fiduciary and substitute New
International in its place prior to the Offer Closing Time. Also prior to the
Offer Closing Time, Parent is required to establish new plans, or amend existing
plans (the "Parent Plans"), in order to make available to eligible Foodservice
Employees approximately the same benefits as were available to them (with the
same vesting or service credit status, where applicable) prior to the Offer
Closing Time. The Reorganization Agreement also provides that the appropriate
amount of plan assets, in the case of funded benefit plans, will be transferred
from the Company welfare plans (the "DAKA Welfare Plans") to Parent Plans in
order to provide benefits to the eligible Foodservice Employees after the Offer
Closing Time. Foodservice Employees will be permitted to roll over their DAKA
Welfare Plan account balances into Parent Plans, subject to the terms thereof.
Except as otherwise noted in the Reorganization Agreement, the Company will
cause New International or one of its subsidiaries to assume and be solely
responsible for or cause its insurance carriers or agents to be solely
responsible for, all liabilities for welfare benefit claims incurred on or prior
to the Closing Date under the DAKA Welfare Plans.
The Reorganization Agreement provides that New International and the New
International Group will be responsible for any retiree medical, life insurance
or other benefits that are now or may hereafter become payable with respect to
any former employee of the Company or one of its affiliates who retired from New
International, the Company, or any of their subsidiaries prior to the Offer
Closing Time and who met the eligibility requirements for such benefits at that
time. The Foodservice Employees who retire from the Company or Parent after the
Offer Closing Time will not be entitled to retiree medical and life insurance
benefits from either the DAKA Welfare Plans or the Parent Plans.
Severance Pay. The New International Group will assume and be solely
responsible for all liabilities and obligations whatsoever in connection with
claims for severance pay benefits without regard to when such claims are made
under the terms of the Daka International, Inc. Severance Pay Program or any of
the severance plans sponsored by any member of the Company Group prior to the
Offer Closing Time, including, without limitation, any individuals who, in
connection with the Distribution, cease to be employees of the Company Group,
whether or not such individuals are offered or accept employment with either
Group. The Company will be responsible for the payment of severance pay benefits
payable pursuant to any New Welfare Plan (as defined in the Reorganization
Agreement) that may be established after the Offer Closing Time to provide
severance pay benefits to Foodservice Employees at the time of their
termination.
Collective Bargaining Agreements. Under the Reorganization Agreement, as
of the Offer Closing Time the Company and the Company Group will retain and be
responsible only for the collective bargaining agreements listed in the
Reorganization Agreement, and only to the extent such agreements relate to the
terms and conditions of employment of the Foodservice Employees. New
International and the New International Group will assume and be solely
responsible for all liabilities or claims made or arising under any collective
bargaining agreement covering the terms and conditions of either group of
employees relating to any period of time on or before the Offer Closing Time.
Treatment of Stock Options
Effective as of the Distribution Date, New International will adopt (and
the Company, as sole stockholder of New International, will approve) New
International's 1997 Stock Option and Incentive Plan (the "1997 Stock Option
Plan") for the benefit of employees of New International and non-employee
directors of New International.
As provided in the Reorganization Agreement, options to purchase shares of
Common Stock which have been granted to employees of New International,
non-employee directors of New International, and former the Company employees
(who are not employees of New International) pursuant to the Stock Option Plans
and which are outstanding immediately prior to the Distribution (individually, a
"Common Stock Option" and collectively, the "Common Stock Options"), will be
converted into two (2) separate non-qualified options. The holder of a Common
Stock Option will receive one option to purchase shares of Common Stock
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(the "Company Converted Option") and one option to purchase shares of New
International Common Stock (the "New International Converted Option"), with each
Converted Option to purchase New International Shares or Shares as the case may
be, exercisable for a number of shares of the Company or New International, as
applicable, equal in number to the number of shares of Common Stock relating to
such Common Stock Option. The exercise price per share of each Company Converted
Option will be adjusted by dividing the pre-conversion exercise price by the
DAKA Conversion Factor. The DAKA Conversion Factor will mean an amount equal to
the quotient obtained by dividing (a) the sum of (i) the Offer Price, plus (ii)
the per share fair market price of the New International Common Stock,
determined based on the average closing price of the New International Common
Stock over the ten-consecutive day trading period immediately following the
Distribution (the "New International Common Stock Value") by (b) the Offer
Price. The exercise price per share of each New International Converted Option
will be adjusted by dividing the pre-conversion exercise price by New
International Conversion Factor. The Company Conversion Factor will mean an
amount equal to the quotient obtained by dividing (a) the sum of (i) the Offer
Price, plus (ii) the New International Common Stock Value by (b) the New
International Common Stock Value. Each Converted Option will otherwise be
subject to the same terms and conditions as the original Common Stock Option.
Insurance
Under the Reorganization Agreement, prior to the Offer Closing Time, New
International has agreed to amend or otherwise modify all insurance policies and
related insuring agreements pertaining to the Foodservice Assets (the "Insurance
Policies") to reflect that all reimbursement, premium payments or other
obligations of the Company based on occurrences prior to the Offer Closing Time
will become obligations of New International under such Insurance Policies as of
the Offer Closing Time. New International also agrees to pay all required
premiums and other payment or reimbursement obligations arising under such
Insurance Policies and will be responsible for all correspondence with the
insurance companies and will provide assistance to the insurance companies with
the administration of any and all claims under the Insurance Policies.
Notwithstanding the foregoing, New International will cause each of the Company
and Daka to remain as named insureds without cost to such entities under the
Insurance Policies.
Representations and Warranties
In the Reorganization Agreement, New International makes certain
representations and warranties to the Company, Daka and Parent, and each of the
Company and Daka, jointly and severally, make certain representations and
warranties to New International, with respect to: (a) its due organization, good
standing and corporate power; (b) its power and authority to execute the
Reorganization Agreement and the other Ancillary Agreements (as defined in the
Merger Agreement) to which it is or will be party and to consummate the
transactions contemplated thereby; (c) the enforceability of the Reorganization
Agreement and the other Ancillary Agreement to which it is or will be party; and
(d) the non-contravention of laws or, articles of incorporation and bylaws and
(e) the absence of the need for governmental or third-party consents in
connection with the execution, delivery and performance by it of the
Reorganization Agreement and the other Ancillary Agreements to which it is or
will be party, except as set forth in the Merger Agreement.
Amendment
The Reorganization Agreement provides that the parties thereto may modify
or amend the Reorganization Agreement only by written agreement executed and
delivered by duly authorized officers of the respective parties.
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THE TAX ALLOCATION AGREEMENT
The following summary of The Tax Allocation Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of The Tax
Allocation Agreement, a copy of which is filed herewith as EXHIBIT 15 and is
incorporated herein by reference.
The Company, New International and Parent have entered into the Tax
Allocation Agreement which sets forth each party's rights and obligations with
respect to payments and refunds, if any, of Federal, State, local or foreign
taxes for periods before and after the Merger and related matters such as the
filing of tax returns and the conduct of audits and other tax proceedings.
In general, under the Tax Allocation Agreement, New International will be
responsible for all tax liabilities of the International Group and the New
International Group for periods (or portions of periods) ending on or before the
effective date of the Distribution and will have the benefit of any tax refunds,
tax credits or loss carryforwards arising in such pre-Distribution periods. For
periods (or portions of periods) beginning after the effective date of the
Distribution, in general, New International will be responsible for tax
liabilities of the New International Group, and the Company will be responsible
for tax liabilities of the International Group.
THE POST-CLOSING COVENANTS AGREEMENT
The following summary of The Post-Closing Covenants Agreement does not
purport to be complete and is qualified in its entirety by reference to the text
of The Post-Closing Covenants Agreement, a copy of which is filed herewith as
EXHIBIT 16 and is incorporated herein by reference.
Indemnification by New International. The Post-Closing Covenants Agreement
provides that except as otherwise specifically provided in the Merger Agreement
or any Ancillary Agreement, and subject to certain provisions of the
Post-Closing Covenants Agreement, New International, will indemnify, defend and
hold harmless Parent, each affiliate of Parent, including any of its direct or
indirect subsidiaries (including, after the Offer Closing Time, the Company and
Daka and any subsidiary of Daka), (the "Compass Indemnitees") from and against,
and pay or reimburse the Compass Indemnifies for, all losses, liabilities,
damages, deficiencies, obligations, fines, expenses, claims, demands, actions,
suits, proceedings, judgments or settlements, including certain interest and
penalties, out-of-pocket expenses and reasonable attorneys' and accountants'
fees and expenses incurred in the investigation or defense of any of the same or
in asserting, preserving or enforcing any of such Compass Indemnitee's rights
under the Post-Closing Covenants Agreement, suffered by such Compass Indemnitee
("Indemnifiable Losses":), as incurred relating to or arising from (i) the New
International or the New International Liabilities, including without limitation
the Special Liabilities, as defined below (including the failure by New
International or any of its subsidiaries to pay, perform or otherwise discharge
such New International Liabilities in accordance with their terms), whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted before, at or
after the Offer Closing Time; (ii) a claim by any person who is not New
International or an affiliate of New International (other than the Company or
Daka) (collectively, "New International Indemnitees") or one of the Compass
Indemnitees (a "Third Party Claim") that there is any untrue statement or
alleged untrue statement of a material fact contained in any of the Schedule
14D-1, the Schedule 14D-9, the Form 10, the Information Statement, the Proxy
Statement or any other document filed or required to be filed with the
Commission in connection with the transactions contemplated by the Merger
Agreement, the Reorganization Agreement or any preliminary or final form thereof
or any amendment or supplement thereto (the "Filings"), or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; but only (a) in the case of the Schedule
14D-1 with respect to information provided by New International, the Company or
Daka in writing relating to New International, the Company or Daka, as the case
may be, contained in or omitted from such Filings or (b) in the case of the
Proxy Statement, information that is derived from filings made by the Company
with the Commission prior to the Offer Closing Time; (iii) the breach by New
International or any of its subsidiaries of any agreement or covenant or from an
inaccuracy in any representation or warranty of the Company or Daka contained in
the Merger Agreement or an Ancillary Agreement which does not by its express
terms expire at
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the Offer Closing Time; (iv) any Special Liability (as defined in the
Post-Closing Covenants Agreement), including, among others, any civil action or
any action by a Governmental Entity (as defined in the Post-Closing Covenants
Agreement) where such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring or existing
prior to the Offer Closing Time and relating to the Company, including, but not
limited to, any litigation pending as of or relating to a time period prior to
the Offer Closing Time, as well as claims and action relating to or arising from
actions or omissions occurring prior to the Offer Closing Time by the Company,
Daka or their affiliates in connection with the performance of the transactions
contemplated by the Merger Agreement or the Ancillary Agreements or any other
matter set forth in the Post-Closing Covenant Agreement; (v) any actual or
alleged criminal violation of any law, rule or regulation of any Governmental
Entity ("Criminal Matters") by the Company or any of its subsidiaries, including
Daka, or any director, officer, employee or agent of the Company or any of its
subsidiaries, including Daka, occurring or alleged to have occurred prior to the
Offer Closing Time or any Criminal Matters by New International or any of its
subsidiaries, or any director, officer, employee or agent of New International
or any of its subsidiaries, occurring or alleged to have occurred prior to or
after the Offer Closing Time; (vi) any claim that the execution, delivery or
performance by New International, the Company or Daka of each of the Merger
Agreement or the Ancillary Agreements to which it is or will be a party or the
consummation of the transactions contemplated thereby results in a violation or
breach of, or constitutes a default or impermissible transfer under, or gives
rise to any right of termination, first refusal or consent under or gives rise
to any right of amendment, cancellation or acceleration of any material benefit
under, any Material Contract other than a Customer Contract (each as defined in
the Post-Closing Covenants Agreement); (vii)(a) the Benefit Plans or
Multiemployer Plans sponsored or contributed to by any member of the Company
Group, but only with regard to events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted prior to the Offer Closing Time or
occurring in connection with or as a result of the consummation of certain
transactions contemplated by the Merger Agreement and the Reorganization
Agreement, (b) the employment of any Foodservice Employee during the period
ending at the Offer Closing Time, or (c) the employment or termination of any
New International Employee whether before, on or after the Offer Closing Time;
(viii) the collection of Trade Receivables or the payment of Obligations (each
as defined in the Post-Closing Covenants Agreement), provided, New International
will have no obligation to indemnify for Indemnifiable Losses that are finally
determined to have resulted primarily from the gross negligence or willful
misconduct of Parent or its subsidiaries; (ix) the Stock Purchase Agreement (as
defined below) other than monetary obligations thereunder relating to the
purchase of the DAKA Preferred Stock; (x) the repayment by Parent or its
subsidiaries of any bonus or similar payments paid to the Company or Daka prior
to the Offer Closing Time under the purchasing contacts set forth in the
Post-Closing Covenants Agreement on a prorated basis, as further provided
therein; and (xi) relating to the lease agreement by which the Company leases
its headquarters.
Indemnification by Parent and Purchaser. The Post-Closing Covenant
Agreement provides that except as otherwise specifically provided in the Merger
Agreement or any Ancillary Agreement, and subject to certain provisions of the
Post-Closing Covenants Agreement, Parent and Purchaser (jointly and severally)
will indemnify, defend and hold harmless the New International Indemnitees from
and against and pay or reimburse the New International Indemnitees for, all
Indemnifiable Losses, as incurred, relating to or arising from (i) the
Foodservice Assets, the obligations and liabilities of the Company and Daka
other than New International Liabilities or the conduct of the Foodservice
Business where such Indemnifiable Losses relate to or arise form events,
occurrences, actions, omissions, facts or circumstances occurring, existing or
asserted after the Offer Closing Time; (ii) a Third Party Claim that there is
any untrue statement or alleged untrue statement of a material fact contained in
any of the Filings, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; but only in the case of the Schedule 14D-9, Form 10, Information
Statement, or Proxy Statement with respect with respect to information provided
by Parent or its subsidiaries (excluding the Company and Daka prior to the Offer
Closing Time) in writing relating to Parent or its subsidiaries contained in or
omitted from such Filings; (iii) the breach by Parent or its subsidiaries (other
than the Company or Daka) of any agreement or covenant, or from an inaccuracy in
any representation or warranty of Parent or its subsidiaries (other than the
Company or Daka) contained in the
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Merger Agreement or an Ancillary Agreement (other than an agreement or covenant
assumed by New International pursuant to an Ancillary Agreement) which does not
by its express terms expire at the Offer Closing Time; (iv) any actual or
alleged criminal matters by Parent or any of its subsidiaries, including the
Company or Daka or any director, officer, employee or agent of Parent or any of
its subsidiaries, including the Company or Daka, after the Offer Closing Time,
occurring or alleged to have occurred prior to or after the Offer Closing Time,
but, in the case of the Company or Daka, only where such matters do not relate
to a pattern or course of conduct commencing prior to the Offer Closing Time;
(v) the employment of any Foodservice Employee, but only with regard to events,
occurrences, actions, omissions, facts or circumstance occurring, existing or
asserted after the Offer Closing Time; (vi) the collection of Trade Receivables
or the payment of Obligations (each as defined in the Post-Closing Covenants
Agreement) by Parent or its subsidiaries pursuant to the terms of the
Post-Closing Covenants Agreement, but only in the event that such Indemnifiable
Losses are finally determined to have resulted primarily from the gross
negligence or willful misconduct of Parent or its subsidiaries; and (vii) the
repayment by New International of any bonus or similar payments paid to Parent
or its subsidiaries after the Offer Closing Time under the purchasing contracts
set forth in the Post-Closing Covenants Agreement, as further provided therein.
Limitation on Indemnification Obligations. The Post-Closing Covenants
Agreement provides the amount of any Indemnifiable Loss or other liability for
which indemnification is provided in the Post-Closing Covenants Agreement will
be net of any amounts actually recovered by the indemnitee from third parties
(including amounts actually received under insurance policies). In addition,
neither New International nor Parent will have any liability for indemnification
for Indemnifiable Losses unless the aggregate of all Indemnifiable Losses for
which it would be liable, but for certain limitations described therein exceeds
on a cumulative pre-tax basis $250,000 (the "Basket Amount") and then only the
amount by which such Indemnifiable Losses exceed the Basket Amount provided that
the Basket Amount will not apply to amounts paid in connection with certain
Special Liabilities (which amounts will be paid in their entirety). In no event
will New International have a right of contribution against the Company or Daka
in connection with indemnities of the Company and Daka found in the Post-Closing
Covenants Agreement, the Merger Agreement or any of the Ancillary Agreements.
Transitional Arrangements. New International and Parent have agreed to
enter into an agreement or agreements with respect to certain transitional
arrangements (the "Transition Agreement") to be effective upon the consummation
of the Merger. The Transition Agreement is expected to address, among other
things, the allocation of employees; overhead support services; the sublease by
Parent of a portion of the Company's headquarters office facilities; information
support services; licensed software; representations and covenants as to the
nature and extent of New International software resources and the software
necessary for the conduct of the Foodservice Business; accounting and payroll
business practices; division of headquarters assets; and records retention
issues.
Insurance. Except as otherwise specifically provided in the Merger
Agreement, the Reorganization Agreement or any other Ancillary Agreement, with
respect to any loss, liability or damage relating to the Foodservice Assets
rising out of events occurring prior to the Offer Closing Time, New
International will assert any such claims under the Insurance Policies with
respect to such loss, liability or damage in accordance with the terms thereof.
Upon the request of New International, Parent will use reasonable best efforts
to assist New International in resolving any such claims under the Insurance
Policies with respect to such loss, liability or damage. Notwithstanding the
foregoing, New International will have full responsibility to assert any claim
with respect to the Foodservice Assets arising out of events occurring prior to
the Offer Closing Time and New International assumes full responsibility for all
costs, payment obligations and reimbursement obligations relating to such
claims.
Reorganization Expenses. The Post-Closing Covenants Agreement provides
that, except as otherwise expressly provided in the Ancillary Agreements, New
International will be responsible for and agree to pay such expenses which are
agreed in the Merger Agreement to be the responsibility of the Company or Daka
but only to the extent they were incurred before the Offering Closing Time;
provided that the Company may, prior to the Offer Closing Time, pay any such
expenses that would otherwise be or become the responsibility of New
International.
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Covenant Not to Compete. In the Post-Closing Covenants Agreement, New
International agrees that, for a period of five years following the Offer
Closing Time, neither it nor any of its subsidiaries will directly or
indirectly, either individually or as an agent, partner, shareholder, investor,
consultant or in any other capacity, (i) participate or engage in, or assist
others in participating or engaging in, the business of providing contract
catering, contract food and vending services to business and industry,
educational institutions, airports, healthcare or museums or similar leisure
facilities in the continental United States but excluding food service at
certain retail outlets (the "Restricted Business"); provided, however, that New
International without violating the Post-Closing Covenants Agreement, may own a
passive investment of in the aggregate not more than 2% of the issued and
outstanding stock of a publicly held corporation, partnership or other entity
engaged in the business of providing foodservice or vending services; (ii)
influence or attempt to influence any customer of Parent, Purchaser, the Company
or Daka to divert its business from Parent, the Company or Daka to any person
then engaged in any aspect of the Restricted Business in competition with
Parent, the Company or Daka; or (iii) solicit or hire any of the Foodservice
Employees at the district manager level or above, either during the term of such
person's employment by Parent, the Company or Daka or within 12 months after
such person's employment has ceased for any reason, to work for New
International or any person in any aspect of Foodservice (including vending
service) in competition with Parent, the Company, or Daka; provided the
foregoing will not apply to Foodservice (i) terminated by Parent, the Company,
or Daka after the Offer Closing Time or (ii) who have been employed by Persons
other than Parent, the Company, or Daka for at least six months prior to being
hired by New International or its Subsidiaries.
Net Worth. The Post-Closing Covenants Agreement provides that for a period
ending on the later of thee years following the Offer Closing Time or the final
resolution of certain claims for indemnification thereunder, New International
and its subsidiaries, on a consolidated basis, will maintain at all times a net
worth (determined in accordance with generally accepted accounting principles,
consistently applied) of not less than $50,000,000 (the "Minimum Net Worth").
During the same period, New International will provide to Parent, within 45 days
following the end of each of New International's fiscal quarters, a certificate
of the Chief Financial Officer of New International certifying New
International's continuing compliance with such covenant. If New International
fails to meet the Minimum Net Worth, it will immediately provide alternative
secured collateral for such deficiency in a form reasonably satisfactory to
Parent.
Duty to Defend. Under the Post-Closing Covenants Agreement, New
International covenants and agrees that it will vigorously and in good faith
defend the Compass Indemnitees in any proceeding or claim of which it has
assumed (or is required to assume the defense) pursuant to the Post-Closing
Covenants Agreement, including but not limited to the Special Liabilities and
any Third Party Claim. If New International determines to settle any claim,
including but not limited to the Special Liabilities or any Third Party Claim,
the Compass Indemnitees will have no duty or obligation to contribute to any
settlement, and the failure of any Compass Indemnitee to so contribute will in
no way excuse or discharge the obligations of New International under the
Post-Closing Covenants Agreement.
Guaranty by Champps and Fuddruckers. Pursuant to the terms of the
Post-Closing Covenants Agreement, each of Champps and Fuddruckers, jointly and
severally, continuously and unconditionally guarantees to Parent and its
subsidiaries the full and prompt payment and performance of all obligations of
New International under the Ancillary Agreements, whenever the same, or any part
thereof, shall become due and payable in accordance with the terms of the
Ancillary Agreements (the "Guaranty"). Notwithstanding the foregoing, the
Guaranty is limited to those obligations of New International that become due
for payment or for which performance will have begun and as to which New
International has been properly put on notice of a potential claim of
Indemnifiable Loss on or before December 31, 1998. In addition, Champps and
Fuddruckers each agree that Parent or its subsidiaries may at any time and from
time to time without notice to Champps or Fuddruckers renew, amend, modify or
extend the time of payment or performance of any obligations guaranteed under
the Post-Closing Covenants Agreement as Parent may deem advisable without
discharging, releasing or in any manner affecting the liability of Champps or
Fuddruckers thereunder. Finally, the Post-Closing Covenants Agreement provides
that the Guaranty is a guaranty of payment and performance and not of
collection, and each of Champps and Fuddruckers waives any right it may have to
require that any action be brought against New International or to require that
resort be had to any security.
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Trade Receivables and Obligations. The Reorganization Agreement provides
that the Trade Receivables and the Obligations (as each is defined in the
Post-Closing Covenants Agreement) have been assigned and transferred to New
International. In the Post-Closing Covenants Agreement, New International
appoints Daka as its agent after the Offer Closing Time for the purposes of
collection of the Trade Receivables and payment of the Obligations, and
authorizes Daka to pay the Obligations and to collect the Trade Receivables.
Daka will serve in such capacity commencing at the Offer Closing Time and
continuing thereafter for a period of not more than four months using prompt,
diligent and reasonable efforts, consistent with its regular collection
practices, for its own Trade Receivables, to collect those Trade Receivables
owned by New International to be identified by New International to Daka at the
Offer Closing Time. Daka will have no obligation to institute any action or
other litigation before any court, agency, arbitrator or tribunal to collect or
enforce any right of New International with respect to its Trade Receivables. In
each instance where the institution of an action or a lawsuit is appropriate,
Daka will allow New International to collect such Trade Receivables and to
pursue any such remedies. However, Daka will not, without New International's
prior written consent, compromise or settle for less than full value of any
Trade Receivables unless Daka pays New International the full amount of any
deficiency. In connection with Daka's collection efforts, New International will
assist Daka, subject to certain limitations, with special collection efforts on
selected Trade Receivables if Daka in reasonable discretion requests such
efforts. With respect to Obligations, commencing at the Offer Closing Time and
continuing for a period of not more than four months thereafter, Daka will pay
when due certain Obligations of New International to be identified by New
International to Daka at the Offer Closing Time. Daka will pay such Obligations
from the collected Trade Receivables, and the obligation of Daka to pay such
Obligations will be limited to the actual amount of Trade Receivables collected
by Daka. The Company may elect to provide to Daka, from time to time, a schedule
of proposed payments of Obligations, which Daka will follow, unless Daka
determines adherence to such schedule will have a material adverse effect on its
ability to operate the Foodservice Business in the ordinary course or impair the
credit of Daka. Not later than the business day following the last day of the
eighth week after the Offer Closing Time, Parent will remit to New International
the amount of collected Trade Receivables in excess of the aggregate amount of
Obligations paid by Daka, plus any adjustment determined in good faith by Parent
in accordance with the Post-Closing Covenants Agreement.
Thereafter, Parent will remit any such net amount of New International not
later than the first business day following the end of each succeeding two-week
period, provided, however, that Parent's obligation to remit any such excess
Trade Receivables to New International will be subject to a right of setoff
granted to Parent in connection with the "Post-Closing Payments" provisions
summarized below.
Post-Closing Payments. The Post-Closing Covenants Agreement provides for
post-closing payments in the following circumstances: (i) if the amount of the
Foodservice Current Assets (as defined in the Post-Closing Covenants Agreements
and determined from the financial statements for the Foodservice Business) is
less than $10,000,000, then New International will pay to Parent an amount equal
to such shortfall; (ii) if the product of $7.50 times the sum of (A) the total
number of issued and outstanding Shares as of the Offer Closing Time plus (B)
the total number of Shares into which all shares of Series A Preferred Stock
issued and outstanding as of the Offer Closing Time are convertible is greater
than $85,000,000 plus the amount paid by New International to Parent pursuant to
Section 6.7(a)(ii) of the Merger Agreement, then New International will pay
Parent the amount of such positive difference; and (iii) if the Total
Foodservice Managed Volume and Total Foodservice Segment Income (as defined in
the Post-Closing Covenants Agreement and determined from the financial
statements of the Foodservice Business), as adjusted to take into account
customer contracts that have been lost or gained between June 30, 1996 and the
Offer Closing Date and certain other adjustments, are below or above
$289,300,000 and $20,500,000, respectively, New International or Parent, as
applicable, will pay to the other party a Managed Volume/Profitability
Adjustment calculated by applying to $195,000,000 a percentage derived from a
formula set forth in the Post-Closing Covenants Agreement that gives equal
weight to any such shortfall or excess of the adjusted managed volume, on the
one hand, and any such shortfall or excess of the adjusted segment income, on
the other hand.
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THE CONFIDENTIALITY AGREEMENT
On January 2, 1997, Bear, Stearns & Co. Inc. ("Bear Stearns"), on behalf of
itself and the Company, and Parent entered into a confidentiality agreement (the
"Confidentiality Agreement") pursuant to which the Company agreed to supply
certain information to Parent and its affiliates, and Parent agreed to treat,
and to cause its affiliates to treat, such information as confidential. In
addition, Parent agreed to abide by certain "standstill" restrictions for a
two-year period.
The foregoing summary of the Confidentiality Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Confidentiality Agreement, a copy of which is filed as EXHIBIT 17 hereto and is
incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors
The Board unanimously (i) approved the Merger Agreement, the Reorganization
Agreement and the transactions contemplated thereby, (ii) determined that the
Offer, the Merger and the Distribution are fair to and in the best interests of
the stockholders of the Company and (iii) determined to recommend acceptance of
the Offer and approval and adoption of the Merger Agreement and the Merger by
the stockholders of the Company. Copies of a press release and a letter to
stockholders announcing such recommendations are attached hereto as EXHIBITS 18
and 19, respectively, and are incorporated herein by reference.
(b)(1) Background
Since the merger of Daka, Inc. and Fuddruckers, Inc. in 1988, the Company
has operated as a diversified foodservice management and restaurant company.
Through its Daka subsidiary the Company is one of the 10 largest foodservice
companies in the U.S., providing restaurant-style foodservice management and
vending operations at a variety of schools and colleges, corporate offices,
factories, health care facilities, museums and government offices. The Company
has used its restaurant expertise to differentiate itself from its competition
by emphasizing nutritious, high-quality food, trained professional personnel and
innovative foodservice programs served in a retail restaurant atmosphere. The
Company's foodservice segment nearly doubled its managed volume between 1994 and
1996, primarily through two major acquisitions.
The Company operates two major restaurant chains, Fuddruckers, which it has
owned since 1988, and Champps Americana, which it acquired in 1996. It also
operates its Specialty Concepts segment, which includes The Great Bagel and
Coffee Company, as well as new concepts such as The French Quarter Coffee Co.,
Fudds Cafe, Good Natured Cafe and Leo's Delicatessen. All aspects of the
restaurant business are highly competitive. Price, restaurant location, food
quality, service and attractiveness of facilities are important aspects of
competition, and the competitive environment is often affected by factors beyond
a particular restaurant management's control, including changes in the public's
taste and eating habits, population and traffic patterns and economic
conditions. The Company's restaurants compete with a wide variety of
restaurants, ranging from national and regional restaurant chains to locally
owned restaurants. The Company believes that its principal competitive strengths
lie in the distinctive atmosphere and food presentation offered; the value,
variety and quality of food products served; the quality and training of its
employees; the experience and ability of its management; and the economies of
scale enjoyed by the Company because of its size and geographic concentration.
As of March 29, 1997 there were 201 Fuddruckers restaurants open (122 Company
owned and 79 franchised), which for the nine months ended March 29, 1997
generated $102.8 million in sales. The Champps Americana concept began in 1984
in St. Paul, Minnesota. As of March 29, 1997 there were 21 Champps Americana
restaurants open (11 owned and 10 licensed), which for the nine months ended
March 29, 1997 generated $41.8 million in sales. The Company is additionally
using its expertise in both food service management and operating casual dining
restaurants to develop a new market in non-traditional venues such as department
stores, home improvement centers and movie theaters using a variety of concepts
from a portfolio tailored to the unique requirements of these non-traditional
locations. Pursuant to its strategy to further develop non-traditional
locations, in 1996 the Company acquired The Great Bagel and Coffee
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Company, which owns, operates and franchises its concept, featuring a full line
of fresh-baked bagels and distinctive cream cheeses, gourmet coffees and
sandwiches in a cafe setting.
The Company has historically viewed the combination of its restaurant and
foodservice operations as a strategic and competitive advantage. Its foodservice
segment benefitted from the Company's proprietary approach to what has
historically been a generic service industry by utilizing branded concepts to
create a retail restaurant atmosphere for its foodservice guests. Its restaurant
segment benefitted from the economies of scale derived from the large managed
volume of foodservice operations and from greater predictability of revenues and
cash flows. In recent periods, however, the dynamics of the foodservice
industry, on the one hand, and the results of operations and capital resources
of the Company, on the other hand, led the Company to conclude that it may no
longer be able to support the growth and other demands of both the foodservice
and restaurant businesses.
Historically, the foodservice industry has been a low margin business with
companies competing primarily based on price. More recently, however, this
dynamic has shifted toward companies focusing more on the guest, who is
increasingly demanding higher quality food and better service. In order to
accomplish this and still remain profitable, foodservice management firms
("FSMs") have had to manage their costs better as they work to develop more
efficient operations. Furthermore, clients are requiring FSMs to invest
significant capital for facility improvements as a prerequisite to obtaining
long-term contracts. These trends have resulted in ongoing consolidation within
the foodservice management industry as smaller FSMs, which lack both the capital
and the infrastructure to compete, lose market share to the larger FSMs. In
addition, the trend toward outsourcing nonessential services has enabled larger
FSMs to increase their share of the overall foodservice market.
A number of features made the Company's foodservice operations attractive
to competing FSMs as a strategic acquisition, including (i) size (approximately
325 contracts with over 700 locations nationwide and over $285 million in
managed volume); (ii) personalized, high-quality, restaurant-style operations;
(iii) concentration in the education and business and industry segments of the
foodservice industry; (iv) strong presence in the Northeast corridor and a
diversified contract base in terms of type of customer, geographic location and
contract size; (v) strong reputation within the foodservice industry and with
customers for contemporary design, quality and service; (vi) favorable growth
trends in both managed volume and operating cash flow, including an excellent
track record of completing successful strategic acquisitions; (vii) strong,
long-term relationships with a majority of the customers; and (viii) a strong
management team, led by Allen Maxwell, who has over 35 years of experience in
the foodservice industry. The prospects for a sale of the Company's foodservice
segment were also favorably impacted by the foodservice industry's current
outlook, including (i) consolidation derived from customer demands and business
economics; (ii) contract growth derived from cost containment pressures that
drive customers to outsource their foodservice operations; (iii) changing
contract mix from management fee to profit and loss contracts which generally
are more profitable; and (iv) growing opportunities for large FSMs to "bundle"
additional services, such as facilities maintenance and housekeeping, with food
and vending services providing additional avenues for growth.
In its fiscal year ended June 29, 1996 the Company made important progress
in its growth strategy, but also experienced some operational setbacks. During
the year, the Company opened 32 restaurants, completed two major acquisitions,
including the Champps Americana acquisition, developed a strategy to revitalize
the Fuddruckers concept, pursued an ultimately unsuccessful joint venture, and
restructured its balance sheet. Although the Company generally achieved its
overall growth objectives, management's attention needed to be focused on
addressing certain issues that kept the Company from achieving acceptable levels
of profitability, particularly in the restaurant segment. Faced with
disappointing results in the Fuddruckers restaurant chain, the demands of
aggressive expansion plans for Champps Americana casual dining restaurants, in
terms of both capital and management resources, a significant decline in net
income and a relatively high level of indebtedness, the Company resolved to
explore strategic alternatives to improve performance and increase stockholder
value.
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In September 1996 the Company engaged Bear Stearns to assist it in
developing, analyzing and pursuing strategic alternatives. The Company gave Bear
Stearns discretion in the early stages of its engagement and requested that Bear
Stearns explore, among other possibilities, the continuation of the Company's
historical business plan as a diversified restaurant and foodservice company,
the sale of the Company as a whole to a single acquiror, the sale of the various
segments of the Company to different acquirors and the sale of the foodservice
segment alone. After reviewing the views of Bear Stearns, the Company's legal
advisors and the Company's senior management, the Board of Directors of the
Company decided that, although it was making no determination as to whether to
seek to sell the Company's foodservice segment, it would be in the best
interests of the Company and its stockholders for the Company's management and
advisors to solicit indications of interest with respect to the possible sale of
the foodservice segment from various third parties. After careful analysis, the
Company elected to explore a sale of the Foodservice Business utilizing a tax-
efficient transaction structure combining a spin-off of the restaurant segment
into a new independent company going forward and a simultaneous sale of the
Company's stock, which would at that point represent only the foodservice
segment operated by the wholly owned Daka subsidiary. In light of the Company's
low tax basis in the stock and assets of Daka, the Company and Bear Stearns
initially focused on structuring the proposed transaction as a non-taxable
spin-off of a newly formed corporation containing the Company's restaurant
businesses followed by a tax-free stock-for-stock merger in which the Company's
stockholders would receive freely tradeable stock of the acquiror (a so called
"Morris Trust" structure). During the process, however, principally as a result
of proposed Federal legislation limiting severely the advantages of the Morris
Trust structure, the Company and its legal and financial advisors opted for a
transaction structure in which the Company's stockholders would receive cash
through a tender offer and stock in the new restaurant company. This alternative
offered significant advantages over other alternatives, including (i) the
opportunity for stockholders to realize value for the foodservice business on
the basis of an attractive valuation; (ii) the elimination of all bank debt of
the Company; and (iii) the creation of an unleveraged restaurant company with
borrowing capacity to open new restaurants and thus facilitate the execution of
the Company's growth strategy for its restaurant businesses. The Board
instructed management and Bear Stearns to contact potential interested parties
and to prepare and furnish to such persons financial and other information
provided that such parties entered into appropriate confidentiality agreements
with the Company. In December 1996 Bear Stearns formally solicited bids for the
Company's foodservice business from qualified potential buyers. Eight potential
acquirors, consisting of both strategic buyers (competing FSMs) and so-called
"financial" buyers, were contacted and four initial bids were received,
including one from Parent.
For some time the Company had been aware that Parent and other FSM
companies were considering a variety of strategic transactions to strengthen
their positions in the foodservice industry. In recent years the Company's
management has had a variety of informal contacts with competing FSM companies,
including Parent, concerning possible transactions. With respect to such
contacts involving Compass, in February 1995, Max Pine, a Special Partner at
Patricof & Co. Capital Corp. ("Patricof"), met with William Baumhauer, the Chief
Executive Officer of the Company, at the Company's corporate headquarters in
Danvers, Massachusetts; the conversation was general in nature and included
discussion of the Company's strategy concerning its contract foodservice
business. In December of 1995, Mr. Pine and Arthur Kowaloff, the Executive Vice
President of Patricof, had several telephone conversations with Mr. Baumhauer
inquiring into the Company's possible interest in selling its contract
foodservice business and seeking to schedule a meeting to discuss a possible
transaction with Parent. In April of 1996, Messrs. Pine and Kowaloff met with
Mr. Baumhauer at the Company's offices to further explore the possibility of
Parent acquiring the Company's foodservice business and to express Parent's
interest in such a transaction. However, no further meetings between Patricof
and representatives of the Company occurred during 1996, although Messrs. Pine
and Kowaloff, in a number of telephone conversations with Mr. Baumhauer during
this period, continued to discuss with him the possibility of a transaction
involving the Company and Parent and its timing and general structure.
In December 1996, Bear Stearns, acting on behalf of the Company, contacted
Parent as one of several potentially interested parties for the purpose of
further evaluating a possible acquisition of the Company's foodservice business.
The Company and Parent entered into a Confidentiality Agreement on January 2,
1997 relating to, among other things, the information to be provided by the
Company and limiting the ability of Parent for an agreed period to acquire
voting securities or assets of, solicit proxies or make a public
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<PAGE> 30
announcement of a proposal for any extraordinary transaction with respect to the
Company. Parentsubsequently obtained various financial and other information
regarding the Company in general and its foodservice business in particular.
Representatives of Bear Stearns, the Company and Parent met to discuss possible
transaction structures and various financial, operational, accounting and legal
issues. After careful analysis of all proposals received, the Board instructed
management, with the assistance of Bear Stearns and the Company's counsel, to
proceed in negotiating a possible transaction with Parent, believing that
Parent's proposal would be more likely to maximize stockholder value than the
other proposals received by Bear Stearns.
At a meeting on February 18, 1997 Mr. Baumhauer and Michael J. Bailey, the
Chief Executive Officer of Purchaser, met to discuss the proposed transaction
and various financial, accounting, legal, operational and management issues
related thereto. Following such meeting, other officers and legal
representatives of the Company and Purchaser, with their respective financial
advisors and counsel, met to further discuss structural and business issues. At
a meeting held on February 26, 1997, Mr. Baumhauer informed the Board of the
state of Parent's due diligence and progress of the negotiations with respect to
the structure and terms of the proposed transaction. Throughout March, April and
May of 1997, the Company and Purchaser and their respective financial advisors
and counsel negotiated the terms of the proposed transaction. During this period
numerous drafts of the principal transaction documents were circulated and
negotiated and a variety of price, timing and other significant terms and
conditions related thereto were discussed. Messrs. Baumhauer and Bailey met
repeatedly to address key issues, while other officers of the two companies and
their advisors addressed accounting, legal, operational and other matters.
On May 21, 1997 the Board met to formally consider the proposed
transaction. At this meeting representatives of Bear Stearns gave a presentation
analyzing the financial terms of the Offer, the Merger, the Distribution and New
International and delivered the written fairness opinion of Bear Stearns. The
Company's legal counsel summarized for the Board the legal aspects of the
proposed transaction. The Board deliberated as to the transaction and its merits
and effects. After consideration of the presentations made by Bear Stearns,
management and legal counsel, at a subsequent meeting on May 22, 1997 the Board
unanimously (i) approved the Merger Agreement, the Reorganization Agreement and
the Post-Closing Covenants Agreement and the transactions contemplated thereby,
(ii) determined that the Offer, the Merger and the Distribution, taken as a
whole, are fair to and in the best interest of the shareholders of the Company
and (iii) determined to recommend acceptance of the Offer and approval and
adoption of the Merger Agreement and the Merger by the stockholders of the
Company. The parties executed the Merger Agreement and other transaction
documents late in the evening on May 27, 1997 and publicly announced the
transaction the following day. On May 29, 1997 the Purchaser commenced the
Offer.
(b)(2) Reasons for the Recommendation
In reaching its determination described in paragraph (a) above, the Board
considered a number of factors, including, without limitation, the following:
(i) the Company's historical and projected financial data and the
relative strengths and weaknesses of its foodservice and restaurant
businesses;
(ii) the anticipated needs for capital and management resources of the
Company's business in light of the recent performance of the Fuddruckers
chain, the aggressive growth objectives for the Champps Americana chain and
competitive conditions in the foodservice and restaurant industries, as
well as the Company's anticipated sources to satisfy such needs;
(iii) the level of outstanding bank debt and the terms of the
Company's current credit agreement with its lenders, possible sources of
replacement and additional financing, and the anticipated impact on the
Company's performance and growth of its relatively high leverage and
associated debt service obligations;
(iv) current industry, economic and market conditions, including the
acquisitions and consolidations taking place in the foodservice industry
and the anticipated competitive climate of the foodservice
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<PAGE> 31
industry, their anticipated impact on the market share and profitability of
the Company's foodservice segment and their likely effect on present and
future opportunities for the Company to maximize stockholders' value from a
sale of its Foodservice Business;
(v) the structure of the proposed transaction, including (A) the
amount of cash to be received by stockholders; (B) the repayment of all
bank debt of the Company; (C) the creation of an unleveraged restaurant
company with borrowing capacity to pursue the Company's strategy for its
Fuddruckers and Champps restaurant chains; and (D) the advantageous tax
structure of the transaction;
(vi) the capitalization, assets, liabilities, projected performance,
anticipated cash flow, management and strategic objectives of New
International;
(vii) the respective businesses, assets, managements, strategic
objectives, competitive positions, prospects and complementary strengths of
the Company's and Purchaser's foodservice businesses;
(viii) historical market prices and trading information with respect
to the Shares;
(xi) publicly available information concerning other companies
comparable to the Company both in the foodservice and restaurant industries
and the trading history of each such company;
(xii) the written opinion, dated as of May 21, 1997, of Bear Stearns
that, based upon and subject to the matters set forth in the opinion, the
shares of New International to be received by the Company's stockholders in
the Distribution and the consideration to be received by the Company's
stockholders in the Offer and the Merger taken together are fair from a
financial point of view to such holders. A copy of such opinion describing
the assumptions made, matters considered and review undertaken by Bear
Stearns is attached hereto as EXHIBIT 20 and is incorporated herein by
reference. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE OPINION
CAREFULLY IN ITS ENTIRETY;
(xiii) the fact that management of the Company and the Company's
advisors have solicited other third parties concerning their interest in
the Foodservice Business and have pursued discussions with certain of those
parties concerning a number of possible transactions and that the terms of
the proposed transaction are more favorable to the Company's stockholders
than those of any other indications of interest received for the
Foodservice Business;
(xiv) the fact that the terms of the Offer and Merger Agreement,
including the price paid, compare favorably to the terms and prices paid in
other recent acquisition transactions in the foodservice industry;
(xv) the fact that the Distribution provides an opportunity for the
Company's stockholders to participate in the equity of New International,
which will own and operate the Company's restaurant businesses;
(xvi) the terms and conditions of the Merger Agreement, including the
fact that the Offer is not subject to a financing condition, that Purchaser
has agreed that Shares not purchased in the Offer will receive the same
form and amount of consideration as Shares purchased in the Offer pursuant
to the Merger, that Purchaser agreed to address certain concerns of the
Board with respect to the employees of the Company, and that the Company,
under certain circumstances and subject to certain conditions, including
the payment by the Company to Purchaser of a $5,800,000 termination fee
(plus costs and expenses up to an additional $2,000,000), may enter into an
agreement providing for the acquisition of all, or any part of, the Company
on terms more favorable to the Company's stockholders than the Offer,
Merger and Distribution; and
(xvii) possible alternatives to the Offer, Merger and Distribution
that might be available to the Company and its stockholders.
In analyzing the Offer and the Merger, the management of the Company and
the Board were assisted and advised by representatives of Bear Stearns and
representatives of the Company's legal counsel, who reviewed various financial,
legal and other considerations, as well as the terms of the Merger Agreement.
The Board did not assign relative weights to the factors or determine that any
factor was of particular importance. Rather, the
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<PAGE> 32
Board viewed its position and recommendations as being based on the totality of
the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Bear Stearns is acting as the Company's financial advisor in connection
with the Offer, the Merger and the Distribution. Pursuant to a letter agreement
dated November 18, 1996 between the Company and Bear Stearns (the "Engagement
Letter"), the Company will pay Bear Stearns a transaction fee which is expected
to equal approximately $1.95 million upon the consummation of the Offer. In
addition, the Company has agreed to reimburse Bear Stearns for its out-of-pocket
and incidental expenses, including the fees and disbursements of its counsel,
and to indemnify Bear Stearns against certain liabilities incurred in connection
with its engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf with respect
to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best knowledge of the Company, no transactions in the Common
Stock of the Company have been effected in the past 60 days by the Company or
any affiliate or subsidiary of the Company, or any executive officer or director
of the Company.
(b) To the best knowledge of the Company, all of the Company's executive
officers, directors and affiliates that own shares currently intend to tender
their Shares pursuant to the Offer, except to the extent that the tender of such
Shares might subject such persons to liability under the provisions of Section
16(b) of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in Item 3(b) herein, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (iii) a
tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company, with the following exceptions:
The Company currently has issued and outstanding 11,911.545 shares of DAKA
Preferred Stock and 264,701 warrants exercisable for shares of Common Stock upon
redemption of the DAKA Preferred Stock. The Company has entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of May 26, 1997,
among the Company, Parent, Purchaser, First Chicago Equity Corporation, an
Illinois corporation ("FCEC"), and Cross Creek Partners I, an Illinois general
partnership ("Cross Creek"), and all of the other holders of DAKA Preferred
Stock (together with FCEC and Cross Creek, the "Preferred Stockholders"),
pursuant to which the Preferred Stockholders will sell to Purchaser, and
Purchaser will buy, all of the issued and outstanding DAKA Preferred Stock. Such
purchase and sale of the DAKA Preferred Stock will occur immediately following
the consummation of the Offer and the Preferred Stockholders will receive an
amount in cash equal to the product of the Offer Price multiplied by the number
of Shares into which such shares of DAKA Preferred Stock are then convertible.
The Stock Purchase Agreement also provides that, as required by the Certificate
of Designation of the DAKA Preferred Stock, any dividend declared on the Common
Stock will be paid to the Preferred Stockholders. Accordingly, because the
record date for the Distribution will be the date immediately prior to the
consummation of the Offer, and the sale of the DAKA Preferred Stock is
conditioned upon such consummation, the Preferred Stockholders will not be
obligated to sell their DAKA Preferred Stock unless and until the Offer is
consummated and will receive the Common Stock dividend pursuant to the
Distribution. The Preferred Stockholders will receive no consideration in the
Offer or in the Merger.
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<PAGE> 33
The foregoing summary of the Stock Purchase Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Stock Purchase Agreement, a copy of which is filed herewith as EXHIBIT 21 and is
incorporated herein.
(b) Except as set forth in Item 3(b) and Item 4 herein, there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Offer which relate to or would result in one or more of the
matters referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) As a Delaware corporation, the Company is subject to Section 203
("Section 203") of the DGCL. Section 203 prevents an "Interested Stockholder"
(generally defined as a person beneficially owning 15% or more of a
corporation's voting stock) from engaging in a "Business Combination" (as
defined in Section 203) with a Delaware corporation for three years following
the date such person became an Interested Stockholder unless: (i) before such
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Stockholder or approved the Business Combination, (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
and by employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares), or (iii) following the
transaction in which such person became an Interested Stockholder, the Business
Combination is (A) approved by the board of directors of the corporation and (B)
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least 66 2/3% of the outstanding voting stock of the corporation not owned
by the Interested Stockholder. In accordance with the provisions of Section 203,
the Board of Directors has approved the Merger Agreement, the Reorganization
Agreement and Purchaser's acquisition of Shares pursuant to the Offer and the
Merger and, therefore, Section 203 is inapplicable to the Offer and the Merger
and the transactions contemplated thereby.
(b) The Certificate contains a provision requiring a supermajority vote of
the Company's stockholders to approve a "business combination" (generally, any
merger, consolidation, liquidation, recapitalization or sale of significant
assets) between the Company and an "interested stockholder" if the transaction
does not meet certain fair price criteria and procedural requirements, unless
the transaction is approved by a majority of the "continuing directors" of the
Company (a so-called "fair price" provision). The Certificate generally defines
an "interested stockholder" as including any person who has announced or
publicly disclosed a plan or intention to become the beneficial owner of voting
stock of the Company representing 15% or more of the votes entitled to be cast
by the holders of all of the then outstanding shares of voting stock of the
Company. The Certificate generally defines a "continuing director" as any member
of the Board who is not an affiliate or associate or representative of the
"interested stockholder" and was a member of the Board prior to the time that
the "interested stockholder" became an "interested stockholder." In accordance
with the provisions of the "fair price" provision, a majority of the "continuing
directors" of the Company has approved the Merger Agreement, the Reorganization
Agreement and Purchaser's acquisition of Shares pursuant to the Offer and the
Merger and, therefore, the fair price criteria and procedural requirements of
such provision are inapplicable to the Offer and the Merger and the transactions
contemplated thereby.
(c) The information statement attached as Annex I hereto is being furnished
in accordance with Rule 14f-1 under the Exchange Act in connection with the
possible designation by Purchaser, pursuant to the Merger Agreement, of certain
persons to be appointed to the Board other than at a meeting of the Company's
stockholders.
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<PAGE> 34
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
<TABLE>
<S> <C> <C>
Exhibit 1 -- Agreement and Plan of Merger, dated as of May 27, 1997, by and among
Compass Group PLC, Compass Holdings, Inc., Compass Interim, Inc., and DAKA
International, Inc.
Exhibit 2 -- Pages 6 through 12 of DAKA International, Inc.'s Proxy Statement, dated
October 28, 1996, relating to its 1996 Annual Meeting of Stockholders
Exhibit 3 -- Employment Agreement, dated as of January 1, 1997, by and between William
H. Baumhauer and DAKA International, Inc.
Exhibit 4 -- Employment Agreement, dated as of January 1, 1997, by and between Allen R.
Maxwell and DAKA International, Inc.
Exhibit 5 -- Termination and Release Agreement, dated as of May 27, 1997, by and among
Allen R. Maxwell, DAKA International, Inc. and Unique Casual Restaurants,
Inc.
Exhibit 6 -- Employment Agreement, dated as of May 23, 1997, by and among Compass Group
USA, Inc., DAKA International, Inc., Daka, Inc. and Allen R. Maxwell
Exhibit 7 -- Employment Agreement, dated as of February 21, 1996, by and among Dean P.
Vlahos, DAKA International, Inc. and Champps Entertainment, Inc.
Exhibit 8 -- DAKA International, Inc. 1994 Equity Incentive Plan
Exhibit 9 -- DAKA International, Inc. Senior Executive Stock Option Plan
Exhibit 10 -- DAKA International, Inc. Incentive Stock Option Plan
Exhibit 11 -- DAKA International, Inc. Non-Qualified Stock Option Plan
Exhibit 12 -- DAKA International, Inc. Employee Stock Purchase Plan
Exhibit 13 -- Form of Indemnification Agreements, each one by and between (x) an Officer
or Director of DAKA International, Inc. and (y) Unique Casual Restaurants,
Inc.
Exhibit 14 -- Reorganization Agreement, dated as of May 27, 1997, by and among DAKA
International, Inc., Daka, Inc., Unique Casual Restaurants, Inc., Compass
Group PLC.
Exhibit 15 -- Tax Allocation Agreement, dated as of May 27, 1997, by and among DAKA
International, Inc., Daka, Inc., Unique Casual Restaurants, Inc., Champps
Entertainment, Inc., Fuddruckers, Inc., Compass Group PLC and Compass
Holdings, Inc.
Exhibit 16 -- Post-Closing Covenants Agreement, dated as of May 27, 1997, by and among
DAKA International, Inc., Daka, Inc., Unique Casual Restaurants, Inc.,
Champps Entertainment, Inc., Fuddruckers, Inc., Compass Group PLC and
Compass Holdings, Inc.
Exhibit 17 -- Confidentiality Agreement, dated as of January 2, 1997, by and among Bear,
Stearns & Co. Inc. on behalf of itself and DAKA International, Inc. and
Compass Group USA, Inc.
Exhibit 18 -- Press release issued by DAKA International, Inc. on May 27, 1997.
Exhibit 19 -- Form of Letter to Stockholders of DAKA International, Inc. dated May 29,
1997.(1)
Exhibit 20 -- Opinion of Bear, Stearns & Co. Inc. dated May 21, 1997.(1)
Exhibit 21 -- Stock Purchase Agreement, dated as of May 26, 1997 by and among DAKA
International, Inc., Compass Group PLC, Compass Holdings, Inc., First
Chicago Equity Corporation, Cross Creek Partners I and the other holders
of Series A Preferred Stock of DAKA International, Inc.
</TABLE>
- ---------------
(1) Included in copies mailed to stockholders.
34
<PAGE> 35
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
DAKA INTERNATIONAL, INC.
By: /s/ WILLIAM H. BAUMHAUER
------------------------------------
William H. Baumhauer
Chairman and Chief Executive Officer
May 29, 1997
35
<PAGE> 36
[BEAR STEARNS LOGO] BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
SAO PAULO - LONDON - PARIS - GENEVA
BEIJING - HONG KONG - SHANGHAI - TOKYO
May 21, 1997
Board of Directors
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Members of the Board:
We understand that DAKA International, Inc. ("DAKA"), Daka, Inc., New Daka
International, Inc. ("New Daka") and Compass Group, PLC ("Compass Group") have
entered into a Post-Closing Covenants Agreement (the "Covenants Agreement") and
Reorganization Agreement (the "Reorganization Agreement"), each dated as of the
date hereof, and DAKA, New Daka and Compass Group have entered into a Tax
Allocation Agreement, dated as of the date hereof (the "Tax Allocation
Agreement," and together with the Covenants Agreement and the Reorganization
Agreement, the "Reorganization Documents"), which provide, among other things,
for the contribution of certain businesses of DAKA to New Daka, and the
distribution (the "Distribution") of all of the issued and outstanding shares
(the "New Shares") of common stock of New Daka to the holders of the outstanding
shares (the "Existing Shares") of common stock of DAKA. The terms and conditions
of the Distribution are more fully set forth in the Reorganization Documents. We
also understand that DAKA, Compass Group, Compass Holdings, Inc. ("Compass
Holdings"), and Compass Interim, Inc. ("Compass Interim") have entered into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, for (i) the commencement by
Compass Holdings of a tender offer to purchase for cash (the "Offer") any and
all of the Existing Shares at a price of not less than $7.50 per Existing Share
and (ii) the subsequent merger (the "Merger") of Compass Interim with and into
DAKA. Pursuant to the Merger, DAKA will become a wholly-owned subsidiary of
Compass Holdings and each Existing Share issued and outstanding immediately
prior to the Effective Time (as defined in the Merger Agreement) (other than any
Existing Shares held by Compass Group or any subsidiary of Compass Group,
Existing Shares held in the treasury or by a subsidiary of DAKA and any Existing
Shares as to which holders thereof have duly exercised dissenter's rights),
shall be converted into the right to receive $7.50 in cash, or any higher price
paid per Existing Share in the Offer. The terms and conditions of the Offer and
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether, taken together, the New
Shares to be received by the holders of Existing Shares in the Distribution and
the consideration to be received by the holders of Existing Shares in the Offer
and the Merger are fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
i. analyzed certain publicly available financial statements and other
information of DAKA;
ii. analyzed certain internal pro forma financial statements and other
financial and operating data covering the businesses of New Daka prepared
by the management of DAKA;
1
<PAGE> 37
Board of Directors
Daka International, Inc.
iii. analyzed certain pro forma financial projections related to the
businesses of New Daka prepared by the management of DAKA;
iv. analyzed certain internal financial statements and other financial
and operating data concerning Daka, Inc. prepared by the management of
DAKA;
v. analyzed the estimated financial results of Daka, Inc. for fiscal
1997 prepared by the management of DAKA;
vi. discussed the past and current operations and financial condition
and the prospects of DAKA with senior executives of DAKA;
vii. reviewed reported prices and trading activity for the Existing
Shares;
viii. compared the financial performance of DAKA and the prices and
trading activity of the Existing Shares with that of certain other
comparable publicly-traded companies and their securities;
ix. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
x. participated in discussions and negotiations among representatives
of DAKA, Compass Group and their financial and legal advisors;
xi. participated in a process involving solicitation of interest from,
and discussions and negotiations with, certain parties other than Compass
Group with respect to the food service businesses of DAKA;
xii. reviewed the Merger Agreement and the Reorganization Documents;
and
xiii. performed such other analyses as we have deemed appropriate.
In the course of our review, we have relied upon and assumed without
independent verification the accuracy and completeness of the financial and
other information provided to us by DAKA, Daka, Inc. and New Daka, among others,
and the reasonableness of the assumptions made with respect to the projected
financial results of DAKA and New Daka. We have not assumed any responsibility
for such information and we have further relied upon the assurances of the
managements of DAKA, Daka, Inc. and New Daka, that they are unaware of any facts
that would make the information provided to us incomplete or misleading. With
respect to the projected financial results or estimates of DAKA and New Daka,
which were furnished to us, we have assumed that such financial projections or
estimates, as the case may be, have been reasonably prepared by DAKA and New
Daka, respectively, on bases reflecting the best currently available estimates
and good faith judgments of the future competitive and operating environments
and related financial performance. We have, with your approval, relied upon (i)
your counsel's analysis of the tax consequences of the Distribution, the Offer
and the Merger and (ii) your counsel and accountants as to all other legal and
accounting matters relating to the Distribution, the Offer and the Merger. In
arriving at our opinion, we have not performed, nor were we furnished with, any
independent appraisal of the assets of DAKA, Daka, Inc. and New Daka. We express
no opinion as to the value of the New Shares upon issue to the holders of
Existing Shares or the price or range of prices at which the New Shares will
trade or the liquidity of any such trading subsequent to the consummation of the
Distribution. We have also relied upon the view of the management of DAKA with
respect to the appropriateness of the liabilities assumed by New Daka pursuant
to the Reorganization Documents in light of New Daka's cash needs and strategic
objectives, which view we believe properly is to be determined by management.
Our opinion assumes that DAKA has provided to us all relevant or appropriate
information relating to all inquiries for such information made by us and that
there are no changes subsequent to the date hereof to the Merger Agreement, the
Reorganization Documents and all documents to be filed by DAKA and Compass Group
with any governmental agency from the forms that have
2
<PAGE> 38
Board of Directors
Daka International, Inc.
been provided to us on the date hereof. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date of this opinion.
We have acted as financial advisor to DAKA in connection with the
Distribution, the Offer and the Merger and will receive a fee for such services,
payment of which is contingent upon the consummation of the transactions
contemplated by the Merger Agreement and the Reorganization Documents. In the
past, Bear, Stearns & Co. Inc. and its affiliates have provided financial
advisory and financing services for DAKA and have received fees for the
rendering of these services. Alan Schwartz, a member of the Board of DAKA, is
Senior Managing Director -- Corporate Finance of Bear, Stearns & Co. Inc. and a
director of its parent, The Bear Stearns Companies, Inc. Bear, Stearns & Co.
Inc. makes a market in the Existing Shares and, accordingly, may hold a long or
a short position therein.
Based on the foregoing, and assuming the Distribution, the Offer and the
Merger were consummated on the date hereof, we are of the opinion on the date
hereof that, taken together, the New Shares to be received by the holders of
Existing Shares in the Distribution and the consideration to be received by the
holders of Existing Shares in the Offer and the Merger are fair from a financial
point of view to such holders.
It is understood that this letter is for the information of the Board of
Directors of DAKA only in connection with its consideration of the Distribution,
the Offer and the Merger and may not be used for any other purpose, nor
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, in any manner for any purpose, other than inclusion in any filings by DAKA
made with the Securities and Exchange Commission and NASDAQ relating to the
Offer, without our prior written consent. This letter is not intended to be and
does not constitute a recommendation to any holder of Existing Shares whether to
tender any Existing Shares in the Offer.
Very truly yours,
Bear, Stearns & Co., Inc.
By: Anthony J. Magro
------------------------------------
Senior Managing Director
3
<PAGE> 39
ANNEX I
DAKA INTERNATIONAL, INC.
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MASSACHUSETTS 01923-4001
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14(f)-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
------------------------
This Information Statement, which is being mailed on or about May 30, 1997
to the holders of shares (the "Shares") of the common stock, par value $.01 per
share (the "Common Stock"), of DAKA International, Inc. (the "Company"), is
being furnished in connection with the designation by Compass Holdings, Inc., a
Delaware corporation ("Purchaser"), an indirect, wholly owned subsidiary of
Compass Group PLC, a public limited company incorporated in England and Wales
("Parent"), of persons ("Purchaser's Designees") to the Board of Directors of
the Company (the "Board"). Such designation is to be made pursuant to an
Agreement and Plan of Merger, dated as of May 27, 1997 (the "Merger
Agreement"), by and among the Company, Parent, Purchaser and Compass Interim,
Inc., a Delaware corporation and a direct, wholly owned subsidiary of Purchaser
("Interim"). The Merger Agreement provides that Parent shall cause Purchaser to
commence an offer to purchase for cash (the "Offer") all of the Company's
Shares. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is conditioned upon, among other things, there
being validly tendered and not withdrawn a number of Shares which, when added
to the Shares then beneficially owned by Parent, Purchaser and its affiliates
and Interim (including the shares (the "Series A Converted Shares") into which
the shares of Series A Preferred Stock of the Company to be acquired by
Purchaser are convertible), constitutes at least two-thirds of the total number
of Shares then outstanding plus the number of Series A Converted Shares and
represents at least two-thirds of the voting power of all shares of capital
stock of the Company that would be entitled to vote on the Merger (as
hereinafter defined). The Merger Agreement further provides that following (i)
the consummation of the Offer, (ii) the approval of the Merger Agreement at a
meeting of the Company's stockholders, if required by applicable law, and (iii)
the satisfaction or waiver of certain other conditions, Interim will be merged
with and into the Company (the "Merger") with the Company being the surviving
corporation (the "Surviving Corporation"). At the effective time of the Merger
(the "Effective Time"), each Share issued and outstanding immediately prior to
the Effective Time (other than Shares held in the treasury of the Company or
held by any wholly owned subsidiary of the Company (but not any Benefit Plan,
as such term is defined in the Merger Agreement), Shares held by Purchaser,
Interim or any wholly owned subsidiary of Parent, excluding, in each case, any
such Shares held by the Company, Purchaser or any of their wholly owned
subsidiaries in a fiduciary, custodial or similar capacity, or Shares which are
held by stockholders who have complied with the procedures for appraisal set
forth in Section 262 of the General Corporation Law of the State of Delaware)
will be, by virtue of the Merger and without any action on the part of Parent,
Purchaser, Interim, the Company or the holder thereof, converted into and
represent the right to receive $7.50 in cash, or any higher price paid per
Share in the Offer (the "Merger Price"), without interest thereon. All Shares
owned by the Company or Parent, or any direct or indirect subsidiary of the
Company or Parent, will be canceled in the Merger. Each share of common stock
of Interim issued and outstanding immediately prior to the Effective Time
shall, at the Effective Time, by virtue of the Merger, be converted into and
exchangeable for one validly issued, fully paid and nonassessable share of the
common stock of the Surviving Corporation.
<PAGE> 40
The Merger Agreement provides that, in the event that Purchaser acquires at
least two-thirds of the Shares outstanding pursuant to the Offer, Purchaser
shall be entitled to designate for appointment or election to the Company's
Board, upon written notice to the Company, such number of persons (i.e.,
Purchaser's Designees) so that Purchaser's Designees constitute the same
percentage (but in no event less than five persons) of the Company's Board,
rounded up to the next whole number, as the percentage of Shares acquired in
connection with the Offer. Prior to the consummation of the Offer, the Company
will obtain the resignations of such number of directors as is necessary to
enable Purchaser's Designees to be elected to the Board and will take all action
required to appoint or elect such Purchaser's Designees.
The Merger Agreement also provides that, in the event that Purchaser's
Designees are elected to the Board after the acceptance for payment of Shares
pursuant to the Offer, until the Effective Time, the Board will have at least
two directors who are directors on the date hereof (the "Independent
Directors"), provided that, in such event, if the number of Independent
Directors shall be reduced below two for any reason whatsoever, any remaining
Independent Directors (or Independent Director, if there is only one remaining)
shall be entitled to designate persons to fill such vacancies who shall be
deemed to be Independent Directors for purposes of the Merger Agreement or, if
no Independent Director then remains, the other directors shall designate two
persons to fill such vacancies who will not be stockholders, affiliates or
associates of Parent, Purchaser or Interim and such persons will be deemed to be
Independent Directors for purposes of the Merger Agreement. In the event that
Purchaser's Designees are elected to the Board after the acceptance for payment
of Shares pursuant to the Offer and prior to the Effective Time, the Merger
Agreement provides that the affirmative vote of a majority of the Independent
Directors shall be required to (i) amend or terminate the Merger Agreement by
the Company, (ii) exercise or waive any of the Company's rights, benefits or
remedies under the Merger Agreement, (iii) extend the time for performance of
Parent's, Purchaser's or Interim's respective obligations under the Merger
Agreement, (iv) take any other action by the Board under or in connection with
the Merger Agreement or any of the transactions contemplated thereby or (v)
approve any other action by the Company which could adversely affect the
interests of the stockholders of the Company (other than Parent, Purchaser or
Interim and their affiliates) with respect to the transactions contemplated by
the Merger Agreement.
The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase,
dated May 29, 1997, the related Letter of Transmittal, dated May 29, 1997, and
the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company (the
"Schedule 14D-9") with respect to the Offer, copies of which are being delivered
to stockholders of the Company contemporaneously herewith. Certain other
documents (including the Merger Agreement) were filed with the Securities and
Exchange Commission (the "SEC") as exhibits to the Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") of Parent and Purchaser and as exhibits to
the Schedule 14D-9. The exhibits to the Schedule 14D-1 and the Schedule 14D-9
may be examined at and copies thereof may be obtained from the SEC (except that
the exhibits thereto cannot be obtained from the regional offices of the SEC).
In addition, the Company is an electronic filer pursuant to the SEC's Electronic
Data Gathering, Analysis and Retrieval ("EDGAR") System. Accordingly, the
aforementioned reports and other information may be obtained by searching in the
"EDGAR Archives" at the Commission's world wide web site (http://www.sec.gov).
Finally, such material may be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., Nasdaq Reports Section, 1735 K
Street, N.W., Washington, DC 20006-1506, as the Shares are listed on the Nasdaq
Stock Market as a National Market security.
NO ACTION IS REQUIRED BY THE STOCKHOLDERS OF THE COMPANY IN CONNECTION WITH
THE ELECTION OF PURCHASER'S DESIGNEES TO THE BOARD. HOWEVER, SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), REQUIRES
THE MAILING TO THE COMPANY'S STOCKHOLDERS OF THE INFORMATION SET FORTH IN THIS
INFORMATION STATEMENT PRIOR TO A CHANGE IN A MAJORITY OF THE COMPANY'S DIRECTORS
OTHERWISE THAN AT A MEETING OF THE COMPANY'S STOCKHOLDERS.
The information contained in this Information Statement concerning Parent,
Purchaser, Interim and Purchaser's Designees has been furnished to the Company
by such persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The principal executive offices of Parent,
2
<PAGE> 41
are located at Cowley House, Guilford Street, Chertsey, Surrey, England KT16
9BA. The principal executive offices of Purchaser and Interim are located at
2400 Yorkmont Road, Charlotte, North Carolina 28217.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
GENERAL. The outstanding voting securities of the Company as of April 30,
1997 consisted of 11,092,859 shares of Common Stock, each of which is entitled
to one vote on each matter submitted to a vote of the stockholders, and
11,911.545 shares of Series A Preferred Stock, convertible into 264,701 shares
of Common Stock, each of which is entitled to one vote on each matter submitted
to a vote of the stockholders for each share of Common Stock issuable upon
conversion of the Series A Preferred Stock at the time a vote is taken.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS.
The following table sets forth certain information, as of April 30, 1997
with respect to each person known by the Company to be the beneficial owner of
more than 5% of any class of the voting stock of the Company, each director of
the Company, executive officers included in the Summary Compensation Table
below, and all directors and executive officers of the Company 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......................................... 187,000 (3) 1.7% 1.6%
Allen R. Maxwell............................................. 392,766 (4) 3.5 3.4
Dean P. Vlahos(5)............................................ 847,014 7.6 7.5
E.L. Cox..................................................... 8,500 (6) * *
Erline Belton................................................ 6,500 (7) * *
Alan D. Schwartz............................................. 10,000 (8) * *
Joseph W. O'Donnell.......................................... 3,400 (9) * *
David G. Parker.............................................. 32,500 (10) * *
William T. Freeman(11)....................................... -- * *
Louis A. Kaucic.............................................. 15,100 (12) * *
All directors and executive officers as a group (10)
persons.................................................... 1,502,780 (13) 13.2% 12.9%
Timothy R. Barakett.......................................... 608,600 (14) 5.5 5.4
590 Madison Avenue, 32nd Floor,
New York, NY 10022
Barrow, Hanley, Mewhinney & Strauss, Inc..................... 579,600 (15) 5.2 5.1
One McKinney Plaza, 3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429
</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 Common Stock which directors
and executive officers have the right to acquire pursuant to previously
granted options exercisable within 60 days of April 30, 1997 and (ii)
shares of Common Stock which may be acquired upon conversion of shares of
Series A Preferred Stock outstanding as of April 30, 1997.
(2) Includes all outstanding shares of Common Stock and 11,911.545 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 the 22.22 shares of
3
<PAGE> 42
Common Stock into which it may be converted, because it is entitled to one
vote on each matter submitted to a vote of stockholders for each share of
Common Stock issuable upon conversion.
(3) Includes 187,000 shares of Common Stock issuable upon exercise of options.
(4) Includes 35,000 shares of Common Stock issuable upon exercise of options.
(5) The address of the beneficial owner is 153 East Lake Street, Wayzata, MN
55391.
(6) Includes 8,500 shares of Common Stock issuable upon exercise of options.
(7) Includes 5,500 shares of Common Stock issuable upon exercise of options.
(8) Includes 10,000 shares of Common Stock issuable upon exercise of options.
(9) Includes 1,500 shares of Common Stock issuable upon exercise of options.
(10) Includes 32,500 shares of Common Stock issuable upon exercise of options.
(11) Mr. Freeman resigned from the Company in January 1997.
(12) Includes 14,500 shares of Common Stock issuable upon exercise of options.
(13) Includes 294,500 shares of Common Stock issuable upon exercise of options.
(14) This information is based upon a Schedule 13D, filed with the SEC on May
19, 1997.
(15) This information is based upon a Schedule 13G, filed with the SEC on
February 13, 1997.
4
<PAGE> 43
DIRECTORS AND EXECUTIVE OFFICERS
PURCHASER'S DESIGNEES. As of the date of this Information Statement,
Purchaser has not determined who will be Purchaser's Designees. However,
Purchaser's Designees will be selected from among the directors and executive
officers of Parent and Purchaser. Certain information regarding the candidates
as Purchaser's Designees is contained in Schedule I annexed hereto.
None of the persons from among whom Purchaser's Designees will be selected
or their associates is a director of, or holds any position with, the Company.
To the best knowledge of the Company, none of Purchaser's Designees or their
associates beneficially owns any equity securities, or rights to acquire any
equity securities, of the Company or has been involved in any transactions with
the Company or any of its directors or executive officers that are required to
be disclosed pursuant to the rules and regulations of the SEC.
CURRENT DIRECTORS. The Board consists of seven members. The seven
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 of the Company's stockholders. The following table sets forth certain
information with respect to the current directors of the Company of as April 30,
1997.
<TABLE>
<CAPTION>
PRINCIPAL DIRECTOR EXPIRATION
NAME AGE OCCUPATION SINCE OF TERM CLASS
---- --- ---------- --------- ---------- -----
<S> <C> <C> <C> <C> <C>
William H. Baumhauer........ 48 Chairman, Chief Executive September 1988 1997 III
Officer and Director of the
Company and President of
Fuddruckers, Inc.
Allen R. Maxwell............ 57 President, Chief Operating September 1988 1997 III
Officer and Director of the
Company and President of
Daka, Inc.
Joseph W. O'Donnell......... 54 Partner, Osgood, August 1996 1997 III
O'Donnell & Walsh
E.L. Cox.................... 70 Chairman of the Board and September 1988 1998 I
Chief Executive Officer of
the Michigan Accident
Fund, Retired
Dean P. Vlahos.............. 46 Chairman of the Board, February 1996 1998 I
President and Chief
Executive Officer of Champps
Entertainment, Inc.
Erline Belton............... 52 President and Chief December 1993 1999 II
Executive Officer of
The Lyceum Group
Alan D. Schwartz............ 47 Senior Managing Director September 1988 1999 II
of Corporate Finance for
Bear, Stearns & Co. Inc.
</TABLE>
The name, age and principal occupation during the past five years and other
information concerning the Company's directors and executive officers are set
forth below:
William H. Baumhauer, 48, has served as Chairman of the Board and Chief
Executive Officer of the Company since November 1990 and as a Class III Director
since September 1988. He served as President and Chief Operating Officer of the
Company from September 1988 to November 1990. He has also served Fuddruckers,
Inc., a Texas corporation and wholly owned subsidiary of the Company
("Fuddruckers"), as Chairman of the Board since March 1985, President since
January 1985 and as a director since July 1983.
Allen R. Maxwell, 57, has served as President and Chief Operating Officer
of the Company since November 1990 and as Class III Director since September
1988. Mr. Maxwell, one of the original founders of Daka, Inc., a Massachusetts
corporation and wholly owned subsidiary of the Company ("Daka"), has also served
as its President since November 1988.
Joseph W. O'Donnell, 54, has served as a Class III Director of the Company
since August 1996. Mr. O'Donnell is a partner in the firm of Osgood, O'Donnell &
Walsh. Mr. O'Donnell has served as
5
<PAGE> 44
Chairman and Chief Executive Officer of The J. Walter Thompson Company and
Campbell-Mithun-Esty Advertising, Inc.
E.L. Cox, 70, has served as Class I director of the Company 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. Ms. 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.
Dean P. Vlahos, 46, has served as a director of the Company since February
1996. Mr. Vlahos was the founder, and has been Chairman of the Board, President
and Chief Executive Officer of Champps Entertainment, Inc., a Minnesota
corporation and wholly owned subsidiary of the Company ("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, Minnesota (opened January 1983) and Richfield, Minnesota (opened February
1986). Mr. Vlahos has over 20 years of experience in the restaurant industry.
Erline Belton, 52, has served as Class II Director of the Company 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.
Alan D. Schwartz, 47, has served as a Class II Director of the Company
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.
MEETING AND COMMITTEES
The Board of Directors of the Company has an Audit Committee, a
Compensation Committee, an Executive Committee and a Nominating Committee.
During the fiscal year ended June 29, 1996, the Board of Directors 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 full Board of Directors. Each director
attended 75% or more of the aggregate of (a) the total number of meetings of the
Board of Directors during fiscal year 1996, and (b) the total number of meetings
held by all committees of the Board of Directors on which such director served
during fiscal year 1996.
The Audit Committee has the responsibility of selecting the Company's
independent auditors and communicating with the Company's independent auditors
on matters of auditing and accounting. The Audit Committee is currently composed
of Ms. Belton and Messrs. Cox 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 and Schwartz. The Compensation
Committee also acts as the Stock Option Committee, and has the responsibility of
administering the Company's 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").
DIRECTORS' COMPENSATION
Directors receive $1,000 per meeting plus travel expenses. Under the
Company's 1994 Equity Incentive Plan, each year each non-employee director
receives options to purchase 1,500 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock as of the date of grant.
6
<PAGE> 45
EXECUTIVE COMPENSATION
The following tables provide information as to compensation paid by the
Company during each of the three previous fiscal years ending with the fiscal
year ended June 29, 1996 to the Chief Executive Officer and the four other most
highly compensated executive officers whose total salary and bonus for fiscal
year 1996 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
- --------------------------------------- ------ -------- -------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer................... 1996 $369,558 $200,000
Chairman and Chief 1995 325,000 230,000 $1,220,848(2)
Executive Officer 1994 303,708 161,000 9,000
Allen R. Maxwell....................... 1996 254,527 50,000 $ 60,000(3) 30,000(4)
President and Chief 1995 248,850 50,000 60,000(3) 5,000
Operating Officer 1994 256,036 80,500 60,000(3)
David G. Parker........................ 1996 172,160 25,000 18,000(4)
Senior Vice President 1995 171,500 30,000 1,500
and Chief Administrative Officer 1994 174,798 36,750 1,500
William T. Freeman(5).................. 1996 147,116 50,000 21,000(4)
Senior Vice President 1995 108,270 6,000
Corporate Development 1994
Louis A. Kaucic........................ 1996 154,500 25,000 15,000(4)
Senior Vice President 1995 154,500 25,000 1,500
Human Resources 1994 157,471 36,750 1,500
</TABLE>
- ---------------
(1) Represents the number of options to acquire Common Stock granted during the
fiscal year.
(2) Represents amount earned pursuant to a long-term incentive plan, based on
the market value of the Common Stock as of June 29, 1996 (the closing sale
price of the Common Stock on June 28, 1996, as reported by Nasdaq, was
$23.50 per share). Due to the decline in the Common Stock price subsequent
to June 29, 1995, as of October 22, 1996 this amount had declined to zero.
The amount earned under such plan vests on June 30, 1997 and is payable in
either cash or Common Stock at the option of the Company. 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 year 1992
in connection with the recapitalization of the Company, the Company provides
to Mr. Maxwell an annuity for which the Company pays to an insurance company
$60,000 per year for five years, which payments commenced in fiscal year
1992.
(4) Granted on August 1, 1995 pursuant to a long-term incentive plan for
management pursuant to which the options will vest 100% on August 1, 1998
and have an exercise price equal to $24.00 per share (the fair market price
of the Common Stock as of the date of grant) with respect to one-third of
the options granted, $25.80 per share with respect to another one-third of
the options granted and $27.60 per share with respect to the remaining
one-third of the options granted.
(5) Mr. Freeman became an employee of the Company in August 1994 and resigned in
January 1997.
7
<PAGE> 46
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES OF STOCK
% OF PRICE APPRECIATION
TOTAL OPTIONS FOR OPTION TERM
GRANTED TO EXERCISE (10 YEARS)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5%($) 10%($)
---- ------- ------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Allen R. Maxwell....................... 30,000 (1) 5.7% (1) 7/31/05 486,765 1,233,557
David G. Parker........................ 18,000 (1) 3.3 (1) 7/31/05 292,059 740,134
Louis A. Kaucic........................ 15,000 (1) 2.7 (1) 7/31/05 243,381 616,778
William T. Freeman..................... 21,000 (1) 4.0 (1) 7/31/05 347,737 863,490
</TABLE>
- ---------------
(1) Granted on August 1, 1995 pursuant to a long-term incentive plan for
management pursuant to which the options will vest 100% on September 1, 1998
and have an exercise price equal to $24.00 per share (the fair market price
of the Common Stock as of the date of grant) with respect to one-third of
the options granted, $25.80 per share with respect to another one-third of
the options granted and $27.60 per share with respect to the remaining
one-third of the options granted.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF OUTSTANDING
NUMBER OF BENEFICIAL IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer........ -- -- 187,000 -- $ 3,584,580 --
Allen R. Maxwell............ -- -- 35,000 30,000 683,100 --
David G. Parker............. 10,000 $187,500 32,500 18,000 585,985 --
Louie A. Kaucic............. 0 -- 14,500 15,000 223,985 --
William T. Freeman.......... 6,000 86,220 -- 21,000 -- --
</TABLE>
- ---------------
(1) Based on the closing bid price on the Nasdaq National Market of $23.50 per
share on June 28, 1996.
LONG-TERM INCENTIVE PLAN--AWARD IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS PERIOD UNTIL NON STOCK-PRICE-BASED PLANS
OR OTHER MATURATION ------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- ------------------------------------- ------------- -------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
William H. Baumhauer................. (1) June 30, 1997 (1) (1) (1)
</TABLE>
- ---------------
(1) The long-term incentive plan implemented by the Company's Board of Directors
on July 3, 1994 for the Chief Executive Officer is designed to provide an
incentive payment, payable at the Company's option in the form of either
cash or stock, equal to 2% of the increase in the market value of the
Company, 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
Each of Mr. Baumhauer and Mr. Maxwell entered into a new employment
agreement effective January 1, 1997, which provides for an initial term of three
(3) years and automatic renewal each year so that the residual term of the
agreement is never less than three years. The new agreements provide for initial
annual base salaries of $450,500 for Mr. Baumhauer and $265,000 for Mr. Maxwell.
Any adjustments to these amounts are at the discretion of the Board of
Directors. Each of the agreements provides that in the event the
8
<PAGE> 47
Company terminates the executive's employment without "cause" (as defined
therein) or the executive terminates his employment for "good reason" (as
defined therein), the Company shall pay the executive an amount equal to the
executive's cash compensation for three years. "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 the
Company, (ii) conviction of a felony or crime of moral turpitude, (iii) willful
violation of the terms of the agreement, (iv) conscious disregard or neglect of
his duties, or (v) willful and demonstrated unwillingness to perform his duties
under the agreement.
Mr. Maxwell entered into a Termination and General Release Agreement (the
"Release") with the Company and Unique Casual Restaurants, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("New International"), as
of May 27, 1997. Pursuant to the Release and conditioned upon the consummation
of the Offer, (i) Mr. Maxwell will terminate his employment agreement with the
Company as of the consummation of the Offer, (ii) each of the Company and Mr.
Maxwell will release the other from any claims it may have under the employment
agreement as of the consummation of the Offer and (iii) New International will
pay Mr. Maxwell $500,000 over a three-year period that commences on January 1,
1998.
On May 23, 1997, Mr. Maxwell entered into an employment agreement (the "New
Maxwell Employment Agreement") by and among Compass Group USA, Inc., a
subsidiary of Parent ("Compass US"), the Company and Daka. Pursuant to the New
Maxwell Employment Agreement, Mr. Maxwell will act as the President of Daka and
will be an officer and a member of senior management of Compass US during the
term of the agreement. The agreement provides for an initial term commencing at
the Effective Time and ending on September 30, 1999, and for a continuing term
until the agreement is terminated in accordance with the terms thereof. Under
the New Maxwell Employment Agreement, Mr. Maxwell shall receive an annual base
salary of $280,000 and other customary benefits, and is eligible to receive a
discretionary bonus for his services rendered during the initial term. The
agreement further provides that in the event Mr. Maxwell's employment is
terminated without "cause" (as defined therein), he shall be paid a severance
amount equal to one and one-half times his total compensation under the
agreement payable over an eighteen-month period. The New Maxwell Employment
Agreement is contingent upon the consummation of the Merger.
In connection with a series of transactions related to the Offer and
Merger, the Company will, subject to certain conditions, undertake to (i)
transfer all of the restaurant operations and franchising businesses of the
Company and its subsidiaries, including the Fuddruckers and Champps Americana
restaurant chains, to New International and (ii) declare a dividend of one share
of common stock, par value $.01 per share, of New International for each Share
held of record as of a date to be determined by the Board (currently anticipated
to be June 24, 1997) (the "Distribution"). Following the Distribution, New
International shall assume, and the Company will be released from, the
employment agreement with Mr. Baumhauer.
Under the terms of an employment agreement among the Company, Champps and
Mr. Vlahos which commenced on February 21, 1996, Mr. Vlahos provides full-time
services to Champps in the capacity of Chairman of the Board, Chief Executive
Officer and President, for a five (5) year term. Under the agreement, 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 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 Board of Directors of the Company, which amount may be increased to up to
100% of his base salary if he exceeds such performance targets by margins
determined by the Board of Directors. Twenty percent (20%) of the potential
bonus payments for Mr. Vlahos are related to performance targets established for
the Company 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 the Company without "cause," during the term of his employment
contract, the Company 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
9
<PAGE> 48
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 the Company, (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 the Company for cause, Mr. Vlahos shall be provided the right,
subject to certain obligations to the Company, to establish a franchise for up
to five 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. Following the
Distribution, New Interntional shall succeed the Company under the employment
agreement with Mr. Vlahos with substantially the same terms and conditions.
COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1996
The Compensation Committee reviews and approves compensation levels for the
Company's executive officers and oversees and administers the Company's
executive compensation programs. All members of the Compensation Committee,
listed at the end of this report, are non-employee directors who are not
eligible to participate in the compensation programs that the Compensation
Committee oversees except for nondiscretionary option grants. See
" -- Directors' Compensation."
Philosophy. The Compensation Committee believes that the interests of the
Company's stockholders are best served when compensation is directly aligned
with the Company'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 the Company's performance.
Responsibilities. The responsibilities of the Compensation Committee
include:
- developing compensation programs that are consistent with and are linked
to the Company's strategy;
- assessing the performance of and determining an appropriate compensation
package for the Chief Executive Officer; and
- ensuring that compensation for the other executive officers reflects
individual, team, and the Company's performance appropriately.
Purpose. The Company'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 the Company'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 the Company'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 the Company'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 the Company'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
the Company. The objective is to maintain
10
<PAGE> 49
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 the Company'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 the Company. 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
the Company's Management Annual Incentive Plan.
It is the Company'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 the Company
as a whole and, where applicable, the performance of specific business units.
The Compensation Committee annually reviews base salaries. In making
individual base salary recommendations, the Compensation Committee considers the
executive's experience, management and leadership ability and technical skills,
his or her compensation history, the Company's or its subsidiaries' performance
and individual 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: the Company'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 the Company's performance.
Under the CEO Long Term Incentive Plan(the "LTIP"), Mr. Baumhauer is
eligible to earn a percentage of an increase in the Company's value
("Performance Award"), 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 Common Stock. Pursuant to its right to adjust the Performance Award
if it determines that external changes or other business conditions have
materially affected the intended operation of the LTIP, the Compensation
Committee determined, in contemplation of the Offer, the Merger and the
Distribution, to amend the terms of the LTIP. For a detailed summary of the
amendments to the LTIP, see Item 3 of the Company's Schedule 14D-9 of which this
Information Statement is a part.
The Management Long Term Incentive Plan, developed by the Compensation
Committee effective for fiscal year 1996 and beyond, grants stock options to
senior management and certain other managers. The options 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 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
11
<PAGE> 50
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's total compensation
for 1996 reflects the Compensation Committee's view of his outstanding
performance and leadership in executing expansion plans for future growth,
completing two major restaurant acquisitions, restructuring the balance sheet
and articulating a clear and sound approach to restore profitability levels and
pursue long-term growth in shareholder value, as well as the Compensation
Committee's goal of maintaining his compensation at a level competitive with
that of chief executives comparable to the Company. Mr. Baumhauer was awarded an
annual incentive award of $200,000, compared to $230,000 for the prior year. Mr.
Baumhauer's salary was increased to $450,500 from $370,000, representing a 21.6%
increase. His long term incentive award, although not vested until June 30,
1997, had, as of June 29, 1996, a value of approximately $1,220,848 (based on
the then market value of the Common Stock, which closed on Nasdaq at $23 1/2 per
share on June 28, 1996), compared to $380,000 as of July 1, 1995; due to the
decline in the Common Stock price subsequent to June 29, 1996, as of the time
when the Compensation Committee determined the compensation for Mr. Baumhauer
and as of October 22, 1996 the value of his long term incentive award had
declined to zero. The dramatic effect of changes in the value of Mr. Baumhauer's
long term incentive award, as determined by changes in the value of the Common
Stock, on his total compensation reflect the Compensation Committee's philosophy
that variable, at-risk pay should comprise a significant portion of overall
executive compensation.
Compensation of Other Officers. The Company'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 on the
responsibilities of particular officers.
Erline Belton
E.L. Cox
Alan D. Schwartz
12
<PAGE> 51
PERFORMANCE GRAPH
The following graph presents a five-year comparison, through the end of
fiscal year 1996, of total cumulative returns on the Common Stock, the S&P 500
Index and a Company-selected peer group consisting of businesses in the
foodservice and restaurant industries, assuming an initial investment of $100
and reinvestment of all dividends.
<TABLE>
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
<CAPTION>
6/28/91 6/26/92 6/25/93 7/1/94 6/30/95 6/28/96
<S> <C> <C> <C> <C> <C> <C>
DAKA 100 141 193 247 435 442
S&P 500 Index 100 111 127 131 165 206
Peer Group 100 69 64 55 52 31
</TABLE>
The companies included in the peer group are: Bertucci's, Inc., Ground
Round Restaurants, Inc., Hamburger Hamlet Restaurants, Inc., Sizzler
International, Inc., and Uno Restaurant Corporation and, for years prior to
1996, Morrison, Inc. In 1996 Morrison, Inc. was acquired by another firm and its
stock ceased to be publicly traded. 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 total cumulative returns on the Common Stock shown are neither
indicative nor determinative of the Company's current or future stock price
performance.
13
<PAGE> 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Alan D. Schwartz is Senior Managing Director -- Corporate Finance of Bear,
Stearns & Co. Inc. ("Bear Stearns") and a director of the Company. Bear Stearns
has acted as the Company's financial advisor in connection with the Offer, the
Merger and the Distribution, and will receive from the Company a transaction fee
which is expected to equal approximately $1.95 million. In addition, the Company
has agreed to reimburse Bear Stearns for its expenses, including the fees and
disbursements of its counsel, and to indemnify Bear Stearns against certain
liabilities in connection with its engagement.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that Company's executive
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities to file reports of ownership and changes in
ownership with the SEC and to furnish copies to the Company.
Based upon a review of the reports furnished to the Company and
representations made to the Company by its officers and directors, the Company
believes that, during fiscal year 1996, its officers, directors and 10%
beneficial owners complied with all applicable reporting requirements.
LEGAL PROCEEDINGS
On October 18, 1996, a purported class action law suit was filed in the
United States District Court for the District of Massachusetts on behalf of
persons who acquired the Company's Common Stock between October 30, 1995 and
September 9, 1996 (Venturino et al. V. DAKA International, Inc. and William H.
Baumhauer, Civil Action No. 96-12109-GAO). The complaint alleges violations of
federal and state securities laws by, among other things, allegedly
misrepresenting and/or omitting material information concerning the results and
prospects of Fuddruckers during that period and seeks compensatory damages and
reasonable costs and expenses, including counsel fees. Based on the complaint,
the Company believes that the case is without merit and intends to defend itself
vigorously.
From time to time, the Company has been involved in other disputes and/or
litigation with respect to the operations of its business encountered in its
normal course of business. In the opinion of management, however, none of these
other legal proceedings would result in final judgments which would have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
14
<PAGE> 53
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The name, business
address, present principal occupation or employment and five-year employment
history of each director and executive officer of Parent and certain other
information are set forth below. Unless otherwise indicated below, the address
of each director and officer is c/o Compass Group PLC, Cowley House, Guildford
Street, Chertsey, Surrey, England KT169BA. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
Parent. Unless otherwise indicated below, the directors and officers listed
below are citizens of the United Kingdom. Directors are identified by a single
asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE
NAME POSITIONS AND OFFICES DURING PAST FIVE YEARS; OUTSIDE
(AGE AT 4/30/97) HELD WITH PARENT DIRECTORSHIPS
- ------------------------------ ------------------------- -----------------------------------
<S> <C> <C>
John M. Thomson* (69) Non-executive Chairman Non-executive Chairman of Parent
since March 1994; Vice Chairman of
J. Bibby & Sons PLC, a UK-based
industrial corporation, c/o J.
Bibby & Sons, 16 Stratford Place,
London W1N 9AF; Mr. Thomson is
Non-executive Chairman of
Wellington Underwriting PLC and
Non-executive Director of Thames
Water PLC.
Michael J. Bailey* (48) Director, Chief Executive Director of Parent since 1995 and
Officer, US Division Chief Executive Officer of Parent's
US Division since 1994, c/o Compass
Holdings, Inc., 2400 Yorkmont Road,
Charlotte, North Carolina 28217.
From 1993 to 1994, Mr. Bailey was
Managing Director in charge of
Parent's branded concept division.
Prior to 1993, Mr. Bailey was
President of the US catering
division of Gardner Merchant
Limited, a UK foodservices company,
c/o 153 Second Avenue, Waltham, MA
02154.
Denis P. Cassidy* (64) Non-executive Director Non-executive Director of Parent
since June 1994; Chairman of
Ferguson International Holdings
PLC, a UK-based paper, packaging
and printing company, c/o Ferguson
International Holdings, 210 Regent
Street, London W1R 6AH. Mr. Cassidy
is also Non-executive Chairman of
Liberty Public Limited Company and
Oliver Group PLC and is a
Non-executive Director of Seeboard
PLC.
Peter E. B. Cawdron* (53) Non-executive Director Non-executive Director since 1993;
Group Strategy Development Director
for Grand Metropolitan PLC, a UK-
based retail food and beverage
corporation, c/o Grand Metropolitan
PLC, 8 Henrietta Place, London W1M
9AG.
</TABLE>
15
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE
NAME POSITIONS AND OFFICES DURING PAST FIVE YEARS; OUTSIDE
(AGE AT 4/30/97) HELD WITH PARENT DIRECTORSHIPS
- ------------------------------ ------------------------- -----------------------------------
<S> <C> <C>
Alain Dupuis* (52) Executive Director; Executive Director and President of
President of Eurest Eurest International subsidiary of
International Division Parent since Parent's acquisition
of Eurest in 1995. Prior to 1995,
Mr. Dupuis was President of the
Eurest International division of
the Accor Group, a French hotel
corporation, c/o Accor, 189/193,
Boulevard Malesherbes, 75838,
Paris, Cedex 17. Mr. Dupuis is a
citizen of Belgium.
Andrew Lynch* (40) Group Finance Director Group Finance Director of Parent
since 1997. Prior to 1997, Mr.
Lynch was Finance Director of
Parent's UK Division.
Francis H. Mackay* (52) Chief Executive and Chief Executive and Deputy Chairman
Deputy Chairman of Parent since 1991 and 1994,
respectively; Non-executive
Director of Centrica PLC,
Healthcall PLC and Allied Carpets
Group PLC.
Roger J. Matthews* (42) Managing Executive Managing Executive Director of
Director Parent since 1997. Prior to 1997,
Mr. Matthews was Executive Director
of Group Finance.
John DuMonceau* (58) Non-executive Director Non-executive Director of Parent
since 1995; Executive Vice
President of the Accor Group, a
French hotel corporation, c/o
Accor, 189/193, Boulevard
Malesherbes, 75838, Paris, Cedex
17. Mr. DuMonceau is a citizen of
Belgium.
Ronald M. Morley (44) Secretary Secretary of Parent since 1989.
Gerard Pelisson* (65) Non-executive Director Non-executive Director of Parent
since 1995; Co-chairman of the
Accor Group, a French hotel
corporation, c/o Accor, 2 Rue De La
Mare-Neuve, 91022 Evry Cedex,
Paris.
Friedrich L.R. Ternofsky* (53) Executive Director; Chief Chief Executive Officer of Parent's
Executive Officer of UK UK and Scandinavian Operations
and Scandinavian Catering since 1995. From 1993 to 1995, Mr.
Division Ternofsky was Executive Director of
Parent's European Catering
Division. Prior to 1993, Mr.
Ternofsky was Managing Director and
Chief Operating Officer of Scott's
Hospitality Limited, the UK
division of a Canadian hotel
corporation, c/o Scott's
Hospitality, Slough, Berkshire, SL3
8PT England. Mr. Ternofsky was
appointed as an Executive Director
to Parent's board of directors in
June 1993, having been a
Non-executive Director since 1987.
</TABLE>
16
<PAGE> 55
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE
NAME POSITIONS AND OFFICES DURING PAST FIVE YEARS; OUTSIDE
(AGE AT 4/30/97) HELD WITH PARENT DIRECTORSHIPS
- ------------------------------ ------------------------- -----------------------------------
<S> <C> <C>
Michael J. Bailey* (48) Director, President and See above.
Chief Executive Officer
Francis H. Mackay* (52) Director See above.
Roger J. Matthews* (42) Director See above.
Mary H. Kercher (35) Vice President, General Vice President, General Counsel and
Counsel and Secretary Secretary of Parent's US Division
since 1997, c/o 2400 Yorkmont Road,
Charlotte, North Carolina 28217.
From 1994 to 1997, Ms. Kercher was
Assistant General Counsel and
Assistant Secretary of Parent's US
Division. Prior to 1994, Ms.
Kercher was Assistant General
Counsel of Canteen Corporation, a
subsidiary of Flagstar Corporation,
a US foodservices company, c/o
Flagstar Corporation, 203 E. Main
Street. Spartanburg, South Carolina
29319.
</TABLE>
17
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
by and among
COMPASS GROUP PLC,
COMPASS HOLDINGS, INC.,
COMPASS INTERIM, INC.,
and
DAKA INTERNATIONAL, INC.
MAY 27, 1997
A-1
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
ARTICLE I
THE OFFER
<C> <S> <C>
Section 1.1 The Offer.................................................................................... 2
Section 1.2 Actions of International..................................................................... 3
Section 1.3 Stockholder Lists............................................................................ 3
Section 1.4 Series A Preferred Stock..................................................................... 3
Section 1.5 Stock Option and Stock Purchase Plans........................................................ 4
Section 1.6 Offer Closing................................................................................ 5
Section 1.7 Repayment of Funded Debt, Release of Liens................................................... 5
ARTICLE II
THE MERGER
Section 2.1 The Merger................................................................................... 5
Section 2.2 Merger Closing............................................................................... 5
Section 2.3 Merger Effective Time........................................................................ 6
Section 2.4 Stockholders' Meeting........................................................................ 6
Section 2.5 Effects of the Merger........................................................................ 6
Section 2.6 Certificate of Incorporation and Bylaws...................................................... 7
Section 2.7 Directors.................................................................................... 7
Section 2.8 Officers..................................................................................... 7
Section 2.9 Reservation of Right to Revise Transaction Structure......................................... 7
ARTICLE III
EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Capital Stock...................................................................... 7
(a) Conversion of Shares..................................................................... 7
(b) Shares of Series A Preferred Stock....................................................... 8
Section 3.2 Dissenting Shares; Exchange of Certificates.................................................. 8
(a) Dissenting Shares of International Common Stock.......................................... 8
(b) Exchange of Shares of International Common Stock......................................... 9
(c) Termination of Exchange Fund............................................................. 9
(d) No Liability............................................................................. 10
(e) Withholding Rights....................................................................... 10
(f) Transfer Taxes........................................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Certain Definitions.......................................................................... 10
Section 4.2 Representations and Warranties of International.............................................. 11
(a) Organization, Standing, Corporate Power and Subsidiaries................................. 11
(b) Capital Structure........................................................................ 11
(c) Authority; Noncontravention.............................................................. 12
(d) Reports.................................................................................. 14
(e) Schedule 14D-9; Offer Documents; Form 10; Information Statement.......................... 15
(f) Absence of Certain Changes or Events..................................................... 15
(g) Litigation............................................................................... 15
(h) Compliance with Applicable Laws.......................................................... 16
(i) Brokers or Finders....................................................................... 16
</TABLE>
A-2
<PAGE> 3
<TABLE>
<C> <S> <C>
(j) The Foodservice Business................................................................. 16
(k) Material Contracts....................................................................... 17
(l) Benefit Plans, Employment and Labor Relations............................................ 19
(m) Absence of Certain Business Practices.................................................... 23
(n) Intellectual Property.................................................................... 24
(o) Taxes.................................................................................... 25
(p) Insurance Policies....................................................................... 26
(q) Actions Affecting Recent Acquisitions.................................................... 26
(r) Foodservice Business Financial Statements................................................ 26
(s) Indebtedness............................................................................. 26
(t) Properties............................................................................... 27
(u) Real Property............................................................................ 27
(v) Environmental Matters.................................................................... 28
(w) Fraudulent Conveyance; Solvency.......................................................... 28
Section 4.3 Representations and Warranties of Compass, Compass Holdings and Compass Interim.............. 29
(a) Organization, Standing and Corporate Power............................................... 29
(b) Authority; Noncontravention.............................................................. 29
(c) Schedule 14D-1; Offer Documents; Form 10; Information Statement.......................... 30
(d) Sufficient Funds......................................................................... 31
(e) Consummation of Transactions............................................................. 31
(f) Voting Requirements...................................................................... 31
(g) Brokers or Finders....................................................................... 31
ARTICLE V
COVENANTS
Section 5.1 Covenants of International and Daka.......................................................... 31
(a) Ordinary Course.......................................................................... 31
(b) Changes in Stock......................................................................... 32
(c) Governing Documents...................................................................... 33
(d) No Acquisitions.......................................................................... 33
(e) No Dispositions.......................................................................... 33
(f) Indebtedness............................................................................. 33
(g) Benefit Plans; Collective Bargaining Agreements.......................................... 34
(h) Employee Agreements...................................................................... 34
(i) [Reserved]............................................................................... 34
(j) Accounting Policies and Procedures....................................................... 34
(k) Liens.................................................................................... 34
(l) Deferred Tax Assets and Liabilities...................................................... 34
(m) Exclusivity.............................................................................. 35
(n) Confidentiality and Standstill Agreements................................................ 36
(o) Pending Actions.......................................................................... 36
(p) Access to Information; Confidentiality................................................... 36
(q) Corporate Records........................................................................ 37
(r) No Agreement to Prohibited Actions....................................................... 37
Section 5.2 Mutual Covenants............................................................................. 37
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Fees and Expenses............................................................................ 39
Section 6.2 Ancillary Agreements......................................................................... 39
Section 6.3 Composition of the Board of Directors; Section 14(f)......................................... 40
Section 6.4 Certain Prior Actions........................................................................ 41
</TABLE>
A-3
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 6.5 Tax Treatment................................................................................ 42
Section 6.6 Indemnification of Officers and Directors.................................................... 42
Section 6.7 Offer Closing Date Payments.................................................................. 42
Section 6.8 Non-Waiver of Conditions..................................................................... 42
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger................................... 43
(a) Shareholder Approval..................................................................... 43
(b) No Prohibition........................................................................... 43
(c) Consummation of the Offer................................................................ 43
(d) Consummation of the Distribution......................................................... 43
(e) No Injunctions, Litigation or Restraints................................................. 43
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination.................................................................................. 43
Section 8.2 Effect of Termination........................................................................ 44
Section 8.3 Amendment.................................................................................... 45
Section 8.4 Extension; Waiver............................................................................ 45
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties................................................... 46
Section 9.2 Notices...................................................................................... 46
Section 9.3 Interpretation............................................................................... 47
Section 9.4 Counterparts................................................................................. 47
Section 9.5 Entire Agreement; No Third-party Beneficiaries............................................... 47
Section 9.6 Governing Law................................................................................ 47
Section 9.7 Assignment................................................................................... 47
Section 9.8 Enforcement.................................................................................. 47
(a) Specific Performance..................................................................... 47
(b) Jurisdiction............................................................................. 48
ARTICLE X
DEFINITIONS
Section 10.1 General...................................................................................... 48
Section 10.2 Certain Definitions.......................................................................... 51
</TABLE>
<TABLE>
LIST OF EXHIBITS:
<S> <C> <C>
Exhibit 1.1(a) Conditions of the Offer
Exhibit 1.1(a)(i) Form of Goodwin, Procter & Hoar, LLP Legal Opinion..........................[Omitted]
Exhibit 2.6(a) Certificate of Incorporation of the Surviving Corporation...................[Omitted]
</TABLE>
A-4
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is dated as of May 27, 1997 (the
"Agreement"), by and among COMPASS GROUP PLC, a public limited company
incorporated in England and Wales ("Compass"), COMPASS HOLDINGS, INC., a
Delaware corporation ("Compass Holdings"), COMPASS INTERIM, INC., a Delaware
corporation ("Compass Interim") and DAKA INTERNATIONAL, INC., a Delaware
corporation ("International").
RECITALS:
WHEREAS, the Board of Directors of Compass has approved a tender offer
whereby Compass Holdings will offer to purchase for cash (the "Offer") any and
all of the common stock, par value $.01 per share, of International (the
"International Common Stock"), subject only to the conditions set forth in
Exhibit 1.1(a) attached hereto (the "Offer Conditions");
WHEREAS, the Board of Directors of International has approved a plan of
contribution and distribution as described in the Reorganization Agreement (as
defined below) pursuant to which, prior to expiration of the Offer, (a) all of
the assets and liabilities of the restaurant business (the "Restaurant
Business") currently operated by International and certain other assets and
liabilities of International or its wholly owned subsidiary, Daka, Inc., a
Massachusetts corporation ("Daka"), together with the shares of the subsidiaries
of International not engaged in the food catering, contract catering and vending
(together, "foodservice") business, will be contributed (the "Contribution") to
Unique Casual Restaurants, Inc., a Delaware corporation and a wholly owned
subsidiary of International ("UCRI"), and (b) all of the stock of UCRI (the
"UCRI Common Stock") will be distributed on a pro rata basis to International's
stockholders as provided in the Reorganization Agreement (the "Distribution");
WHEREAS, following the Contribution and the Distribution, International and
Daka will own the assets and perform the customer and certain other obligations
of the foodservice business currently operated by International and Daka (the
"Foodservice Business");
WHEREAS, Compass Holdings is an indirect, wholly owned subsidiary of
Compass, and Compass Interim is a direct, wholly owned subsidiary of Compass
Holdings; and
WHEREAS, the respective Boards of Directors of Compass, Compass Holdings,
Compass Interim and International have determined that, following the
Contribution and Distribution, the merger of Compass Interim with and into
International (the "Merger") with International as the surviving corporation
(the "Surviving Corporation") would be advantageous and beneficial to their
respective corporations and stockholders;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer.
(a) Subject to this Agreement not having been terminated in accordance with
the provisions of Article VIII hereof, Compass Holdings shall, and Compass shall
cause Compass Holdings to, as promptly as practicable, but in no event later
than five business days from the date of the public announcement of the terms of
this Agreement, commence the Offer, subject to the Offer Conditions, at a price
of not less than $7.50 per share (the "Offer Price"), net to the seller in cash.
Compass Holdings shall (i) subject only to the Offer Conditions, accept for
payment and pay for all shares of International Common Stock tendered pursuant
to the terms of the Offer at the earliest possible time on the date (the "Offer
Closing Time") as promptly as practicable following the record date (the "Record
Date") established by International's Board of Directors for eligibility for
receipt of the Distribution, and (ii) subject only to the conditions set forth
in paragraph (ii) of the Offer Conditions, extend the period of time the Offer
is open until the first business day following the Record Date; provided that in
event the conditions set forth in Section (i) of Exhibit 1.1(a) are not
satisfied, Compass Holdings shall extend the period of time the Offer is open
until the time such conditions are satisfied or until July 31, 1997, whichever
is earlier. Subject to the provisions set forth herein and in the Reorganization
Agreement, International's Board of Directors shall
A-5
<PAGE> 6
establish such Record Date and the Distribution Date (as defined in the
Reorganization Agreement) at the earliest reasonably practicable date and as
soon as practicable after having been notified by Compass of the Offer Closing
Time. Compass will not, nor will it permit any of its Affiliates to, tender into
the Offer any shares of International Common Stock beneficially owned by it, nor
subject to the preceding sentence, will Compass or Compass Holdings extend the
expiration date of the Offer beyond the twentieth business day following
commencement thereof without the prior written consent of International unless
one or more of the Offer Conditions shall not be satisfied or unless Compass
Holdings reasonably determines that such extension is necessary to comply with
any legal or regulatory requirement relating to the Offer. Compass Holdings
expressly reserves the right to amend the terms or conditions of the Offer,
provided that no amendment may be made which changes the form of consideration
to be paid or decreases the price per share or the number of shares of
International Common Stock sought in the Offer or which imposes conditions to
the Offer in addition to the Offer Conditions or broadens the scope of such
conditions, and no other amendment may be made in the terms or conditions of the
Offer which is adverse to the holders of International Common Stock.
International agrees that no shares of International Common Stock held by
International or any Subsidiary of International will be tendered pursuant to
the Offer. Notwithstanding anything to the contrary contained in this Agreement,
Compass Holdings shall not be required to commence the Offer in any foreign
country where the commencement of the Offer, in Compass Holdings' reasonable
opinion, would violate the applicable law of such jurisdiction.
(b) On the date of the commencement of the Offer, Compass Holdings shall
file with the Securities and Exchange Commission (the "SEC") a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer which will contain an
offer to purchase and form of the related letter of transmittal (together with
any supplements or amendments thereto, collectively the "Offer Documents").
International and its counsel shall be given a reasonable opportunity to review
and comment on the Offer Documents prior to the filing of such Offer Documents
with the SEC. Compass Holdings agrees to provide International and its counsel
in writing with any comments Compass Holdings and its counsel may receive from
the SEC or its staff with respect to the Offer Documents promptly after the
receipt thereof.
Section 1.2 Actions of International. International hereby approves of and
consents to the Offer and represents that its Board of Directors has unanimously
(i) determined that the Offer, on the terms and conditions set forth herein
(including the Offer Conditions), the Distribution and the Merger are fair to
the stockholders of International and are in the best interests of the
stockholders of International and (ii) resolved to recommend acceptance of the
Offer by the stockholders of International and, if required by applicable law,
the approval and adoption of this Agreement by the stockholders of
International. International further represents that Bear Stearns & Co., Inc.
has delivered to the Board of Directors of International its opinion that, taken
together, the shares of UCRI Common Stock to be received in the Distribution and
the consideration to be received by the holders of shares of International
Common Stock in the Offer and the Merger are fair from a financial point of view
to such holders. International hereby agrees to file a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
containing such recommendations with the SEC (and the information required by
Section 14(f) of the Exchange Act, hereinafter defined, if Compass Holdings
shall have furnished such information to International in a timely manner) and
to mail such Schedule 14D-9 to the stockholders of International immediately
following the commencement of the Offer. International agrees to provide Compass
Holdings and its counsel in writing with any comments International may receive
from the SEC or its staff with respect to such Schedule 14D-9 promptly after
receipt thereof.
Section 1.3 Stockholder Lists. In connection with the Offer, International
will promptly furnish Compass Holdings with mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of International Common Stock as of a recent
date and shall furnish Compass Holdings with such information and assistance as
Compass Holdings or its agents may reasonably request in communicating the Offer
to the record and beneficial holders of shares of International Common Stock.
Subject to the requirements of applicable law or regulation, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Merger, Compass Holdings and its
Affiliates and associates shall hold in confidence the information contained in
any such labels, listings and files, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated,
shall return to International the originals and all copies of such information
then in their possession.
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Section 1.4 Series A Preferred Stock. Each of Compass, Compass Holdings,
International, First Chicago Equity Corporation, an Illinois corporation
("FCEC"), Cross Creek Partners I, an Illinois general partnership ("Cross
Creek") and the other beneficial holders of all of the issued and outstanding
shares of Series A Preferred Stock, par value $.01 per share, of International
(the "Series A Preferred Stock") (collectively, the "Series A Preferred
Stockholders"), have entered into a certain Stock Purchase Agreement, dated as
of the date hereof (the "Series A Preferred Stock Purchase Agreement"), pursuant
to which Compass Holdings has agreed to purchase, and the Series A Preferred
Stockholders have agreed to sell, all issued and outstanding shares of Series A
Preferred Stock and all of warrants exercisable for shares of International
Common Stock upon redemption of the Series A Preferred Stock (the "Warrants") at
a purchase price equal to the product of the Offer Price by the number of shares
of International Common Stock into which such shares of Series A Preferred Stock
are convertible as of the Offer Closing Time. The sale will occur as soon as
practicable following the Offer Closing Time and is contingent upon the
consummation of the Offer in accordance with its terms and the purchase price
shall be paid in cash in an amount calculated in accordance with the Series A
Preferred Stock Purchase Agreement. The Series A Preferred Stockholders will
receive no consideration in the Offer or in the Merger. In the Series A
Preferred Stock Purchase Agreement, International agreed to distribute to the
Series A Preferred Stockholders the number of shares of UCRI Common Stock to
which they would be entitled if they converted the Series A Preferred Stock into
Common Stock immediately prior to the Record Date and UCRI agreed to pay to the
Series A Preferred Stockholders any and all dividends accrued and unpaid with
respect to the Series A Preferred Stock as of the Offer Closing Date.
Section 1.5 Stock Option and Stock Purchase Plans.
(a) International shall make all adjustments and take all steps set forth
in Section 7.4 of the Reorganization Agreement with respect to outstanding
options ("International Options") to acquire shares of International Common
Stock which are held by any employee or consultant or former employee or
consultant or director or former director of International or any of its
Subsidiaries as a result of the Distribution and other transactions contemplated
hereby and thereby. After taking into account all such adjustments to such
International Options and the other matters set forth in Section 7.4 of the
Reorganization Agreement, all International Options which are outstanding
immediately prior to Compass Holdings' acceptance for payment and payment for
shares of International Common Stock pursuant to the Offer shall, regardless of
whether such International Options are vested and exercisable (including,
without limitation, obtaining any required consents from holders of the
International Options to all of the matters contemplated by this Section) shall
be cancelled as of the Offer Closing Time and the holders thereof shall be
entitled to receive from UCRI, for each share of International Common Stock
subject to such International Option, an amount in cash equal to the positive
difference between the Offer Price and the per share exercise price of such
International Option, less all applicable withholding taxes, which amount shall
be payable by UCRI not later than 30 days after the Offer Closing Time.
(b) International shall make all adjustments and take all steps set forth
in Section 7.4 of the Reorganization Agreement with respect to the DAKA
International Employee Stock Purchase Plan (the "Stock Purchase Plan") regarding
the shares of International Common Stock purchasable by participating employees
of International or its Subsidiaries (the "Participating Employees") under the
Stock Purchase Plan with respect to such Offering (the "Purchasable Shares"). In
lieu of receiving Purchasable Shares the Participating Employees shall be
entitled to receive from UCRI, for each Purchasable Share of International
Common Stock, in addition to the UCRI Common Stock in the Distribution as
provided in Section 7.4 of the Reorganization Agreement, an amount in cash equal
to the positive difference between the Offer Price and the per share purchase
price of such Purchasable Share under the Stock Purchase Plan, less all
applicable withholding taxes, which amount shall be payable by UCRI not later
than 30 days after the Offer Closing Time, whereafter all rights of
Participating Employees under the Stock Purchase Plan shall terminate.
(c) International shall use its reasonable best efforts to ensure that
neither International nor any of its Subsidiaries is or will be bound by any
options, warrants, rights or agreements which would entitle any person, other
than Compass, Compass Holdings, Compass Interim or International or any of their
respective Subsidiaries, to beneficially own, or receive any payments in respect
of, any capital stock of International or the Surviving Corporation (other than
as provided in this Agreement or in the Ancillary Agreements).
Section 1.6 Offer Closing. The closing of the Offer (the "Offer Closing")
will take place immediately prior to the Offer Closing Time upon the
satisfaction or waiver of the Offer Conditions at the offices of Smith Helms
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Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, or
on such other date or at such other place as is agreed to in writing by the
parties hereto. The parties agree to use reasonable efforts to cause the Offer
Closing to occur on or before June 28, 1997 or, if not reasonably practicable,
then as soon as practicable thereafter. The date of the Offer Closing is
referred to herein as the "Offer Closing Date."
Section 1.7 Repayment of Funded Debt, Release of Liens. Simultaneously with
the Offer Closing Time, Compass Holdings shall, or shall cause International to,
repay the Funded Debt (as defined in Section 5.1(f) (ii) hereof) in accordance
with the document referenced in Section 6.4(b)(ii) hereof and International
shall use its reasonable best efforts to cause the lenders under the Credit
Facility to deliver to UCRI and to Compass Holdings, as appropriate, such
documents or instruments referenced in Section 6.4(b)(ii) hereof necessary to
release or terminate all Liens on assets of International, UCRI or their
respective Subsidiaries securing the Funded Debt.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Compass Interim shall be merged with and into International as
soon as practicable after the Offering Closing Time. Following the Merger, the
separate corporate existence of Compass Interim shall cease, and International
shall continue as the Surviving Corporation and shall succeed to and assume all
the rights and obligations of Compass Interim in accordance with the DGCL.
Section 2.2 Merger Closing. The closing of the Merger (the "Merger
Closing") will take place within five business days after the satisfaction or
waiver of the conditions set forth in Article VII, at the offices of Smith Helms
Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, or
on such other date or at such other place as established by Compass Holdings and
approved by the Independent Directors as provided in Section 6.3 hereof. If a
sufficient number of shares of International Common Stock is acquired by Compass
Holdings pursuant to the Offer such that a stockholders' meeting pursuant to
Section 2.4 hereof is not required to consummate the Merger, Compass Holdings
shall use reasonable best efforts to cause the Merger Closing to occur
immediately after the Offer Closing Time. Otherwise Compass Holdings agrees to
use reasonable best efforts to cause the Merger Closing to occur as soon as
practicable after the Offer Closing Time. The date of the Merger Closing is
referred to herein as the "Merger Closing Date."
Section 2.3 Merger Effective Time. On the Merger Closing Date, the parties
shall file certificates of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL, and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective immediately following the
Distribution upon the filing of the Certificate of Merger with the Delaware
Secretary of State or at such other time as shall be specified in the
Certificate of Merger by agreement of International and Compass Holdings (the
time the Merger becomes effective being the "Merger Effective Time").
Section 2.4 Stockholders' Meeting. If required by applicable law in order
to consummate the Merger, International, acting through its Board of Directors,
shall, in accordance with applicable law, its Certificate of Incorporation and
Bylaws and the rules and regulations of the National Association of Securities
Dealers:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following the consummation of the Offer for
the purpose of considering and taking action upon this Agreement and the Merger;
(b) subject to its fiduciary duties under applicable laws as advised by
counsel, include in the Proxy Statement (as defined in Section 4.2(e) hereof)
the recommendation of its Board of Directors referred to in Section 1.2 hereof;
and
(c) use its best efforts to (i) obtain and furnish the information required
to be included by it in the Proxy Statement, and, after consultation with
Compass Holdings, respond promptly to any comments made by the SEC with respect
to the Proxy Statement and any preliminary version thereof and cause the Proxy
Statement to be mailed to its stockholders following the Offer Closing Time and
(ii) obtain the necessary approvals of this Agreement by its stockholders.
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Compass Holdings will vote, or cause to be voted, all shares of International
Common Stock owned by it or its subsidiaries in favor of approval and adoption
of this Agreement and the Merger.
Section 2.5 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Merger Effective Time, all the properties, rights, privileges,
powers and franchises of Compass Interim and International shall vest in the
Surviving Corporation, and all debts, liabilities, obligations and duties of
Compass Interim and International shall become the debts, liabilities and duties
of the Surviving Corporation.
Section 2.6 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation of International shall be amended at
the Merger Effective Time to read in its entirety as set forth in Exhibit 2.6(a)
attached hereto and as so amended shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The Bylaws of Compass Interim as in effect at the Merger Effective Time
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
Section 2.7 Directors. The directors of Compass Interim at the Merger
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
Section 2.8 Officers. The officers of Compass Interim at the Offer Closing
Time shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 2.9 Reservation of Right to Revise Transaction Structure. Compass
may at any time change the method of effecting the Merger to provide for a
merger of a wholly owned Subsidiary (as defined in Section 10.2(f), herein)
other than Compass Interim with International and make conforming changes to the
Offer; provided, however, that no such change shall (a) alter or change the
amount or the kind of the consideration to be received by the holders of
International Common Stock as provided in this Agreement; or (b) adversely
affect the tax treatment to International stockholders as a result of receiving
such consideration (in the opinion of Compass' outside counsel). In the event
Compass determines to exercise its right to substitute a different wholly owned
subsidiary for Compass Interim hereunder, the Merger Agreement shall promptly be
amended to add such subsidiary as a party hereto, and all references in the
Agreement to Compass Interim shall be deemed references to such subsidiary.
ARTICLE III
EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Capital Stock.
(a) Conversion of Shares. At the Merger Effective Time:
(i) Each share of International Common Stock issued and outstanding
immediately prior to the Merger Effective Time (other than shares to be
cancelled pursuant to Section 3.1(a)(ii) and Dissenting Shares (as
hereafter defined)), shall, at the Merger Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive $7.50 in cash per share of
International Common Stock in the Offer (the "Merger Price"), payable to
the holder thereof, without interest, upon the surrender of the certificate
formerly representing such share.
(ii) Each share of International Common Stock that is owned by
International or by any wholly owned subsidiary of International (but not
any Benefit Plan (as defined in Section 4.2(l)(i)) of International or any
of its subsidiaries) and each share of International Common Stock that is
owned by Compass Holdings, Compass Interim or any other wholly owned
subsidiary of Compass, excluding, in each case, any such shares held by
International, Compass Holdings or any of their wholly owned subsidiaries
in a fiduciary, custodial or similar capacity immediately prior to the
Merger Effective Time shall, at the Merger Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, be
cancelled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
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(iii) Each share of common stock, par value $0.01 per share, of
Compass Interim issued and outstanding immediately prior to the Merger
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for one
share of common stock of the Surviving Corporation.
(b) Shares of Series A Preferred Stock. Each share of Series A Preferred
Stock shall be cancelled and retired by International and shall cease to exist
at the Merger Effective Time, as provided in the Series A Preferred Stock
Purchase Agreement. Holders of Series A Preferred Stock shall receive no
consideration in the Merger by virtue of the cancellation of such shares as
provided herein so long as all outstanding shares of Series A Preferred Stock
were purchased by Compass or any of its Affiliates at the Offer Closing Time.
Section 3.2 Dissenting Shares; Exchange of Certificates.
(a) Dissenting Shares of International Common Stock. Notwithstanding
anything in this Agreement to the contrary, shares of International Common Stock
which are issued and outstanding immediately prior to the Merger Effective Time
and which are held by stockholders who have not voted such shares of
International Common Stock in favor of the Merger or consented thereto in
writing and who shall have demanded properly in writing appraisal for such
shares of International Common Stock in the manner provided by Section 262 of
the DGCL (collectively, the "Dissenting Shares") shall not be converted into or
be exchangeable for the right to receive the consideration provided for in
Section 3.1 of this Agreement, unless and until such holder shall have failed to
perfect or shall have effectively withdrawn or lost such holder's right to
appraisal and payment under the DGCL. If such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, such holder's
shares of International Common Stock shall thereupon be deemed to have been
converted into and to have become exchangeable for, at the Merger Effective
Time, the right to receive the consideration provided for in Section 3.1(a) of
this Agreement, without any interest thereon.
(b) Exchange of Shares of International Common Stock.
(i) Prior to the Merger Effective Time, Compass shall designate a bank
or trust company to act as exchange agent in the Merger (the "Exchange
Agent"). Immediately prior to the Merger Effective Time, Compass will
deposit with the Exchange Agent the funds necessary to make the payments
contemplated by Section 3.1 on a timely basis (the "Exchange Fund").
(ii) Promptly after the Merger Effective Time, the Exchange Agent
shall mail to each record holder, as of the Merger Effective Time, of an
outstanding certificate or certificates which immediately prior to the
Merger Effective Time represented shares of International Common Stock (the
"Certificates") a form 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 instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of
a Certificate, together with such letter of transmittal duly executed, and
any other required documents, the holder of such Certificate shall be
entitled to receive in exchange therefor the consideration set forth in
Section 3.1(a) hereof, and such Certificate shall forthwith be cancelled.
No interest will be paid or accrued on the cash payable upon the surrender
of the Certificates. If payment is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it shall be
a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the
person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section 3.2,
each Certificate (other than Certificates representing shares of
International Common Stock to be cancelled pursuant to Section 3.1(a)(ii)
and Dissenting Shares) shall represent for all purposes only the right to
receive the consideration set forth in Section 3.1(a) hereof, without any
interest thereon.
(iii) After the Merger Effective Time there shall be no transfers on
the stock transfer books of the Surviving Corporation of the shares of
International Common Stock which were outstanding immediately prior to the
Merger Effective Time. If, after the Merger Effective Time, Certificates
are presented to the Surviving Corporation, they shall be cancelled and
exchanged for the consideration provided in this Article III and in
accordance with the procedures set forth in this Article III.
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(c) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Certificates for one year after the
Merger Effective Time shall be delivered to the Surviving Corporation
immediately, upon demand, and any holders of the Certificates who have not
theretofore complied with this Article III shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) for exchange for the consideration provided in this Article III in
accordance with the procedures set forth in this Article III.
(d) No Liability. None of Compass, Compass Holdings, Compass Interim,
International, the Surviving Corporation or the Exchange Agent shall be liable
to any person in respect of any payments from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Withholding Rights. The Surviving Corporation will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of International Common Stock such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Code, or under any provision of Tax (as defined in the Tax Allocation
Agreement) law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority, such withheld amounts will be treated for all
purposes of this Agreement as having been paid to the holder of International
Common Stock in respect of which such deduction and withholding was made.
(f) Transfer Taxes. Compass Holdings will pay or cause to be paid any
Transfer Taxes (as defined in the Tax Allocation Agreement), other than Transfer
Taxes imposed on any holder of International Common Stock, imposed in connection
with or as a result of the Merger. Notwithstanding the foregoing, Compass
Holdings shall receive reimbursement from UCRI for 50% of any such Transfer
Taxes which reimbursement shall be paid to Compass Holdings no later than five
business days after UCRI receives notice of any such payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Certain Definitions. As used in Section 4.2 herein, unless
specifically provided otherwise, any reference to International shall assume
that the Contribution and the Distribution had occurred immediately prior to the
date hereof on the terms and conditions set forth in the Reorganization
Agreement and therefore, unless otherwise expressly stated or the context
otherwise clearly requires otherwise, relate only to the Foodservice Business.
As used in this Agreement, any reference to any event, change or effect having a
material adverse effect on or with respect to an entity (or group of entities
taken as a whole if so specified) means such event, change or effect would be
reasonably expected to be materially adverse to the business, properties,
assets, results of operations or consolidated financial condition of such entity
(or, if with respect thereto, of such group of entities taken as a whole) or on
the ability of such entity or group of entities to consummate the transactions
contemplated hereby, including the Contribution, the Distribution and the Merger
(a "Material Adverse Effect"). As used in this Agreement, any reference to any
event, change or effect having a Material Adverse Effect on or with respect to
International at any time prior to the Offer Closing Time means such event,
change or effect would be reasonably expected to be materially adverse to: (i)
the business, properties, assets, results of operations or consolidated
financial condition of International and its Subsidiaries taken as a whole or
(ii) the business, properties, assets, results of operations or consolidated
financial condition of the Foodservice Business; or (iii) the ability of
International to consummate the transactions contemplated hereby, including the
Contribution, the Distribution and the Merger.
Section 4.2 Representations and Warranties of International. In addition to
the representations and warranties contained in Section 1.2 herein,
International represents and warrants to Compass, Compass Holdings and Compass
Interim as follows:
(a) Organization, Standing, Corporate Power and Subsidiaries. Each of
International and Daka is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Each of
International and Daka is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a material adverse effect on
International and Daka,
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taken as a whole. A list of each jurisdiction in which International or Daka is
qualified is included in Schedule 4.2(a) of the Disclosure Schedule. True,
accurate and complete copies of the Certificate of Incorporation and Bylaws of
International and of Daka, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Compass. International has
made available to legal counsel for Compass true, accurate and complete copies
of the minute books of International and Daka, and such minute books contain
minutes of all meetings of the boards of directors (and all committees thereof)
and stockholders of International or Daka, as appropriate. The capitalization
and the state, country or other jurisdiction of incorporation of Daka and any
Subsidiaries of Daka is accurately described and identified on Schedule 4.2(a)
to the Disclosure Schedule.
(b) Capital Structure.
(i) The authorized capital stock of International consists of
30,000,000 shares of International Common Stock and 1,000,000 shares of
Series A Preferred Stock. At the close of business on April 30, 1997, (i)
11,148,302 shares of International Common Stock were issued and
outstanding, (ii) no shares of International Common Stock were held by
International in its treasury, (iii) 1,250,000 shares of International
Common Stock were reserved for issuance pursuant to the Benefit Plans and
International had commitments to issue up to 768,949 shares of
International Common Stock under the Benefit Plans, exclusive of shares
issuable under the 1996 Employee Stock Purchase Plan with respect to the
offering period beginning April 1, 1997, (iv) 11,911.565 shares of Series A
Preferred Stock were issued and outstanding, and (v) contingent warrants to
purchase 264,701 shares of International Common Stock (the "International
Warrants") were issued and outstanding. Except as set forth above, at the
close of business on April 30, 1997, no shares of capital stock or other
voting securities of International were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of International are,
and all shares which may be issued pursuant to the Benefit Plans will be,
when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. There are not any bonds, debentures,
notes or other indebtedness of International having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of International may vote. Except as
set forth above or as provided in Section 1.5 hereof, there are not, and
immediately prior to the Offer Closing Time there will not be, any
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which International is a party
or by which it is bound obligating International to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of International or of Daka or obligating
International or Daka to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Except regarding the Series A Preferred Stock and the
International Warrants or as provided in Section 1.5 hereof, there are not
any outstanding contractual obligations of International or its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of International or its Subsidiaries. International has
delivered to Compass a complete and correct copy of the Series A Preferred
Stock Purchase Agreement, as amended and supplemented to the date of this
Agreement.
(ii) The authorized capital stock of Daka consists of 12,000,000
shares of common stock, $.01 par value, of which 100 shares are issued and
outstanding, which shares were duly authorized, validly issued, fully paid
and nonassessable. All of the outstanding capital stock of Daka is owned by
International. There are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
International or Daka is a party or by which either of them is bound
authorizing or obligating the issuance or sale of additional shares of
capital stock of Daka. At the Offer Closing Time, International will own
all right, title and interest in and to all capital stock and all rights
with respect to all capital stock of Daka and will not otherwise, directly
or indirectly, own or have the right to acquire any capital stock or other
equity interest in any other corporation, partnership, joint venture or
other entity.
(iii) As of the Offer Closing Time, the authorized capital stock of
UCRI will consist of 30,000,000 shares of UCRI Common Stock and 5,000,000
shares of preferred stock, par value $.01 per share. All of the outstanding
capital stock of UCRI is, and until immediately prior to the Distribution
will be, owned by International. (c) Authority; Noncontravention.
(i) Each of International and Daka has, and, in the case of any
Ancillary Agreements (as defined in Section 10.2(b)), to which it is a
party executed at a later time, will have, the requisite corporate power
and
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authority (subject to the approvals described in the next sentence) to
enter into this Agreement and the Ancillary Agreements, as the case may be,
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Ancillary Agreements to
which it is a party and the consummation by International and Daka of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of International and Daka, other
than, with respect to the Merger, if required by applicable law after the
Offer Closing Time, the approval and adoption of this Agreement by the
affirmative vote of the holders of International Common Stock representing
not less than two-thirds of the outstanding shares of capital stock of
International entitled to vote thereon (such holders of such shares, the
"Requisite Stockholders"), and formal declaration of the Distribution by
International's Board of Directors (which will occur prior to the Offer
Closing Date). The Board of Directors of International has approved the
Offer, the Merger (subject to approval by the Requisite Stockholders if
required), this Agreement and the Ancillary Agreements, and such approval
is sufficient to render the provisions of Section 203 of the DGCL and any
applicable provisions of International's Certificate of Incorporation or
Bylaws inapplicable to the Offer, the Merger, and the transactions
contemplated by this Agreement and the Ancillary Agreements. This Agreement
has been duly executed and delivered by International and, assuming this
Agreement constitutes a valid and binding obligation of the other parties
thereto constitutes a valid and binding obligation of International,
enforceable against International in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or
other similar laws relating to creditors' rights and general principles of
equity. Each of the Ancillary Agreements has been duly executed and
delivered by each of International, Daka or UCRI, as the case may be, and
constitutes, or upon such execution and delivery will constitute, a valid
and binding obligation of each of International, Daka or UCRI, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, or other similar laws
relating to creditors' rights and general principles of equity.
(ii) None of the execution and delivery of this Agreement and the
Ancillary Agreements or the consummation of the transactions contemplated
hereby or thereby and compliance with the provisions of this Agreement and
the Ancillary Agreements by International, Daka or UCRI will conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a benefit
under, or result in the creation of any adverse claim, restriction on
voting or transfer, pledge, claim, lien, charge, encumbrance or security
interest of any kind or nature whatsoever (collectively, "Liens") upon any
of the properties or assets of International and/or Daka (i) under either
of their respective Certificates of Incorporation or Bylaws, (ii) except as
set forth on Schedule 4.2(c)(ii) to the Disclosure Schedule, under any
Material Contract (as defined in Section 4.2(k)) to which International
and/or Daka is a party or by which International and/or Daka or any of
their respective assets are bound, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, under any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to International and/or Daka, or any of their respective
properties or assets, other than any such conflicts, violations, defaults,
rights, losses or Liens (x) that in the aggregate would not (A) have a
Material Adverse Effect on International and Daka, taken as a whole, (B)
materially impair the ability of International to perform its obligations
under this Agreement or any of the Ancillary Agreements to which
International is a party, or (C) prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Ancillary
Agreements, or (y) which become applicable as a result of the business or
activities in which Compass, Compass Holdings or Compass Interim are or
proposed to be engaged (other than the business or activities of the
Foodservice Business, considered independently of the ownership thereof by
Compass, Compass Holdings and Compass Interim) or as a result of other
facts or circumstances specific to Compass, Compass Holdings or Compass
Interim. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Federal, state or local government or any
court, administrative agency or commission or other governmental authority
or agency, or self-regulatory organization, domestic or foreign (a
"Governmental Entity"), is required by or with respect to either
International or Daka in connection with the execution and delivery of this
Agreement and any of the Ancillary Agreements to which it is a party or the
consummation by International or Daka of the transactions contemplated
hereby or thereby, except for (i) the filing with the SEC of such reports
and filings under the Securities Exchange Act of 1934, as amended, and all
rules and regulations thereunder (the "Exchange Act") and the Securities
Act of 1933 and all rules and regulations thereunder (the "Securities Act")
as may be required in connection with
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this Agreement, the Ancillary Agreements and the transactions contemplated
hereby and thereby, (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which International or Daka is qualified to
do business, (iii) expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (iv) expiration of the waiting period under the Exon-Florio
Amendment to the Defense Production Act as currently in effect (the
"Exon-Florio Amendment") (v) such filings and approvals as may be required
under any "takeover" or "blue sky" laws of certain states and as disclosed
in Schedule 4.2(c) of the Disclosure Schedule, (vi) such applicable liquor
license or permit transfers or amendments as may be required by applicable
law, (vii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings, the absence of which could not
reasonably be expected to have a Material Adverse Effect on International
and Daka, taken as a whole, and (viii) such consents, approvals, orders,
authorizations, registrations, declarations or filings which become
applicable as a result of the business or activities in which Compass,
Compass Holdings or Compass Interim are or propose to be engaged (other
than the business or activities of the Foodservice Business, considered
independently of the ownership thereof by Compass, Compass Holdings and
Compass Interim) or as a result of other facts or circumstances specific to
Compass, Compass Holdings or Compass Interim.
(d) Reports.
(i) International has filed all reports, schedules, forms, statements
and other documents required by the Exchange Act or the Securities Act with
the SEC since July 2, 1994 (the "International SEC Documents"). As of their
respective dates, (x) the International SEC Documents complied in all
material respects as to form with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (y) none of the International SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(ii) As of their respective dates, the financial statements of
International included in the International SEC Documents complied as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles
(except as permitted by Form 10-Q of the SEC in the case of unaudited
statements) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly presented the
consolidated financial position of International and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods covered thereby (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(e) Schedule 14D-9; Offer Documents; Form 10; Information Statement. None
of the information included in the Schedule 14D-9, the Form 10 or the
Information Statement (as those terms are defined in the Reorganization
Agreement), or supplied by International in writing for inclusion in the Offer
Documents, including any amendments thereto, will be false or misleading with
respect to any material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Schedule
14D-9, the Form 10 and the Information Statement, including any amendments
thereto, will comply in all material respects with the Exchange Act.
Notwithstanding the foregoing, neither International nor Daka makes any
representation or warranty with respect to any information supplied by Compass,
Compass Holdings or Compass Interim or any of their respective affiliates or
representatives in writing for inclusion in the Schedule 14D-9, Form 10 or the
Information Statement.
(f) Absence of Certain Changes or Events. On the date of this Agreement,
except as disclosed in the International SEC Documents filed and publicly
available prior to the date of this Agreement or the Offer Closing Time, except
as disclosed in the International SEC Documents filed and publicly available
before the Offer Closing Time or in the International Bring Down Certificate (as
defined in the Offer Conditions), since March 29, 1997, each of International
and Daka and its Subsidiaries has conducted the Foodservice Business only in the
ordinary course, consistent with past practice, and there has not been (i) any
Material Adverse Change with respect to International or Daka or any event that
could reasonably be expected to have a Material Adverse Effect on International
or Daka taken as a whole, (ii) any split, combination or reclassification of any
of its capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock except as provided in Section 1.5 hereof, (iii) any damage,
destruction or
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physical loss, whether or not covered by insurance, that has had or could
reasonably be expected to have a Material Adverse Effect on International and
Daka taken as a whole, (iv) any material change in accounting methods,
principles or practices by International, except insofar as may have been
required (in the opinion of International's independent accountants) by a change
in generally accepted accounting principles, (v) except as permitted or
contemplated hereby or by the Ancillary Agreements, any acquisition or any sale
or disposition of any material assets or properties by International, except in
the ordinary course of business, consistent with past practice, or (vi) any
entry into any agreement, arrangement or commitment to take any of the actions
set forth in this Section 4.2(f).
(g) Litigation. Schedule 4.2(g) of the Disclosure Schedule sets forth, as
of the date hereof, (i) each suit, action, investigation or proceeding that
seeks damages of more than $25,000, except for matters relating to claims
handled by International's or Daka's insurance carriers in the ordinary course
of business, and (ii) each criminal investigation, in each case pending or, to
the Knowledge of International, expressly threatened, against International or
Daka before any Governmental Entity or arbitrator. Except as disclosed in the
International SEC Documents, there is no claim, investigation, suit, action or
proceeding pending or, to the Knowledge of International, expressly threatened,
against International or Daka before or by any Governmental Entity or arbitrator
(including any related to the suspension, debarment or similar preclusion of
International or Daka from doing business with a Governmental Entity) that,
individually or in the aggregate, could reasonably be expected to (x) have a
Material Adverse Effect on International and Daka taken as a whole, (y)
materially impair the ability of International, Daka or UCRI to perform any
obligation under this Agreement or any of the Ancillary Agreements or (z)
prevent or materially delay the consummation of any or all of the transactions
contemplated hereby or thereby. There are no unpaid judgments, injunctions,
orders, arbitration decisions or awards, or, except as set forth in Schedule
4.2(g) of the Disclosure Schedule, other judicial or administrative mandates
outstanding against International or Daka.
(h) Compliance with Applicable Laws. Schedule 4.2(h) of the Disclosure
Schedule sets forth, as of the date hereof, all alcoholic beverage licenses and
licenses issued, granted or otherwise made available to International or Daka by
any Governmental Entity in connection with the Foodservice Business.
International or Daka holds all permits, licenses, variances, exemptions, orders
and approvals of, and has made all filings, applications and registrations with,
all Governmental Entities which individually or in the aggregate are material to
the operation of the Foodservice Business (the "Foodservice Business Permits").
All Foodservice Business Permits are in full force and effect in all material
respects, neither International nor Daka has received any written or oral notice
or indication that any of the Foodservice Business Permits is under review or
consideration for the potential cancellation, revocation or nonrenewal thereof,
and neither International nor Daka has Knowledge of any event or condition that
could reasonably be expected to lead to any such cancellation, revocation or
nonrenewal. International and Daka are in compliance with the terms of the
Foodservice Business Permits, except where the failure so to comply would not
have a Material Adverse Effect on International and Daka taken as a whole. The
business of International and Daka is not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for violations,
if any, that individually or in the aggregate do not, and could not reasonably
be expected to, have a Material Adverse Effect on International and Daka taken
as a whole.
(i) Brokers or Finders. No broker, investment banker, financial advisor or
other person, other than Bear Stearns & Co., Inc., the fees and expenses of
which will be paid by UCRI in accordance with Section 3.4 of the Post-Closing
Covenants Agreement, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements based upon
arrangements made by or on behalf of International or Daka.
(j) The Foodservice Business.
(i) The Foodservice Assets (as defined in the Reorganization
Agreement) are all the assets used by International and Daka to operate the
Foodservice Business and are sufficient to permit International and Daka
collectively to operate the Foodservice Business from and after the Offer
Closing Time in substantially the same manner as currently conducted;
provided, that the parties acknowledge that the Foodservice Assets do not
include certain assets as described in the Reorganization Agreement.
(ii) At the Offer Closing Time, except as contemplated by the
Ancillary Agreements and the agreements specifically contemplated thereby,
neither UCRI nor any of its Subsidiaries will use in the conduct of its
business or own or have rights to use any material assets or property,
whether tangible, intangible or
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mixed, which have also been heretofore used in the conduct of the business
of the Foodservice Business. At the Offer Closing Time, neither UCRI nor
any of its Subsidiaries will be a party to any contract, agreement,
arrangement or understanding with International (other than the Ancillary
Agreements and the agreements specifically contemplated thereby) relating
to the Foodservice Business or pursuant to which International may have any
obligation or liability. After the Offer Closing Time, International, the
Surviving Corporation, Daka and Compass and its other Subsidiaries will not
have any liability whatsoever, direct or indirect, contingent or otherwise,
in any way relating to the business, operations, indebtedness, assets or
liabilities of UCRI or any of its Subsidiaries, except as expressly
contemplated by the Ancillary Agreements and the agreements specifically
contemplated thereby.
(k) Material Contracts.
(i) On the date of this Agreement and at the Offer Closing Time;
(A) each Material Contract (as defined below), together with all
modifications and amendments thereto, is the valid and binding
obligation of International or Daka, as the case may be, in full force
and effect, enforceable against such party in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and other laws of general application affecting
creditors' rights generally and by equitable principles, other than
Customer Contracts as to which notice of termination has been given but
as to which International has no Knowledge;
(B) neither International nor Daka is in breach or default under
any Material Contract, except for such breaches or defaults that do not,
and will not with the passage of time or the giving of notice, or both,
individually or in the aggregate, have a Material Adverse Effect on
International and Daka taken as a whole and, to the Knowledge of
International, no other party is in material default thereunder;
(C) neither International nor Daka has received any written or oral
notice of any event or condition that constitutes, or with the passage
of time would constitute, a material default by International or Daka
under any Material Contract, which event or condition would reasonably
be expected to have a Material Adverse Effect on International and Daka
taken as a whole; and
(D) neither International nor Daka has received written notice or
other notice or advice of termination, cancellation, nonrenewal or
adverse price adjustment of any Material Contract other than a Customer
Contract.
(ii) Schedule 4.2(k) of the Disclosure Schedule contains a true a
complete list of all Material Contracts, including a list of each Customer
Contract.
(iii) True and complete copies of each Material Contract have been
made available to Compass.
(iv) As used herein, the term "Material Contract," shall mean any
contract, agreement, arrangement or understanding to which International or
Daka is a party or by which International or Daka or any of their
respective assets are bound with respect to the Foodservice Business, that
is or contains any of the following:
(A) a contract to provide contract food and contract catering
services (excluding immaterial vending services contracts) to customers
of International or Daka as to which International or Daka was a party
at any time since June 29, 1996 ("Customer Contracts");
(B) a contract of employment that is other than at will or any
arrangement binding on International or Daka providing any employee with
termination benefits other than those available under International's or
Daka's generally applicable severance policy;
(C) a contract with any labor union or association;
(D) a contract with any affiliate of International or Daka
(including, without limitation, UCRI and its Subsidiaries);
(E) a contract containing a covenant binding International or Daka
not to compete relating to the operations of the Foodservice Business;
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(F) a loan or similar agreement relating to the borrowing of money
of any other Person in excess of $5,000;
(G) any lease or sublease relating to Real Property (as defined in
Section 4.2(u) herein);
(H) any contract not fully performed, including without limitation
contracts for the purchase of any commodity, material, services or
equipment, or fixed assets, for a price in excess of $50,000 in the
aggregate over the life of the contract which does not permit
International or Daka to terminate the contract upon less than 90 days'
notice or expressly requires it to pay liquidated damages of more than
$5,000 upon early termination;
(I) any license agreement (as licensor or licensee) or any
franchise agreement (as franchisor or franchisee);
(J) any vehicle master lease or other personal property master
lease;
(K) any contract that obligates International or Daka to obtain all
or a substantial portion of its requirements of any goods or services
from, or supply all or a substantial portion of the requirements for any
goods or services of, any other person.
(L) Benefit Plans, Employment and Labor Relations.
(i) Schedule 4.2(l) of the Disclosure Schedule contains an accurate
and complete list of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (sometimes referred to herein as "Pension Plans"),
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and
all other plans, agreements, policies or arrangements relating to stock
options, stock purchases, compensation, deferred compensation, severance,
and other employee benefits, in each case maintained or contributed to as
of the date of this Agreement by International or Daka for the benefit of
any current or former employees, officers or directors of International or
Daka or for which International or Daka is or could be liable, as a result
of its status as an ERISA Affiliate (as defined below) (collectively, the
"Benefit Plans"). Benefit Plans shall not include any "multiemployer plan"
as described in Section 37(A) of ERISA (a "Multiemployer Plan"). Each
Multiemployer Plan is so noted in Schedule 4.2(l) of the Disclosure
Schedule. Each Benefit Plan has been duly authorized by all necessary
corporate action by International or any participating Subsidiary or ERISA
Affiliate. International has delivered to Compass true, complete and
correct copies of (A) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, descriptions thereof); (B) the three most recent annual
reports on Form 5500 filed with the Internal Revenue Service (the "IRS")
with respect to each Benefit Plan (if any such report was required); (C)
the most recent summary plan description for each Benefit Plan for which
such summary plan description is required; (D) each trust agreement or
group annuity contract relating to any Benefit Plan; (E) all collective
bargaining agreements pursuant to which contributions to any Benefit Plan
have been made or obligations incurred or are being made or are owed by
International or Daka; (F) all personnel, payroll and employment manuals
and policies; (G) all insurance policies purchased by or to provide
benefits under any Benefit Plan; (H) all contracts with third-party
administrators, actuaries, investment managers, consultants and other
independent contractors that relate to any Benefit Plan, and all reports
submitted within the three years preceding the date of this Agreement by
any such third parties with respect to any such Benefit Plan; and (I)
copies of all notices that were given by International or Daka or any
Benefit Plan to the IRS or the United States Department of Labor (the
"DOL") or any participant or beneficiary pursuant to any statute (including
without limitation notifications pursuant to Section 601 et seq. of ERISA
and Section 4980B of the Code), and copies of all notices that were given
by the IRS, the DOL or the Pension Benefit Guaranty Corporation ("PBGC") to
International or Daka or any Benefit Plan, in each case within the three
years preceding the date of this Agreement (other than benefit statements
to participants in the Benefit Plans). International shall update Schedule
4.2(l) of the Disclosure Schedule and the information shall be made
available to Compass through the Offer Closing Time. "ERISA Affiliate"
means, with respect to any entity, trade or business, any other entity,
trade or business that is a member of a group described in Section 414(b),
(c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same
"controlled group" as the first entity, trade or business pursuant to
Section 4001(a)(14) of ERISA, at any time.
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(ii) The Benefit Plans are on the date hereof in compliance with the
applicable provisions of ERISA and the Code, the rules and regulations
promulgated thereunder, all other applicable laws and the terms of all
applicable collective bargaining agreements. There are no investigations by
any federal or state entity, or other claims (except routine claims for
benefits payable under the Benefit Plans), suits or proceedings against or
with respect to which any Benefit Plan is a party or asserting any rights
to or claims for benefits under any Benefit Plan that would give rise to
any liability that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on International or Daka taken
as a whole. There are no involuntary termination proceedings which have
been instituted against any Pension Plan.
(iii) Each of International and Daka has performed all of its material
obligations under all Benefit Plans and has made appropriate entries in its
financial records and statements prepared in accordance with generally
accepted accounting practices for all obligations and liabilities under
such Benefit Plans that have accrued but are not yet due. Each Pension Plan
that is intended to be a tax-qualified plan is the subject of either a (A)
favorable determination letter from the IRS received in the preceding two
years from the date hereof, or (B) pending determination letter request (a
"Determination Letter Request") filed with the IRS within the remedial
amendment period described under Section 401(b) of the Code, in each case
to the effect that such Pension Plan is qualified under Section 401(a) of
the Code, subject to the customary reservations as to the Pension Plan's
operational compliance with Code requirements. No such determination letter
on any Pension Plan has been revoked, and the IRS has not issued written
notice of its intent to revoke the qualified status of any such Pension
Plan. No event has occurred and no circumstance exists that would
reasonably be expected to result in the disqualification of such Pension
Plan or, with respect to each Determination Letter Request, would
reasonably be expected to cause the IRS not to issue a favorable
determination letter. International has delivered to Compass Holdings a
copy of the most recent determination letter received with respect to each
Pension Plan for which a letter has been issued, as well as any
Determination Letter Request still pending.
(iv) No statement, either written or oral, has been made by
International or Daka to any individual with regard to any Benefit Plan
that was not in accordance with the respective Benefit Plan and that could
have material adverse economic consequences to the Surviving Corporation or
Compass Holdings.
(v) Each Benefit Plan is and has been administered, and International
and Daka, with respect to all Benefit Plans are, in compliance in all
material respects with ERISA, the Code and other applicable laws and with
applicable collective bargaining agreements. This statement specifically
means, but is not limited to, the following matters:
(A) No transaction prohibited by Section 406 of ERISA and no
"prohibited transaction" under Section 4975 of the Code have occurred
with respect to any Benefit Plan.
(B) International and Daka have had no liability to the PBGC with
respect to any plan or have any liability under Sections 502 or 4071(c)
of ERISA. All filings required by ERISA and the Code as to each Benefit
Plan have been timely filed, and all notices and disclosures to
participants under such Benefit Plans required by either ERISA or the
Code have been timely provided.
(vi) Each of the following statements is true and correct regarding
each Benefit Plan:
(A) No event or circumstance specific to International or Daka (as
opposed to general economic or industry events that impact International
or Daka as members of an affected group or class of business
enterprises), except for ordinary course matters such as workers
compensation adjustments, has occurred or exists that could result in a
material increase in premium costs of any Benefit Plan that are insured,
or material increase in benefit costs of such Benefit Plans that are
self-insured.
(B) Except for any Multiemployer Plan, no Benefit Plan must report
to the PBGC.
(C) Neither International nor Daka has received any notice from any
Multiemployer Plan that it is in reorganization or is insolvent, that
increased contributions may be required to avoid a reduction in plan
benefits or to avoid the imposition of any excise tax, or that such
Multiemployer Plan intends to terminate or has terminated. To the
Knowledge (as defined in 10.2(c) herein, of International and/or
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Daka, no Multiemployer Plan listed in Schedule 4.2(l) to the Disclosure
Schedule to which International or Daka contributes or has contributed
is a party to any pending merger or asset or liability transfer or is
subject to any proceeding brought by the PBGC.
(D) Except to the extent required under Section 601 et seq. of
ERISA and Section 4980B of the Code, neither International nor Daka
provides health or welfare benefits for any retired or former employee
or is obligated to provide health or welfare benefits to any active
employee or beneficiary following such employee's retirement or other
termination of service.
(E) International or Daka has the right to modify and terminate
benefits to retirees (other than benefits provided under Pension Plans)
with respect to both retired and active employees. Each Benefit Plan has
complied with the provisions of Section 601 et seq. of ERISA and Section
4980B of the Code.
(vii) Except as set forth on Schedule 4.2(l) of the Disclosure
Schedule, neither International nor Daka now sponsors, maintains,
contributes to or has an obligation to contribute to, and has not at any
time since January 1, 1990, sponsored, maintained, contributed to, or been
obligated to contribute to, any single employer, multiple employer or
Multiemployer Plan subject to the provisions of Section 302 or Title IV of
ERISA or Sections 412 or 4971 of the Code. Other than with respect to the
Multiemployer Plans set forth on Schedule 4.2(l) to the Disclosure
Schedule, no liability currently exists, and under no circumstances could
International or any of its ERISA Affiliates incur a liability pursuant to
the provisions of Title I, II or IV of ERISA or Section 412, 4971 or 4980B
of the Code that could become a liability of the Surviving Corporation or
Compass Holdings after the Offer and the Merger. Without limiting the
generality of the foregoing, neither International nor any of its ERISA
Affiliates has engaged in any transaction described in Section 4069 or
Section 4204 of ERISA for the purpose of evading liability under subtitle D
of Title IV of ERISA. Neither International nor Daka has incurred a
"complete withdrawal" or a "partial withdrawal" (as such terms are defined
in Section 4203 and Section 4205, respectively, of ERISA) with respect to
any Multiemployer Plan (within the meaning of Section 4001(a)(3) of ERISA)
that has led to or could lead to the imposition of a material withdrawal
liability under Section 4201 of ERISA that remains unpaid as of the date
hereof.
(viii) Neither International nor Daka has incurred any material
liability, nor has any event occurred that could reasonably result in any
material liability, under Title I or Title IV of ERISA (other than to a
Pension Plan for contributions not yet due or to the PBGC for payment of
premiums not yet due) or under Section 412 or Chapter 43 of the Code that
has not been fully paid as of the date hereof.
(ix) Except as set forth in Schedule 4.2(l) of the Disclosure
Schedule, neither International nor Daka is a party to, or bound by, any
contract with any labor union or association, including, without
limitation, any collective bargaining, labor or similar agreement. Neither
the execution and delivery of this Agreement or the Ancillary Agreements,
nor the consummation of the transactions contemplated hereby or thereby
will (A) constitute a breach or default under any such agreement, (B) give
rise to any right to terminate, amend or modify any such agreement or (C)
create any withdrawal liability. Except as set forth in Section 4.2(l) of
the Disclosure Schedule, since January 1, 1996, there has not been, and
there is not currently, pending or existing and there is not and has not
been threatened (A) any strike, slow-down, picketing, work stoppage or
formal employee grievance or arbitration process; (B) any proceeding
against International or Daka relating to the alleged violation of any
legal requirement pertaining to labor relations or employment matters,
including any charge, claim or action or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, the DOL or any other federal or state governmental
body, any organizational activity or other labor or unemployment dispute
against International, Daka or the Surviving Corporation; (C) any
application for certification of a collective bargaining agent; or (D) any
formal or to the Knowledge of International or Daka other organizational
activity by International's or Daka's employees. To the Knowledge of
International or Daka, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There
is no lockout of any employees by International or Daka, and no such action
is contemplated by International or Daka. International and Daka are in
compliance with all applicable laws relating to employment and employment
practices, terms and conditions of employment, wages and hours,
nondiscrimination, employee leave, hours, benefits, the payment of social
security taxes, and occupational health, and is not engaged in any unfair
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labor practice except where the failure to so comply or the result of such
unfair labor practice, as the case may be, would not have a Material
Adverse Effect on International or Daka taken as a whole.
(x) As of the date of this Agreement, there are no employees who have
been laid off from facilities of International or Daka and who have recall
rights under any collective bargaining agreement.
(xi) Except as disclosed in the International SEC Documents, since the
date of the most recent audited financial statements included in the
International SEC Documents, there has not been any adoption of or
amendment in any collective bargaining agreement or any Benefit Plan other
than any adoption or amendment of a Benefit Plan permitted under Section
5.1(g).
(m) Absence of Certain Business Practices. Since July 2, 1994, neither
International or Daka, nor, to the Knowledge of International or Daka (other
than solely as a result of the Knowledge of any individual who engages in such
conduct), any officer, employee or agent thereof, or any other person acting on
either of their behalf, has, directly or indirectly, given or agreed to give any
gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in a position to help or hinder the Foodservice
Business (or assist International or Daka in connection with any actual or
proposed transaction relating to the Foodservice Business) (i) which subjected
or might have subjected International or Daka to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) which if not
given, might have had a Material Adverse Effect on International and Daka taken
as a whole, (iii) which if not continued in the future, might have a Material
Adverse Effect on International and Daka taken as a whole, or subject
International or Daka to suit or penalty in any private or governmental
litigation, (iv) which, in case of a payment made directly or indirectly to an
official or employee of any government or of an agency or instrumentality of any
government, constitutes an illegal bribe or kickback (or, if made to an official
or employee of a foreign government, is unlawful under the Foreign Corrupt
Practices Act of 1977) or, in the case of a payment made directly or indirectly
to a person other than an official or employee of a government or of an agency
or instrumentality of a government, constitutes an illegal bribe, illegal
kickback or other illegal payment under any law of the United States or under
the law of any state which subjects the payor to a criminal penalty or the loss
of a license or privilege to engage in a trade or business or the termination of
a Customer Contract.
(n) Intellectual Property.
(i) For purposes of this Agreement, "Intellectual Property" shall mean
all of the following (in whatever form or medium) that are owned by or
licensed to International or Daka, whether domestic or foreign, and are
used in the conduct of the Foodservice Business as conducted currently:
patents, trademarks, service marks and copyrights (whether registered or
unregistered); applications for patents and for registration of trademarks,
service marks and copyrights; trade secrets and trade names; know how,
research and other technical information; and invention disclosures to be
filed or awaiting filing determinations; but not including any commercially
available "off-the-shelf" software licenses, the loss of which would not
have a Material Adverse Effect on International or Daka, taken as a whole.
(ii) Schedule 4.2(n) of the Disclosure Schedule sets forth a complete
list of all Intellectual Property applications and registrations therefor
which are unexpired or uncancelled as of the date hereof. Except for such
matters that individually or in the aggregate have not had and could not
reasonably be expected to have a Material Adverse Effect on International
and Daka taken as a whole, (A) the Intellectual Property owned by
International or Daka is valid and enforceable, free and clear of all
Liens; (B) International or Daka has taken all reasonable actions necessary
to maintain and protect its rights to the Intellectual Property; (C) there
has been no claim made against International or Daka asserting the
invalidity, misuse, unregistrability or unenforceability of any of the
Intellectual Property or challenging its right to use or ownership of any
of the Intellectual Property; (D) neither International nor Daka has any
Knowledge of any infringement or misappropriation of any of the owned
Intellectual Property; (E) to the Knowledge of International or Daka, the
conduct of the Foodservice Business has not infringed or misappropriated
and does not infringe or misappropriate any intellectual property or
proprietary right of any other entity; (F) no loss of any of the
Intellectual Property is pending or to the Knowledge of International or
Daka threatened; (G) the owned Intellectual Property, and to the Knowledge
of International and Daka the licensed Intellectual Property, as it is
currently used in the Foodservice Business, is sufficient to operate the
Foodservice Business as it is currently conducted; (H) the consummation of
the transactions contemplated by this Agreement will not alter, impair
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or extinguish any of the Intellectual Property; (I) International has not
licensed or in any other way authorized any other party to use the
Intellectual Property; and (J) to the Knowledge of International or Daka,
each of the agreements under which International or Daka licenses any
Intellectual Property is a valid and binding obligation of the licensor,
enforceable in accordance with its terms. (o) Taxes. Except as disclosed in
Schedule 4.2(o) of the Disclosure
Schedule:
(i) No material Liens for Taxes exist with respect to any of the
assets or properties of any of International or Daka, except for statutory
liens for Taxes not yet due or payable or that are being contested in good
faith.
(ii) All material Tax Returns (as defined in the Tax Allocation
Agreement) required to be filed by or on behalf of International or Daka,
or any consolidated, combined, affiliated or unitary group of which
International or Daka is or has ever been a member (together the
"International Affiliated Group"), have been timely filed or requests for
extensions have been timely filed and any such extensions have been granted
and have not expired.
(iii) Each such Tax Return was complete and correct in all material
respects.
(iv) All material Taxes with respect to taxable periods for which
International or Daka is or might otherwise be liable (together "Relevant
Taxes") have been paid in full, or reserves therefor have been established
in accordance with generally accepted accounting principles on the balance
sheets contained in the International SEC Documents, and on a basis
consistent with past practice.
(v) All Federal income Tax Returns filed by or on behalf of the
International Affiliated Group have been examined by and settled with the
IRS, or the statute of limitations with respect to the relevant Tax
liability has expired, for all taxable periods through and including the
period ended July 1, 1995.
(vi) All Taxes due with respect to any completed and settled audit,
examination or deficiency litigation with any Taxing Authority (as defined
in the Tax Allocation Agreement) have been paid in full.
(vii) There is no audit, examination, deficiency or refund litigation
pending with respect to any material Relevant Taxes, and no Taxing
Authority has given written notice of the commencement of any audit,
examination or deficiency litigation, with respect to any material Relevant
Taxes.
(viii) Neither International nor Daka is a party to a tax allocation
agreement other than the Tax Allocation Agreement.
(ix) Neither International nor Daka shall be required to include in a
taxable period ending after the date on which the Offer Closing Time
occurs, a material amount of taxable income attributable to income that
economically accrued in a prior taxable period as a result of Section 481
of the Code or any comparable provision of state or local Tax law.
(x) (A) No person has made with respect to International or Daka, or
with respect to any property held by International or Daka, any consent
under Section 341 of the Code and (B) neither International nor Daka is a
party to any lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect prior to the date of
enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
(xi) Neither International or Daka, nor any member of any controlled
group (within the meaning of Section 993(a)(3) of the Code) that includes
International or Daka, nor any of their respective officers, directors,
employees or independent contractors acting on their behalf, has in any tax
year ended after July 1, 1995, participated in or cooperated with an
international boycott (within the meaning of Section 999(b)(3) of the
Code).
(xii) Neither International nor any of its Subsidiaries has waived any
statute of limitation in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
(p) Insurance Policies. Insurance policy numbers 485-31-39 and 485-31-40,
each issued by National Union Fire Insurance Company of Pittsburgh, PA, are in
full force and effect, all premiums have been paid in full, there are no factual
or legal grounds for the cancellation of either policy and no contractual
agreements exist between International and the carrier which would effect or
modify the availability of such coverages.
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(q) Actions Affecting Recent Acquisitions. Schedule 4.2(q) of the
Disclosure Schedule is a true and complete list of all Tax-free transactions
within the meaning of Section 368 of the Code in which International or its
Subsidiaries was or is a party since June 27, 1992. International and its
Subsidiaries have complied in all material respects with all of the terms and
obligations of all such agreements and International has not taken, and has not
permitted any of its Subsidiaries to take, any action that would disqualify
those acquisitions as tax-free transactions within the meaning of Section 368 of
the Code.
(r) Foodservice Business Financial Statements. Attached to Schedule 4.2(r)
of the Disclosure Schedule is the unaudited statement of assets and liabilities
as of March 29, 1997 (the "Foodservice Proforma Balance Sheet"), both actual and
a pro forma basis after giving effect to the Contribution and Distribution. Also
attached to Schedule 4.2(r) of the Disclosure Schedule is the unaudited actual
Foodservice Segment Income for the period June 30, 1996 through March 29, 1997
for the Foodservice Business. (Collectively, Schedule 4.2(r) represents the
"Foodservice Business Financial Statements"). The Foodservice Business Financial
Statements were prepared in accordance with generally accepted accounting
principles and such procedures as are set forth on Schedule 4.2(r) of the
Disclosure Schedule, consistently applied, fairly present the financial
condition and results of operations of the Foodservice Business as of March 29,
1997 and for the nine months then ended.
(s) Indebtedness. Set forth on the Foodservice Business Balance Sheet or on
Schedule 4.2(s) to the Disclosure Schedule is a complete and correct record of
all outstanding indebtedness for borrowed money or any other obligation
evidenced by a promissory note or other instrument or guarantee or letter of
credit or a capitalized lease or a swap, cap or collar agreement or similar
hedging arrangement to mitigate risks of interest rates or commodity prices for
which International or Daka or any of its Subsidiaries is the account party or
otherwise obligated ("Indebtedness") as of March 29, 1997. Since March 29, 1997,
there has been no material change in the amount, interest rates, sinking funds,
installment payments or maturities of such Indebtedness. International has
delivered to Compass a complete and correct copy of the Credit Facility (as
defined in Section 5.1(f)(ii)), as amended and supplemented to the date of this
Agreement.
(t) Properties.
(i) Except (A) as may be reflected in the Foodservice Business Balance
Sheet, (B) for any Lien for current taxes not yet delinquent, (C) for Liens
with respect to Funded Debt (as defined in Section 5.1(f)(ii), hereof) to
be released as of the Offer Closing Time pursuant to Section 6.4(b) (ii)
hereof, (D) for Liens set forth in Schedule 4.2(t) to the Disclosure
Schedule and (E) for such other Liens as do not materially affect the value
of the property reflected in the Foodservice Business Balance Sheet or
acquired since the date of the Foodservice Business Balance Sheet and which
do not, individually or in the aggregate, materially interfere with or
impair the present and continued use of such property, International or
Daka has good title, free and clear of any Liens, to all of the property
reflected in the Foodservice Business Balance Sheet, and all property
acquired since the date of the Foodservice Business Balance Sheet, except
such property as has been disposed of (or, in the case of receivables,
collected or paid) in the ordinary course of business consistent with past
practice.
(ii) As of the date of the Foodservice Business Balance Sheet, all the
material tangible Foodservice Assets were in generally good working
condition (normal wear and tear excepted) and were suitable in all material
respects for the purposes for which they were being used except where the
loss of such assets would not have a Material Adverse Effect on
International and Daka taken as a whole.
(u) Real Property.
(i) Neither International nor Daka owns any real property. Schedule
4.2(u) of the Disclosure Schedule, consisting of a report prepared from the
accounting records, sets forth all real property leased or used by
International or Daka in connection with the Foodservice Business (the
"Real Property").
(ii) Except as set forth on Schedule 4.2(k) of the Disclosure
Schedule, neither International nor Daka is a party to any lease of Real
Property.
(iii) All buildings and improvements located on the Real Property are
in generally good operating condition and repair, ordinary wear and tear
excepted, and do not violate any zoning or building regulations or
ordinances where located, except for violations that do not materially
impair the use of the Real Property,
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except where such condition or violation would not have a Material Adverse
Effect on International and Daka taken as a whole.
(iv) True, correct and complete copies of title reports, surveys and
leases in International's or Daka's possession relating to the Real
Property have been furnished or made available to Compass.
(v) None of the Real Property, or any portion thereof, is currently
condemned, requisitioned or otherwise taken by any public authority, and,
to International's Knowledge, no such condemnation, requisition or taking
is threatened.
(v) Environmental Matters.
(i) Except as set forth in Schedule 4.2 (v) of the Disclosure
Schedule, (A) International and Daka, with respect to the Foodservice
Business and the Real Property, are in material compliance with all
applicable laws and regulations for the protection of the environment and
are subject to no continuing agreements, orders or judgments with respect
to compliance with environmental protection laws; (B) International and
Daka, with respect to the Foodservice Business and the Real Property, have
received no notices of unremedied violations from any Governmental Entity,
and there are no governmental investigations or audits, whether pending,
threatened or otherwise with respect thereto, the violation of which could
result in the imposition of a fine, penalty, liability, cost or expense;
and (C) International and Daka, with respect to the Foodservice Business,
have obtained or have made or will, before Closing, make application and
pay for all permits, licenses, orders and approvals of governmental or
administrative authorities which either are required by applicable
environmental protection laws or regulations to permit it to carry on the
Foodservice Business in substantially the same manner as currently
conducted, or which are applicable to the Real Property, and International
and Daka are in material compliance with the requirements set out in such
permits, licenses, orders and approvals.
(ii) Neither International nor Daka in the operation of the
Foodservice Business has used, stored, disposed or released any Hazardous
Material (as defined in the Post-Closing Covenant Agreement), except such
substances as are normally used in the conduct of the Foodservice Business,
and then in such quantities as are appropriate to the Foodservice Business
and in compliance in all material respects with Environmental Laws (as
defined in the Post-Closing Covenants Agreement).
(w) Fraudulent Conveyance; Solvency.
(i) The transactions contemplated by this Agreement and the Ancillary
Agreements have not been undertaken by International or its Subsidiaries
with an intent to hinder, delay or defraud any creditors of International
or its Subsidiaries. Based on the assumption that (A) the Funded Debt (as
defined in Section 5.1(f) (ii) will be repaid in full simultaneously with
the Offer Closing Time and (B) Compass intends to provide International and
Daka after the Offer Closing Time with sufficient capital with which to
conduct the Foodservice Business as such business is now conducted and is
proposed by Compass to be conducted, International and Daka (X) will be
able to pay their debts and liabilities, direct, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured and
(Y) will not have unreasonably small capital with which to conduct their
business after the Offer Closing Time.
(ii) (A) The fair value of the assets of UCRI and its Subsidiaries
will exceed the debts and liabilities, direct, subordinated, contingent or
otherwise, of UCRI and its Subsidiaries, (B) the present fair salable value
of the property of UCRI and its Subsidiaries will be greater than the
amount that will be required to satisfy any probable liability of UCRI and
its Subsidiaries on its debts and other liabilities, direct, subordinated,
contingent or otherwise, as such debts and other liabilities become
absolute and matured; (C) UCRI and its Subsidiaries will be able to pay
their debts and liabilities, direct, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured; and (D) UCRI and
its Subsidiaries will not have unreasonably small capital with which to
conduct the businesses in which they are engaged as such business is now
conducted and is proposed to be conducted, in each case, following the
Offer Closing Time.
(iii) UCRI does not intend to incur debts beyond its ability to pay
such debts as they mature, taking into account the timing and amounts of
cash to be received by it and the timing and amounts of cash to be payable
on or in respect of its Indebtedness.
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Section 4.3 Representations and Warranties of Compass, Compass Holdings and
Compass Interim. Each of Compass, Compass Holdings and Compass Interim
represents and warrants to International as follows:
(a) Organization, Standing and Corporate Power. Compass is a public limited
liability company duly incorporated and registered under the laws of England and
Wales. Each of Compass Holdings and Compass Interim is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of Compass, Compass Holdings and Compass Interim has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of Compass, Compass
Holdings and Compass Interim is duly qualified or licensed to do business and is
validly existing or in good standing, as appropriate, in each jurisdiction in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and validly existing or in good
standing, as appropriate, would not in the aggregate have a Material Adverse
Effect on Compass and its Subsidiaries taken as a whole. True, accurate and
complete copies of Compass' Memorandum and Articles of Association, as in effect
on the date hereof, including all amendments thereto, have heretofore been made
available to International.
(b) Authority; Noncontravention. Each of Compass, Compass Holdings and
Compass Interim has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Ancillary Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of each of Compass, Compass Holdings and Compass Interim. This Agreement has
been duly executed and delivered by each of Compass, Compass Holdings and
Compass Interim and, assuming this Agreement constitutes a valid and binding
obligation of International, constitutes a valid and binding obligation of each
of Compass, Compass Holdings and Compass Interim, enforceable against it in
accordance with its terms. None of the execution and delivery of this Agreement,
the Ancillary Agreements to which Compass, Compass Holdings or Compass Interim
is a party or the consummation of the transactions contemplated hereby and
thereby (at the time of each such consummation) and compliance with the
provisions of this Agreement or such Ancillary Agreements will conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Compass, Compass
Holdings or Compass Interim under, (i) the memorandum and articles of
association of Compass or the certificate of incorporation or bylaws of Compass
Holdings or Compass Interim , (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license to which Compass or any of its Subsidiaries is a party or
by which Compass or any of its subsidiaries or any of their respective assets
are bound or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Compass, or any of its
Subsidiaries or their respective properties or assets other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate would not (x) have a Material
Adverse Effect on Compass and its Subsidiaries taken as a whole, (y) materially
impair the ability of Compass to perform its obligations under this Agreement or
the Ancillary Agreements to which it is a party or (z) prevent or materially
delay the consummation of any of the transactions contemplated by this Agreement
or such Ancillary Agreements to which it is party. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Compass or any Subsidiary
of Compass in connection with the execution and delivery of this Agreement and
any of the Ancillary Agreements to which it is a party, or the consummation by
Compass or any of its Subsidiaries of any of the transactions contemplated
hereby and thereby, except for (i) the filing with the SEC such reports and
filings under the Securities Act and the Exchange Act, as applicable, as may be
required in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby (ii) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which International is qualified to
do business, (iii) expiration of the waiting period under the HSR Act, (iv)
expiration of the waiting period under the Exon-Florio Amendment, (v) such
filings and approvals as may be required under any "takeover" or "blue sky" laws
of certain states, and (vi) such other consents, approvals, orders,
authorizations, registrations, declarations and filings, the failure of which to
obtain or make could not reasonably be expected to have a Material Adverse
Effect on Compass and its Subsidiaries taken as a whole.
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(c) Schedule 14D-1; Offer Documents; Form 10; Information Statement. None
of the information included in the Offer Documents and none of the information
supplied by Compass for inclusion in the Schedule 14D-9, the Form 10 or the
Information Statement, including any amendments thereto, will be false or
misleading with respect to any material fact or will omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Except for information supplied by International in writing for
inclusion in the Offer Documents will comply in all material respects with the
Exchange Act. Notwithstanding the foregoing, Compass makes no representation or
warranty with respect to any information supplied by International or Daka or
any of their respective affiliates or representatives in writing for inclusion
in the Schedule 14D-1 or the Offer Documents.
(d) Sufficient Funds. Compass Holdings has, or will have prior to the
satisfaction of the Offer Conditions, sufficient funds available to purchase all
shares of International Common Stock on a fully diluted basis at the Offer Price
and the Merger Price.
(e) Consummation of Transactions. As of the date of this Agreement, Compass
has not received written notice from any Federal or state governmental agency or
authority indicating that such agency or authority would oppose or refuse to
grant or issue its consent or approval, if required, with respect to the
transactions contemplated by this Agreement or the Ancillary Agreements.
(f) Voting Requirements. No action by the ordinary shareholders of Compass
is required to approve this Agreement or the Ancillary Agreements and the
transactions contemplated hereby or thereby.
(g) Brokers or Finders. No broker, investment banker, financial advisor or
other person, other than Patricof & Co. Capital Corp. and NationsBanc Capital
Markets, Inc., the fees and expenses of which will be paid by Compass, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Compass.
ARTICLE V
COVENANTS
Section 5.1 Covenants of International and Daka. During the period from the
date of this Agreement and continuing until the Offer Closing Time,
International, on behalf of International and its Subsidiaries, agrees that,
except for the Contribution, the Distribution and the other transactions
expressly provided for in the Ancillary Agreements or any other agreements
contemplated thereby or as contemplated or permitted by this Agreement
(including, without limitation, Section 5.1(m)), or to the extent that Compass
shall otherwise consent in writing (which consent shall not be unreasonably
withheld or delayed):
(a) Ordinary Course. International and Daka shall conduct the Foodservice
Business in the ordinary course, consistent with past practice (including
without limitation, not taking any actions out of the ordinary course to
generate cash, such as delaying payables or accelerating receivables) using
reasonable efforts to preserve beneficial relationships between the Foodservice
Business and its suppliers, employees and customers. Without limiting the
generality of the foregoing, except with the prior written consent of Compass
(which consent shall not be unreasonably withheld or delayed), International and
Daka will, with respect to the Foodservice Business:
(i) not commence or commit to any capital projects having an
individual cost of $50,000 or more, or with an aggregate cost for all such
projects of $250,000 or more, other than as required under the terms of any
Customer Contracts;
(ii) not enter into any contracts or agreements relating to or
obligating the Foodservice Business that involve amounts in excess of
$50,000 individually or $250,000 in the aggregate other than (A) Customer
Contracts or (B) in the ordinary course of the Foodservice Business unless
such contracts or agreements are cancelable on 30 days or less notice
without penalty or premium;
(iii) maintain overall sales incentive programs for all of
International's and Daka's Foodservice Business handled by salesmen that
will provide compensation to salesmen at a rate that is at least equal to
those maintained by International or Daka during the comparable period
during the last fiscal year; and
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(iv) not enter into any amendment to the Credit Facility (as defined
in Section 5.1(f) (ii) herein).
(b) Changes in Stock.
(i) Other than as contemplated by Section 1.5 hereof, or with respect
to any Subsidiary which is not engaged in the Foodservice Business,
International shall not, nor shall International permit Daka to, issue,
transfer or sell, or authorize or propose or agree to the issuance,
transfer or sale by International or Daka of, any shares of its capital
stock of any class or other equity interests or any securities convertible
into, or any rights, warrants, calls, subscriptions, options or other
rights or agreements, commitments or understandings to acquire, any such
shares, equity interests or convertible securities, other than the issuance
of shares of International Common Stock (i) upon the exercise of stock
options outstanding as of the date of this Agreement pursuant to any
Benefit Plan, or (ii) to make any payment under any Benefit Plan that is
required as of the date of this Agreement to be made in the form of shares
of International Common Stock.
(ii) Other than with respect to any Subsidiary which is not engaged in
the Foodservice Business, International shall not (A) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (B) other than in
connection with the exercise of stock options outstanding as of the date of
this Agreement under any Benefit Plan, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise
acquire, any shares of capital stock of International or any of its
subsidiaries.
(iii) Compass Holdings shall, subject to the terms and conditions of
the Series A Preferred Stock Purchase Agreement, purchase all of the
outstanding shares of Series A Preferred Stock and all of the International
Warrants simultaneously with the Offer Closing Time.
(c) Governing Documents. International shall not, nor shall it permit Daka
to, amend or propose to amend its Articles of Incorporation (or, if applicable,
its Certificate of Incorporation or other charter document) or Bylaws.
(d) No Acquisitions. Except as provided in Schedule 5.1(d) to the
Disclosure Schedule, International shall not, nor shall it permit Daka to, (i)
acquire or agree to acquire by merging or consolidating with, or by purchasing
any equity interest in or substantial portion of the assets of, or by any other
manner, any business or any corporation or other business organization that
would be directly or indirectly acquired by Compass in the Merger or that would
create liabilities or obligations that would be binding upon Compass or its
Subsidiaries, including Daka or the Surviving Corporation following the Offer
Closing Time, or (ii) except as provided in the Reorganization Agreement, make
any other investment in any Person (whether by means of loan, capital
contribution, purchase of capital stock, obligations or other securities,
purchase of all or any integral part of the business of the person or any
commitment or option to make an investment or otherwise) which acquisition would
be directly or indirectly acquired by Compass in the Merger or that would create
liabilities or obligations that would be binding upon Compass or its
Subsidiaries, including Daka or the Surviving Corporation following the Offer
Closing Time other than pursuant to Customer Contracts in the ordinary course of
business.
(e) No Dispositions. International shall not, nor shall it permit any of
its Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of the
assets of the Foodservice Business (including, without limitation, any Real
Property, inventory, equipment or Intellectual Property) other than (except with
respect to Intellectual Property) in the ordinary course of business consistent
with past practice and the sale or other disposition of obsolete equipment.
(f) Indebtedness.
(i) International shall take such action as may be necessary so that,
as of the Offer Closing Time, International and Daka, taken as a whole,
shall not have any Indebtedness other than: (A) the Funded Debt (as defined
below), and (B) Indebtedness incurred pursuant to a written agreement that
provides that such Indebtedness will be assumed by UCRI or a Subsidiary of
UCRI at or prior to the Offer Closing Time and that, upon such assumption,
International and Daka shall have no obligation or liability in respect of
such Indebtedness.
(ii) The term "Funded Debt" means the amount of Indebtedness
outstanding plus any accrued but unpaid interest and fees under the terms
of the Third Amended and Restated Credit Agreement dated as of
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October 15, 1996 among International, Subsidiary Guarantors, the Banks
Party Thereto and The Chase Manhattan Bank, as Agent, as amended through
the date hereof (the "Credit Facility"), together with the amount of
Indebtedness outstanding (consisting of market to market exposure) plus all
other amounts due under any Interest Rate Protection Agreement (as defined
in the Credit Facility) which aggregate amount shall not exceed
$110,000,000.
(g) Benefit Plans; Collective Bargaining Agreements. Except as contemplated
by the Reorganization Agreement or Section 1.5 hereof, International shall not,
nor shall it permit Daka to: (i) except to the extent required by law, adopt any
Benefit Plan or amend any Benefit Plan to the extent such adoption or amendment
(x) would create or increase any liability or obligation on the part of
International or Daka that will not either (A) be fully performed or satisfied
prior to the Offer Closing Time or (B) be assumed by UCRI pursuant to the
Reorganization Agreement with no remaining obligation on the part of
International or Daka, or (y) would increase the number of shares of
International Common Stock (if any) to be issued under such Benefit Plan; (ii)
except for normal increases in the ordinary course of business consistent with
past practice, increase the base salary of any employee of the Foodservice
Business; or (iii) enter into or modify in any material respect any collective
bargaining agreement governing employees of the Foodservice Business except as
required for good faith bargaining in connection with new or expiring Customer
Contracts.
(h) Employee Agreements. Prior to the Distribution, each of International
and Daka shall use its best efforts to assign to UCRI or terminate all
employment agreements with officers of International or Daka who are not
Foodservice Employees (the "Employment Agreements") and all severance agreements
with officers of International or Daka who are not Foodservice Employees (the
"Severance Agreements"). The parties hereto acknowledge and agree that,
regardless of whether such Employment Agreements and Severance Agreements are so
assigned or terminated, all liabilities and obligations under or arising from
such Employment Agreements and Severance Agreements shall be deemed to be "UCRI
Liabilities" as such term is defined in the Reorganization Agreement, with
respect to which UCRI shall indemnify Compass, International and Daka as
provided therein.
(i) [Reserved].
(j) Accounting Policies and Procedures. International will not and will not
permit Daka to change any of its accounting principles, policies or procedures,
except such changes as may be required, in the opinion of International's
independent accountants, by generally accepted accounting principles or changes
that in the opinion of said accountants are not material to International's
consolidated financial statements and would not be material if applicable to the
Foodservice Business Financial Statements (as to which changes and opinion
International shall promptly notify Compass).
(k) Liens. International shall not, and shall not permit Daka to, create,
incur or assume any Lien on the Foodservice Assets (as defined in the
Reorganization Agreement), except for Liens created, incurred or assumed in the
ordinary course of business consistent with the past practices of International
and its subsidiaries, which Liens would not have a Material Adverse Effect on
International and Daka taken as a whole.
(l) Deferred Tax Assets and Liabilities. Prior to the Offer Closing Time,
International will not, and will not permit any of its Subsidiaries to, take any
action that would increase the amount of deferred Tax liabilities, or decrease
the amount of deferred Tax assets, of International or its Subsidiaries (as
determined for financial accounting purposes), other than an action in the
ordinary course of business consistent with past practice or as required by
applicable law or as contemplated by the Reorganization Agreement.
(m) Exclusivity.
(i) Neither International nor any of its directors, officers or
employees shall, and International shall use its best efforts to ensure
that none of its agents, advisors or representatives (collectively,
"Representatives"), shall, directly or indirectly, solicit, initiate or
encourage any inquiries or proposals from or with any Person (other than
Compass and its Subsidiaries) or such Person's directors, officers,
employees, representatives and agents that constitute, or would reasonably
be expected to lead to a Third Party Acquisition. For purposes of this
Agreement, a "Third Party Acquisition" shall mean (A) the acquisition by
any Person of more than 20% of the total assets of the Foodservice
Business, (B) the acquisition by any Person of 20% or more of (x) the
International Common Stock or (y) the total number of votes that may be
cast in the election of directors of International at any meeting of
stockholders of International assuming all shares of International Common
Stock and all other securities of International, if any, entitled to vote
generally in the election of
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directors were present and voted at such meeting, or (C) any merger,
consolidation or other combination of International or Daka with any
Person; provided, however, that the term "Third Party Acquisition" shall
not include any transactions which relate solely to the businesses to be
owned by UCRI and its Subsidiaries following the Distribution and which
would not have a Material Adverse Effect on the consummation of the Offer,
the Merger, the Distribution or the transactions contemplated hereby,
including the obligations of UCRI under the Post-Closing Covenants
Agreement. International has, prior to the execution of this Agreement,
ceased or caused to be terminated any discussions or negotiations with any
parties other than Compass and its Subsidiaries conducted prior to the date
hereof with respect to any Third Party Acquisition.
(ii) Notwithstanding the foregoing or any other provision of this
Agreement, International may furnish or cause to be furnished information
(pursuant to confidentiality arrangements no less favorable to
International than the Confidentiality Agreement (as hereinafter defined),
unless already in existence on the date hereof) and may participate in such
discussions and negotiations directly or through its representatives if
another Person or group makes an offer or proposal which International's
Board of Directors believes, in the good faith exercise of its business
judgment and based upon advice of its outside legal and financial advisors,
could reasonably be expected to be consummated and represents a transaction
more favorable to its stockholders than the transactions contemplated by
this Agreement (a "Higher Offer").
(iii) Unless the Board of Directors of International determines in
good faith, after receiving advice of its outside legal counsel, that doing
so could reasonably be expected to be a breach of the directors' fiduciary
duties, International shall notify Compass as soon as practicable (x) if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with it, (y) of the identity of the third party or
parties and (z) of the terms of any such proposal or proposals.
International's Board of Directors may fail to recommend or fail to
continue to recommend the Offer, or this Agreement in connection with any
vote of its stockholders, or withdraw, modify, or change any such
recommendation, or recommend or enter into an agreement regarding a Higher
Offer, if International's Board of Directors, after receiving advice of its
outside counsel, determines in good faith that making such recommendation,
or the failure to recommend any other offer or proposal, or the failure to
so withdraw, modify, or change its recommendation, or the failure to
recommend or enter into an agreement regarding a Higher Offer, could
constitute a breach of the directors' fiduciary duties under applicable
law. In such event, notwithstanding anything contained in this Agreement to
the contrary, any such failure to recommend, withdrawal, modification, or
change of recommendation or recommendation of such other offer or proposal,
or the entering by International into an agreement with respect to a Higher
Offer (provided that International shall have provided Compass notice of
its intention to so enter, the terms of the Higher Offer and the identity
of the other party thereto), shall not constitute a breach of this
Agreement by International. Notwithstanding the foregoing, International
shall not enter into an agreement with a third party with respect to, or
take any action to approve such transaction under any antitakeover
provision of International's certificate of incorporation or state law in
connection with, any Third Party Acquisition unless and until this
Agreement is terminated in accordance with the provisions of Article VIII.
(n) Confidentiality and Standstill Agreements. International will not
amend, waive or modify any provision of any confidentiality or standstill
agreement entered into with any other party in connection with such party's
interest in acquiring International or the Foodservice Business or any
substantial portion of the Foodservice Business, except in connection with any
action permitted to be taken by International pursuant to Section 5.1(m).
(o) Pending Actions. International will continue to defend in the ordinary
course, consistent with past practice, the litigation and other proceedings set
forth in Schedule 4.2(g) to the Disclosure Schedule, including resolving any
such litigation and other proceedings as can be resolved prior to the Offer
Closing Time on a commercially reasonable basis and consistent with past
practice.
(p) Access to Information; Confidentiality.
(i) International shall, and shall cause its Subsidiaries to, afford
to Compass and its officers, employees, accountants, counsel, financial
advisors and other representatives of Compass, reasonable access during the
period prior to the Offer Closing Time to all its properties, books,
contracts, commitments, personnel and records relating to the Foodservice
Business. During the period prior to the Offer Closing Time, International
shall, and shall cause its Subsidiaries to, furnish promptly to Compass (A)
a copy of each report,
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schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Section 13(a) and 15(d) of the
Exchange Act, (B) each press release issued by it, and (C) all other
information relating to the Foodservice Business as Compass may reasonably
request.
(ii) Except as required by law, each of International and Compass will
hold, and will cause its respective officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to
hold, any nonpublic information in confidence in accordance with the
confidentiality agreement, dated January 2, 1997 (the "Confidentiality
Agreement"), between Compass and International.
(q) Corporate Records. International shall deliver to, or make available
to, Compass all certificates of incorporation and authority, minute books,
corporate stock records and corporate seals of International and Daka and all
other books and records, account records, tax records and other business records
related to International, Daka or the Foodservice Business.
(r) No Agreement to Prohibited Actions. International will not, and will
not permit any of its Subsidiaries to, agree or commit to take any action that
is prohibited under this Section 5.1.
Section 5.2 Mutual Covenants.
(a) International and Compass shall promptly advise the other party of any
change or event having, or which, insofar as can reasonably be foreseen, could
reasonably be expected to have, a Material Adverse Effect on such party and its
Subsidiaries taken as a whole.
(b) (i) Subject to the terms and conditions herein provided, the parties
hereto agree to use their reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and the Ancillary Agreements
and to cooperate with each other in connection with the foregoing,
including, but not limited to, (A) defending all lawsuits or other legal
proceedings challenging this Agreement, the Ancillary Agreements or the
transactions contemplated hereby or thereby, (B) attempting to lift or
rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, and (C) effecting all necessary filings and
submissions of information requested by governmental authorities.
(ii) Without limiting the foregoing, the parties hereto shall, as soon
as reasonably practicable, make all requisite filings with each
Governmental Entity in connection with the transactions contemplated hereby
and the Ancillary Agreements, including under the HSR Act and the
Exon-Florio Amendment, and shall promptly make any further filings
requested pursuant thereto or which may be necessary to consummate the
transactions contemplated herein. Each party shall furnish to the other,
upon request, such information as shall reasonably be required in
connection with the preparation of the requesting party's filings under the
HSR Act and the Exon-Florio Amendment.
(iii) Each of Compass and International shall promptly provide to the
other (or its counsel) copies of all filings (other than those filings, or
portions thereof, which the other party has no reasonable interest in
obtaining in connection with the Offer, the Merger or the transactions
contemplated hereby) made with any Federal, state or foreign Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby.
(iv) Notwithstanding the foregoing or any other provision of this
Agreement, (A) neither International nor any of its Subsidiaries will,
without Compass' prior written consent, agree or commit to any divestiture,
hold-separate order or other restriction relating to the Foodservice
Business and (B) neither Compass nor any of its Subsidiaries will be
required to agree or commit to any divestiture, hold-separate order or
other restriction relating to the Foodservice Business or to any of its
existing businesses or any other governmental order or obligation that
otherwise imposes any conditions or limitations in connection with Compass'
acquisition of the Foodservice Business or its operation of its existing
business and operations or the Foodservice Business after the Offer Closing
Time.
(c) Compass and International shall cooperate in connection with efforts to
secure a renewal or extension of the Smithsonian Contract prior to the Offer
Closing Time on terms reasonably satisfactory to Compass.
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(d) Following the date hereof and prior to the Offer Closing Time, each of
International and Compass shall designate a senior officer (the "International
Representative" and the "Compass Representative", respectively) to consult with
each other with respect to major business decisions to be made concerning the
operation of the Foodservice Business. Such consultation shall be made on as
frequent a basis as may be reasonably requested by Compass. The parties hereto
acknowledge and agree that the agreements set forth in this Section 5.2(d) shall
be subject to any restrictions or limitations under applicable law.
(e) (i) Each of the parties hereto agrees to use its best efforts to take,
or cause to be taken, all 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 by this
Agreement and the Ancillary Agreements including, without limitation,
taking all reasonable actions to achieve the successful completion of the
Offer, cooperating in the preparation and filing of the Offer Documents,
the Schedule 14D-1, the Schedule 14D-9, the Form 10, the Information
Statement and the Proxy Statement and any amendments to any thereof, and
executing any additional instruments necessary to consummate the
transactions contemplated hereby. In case at any time after the Offer
Closing Time any further action is necessary to carry out the purposes of
this Agreement, the proper officers and directors of each party hereto
shall use their best efforts to take all such necessary action.
(ii) Subject to the terms and conditions hereof, each of the parties
hereto (A) shall use reasonable best efforts to comply promptly with all
legal and regulatory requirements which may be imposed on itself or its
Subsidiaries with respect to the Offer, the Merger and the transactions
contemplated thereby and by this Agreement and (B) will, and will cause its
Subsidiaries to, promptly use its reasonable best efforts to obtain any
consent, authorization, order or approval of, or any exemption by, and to
satisfy any condition or requirement imposed by, any Governmental Entity or
other public or private third party, required to be obtained, made or
satisfied by itself or any of its Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this
Agreement or the Ancillary Agreements. Each of International and Compass
will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of
their respective subsidiaries in connection with the Contribution, the
Distribution or the Merger.
(f) Until the Offer Closing Time, Compass and International will consult
with each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement and the Ancillary Agreements,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Fees and Expenses. Except as provided in Section 8.2(c), all
fees and expenses incurred in connection with the Merger, the Contribution, the
Distribution, this Agreement, the Offer and the transactions contemplated by
this Agreement and the Ancillary Agreements shall be paid by the party incurring
such fees or expenses, whether or not the Merger is consummated. In accordance
with the foregoing sentence, International agrees to pay the fees and expenses
of Bear Stearns & Co., Inc. and Compass Holdings agrees to pay the fees and
expenses of Patricof & Co. Capital Corp., NationsBanc Capital Markets, Inc., The
Bank of New York, as Offer Depositary, Mackenzie Partners, Inc., as Offer
Information Agent, and the filing fee for the HSR Filing.
Section 6.2 Ancillary Agreements.
(a) Simultaneously with the execution of this Agreement, International and
certain of its Subsidiaries are entering into the Reorganization Agreement, the
Tax Allocation Agreement and the Post-Closing Covenants Agreement. From and
after the Offer Closing Time, Compass shall cause the Surviving Corporation to
perform any and all obligations and agreements of International set forth herein
or in the Ancillary Agreements or in any other agreement contemplated herein or
therein.
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(b) Each of Compass, Compass Holdings and Compass Interim accept and agree
that, subject to the provisions of the Reorganization Agreement, the form of
certificate of incorporation and Bylaws of UCRI adopted in contemplation of the
Distribution shall be as agreed to by International and UCRI in their sole
discretion; provided, that nothing in the certificate of incorporation and
Bylaws shall adversely affect or otherwise limit UCRI's ability to perform its
obligations under the Ancillary Agreements or the other agreements contemplated
by the Reorganization Agreement.
(c) In no event shall Compass, Compass Holdings or Compass Interim or any
of their Subsidiaries be entitled to receive any shares of UCRI Common Stock as
a distribution with respect to shares of International Common Stock purchased
upon consummation of the Offer. If, for any reason, any shares of UCRI Common
Stock distributed in the Distribution are received by Compass, Compass Holdings,
or Compass Interim or any of their Subsidiaries with respect to shares of
International Common Stock acquired by Compass Interim in the Offer, then
Compass, Compass Holdings or Compass Interim shall convey, on behalf of
International, such shares of UCRI Common Stock to the stockholders of
International who would have otherwise received such shares of UCRI Common Stock
pursuant to the Reorganization Agreement; provided, that the foregoing
provisions shall not apply with respect to shares of International Common Stock
held by Compass or any of its Subsidiaries prior to the date hereof.
Section 6.3 Composition of the Board of Directors; Section 14(f). In the
event that Compass Holdings acquires at least two-thirds of the International
Common Stock outstanding pursuant to the Offer, Compass Holdings shall be
entitled to designate for appointment or election to International's Board of
Directors, upon written notice to International, such number of persons so that
the designees of Compass Holdings constitute the same percentage (but in no
event less than five) of International's Board of Directors (rounded up to the
next whole number) as the percentage of International Common Stock acquired in
connection with the Offer. Prior to the Offer Closing Time, the Board of
Directors of International will obtain the resignation of such number of
directors as is necessary to enable such number of Compass Holdings' designees
to be so elected and will take all action required to appoint or elect such
individuals to such positions. In connection therewith, International will mail
to its stockholders the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder unless such information has previously been
provided to such stockholders in the Schedule 14D-9. Compass Holdings will
provide to International in writing, and be solely responsible for, any
information with respect to such companies and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f - 1. In the
event that Compass Holdings'designees are elected to the Board of Directors of
International, until the Merger Effective Time, such Board of Directors shall
have at least two directors who are directors on the date hereof (the
"Independent Directors"), provided that, in such event, if the number of
Independent Directors shall be reduced below two for any reason whatsoever, any
remaining Independent Directors (or Independent Director, if there is only one
remaining) shall be entitled to designate persons to fill such vacancies who
shall be deemed to be Independent Directors for purposes of this Agreement or,
if no Independent Director then remains, the other directors shall designate two
persons to fill such vacancies who shall not be stockholders, affiliates or
associates of Compass, Compass Holdings or Compass Interim and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
Notwithstanding anything in this Agreement to the contrary, in the event that
Compass Holdings' designees are elected to the Board of Directors of
International after the acceptance for payment of shares of International Common
Stock pursuant to the Offer and prior to the Merger Effective Time, the
affirmative vote of a majority of the Independent Directors shall be required to
(a) amend or terminate this Agreement by International, (b) exercise or waive
any of International's rights, benefits or remedies hereunder, (c) extend the
time for performance of Compass', Compass Holdings' or Compass Interim's
respective obligations hereunder, (d) take any other action by the Board of
Directors of International under or in connection with this Agreement or any of
the transactions contemplated hereby or by any of the Ancillary Agreements, or
(e) approve any other action by International which could adversely affect the
interests of the stockholders of International (other than Compass, Compass
Holdings or Compass Interim and their affiliates) with respect to the
transactions contemplated hereby.
Section 6.4 Certain Prior Actions.
(a) The following agreements have been executed and delivered by the
applicable parties thereto to be effective at the Offer Closing Time:
(i) The Reorganization Agreement;
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(ii) The Tax Allocation Agreement;
(iii) The Post-Closing Covenants Agreement;
(iv) The Transition Agreement;
(v) Employment Agreement between International, Daka and Allen R.
Maxwell; and
(vi) The Series A Preferred Stock Purchase Agreement.
(b) The following documents have been delivered by International to
Compass:
(i) A Certificate of International's chief executive officer delivered
to Compass to the effect that International has taken all necessary action
to render inapplicable to the Offer, the Merger, the Distribution and the
other transactions contemplated by this Agreement and the Ancillary
Agreements (i) any "fair price," "moratorium," "control share acquisition"
or similar antitakeover statute or regulation enacted under any applicable
state or federal law in the United States; or (ii) any antitakeover
provision in its Certificate of Incorporation, Bylaws or other governing
corporate documents.
(ii) Evidence reasonably satisfactory to Compass that (x) the
remittance by Compass to The Chase Manhattan Bank of the Funded Debt in
immediately available funds by wire transfer simultaneously with the
Closing will result in the payment in full of the Funded Debt and all other
liabilities and Indebtedness of International under the Credit Facility and
the termination of the Credit Facility and all related promissory notes,
security instruments and loan documents and (y) immediately upon such
remittance the lenders under the Credit Facility or under other
Indebtedness shall deliver to Compass or UCRI, as applicable, originally
signed UCC-3 terminations or releases, United States Patent and Trademark
filings and all other instruments as determined by Compass or UCRI, as
applicable, to be necessary or advisable to release or terminate, or
evidence the release or termination, of all Liens on the assets and
properties of International, UCRI and their respective Subsidiaries,
whether such Liens secure or are intended to secure the Funded Debt, the
Credit Facility or any other Indebtedness. Simultaneously with the Closing,
all letters of credit outstanding under the Credit Facility shall be
returned in their original form by the beneficiary of each letter of
credit.
(iii) A certified copy of resolutions of the Board of Directors of
International and Daka authorizing the Contribution, the Distribution, the
Merger, and the transactions contemplated thereby, including the execution
and delivery of the Merger Agreement and the Ancillary Agreements.
Section 6.5 Tax Treatment. Compass and Compass Holdings each shall,
and shall cause the Surviving Corporation to, treat the Distribution for
purposes of all federal and state taxes as an integrated transaction with
the Offer and the Merger and will report the Distribution as a distribution
in redemption of International Common Stock subject to the provisions of
Sections 302 and 311 of the Code.
Section 6.6 Indemnification of Officers and Directors. For a period of
3 years after the Offer Closing Time, Compass will not modify the rights of
Joe O'Donnell, Erline Belton, Alan D. Schwartz or E. L. Cox to
indemnification and shall cause International and the Surviving Corporation
to maintain substantially similar provisions in such respect as set forth
in the Certificate of Incorporation and Bylaws of International as of the
date hereof. Notwithstanding anything to the contrary provided herein, an
indemnified party shall use its best efforts to obtain indemnification from
any source other than International or Daka from which it may be entitled
thereto, including without limitation, any indemnification agreements
between UCRI and such indemnified party, before seeking indemnification
from International or Daka. Nothing contained in this Section shall limit
any lawful rights to indemnification existing independently of this
Section.
Section 6.7 Offer Closing Date Payments.
(a) At the Offer Closing, International shall deliver to Compass in
cash or cash equivalent an amount equal to
(i) $1,500,000, plus
(ii) $7.50 multiplied by the sum of (A) the number of outstanding
shares of International Common Stock and (B) the outstanding shares of
International Common Stock into which the Series A Preferred Stock is
convertible, minus $85,000,000.
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(b) At the Offer Closing, Compass shall deliver to UCRI in cash or cash
equivalent any amount by which the Funded Debt outstanding at the Offer Closing
Time is less than $110,000,000.
Section 6.8 Non-Waiver of Conditions. If International refuses to effect
the Distribution because one or more of the conditions to International's
obligation to consummate the Distribution has not been satisfied or waived, then
Compass Holdings shall not waive the Offer Condition set forth in paragraph
(ii)(m) of Exhibit 1.1(a), shall terminate the Offer and shall not accept for
payment or pay for any shares of International Common Stock validly tendered.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Merger Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been
adopted and approved by the affirmative vote of the stockholders of
International by the requisite vote in accordance with applicable law, if
required by applicable law as provided in Section 2.4 hereof;
(b) No Prohibition. No statute, rule, regulation, order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prohibits or restricts the consummation of
the Merger.
(c) Consummation of the Offer. The Offer shall have been consummated.
(d) Consummation of the Distribution. The Distribution shall have become
effective in accordance with the terms of the Reorganization Agreement and each
of the agreements contemplated thereby.
(e) No Injunctions, Litigation or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, the Contribution or the Distribution shall be in
effect and no such litigation or legal action other than the Venturino Claim
shall have been threatened or shall be pending. No action, suit or other
proceeding shall be pending by any Governmental Entity that, if successful,
would restrict or prohibit the consummation of the Merger, the Contribution or
the Distribution; provided, however, that International will not unreasonably
withhold its waiver of the condition set forth in this sentence upon Compass'
request in the event such an action, suit or other proceeding is pending with
respect to the Merger alone.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Offer Closing Time, notwithstanding any approval of this Agreement by the
stockholders of International:
(a) by mutual written consent of Compass and International; or
(b) by either Compass or International:
(i) if there has been a failure to perform an obligation or satisfy a
condition precedent (regardless of materiality) or a material breach of
this Agreement by a party and such breach has not been waived by the other
party, provided that only the non-breaching party may so terminate;
(ii) if the Offer shall expire or have been terminated in accordance
with its terms without any shares of International Common Stock being
purchased thereunder, or Compass Holdings shall not have accepted for
payment or paid for shares of International Common Stock validly tendered
pursuant to the Offer (as a result of the Offer Condition not being
satisfied or waived by Compass Holdings in accordance with Article I
hereof) prior to July 31, 1997, unless the failure to consummate the Offer
is the result of a willful and material breach by the party seeking to
terminate this Agreement;
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(iii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Offer and such order, decree, ruling or other
action shall have become final and nonappealable; or
(c) by Compass if (i) the Board of Directors of International shall have
withdrawn, or modified or changed, in a manner adverse to Compass, its approval
or recommendation of the transactions contemplated by this Agreement and the
Ancillary Agreements or shall have recommended another offer or proposal with
respect to a Third Party Acquisition, or (ii) a Third Party Acquisition has
occurred or any person shall have entered into a definitive agreement with
International with respect to a Third Party Acquisition; or
(d) by International if International's Board of Directors shall have
failed to recommend to its stockholders the approval of the transactions
contemplated by this Agreement and the Ancillary Agreements or shall have
withdrawn, modified or changed such recommendation, in a manner permitted by
Section 5.1(m)(iii), or shall have taken any other action permitted by Section
5.1(m)(iii).
Section 8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either International
or Compass as provided in Section 8.1, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of the
parties hereto, other than the provisions of Section 4.2(i), Section 4.3(g),
Section 5.1(p), Section 6.1, this Section 8.2 and Sections 9.2 through 9.8 and
except to the extent that such termination results from the willful and material
breach by a party of any of its representations, warranties, covenants or
agreements set forth in this Agreement, the Ancillary Agreements, or any
agreement contemplated hereby or thereby.
(b) If the transactions contemplated by this Agreement are terminated as
provided herein:
(i) Compass shall return all documents and other material received
from International or its representatives relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to International; and
(ii) all confidential information received by Compass with respect to
the businesses of International shall be treated in accordance with the
Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) In the event that: (i) Compass terminates this Agreement pursuant to
Section 8.1(c), or (ii) International terminates this Agreement pursuant to
Section 8.1(d) and, at the time of termination there shall have been made a
proposal relating to a Third Party Acquisition that has become public and,
within 12 months following such termination, International or Daka shall enter
into a definitive agreement with respect to (X) the sale of the Foodservice
Business, (Y) the sale of substantially all of the assets of International or
Daka, or (Z) the merger of International or Daka with or into any other entity,
or International or Daka shall recommend any other Third Party Acquisition to
its stockholders, then International or Daka shall promptly pay to Compass (by
wire transfer to an account designated by Compass for this purpose) an amount
equal to the sum of (i) $5,800,000 and (ii) notwithstanding the provisions of
Section 6.4, the fees and expenses actually incurred by Compass in connection
with the negotiation and preparation of this Agreement and the Ancillary
Agreements to which Compass is a party, the performance of Compass' covenants
herein and therein, and the transactions contemplated hereby and thereby,
including, without limitation, all fees and disbursements of Compass' financial
advisors, legal counsel, accountants and other advisors, up to a maximum of an
additional $2,000,000, provided, however, that in no event shall International
or Daka collectively be required to pay either of the amounts set forth in this
Section 8.2(c) (i) or (ii) more than once.
Section 8.3 Amendment. Except as provided in Section 6.3 hereof, this
Agreement may be amended by the parties at any time before or after any required
approval of matters presented in connection with the Merger by the stockholders
of International; provided, however, that after any such approval, there shall
be made no amendment that by law requires further approval by such stockholders
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
Section 8.4 Extension; Waiver. At any time prior to the Offer Closing Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered
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pursuant to this Agreement, or (c) subject to the proviso of Section 8.3, waive
compliance by the other party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties.
(a) Except as set forth below, all representations and warranties in this
Agreement, the Ancillary Agreements and any other certificate or document
delivered pursuant hereto or thereto will survive the Offer Closing Time until
5:00 p.m. on December 31, 1998; provided, however that, any representation and
warranty by a party that relates to any obligation to be performed by such party
under this Agreement or an Ancillary Agreement shall survive until the one year
anniversary of the final and complete performance of such obligation.
(b) The representations and warranties contained herein shall survive as to
any Tax covered thereby for so long as any statute of limitations for such Tax
remains open, in whole or in part, including without limitation by reason of
waiver of such statute of limitations.
(c) The representations and warranties contained in Section 4.2(b)(ii) and
(l) shall survive for a period of five years after the Offer Closing Time.
(d) The representations and warranties contained in Sections 4.2(m), (p)
and (v) shall survive without limitation after the Offer Closing Time.
(e) Neither this Section 9.1 nor any of the Ancillary Agreements shall
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Offer Closing Time.
Section 9.2 Notices. Any notice, request, instruction or other document to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) if to Compass, Compass Holdings or Compass Interim, to:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
(b) if to International or Daka, to:
Daka International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: General Counsel
Section 9.3 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
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Section 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-party Beneficiaries. This Agreement,
the Ancillary Agreements and the agreements referred to herein and therein or
required to be delivered in connection with the transactions contemplated by the
Ancillary Agreements constitute the entire agreement, and supersede all prior
agreements (other than the Confidentiality Agreement) and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement and is not intended to confer upon any person other than the parties
hereto or thereto any rights or remedies.
Section 9.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF. EACH OF THE PARTIES HERETO AGREES (a) THAT THIS AGREEMENT INVOLVES
AT LEAST $100,000.00 AND (b) THAT THIS AGREEMENT HAS BEEN ENTERED INTO BY THE
PARTIES HERETO IN EXPRESS RELIANCE UPON 6 DEL. C. (section mark) 2708.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and permitted assigns.
Section 9.8 Enforcement.
(a) Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity. Any requirements for the
securing or posting of any bond with respect to such remedy are hereby waived by
each of the parties hereto.
(b) Jurisdiction. Each of the parties hereto irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the Commonwealth of Massachusetts and of the United States of America located
in the Commonwealth of Massachusetts (the "Massachusetts Courts") for any
litigation arising out or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the Massachusetts Courts and agrees not to plead or claim in any
Massachusetts Court that such litigation brought therein has been brought in any
inconvenient forum. Each of the parties hereto agrees, (a) to the extent such
party is not otherwise subject to service of process in the Commonwealth of
Massachusetts, to appoint and maintain an agent in the Commonwealth of
Massachusetts as such party's agent for acceptance of legal process. and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as if served upon such party
personally within the Commonwealth of Massachusetts. For purposes of
implementing the parties' agreement to appoint and maintain an agent for service
of process in the Commonwealth of Massachusetts, each such party does hereby
appoint CT Corporation System, 2 Oliver Street, Boston, Massachusetts 02109, as
such agent.
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ARTICLE X
DEFINITIONS
Section 10.1 General. The following terms are defined in the Sections of
this Agreement indicated below:
<TABLE>
<CAPTION>
Term Section Location
<S> <C>
Exhibit
A Converted Shares............................................................................... 1.1(a)(d)
Affiliate........................................................................................ 10.2(a)
Agreement........................................................................................ Introduction
Ancillary Agreements............................................................................. 10.2(b)
Benefit Plans.................................................................................... 4.2(l)(i)
Certificate of Merger............................................................................ 2.3
Certificates..................................................................................... 3.2(b)(ii)
Compass.......................................................................................... Introduction
Compass Holdings................................................................................. Introduction
Compass Interim.................................................................................. Introduction
Compass Representative........................................................................... 5.2(d)
Confidentiality Agreement........................................................................ 5.1(p)(ii)
Contribution..................................................................................... Recitals
Credit Facility.................................................................................. 5.1(f)(ii)
Cross Creek...................................................................................... 1.4
Customer Contracts............................................................................... 4.2(k)(iv)(A)
Daka............................................................................................. Recitals
Determination Letter Request..................................................................... 4.2(l)(iii)
DGCL............................................................................................. 2.1
Dissenting Shares................................................................................ 3.2(a)
Distribution..................................................................................... Recitals
DOL.............................................................................................. 4.2(l)(i)
Employment Agreements............................................................................ 5.1(h)
ERISA............................................................................................ 4.2(l)(i)
ERISA Affiliate.................................................................................. 4.2(l)(i)
Exchange Act..................................................................................... 4.2(c)(ii)
Exchange Agent................................................................................... 3.2(b)(i)
Exchange Fund.................................................................................... 3.2(b)(i)
Exon-Florio Amendment............................................................................ 4.2(c)(ii)
FCEC............................................................................................. 1.4
Foodservice Business............................................................................. Recitals
Foodservice Business Balance Sheet............................................................... 4.2(r)
Foodservice Business Financial Statements........................................................ 4.2(r)
Foodservice Business Permits..................................................................... 4.2(h)
Funded Debt...................................................................................... 5.1(f)(ii)
Governmental Entity.............................................................................. 4.2(c)(ii)
Hazardous Material............................................................................... 4.2(v)(ii)
Higher Offer..................................................................................... 5.1(m)(ii)
HSR Act.......................................................................................... 4.2(c)(ii)
Indebtedness..................................................................................... 4.2(s)
Independent Directors............................................................................ 6.3
Intellectual Property............................................................................ 4.2(n)(i)
International.................................................................................... Introduction
International Affiliated Group................................................................... 4.2(o)(ii)
Exhibit
International Bring Down Certificate............................................................. 1.1(a)(i)
International Common Stock....................................................................... Recitals
Exhibit
International Filings............................................................................ 1.1(a)(ii)
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C>
International Options............................................................................ 1.5(a)
Exhibit
International Preferred Stock.................................................................... 1.1(a)(i)2
International Representative..................................................................... 5.2(d)
International SEC Documents...................................................................... 4.2(d)(i)
International Warrants........................................................................... 4.2(b)(i)
IRS.............................................................................................. 4.2(l)(i)
Knowledge........................................................................................ 10.2(c)
Liens............................................................................................ 4.2(c)(ii)
Massachusetts Courts............................................................................. 9.8(b)
Material Adverse Change.......................................................................... 10.2(d)
Material Adverse Effect.......................................................................... 4.1
Material Contract................................................................................ 4.2(k)(iv)
Merger........................................................................................... Recitals
Merger Closing................................................................................... 2.2
Merger Closing Date.............................................................................. 2.2
Merger Effective Time............................................................................ 2.3
Merger Price..................................................................................... 3.1(a)(i)
Exhibit
Minimum Shares................................................................................... 1.1(a)(i)(c)
Multiemployer Plan............................................................................... 4.2(l)(i)
Offer............................................................................................ Recitals
Offer Closing.................................................................................... 1.6
Offer Closing Date............................................................................... 1.6
Offer Closing Time............................................................................... 1.1(a)
Offer Conditions................................................................................. Recitals
Offer Documents.................................................................................. 1.1(b)
Offer Price...................................................................................... 1.1(a)
Exhibit
Options.......................................................................................... 1.1(a)(ii)
Participating Employee........................................................................... 1.5(b)
PBGC............................................................................................. 4.2(l)(i)
Pension Plans.................................................................................... 4.2(l)(i)
Person........................................................................................... 10.2(e)
Post-Closing Convenants Agreement................................................................ 10.2(f)
Purchasable Shares............................................................................... 1.5(b)
Record Date...................................................................................... 1.1(a)(i)
Real Property.................................................................................... 4.2(u)(i)
Relevant Taxes................................................................................... 4.2(o)(iv)
Reorganization Agreement......................................................................... 10.2(g)
Representatives.................................................................................. 5.1(m)(i)
Requisite Stockholders........................................................................... 4.2(c)(i)
Restaurant Business.............................................................................. Recitals
Schedule 14D-9................................................................................... 1.2
SEC.............................................................................................. 1.1(b)
Securities Act................................................................................... 4.2(c)(ii)
Series A Preferred Stock......................................................................... 1.4
Series A Preferred Stockholders.................................................................. 1.4
Series A Preferred Stock Purchase Agreement...................................................... 1.4
Severance Agreements............................................................................. 5.1(h)
Subsidiary....................................................................................... 10.2(i)
Surviving Corporation............................................................................ Recitals
Tax Allocation Agreement......................................................................... 10.2(h)
Third Party Acquisition.......................................................................... 5.1(m)(i)
UCRI............................................................................................. Recitals
</TABLE>
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<PAGE> 39
<TABLE>
<S> <C>
UCRI Common Stock................................................................................ Recitals
UCRI Liabilities................................................................................. 5.1(h)
Warrants......................................................................................... 1.4
</TABLE>
Section 10.2 Certain Definitions. In addition to the foregoing, for
purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
(b) "Ancillary Agreements" means the Reorganization Agreement, the Tax
Allocation Agreement, the Post-Closing Covenants Agreement, and the Transition
Agreement referred to in Section 3.2 of the Post-Closing Covenants Agreement.
(c) "Knowledge" means the actual knowledge of any director, officer or
employee at the district manager level or above of the applicable party.
(d) "Material Adverse Change" with respect to International or Daka means
the occurrence of any of the following events:
(i) any events, actions or occurrences which would result in a Managed
Volume/Profit Adjustment (as defined in Section 5.3 of the Post-Closing
Covenants Agreement) in an amount in excess of $19,500,000; or
(ii) any claim, investigation, suit, action or proceeding pending or,
to the Knowledge of International, expressly threatened, against
International or Daka before or by any court, Governmental Entity or
arbitrator (including any related to the suspension, debarment or similar
preclusion of International or Daka from doing business with a Governmental
Entity) other than the Venturino Claim that, individually or in the
aggregate, could reasonably be expected to (A) have a Material Adverse
Effect on International and Daka, taken as a whole, (B) materially impair
the ability of International, Daka or UCRI to perform any obligation under
this Agreement or any Ancillary Agreement or (Z) prevent or materially
delay or alter the consummation of any or all of the transactions
contemplated hereby or by the Ancillary Agreements.
(e) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) the "Post-Closing Convenants Agreements" means that certain
Post-Closing Convenants Agreement dated as of the date hereof, by and among Daka
International, Inc., Daka, Inc., Champps Entertainment, Inc., Fuddruckers, Inc.,
UCRI, Inc., Compass Group PLC and Compass Holdings, Inc.
(g) the "Reorganization Agreement" means that certain Reorganization
Agreement dated as of the date hereof, by and among Daka International, Inc.,
Daka, Inc., UCRI, Inc., Compass Group PLC and Compass Holdings, Inc.
(h) the "Tax Allocation Agreement" means that certain Tax Allocation
Agreement dated as of the date hereof, by and among Daka International, Inc.,
UCRI, Inc. and Compass Group PLC.
(i) a "Subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
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<PAGE> 40
IN WITNESS WHEREOF, Compass, Compass Holdings, Compass Interim and
International have each caused this Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.
COMPASS GROUP PLC
By: /s/ Michael J. Bailey
Michael J. Bailey
Director
COMPASS HOLDINGS, INC.
By: /s/ Michael J. Bailey
Michael J. Bailey
Director
COMPASS INTERIM, INC.
By: /s/ Michael J. Bailey
Michael J. Bailey
President
DAKA INTERNATIONAL, INC.
By: /s/ Donald C. Moore
Donald C. Moore
Senior Vice-President
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<PAGE> 41
EXHIBIT 1.1(a)(i)
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Compass Holdings shall
not be required to purchase any shares of International Common Stock tendered,
and may terminate the Offer, if
(i) immediately prior to the expiration of the Offer (as extended in
accordance with the terms of the Offer),
(a) any applicable waiting period under the HSR Act or the Exon-Florio
Amendment shall not have expired or been terminated,
(b) the Record Date shall not have been set by International's Board
of Directors, or
(c) the number of shares of International Common Stock validly
tendered (including for this purpose shares that remain subject to
guaranteed delivery procedures) and not withdrawn when added to the shares
of International Common Stock then beneficially owned by Compass, Compass
Holdings and its Affiliates or Compass Interim, including the shares of
International Common Stock into which the shares of Series A Preferred
Stock acquired by Compass Holdings pursuant to the Series A Preferred Stock
Purchase Agreement are convertible (the "A Converted Shares"), shall not
constitute at least two-thirds of the sum of the shares of International
Common Stock then outstanding and the A Converted Shares and represent at
least two-thirds of the voting power of all shares of capital stock of
International that would be entitled to vote with respect to the Merger
(the "Minimum Shares"), or
(ii) prior to the acceptance for payment of shares of International Common
Stock, any of the following events shall occur:
(a) any of the representations or warranties of International
contained in the Merger Agreement shall not have been true and correct at
the date when made or (except for those representations and warranties made
as of a particular date which need only be true and correct as of such
date) shall cease to be true and correct at any time prior to consummation
of the Offer, except (i) where International has delivered to Compass a
certificate (the "International Bring-Down Certificate") dated as of the
Offer Closing Date that (x) updates any section of the Disclosure Schedule
previously delivered to Compass pursuant to the Merger Agreement so long as
such updated schedules taken as a whole do not constitute a Material
Adverse Change (as defined in the Merger Agreement) compared to the
original schedules, or (y) sets forth events or conditions that have
occurred since the date of the Merger Agreement which, if they had occurred
or been in existence as of the date of the Merger Agreement, would be
required to be disclosed, so long as such events or conditions taken as a
whole do not constitute a Material Adverse Change or (ii) where the failure
to be so true and correct would not have a Material Adverse Effect on
International and Daka, taken as a whole, and Compass shall not have
received a certificate signed on behalf of International by the chief
executive officer and the chief financial officer to such effect; or
(b) any of the representations or warranties of International
contained in Sections 4.2(b), (c), (d), (e), (p) and (s) the Merger
Agreement shall not have been true and correct at the date when made or
(except for those representations and warranties made as of a particular
date which need only be true and correct as of such date) shall cease to be
true and correct at any time prior to consummation of the Offer, and
Compass shall not have received a certificate signed on behalf of
International by the chief executive officer and the chief financial
officer to such effect; or
(c) International shall have breached any of its covenants or
agreements contained in the Merger Agreement or any Ancillary Agreements,
provided, however, that if any such breach is curable by International or
Daka through the exercise of best efforts within five business days and so
long as International or Daka continue to use such best efforts, Compass
Holdings may not terminate the Offer until such five business day period
has expired without the breach being cured; or
(d) there shall be any statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced, or any legal or
administrative proceeding initiated by any United States federal or state
government, governmental authority or court (other than the routine
application to the Offer, the Merger or the Distribution of waiting periods
under the HSR Act, the Exon-Florio Amendment or review by the SEC of
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<PAGE> 42
the Schedule 14D-1, Schedule 14D-9 or Form 10) which would (i) prohibit
Compass Holdings from consummating the Offer or the Merger, (ii) prohibit
New International from consummating the Distribution, or (iii) have a
Material Adverse Effect on International and Daka as a whole (provided that
the provisions of this clause (iii) shall only apply in the event of any
statute, rule, regulation, decree, order or injunction (A) which is enacted
or entered into following the date of the Merger Agreement and (B) the
substantive provisions of which were initially proposed for enactment
following the date of the Merger Agreement); or
(e) there shall have occurred (i) any general suspension of trading in
securities on the New York Stock Exchange, Inc. or NASDAQ, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, or (iii) a commencement of a war or
armed hostilities involving the United States, which in the case of any of
the foregoing clauses (i), (ii) or (iii) would have a material adverse
effect on International and Daka taken as a whole; or
(f) either the Merger Agreement or the Reorganization Agreement shall
have been terminated in accordance with its terms.
(g) International shall have failed to enter into license agreements
for each of the "French Quarter Coffee", "Leo's Deli" and "Good Natured
Cafe" names and marks, as provided in Section 5.2(d) of the Reorganization
Agreement.
(h) Compass shall not have received an opinion dated the Closing Date
of Goodwin, Procter & Hoar LLP, counsel to International, in substantially
the form of Exhibit 1.1(a)(i).
(i) There shall have been a Material Adverse Change, or an event shall
have occurred which could reasonably be expected to result in a Material
Adverse Change.
(j) Compass shall not have received all consents or releases related
to the Foodservice Business or otherwise, necessary or appropriate to
effect the Contribution, the Distribution and the Merger and to release
International, Daka, Compass, Compass Holdings and Compass Interim and the
assets of the Foodservice Business from any obligations or liability,
including, without limitation, the Indebtedness, except as may be otherwise
expressly set forth herein or in the Ancillary Agreements.
(k) Any approval by a Governmental Entity in connection with the
transactions contemplated hereby and by the Ancillary Agreements, including
without limitation any approval under the HSR Act or the Exon-Florio
Amendment shall contain a requirement for the sale or disposition of assets
or conditions or limitations in connection with Compass' acquisition of the
Foodservice Business or operation of its existing business and operations
or the Foodservice Business after the Offer Closing Time.
(l) Allen R. Maxwell shall have indicated to International, Daka or
Compass that he does not intend to abide by the terms of the Employment
Agreement between International, Daka and Allen R. Maxwell.
(m) The Distribution shall not have become effective in accordance
with the terms of the Reorganization Agreement and each of the agreements
contemplated thereby.
(n) UCRI shall fail to have delivered to Compass Indemnification
Agreements in substantially the form attached as Exhibit 5.1(b) to the
Reorganization Agreement concerning each executive officer and director of
UCRI.
(o) Compass shall be unable to pay in full the aggregate amount of
principle, accrued but unpaid interest and fees due under the Credit
Facility or such amount shall exceed $110,000,000.
(p) Releases of claims and indemnification rights in forms reasonably
satisfactory to Compass from each of William H. Baumhauer, Allen R.
Maxwell, Charles W. Redepenning, Jr., David G. Parker, Louis A. Kaucic,
Donald Moore and Dean P. Vlahos shall not have been delivered to Compass.
(q) Letters of resignation from each executive officer and director of
International, except Erline Belton and Joseph O'Donnell, shall not have
been delivered to Compass.
(r) International shall not have paid to Compass the amounts set forth
in Section 6.7 net of any amounts due from Compass thereunder.
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<PAGE> 43
(s) UCRI shall have failed to enter into a Transition Agreement as
provided in Section 3.2 of the Post-Closing Convenants Agreement, including
Exhibit 3.2 thereof.
(t) International shall have failed to have assigned or transferred to
New International the Headquarters Lease (as defined in the Post-Closing
Convenants Agreement).
The foregoing conditions are for the sole benefit of Compass and may be
asserted by Compass regardless of the circumstances giving rise to such
conditions, or may be waived by Compass in whole or in part at any time and from
time to time in its sole discretion; provided that the conditions set forth in
clauses (i)(A), (B) and (C), or (ii)(e) above may be waived or modified only by
mutual consent of Compass Holdings and International.
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<PAGE> 1
E. L. Cox, 69, has served as a Class I director of the Company 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. Ms. 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.
Dean P. Vlahos, 45, has served as a director of the Company since February
1996. Mr. Vlahos was the founder, and has been Chairman of the Board, President
and Chief Executive Officer of Champps Entertainment, Inc. 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,
Minnesota (opened January 1983) and Richfield, Minnesota (opened February 1986).
Mr. Vlahos has over 20 years of experience in the restaurant industry.
MEETING AND COMMITTEES
The Board of Directors of the Company has an Audit Committee, a
Compensation Committee, an Executive Committee and a Nominating Committee.
During the fiscal year ended June 29, 1996, the Board of Directors 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 full Board of Directors. Each director
attended 75% or more of the aggregate of (a) the total number of meetings of the
Board of Directors during fiscal year 1996, and (b) the total number of meetings
held by all committees of the Board of Directors on which such director served
during fiscal year 1996.
The Audit Committee has the responsibility of selecting the Company's
independent auditors and communicating with the Company's independent auditors
on matters of auditing and accounting. The Audit Committee is currently composed
of Ms. Belton and Messrs. Cox 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 and Schwartz. The Compensation
Committee also acts as the Stock Option Committee, and has the responsibility of
administering the Company's 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").
DIRECTORS' COMPENSATION
In fiscal year 1996, Directors receive $1,000 per meeting plus travel
expenses. Under the the Company's 1994 Equity Incentive Plan, each year each
non-employee director receives options to purchase 1,500 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock as of
the date of grant.
6
<PAGE> 2
EXECUTIVE COMPENSATION
The following tables provide information as to compensation paid by the
Company during each of the three previous fiscal years ending with the fiscal
year ended June 29, 1996 to the Chief Executive Officer and the four other most
highly compensated executive officers whose total salary and bonus for fiscal
year 1996 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
------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer......... 1996 $369,558 $200,000
Chairman and Chief 1995 325,000 230,000 $1,220,848(2)
Executive Officer 1994 303,708 161,000 9,000
Allen R. Maxwell............. 1996 254,527 50,000 $60,000(3) 30,000(4)
President and Chief 1995 248,850 50,000 60,000(3) 5,000
Operating Officer 1994 256,036 80,500 60,000(3)
David G. Parker.............. 1996 172,160 25,000 18,000(4)
Senior Vice President 1995 171,500 30,000 1,500
and Chief Administrative 1994 174,798 36,750 1,500
Officer
William T. Freeman........... 1996 147,116 50,000 21,000(4)
Senior Vice President 1995 108,270 6,000
Corporate Development 1994 (5)
Louis A. Kaucic.............. 1996 154,500 25,000 15,000(4)
Senior Vice President 1995 154,500 25,000 1,500
Human Resources 1994 157,471 36,750 1,500
</TABLE>
- -----------------
(1) Represents the number of options to acquire Common Stock granted during the
fiscal year.
(2) Represents amount earned pursuant to a long-term incentive plan, based on
the market value of the Common Stock as of June 29, 1996 (the closing sale
price of the Common Stock on June 28, 1996, as reported by Nasdaq, was
$23.50 per share). Due to the decline in the Common Stock price subsequent
to June 29, 1995, as of October 22, 1996 this amount had declined to zero.
The amount earned under such plan vests on June 30, 1997 and is payable in
either cash or DAKA 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) Granted on August 1, 1995 pursuant to a long-term incentive plan for
management pursuant to which the options will vest 100% on August 1, 1998
and have an exercise price equal to $24.00 per share (the fair market price
of the Common Stock as of the date of grant) with respect to one third of
the options granted, $25.80 per share with respect to another one third of
the options granted and $27.60 per share with respect to the remaining one
third of the options granted.
(5) Mr. Freeman became an employee of the Company in August, 1994.
7
<PAGE> 3
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES OF STOCK
% OF PRICE APPRECIATION
TOTAL OPTIONS FOR OPTION TERM
GRANTED TO EXERCISE (10 YEARS)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% ($) 10% ($)
---- ------- ----------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Allen R. Maxwell............. 30,000(1) 5.7% (1) 7/31/05 486,765 1,233,557
David G. Parker.............. 18,000(1) 3.3 (1) 7/31/05 292,059 740,134
Louis A. Kaucic.............. 15,000(1) 2.7 (1) 7/31/05 243,381 616,778
Willaim T. Freeman........... 21,000(1) 4.0 (1) 7/31/05 347,737 863,490
</TABLE>
- -----------------------
(1) Granted on August 1, 1995 pursuant to a long-term incentive plan for
management pursuant to which the options will vest 100% on August 1, 1998
and have an exercise price equal to $24.00 per share (the fair market price
of the Common Stock as of the date of grant) with respect to one third of
the options granted, $25.80 per share with respect to another one third of
the options granted and $27.60 per share with respect to the remaining one
third of the options granted.
AGGREGATE OPTION EXERCISES IN FISCAL 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF OUTSTANDING
NUMBER OF BENEFICIAL IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William H. Baumhauer......... - - 187,000 - $3,584,580 -
Allen R. Maxwell............. - - 35,000 30,000 683,100 -
David G. Parker.............. 10,000 $187,500 32,500 18,000 585,985 -
Louie A. Kaucic.............. 0 - 14,500 15,000 223,985 -
William T. Freeman........... 6,000 86,220 - 21,000 - -
</TABLE>
- --------------
(1) Based on the closing bid price on the Nasdaq National Market of $23.50 per
share on June 28, 1996.
LONG-TERM INCENTIVE PLAN--AWARD IN FISCAL 1996
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS PERIOD UNTIL NON STOCK-PRICE-BASED PLANS
OR OTHER MATURATION ---------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------ --------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
William H. Baumhauer......... (1) June 30, 1997 (1) (1) (1)
</TABLE>
- -------------
(1) The long-term incentive plan implemented by the Company'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
8
<PAGE> 4
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
Messrs. Baumhauer and Maxwell are each employed by the Company pursuant to
separate five (5) year employment agreements which commenced on January 1, 1992
and expire on January 1, 1997. Each of Mr. Baumhauer and Mr. Maxwell has entered
into a new employment agreement effective January 1, 1997 which provides for an
initial term of three (3) years and automatic renewal each year so that the
residual term of the agreement is never less than three years. The new
agreements provide for initial annual base salaries of $450,500 for Mr.
Baumhauer and $265,000 for Mr. Maxwell. Any adjustments to these amounts are at
the discretion of the Board of Directors. Each of the agreements provides that
in the event the Company 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 cash compensation for three years. "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 or crime of moral turpitude, (iii) willful violation
of the terms of the agreement, (iv) conscious disregard or neglect of his
duties, or (v) willful and demonstrated unwillingness to perform his duties
under the agreement.
Under the terms of an employment agreement among DAKA, Champps and Mr.
Vlahos which commenced on February 21, 1996, Mr. Vlahos provides full-time
services to Champps in the capacity of Chairman of the Board, Chief Executive
Officer and President, for a five (5) year term. Under the agreement, 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 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 Board of Directors of the Company, which amount may be increased to up to
100% of his base salary if he exceeds such performance targets by margins
determined by the Board of Directors. Twenty percent (20%) of the potential
bonus payments for Mr. Vlahos are 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 each 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, subject to certain
obligations to DAKA, to establish a franchise for up to five 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.
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviews and approves compensation levels for the
Company's executive officers and oversees and administers the Company's
executive compensation programs. All
9
<PAGE> 5
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 the
Company's stockholders are best served when compensation is directly aligned
with the Company'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 the Company's strategy;
- assessing the performance of and determining an appropriate
compensation package for the Chief Executive Officer; and
- ensuring that compensation for the other executive officers reflects
individual, team, and the Company's performance appropriately.
Purpose. the Company'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 the Company'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 the Company'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.
10
<PAGE> 6
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 the Company. 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
the Company's Management Annual Incentive Plan.
It is the Company's general policy to pay competitive base compensation to
its executive officers. The Compensation Committee annually reviews and, if
appropriate, adjusts executive officers' base salaries. In making individual
base salary recommendations, the Compensation Committee considers the
executive's experience, management and leadership ability and technical skills,
his or her compensation history, as well as the performance of the Company as a
whole and, where applicable, the performance of specific business units.
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 the Company's performance.
Under the CEO Long Term Incentive Plan Mr. Baumhauer is eligible to earn a
percentage of an increase in the Company'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 1996 was the second 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, grants stock options to
senior management and certain other managers. The options 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 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.
11
<PAGE> 7
Chief Executive Officer Compensation. Mr. Baumhauer is employed by the
Company pursuant to a five-year employment contract which expires on January 1,
1997; Mr. Baumhauer and the Company have entered into a new three-year
employment agreement effective as of January 1, 1997. He participates in the
compensation programs as outlined above. Mr. Baumhauer's total compensation for
1996 reflects the Compensation Committee's view of his outstanding performance
and leadership in executing expansion plans for future growth, completing two
major restaurant acquisitions, restructuring the balance sheet and articulating
a clear and sound approach to restore profitability levels and pursue long-term
growth in shareholder value, as well as the Compensation Committee's goal of
maintaining his compensation at a level competitive with that of chief
executives of companies comparable to DAKA. Mr. Baumhauer was awarded an annual
incentive award of $200,000, compared to $230,000 for the prior year. Mr.
Baumhauer's salary was increased to $450,000 from $370,000, representing a 21.6%
increase. His long term incentive award, although not vested until June 30,
1997, had, as of June 29, 1996, a value of approximately $1,220,848 (based on
the then market value of the Common Stock, which closed on Nasdaq at $23 1/2 per
share on June 28, 1996), compared to $380,000 as of July 1, 1995; due to the
decline in the Common Stock price subsequent to June 29, 1996, as of the time
when the Compensation Committee determined the compensation for Mr. Baumhauer
and as of October 22, 1996 the value of his long term incentive award had
declined to zero. The dramatic effect of changes in the value of Mr. Baumhauer's
long term incentive award, as determined by changes in the value of the Common
Stock, on his total compensation reflect 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
Alan D. Schwartz
12
<PAGE> 1
Exhibit 3
EMPLOYMENT CONTRACT
This EMPLOYMENT CONTRACT (the "Contract") is made and entered into as of
the 1st day of October, 1996, by and between DAKA INTERNATIONAL, INC., a
Delaware corporation, having its principal place of business at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923 (hereinafter referred to
as "Employer" or the "Company"), and WILLIAM H. BAUMHAUER whose business address
is at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923
(hereinafter referred to as "Employee").
WHEREAS, Employer is the parent of three principal wholly owned
subsidiaries (the "Principal Subsidiaries"), Fuddruckers, Inc., a Texas
corporation ("Fuddruckers"), Daka, Inc., a Massachusetts corporation ("Daka"),
and Champps Entertainment, Inc., a Minnesota corporation ("Champps") (the term
"Employer" to include, as the context requires, one, some, all or none of the
Principal Subsidiaries, as well as any, all or none of the direct and indirect
subsidiaries of the Principal Subsidiaries (the Principal Subsidiaries and such
other subsidiaries collectively the "Subsidiaries")); and
WHEREAS, Employee is currently employed by Employer in the capacity of its
Chairman of the Board of Directors and Chief Executive Officer and by
Fuddruckers as its Chairman, President and Chief Executive Officer; and
WHEREAS, Employee possesses an intimate knowledge of the business and
affairs of Employer, its policies, methods, personnel and problems; and
WHEREAS, Employee and Employer have previously entered into an Employment
Contract, dated January 1, 1992 and Employer and Employee desire to enter into
this
1
<PAGE> 2
Contract effective upon the expiration of the initial term of such Employment
Contract on January 1, 1997; and
WHEREAS, the Board of Directors of Employer recognizes that Employee's
contribution to the growth and success of Employer and the Subsidiaries has been
substantial and desires to assure Employer and the Subsidiaries of Employee's
continued employment in an executive capacity and to compensate him therefor;
and
WHEREAS, Employee is desirous of committing himself to serve Employer and
the Subsidiaries on the terms herein provided;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and the mutual benefits to be gained by the performance thereof, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer on the terms and conditions hereinafter set forth.
2. TERM OF EMPLOYMENT. The commencement date ("Commencement Date") of this
Contract shall be January 1, 1997. Subject to the provisions for termination
hereinafter provided, the term (the "Initial Term") of this Contract shall be
for a period of three (3) years from the Commencement Date; provided, however,
that the term hereof shall automatically extend (the "Extended Term") for
periods of one (1) year commencing on the first anniversary of the Commencement
Date and on each subsequent anniversary date thereafter, unless this Contract is
terminated in accordance with the terms hereof. The Initial Term and Extended
Term are hereinafter referred to as the "Employment Period".
2
<PAGE> 3
3. DUTIES OF EMPLOYEE. Employee is hereby employed by Employer as a
full-time employee in the capacity of Chairman of the Board of Directors and
Chief Executive Officer of Employer and Chairman, President and Chief Executive
Officer of Fuddruckers, and his duties as such shall include, but not be limited
to, those normally performed by a senior executive officer of equal rank in the
restaurant and foodservice industry for an expanding diversified restaurant
company with national and international operations. Employee shall comply with
all of the policies, standards, and regulations of Employer now or hereafter
promulgated. Employer shall have the right to assign Employee other managerial
duties in addition to the duties originally assigned and specified above;
PROVIDED, HOWEVER, in no event shall Employee be assigned, without Employee's
consent, duties other than those reasonably required of a Chairman and Chief
Executive Officer of an expanding diversified restaurant company with national
and international operations. In the event Employee assumes and performs duties
beyond those contemplated hereby to be within the scope of his employment, and
those that he is required to perform hereunder, it is anticipated his
compensation will be equitably adjusted. Employee is employed by Employer on a
full time basis and Employee shall be required to devote his best efforts and
business judgment, productive time, ability and attention to the business of
Employer and the Subsidiaries during the Employment Period. During the
Employment Period, Employee shall not be engaged in any other business activity
whether or not such business activity is pursued for gain, profit or other
pecuniary advantage that will significantly interfere with his duties as
Chairman and Chief Executive Officer of Employer. With prior approval of the
Board of Directors of Employer, Employee may serve on the boards of directors of
other companies.
3
<PAGE> 4
4. COMPENSATION. For all services rendered by Employee to Employer and the
Subsidiaries under this Contract, Employee shall receive the following
compensation:
(a) As compensation for services rendered under this Contract for the
term commencing as of the date hereof, Employee shall receive an initial annual
base salary of Four Hundred Fifty Thousand Five Hundred Dollars ($450,500) (the
"Base Salary"), payable in periodic installments in accordance with Employer's
usual practice for its senior executives. During the Employment Period, the Base
Salary will be subject to annual review by the Board of Directors of Employer
and if warranted, adjusted upward to reflect external conditions, Employee's
performance, and changing size and nature of Employer's operations.
(b) Annually and from time to time, as additional incentive
compensation from Employer to Employee, Employer, within its sole discretion,
may pay to Employee a bonus or additional compensation in an amount determined
by the Board of Directors of Employer.
5. VACATIONS, FRINGE BENEFITS, REIMBURSEMENT OF BUSINESS EXPENSES. Employee
shall be entitled to a paid vacation in accordance with the vacation policy
established by Employer. The times for such vacations shall be mutually agreed
upon by Employee and Employer but such vacation shall not be cumulative from
year to year during the Employment Period. No payment shall be made for unused
vacation time, unless otherwise required by law.
Employer shall grant a Six Hundred Dollar ($600) monthly car allowance for
use as Employee deems appropriate.
4
<PAGE> 5
As a full-time employee of Employer, Employee shall be entitled to
participate in such other fringe benefits that are formally adopted by Employer
from time to time for and on behalf of all of its full-time employees. Employee
shall be reimbursed for reasonable travel and other expenses incurred by
Employee in promoting the business of Employer and the Subsidiaries and
performing his obligations hereunder in accordance with the policy adopted by
the Employer.
6. TRADE SECRETS. During the Employment Period, Employee will have access
to and become familiar with Employer's trade secrets, recipes, business
concepts, marketing and related records and specifications, which are owned by
Employer and which are regularly used in the operation of the business of
Employer and the Subsidiaries (collectively, "Confidential Information").
Employee hereby agrees he shall not disclose any Confidential Information,
directly or indirectly, nor use it in any way, either during the Employment
Period or at any time thereafter, except as required in the course of his
employment with Employer and the Subsidiaries. All files, records, documents,
drawings, specifications, equipment and other similar items relating to the
business of Employer and the Subsidiaries shall remain the sole and exclusive
property of Employer and the Subsidiaries and shall not be removed from the
premises of Employer under any circumstances whatsoever without the prior
written consent of Employer and shall not be reproduced or copied.
7. DEATH BENEFITS. If Employee dies during the term of employment, Employer
shall pay to the estate of Employee the compensation which would otherwise be
payable to Employee up to the date of the month in which his death occurs. In
addition,
5
<PAGE> 6
Employer shall purchase a straight term life insurance policy for Employee in
the amount of One Million Dollars ($1,000,000). Employee shall have the
exclusive right during the term of this Contract to name the beneficiary of his
choice to such policy, provided, however, that the cost of such term insurance
shall be additional compensation to Employee.
8. TERMINATION OF CONTRACT BY EMPLOYER.
-----------------------------------
(a) TERMINATION FOR CAUSE. This Contract may be terminated by Employer
at any time for Cause, as hereinafter defined. For the purposes hereof, the term
"Cause" shall include: (1) Employee's theft from or fraud upon Employer; (2)
Employee's conviction of a felony; (3) Employee's willful violation of terms and
conditions hereof; (4) Employee's willful disregard or neglect in the duties he
is required to perform under the terms hereof; or (5) Employee's willful and
demonstrated unwillingness to prosecute and perform such duties to the extent
deemed reasonably necessary and advisable, which duties encompass the duties
reasonably required of a Chief Executive Officer of an expanding diversified
restaurant company with national and international operations. For purposes of
clauses (3), (4) and (5) above, no act, or failure to act, on the Employee's
part shall be deemed "willful" unless done, or omitted to be done, by Employee
without reasonable belief that his act, or failure to act, was in the best
interest of Employer. Notwithstanding anything in this Agreement to the
contrary, Employee shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to him a copy of a resolution duly
adopted by the Board of Directors at a meeting of the Board of Directors called
and held for such purpose (after reasonable notice to Employee and an
opportunity for him, together with his counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of
6
<PAGE> 7
the Board ofDirectors Employee was guilty of the conduct enumerated in any of
clauses (1) through (5) above under the definition of Cause and specifying the
particulars thereof in detail. Upon such Cause, Employer may, at its option,
terminate this Contract by giving written notice (a "Notice of Termination") to
Employee, which termination is without prejudice to any other remedy to which
Employer may be entitled, and such termination shall be effective as of the date
said written notice is received by Employee.
(b) TERMINATION WITHOUT CAUSE. In the event Employer shall terminate
this Contract without Cause, as hereinabove defined, by Notice of Termination to
Employee, all obligations of Employee hereunder shall terminate upon receipt of
such Notice of Termination. Nothing in this Contract shall be construed as
giving Employee the right to be retained as an employee of Employer or as
impairing the rights of Employer to terminate Employee's services.
9. TERMINATION OF CONTRACT BY EMPLOYEE. Employee may terminate his
employment hereunder (1) for Good Reason, or (2) at any time by giving Notice of
Termination to Employer at least forty-five (45) days prior to the effectiveness
of such termination. For purposes of this Contract, "Good Reason" shall mean (a)
any assignment to Employee of any duties other than those contemplated by, or
any limitation of the powers of Employee in any respect not contemplated by,
this Contract, (b) any removal of Employee from or any failure to re-elect
Employee to the position of Chairman and Chief Executive Officer of Employer,
except in connection with termination of Employee's employment for Cause, or (c)
a reduction in Employee's rate of compensation or a reduction
7
<PAGE> 8
in Employee's fringe benefits; PROVIDED, HOWEVER, that Employer shall have at
least thirty (30) days to remedy the existence of any Good Reason for
termination by Employee of which it is made aware, whether in a Notice of
Termination or otherwise.
10. COMPENSATION UPON TERMINATION.
-----------------------------
(a) TERMINATION BY EMPLOYER FOR CAUSE OR BY EMPLOYEE WITHOUT GOOD
REASON. If Employee's employment shall be terminated by Employer for Cause or
termination by Employee without Good Reason, Employer shall pay Employee that
portion of his Base Salary which accrued through the date of termination at the
rate in effect at the time Notice of Termination is given and Employer shall
have no further obligations to Employee under this Contract.
(b) TERMINATION BY EMPLOYER WITHOUT CAUSE OR BY EMPLOYEE WITH GOOD
REASON. If Employer shall terminate Employee's employment without Cause or
Employee shall terminate his employment for Good Reason, then: (i) Employer
shall pay Employee that portion of his Base Salary which accrued through the
date of termination at the rate in effect at the time Notice of Termination is
given; (ii) in lieu of any further salary payments to Employee for periods
subsequent to the date of termination, Employer shall pay as liquidated damages
to Employee an amount equal to three (3) times the annual Base Salary in effect
at the time Notice of Termination is given, to be paid in the normal pay periods
of the Company over the three year period following the date of termination;
provided, however, that if termination occurs within twelve months after a
Change of Control (as defined below), Employer shall pay as liquidated damages
to Employee an amount equal to three (3) times the "base amount" (as such term
is defined in Section 280G(b)(3) of the Internal Revenue
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Code of 1986, as amended (the "Code")) applicable to Employee, less One Dollar
($1.00), to be paid in the normal pay periods of the Company over the three year
period following the date of termination; and (iii) Employer shall make the
following changes with respect to all outstanding unexercised stock options held
by Employee: (x) the date of vesting and exercisability of all unexercised and
unexpired stock options or other stock based incentive awards shall be
accelerated to the date of termination, (y) the period during which all
unexercised and unexpired options which are not incentive stock options as
defined in Section 422 of the Code ("NQSO") may be exercised by Employee shall
be extended until the expiration date of such options and (z) if Employee so
elects in writing within 90 days after the date of termination, all unexercised
and unexpired options which are incentive stock options ("ISO") as defined in
Section 422 of the Code shall be converted into NQSO and shall thereby become
eligible for the benefit described in clause (y) above as if they had been NQSO
as of the date of termination.
A "Change in Control" shall be deemed to have occurred in any one of the
following events: (1) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the
Company, any of its Subsidiaries, or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or trust of Employer),
together with all "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or indirectly,
of securities of the Company representing 50% or more of either (A) the combined
voting power of the Company's then outstanding securities having the right to
vote in an election of the
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Company's Board of Directors ("Voting Securities") or (B) the then outstanding
shares of capital stock of Code of 1986, as amended (the "Code")) applicable to
Employee, less One Dollar ($1.00), to be paid the Company ("Stock") (in either
such case other than as a result of an acquisition of securities directly from
the Company or by the Company); or (2) persons who, as of the date hereof,
constitute the Company's Board of Directors (the "Incumbent Directors") cease
for any reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the date hereof whose election or nomination for election was
approved by a vote of at least a majority of the Incumbent Directors shall, for
purposes of this Agreement, be considered an Incumbent Director; or (3) the
stockholders of the Company shall approve (A) any consolidation or merger of the
Company or any Subsidiary where the shareholders of the Company, immediately
prior to the consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, shares representing in the aggregate 80%
or more of the voting shares of the corporation issuing cash or securities in
the consolidation or merger (or of its ultimate parent corporation, if any), (B)
any sale, lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of Employer or (C) any plan or proposal for the
liquidation or dissolution of the Company.
It is the intention of Employee and Employer that no payments by Employer
to or for the benefit of Employee under this Agreement shall be non-deductible
to Employer by reason of the operation of Section 280G of the Code relating to
parachute payments. Accordingly,
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and notwithstanding any other provision of this Agreement, if by reason of the
operation of said Section 280G, any such payments exceed the amount which can be
deducted by Employer, such payments shall be reduced to the maximum amount which
can be deducted by Employer. To the extent that there is more than one method of
reducing the payments (including by way of elimination or reduction of the
changes to Employee's options described in clause (iii) above) to bring them
within the limitations of said Section 280G, Employee shall determine which
method shall be followed, provided that if Employee fails to make such
determination within forty-five (45) days after Employer has sent Employee
written notice of the need for such reduction, Employer may determine the method
of such reduction in its sole discretion.
11. NO MITIGATION. Employer agrees that, if Employee's employment by
Employer is terminated during the term of this Agreement, Employee is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to Employee by Employer pursuant to Section 10 hereof. Further, the
amount of any payment provided for in this Agreement shall not be reduced by any
compensation earned by Employee as the result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owed by
Employee to Employer or otherwise.
12. SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled exclusively by arbitration in accordance with the laws of the
Commonwealth of Massachusetts by three arbitrators, one of whom shall be
appointed by Employer, one by Employee and the third by the first two
arbitrators. If the first two arbitrators cannot agree
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on the appointment of a third arbitrator, then the third arbitrator shall be
appointed by the American Arbitration Association in the City of Boston. Such
arbitration shall be conducted in the City of Boston in accordance with the
rules of the American Arbitration Association for commercial arbitrations,
except with respect to the selection of arbitrators which shall be as provided
in this Section 13. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
13. NON-COMPETITION AGREEMENT. During the Employment Period, and unless
Employee's employment is terminated by Employee for Good Reason or by Employer
without Cause, for a period of one (1) year after the termination of his service
to Employer and the Subsidiaries, Employee covenants and agrees not to directly
or indirectly (a) engage or be interested in any business as owner, officer,
director, employee, consultant or otherwise which during the Employment Period
is in competition with the business of Employer or any of the Subsidiaries or
which following the Employment Period is in competition with such business as
conducted on the last day of the Employment Period, or (b) solicit or endeavor
to entice away, offer employment to or employ, or offer or conclude any contract
for personal services with, any person who during the preceding six months was
an employee of Employer. However, the restrictions in clause (a) shall not
prevent Employee from owning or dealing in securities of any corporation or
other entity which are traded on any national securities exchange or in the
over-the-counter market, and the restrictions in clause (b) prohibiting the
employment of any person who during the preceding six months was an employee of
Employer shall not apply with respect to Employee who, without otherwise
breaching clause (b) (by soliciting or enticing away a former employee),
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hires a former employee who has voluntarily left the employ of Employer or who
has been terminated involuntarily by Employer.
14. INJUNCTIVE RELIEF. Employee irrevocably acknowledges that any violation
of this Contract will cause Employer immediate and irreparable harm and that the
damage that Employer will suffer may be difficult or impossible to measure.
Therefore, upon any actual or impending violation of this Contract, Employer
shall be entitled to the issuance of a restraining order, preliminary or
permanent injunction, without bond, restraining or enjoining such violation by
Employee or any entity or person acting in concert with Employee. Such remedy
shall be additional to and not in limitation of any other remedy which may
otherwise be available to Employer.
15. RELATIONSHIP OF THE PARTIES. The parties acknowledge, agree and
recognize that the Board of Directors of Employer shall manage the business
affairs of Employer and that the relationship of Employer and Employee is that
of employer and employee and any other relationship is hereby expressly
disclaimed.
16. ASSIGNMENT; OBLIGATIONS OF SUCCESSOR. Neither Employer nor Employee may
make any assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other party, and
without such consent any attempted transfer shall be null and void and of no
effect. This Agreement shall inure to the benefit of and be binding upon
Employer and Employee, their respective successors, executors, administrators,
heirs and permitted assigns. In the event of Employee's death after termination
of employment but prior to the completion by Employer of all payments due
Employee hereunder, Employer shall continue such payments to
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Employee's beneficiary designated in writing to Employer prior to his death (or
to his estate, if Employee fails to make such designation). In addition to any
obligations imposed by law upon any successor to Employer, Employer will use its
best efforts to require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform if no such succession had taken place.
17. NOTICES. Any notice to be given hereunder by either party to the other
must be in writing and may be effective either by personal delivery or by
certified mail, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses appearing in the introductory
paragraph. Notices delivered personally shall be deemed communicated as of the
actual receipt thereof; mailed notices shall be deemed communicated and received
three (3) days after the mailing of same.
18. INVALID PROVISIONS. The invalidity or unenforceability of a particular
provision of this Contract shall not affect the enforceability of any other
provisions hereof and this Contract shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
19. AMENDMENTS TO THE CONTRACT. This Contract may only be amended in
writing by an agreement executed by both parties hereto.
20. LAW GOVERNING CONTRACT. This Contract is made and performable in the
Commonwealth of Massachusetts, and shall be construed under the laws of the
Commonwealth of Massachusetts.
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21. INDEMNITY. Employer shall indemnify Employee and hold him harmless for
any acts or decisions made by him in good faith while performing services for
Employer as a director, employee and/or agent of Employer and, in addition
thereto, shall use its best efforts to obtain insurance coverage for him under
any insurance policy now in force or hereinafter obtained during the Employment
Period covering the officers and directors of Employer against lawsuits as
director, employee and/or agent of Employer. Employer will pay all expenses,
including attorney's fees, actually and necessarily incurred by Employer in
connection with the defense of any action, suit or proceeding, and in connection
with any appeal thereon, including the costs of an out-of-court settlement
previously approved by Employer, with respect to any acts or decisions which
Employee shall have performed or made in good faith in performing services for
Employer; PROVIDED, HOWEVER, that Employer's obligations under the terms of this
paragraph are subject to any limitations imposed by Employer's Certificate of
Incorporation and By-Laws and applicable state law.
22. CONSTRUCTION. Waiver by any party hereto of a breach of any provision
of this Contract shall not operate or be construed as a waiver of any subsequent
breach of any party. This Contract shall not be assignable except on the part of
Employer as provided in Paragraph 14 above. Subject to the prohibition against
assignment of this Contract, the terms and conditions herein shall inure to the
benefit of and be binding upon the Parties hereto, their successor, heirs and
legal representatives.
23. LITIGATION AND REGULATORY COOPERATION. During and after Employee's
employment, Employee shall reasonably cooperate with Employer in the defense or
prosecution of any claims or actions now in existence or which may be brought in
the
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future against or on behalf of Employer which relate to events or occurrences
that transpired while Employee is or was employed by Employer. Employee's
reasonable cooperation in connection with such claims or actions shall include,
but not be limited to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of Employer at mutually
convenient times. During and after Employee's employment, Employee also shall
reasonably cooperate with Employer in connection with any investigation or
review of any federal, state or local regulatory authority as any such
investigation or review relates to events or occurrences that transpired while
Employee was employed by Employer. The Company shall, at the request of
Employee, pay in advance any out-of-pocket expenses that Employee would
otherwise be required to incur in connection with Employee's performance of its
obligations pursuant to this clause, and shall reimburse Employee for any
reasonable out-of-pocket expenses incurred by Employee that were not so paid in
advance by Employer.
24. ENTIRE AGREEMENT. This Contract will be effective as of the date of
termination of the Employment Contract between Employer and Employee dated
January 1, 1992 and upon such effectiveness will contain the entire agreement of
the parties hereto and supersede any and all prior agreements, oral or written,
and negotiations between said parties regarding the subject matter herein
contained.
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IN WITNESS WHEREOF, the parties have executed this Contract this day and
year first above written.
EMPLOYER EMPLOYEE
DAKA INTERNATIONAL, INC.
By: /s/ Charles W. Redepenning, Jr. /s/ William H. Baumhauer
-------------------------------- ---------------------------
Charles W. Redepenning, Jr. William H. Baumhauer
Senior Vice President and
General Counsel
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Exhibit 4
EMPLOYMENT CONTRACT
This EMPLOYMENT CONTRACT (the "Contract") is made and entered into as of
the 1st day of October, 1996, by and between DAKA INTERNATIONAL, INC., a
Delaware corporation, having its principal place of business at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923 (hereinafter referred to
as "Employer"), and ALLEN R. MAXWELL whose business address is at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923 (hereinafter referred to
as "Employee").
WHEREAS, Employer is the parent of three principal wholly owned
subsidiaries (the "Principal Subsidiaries"), Fuddruckers, Inc., a Texas
corporation ("Fuddruckers"), Daka, Inc., a Massachusetts corporation ("Daka"),
and Champps Entertainment, Inc., a Minnesota corporation ("Champps") (the term
"Employer" to include, as the context requires, one, some, all or none of the
Principal Subsidiaries, as well as any, all or none of the direct and indirect
subsidiaries of the Principal Subsidiaries (the Principal Subsidiaries and such
other subsidiaries collectively the "Subsidiaries")); and
WHEREAS, Employee is currently employed by Employer in the capacity of its
President and Chief Operating Officer and by Daka as its Chairman, President and
Chief Executive Officer; and
WHEREAS, Employee possesses an intimate knowledge of the business and
affairs of Employer, its policies, methods, personnel and problems; and
WHEREAS, Employee and Employer have previously entered into an Employment
Contract, dated January 1, 1992 and Employer and Employee desire to enter into
this
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Contract effective upon the expiration of the initial term of such Employment
Contract on January 1, 1997; and
WHEREAS, the Board of Directors of Employer recognizes that Employee's
contribution to the growth and success of Employer and the Subsidiaries has been
substantial and desires to assure Employer and the Subsidiaries of Employee's
continued employment in an executive capacity and to compensate him therefor;
and
WHEREAS, Employee is desirous of committing himself to serve Employer and
the Subsidiaries on the terms herein provided;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and the mutual benefits to be gained by the performance thereof, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer on the terms and conditions hereinafter set forth.
2. TERM OF EMPLOYMENT. The commencement date ("Commencement Date") of this
Contract shall be January 1, 1997. Subject to the provisions for termination
hereinafter provided, the term (the "Initial Term") of this Contract shall be
for a period of three (3) years from the Commencement Date; provided, however,
that the term hereof shall automatically extend (the "Extended Term") for
periods of one (1) year commencing on the first anniversary of the Commencement
Date and on each subsequent anniversary date thereafter, unless this Contract is
terminated in accordance with the terms hereof. The Initial Term and Extended
Term are hereinafter referred to as the "Employment Period".
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3. DUTIES OF EMPLOYEE. Employee is hereby employed by Employer as a
full-time employee in the capacity of President and Chief Operating Officer of
Employer and Chairman, President and Chief Executive Officer of Daka, and his
duties as such shall include, but not be limited to, those normally performed by
a senior executive officer of equal rank in the foodservice and restaurant
industry for an expanding diversified restaurant company with national and
international operations; provided, however, that at the request of the Board of
Directors of Employer, Employee shall relinquish the titles of President and
Chief Operating Officer of Employer, it being understood that neither such
request nor such relinquishment shall be deemed to constitute termination by
Employer without Cause for purposes of Section 8 hereof or termination by
Employee for Good Reason for purposes of Section 9 hereof. Employee shall comply
with all of the policies, standards, and regulations of Employer now or
hereafter promulgated. Employer shall have the right to assign Employee other
managerial duties in addition to the duties originally assigned and specified
above; PROVIDED, HOWEVER, in no event shall Employee be assigned, without
Employee's consent duties other than those reasonably required of a President
and Chief Operating Officer of an expanding diversified restaurant company with
national and international operations. In the event Employee assumes and
performs duties beyond those contemplated hereby to be within the scope of his
employment, and those that he is required to perform hereunder, it is
anticipated his compensation will be equitably adjusted. Employee is employed by
Employer on a full time basis and Employee shall be required to devote his best
efforts and business judgment, productive time, ability and attention to the
business of
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Employer and the Subsidiaries during the Employment Period. During the
Employment Period, Employee shall not be engaged in any other business activity
whether or not such business activity is pursued for gain, profit or other
pecuniary advantage that will significantly interfere with his duties as
President and Chief Operating Officer of Employer. With prior approval of the
Board of Directors of Employer, Employee may serve on the boards of directors of
other companies.
4. COMPENSATION. For all services rendered by Employee to Employer and the
Subsidiaries under this Contract, Employee shall receive the following
compensation:
(a) As compensation for services rendered under this Contract for the
term commencing as of the date hereof, Employee shall receive an initial annual
base salary of Two Hundred Sixty Five Thousand Dollars ($265,000) (the "Base
Salary"), payable in periodic installments in accordance with Employer's usual
practice for its senior executives. During the Employment Period, the Base
Salary will be subject to annual review by the Board of Directors of Employer
and if warranted, adjusted upward to reflect external conditions, Employee's
performance, and changing size and nature of Employer's operations.
(b) Annually and from time to time, as additional incentive
compensation from Employer to Employee, Employer, within its sole discretion,
may pay to Employee a bonus or additional compensation in an amount determined
by the Board of Directors of Employer.
5. VACATIONS, FRINGE BENEFITS, REIMBURSEMENT OF BUSINESS EXPENSES. Employee
shall be entitled to a paid vacation in accordance with the vacation
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policy established by Employer. The times for such vacations shall be mutually
agreed upon by Employee and Employer but such vacation shall not be cumulative
from year to year during the Employment Period. No payment shall be made for
unused vacation time, unless otherwise required by law.
Employer shall grant a Six Hundred Dollar ($600) monthly car allowance for
use as Employee deems appropriate.
As a full-time employee of Employer, Employee shall be entitled to
participate in such other fringe benefits that are formally adopted by Employer
from time to time for and on behalf of all of its full-time employees. Employee
shall be reimbursed for reasonable travel and other expenses incurred by
Employee in promoting the business of Employer and the Subsidiaries and
performing his obligations hereunder in accordance with the policy adopted by
the Employer.
6. TRADE SECRETS. During the Employment Period, Employee will have access
to and become familiar with Employer's trade secrets, recipes, business
concepts, marketing and related records and specifications, which are owned by
Employer and which are regularly used in the operation of the business of
Employer and the Subsidiaries (collectively, "Confidential Information").
Employee hereby agrees he shall not disclose any Confidential Information,
directly or indirectly, nor use it in any way, either during the Employment
Period or at any time thereafter, except as required in the course of his
employment with Employer and the Subsidiaries. All files, records, documents,
drawings, specifications, equipment and other similar items relating to the
business of Employer and the
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Subsidiaries shall remain the sole and exclusive property of Employer and the
Subsidiaries and shall not be removed from the premises of Employer under any
circumstances whatsoever without the prior written consent of Employer and shall
not be reproduced or copied.
7. DEATH BENEFITS. If Employee dies during the term of employment, Employer
shall pay to the estate of Employee the compensation which would otherwise be
payable to Employee up to the date of the month in which his death occurs. In
addition, Employer shall purchase a straight term life insurance policy for
Employee in the amount of One Million Dollars ($1,000,000). Employee shall have
the exclusive right during the term of this Contract to name the beneficiary of
his choice to such policy, PROVIDED, HOWEVER, that the cost of such term
insurance shall be additional compensation to Employee.
8. TERMINATION OF CONTRACT BY EMPLOYER.
(a) TERMINATION FOR CAUSE. This Contract may be terminated by Employer
at any time for Cause, as hereinafter defined. For the purposes hereof, the term
"Cause" shall include: (1) Employee's theft from or fraud upon Employer; (2)
Employee's conviction of a felony; (3) Employee's willful violation of terms and
conditions hereof; (4) Employee's willful disregard or neglect in the duties he
is required to perform under the terms hereof; or (5) Employee's willful and
demonstrated unwillingness to prosecute and perform such duties to the extent
deemed reasonably necessary and advisable, which duties encompass the duties
reasonably required of a Chief Executive Officer of an expanding diversified
restaurant company with national and international operations. For purposes of
clauses (3), (4)
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and (5) above, no act, or failure to act, on the Employee's part shall be
deemed "willful" unless done, or omitted to be done, by Employee without
reasonable belief that his act, or failure to act, was in the best interest of
Employer. Notwithstanding anything in this Agreement to the contrary, Employee
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
Board of Directors at a meeting of the Board of Directors called and held for
such purpose (after reasonable notice to Employee and an opportunity for him,
together with his counsel, to be heard before the Board of Directors), finding
that in the good faith opinion of the Board of Directors Employee was guilty of
the conduct enumerated in any of clauses (1) through (5) above under the
definition of Cause and specifying the particulars thereof in detail.
Upon such Cause, Employer may, at its option, terminate this Contract by
giving written notice (a "Notice of Termination") to Employee, which
termination is without prejudice to any other remedy to which Employer may be
entitled, and such termination shall be effective as of the date said written
notice is received by Employee.
(b) TERMINATION WITHOUT CAUSE. In the event Employer shall terminate
this Contract without Cause, as hereinabove defined, by Notice of Termination to
Employee, all obligations of Employee hereunder shall terminate upon receipt of
such Notice of Termination. Nothing in this Contract shall be construed as
giving Employee the right to be retained as an employee of Employer or as
impairing the rights of Employer to terminate Employee's services.
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9. TERMINATION OF CONTRACT BY EMPLOYEE. Employee may terminate his
employment hereunder (1) for Good Reason, or (2) at any time by giving Notice of
Termination to Employer at least forty-five (45) days prior to the effectiveness
of such termination. For purposes of this Contract, "Good Reason" shall mean (a)
any assignment to Employee of any duties other than those contemplated by, or
any limitation of the powers of Employee in any respect not contemplated by,
this Contract, (b) any removal of Employee from or any failure to re-elect
Employee to the position of President and Chief Operating Officer of Employer
(subject to the provisions of Section 3 hereof with respect to the
relinquishment of such titles by Employee at the request of the Board of
Directors of Employer), except in connection with termination of Employee's
employment for Cause, or (c) a reduction in Employee's rate of compensation or a
reduction in Employee's fringe benefits; PROVIDED, HOWEVER, that Employer shall
have at least thirty (30) days to remedy the existence of any Good Reason for
termination by Employee of which it is made aware, whether in a Notice of
Termination or otherwise.
10. COMPENSATION UPON TERMINATION.
(a) TERMINATION BY EMPLOYER FOR CAUSE OR BY EMPLOYEE WITHOUT GOOD
REASON. If Employee's employment shall be terminated by Employer for Cause or
termination by Employee without Good Reason, Employer shall pay Employee that
portion of his Base Salary which accrued through the date of termination at the
rate in effect at the time Notice of Termination is given and Employer shall
have no further obligations to Employee under this Contract.
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(b) TERMINATION BY EMPLOYER WITHOUT CAUSE OR BY EMPLOYEE WITH GOOD
REASON. If Employer shall terminate Employee's employment without Cause or
Employee shall terminate his employment for Good Reason, then: (i) Employer
shall pay Employee that portion of his Base Salary which accrued through the
date of termination at the rate in effect at the time Notice of Termination is
given; (ii) in lieu of any further salary payments to Employee for periods
subsequent to the date of termination, Employer shall pay as liquidated damages
to Employee an amount equal to three (3) times the annual Base Salary in effect
at the time Notice of Termination is given, to be paid in the normal pay periods
of the Company over the three year period following the date of termination;
provided, however, that if termination occurs within twelve months after a
Change of Control (as defined below), Employer shall pay as liquidated damages
to Employee an amount equal to three (3) times the "base amount" (as such term
is defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended (the "Code")) applicable to Employee, less One Dollar ($1.00), to be
paid in the normal pay periods of the Company over the three year period
following the date of termination; and (iii) Employer shall make the following
changes with respect to all outstanding unexercised stock options held by
Employee: (x) the date of vesting and exercisability of all unexercised and
unexpired stock options or other stock based incentive awards shall be
accelerated to the date of termination, (y) the period during which all
unexercised and unexpired options which are not incentive stock options as
defined in Section 422 of the Code ("NQSO") may be exercised by Employee shall
be extended until the expiration date of such options and (z) if Employee so
elects in writing within 90 days after
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the date of termination, all unexercised and unexpired options which are
incentive stock options ("ISO") as defined in Section 422 of the Code shall be
converted into NQSO and shall thereby become eligible for the benefit described
in clause (y) above as if they had been NQSO as of the date of termination.
A "Change in Control" shall be deemed to have occurred in any one of
the following events: (1) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the
Company, any of its Subsidiaries, or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or trust of Employer),
together with all "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or indirectly,
of securities of the Company representing 50% or more of either (A) the combined
voting power of the Company's then outstanding securities having the right to
vote in an election of the Company's Board of Directors ("Voting Securities") or
(B) the then outstanding shares of capital stock of the Company ("Stock") (in
either such case other than as a result of an acquisition of securities directly
from the Company or by the Company); or (2) persons who, as of the date hereof,
constitute the Company's Board of Directors (the "Incumbent Directors") cease
for any reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the date hereof whose election or nomination for election was
approved by a vote of at least a majority of
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the Incumbent Directors shall, for purposes of this Agreement, be considered an
Incumbent Director; or (3) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the shareholders
of the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, shares
representing in the aggregate 80% or more of the voting shares of the
corporation issuing cash or securities in the consolidation or merger (or of its
ultimate parent corporation, if any), (B) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of Employer or (C) any plan or proposal for the liquidation or
dissolution of the Company.
It is the intention of Employee and Employer that no payments by Employer
to or for the benefit of Employee under this Agreement shall be non-deductible
to Employer by reason of the operation of Section 280G of the Code relating to
parachute payments. Accordingly, and notwithstanding any other provision of this
Agreement, if by reason of the operation of said Section 280G, any such payments
exceed the amount which can be deducted by Employer, such payments shall be
reduced to the maximum amount which can be deducted by Employer. To the extent
that there is more than one method of reducing the payments (including by way of
elimination or reduction of the changes to Employee's options described in
clause (iii) above) to bring them within the limitations of said Section 280G,
Employee shall determine which method shall be followed, provided that if
Employee fails to make
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<PAGE> 12
such determination within forty-five (45) days after Employer has sent Employee
written notice of the need for such reduction, Employer may determine the method
of such reduction in its sole discretion.
11. NO MITIGATION. Employer agrees that, if Employee's employment by
Employer is terminated during the term of this Agreement, Employee is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to Employee by Employer pursuant to Section 10 hereof. Further, the
amount of any payment provided for in this Agreement shall not be reduced by any
compensation earned by Employee as the result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owed by
Employee to Employer or otherwise.
12. SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled exclusively by arbitration in accordance with the laws of the
Commonwealth of Massachusetts by three arbitrators, one of whom shall be
appointed by Employer, one by Employee and the third by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the American
Arbitration Association in the City of Boston. Such arbitration shall be
conducted in the City of Boston in accordance with the rules of the American
Arbitration Association for commercial arbitrations, except with respect to the
selection of arbitrators which shall be as provided in this Section 13. Judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
12
<PAGE> 13
13. NON-COMPETITION AGREEMENT. During the Employment Period, and unless
Employee's employment is terminated by Employee for Good Reason or by Employer
without Cause, for a period of one (1) year after the termination of his service
to Employer and the Subsidiaries, Employee covenants and agrees not to directly
or indirectly (a) engage or be interested in any business as owner, officer,
director, employee, consultant or otherwise which during the Employment Period
is in competition with the business of Employer or any of the Subsidiaries or
which following the Employment Period is in competition with such business as
conducted on the last day of the Employment Period, or (b) solicit or endeavor
to entice away, offer employment to or employ, or offer or conclude any contract
for personal services with, any person who during the preceding six months was
an employee of Employer. However, the restrictions in clause (a) shall not
prevent Employee from owning or dealing in securities of any corporation or
other entity which are traded on any national securities exchange or in the
over-the-counter market, and the restrictions in clause (b) prohibiting the
employment of any person who during the preceding six months was an employee of
Employer shall not apply with respect to Employee who, without otherwise
breaching clause (b) (by soliciting or enticing away a former employee), hires a
former employee who has voluntarily left the employ of Employer or who has been
terminated involuntarily by Employer.
14. INJUNCTIVE RELIEF. Employee irrevocably acknowledges that any violation
of this Contract will cause Employer immediate and irreparable harm and that the
damage that Employer will suffer may be difficult or impossible to measure.
Therefore,
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<PAGE> 14
upon any actual or impending violation of this Contract, Employer shall be
entitled to the issuance of a restraining order, preliminary or permanent
injunction, without bond, restraining or enjoining such violation by Employee or
any entity or person acting in concert with Employee. Such remedy shall be
additional to and not in limitation of any other remedy which may otherwise be
available to Employer.
15. RELATIONSHIP OF THE PARTIES. The parties acknowledge, agree and
recognize that the Board of Directors of Employer shall manage the business
affairs of Employer and that the relationship of Employer and Employee is that
of employer and employee and any other relationship is hereby expressly
disclaimed.
16. ASSIGNMENT; OBLIGATIONS OF SUCCESSOR. Neither Employer nor Employee may
make any assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other party, and
without such consent any attempted transfer shall be null and void and of no
effect. This Agreement shall inure to the benefit of and be binding upon
Employer and Employee, their respective successors, executors, administrators,
heirs and permitted assigns. In the event of Employee's death after termination
of employment but prior to the completion by Employer of all payments due
Employee hereunder, Employer shall continue such payments to Employee's
beneficiary designated in writing to Employer prior to his death (or to his
estate, if Employee fails to make such designation). In addition to any
obligations imposed by law upon any successor to Employer, Employer will use its
best efforts to require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
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<PAGE> 15
substantially all of the business or assets of Employer to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
Employer would be required to perform if no such succession had taken place.
17. NOTICES. Any notice to be given hereunder by either party to the other
must be in writing and may be effective either by personal delivery or by
certified mail, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses appearing in the introductory
paragraph. Notices delivered personally shall be deemed communicated as of the
actual receipt thereof; mailed notices shall be deemed communicated and received
three (3) days after the mailing of same.
18. INVALID PROVISIONS. The invalidity or unenforceability of a particular
provision of this Contract shall not affect the enforceability of any other
provisions hereof and this Contract shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
19. AMENDMENTS TO THE CONTRACT. This Contract may only be amended in
writing by an agreement executed by both parties hereto.
20. LAW GOVERNING CONTRACT. This Contract is made and performable in the
Commonwealth of Massachusetts, and shall be construed under the laws of the
Commonwealth of Massachusetts.
21. INDEMNITY. Employer shall indemnify Employee and hold him harmless for
any acts or decisions made by him in good faith while performing services for
Employer as a director, employee and/or agent of Employer and, in addition
thereto, shall use its best
15
<PAGE> 16
efforts to obtain insurance coverage for him under any insurance policy now in
force or hereinafter obtained during the Employment Period covering the officers
and directors of Employer against lawsuits as director, employee and/or agent of
Employer. Employer will pay all expenses, including attorney's fees, actually
and necessarily incurred by Employer in connection with the defense of any
action, suit or proceeding, and in connection with any appeal thereon, including
the costs of an out-of-court settlement previously approved by Employer, with
respect to any acts or decisions which Employee shall have performed or made in
good faith in performing services for Employer; provided, however, that
Employer's obligations under the terms of this paragraph are subject to any
limitations imposed by Employer's Certificate of Incorporation and By-Laws and
applicable state law.
22. CONSTRUCTION. Waiver by any party hereto of a breach of any provision
of this Contract shall not operate or be construed as a waiver of any subsequent
breach of any party. This Contract shall not be assignable except on the part of
Employer as provided in Paragraph 14 above. Subject to the prohibition against
assignment of this Contract, the terms and conditions herein shall inure to the
benefit of and be binding upon the Parties hereto, their successor, heirs and
legal representatives.
23. LITIGATION AND REGULATORY COOPERATION. During and after Employee's
employment, Employee shall reasonably cooperate with Employer in the defense or
prosecution of any claims or actions now in existence or which may be brought in
the future against or on behalf of Employer which relate to events or
occurrences that transpired while Employee is or was employed by Employer.
Employee's reasonable cooperation in
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<PAGE> 17
connection with such claims or actions shall include, but not be limited to,
being available to meet with counsel to prepare for discovery or trial and to
act as a witness on behalf of Employer at mutually convenient times. During and
after Employee's employment, Employee also shall reasonably cooperate with
Employer in connection with any investigation or review of any federal, state or
local regulatory authority as any such investigation or review relates to events
or occurrences that transpired while Employee was employed by Employer. The
Company shall, at the request of Employee, pay in advance any out-of-pocket
expenses that Employee would otherwise be required to incur in connection with
Employee's performance of its obligations pursuant to this clause, and shall
reimburse Employee for any reasonable out-of-pocket expenses incurred by
Employee that were not so paid in advance by Employer.
24. ENTIRE AGREEMENT. This Contract will be effective as of the date of
termination of the Employment Contract between Employer and Employee dated
January 1, 1992 and upon such effectiveness will contain the entire agreement of
the parties hereto and supersede any and all prior agreements, oral or written,
and negotiations between said parties regarding the subject matter herein
contained.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Contract this day and
year first above written.
EMPLOYER EMPLOYEE
DAKA INTERNATIONAL, INC.
By: /s/ Charles W. Redepenning, Jr. /s/ Allen R. Maxwell
-------------------------------- ----------------------
Charles W. Redepenning, Jr. Allen R. Maxwell
Senior Vice President and
General Counsel
18
<PAGE> 1
Exhibit 5
TERMINATION AND GENERAL RELEASE AGREEMENT
-----------------------------------------
This Termination and General Release Agreement (the "Agreement"), is
entered into as of this 27th day of May, 1997, by and between Allen R. Maxwell
("Executive"), DAKA International, Inc. a Delaware corporation (the "Company")
and Unique Casual Restaurants, Inc., a Delaware corporation ("Newco").
WHEREAS, Executive is currently employed by the Company pursuant to
that certain Employment Contract dated as of October 1, 1996 (the "Existing
Employment Contract"); and
WHEREAS, in connection with a proposed tender offer (the "Offer") being
made by Compass Holdings, Inc. for all outstanding shares of capital stock of
the Company and related transactions as set forth in an Agreement and Plan of
Merger, dated as of May 27, 1997 (the "Merger Agreement"), Executive is entering
into a new employment agreement with the Company to become effective following
the consummation of the Offer (the "New Employment Agreement"). Capitalized
terms used herein and not otherwise defined shall have the meaning set forth in
the Merger Agreement; and
WHEREAS, in connection with the reorganization of the Company, on the
date hereof or as soon as practicable thereafter, Executive is entering into an
Indemnification Agreement by and among Executive and Newco, a newly formed
wholly owned subsidiary of the Company that will be spun-off to the shareholders
of the Company and after the consummation of the Offer will own and operate the
restaurant and other businesses of the Company other than the food service
business as an independent company;
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, Executive and the Company agree as follows:
1. TERMINATION OF EXISTING EMPLOYMENT AGREEMENT; RELEASE OF CLAIMS
(a) Conditioned upon consummation of the Offer and effective as of the
Offer Closing Time, Executive hereby agrees to the termination of the Existing
Employment Contract. Executive shall be paid all base salary accrued through the
Offer Closing Time, based on Executive's final base salary rate of Two Hundred
Sixty-Five Thousand Dollars ($265,000) per year (the "Salary Rate"). This
Agreement shall be null and void if the Offer is not consummated.
(b) Conditioned upon the consummation of the Offer and effective as of
the Offer Closing Time, Executive unconditionally and irrevocably releases and
discharges the Company and its subsidiaries (and their respective directors,
officers, employees, agents, affiliates, stockholders, predecessors, successors
and assigns) (collectively, "DAKA") from any and all charges, complaints,
claims, promises, agreements, causes of action, damages, and debts of
<PAGE> 2
any nature whatsoever, known or unknown ("Claims"), which Executive now has or
now could claim to have against DAKA that have arisen prior to the Offer Closing
Time. This general release of Claims includes, without implication of
limitation, all Claims related to Executive's employment with the Company and
its predecessors, Executive's activities on behalf of the Company and its
predecessors and the termination of the Existing Employment Agreement with the
Company, including, without limitation, any Claims of wrongful discharge, any
Claims of intentional or negligent misrepresentation, and any Claims of
discrimination under the common law or any statute (including, without
limitation, Title VII of the Civil Rights Act of 1964 and the Age Discrimination
in Employment Act). Executive also waives any Claim for attorneys' fees or
costs.
(c) Conditioned upon the consummation of the Offer and effective as of
the Offer Closing Time, the Company unconditionally and irrevocably releases and
discharges Executive from any and all Claims which it now has or now could claim
to have against Executive that have arisen at any time prior to the date hereof.
This general release of Claims includes, without limitation, all Claims related
to Executive's employment with the Company and its predecessors, Executive's
activities on behalf of the Company and its predecessors and the termination of
the Existing Employment Agreement with the Company. The Company also waives any
Claim for attorneys' fees or costs. Notwithstanding the foregoing, the Company's
release and discharge of Claims does not include any Claims based on intentional
tortious conduct, intentional breach of any fiduciary duty or any other
intentional misconduct (collectively, "Intentional Misconduct Claims") except to
the extent that an Intentional Misconduct Claim is currently known to the
Company. For purposes of this Section 3, a Claim shall be considered to be known
to the Company if and only if one of the Company's officers (other than
Executive) knows of or has reason to believe facts that would give the Company a
basis for initiating legal proceedings against Executive.
2. PAYMENT IN LIEU OF SEVERANCE
In consideration for Executive's agreement to terminate the Existing
Employment Contract and the release set forth in Section 1(b) hereof and in
light of the fact that the New Employment Agreement in certain significant
respects less advantageous to Executive that the Existing Employment Agreement,
Newco hereby agrees to pay to Executive an aggregate sum of Five Hundred
Thousand Dollars ($500,000), payable in periodic installments over a period of
three (3) years commencing January 1, 1998 at regular intervals consistent with
Newco's normal business practices of paying salary compensation to senior
executives.
3. INTERPRETATION AND AMENDMENT
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without regard to any
conflicts-of-law principle that might refer the governance or the construction
of this Agreement to the laws of another jurisdiction. This Agreement may be
modified only by a written agreement signed by Executive and an
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<PAGE> 3
authorized representative of the Company and Newco.
4. WAIVER
No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
5. SUCCESSORS; BINDING AGREEMENT
Newco shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of Newco to expressly assume and agree to perform this
Agreement to the same extent that would be required if no such succession had
taken place. This Agreement may not be assigned by Executive without the prior
written consent of Newco and shall be binding on his heirs, executors and
administrators.
[Remainder of page intentionally left blank]
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<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Newco, by their duly authorized officer, and by Allen R. Maxwell, as of the date
first set forth above.
DAKA INTERNATIONAL, INC.
By: /s/ William H. Baumhauer
------------------------------------
William H. Baumhauer
Chairman and Chief Executive Officer
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ William H. Baumhauer
------------------------------------
William H. Baumhauer
Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Allen R. Maxwell
------------------------------------
Allen R. Maxwell
4
<PAGE> 1
Exhibit 6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of the 23rd day
of May, 1997 by and among COMPASS GROUP USA, INC. ("Compass US"), DAKA
INTERNATIONAL, INC., a Delaware corporation ("International") and DAKA, INC., a
Massachusetts corporation ("Daka" and, collectively with International, the
"Employer"), and ALLEN R. MAXWELL (the "Executive") (collectively defined and
referred to as the "Parties");
WITNESSETH:
WHEREAS, Compass Holdings, Inc. ("Compass Holdings"), the parent of
Compass US has been engaged in extensive negotiations to acquire the foodservice
business, contracts, customers and certain other assets of International and its
wholly owned subsidiary, Daka (collectively defined and referred to as the
"Business"); and
WHEREAS, the Executive has served as the President of Daka and
International for more than eight years and is highly knowledgeable about the
Business and, in particular, the educational segment of the foodservice
industry; and
WHEREAS, the Executive currently holds a significant number of shares
of stock and options to acquire shares of stock in International and, as such,
will directly and substantially benefit from the acquisition by Compass Holdings
of the Business; and
WHEREAS, Compass Holdings will not acquire the Business without
engaging the services of the Executive pursuant to this Agreement and the
Executive's agreement to the covenant not to compete and confidentiality
provisions contained herein; and
WHEREAS, the Employer desires to employ the Executive and the Executive
desires to be employed to provide services to the Employer, all on the terms and
subject to the conditions as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Parties agree as follows:
1. EMPLOYMENT. The Employer agrees to employ the Executive during
the Employment Term (as defined in Section 4) and the Executive hereby accepts
such employment and agrees to serve the Employer subject to the general
supervision and direction of the Board of Directors of the Employer and the
Chief Executive Officer of Compass US (the "Compass CEO").
<PAGE> 2
2. DUTIES. During the Employment Term, the Executive shall be
elected as president of Daka and shall perform the services and duties required
of such position, or such other services, duties and positions as the Board of
Directors of the Employer or the Compass CEO may from time to time designate
commensurate with the position of president, shall devote the Executive's full
time and best efforts to the business affairs of the Employer, and shall not
become engaged as an employee or otherwise in any other business or commercial
activities, PROVIDED that the Executive may, if approved by the Board of
Directors of the Employer or the Compass CEO, devote reasonable time and
attention to serving as a member of the Board of Directors of New International,
Inc. In addition the Executive shall be an officer and a member of senior
management of Compass US.
3. THE ACQUISITION. This Agreement is contingent upon the
acquisition (the "Acquisition") by Compass Holdings of International and Daka
under the terms of an Agreement and Plan of Merger by and among Compass Group
PLC, Compass Holdings, Compass Interim, Inc. and International (the "Acquisition
Agreement"). If the Acquisition does not occur, this Agreement shall be void and
unenforceable by either party. If the Acquisition does occur, this Agreement
shall be binding upon the Executive and the Employer pursuant to the terms of
this Agreement. Moreover, except as set forth in this Agreement, neither party
may cancel or terminate this Agreement prior to the Acquisition without the
express written consent of the other party, Compass Group PLC, Compass Holdings
and Compass Interim, Inc, it being expressly understood that the Employer,
Compass Group PLC, Compass Holdings, Compass Interim, Inc. and International are
relying upon this Agreement, in significant part, to complete the Acquisition.
4. EMPLOYMENT TERM. Subject to the prior termination of the
Executive pursuant to Section 7 below, the Executive shall be employed by
Compass US and the Employer for an initial term beginning on the Effective Time
of the Acquisition (as defined in the Acquisition Agreement) and continuing for
a period of approximately 27 months after the Effective Time and ending
September 30, 1999 (the "Initial Period"). Thereafter, such employment will be
for a period beginning on the day after the Initial Period and continuing for a
term which does not end until the Agreement is terminated pursuant to Section 7
below (the "Final Period"). The Executive's total term of employment with the
Employer during the Initial Period and the Final Period, if and as applicable,
is collectively defined and referred to under this Agreement as the "Employment
Term."
5. COMPENSATION.
------------
a. BASE COMPENSATION. During the Employment Term, the
Employer will pay the Executive an annual base salary as compensation
for the Executive's services hereunder of $280,000 (the "Annual Base
Salary"), payable in biweekly installments, less applicable deductions
required by law. The Annual Base Salary may be reviewed from time to
time by the Employer and may be increased at the Employer's discretion.
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<PAGE> 3
b. COMPANY CAR. During the Employment Term and at the
election of the Executive at the outset of this Agreement, the Employer
shall grant the Executive an $800 monthly car allowance for use as the
Executive may deem appropriate, payable by the Employer to the
Executive in biweekly installments, less applicable deductions required
by law.
c. OTHER BENEFITS. The Employer will provide to the
Executive those benefits customarily provided by Compass US to other
Compass US officers holding similar positions, including vacation,
pension, profit sharing and other retirement plans, and all group
health, hospitalization and permanent disability plans or other
employee welfare benefit plans.
d. BONUS. For his services rendered during the Initial
Term, the Executive will also be eligible to receive a bonus as
outlined in Schedule A.
6. REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF
EMPLOYMENT. Upon submission of proper vouchers, the Employer shall pay or
reimburse the Executive for all normal and reasonable business expenses,
including travel expenses, incurred by the Executive during the Employment Term
in accordance with the Employer's policy then in effect concerning the same. The
Employer shall also reimburse the Executive for necessary and reasonable moving
expenses incurred by the Executive during the Employment Term in accordance with
the Employer's relocation policy in effect, in the event the Employer requests
that the Executive relocate during the Employment Term.
7. TERMINATION.
-----------
a. The Employment Term shall terminate immediately upon
the occurrence of any of the following events: (i) immediately upon the
voluntary retirement or death of the Executive; (ii) upon the effective
date of Resignation by the Executive (as defined below); (iii) upon the
sixtieth day following notice given by the Employer of Termination
Without Cause (as defined below); or (iv) upon the close of business on
the date the Employer gives the Executive notice of Termination for
Just Cause (as defined below); or (v) upon the Permanent Disability of
the Executive (as defined below).
b. For the purposes of this Agreement:
(1) "Resignation by the Executive" shall mean any
voluntary termination or resignation by the Executive. During
the Initial Period, the Executive is required to give at least
180 days advance written notice of Resignation to the
Employer, and the Employer is entitled, upon receiving such
notice, to accept such Resignation any time prior to the
Resignation date proposed by the Executive. After the Initial
Period, such notice period shall
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<PAGE> 4
be 60 days. The effective date of the Resignation shall be the
Resignation date proposed by the Executive, or such other
earlier date designated by the Employer.
(2) "Termination Without Cause" shall mean any
termination of the employment of the Executive by the Employer
for any reason other than termination due to the retirement or
death of the Executive, "Permanent Disability" or "Termination
for Just Cause".
(3) "Termination for Just Cause" shall mean
termination of the employment of the Executive as the result
of: (i) an act or acts by the Executive, or any omission by
the Executive, constituting a felony, and the Executive has
entered a guilty plea, a plea of nolo contendere, or
confession to or has been convicted of such felony; or (ii)
any act of fraud or dishonesty by the Executive in connection
with the Executive's employment with the Employer; or (iii)
the breach of any fiduciary duty by the Executive to the
Employer, including the duty of loyalty; or (iv) the breach of
any provision of this Agreement by the Executive; or (v) the
refusal of the Executive to follow specific lawful
instructions given by the Board of Directors of the Employer
or the Compass CEO.
(4) "Permanent Disability" shall mean the Executive
is unable, with or without a reasonable accommodation, to
perform the essential functions and duties of the Executive's
job with the Employer by reason of a physical or mental
disability, impairment or condition which has continued for
more than 180 consecutive days. The Executive agrees to submit
such medical evidence to the Employer regarding such
disability, impairment or condition as is reasonably requested
by the Employer.
c. Except for the payment of any earned but unpaid
salary and/or accrued bonus due at the time of termination of the
Employment Term and the Executive's general right to elect certain
coverage continuation under COBRA, and except for any payments which
may be due as set forth below, the Executive shall not be entitled to
receive any additional compensation and/or benefits of any kind from
the Employer hereunder upon the termination of the Employment Term:
(1) If termination of the Employment Term is due to
the death of the Executive, the Executive's estate or legal
representative shall be paid the Executive's Compensation
Package (which shall be the sum of those amounts payable under
Sections 5a, 5b and 5c) in monthly installments for a period
of 12 months commencing immediately upon the death of the
Executive, less applicable deductions required by law.
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<PAGE> 5
(2) If termination of the Employment Term occurs at
any time during the Initial Period due to Termination Without
Cause by the Employer, then provided the Executive complies
with and continues to comply with Section 8 of this Agreement
and enters into a mutually acceptable release of any and all
claims Executive has against the Employer, then the Executive
shall be paid severance equal to: (a) the Executive's
Compensation Package through the remainder of the Initial
Period, payable in the same manner and at the same time as the
Executive's Compensation Package was paid by the Employer
prior to Termination Without Cause, less applicable deductions
required by law; and (b) one and one-half times the amount of
the Executive's Compensation Package then in effect, payable
over an 18-month period beginning after the end of the Initial
Period in biweekly installments when payroll is normally
distributed, less applicable deductions required by law.
(3) If termination of the Employment Term occurs at
any time after the Initial Period due to Termination Without
Cause by the Employer, then provided the Executive complies
with and continues to comply with Section 8 of this Agreement
and enters into a mutually acceptable release of any and all
claims Executive has against the Employer, then the Executive
shall be paid severance equal to: one and one-half times the
amount of the Executive's Compensation Package then in effect,
payable over an 18-month period beginning after the date of
Termination Without Cause in biweekly installments when
payroll is normally distributed, less applicable deductions
required by law.
(4) Except as set forth herein, if the Executive
resigns his employment with the Employer, the Executive is not
entitled to any additional compensation or benefits from the
Employer. If, however, the Employer decides to substantially
and materially change the duties and responsibilities of the
Executive, whether or not such change would result in a
reduction in the Executive's Compensation Package, the
Executive shall have the option in lieu of such change of
responsibilities to resign prior to the effective date of such
change. In that case, the Executive shall be paid severance
equal to one and one-half times the Compensation Package then
in effect payable over an 18-month period beginning after the
date of the Executive's resignation, less applicable
deductions required by law, provided that the Executive
complies with and continues to comply with Section 8 of this
Agreement and enters into a mutually acceptable release of any
and all claims Executive has against the Employer. If the
Executive accepts the change of responsibilities, this
Agreement shall continue in effect.
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<PAGE> 6
8. PROTECTED INFORMATION; PROHIBITED SOLICITATION; NON-COMPETITION.
----------------------------------------------------------------
a. The Executive acknowledges and agrees that all
Confidential Information (as defined below), including this Agreement,
that comes into the Executive's possession while an employee of the
Employer, whether prepared by the Employer or others, is and shall
remain the property of the Employer.
"Confidential Information" means: (1) all information
regarding any Employer customer, including but not limited to customer
lists, contracts, information, requirements, billing histories, needs,
products or services provided by the Employer to such customers; or (2)
all financial information concerning the Employer, including but not
limited to financial statements, balance sheets, profit and loss
statements, earnings, commissions and salaries paid to employees, sales
data and projections, cost analyses and similar information; or (3) all
sources and methods of supply to the Employer, including but not
limited to contracts and similar information; or (4) all plans and
projections for business opportunities for new or developing business
of the Employer; or (5) all software, drawings, specifications, models
and marketing techniques; or (6) all information relating the
Employer's products, prices, costs, research and development
activities, customers, product performance, financial data and
operating results, personnel matters and other confidential processes,
designs, patents, ideas, machinery, plans, know-how and trade secrets;
or (7) any of the information described in subsections 1-6 that the
Employer obtains from another party or entity and that the Employer
treats or designates as confidential information, whether such
information is owned or was developed by the Employer.
b. The Executive acknowledges and agrees that during his
employment with the Employer, the Executive shall not use any
Confidential Information for any purpose other than to carry out
assigned duties as an employee of the Employer. The Executive further
acknowledges and agrees that:
(1) Upon termination of his employment with the
Employer for any reason, the Executive shall return and make
available to the Employer prior to the last date of his
employment the originals and all copies of any and all
documentary Confidential Information and any other Employer
reports, documents or data in his possession;
(2) With respect to Confidential Information which is
not a trade secret under applicable law, the Executive shall
not, either during or within 5 years after his employment with
the Employer, misappropriate, use or disclose to anyone any
such Confidential Information, except to the extent that such
disclosure is required by law or court order or is authorized
by written Employer policy or in writing by the Board of
Directors of the Employer;
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(3) With respect to Confidential Information which is
a trade secret under applicable law, the Executive shall not,
either during or within 5 years after his employment with the
Employer, misappropriate, use or disclose to anyone any such
Confidential Information, except to the extent that such
disclosure is authorized by written Employer policy or in
writing by the Board of Directors of the Employer; and
(4) During his employment with the Employer, the
Executive shall have an affirmative duty to preserve the
confidentiality and safe keeping of all Employer documents and
Confidential Information, however stored or maintained.
c. The Executive hereby agrees that for a period of
three years following his last day of employment by the Employer, the
Executive shall not, without the written consent of the Employer,
knowingly solicit or hire for employment or as an independent
contractor any other employee of the Employer or any employee of an
affiliate of the Employer, or knowingly solicit, entice or persuade any
such employee to leave the services of the Employer or such affiliate
for any reason.
d. The Executive further agrees that, in order to avoid
impairment of the goodwill transferred by International, Daka and the
Executive pursuant to the Acquisition Agreement, the Executive will
not:
(1) For a period of 10 years following the
Executive's last day of employment by the Employer (regardless
of the reason for the end of the employment relationship),
engage in any Competitive Activity (as defined below) within
the Territory (as defined below) with any customer of the
Employer or International with whom the Employer or
International have a contract or agreement to furnish
foodservices or vending products as of the Effective Time of
the Acquisition (as defined in the Acquisition Agreement);
and/or
(2) For a minimum period of six and a half years and
for a maximum period equal to the amount of time during which
the Executive is entitled to receive severance pay from the
Employer pursuant to Section 7.c above plus five additional
calendar years, whichever is greater, following the
Executive's last day of employment by the Employer (regardless
of the reason for the end of the employment relationship),
engage in any Competitive Activity (as defined below) within
the Territory with any customer of the Employer with whom the
Employer has a contract or agreement to furnish foodservices
or vending products at the time of the end of the Executive's
employment by the Employer; and/or
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(3) For a period of 18 months or the period equal to
the amount of time during which the Executive is entitled to
receive severance pay from the Employer pursuant to Section
7.c. above, whichever is greater, following the Executive's
last day of employment by the Employer (regardless of the
reason for the end of the employment relationship), engage in
any Competitive Activity (as defined below) within the
Territory; and/or
(4) For a period of 18 months or the period equal to
the amount of time during which the Executive is entitled to
receive severance pay from the Employer pursuant to Section
7.c. above, whichever is greater, following the Executive's
last day of employment by the Employer (regardless of the
reason for the end of the employment relationship), enter into
any relationship whatsoever, alone or in a partnership, or as
an officer, director (other than as a member of the board of
directors of New International, Inc.), employee, stockholder
(beneficially owning the stock or options to acquire stock
totaling more than five percent of the outstanding shares) of
any corporation, or entity, or otherwise acquire or agree to
acquire a significant present or future equity or other
proprietorship interests, whether as a stockholder, partner,
proprietor, or otherwise, with any enterprise, business or
division thereof, which is engaged in Competitive Activity
with the Employer within the Territory.
In construing Section 8d(3) and 8d(4), the reference to 18
months shall be changed to 60 months, but only for those individual
food service accounts with an annual managed volume greater than
$1,000,000 for any 12 month period. The phrase "annual managed volume"
for an account shall mean the sum of gross sales or revenues at that
location plus any customer subsidies or other payments.
"Competitive Activity" means providing contract foodservice
and vending business to customers and in a manner like that engaged in
by the Employer during the Employment Term.
"Territory" means the geographic territory in which Executive
has conducted or supervised business for the Employer during the
Employment Term, which includes the states of New York, New Jersey,
Connecticut, Florida, Wisconsin and California and the Commonwealths of
Massachusetts and Virginia.
The Executive further agrees that, except with the express
written consent of the Board of Directors of the Employer or the
Compass CEO, the Executive will not engage in any Competitive Activity
individually or with any entity or individual other than the Employer
during his employment by the Employer.
e. The Parties agree that the running of the period of
the confidentiality agreement and covenant not to compete set forth
above with respect to the Executive
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shall be suspended during any period of time that the Executive is in
violation of any provision of the confidentiality agreement and/or
covenant not to compete or any period of time required for arbitration
or litigation to enforce any such provisions. Moreover, the Parties
agree that the provisions of such confidentiality agreement and
covenant not to compete shall continue in force and in effect
throughout the period of such suspension, if any.
f. The Executive acknowledges and agrees that the
restrictions placed upon him by this Section 8 are reasonable, given
the nature of Executive's position, and that there is sufficient
consideration promised Executive pursuant to this Agreement and the
Acquisition Agreement to support these restrictions. Specifically, the
Executive acknowledges that the length of the covenant not to compete
is reasonable and that the definitions of "Confidential Information",
"Competitive Activity" and "Territory" are reasonable.
g. The Executive acknowledges that all of the provisions
of this Section 8 are fair and necessary to protect the interest of the
Employer. Accordingly, the Executive agrees not to contest the validity
or enforceability of this Section of the Agreement and agrees that if
any court should deem any provision of this section to be
unenforceable, the remaining provisions will nonetheless be enforceable
according to their terms. Further, if any provision or subsection is
held to be over broad as written, the Executive agrees that a court
should view the above provisions and subsections as separable and
uphold those separable provisions and subsections deemed to be
reasonable.
h. The Parties agree that the restrictions of this
Section 8 shall survive the Executive's last day of employment by the
Employer and shall be in addition to any restrictions imposed upon the
Executive by statute or at common law. The Parties further acknowledge
and agree that the restrictions of this Section 8 shall continue to be
enforceable regardless of whether there is a subsequent dispute between
the Parties concerning any alleged breach of this Agreement.
9. CONSIDERATION. Executive acknowledges that the consideration
to Executive in this Agreement is valuable consideration for the Executive's
covenants and obligations in this Agreement and is in addition to any
consideration currently due to Executive from the Employer.
10. INJUNCTIVE AND OTHER RELIEF. The Executive hereby expressly
acknowledges that any breach or threatened breach by the Executive of any of the
terms set forth in Sections 2 and 8 of this Agreement may result in significant
and continuing injury to the Employer, the monetary value of which may be
impossible to establish. Accordingly, the Parties agree that in the event of any
breach of Section 8 of this Agreement by the Executive, the Employer may pursue
actual damages from the Executive, or in its discretion, may be entitled to seek
an injunction, without bond, restraining any breach or
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threatened breach of Sections 2 or 8 of this Agreement, and costs and attorneys'
fees relating to any such proceedings or any other legal action to enforce those
sections of the Agreement, but nothing herein shall be construed as preventing
the Employer from pursuing other remedies available to it for such breach or
threatened breach. Moreover, in the event the Executive breaches Section 8 of
this Agreement or challenges the duration, scope or enforceability of Section 8,
and to the extent that the Employer is paying severance to the Executive, the
Employer's obligation to continue making any severance payment shall cease and
the Employer shall be entitled to recover of the Executive any severance payment
previously made to the Executive by the Employer. The provisions of Section 8
and this Section 10 shall survive the Employment Term.
11. PARTIES BENEFITED; ASSIGNMENTS. This Agreement shall be
binding upon the Executive, the heirs and personal representative or
representatives of the Executive and upon the Employer and its successors and
assigns. Neither this Agreement nor any rights or obligations hereunder may be
assigned by the Executive.
12. NOTICES. Any notice required or permitted by this Agreement
shall be in writing, sent by personal delivery, or by registered or certified
mail, return receipt requested, addressed to the Chief Executive Officer of
Compass Holdings and/or Compass Group USA, Inc. and the Employer at its then
principal office, or to the Executive at the Executive's then current work or
home address, as the case may be, or to such other address or addressees as any
party hereto may from time to time specify in writing for the purpose of a
notice given to the other Parties in compliance with this Section 12. Notices
shall be deemed given when received.
13. GOVERNING LAW AND VENUE. This Agreement takes effect on the
date provided in Section 18 upon acceptance and execution by the Employer in
North Carolina and shall be governed by, construed and enforced in accordance
with the laws of the State of North Carolina without regard to conflict of law
principles.
14. ARBITRATION OF DISPUTES. Except for claims barred by the
applicable statute of limitations and except for claims for injunctive relief
which the Employer may elect to pursue in state or federal court, the Executive
and Employer agree that any and all disputes between them, and any claim by
either party that cannot be amicably settled, shall be determined solely and
exclusively by arbitration in accordance with the Employment Dispute Resolution
Rules then pertaining of the American Arbitration Association, or any successor
thereto, at its office nearest Employer's principal place of business, unless
the Parties otherwise agree in writing. The arbitration shall be conducted by
three arbitrators. Judgment upon an award by the majority of the arbitrators
shall be binding, and shall be entered in a court of competent jurisdiction.
15. RELEASE. Except for the express obligations of the Employer
under this Agreement, Executive hereby releases and forever discharges the
Employer, its present or former parents, subsidiaries and affiliates, and their
respective officers, employees, agents,
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directors, successors and assigns from all claims or actions of any kind
available to the Executive. This general release and waiver shall further
include, but not be limited to, all claims or actions arising out of, or
relating in any way to, the Executive's employment and severance of Executive's
employment with the Employer, including any claim for compensation or employee
benefits, any non-pending claim for workers' compensation (Executive is
acknowledging that Executive is currently able to work without any physical or
mental limitations, except for any pending workers' compensation claim filed by
Executive), or any claim of discrimination under any state, federal, or local
law or regulation, or any claim for wrongful termination, breach of contract,
breach of covenant of good faith and fair dealing, negligent or intentional
infliction of emotional distress, misrepresentation, or defamation. If the
Executive files, maintains, or participates in any claim or action, in any court
or agency, based wholly or partially upon a claim or action Executive has
released or waived under this Agreement, Executive agrees to pay all expenses
and costs (including reasonable attorneys' fees) incurred by the Employer and
those associated with the Employer in defense of such claim or action.
16. MISCELLANEOUS. This Agreement contains the entire agreement of
the Parties relating to the subject matter hereof. This Agreement supersedes any
prior written or oral agreements or understandings between the Parties relating
to the employment of Executive, the compensation or benefits promised to
Executive or any other agreement or understanding relating in any way to the
subject matter in this Agreement. No modification or amendment of this Agreement
shall be valid unless in writing and signed by or on behalf of the Parties
hereto. A waiver of the breach of any term or condition of this Agreement shall
not be deemed to constitute a waiver of any subsequent breach of the same or any
other term or condition. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any person or circumstance, shall, for any
reason and to any extent, be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof and the
application of such provision to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax or other laws. Any
amounts payable to the Executive hereunder after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted to convenience of reference only and shall not be
part of or control or affect the meaning of any provision hereof.
17. TERMINATION OF PRIOR CONTRACTS. The Executive hereby
acknowledges and agrees that all prior and/or existing employment contracts or
other agreements between the Employer and the Executive other than this
Agreement, whether oral or written, including an agreement dated as of October
1, 1996, as amended, are hereby terminated as of the effective time of the
Acquisition, and the Executive acknowledges that he is not entitled to any
wages, pay, compensation, consideration or benefits of any kind from the
Employer, except as set forth herein.
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18. EFFECTIVENESS OF CONTRACT. This Agreement has been executed by
the Parties in contemplation of and contingent upon the completion of the
Acquisition under the terms of the Acquisition Agreement. The provisions of
Section 8 shall become effective immediately, and the balance of the Agreement
shall automatically become effective, without any further action of the
undersigned required, upon the Effective Time of the Acquisition (as defined in
the Acquisition Agreement). In the event that the Acquisition does not occur or
the Acquisition Agreement is terminated for any reason, this Agreement shall
have no force or effect and shall automatically be extinguished and terminated
as a result of the termination of the Acquisition Agreement.
IN WITNESS WHEREOF the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
EMPLOYER:
DAKA INTERNATIONAL, INC.
By: /s/ William H. Baumhauer
---------------------------------------
Chief Executive Officer
DAKA, INC.
By: /s/ Allen R. Maxwell
---------------------------------------
Chief Executive Officer
COMPASS GROUP USA, INC.
By: /s/ Michael J. Bailey
---------------------------------------
Chief Executive Officer
EXECUTIVE:
/s/ Allen R. Maxwell
--------------------------------------(SEAL)
Allen R. Maxwell
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SCHEDULE A
COMPUTATION OF BONUS
FOR THE
INITIAL PERIOD
(1) The Executive will not be eligible to receive a bonus for
Fiscal Year 1997 which ends September 30, 1997.
(2) On or within ninety 90 days of the end of the Fiscal Year (as
defined below) ending in 1998 and in 1999 during the Employment Term, the
Employer will make available to the Executive an annual bonus as additional
incentive compensation (the "Annual Bonus") in the amount of 50% of the
Executive's Annual Base Salary, the eligibility criteria for which shall be
mutually developed with the Executive subject to the final discretion of the
Compass CEO (the "Bonus Amount"). Such determination will be based in part on
the Executive meeting certain financial and other targets as may be set by the
Compass CEO.
(3) Assuming that an Annual Bonus is awarded to the Executive by
the Employer for a particular Fiscal Year, the Executive shall be entitled to
receive 50% of the Bonus Amount in a lump sum cash payment, less applicable
deductions required by law, payable by the Employer to the Executive on or
within 90 days of the end of the applicable Fiscal Year (as defined below).
(4) Assuming that an Annual Bonus is awarded to the Executive by
the Employer for a particular Fiscal Year, the Executive shall be entitled to
receive the remaining 50% of the Bonus Amount (the "Deferred Bonus") as follows:
(a) In the event that the Executive remains employed by the
Employer through a minimum of one calendar year following the date the
applicable Annual Bonus was awarded to the Executive by the Employer,
the Deferred Bonus shall be paid by the delivery to the Executive of an
amount of Compass Group PLC stock with a value based upon the midpoint
between the closing price of such shares on each of the first and last
day of the applicable Fiscal Year [as reported for Compass Group PLC
ADR's trading on the New York Stock Exchange (the "NYSE") or if not
actively traded on the NYSE, as reported on the London Stock Exchange]
and using the weighted average "Late New York Trading" exchange rate
for the fiscal year (as reported in The Wall Street Journal) on each
measurement date. The actual amount paid shall be the share equivalent
of twice the dollar amount of the Deferred Bonus, less applicable
deductions required by law and shall be delivered by the Employer to
the Executive on or within 90 calendar days following the end of the
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Fiscal Year following the Fiscal Year for which the applicable Annual
Bonus was awarded to the Executive.
(b) In the event that the Executive does not remain employed
by the Employer through a minimum of one calendar year following the
date the applicable Annual Bonus was awarded to the Executive because
of death or disability, the Deferred Bonus shall be paid to the
Executive in a lump sum cash payment without interest, less applicable
deductions required by law, payable by the Employer to the Executive on
or within 90 calendar days following the date of death or disability.
If the Executive is not employed by the Employer for such one year
period, the Deferred Bonus will be subject to forfeiture at the
Employer's discretion.
(5) In order for the Executive to be eligible to receive an Annual
Bonus, the Executive must be employed by the Employer on the date such Annual
Bonus is to be awarded to the Executive by the Employer as set forth above.
If the Executive is Terminated without cause, and at the time of his
termination, he was meeting all performance goals and it is clear that the
Executive otherwise would be entitled to an Annual Bonus hereunder, then he will
receive a prorated cash Annual Bonus based upon the number of whole months
actually worked.
"Fiscal Year" means the end of each 12-month Employer accounting period
ending on or about the end of September of each calendar year.
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Exhibit 7
EMPLOYMENT CONTRACT
This EMPLOYMENT CONTRACT (the "Contract") is made and entered into this
10th day of October, 1995, by and between DAKA INTERNATIONAL, INC., a Delaware
corporation, having its principal place of business at One Corporate Place, 55
Ferncroft Road, Danvers, Massachusetts 01923 (hereinafter referred to as
"Employer"), Champps Entertainment, Inc., a Minnesota company, having its
principal place of business at 153 East Lake Street, Wayzata, Minnesota 55391
("Champps"), and DEAN P. VLAHOS whose business address is at 153 East Lake
Street, Wayzata, Minnesota 55391 (hereinafter referred to as "Employee").
WHEREAS, Champps operates casual theme restaurants under the Champps
Americana trademark; and
WHEREAS, Employee has been an officer and key employee of Champps; and
WHEREAS, reference is made to the Agreement and Plan of Merger dated as of
October 10, 1995 by and among Employer, CEI Acquisition Corp., a Minnesota
corporation and a wholly-owned subsidiary of Employer ("Acquisition"), and
Champps (together with any amendments thereto or modifications thereof, the
"Merger Agreement"), pursuant to which Acquisition is to be merged with and into
Champps and Champps is to become a wholly-owned subsidiary of Employer (the
"Merger"), subject to the terms and conditions set forth in the Merger
Agreement; and
WHEREAS, Employer desires to provide Employee with an incentive to
contribute to the future profitability of Champps and to assure that Employee's
knowledge and familiarity with the business of Champps will continue to be
available to Champps after the Merger and
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Employee desires to commit himself to serve Employer and Champps on the terms
herein provided.
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and the mutual benefits to be gained by the performance thereof, the
parties hereto hereby agree as follows:
1. EMPLOYMENT; EFFECTIVENESS; TERMINATION OF PRIOR AGREEMENT. Subject to
this Contract becoming effective as provided below, Employer hereby agrees to
employ Employee after the Effective Time (as defined below) and Employee hereby
accepts such employment with Employer on the terms and conditions hereinafter
set forth. This Contract shall become effective as of the effective time of the
Merger in accordance with the terms of the Merger Agreement (the "Effective
Time"), but subject in all events to the consummation of the Merger and
effective only if the Merger is actually consummated. At the Effective Time and
subject in all events to the consummation of the Merger, that certain Employment
Agreement dated January 1, 1994 (the "Old Contract") between Champps and
Employee shall terminate and have no further force or effect and shall be
replaced and superseded for all purposes by this Contract; provided, however,
that Champps shall make all payments due in accordance with the terms of the Old
Contract through the Effective Date; provided further, however, that Employee
hereby agrees that he will not make any claim for severance or other payments
under the Old Contract on account of or by reason of the Merger or any event or
occurrence prior to the Merger if the Merger is consummated. If the Merger is
not consummated for any reason whatsoever, or if the Merger Agreement is
terminated for any reason whatsoever, or if Employee's employment with Champps
under the Old Contract is terminated by Employee or Champps for any reason
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whatsoever prior to or as of the Effective Time, this Contract shall not become
effective and shall be null and void and shall have no force and effect to the
same extent as if this Contract had never been executed and delivered by the
parties hereto and there shall be no liability under or by reason of the terms
hereof on the part of Employer, Acquisition, or Champps, or any of their
respective officers, directors, employees, agents, successors or assigns, or of
Employee, without limitation of any other rights any of them may have.
2. TERM OF EMPLOYMENT. Subject to this Contract becoming effective as
provided in Section 1, and subject to the provisions for termination hereinafter
provided, the term of this Contract shall be for a period of five (5) years,
commencing at the Effective Time (the "Initial Term"). Upon the expiration of
the Initial Term, unless Employer shall have given written notice to Employee to
the contrary at least 60 days prior to such expiration, Employee's employment by
Employer shall thereafter continue (the "Extended Term") until 60 days after
either party gives notice of termination of this Contract to the other party in
writing. The Initial Term and Extended Term are hereinafter referred to as the
"Employment Period".
3. DUTIES OF EMPLOYEE. After the Effective Time Employee will be employed
by Employer as a full-time employee in the capacity of Chairman of the Board of
Directors and Chief Executive Officer and President of Champps, and his duties
as such shall include those normally performed by a senior executive officer of
equal rank in the restaurant industry for an expanding restaurant company,
including, without limitation, responsibility for (a) the complete operations of
Champps, including full authority to manage the store operations, determine the
size of any store, determine the location and site of any store, determine the
decor of any store, make all final decisions relating to marketing, food product
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specifications, promotions, and menus (including prices); and (b) the employment
and retention of all Champps employees. Employee shall continue to maintain the
authority to control the operations of Champps as described above in
subparagraphs (a) and (b), so long as the average annual gross revenues per
square foot of the Champps-owned restaurants is at least $400. In the event that
average annual gross revenues per square foot of Champps-owned restaurants are
less than $400, the authority to control the operations of Champps as described
above in subparagraphs (a) and (b) shall be by mutual agreement between Employee
and the Chief Executive Officer of Employer. Employee shall comply with all of
the policies, standards, and regulations of Employer and Champps now or
hereafter promulgated. Employer shall have the right to assign Employee other
managerial duties in addition to the duties originally assigned and specified
above; PROVIDED, HOWEVER, in no event shall Employee be assigned, without
Employee's consent, duties other than those reasonably required of a Chairman
and Chief Executive Officer of an expanding restaurant company. In the event
Employee assumes and performs duties beyond those contemplated hereby to be
within the scope of his employment, and those that he is required to perform
hereunder, it is anticipated his compensation will be equitably adjusted.
Employee will be employed by Employer on a full-time basis and Employee shall be
required to devote his best efforts and business judgment, productive time,
ability and attention to the business of Champps during the Employment Period.
During the Employment Period, Employee shall not (i) be engaged in any other
business activity whether or not such business activity is pursued for gain,
profit or other pecuniary advantage that will significantly interfere with his
duties as Chairman and Chief Executive Officer of Champps or (ii) directly or
indirectly engage or be interested as owner, officer, director, employee,
consultant or otherwise in any
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business which is in competition with the business of Champps. With prior
approval of the Board of Directors of Employer, Employee may serve on the boards
of directors of other companies. During the term of this Contract, Employer
shall not take any action to operate restaurants incorporating the Champps
concept as developed by Employee prior to the acquisition of Champps by
Employer, other than through the Champps entity, a subsidiary of the Champps
entity or Americana Dining Corporation, a subsidiary of Employer.
4. COMPENSATION. For all services rendered by Employee under this Contract,
Employee shall receive the following compensation:
(a) As compensation for services rendered under this Contract during
the Employment Period, Employee shall receive an initial annual base salary of
Three Hundred Fifty Thousand Dollars ($350,000) (the "Base Salary"), payable in
periodic installments in accordance with Employer's usual practice for its
senior executives. During the Employment Period, the Base Salary will be subject
to annual review by the Board of Directors of Employer and if warranted,
adjusted upward to reflect external conditions, Employee's performance, and
changing size and nature of Employer's operations applying principles,
methodologies and criteria for performance comparable in all material respects
to those established by the Board of Directors of Employer for the Chairman and
Chief Executive Officer of Employer.
(b) As additional incentive compensation from Employer to Employee,
Employer agrees to pay to Employee a bonus based on a target level equal to 50%
of Base Salary if Employee meets his performance targets, with a maximum bonus
of 100% of Base Salary if Employee exceeds his performance targets by margins
determined by the Board of Directors of Employer (the "Maximum Bonus");
provided, however, it is specifically
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understood and agreed that (i) the formula, performance targets and level of
bonus payments relative to base salary for Employee shall be comparable in all
material respects to those established by the Board of Directors of Employer for
the Chairman and Chief Executive Offices of Employer and (ii) 20% of bonus
payments for Employee shall be related to performance targets for Employer as a
whole and 80% of bonus payments for Employee shall be related to performance
targets for Champps.
5. VACATIONS, FRINGE BENEFITS, REIMBURSEMENT OF BUSINESS EXPENSES.
(a) Employee shall be entitled to a paid vacation in accordance with
the vacation policy established by Employer; provided, however, Employee shall
be entitled to at least four (4) weeks of paid vacation. The times for such
vacations shall be mutually agreed upon by Employee and Employer, but such
vacation shall not be cumulative from year to year during the Employment Period.
No payment shall be made for unused vacation time.
(b) Employer shall grant a One Thousand Five Hundred Dollar ($1,500)
monthly car allowance for use as Employee deems appropriate.
(c) As a full-time employee of Employer, Employee shall be entitled to
participate in such other fringe benefits that are formally adopted by Employer
from time to time for and on behalf of all its full-time employees; provided,
however, that Employer will provide Employee health insurance and shall purchase
a straight term life insurance policy insuring the life of Employee with the
proceeds to be paid to one or more beneficiaries designated by Employee in the
amount of One Million Dollars ($1,000,000).
(d) Employee shall be reimbursed for reasonable travel and other
expenses incurred by Employee in promoting the business of Employer and Champps
and performing
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his obligations hereunder in the same manner and on the same basis as he was
reimbursed by Champps immediately prior to the date hereof.
6. TRADE SECRETS. During the Employment Period, Employee will have access
to and become familiar with Employer's trade secrets, recipes, business
concepts, marketing and related records and specifications, which are owned by
Employer and which are regularly used in the operation of the business of
Employer and its subsidiaries (collectively, "Confidential Information").
Employee hereby agrees he shall not disclose any Confidential Information,
directly or indirectly, nor use it in any way, either during the Employment
Period or at any time thereafter, except as required in the course of his
employment with Employer. All files, records, documents, drawings,
specifications, equipment and other similar items relating to the business of
Employer and its subsidiaries shall remain the sole and exclusive property of
Employer and its subsidiaries, and shall not be removed from the premises of
Employer under any circumstances whatsoever without the prior written consent of
Employer and shall not be reproduced or copied. During the Employment Period any
ideas and concepts related to the business of Employer or Champps shall become
the sole property of Employer.
7. OFFICE AND FACILITIES. Employer shall furnish the Employee with office
space substantially equivalent in size, quality, furnishings and in other
respects to the office space provided him prior to the date hereof by Champps,
and secretarial service, together with such other reasonable facilities and
services as Champps determines as appropriate to Employee's duties and
responsibilities. During the Employment Period, the principal executive offices
of Champps shall remain in Wayzata, Minnesota or such other location as is
acceptable to both Employer and Employee.
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8. BOARD OF DIRECTORS OF EMPLOYER AND CHAMPPS. During the term of this
Contract, the Board of Directors of Champps shall consist of three members and
Employer shall cause Employee, William H. Baumhauer (or his successor as Chief
Executive Officer of Employer) and a person to be agreed to by Employee and Mr.
Baumhauer (or his successor as Chief Executive Officer of Employer) to be the
members of such Champps' Board of Directors. In addition, Employer shall
nominate Employee for a position as a member of Employer's Board of Directors
and use its best efforts to solicit proxies from the stockholders of Employer to
secure Employee's election to Employer's Board of Directors during the
Employment Period. Notwithstanding any other provision of this Contract,
Employee agrees to resign as a member of Employer's Board of Directors
immediately upon the termination of Employee's employment with Employer for any
reason (voluntary or involuntary); provided, however, that in the event that
Employee's employment under this Contract is terminated by Employer pursuant to
paragraph 9(c) below, then Employee will be entitled to remain as a member of
the Board of Directors of Employer for up to 90 days after such termination at
the option of Employee. Simultaneously with the execution and delivery
of this Contract, Employee is executing and delivering to Employer an undated
resignation as a member of the Board of Directors of Employer and Employee
hereby authorizes Employer to deem such resignation tendered upon termination of
Employee's employment with Employer to the extent required in order to give
effect to the covenant of Employee set forth in the immediately preceding
sentence.
9. TERMINATION. During the Initial Term, Employee's employment under this
Contract may only be terminated for the following reasons:
(a) By Employee:
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(i) for good reason, which shall be defined as (x) any
assignment to Employee of any duties other than those contemplated by,
or any limitation of the powers of Employee in any respect not
contemplated by, this Contract, (y) any removal of Employee from or
any failure to re-elect Employee to the position of Chairman and Chief
Executive Officer of Champps, except in connection with termination of
Employee's employment for cause pursuant to paragraph 9(b) below, or
(z) a reduction in Employee's rate of compensation or a reduction in
Employee's fringe benefits; PROVIDED, HOWEVER, that Employer shall
have at least thirty (30) days to remedy the existence of any "good
reason" for termination by Employee of which it is made aware, whether
in a notice of termination from Employee or otherwise; or
(ii) upon 60-days' written notice to Employer of his
resignation for any reason other than as provided in paragraph 9(a)(i)
above;
(b) By Employer at any time for cause, which shall be defined as (i)
Employee's theft from or fraud upon Employer; (ii) Employee's conviction of a
felony; (iii) Employee's violation of terms and conditions hereof; (iv)
Employee's conscious disregard or neglect in the duties he is required to
perform under the terms hereof; or (v) Employee's demonstrated unwillingness to
prosecute and perform such duties to the extent deemed reasonably necessary and
advisable, which duties encompass the duties reasonably required of a Chief
Executive Officer of an expanding restaurant company. Upon such cause, Employer
may, at its option, terminate this Contract by giving written notice to
Employee, which notice of termination shall provide a description of the cause
which is the grounds for termination, and which termination is without prejudice
to any other remedy to which
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Employer may be entitled and such termination shall be effective as of the date
said written notice is received by Employee;
(c) By Employer upon written notice to Employee for any reason other
than those set forth in paragraph 9(b) above; or
(d) Employee's death.
10. COMPENSATION UPON TERMINATION.
(a) In the event that Employee's employment under this Contract is
terminated pursuant to paragraphs 9(a)(i) or 9(c) above, Employer shall be
obligated to continue to pay to Employee periodically in accordance with the
terms of this Contract (i) the Employee's Base Salary, as in effect as of the
date of such termination, from the date of such termination to the end of the
Initial Term and (ii) bonus payments equal to the Maximum Bonus to which
Employee would be entitled pursuant to the provisions of paragraph 4(b) above.
(b) In the event that Employee's employment under this Contract is
terminated pursuant to paragraph 9(b) above, Employer shall pay Employee that
portion of his Base Salary which accrued through the date of termination at the
rate in effect at the time notice of termination is given and Employer shall
have no further obligations to Employee under this Contract.
(c) In the event that Employee gives notice of termination of his
employment under this Contract, or terminates his employment, pursuant to
paragraph 9(a)(ii) after the Effective Time, Employer shall pay Employee that
portion of his Base Salary which accrued through the date of termination at the
rate in effect at the time notice of
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termination is given and Employer shall have no further obligations to Employee
under this Contract.
(d) In the event that Employee's employment under this Contract is
terminated pursuant to paragraph 9(d) above, Employer shall pay to Employee's
estate that portion of his Base Salary which accrued through the date of
termination at the rate in effect at the time notice of termination is given and
Employer shall have no further obligation to Employee under this Contract except
for the obligation to turn over to Employee's estate the proceeds of any life
insurance policies insuring the life of Employee to which he, his estate or any
beneficiary designated by him are entitled, including without limitation, the
insurance policy referred to in paragraph 5 above.
(e) In the event that Employee's employment under this Contract is
terminated by Employer at any time after the end of Initial Term for any reason
other than for cause as defined in paragraph 9(b) above, Employer shall be
obligated to continue to pay to Employee periodically in accordance with the
terms of this Contract (i) his Base Salary as in effect as of the date of such
termination of employment for a period of 12 months after the date of such
termination and (ii) bonus payments equal to the Maximum Bonus to which Employee
would be entitled pursuant to the provisions of paragraph 4(b) above for the
twelve month period immediately following the date of Employee's termination of
employment hereunder.
(f) In the event of the death of Employee at any time after his
termination of employment under this Contract, but prior to the time that all
payments due under the previous provisions of this paragraph 10 have been made,
any remaining payments under the provisions of this paragraph 10 shall be made
to Employee's estate.
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11. INJUNCTIVE RELIEF. Employee irrevocably acknowledges that any violation
of this Contract will cause Employer immediate and irreparable harm and that the
damage that Employer will suffer may be difficult or impossible to measure.
Therefore, upon any actual or impending violation of this Contract, Employer
shall be entitled to the issuance of a restraining order, preliminary or
permanent injunction, without bond, restraining or enjoining such violation by
Employee or any entity or person acting in concert with Employee. Such remedy
shall be additional to and not in limitation of any other remedy which may
otherwise be available to Employer.
12. RELATIONSHIP OF THE PARTIES. The parties acknowledge, agree and
recognize that the Board of Directors of Employer and Champps shall manage the
business affairs of Champps and that the relationship of Employer and Employee
is that of employer and employee and any other relationship is hereby expressly
disclaimed.
13. ASSIGNMENT. It is hereby agreed between Employer and Employee that this
Contract may be assigned by Employer and the assignee thereof shall assume all
of the benefits and obligations of Employer hereunder; PROVIDED, HOWEVER, that
any such assignment shall not release or discharge Employer from being
secondarily responsible for its obligations or liabilities hereunder. Employee
shall not assign this Contract, in whole or in part.
14. NOTICES. Any notice to be given hereunder by either party to the other
must be in writing and may be effected either by personal delivery or by
certified mail, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses appearing in the introductory
paragraph. Notices delivered personally shall be
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deemed communicated as of the actual receipt thereof; mailed notices shall be
deemed communicated and received three (3) days after the mailing of same.
15. INVALID PROVISIONS. The invalidity or unenforceability of particular
provision of this Contract shall not affect the enforceability of any other
provisions hereof and this Contract shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
16. AMENDMENTS TO THE CONTRACT. This Contract may only be amended in
writing by an agreement executed by all parties hereto.
17. LAW GOVERNING CONTRACT. This Contract is made and performable in the
State of Minnesota and shall be construed under the laws of the State of
Minnesota.
18. INDEMNITY. Employer shall indemnify Employee and hold him harmless for
any acts or decisions made by him in good faith while performing services for
Employer as a director, employee and/or agent of Employer and, in addition
thereto, shall use its best efforts to obtain insurance coverage for him under
any insurance policy now in force or hereinafter obtained during the Employment
Period covering the officers and directors of Employer against lawsuits as
director, employee and/or agent of Employer. Employer will pay all expenses,
including attorney's fees, actually and necessarily incurred by Employer in
connection with the defense of any action, suit or proceeding, and in connection
with any appeal thereon, including the costs of an out-of-court settlement
previously approved by Employer, with respect to any acts or decisions which
Employee shall have performed or made in good faith in performing services for
Employer; PROVIDED, HOWEVER, that Employer's obligations under the terms of this
paragraph are subject to any limitations imposed by Employer's Certificate of
Incorporation and By-laws and applicable state law.
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19. CONSTRUCTION. Waiver by any party hereto of a breach of any provision
of this Contract shall not operate or be construed as a waiver of any subsequent
breach of any party. This Contract shall not be assignable except on the part of
Employer as provided in Paragraph 13 above. Subject to the prohibition against
assignment of this Contract, the terms and conditions herein shall inure to the
benefit of and be binding upon the parties hereto, their successors, heirs and
legal representatives.
20. ARBITRATION. Any dispute arising out of this Contract shall be
submitted to arbitration in Minneapolis, Minnesota in accordance with the rules
of the American Arbitration Association, and any decision arising therefrom
shall be enforceable in any court of competent jurisdiction. Such arbitration
shall be governed by the substantive contract law of the State of Minnesota and
neither party shall be entitled to recover their attorney's fees or
administrative costs. If Employee initiates arbitration proceedings to enforce
his rights or alleged rights under Paragraph 9 or 10 then Employer shall pay
Employee's reasonable expenses of such arbitration proceedings (including
without limitation reasonable attorney's fees and expenses) whether or not
Employee prevails, so long as Employee does not challenge the outcome of such
arbitration proceedings.
21. FRANCHISE AGREEMENTS. In the event that Employee's employment under
this Contract is terminated for any reason other than by the Employer for cause
as defined in paragraph 9(b) above or the death of Employee, Employee shall be
provided the right to establish as a franchisee five (5) Champps Americana
restaurants anywhere in the world, so long as it is not (i) within a 20 mile
radius of any other Champps restaurant, or (ii) in any territory that has been
franchised and/or licensed by Champps unless the franchisee and/or licensee
gives its consent; provided, however, that at the time Employee requests to
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become a franchisee, he meets Champps' then existing requirements for franchisee
approval and agrees to pay standard fees under Champps' franchising program as
in effect at the time; provided further, however, that (x) the royalty for
Employee will be equal to 1.25% of gross revenues and (y) Champps shall reduce
the customary initial franchise fee on account of services which Employee does
not request or need Champps to perform, such as pre-opening and opening support.
22. ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties hereto and supersedes any and all prior agreements, oral or written, and
negotiations between said parties regarding the subject matter herein contained.
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IN WITNESS WHEREOF, the parties have executed this Contract this day and
year first above written.
EMPLOYER EMPLOYEE
DAKA INTERNATIONAL, INC.
By: /s/ William H. Baumhauer /s/ Dean P. Vlahos
-------------------------- ------------------------
William H. Baumhauer Dean P. Vlahos
CHAMPPS
CHAMPPS ENTERTAINMENT, INC.
By: /s/ Shaun P. Nugent
------------------------
Shaun P. Nugent
Its Chief Financial Officer
<PAGE> 1
Exhibit 8
DAKA INTERNATIONAL, INC.
1994 EQUITY INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the DAKA International, Inc. 1994 Equity Incentive
Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, employees and Directors of DAKA International, Inc. (the "Company")
and its Subsidiaries upon whose judgment, initiative and efforts the Company
largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards and Performance
Share Awards.
"Board" means the Board of Directors of the Company.
"Cause" means the occurrence of one or more of the following: (i) employee
is convicted of, pleads guilty to, or confesses to any felony or any act of
fraud, misappropriation or embezzlement which has an immediate and materially
adverse effect on the Company or any Subsidiary, as determined by the Board in
good faith in its sole discretion, (ii) employee engages in a fraudulent act to
the material damage or prejudice of the Company or any Subsidiary or in conduct
or activities materially damaging to the property, business or reputation of the
Company or any Subsidiary, all as determined by the Board in good faith in its
sole discretion, (iii) any material act or omission by employee involving
malfeasance or negligence in the performance of employee's duties to the Company
or any Subsidiary to the material detriment of the Company or any Subsidiary, as
determined by the Board in good faith in its sole discretion, which has not been
corrected by employee within 30 days after written notice from the Company of
any such act or omission, (iv) failure by employee to comply in any material
respect with the terms of his employment agreement, if any, or any written
policies or directives of the Board as determined by the Board in good faith in
its sole discretion, which has not been corrected by employee within 30 days
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after written notice from the Company of such failure, or (v) material breach by
employee of his noncompetition agreement with the Company, if any, as determined
by the Board in good faith in its sole discretion.
"Change of Control" is defined in Section 13.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Disability" means an employee's inability to perform his normal required
services for the Company and its Subsidiaries for a period of six consecutive
months by reason of the employee's mental or physical disability, as determined
by the Committee in good faith in its sole discretion.
"Disinterested Person" means an Independent Director who qualifies as such
under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor definition
under said Rule.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 15.
"Fair Market Value" on any given date means the closing price per share of
Stock on the NASDAQ National Market, or the principal exchange on which the
Stock is traded, on such date (or if no such price is reported on such date,
such price as reported on the nearest preceding date on which such price is
reported).
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Outside Director" means a member of the Board who qualifies as such under
Section 162(m) of the Code and the regulations promulgated thereunder.
"Performance Share Award" means Awards granted pursuant to Section 8.
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"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Retirement" means the employee's termination of employment with the
Company and its Subsidiaries after attainment of the age and/or service
requirements to qualify for early or normal retirement under the Company's
qualified retirement plan.
"Stock" means the Common Stock, par value $0.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company if each of the corporations or entities (other than the last corporation
or entity in the unbroken chain) owns stock or other interests possessing 50% or
more of the economic interest or the total combined voting power of all classes
of stock or other interests in one of the other corporations or entities in the
chain.
"Unrestricted Stock Award" means Awards granted pursuant to Section 7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
------------------------------------------------------------------
AND DETERMINE AWARDS
--------------------
(a) COMMITTEE. The Plan shall be administered by two or more Outside
Directors appointed from time to time to serve as the Compensation Committee of
the Board. Each member of the Committee shall also be a Disinterested Person. No
member of the Board shall be liable for any action or determination under the
Plan made in good faith.
(b) POWERS OF COMMITTEE. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers and other employees of the Company and its
Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards, Unrestricted Stock Awards and Performance Share Awards, or any
combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which
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terms and conditions may differ among individual Awards and participants,
and to approve the form of written instruments evidencing the Awards;
(v) to accelerate the exercisability or vesting of all or any portion
of any Award, with or without conditions;
(vi) subject to the provisions of Section 5(a)(ii), to extend the
period in which Stock Options may be exercised;
(vii) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; RECAPITALIZATIONS; MERGERS; SUBSTITUTE
---------------------------------------------------------------------
AWARDS
------
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 600,000 shares, of which no more
than 150,000 shares shall be available for issuance in the form of Restricted
Stock Awards, Unrestricted Stock Awards or Performance Share Awards, counted
cumulatively, during the term of the Plan. For purposes of the foregoing
limitations, the shares of Stock underlying any Awards which are forfeited,
cancelled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. No more than 100,000 Stock
Options may be granted to any one individual participant during any calendar
year period. The shares available for issuance under the Plan may
be authorized but unissued shares of Stock or shares of Stock reacquired by the
Company.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
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reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number and kind of shares reserved for issuance under the Plan and in
the form of Restricted Stock Awards, Unrestricted Stock Awards or Performance
Share Awards, (ii) the maximum number of Stock Options that can be granted to
any one individual participant, (iii) the number and kind of shares or other
securities subject to any then outstanding Awards under the Plan, and (iv) the
price for each share subject to any then outstanding Stock Options under the
Plan, without changing the aggregate exercise price as to which such Stock
Options remain exercisable. The adjustment by the Committee shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Committee in its discretion may
make a cash payment in lieu of fractional shares.
(c) MERGERS. In the event a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding Stock Options: (i) provide that such Stock Options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), (ii) upon written notice to
the optionees, provide that all unexercised Stock Options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, and/or
(iii) in the event of a business combination under the terms of which holders of
the Stock of the Company will receive upon consummation thereof a payment for
each share surrendered in the business combination (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Stock subject to such outstanding
Stock Options (to the extent then exercisable at prices not in excess of the
Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options.
(d) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the
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substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such full or part-time officers and other
employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Committee, in its
sole discretion. Independent Directors are also eligible to participate in the
Plan but only to the extent provided in Section 5(c) below.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any Option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after August 24,
2004.
(a) STOCK OPTIONS GRANTED TO EMPLOYEES. The Committee in its discretion may
grant Stock Options to eligible employees of the Company or any Subsidiary.
Stock Options granted to employees pursuant to this Section 5(a) shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock covered
by a Stock Option granted pursuant to this Section 5(a) shall be determined
by the Committee at the time of grant but shall not be less than 100% of
the Fair Market Value on the date of grant. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation and
an Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall be not less than 110% of the Fair Market
Value on the grant date.
(ii) GRANT OF DISCOUNT OPTIONS IN LIEU OF CASH BONUS. Upon the request
of an eligible employee and with the consent of the Committee, such
employee may elect each calendar year to receive a Non-Qualified Stock
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Option in lieu of cash bonus to which he may become entitled during the
following calendar year pursuant to any other plan of the Company, but only
if such employee makes an irrevocable election to waive receipt of all or a
portion of such cash bonus. Such election shall be made on or before the
date set by the Committee which date shall be no later than 15 days
preceding January 1 of the calendar year in which the cash bonus would
otherwise be paid. A Non- Qualified Stock Option shall be granted to each
employee who made such an irrevocable election on the date the waived cash
bonus would otherwise be paid; provided, however, that with respect to an
employee who is subject to Section 16 of the Act, if such grant date is not
at least six months and one day from the date of the election, the grant
shall be delayed until the date which is six months and one day from the
date of the election (or the next following business day, if such date is
not a business day). The exercise price per share shall be determined by
the Committee but shall not be less than 50% of the Fair Market Value of
the Stock on the date the Stock Option is granted. The number of shares of
Stock subject to the Stock Option shall be determined by dividing the
amount of the waived cash bonus by the difference between the Fair Market
Value of the Stock on the date the Stock Option is granted and the exercise
price per Stock Option. The Stock Option shall be granted for whole number
of shares so determined; the value of any fractional share shall be paid in
cash. An employee may revoke his election under this Section 5(a)(ii) on a
prospective basis at any time; provided, however, that with respect to an
employee who is subject to Section 16 of the Act, such revocation shall
only be effective six months and one day following the date of such
revocation.
(iii) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation and an Incentive Stock
Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(iv) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date. The Committee may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(v) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
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number of shares to be purchased. Payment of the purchase price may be made
by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the
optionee for at least six months, if permitted by the Committee in its
discretion. Such surrendered shares shall be valued at Fair Market
Value on the exercise date; or
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company to pay the purchase price; provided that in the event
the optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Committee shall prescribe as a condition of such payment procedure.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws.
(vi) NON-TRANSFERABILITY OF OPTIONS. Except as otherwise permitted by
the Committee, no Stock Option shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution and all
Stock Options shall be exercisable, during the optionee's lifetime, only by
the optionee.
(vii) TERMINATION BY REASON OF DEATH. Any Stock Option held by an
optionee whose employment by the Company and its Subsidiaries is terminated
by reason of death shall become fully exercisable and may thereafter be
exercised by the legal representative or legatee of the optionee, for a
period of twelve months (or such longer period as the Committee shall
specify at any time) from the date of death, or until the expiration of the
stated term of the Option, if earlier.
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(viii) Termination by Reason of Disability.
-----------------------------------
(A) Any Stock Option held by an optionee whose employment by the
Company and its Subsidiaries is terminated by reason of Disability
shall become fully exercisable and may thereafter be exercised, for a
period of twelve months (or such longer period as the Committee shall
specify at any time) from the date of such termination of employment,
or until the expiration of the stated term of the Option, if earlier.
(B) The Committee shall have sole authority and discretion to
determine whether a participant's employment has been terminated by
reason of Disability.
(C) Except as otherwise provided by the Committee at any time,
the death of an optionee during the period provided in this Section
5(a)(viii) for the exercise of a Stock Option shall extend such period
for twelve months from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(ix) Termination by Reason of Retirement.
-----------------------------------
(A) Any Stock Option held by an optionee whose employment by the
Company and its Subsidiaries is terminated by reason of Retirement may
thereafter be exercised, to the extent it was exercisable at the time
of such termination, for a period of twelve months (or such other
period as the Committee shall specify at any time) from the date of
such termination of employment, or until the expiration of the stated
term of the Option, if earlier.
(B) Except as otherwise provided by the Committee at any time,
the death of an optionee during a period provided in this Section
5(a)(ix) for the exercise of a Stock Option shall extend such period
for twelve months from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(x) TERMINATION FOR CAUSE. If any optionee's employment by the Company
and its Subsidiaries is terminated for Cause, any Stock Option held by such
optionee, including any Stock Option that is exercisable at the time of
such termination, shall immediately terminate and be of no further force
and effect; provided, however, that the Committee may, in its sole
discretion, provide that such Stock Option can be exercised for a period of
up to 30 days from the date of termination of employment or until the
expiration of the stated term of the Option, if earlier.
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<PAGE> 10
(xi) OTHER TERMINATION. Unless otherwise determined by the Committee,
if an optionee's employment by the Company and its Subsidiaries terminates
for any reason other than death, Disability, Retirement, or for Cause, any
Stock Option held by such optionee may thereafter be exercised, to the
extent it was exercisable on the date of termination of employment, for
three months (or such longer period as the Committee shall specify at any
time) from the date of termination of employment or until the expiration of
the stated term of the Option, if earlier.
(xii) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its Subsidiaries become
exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000. To the extent that any Stock Option exceeds this
limit, it shall constitute a Non-Qualified Stock Option.
(xiii) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except as
otherwise provided in the Plan.
(b) RELOAD OPTIONS. At the discretion of the Committee, Options granted
under Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
(c) Stock Options Granted to Independent Directors.
----------------------------------------------
(i) AUTOMATIC GRANT OF OPTIONS. Each Independent Director who is
serving as Director of the Company on the fifth business day after each
annual meeting of shareholders, beginning with the 1994 annual meeting,
shall automatically be granted on such day a Non-Qualified Stock Option to
acquire 1,500 shares of Stock. The exercise price per share for the Stock
covered by a Stock Option granted hereunder shall be equal to the Fair
Market Value of the Stock on the date the Stock Option is granted.
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<PAGE> 11
(ii) Exercise; Termination; Non-transferability.
------------------------------------------
(A) All Options granted under Section 5(c) shall be
exercisable after one year. No Option issued under this Section
5(c) shall be exercisable after the expiration of ten years from
the date upon which such Option is granted.
(B) The rights of an Independent Director in an Option
granted under Section 5(c) shall terminate six months after such
Director ceases to be a Director of the Company or the specified
expiration date, if earlier; provided, however, that if the
Independent Director ceases to be a Director for Cause, the
rights shall terminate immediately on the date on which he ceases
to be a Director.
(C) No Stock Option granted under this Section 5(c) shall be
transferable by the optionee otherwise than by will or by the
laws of descent and distribution, and such Options shall be
exercisable during the optionee's lifetime only by the optionee.
Any Option granted to an Independent Director and outstanding on
the date of his death may be exercised by the legal
representative or legatee of the optionee for a period of six
months from the date of death or until the expiration of the
stated term of the option, if earlier.
(D) Options granted under this Section 5(c) may be exercised
only by written notice to the Company specifying the number of
shares to be purchased. Payment of the full purchase price of the
shares to be purchased may be made by one or more of the methods
specified in Section 5(a)(v). An optionee shall have the rights
of a stockholder only as to shares acquired upon the exercise of
a Stock Option and not as to unexercised Stock Options.
(iii) LIMITED TO INDEPENDENT DIRECTORS. The provisions of this
Section 5(c) shall apply only to Options granted or to be granted to
Independent Directors, and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any Option
issued under this Plan to a participant who is not an Independent
Director of the Company. To the extent inconsistent with the
provisions of any other Section of this Plan, the provisions of this
Section 5(c) shall govern the rights and obligations of the Company
and Independent Directors respecting Options granted or to be granted
to Independent Directors. The provisions of this Section 5(c) which
affect the price, date of exercisability, option period or amount of
shares of Stock under an Option shall not be amended more than once in
any six-month period, other than to comport with changes in the Code
or ERISA.
11
<PAGE> 12
SECTION 6. RESTRICTED STOCK AWARDS
-----------------------
(a) NATURE OF RESTRICTED STOCK AWARDS. The Committee may grant Restricted
Stock Awards to any employee of the Company or any Subsidiary. A Restricted
Stock Award is an Award entitling the recipient to acquire, at no cost or for a
purchase price determined by the Committee, shares of Stock subject to such
restrictions and conditions as the Committee may determine at the time of grant
("Restricted Stock"). Conditions may be based on continuing employment and/or
achievement of pre-established performance goals and objectives.
(b) ACCEPTANCE OF AWARD. A participant who is granted a Restricted Stock
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 30 days (or such shorter date as the
Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check or other instrument or form of
payment acceptable to the Committee in an amount equal to the specified purchase
price, if any, of the shares covered by the Award and by executing and
delivering to the Company a written instrument that sets forth the terms and
conditions of the Restricted Stock Award in such form as the Committee shall
determine.
(c) RIGHTS AS A STOCKHOLDER. Upon complying with Section 6(b) above, a
participant shall have the rights of a stockholder with respect to the voting of
the Restricted Stock, subject to such conditions contained in the written
instrument evidencing the Restricted Stock Award. Unless the Committee shall
otherwise determine, certificates evidencing the Restricted Stock shall remain
in the possession of the Company until such Restricted Stock is vested as
provided in Section 6(e) below.
(d) RESTRICTIONS. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the written instrument evidencing the Restricted Stock Award. In
the event of termination of employment by the Company and its Subsidiaries for
any reason other than death or Disability, the Company shall have the right, at
the discretion of the Committee, to repurchase Restricted Stock with respect to
which conditions have not lapsed at their purchase price, or to require
forfeiture of such shares to the Company if acquired at no cost, from the
participant or the participant's legal representative. The Company must exercise
such right of repurchase or forfeiture not later than the 90th day following
such termination of employment (unless otherwise specified in the written
instrument evidencing the Restricted Stock Award).
(e) VESTING OF RESTRICTED STOCK. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of the
Restricted Stock and the Company's right of repurchase or forfeiture shall
lapse. Subsequent to
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<PAGE> 13
such date or dates and/or the attainment of such pre-established performance
goals, objectives and other conditions, the shares on which all restrictions
have lapsed shall no longer be Restricted Stock and shall be deemed "vested." A
participant whose employment is terminated for reason of death or Disability
shall become fully vested in his Restricted Stock on his termination date to the
extent such vesting is otherwise contingent only on continued service with the
Company. Where vesting is contingent on attainment of pre-established
performance goals, the vesting of Restricted Stock in the case of death or
Disability shall remain dependent on the attainment of such goals and shall be
determined as of such date or dates specified by the Committee.
(f) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
-------------------------
The Committee may, in its sole discretion, grant (or sell at a purchase
price determined by the Committee) an Unrestricted Stock Award to any employee
of the Company or any Subsidiary pursuant to which such employee may receive
shares of Stock free of any restrictions under the Plan in lieu of any cash
compensation to such employee.
SECTION 8. PERFORMANCE SHARE AWARDS
------------------------
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any employees of
the Company or any Subsidiary, including those who qualify for awards under
other performance plans of the Company. The Committee in its sole discretion
shall determine whether and to whom Performance Share Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Shares; provided, however, that the
Committee may rely on the performance goals and other standards applicable to
other performance unit plans of the Company in setting the standards for
Performance Share Awards under the Plan.
(b) RESTRICTIONS ON TRANSFER. Performance Share Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
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<PAGE> 14
(c) RIGHTS AS A SHAREHOLDER. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Committee).
(d) TERMINATION. Except as may otherwise be provided by the Committee at
any time prior to termination of employment, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment by the Company and its Subsidiaries for any reason.
(e) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment by the Company and its Subsidiaries, the Committee may
in its sole discretion accelerate, waive or, subject to Section 11, amend any or
all of the goals, restrictions or conditions imposed under any Performance Share
Award.
SECTION 9. TAX WITHHOLDING
---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) PAYMENT IN STOCK. A participant may elect to have such tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the Company to
withhold from shares of Stock to be issued pursuant to any Award a number of
shares with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due, or (ii) transferring to
the Company shares of Stock owned by the participant with an aggregate Fair
Market Value (as of the date the withholding is effected) that would satisfy the
withholding amount due. With respect to any participant who is subject to
Section 16 of the Act, the following additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations relating to an
Award in the manner permitted by this Section 9(b) shall be made either (1)
during the period beginning on the third business day following the date of
release of quarterly or annual summary statements of sales and earnings of
the Company and ending on the twelfth business day following such date, or
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<PAGE> 15
(2) at least six months prior to the date as of which the receipt of such
an Award first becomes a taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval of
the Committee; and
(D) the Stock withheld to satisfy tax withholding must pertain to an
Award which has been held by the participant for at least six months from
the date of grant of the Award.
SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 11. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. If and to the extent required by
the Act to ensure that Awards granted under the Plan are exempt under Rule 16b-3
promulgated under the Act, Plan amendments shall be subject to approval by the
Company's stockholders.
SECTION 12. STATUS OF PLAN
--------------
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection
15
<PAGE> 16
with any Award or Awards. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the Company's obligations
to deliver Stock or make payments with respect to Awards hereunder, provided
that the existence of such trusts or other arrangements is consistent with the
foregoing sentence.
SECTION 13. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 13:
(a) Each outstanding Stock Option shall automatically become fully
exercisable notwithstanding any provision to the contrary herein.
(b) Each Restricted Stock Award and Performance Share Award shall be
subject to such terms, if any, with respect to a Change of Control as have been
provided by the Committee in connection with such Award.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are defined in Rule
12b-2 under the Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 50% or more of either
(A) the combined voting power of the Company's then outstanding securities
having the right to vote in an election of the Company's Board of Directors
("Voting Securities") or (B) the then outstanding shares of Stock of the
Company (in either such case other than as a result of an acquisition of
securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Effective Date whose election or nomination for election
was approved by a vote of at least a majority of the Incumbent Directors
shall, for purposes of this Plan, be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger,
16
<PAGE> 17
would not, immediately after the consolidation or merger, beneficially own
(as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate 80% or more of the voting
shares of the corporation issuing cash or securities in the consolidation
or merger (or of its ultimate parent corporation, if any), (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all
or substantially all of the assets of the Company or (C) any plan or
proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Stock beneficially owned by any person to 50%
or more of the shares of Stock then outstanding or (y) the proportionate voting
power represented by the Voting Securities beneficially owned by any person to
50% or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or
(y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (i).
SECTION 14. GENERAL PROVISIONS
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee may
require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop-orders and restrictive legends on certificates for Stock and Awards as it
deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
17
<PAGE> 18
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock of the Company present or represented and entitled to
vote at a meeting of stockholders. Subject to such approval by the stockholders
and to the requirement that no Stock may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board.
SECTION 16. GOVERNING LAW
-------------
This Plan shall be governed by the law of the Commonwealth of Massachusetts
except to the extent such law is preempted by federal law.
18
<PAGE> 1
Exhibit 9
THE PLAN
PURPOSE OF THE PLAN. The Daka International, Inc. Senior Executive Stock
Option Plan (the "Plan") is designed to provide an incentive to certain senior
executive officers of Daka International, Inc., a Delaware corporation (the
"Company"), through the opportunity to acquire shares of Common Stock under the
Plan. The Plan will terminate on January 17, 2002. The Plan is not subject to
any provisions of ERISA.
ADMINISTRATION. The Plan is administered by the Board of Directors of the
Company, acting as a committee of the whole. Participants may obtain further
information about the Plan from the Company at 55 Ferncoft Road, Danvers,
Massachusetts 01923. The telephone number of the Company is (508) 774-9115.
PARTICIPANTS. Participants were selected by the Board of Directors from
among the senior executive officers of the Company. The names of these senior
executive officers and the number of options to be granted to each of them on
January 17, 1992 are set forth in the table below:
<TABLE>
<CAPTION>
Name Options
---- -------
<S> <C>
William H. Baumhauer 138,000
David N. Terhune 38,000
David G. Parker 38,000
Charles W. Redepenning, Jr. 18,000
Ronald Cohen 18,000
--------
Total: 250,000
</TABLE>
No additional options will be granted.
NUMBER OF SHARES. The total number of shares of Common Stock, par value
$0.01 per share, which may be issued under options granted pursuant to the Plan
will not exceed 250,000. Shares subject to the Plan will be authorized but
unissued shares. If any stock option granted hereunder is surrendered before
exercise, lapses without exercise, or for any other reason ceases to be
exercisable, the shares reserved for issuance upon exercise thereof shall not be
available for the further granting of options under the Plan. The Company will
receive all of the proceeds from the exercise of options granted under the Plan.
STOCK ADJUSTMENTS. In the event that the outstanding shares of the
Company's Common Stock are increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company or
of another corporation, through reorganization, merger, consolidation,
liquidation, recapitalization, reclassification, stock split-up, combination of
shares or dividends payable in stock of the class which is subject to this Plan,
appropriate adjustment in the number and kind of shares as to which options may
be granted and as to which options or portions thereof then unexercised shall be
exercisable shall be made to the end that the proportionate number of shares or
other
1
<PAGE> 2
securities as to which options may be granted and the option holder's
proportionate interest under outstanding options shall be maintained as before
the occurrence of such event.
OPTION PRICE. The initial option exercise price is $4.50 per share, subject
to adjustment.
TERMS OF OPTIONS. The options granted under the Plan will vest ratably over
a five-year period, commencing on the date of grant. Notwithstanding the
foregoing, all options shall vest immediately upon the termination of the
employment of the grantee with the Company without Cause, upon the death of the
grantee, in the event that William H. Baumhauer or Allen R. Maxwell cease to be
directors of the Company (other than by reason of death or voluntary
resignation), or there occurs any sale or issuance or series of sales and/or
issuances of Common Stock by the Company or any holders thereof which results in
any person or group of persons (as the term "group" is used in the Securities
Exchange Act of 1934, as amended) owning more than 50% of the Common Stock
outstanding at the time of such sale or issuance or series of sales and/or
issuances, or a merger in which the Company is not the survivor, a
consolidation, sale of all or substantially all of the assets of the Company.
Except as otherwise provided in each grantee's option agreement, each vested
option may be exercised at any time or from time to time, in whole or in part,
on or prior to January 17, 2002 (the "Termination Date"). For purposes of this
Plan, the term "Cause" shall mean (1) grantee's theft from or fraud upon the
Company, or (2) grantee's conviction of a felony.
LISTING AND REGISTRATION. The Company, in its discretion, may postpone the
issuance and delivery of shares upon any exercise of an option until completion
of such stock exchange listing, or registration or other qualification of such
shares under any state or federal law, rule or regulation as the Company may
consider appropriate; and the Company may require any person exercising an
option to make such representations and furnish such information as it considers
appropriate in connection with the issuance of the shares in compliance with
applicable law, including, without limitation, federal or state laws regulating
the sale or issuance of securities.
FORM OF OPTIONS AND CONDITIONS TO THEIR EXERCISE. The options by their
terms will provide that they will not be transferable by the grantee, otherwise
than by will or the laws of descent and distribution and that each is
exercisable, during the lifetime of the grantee, only by him.
RESALE OF COMMON STOCK. The participants are deemed to be "affiliates" of
the Company within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). "Affiliates" may generally sell shares acquired under the
Plan only by compliance with the applicable requirements of Rule 144 under the
Act (other than the two-year holding period requirement of Rule 144) or pursuant
to a reoffering prospectus or other registration statement filed by the Company
under the Act, if such a prospectus or other registration statement is so filed
and becomes effective under the Securities Act of 1933, as amended. An
"affiliate" is a person who directly or indirectly controls, or is controlled
by, or is under common control with, the Company. Furthermore, the directors and
officers of the
2
<PAGE> 3
Company and any holder of more than 10% of the Common Stock may be liable
pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the Company for certain amounts realized upon the
purchase and sale or sale and purchase of any shares of Common Stock within any
period of less than six months. The participants should consult counsel for
additional information regarding impediments with respect to their purchase and
sale of Common Stock. No part of the proceeds of any such resales will go to the
Company.
FEDERAL INCOME TAX CONSEQUENCES. The Plan is a non-qualified stock option
plan for federal income tax purposes, and the options are not intended to
qualify as incentive stock options. The taxability of such stock options is
governed by Section 83 of the Internal Revenue Code of 1986, as amended (the
"Code"). The participants should not be taxed upon the grant of such stock
option because such stock option, which will not be actively traded on an
established market, has no readily ascertainable fair market value. On the other
hand, upon exercise of the options, the participants will be treated as
receiving compensation taxable as ordinary income equal to the "spread" between
the fair market value of the acquired Common Stock at the time of exercise and
the exercise price. If a participant, who receives Common Stock upon exercise of
such stock option, is subject to the rules of Section 16(b) of the Securities
and Exchange Act of 1934 relating to short-term sales by "insiders," there may
be an automatic postponement of taxation after exercise under Section 83(c)(3)
of the Code until the restrictions of Section 16(b) lapse (such restrictions
should lapse within a period of six (6) months from the date of grant NOT the
date of exercise), unless such officer elects under Section 83(b) of the Code
(within 30 days of exercise) to recognize the gain, if any, at the time of
exercise.
Generally, the Company will be entitled to a tax deduction equivalent to
the compensation income recognized by an Optionee. Since these options have no
readily ascertainable fair market value, the Company will not be entitled to a
tax deduction on the date of their issuance. Nevertheless, to the extent an
Optionee recognizes compensation income at the date of exercise, the Company
should be entitled to a corresponding deduction, provided such amount
constitutes reasonable compensation and is an ordinary and necessary business
expense.
3
<PAGE> 1
Exhibit 10
DAKA INTERNATIONAL, INC.
1988 INCENTIVE STOCK OPTION PLAN
***
1. PURPOSE OF THE PLAN. The Daka International, Inc. 1988 Incentive Stock
Option Plan (the "Plan") is designed to increase the interest of the executive
and other key employees of Daka International, Inc., a Delaware corporation (the
"Company"), and its subsidiaries, in the Company's business through the added
incentive created by the opportunity afforded for stock ownership under the
Plan.
2. COMMITTEE. The Plan will be administered by a committee of three
persons, composed of disinterested directors or non-directors selected by the
Board of Directors of the Company, to serve at the pleasure of the Board. By
resolution of the Board of Directors of the Company adopted at the time of
adoption of the Plan, or from time to time thereafter, certain directors may be
designated to be ineligible for specified periods to be granted stock options
pursuant to the Plan or to be allocated stock or granted stock options or stock
appreciation rights pursuant to any other plan of the Company or its affiliates.
No director may be selected to be a member of the committee if he was eligible
at any time during the twelve-month period immediately preceding the date of his
selection to the committee, nor shall any member of the committee be eligible
while a member, to be allocated stock or to receive stock options or stock
appreciation rights pursuant to the Plan or any other plan of the Company or its
affiliates. Committee members may, however, exercise options previously granted
to them. Any action taken by a majority of the committee shall be the action of
the committee. The decision of the Committee on any questions concerning or
involving the interpretation or administration of the Plan shall, as between the
Company and the option holders, be final and conclusive. The committee may
consult with counsel, who may be counsel for the Company, and shall not incur
any liability for any action taken in good faith in reliance upon the advice of
counsel. Within the limitations of the Plan, the number of shares for which
options will be granted from time to time and the periods for which the options
will be outstanding will be determined by the committee.
3. PARTICIPANTS. Participants will be selected by the committee from among
the full-time employees of the Company or of any subsidiary of the Company,
including officers. An employee on leave of absence within the meaning of
Section 1.421-7(h) of the Regulations promulgated under the Internal Revenue
Code of 1986, as amended (the "Code"), may be considered as still in the employ
of the Company for purposes of eligibility for participation in the Plan.
4. NUMBER OF SHARES. The total number of shares of the Company's Common
Stock, par value $0.01 per share, which may be issued under options granted
pursuant to the Plan shall not exceed 2,000,000. Shares subject to the Plan may
be either authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any stock option granted hereunder is
surrendered before exercise or lapses without exercise or for any other reason
ceases to be exercisable, the shares reserved therefor
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shall continue to be available for the grant of options under the Plan. The Plan
will terminate on November 1, 1998, and no option will be granted thereunder
after such date.
5. STOCK ADJUSTMENTS. To the extent permitted by Sections 422A and 425 of
the Code, in the event that the outstanding shares of the Company's Common Stock
are increased or decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Company or of another corporation,
through reorganization, merger, consolidation, liquidation, recapitalization,
reclassification, stock split-up, combination of shares or dividends payable in
stock of the class which is subject to this Plan, appropriate adjustment in the
number and kind of shares as to which options may be granted and as to which
options or portions thereof then unexercised shall be exercisable shall be made
to the end that the proportionate number of shares or other securities as to
which options may be granted and the option holder's proportionate interest
under outstanding options shall be maintained as before the occurrence of such
event. Any such adjustment in the shares or other securities subject to
outstanding options (including any adjustment in the option price), shall be
made in such manner as not to constitute a modification as defined by Subsection
(h)(3) of Section 425 of the Code.
6. OPTION PRICE. Subject to the provisions of Section 9 concerning the
option price for ten percent shareholders, the option price will be the fair
market value of the shares at the date on which the respective options are
granted. For purposes of the Plan, the fair market value per share of the
Company's Common Stock on any date shall be deemed to be the closing price of
the Company's Common Stock on the principal national securities exchange on
which the Company's Common Stock is then listed or admitted to trading on any
national securities exchange. The closing price shall be the last reported sale
price regular way, or, in case no such sale takes place on such date, the
average of the closing bid and asked prices regular way, as reported by said
exchange. If the Company's Common Stock is not then so listed on a national
securities exchange, the fair market value per share of the Company's Common
Stock on any date shall be deemed to be the closing price (the last reported
sale price regular way) in the over-the-counter market as reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), if the Company's Common Stock closing price is then reported on
NASDAQ, or, if the Common Stock closing price of the Company's Common Stock is
not then quoted by NASDAQ, shall be deemed to be the mean between the
representative closing bid and asked prices of the Company's Common Stock in the
over-the-counter market as reported by NASDAQ or, if the Company's Common Stock
is not then quoted by NASDAQ, as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If no member of the National Association of Securities
Dealers, Inc. furnishes quotes with respect to the Common Stock of the Company,
such fair market value shall be determined by resolution of the Company's Board
of Directors. Notwithstanding the foregoing provisions of this Section 6, if the
Board of Directors shall at any time determine that it is impracticable to apply
the foregoing methods of determining fair market value, the Board of Directors
is empowered to adopt other reasonable methods for such purpose.
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7. TERMS OF OPTIONS. Each option will provide by its terms that it is not
exercisable after the expiration of ten years from the date such option is
granted. Within this limitation, the committee will determine the expiration
dates of the options. Options may be exercised at any time, or from time to
time, within their terms, in whole or in part, or otherwise as shall be
determined by the committee. Upon exercise, the option price shall be payable in
cash or the equivalent fair market value of the Company's Common Stock or any
combination of both as shall be determined by the committee at the time the
option is granted.
8. LISTING AND REGISTRATION. The Company, in its discretion, may postpone
the issuance and delivery of shares upon any exercise of an option until
completion of such stock exchange listing, or registration or other
qualification of such shares under any state or federal law, rule or regulation
as the Company may consider appropriate; and may require any person exercising
an option to make such representations and furnish such information as it
considers appropriate in connection with the issuance of the shares in
compliance with applicable law, including, without limitation, federal or state
law regulation the sale or issuance of securities.
9. TEN PERCENT SHAREHOLDERS. No employee shall be eligible to receive an
option under this Plan if, at the time the option is granted, he owns more than
ten percent of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporations, if any, determined in
accordance with Section 425(d) of the Code. This limitation shall apply if, at
the time an option is granted, the option price is one hundred ten percent
(110%) of the fair market value of the Company's Common Stock and the option is
not exercisable after the expiration of five years from the date it is granted.
10. LIMITATION ON AMOUNT OF SHARES. The aggregate fair market value
(determined as of the time the option is granted) of the Common Stock for which
any employee may be granted incentive stock options that are first exercisable
in any calendar year (under all incentive stock option plans of the Company and
its parent and subsidiary corporations, if any) shall not exceed $100,000. For
the purposes of this Plan, the terms "incentive stock options" and "incentive
stock option plans" shall mean options and plans which conform with the
provisions of Section 422A of the Code.
11. FORM OF OPTIONS AND CONDITIONS TO THEIR EXERCISE. It is intended that
the options shall conform to the requirements of Section 422A and 425 of the
Code and to the provisions of this Plan and shall otherwise be determined by the
committee. The terms "parent corporation" and "subsidiary corporation" shall
have the meaning given them by Section 425 of the Code.
The options by their terms will provide that they will not be transferable
by the grantee otherwise than by will or the laws of descent and distribution
and that each is exercisable, during the lifetime of the grantee, only by him.
An option may be exercised only if at all times during the period beginning
with the date of the granting of the option and ending on the day three months
before the
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date of such exercise, the grantee was an employee of either the Company or of a
parent or subsidiary corporation of the Company or of another corporation
referred to in Section 422A(a)(2) of the Code; provided, however, the option may
also be exercised for up to one year after the employment termination date if
the grantee is disabled within the meaning of Section 37(e)(3) of the Code, but
in no event at a date later than the termination date of the option. If the
grantee should die at any time when any portion of the option shall be
exercisable by him, the option will be exercisable in whole or in part during
the next year succeeding his death by the person or persons to whom his rights
under the option shall have passed by will or by the laws of descent and
distribution, but in no event at a date later than the termination date of the
option.
12. AMENDMENT OF PLAN. The Plan may be amended at any time by the Board of
Directors provided that (except pursuant to Section 5) no amendment made without
approval of the shareholders of the Company shall increase the total number of
shares which may be issued under options granted pursuant to the Plan, or reduce
the minimum option price, or extend the latest date upon which options may be
granted or shall be exercisable, or change the class of employees eligible to
receive options.
13. CODE REFERENCES. References to sections of the Code shall include any
amendment of the Code section or any section that may be substituted for such
section.
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Exhibit 11
DAKA INTERNATIONAL, INC.
1988 NON-QUALIFIED STOCK OPTION PLAN
***
1. PURPOSE OF THE PLAN. The Daka International, Inc. 1988 Non-Qualified
Stock Option Plan (the "Plan") is designed to increase the interest of the
executive and other key employees of Daka International, Inc., a Delaware
corporation (the "Company"), and its subsidiaries, in the Company's business
through the added incentive created by the opportunity afforded for stock
ownership under the Plan.
2. COMMITTEE. The Plan will be administered by a committee of three
persons, composed of disinterested directors or non-directors selected by the
Board of Directors of the Company, to serve at the pleasure of the Board. By
resolution of the Board of Directors of the Company adopted at the time of
adoption of the Plan, or from time to time thereafter, certain directors may be
designated to be ineligible for specified periods to be granted stock options
pursuant to the Plan or to be allocated stock or granted stock options or stock
appreciation rights pursuant to any other plan of the Company or its affiliates.
No director may be selected to be a member of the committee if he was eligible
at any time during the twelve-month period immediately preceding the date of his
selection to the committee, nor shall any member of the committee be eligible
while a member, to be allocated stock or to receive stock options or stock
appreciation rights pursuant to the Plan or any other plan of the Company or its
affiliates. Committee members may, however, exercise options previously granted
to them. Any action taken by a majority of the committee shall be the action of
the committee. The decision of the Committee on any questions concerning or
involving the interpretation or administration of the Plan shall, as between the
Company and the option holders, be final and conclusive. The committee may
consult with counsel, who may be counsel for the Company, and shall not incur
any liability for any action taken in good faith in reliance upon the advice of
counsel. Within the limitations of the Plan, the number of shares for which
options will be granted from time to time and the periods for which the options
will be outstanding will be determined by the committee.
3. PARTICIPANTS. Participants will be selected by the committee from among
the full-time employees of the Company or of any subsidiary of the Company,
including officers. An employee on leave of absence within the meaning of
Section 1.421-7(h) of the Regulations promulgated under the Internal Revenue
Code of 1954, as amended (the "Code"), may be considered as still in the employ
of the Company for purposes of eligibility for participation in the Plan.
4. NUMBER OF SHARES. The total number of shares of the Company's Common
Stock, par value $0.01 per share, which may be issued under options granted
pursuant to the Plan shall not exceed 2,000,000. Shares subject to the Plan may
be either authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any stock option granted hereunder is
surrendered before exercise or lapses without exercise or for any other reason
ceases to be exercisable, the shares reserved therefor
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shall continue to be available for the grant of options under the Plan. The Plan
will terminate on November 1, 1998, and no option will be granted thereunder
after such date.
5. STOCK ADJUSTMENTS. In the event that the outstanding shares of the
Company's Common Stock are increased or decreased or change into or exchanged
for a different number or kind of shares or other securities of the Company or
of another corporation, through reorganization, merger, consolidation,
liquidation, recapitalization, reclassification, stock split-up, combination of
shares or dividends payable in stock of the class which is subject to this Plan,
appropriate adjustment in the number and kind of shares as to which options may
be granted and as to which options or portions thereof then unexercised shall be
exercisable shall be made to the end that the proportionate number of shares or
other securities as to which options may be granted and the option holder's
proportionate interest under outstanding options shall be maintained as before
the occurrence of such event.
6. OPTION PRICE. The option price will be the fair market value of the
shares at the date on which the respective options are granted. For purposes of
the Plan, the fair market value per share of the Company's Common Stock on any
date shall be deemed to be the closing price of the Company's Common Stock on
the principal national securities exchange on which the Company's Common Stock
is then listed or admitted to trading, if the Company's Common Stock is then
listed or admitted to trading on any national securities exchange. The closing
price shall be the last reported sale price regular way, or, in the case no such
sale takes place on such date, the average of the closing bid and asked prices
regular way, as reported by said exchange. If the Company's Common Stock is not
then so listed on a national securities exchange, the fair market value per
share of the Company's Common Stock on any date shall be deemed to be the
closing price (the last reported sale price regular way) in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), if the Company's Common Stock closing price is then
reported on NASDAQ, or, if the Common Stock closing price of the Company's
Common Stock is not then quoted by NASDAQ, shall be deemed to be the mean
between the representative closing bid and asked prices of the Company's Common
Stock in the over-the-counter market as reported by NASDAQ or, if the Company's
Common Stock is not then quoted by NASDAQ, as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If no member of the National Association of
Securities Dealers, Inc. furnishes quotes with respect to the Common Stock of
the Company, such fair market value shall be determined by resolution of the
Company's Board of Directors. Notwithstanding the foregoing provisions of this
Section 6, if the Board of Directors shall at any time determine that it is
impracticable to apply the foregoing methods of determining fair market value,
the Board of Directors is empowered to adopt other reasonable methods for such
purpose.
7. TERMS OF OPTIONS. Each option will provide by its terms that it is not
exercisable after the expiration of five years from the date such option is
granted. Within this limitation, the committee will determine the expiration
dates of the options. Options may be exercised at any time, or from time to
time, within their terms, in whole or in part, or otherwise as shall be
determined by the committee. Upon exercise, the option price shall be payable in
cash or the equivalent fair market value of the Company's Common Stock or
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any combination of both as shall be determined by the committee at the time the
option is granted.
8. LISTING AND REGISTRATION. The Company, in its discretion, may postpone
the issuance and delivery of shares upon any exercise of an option until
completion of such stock exchange listing, or registration or other
qualification of such shares under any state or federal law, rule or regulation
as the Company may consider appropriate; and may require any person exercising
an option to make such representations and furnish such information as it
considers appropriate in connection with the issuance of the shares in
compliance with applicable law, including, without limitation, federal laws
regulating the sale or issuance of securities.
9. FORM OF OPTIONS AND CONDITIONS TO THEIR EXERCISE. The options shall
conform to the provisions of this Plan and shall otherwise be as determined by
the committee. The options by their terms will provide that they will not be
transferable by the grantee otherwise than by will or the laws of descent and
distribution and that each is exercisable, during the lifetime of the grantee,
only by him.
An option may be exercised only if at all times during the period beginning
with the date of the granting of the option and ending on the day three months
before the date of such exercise, the grantee was an employee of either the
Company or of a parent or subsidiary corporation of the Company; provided,
however, the option may also be exercised for up to one year after the
employment termination date if the grantee is disabled within the meaning of
Section 37(e)(3) of the Code, but in no event at a date later than the
termination date of the option. If the grantee should die at any time when any
portion of the option shall be exercisable by him, the option will be
exercisable in whole or in part during the next year succeeding his death by the
person or persons to whom his rights under the option shall have passed by will
or by the laws of descent and distribution, but in no event at a date later than
the termination date of the option.
10. AMENDMENT OF PLAN. The Plan may be amended at any time by the Board of
Directors provided that (except pursuant to Section 5) no amendment made without
approval of the shareholders of the Company shall increase the total number of
shares which may be issued under options granted pursuant to the Plan, or reduce
the minimum option price, or extend the latest date upon which options may be
granted or shall be exercisable, or change the class of employees eligible to
receive options.
11. CODE REFERENCES. References to sections of the Code shall include any
amendments of the Code section or any section that may be substituted for such
section.
12. WITHHOLDING REQUIREMENTS. An optionee's right to exercise options in
accordance with this Plan shall be subject to the delivery to the Company by the
optionee at the time of exercise, or at such earlier or later time as applicable
law or regulation permit or require, such amount as the Company or its
subsidiaries shall be required to withhold from optionee in satisfaction of
federal, state or local tax withholding requirements.
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Exhibit 12
DAKA STOCK PURCHASE PLAN
The purpose of the DAKA Stock Purchase Plan ("the Plan") is to provide
eligible associates of DAKA International, Inc. (the "Company") and certain of
its subsidiaries with opportunities to purchase shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"). Four hundred thousand
(400,000) shares of Common Stock in the aggregate have been approved and
reserved for this purpose. The Plan is intended to constitute an "employee stock
purchase plan" within the meaning of Section 423(b) of the Internal Revenue Code
of 1986, as amended (the "Code"), and shall be interpreted in accordance with
that intent.
1. ADMINISTRATION. The Plan will be administered by the person or persons
(the "Administrator") appointed by the Company's Board of Directors (the
"Board") for such purpose. The Administrator has authority to make rules and
regulations for the administration of the Plan, and its interpretations and
decisions with regard thereto shall be final and conclusive. No member of the
Board or individual exercising administrative authority with respect to the Plan
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
2. OFFERINGS. The Company will make one or more offerings to eligible
associates to purchase Common Stock under the Plan ("Offerings"). Unless
otherwise determined by the Administrator, the initial Offering will begin on
January 2, 1997 and will end on March 31, 1997. Thereafter, unless otherwise
determined by the Administrator, an Offering will begin on the first business
day occurring on or after each April 1, July 1, October 1 and January 1 and will
end on the last business day occurring on or before the following June 30,
September 30, December 31 and March 31, respectively. The
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Administrator may, in its discretion, designate a different period for any
Offering, provided that no Offering shall exceed one year in duration or overlap
any other Offering.
3. ELIGIBILITY. All associates (i.e., employees) of the Company (including
associates who are also directors of the Company) and all associates of each
Designated Subsidiary (as defined in Section 11) are eligible to participate in
any one or more of the Offerings under the Plan, provided that as of both the
first day of the applicable Offering (the "Offering Date") and such earlier
date, not more than fifteen (15) business days prior to the Offering Date, as
shall be established for the Offering, they are customarily employed by the
Company or a Designated Subsidiary for more than twenty (20) hours a week.
Notwithstanding the foregoing, participation in the Plan will neither be
permitted nor be denied contrary to the requirements of the Code.
4. PARTICIPATION. An associate eligible for any Offering may participate in
such Offering by submitting an enrollment form to his appropriate payroll
location at least fifteen (15) business days before the Offering Date (or by
such other deadline as shall be established for the Offering). The form will (a)
state an amount to be deducted from his Compensation (as defined in Section 11)
per pay period, (b) authorize the purchase of Common Stock for him in each
Offering in accordance with the terms of the Plan and (c) specify the exact name
or names in which shares of Common Stock purchased for him are to be issued
pursuant to Section 10. An associate who does not enroll in accordance with
these procedures will be deemed to have waived his right to participate. Unless
an associate files a new enrollment form or withdraws from the Plan, his
deductions and purchases will continue at the same amount of Compensation for
future Offerings, provided he remains eligible. Notwithstanding
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the foregoing, participation in the Plan will neither be permitted nor be denied
contrary to the requirements of the Code.
5. ASSOCIATE CONTRIBUTIONS. Each eligible associate may authorize payroll
deductions at a minimum of ten dollars ($10.00) per week up to a maximum of
fifty percent (50%) of his Compensation for each pay period. The Company will
maintain book accounts showing the amount of payroll deductions made by each
participating associate for each Offering. No interest will accrue or be paid on
payroll deductions.
6. DEDUCTION CHANGES. Except as may be determined by the Administrator in
advance of an Offering, an associate may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least fifteen (15) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering). The Administrator may, in advance of any Offering, establish
rules permitting an associate to increase, decrease or terminate his payroll
deduction during an Offering.
7. WITHDRAWAL. An associate may withdraw from participation in the Plan by
delivering a written notice of withdrawal to his appropriate payroll location.
If received at least fifteen (15) business days before the last day of an
Offering (or by such other deadline as shall be established in advance of the
Offering), the associate's withdrawal will be effective as of the next business
day; if received after such deadline, the associate's withdrawal will be
effective on the first day of the next Offering. Following an associate's
withdrawal, the Company will promptly refund to him his entire account balance
under the Plan (after payment for any Common Stock purchased before the
effective date of
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withdrawal). Partial withdrawals are not permitted. The associate may not begin
participation again during the remainder of the Offering, but may enroll in a
subsequent Offering in accordance with Section 4.
8. GRANT OF OPTIONS. On each Offering Date, the Company will grant to each
eligible associate who has not previously waived his right to participate in
such Offering an option ("Option") to purchase on the last day of such Offering
(the "Exercise Date"), at the Option Price hereinafter provided for, a maximum
of six hundred (600) shares of Common Stock reserved for the purposes of the
Plan, or such other maximum number of shares as shall have been established by
the Administrator in advance of the Offering. The purchase price for each share
purchased under such Option (the "Option Price") will be a certain percentage of
the Fair Market Value of the Common Stock on the Offering Date or the Exercise
Date, whichever is less. Such percentage will be determined by the Board in
advance of such Offering Date and will be between 85% and 100% of the Fair
Market Value of the Common Stock, inclusive. Notwithstanding the foregoing, no
associate may be granted an option hereunder if such associate, immediately
after the option was granted, would be treated as owning stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any Parent or Subsidiary (as defined in Section 11).
For purposes of the preceding sentence, the attribution rules of Section 424(d)
of the Code shall apply in determining the stock ownership of an associate, and
all stock which the associate has a contractual right to purchase shall be
treated as stock owned by the associate. In addition, no associate may be
granted an Option which permits his rights to purchase stock under the Plan, and
any other employee stock purchase plan of the Company and its Parents
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and Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market
value of such stock (determined on the option grant date or dates) for each
calendar year in which the Option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of the
Code.
9. EXERCISE OF OPTION AND PURCHASE OF SHARES. Each associate continues to
be a participant in the Plan on the Exercise Date shall be deemed to have
exercised his Option on such date and shall acquire from the Company such number
of whole shares of Common Stock reserved for the purpose of the Plan as his
accumulated payroll deductions on such date will purchase at the Option Price,
subject to any other limitations contained in the Plan. Except as otherwise
determined by the Administrator in advance of an Offering, any amount remaining
in an associate's account at the end of an Offering solely by reason of the
inability to purchase a fractional share will be carried forward to the next
Offering; any other balance remaining in an associate's account at the end of an
Offering will be refunded to the associate promptly.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the associate,
in the name of the associate and another person of legal age as joint tenants
with rights of survivorship, or in the name of a broker authorized by the
associate to be his, or their, nominee for such purpose.
11. Definitions.
-----------
The term "Compensation" means the amount of base pay, prior to salary
reduction pursuant to either Section 125 or 401(k) of the Code, but excluding
overtime, commissions, incentive or bonus awards, allowances and reimbursements
for expenses such as relocation
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allowances or travel expenses, income or gains on the exercise of Company stock
options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary (as
defined below) that has been designated by the Board to participate in the Plan.
The Board may so designate any Subsidiary, or revoke any such designation, at
any time and from time to time, either before or after the Plan is approved by
the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the Common
Stock is admitted to trading on a national securities exchange or the Nasdaq
National Market, the closing price reported for the Common Stock on such
exchange or system for such date or, if no sales were reported for such date,
for the next preceding date for which a sale was reported, or (ii) if clause (i)
does not apply but the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
average of the highest bid and lowest asked prices reported for the Common Stock
on NASDAQ for such date or, if no bid and asked prices were reported for such
date, for the next preceding date for which such prices were reported.
The term "Parent" means a "parent corporation" with respect to the Company,
as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. RIGHTS ON TERMINATION OF EMPLOYMENT. If a participant's employment
terminates for any reason before the Exercise Date for any Offering, no payroll
deduction will be taken from any pay due and owing to the participant and the
balance in his account will be paid to him as if he had withdrawn from the Plan
under Section 7. An associate will
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be deemed to have terminated employment, for this purpose, if the corporation
that employs him, having been a Designated Subsidiary, ceases to be a
Subsidiary, or if the associate is transferred to any corporation other than the
Company or a Designated Subsidiary.
13. SPECIAL RULES. Notwithstanding anything herein to the contrary, the
Administrator may adopt special rules applicable to the associates of a
particular Designated Subsidiary, whenever the Administrator determines that
such rules are necessary or appropriate for the implementation of the Plan in a
jurisdiction where such Designated Subsidiary has associates; provided that such
rules are consistent with the requirements of Section 423(b) of the Code. Such
special rules may include (by way of example, but not by way of limitation) the
establishment of a method for associates of a given Designated Subsidiary to
fund the purchase of shares other than by payroll deduction, if the payroll
deduction method is prohibited by local law or is otherwise impracticable. Any
special rules established pursuant to this Section 13 shall, to the extent
possible, result in the associates subject to such rules having substantially
the same rights as other participants in the Plan.
14. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
associate nor the deductions from his pay shall constitute such associate a
holder of the shares of Common Stock covered by an Option under the Plan until
such shares have been purchased by and issued to him.
15. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not transferable by
a participant other than by will or the laws of descent and distribution, and
are exercisable during the associate's lifetime only by the associate.
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16. APPLICATION OF FUNDS. All funds received or held by or on behalf of the
Company under the Plan may be combined with other corporate funds and may be
used for any corporate purpose.
17. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for the Plan, and the share
limitation set forth in Section 8, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Administrator.
In the event of any other change affecting the Common Stock, such adjustment
shall be made as may be deemed equitable by the Administrator to give proper
effect to such event.
18. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend the Plan in any respect, except that without the approval, within
twelve (12) months of such Board action, by the holders of a majority of the
shares of stock of the Company present or represented and entitled to vote at a
meeting of stockholders, no amendment shall be made increasing the number of
shares approved for the Plan or making any other change that would require
stockholder approval in order for the Plan, as amended, to qualify as an
"employee stock purchase plan" under Section 423(b) of the Code.
19. INSUFFICIENT SHARES. If the total number of shares of Common Stock that
would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
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20. TERMINATION OF THE PLAN. The Plan may be terminated at any time by the
Board. Upon termination of the Plan, all amounts in the accounts of participants
shall be promptly refunded.
21. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under the Plan is subject to obtaining all governmental approvals
required in connection with the authorization, issuance, or sale of such stock.
The Plan shall be governed by the law of the Commonwealth of Massachusetts
except to the extent that such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. TAX WITHHOLDING. Participation in the Plan is subject to any required
tax withholding on income of the participant in connection with the Plan. Each
associate agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the associate, including shares issuable under the Plan.
24. NOTIFICATION UPON SALE OF SHARES. Each associate agrees, by entering
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
25. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take effect
on the later of the date it is adopted by the Board or the date it is approved
by the holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at
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a meeting of stockholders, which approval must occur within twelve (12) months
of the adoption of the Plan by the Board.
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Exhibit 13
[Director Form]
AGREEMENT
---------
This Agreement, made and entered into as of the ____ day of __________,
1997 (this "Agreement"), by and between Unique Casual Restaurants, Inc., a
Delaware corporation (the "Company"), and __________________________ (the
"Indemnitee").
WHEREAS, the Board of Directors of Compass Group, plc, a public limited
company incorporated in England and Wales ("Compass"), has approved a tender
offer pursuant to which Compass Holdings, Inc., a Delaware corporation and
wholly owned subsidiary of Compass ("Compass Holdings"), will offer to purchase
for cash (the "Offer") any and all of the shares of common stock, par value $.01
per share (the "International Common Stock"), of DAKA International, Inc., a
Delaware corporation and the parent corporation of the Company
("International"), subject to the terms and conditions contained in that certain
Agreement and Plan of Merger dated as of May __, 1997 (the "Merger Agreement")
by and among Compass, Compass Holdings, Compass Interim, Inc., a Delaware
corporation and wholly owned subsidiary of Compass Holdings ("Compass Interim"),
and International; and
WHEREAS, the Board of Directors of International has approved a plan of
contribution and distribution as described in that certain Reorganization
Agreement dated as of May __, 1997 (the "Reorganization Agreement") by and among
International, Daka, Inc., a Massachusetts corporation and wholly owned
subsidiary of International ("Daka"), the Company, Compass and Compass Holdings,
pursuant to which, prior to consummation of the Offer, (a) all of the assets and
liabilities of the restaurant business currently operated by International and
certain other assets and liabilities of International, together with the shares
of its subsidiaries not engaged in the food catering, contract catering and
vending business, will be contributed (all such assets and liabilities being
referred to herein collectively as the "Restaurant Business") to the Company
(the "Contribution"), and (b) all of the Common Stock, par value $.01 per share,
of the Company (the "Company Common Stock") will be distributed on a pro rata
basis to the holders of International Common Stock (the "Distribution"); and
WHEREAS, the directors (including the Independent Directors (as defined
in the Merger Agreement)) and officers of International are entitled to
indemnification and advancement of expenses pursuant to and in accordance with
the terms and conditions of International's Certificate of Incorporation, as
amended, as in effect on the date hereof (the "International Certificate
Indemnification Provisions"), and International's Bylaws, as amended, as in
effect on the date hereof (the "International Bylaws Indemnification Provisions"
and, together with the International Certificate Indemnification Provisions, the
"International Indemnification Provisions"); and
WHEREAS, the directors and officers of Daka are entitled to
indemnification and advancement of expenses pursuant to and in accordance with
the terms and conditions of the International Indemnification Provisions by
virtue of their serving as directors and officers of Daka at the request of
International; and
<PAGE> 2
WHEREAS, certain of the directors and officers of International and
Daka prior to consummation of the Offer and the Independent Directors are or
will be directors and officers of the Company following consummation of the
Offer (the "Company Directors and Officers"); and
WHEREAS, International is a party in the action entitled VENTURINO ET
AL. V. DAKA INTERNATIONAL, INC. AND WILLIAM H. BAUMHAUER in the United States
District Court for the District of Massachusetts, Civil Action No. 96-12109-GAO
(the "District Court Action"), which District Court Action relates to facts and
circumstances that occurred prior to the date of the Reorganization Agreement
and the Merger Agreement and does not relate to the Contribution, Distribution
or Merger or any of the other transactions contemplated thereby; and
WHEREAS, the Board of Directors of International has determined that
the District Court Action is without merit and that it is in the best interests
of International and its stockholders that International vigorously defend
itself in the District Court Action; and
WHEREAS, in connection with the District Court Action, the Company
Directors and Officers who are or were directors or officers of International
and/or Daka prior to consummation of the Offer may incur expenses in connection
with their defense, if required, in the District Court Action or with serving as
a witness in the District Court Action, or for other reasons arising in
connection with or resulting from their service as a director or officer of
International and/or Daka; and
WHEREAS, as a condition to the willingness of Compass to enter into the
Merger Agreement and make the Offer, Compass has required the Company Directors
and Officers to first seek indemnification from the Company for any losses or
expenses incurred by any of them arising out of their service to and activities
on behalf of International and Daka; and
WHEREAS, the Boards of Directors of Compass, Compass Holdings, Compass
Interim, International, the Company and Daka have determined that, following the
Contribution and Distribution, the merger of Compass Interim with and into
International (the "Merger") with International as the surviving corporation
(the "Surviving Corporation") would be advantageous and beneficial to and in the
best interests of their respective corporations and stockholders; and
WHEREAS, highly competent persons justifiably are reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
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<PAGE> 3
WHEREAS, the Company Directors and Officers are reluctant to serve the
Company as directors, officers or in other capacities unless they are provided
with adequate protection through adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of International (as the parent corporation to the Company,
and as the corporation from whom all of the assets of the Company will be
contributed pursuant to the Contribution) prior to consummation of the Offer
and, in the case of the Company Directors and Officers who also are or were
Independent Directors, prior to the effective time of the Merger; and
WHEREAS, Section 145 of the Delaware General Corporation Law (the
"DGCL") provides that for purposes of said Section, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation absorbed in a consolidation or merger which, if its
separate existence had continued, would have had the power and authority to
indemnify its directors and officers, so that any person who is or was a
director or officer of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director or officer of another
corporation, shall stand in the same position under said Section with respect to
the resulting or surviving corporation as he or she would have with respect to
such constituent corporation if its separate existence had continued; and
WHEREAS, Section 145 of the DGCL and the International Indemnification
Provisions provide that a person shall be entitled to indemnification and
advancement of expenses by reason of the fact that he is or was serving as a
director or officer of International or is or was serving at the request of
International as a director or officer of another corporation, including Daka;
and
WHEREAS, as of the date hereof, International is the parent of the
Company and the Company is a wholly owned subsidiary of International, and
International will be a predecessor corporation to the Company and the Company
will be a successor corporation to International by virtue of the Contribution,
pursuant to which all of the assets and liabilities of the Restaurant Business
of International will be contributed to the Company pursuant to the
Contribution; and
WHEREAS, in connection with the Distribution, all of the Company Common
Stock will be distributed on a pro rata basis to the holders of International
Common Stock such that, immediately following the Distribution, all of the
stockholders of International will also be stockholders of the Company; and
WHEREAS, prior to consummation of the Offer, the Company Directors and
Officers were serving as directors and/or officers of the Company at the request
of International; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, if necessary to attract and retain qualified individuals, the
Company may from time to time attempt to maintain, at its sole expense,
directors and officers liability insurance to protect persons serving the
Company and its subsidiaries from certain liabilities. Although the
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<PAGE> 4
furnishing of such insurance has been a customary and widespread practice among
United States-based corporations and other business enterprises, the Company
believes that, given current market conditions and trends, such insurance may be
available to it in the future only at higher premiums and with more exclusions
and as such, the procurement and maintenance of such insurance may or may not be
in the best interests of the Company. At the same time, directors, officers, and
other persons in service to corporations and other business enterprises are
frequently subjected to expensive and time-consuming litigation relating to,
among other things, matters that traditionally would have been brought only
against the corporation or business enterprise itself; and
WHEREAS, directors and officers liability insurance, even when in
effect, is not always sufficient in and of itself to provide adequate
indemnification to directors and officers; and
WHEREAS, the expense and burden of defending against claims made
against directors and officers may be so prohibitive as to render it practically
impossible or unfairly burdensome for directors and officers to wholly or even
partially fund the defense of such claims even if the director or officer is
wholly innocent of any wrongdoing and acted properly and prudently in his or her
service to and activities on behalf of the corporation, thereby making mandatory
advancement of expenses in such litigation an essential element of
indemnification; and
WHEREAS, highly competent persons justifiably are reluctant to serve as
directors and officers without assurance that adequate indemnification,
including advancement of expenses, will continue to be available in the event of
a change in control of the corporation; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
qualified persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining qualified persons is detrimental to the best interests
of the Company's stockholders and the Company should act to assure such
qualified persons that there will be increased certainty of protection in the
future; and
WHEREAS, the Company's By-laws require the Company to indemnify its
directors and officers to the fullest extent permitted by law and permits it to
make other indemnification arrangements and agreements; and
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the Company's By-laws or any change in the ownership of the
Company or the composition of the Board), which indemnification is intended to
supplement that which is afforded by the Company's By-laws and, to the extent
insurance is available, the coverage of Indemnitee under the Company's directors
and officers liability insurance policy; and
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<PAGE> 5
WHEREAS, for all of the foregoing reasons, it is reasonable, prudent
and necessary for the Company to obligate itself contractually to indemnify its
directors and officers to the fullest extent permitted by applicable law so that
they will serve or continue to serve the Company free from undue concern that
they will not be so indemnified, whether claims against such directors and
officers may arise from or relate to service as a director or officer of the
Company from and after consummation of the Offer or as a director or officer of
International prior to consummation of the Offer or as an Independent Director;
and
WHEREAS, Indemnitee is willing to serve, to continue to serve and to
take on additional service for or on behalf of the Company on the condition that
Indemnitee be so indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. SERVICES BY INDEMNITEE. In consideration of the Company's
covenants and commitments hereunder, Indemnitee agrees to serve or to continue
to serve as a director of the Company. Notwithstanding the foregoing, this
Agreement shall not impose any obligation on Indemnitee or the Company to
continue Indemnitee's service to the Company beyond any period otherwise
required by law or by other agreements or commitments of the parties, if any.
The foregoing notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as a director of the Company.
Section 2. INDEMNIFICATION - GENERAL. The Company shall advance
Expenses (as hereinafter defined) to and indemnify Indemnitee as provided in
this Agreement and (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the Effective Date (as
hereinafter defined) and to such greater extent as applicable law may thereafter
from time to time permit. In the event that a change in applicable law after the
Effective Date permits such broader indemnification, this Agreement shall be
deemed to be amended to such extent.
Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY OR INTERNATIONAL. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 3 if, by reason of Indemnitee's
Corporate Status (as hereinafter defined), Indemnitee is, or is threatened to be
made, a party to or participant in any threatened, pending or completed
Proceeding (as hereinafter defined), other than a Proceeding by or in the right
of the Company (or International, in connection with any Proceeding or any
claim, issue or matter therein relating to Indemnitee's Corporate Status as a
person who was an Independent Director or a director, officer, employee or agent
of International prior to consummation of the Offer or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person was serving at the request of International prior to
consummation of the Offer and, in the case of the Independent Directors, prior
to the effective time of the Merger). Pursuant to this Section 3, Indemnitee
shall be indemnified against Expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by
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<PAGE> 6
Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any
claim, issue or matter therein, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company (or International, in connection with any Proceeding or
any claim, issue or matter therein relating to Indemnitee's Corporate Status as
a person who was an Independent Director or a director, officer, employee or
agent of International prior to consummation of the Offer or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person was serving at the request of International prior
to consummation of the Offer and, in the case of the Independent Directors,
prior to the effective time of the Merger), and, with respect to any criminal
Proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful.
Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY OR
INTERNATIONAL. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of Indemnitee's Corporate Status,
Indemnitee is, or is threatened to be made, a party to or participant in any
threatened, pending or completed Proceeding brought by or in the right of the
Company (or International, in connection with any Proceeding or any claim, issue
or matter therein relating to Indemnitee's Corporate Status as a person who was
an Independent Director or a director, officer, employee or agent of
International prior to consummation of the Offer or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person was serving at the request of International prior to
consummation of the Offer and, in the case of the Independent Directors, prior
to the effective time of the Merger) to procure a judgment in its favor.
Pursuant to this Section 4, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company (or International, in connection with any Proceeding or
any claim, issue or matter therein relating to Indemnitee's Corporate Status as
a person who was an Independent Director or a director, officer, employee or
agent of International prior to consummation of the Offer or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person was serving at the request of International prior
to consummation of the Offer and, in the case of the Independent Directors,
prior to the effective time of the Merger). Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company (or International, in connection with any
Proceeding or any claim, issue or matter therein relating to Indemnitee's
Corporate Status as a person who was an Independent Director or a director,
officer, employee or agent of International prior to consummation of the Offer
or of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person was serving at the request of
International prior to consummation of the Offer and, in the case of the
Independent Directors, prior to the effective time of the Merger) if applicable
law prohibits such indemnification; PROVIDED, HOWEVER, that, if applicable law
so permits, indemnification against Expenses shall nevertheless be made by the
Company in such event if and only to the extent
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<PAGE> 7
that the Court of Chancery of the State of Delaware (the "Delaware Court"), or
another court in which such Proceeding shall have been brought or is pending,
shall determine.
Section 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is successful, on the merits or otherwise, in (a)
defending any Proceeding brought against Indemnitee by reason of Indemnitee's
Corporate Status or (b) prosecuting any Proceeding described in the second
sentence of Section 14 hereof, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in any
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in any such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section 5 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee
shall be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
Section 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding in which Indemnitee is involved by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses so advanced if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Such undertaking shall be an unlimited general obligation
of Indemnitee, shall be accepted by the Company without regard to the financial
ability of Indemnitee to make repayment, and in no event shall be required to be
secured.
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
a. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the
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<PAGE> 8
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board in writing that Indemnitee has requested indemnification.
b. Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 8(a) above, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a
written opinion to the Board, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination be
made by a majority vote of the Disinterested Directors (as hereinafter
defined) even though less than a quorum of the Board or by the
stockholders, in which case by the person or persons or in the manner
provided for in clause (ii) or (iii) of this Section 8(b));
(ii) if a Change of Control shall not have occurred or if
Indemnitee shall make the request referred to in clause (i) above, (A)
by a majority vote of the Disinterested Directors even though less than
a quorum of the Board, or (B) if there are no such Disinterested
Directors or if such Disinterested Directors so direct, by Independent
Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee, or (C) by the stockholders of the Company; or
(iii) as provided in Section 9(b) of this Agreement;
and, if it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within ten (10) days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, and shall provide to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Expenses incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
c. In the event that, pursuant to Section 8(b) hereof,
the determination of entitlement to indemnification is to be made by Independent
Counsel, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board, and the Company shall give written notice to
Indemnitee advising Indemnitee of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee and Indemnitee shall give written notice to the
Company advising it of the identity of the Independent Counsel so selected
(unless Indemnitee shall request that such selection be made by the Board, in
which event the preceding sentence shall apply). In either
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<PAGE> 9
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court of competent jurisdiction has determined that such
objection is without merit. If a determination of entitlement to indemnification
is to be made by Independent Counsel and, 20 days after submission by Indemnitee
of a written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition the Delaware Court or another court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by such court or by such other person as such court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with determining
entitlement to indemnification pursuant to Section 8(b) hereof. In addition, the
Company shall pay all reasonable Expenses incurred by Indemnitee in connection
with the procedures of this Section 8(c) (regardless of the manner in which such
Independent Counsel was selected or appointed and irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
10(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 9. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS.
a. If a Change of Control shall have occurred, in making
a determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
b. If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days
after receipt by the Company of Indemnitee's request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make
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Indemnitee's statements not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; PROVIDED, HOWEVER, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto and gives notice to Indemnitee
thereof; and PROVIDED, FURTHER, that the foregoing provisions of this Section
9(b) shall not apply if (i) the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 8(b) of this Agreement and
(A) within 15 days after receipt by the Company of the request for such
determination the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within 75 days after such receipt and such determination is made thereat, or (B)
a special meeting of stockholders is called within 15 days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within 60 days after having been so called and such determination is
made thereat, or (ii) the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) of this Agreement.
c. The settlement or termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company (or
International, in connection with any Proceeding or any claim, issue or matter
therein relating to Indemnitee's Corporate Status as a person who was an
Independent Director or a director, officer, employee or agent of International
prior to consummation of the Offer or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person was serving at the request of International prior to consummation of the
Offer and, in the case of the Independent Directors, prior to the effective time
of the Merger) or, with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
Section 10. REMEDIES OF INDEMNITEE.
a. In the event that:
(i) a determination is made pursuant to Section 8 of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement;
(ii) advancement of Expenses pursuant to Section 7 of this
Agreement is not made on a timely basis;
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<PAGE> 11
(iii) a determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this
Agreement and such determination shall not have been made and delivered
in a written opinion within 90 days after receipt by the Company of
Indemnitee's request for indemnification;
(iv) payment of indemnification pursuant to Section 5,
Section 6, the last sentence of Section 8(b) or the penultimate
sentence of Section 8(c) is not made within ten (10) days after receipt
by the Company of a written request therefor; or
(v) payment of indemnification pursuant to Section 3 or
Section 4 of this Agreement is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
indemnification pursuant to Section 8 of this Agreement or such
determination is deemed to have been made pursuant to Section 9(b) of
this Agreement;
Indemnitee shall be entitled to an adjudication in the Delaware Court of
Indemnitee's entitlement to such advancement of Expenses or indemnification.
Alternatively, Indemnitee, at Indemnitee's option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 10(a); PROVIDED, HOWEVER, that the foregoing clause
shall not apply in respect of a proceeding brought by Indemnitee to enforce
Indemnitee's rights under Section 5 of this Agreement. The Company shall not
oppose Indemnitee's right to seek any such adjudication or award in arbitration.
b. In the event that a determination shall have been
made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
advancement of Expenses or indemnification, as the case may be.
c. If a determination that Indemnitee is entitled to
indemnification shall have been made or shall have been deemed to have been made
pursuant to Section 8 or Section 9 of this Agreement, the Company shall be bound
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statements not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
11
<PAGE> 12
d. The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 10 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
e. In the event that Indemnitee, pursuant to this
Section 10, seeks a judicial adjudication of or an award in arbitration to
enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 17 of this Agreement)
actually and reasonably incurred by Indemnitee in such judicial adjudication or
arbitration, but only if and to the extent Indemnitee prevails therein. If it
shall be determined in such judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the advancement of Expenses or
indemnification sought, the expenses incurred by Indemnitee in connection with
such judicial adjudication or arbitration shall be appropriately prorated.
Section 11. NON-EXCLUSIVITY; INSURANCE; SUBROGATION.
a. The rights of indemnification and to receive
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the Company's Certificate of Incorporation or By-laws, any
agreement, any vote of stockholders or resolution of directors, or otherwise.
b. To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company (or for any person who
was an Independent Director or a director, officer, employee or agent of
International prior to consummation of the Offer or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person was serving at the request of International prior to
consummation of the Offer and, in the case of the Independent Directors, prior
to the effective time of the Merger), Indemnitee shall be covered by such policy
or policies in accordance with its or their terms to the maximum extent of the
coverage available for any such director, officer, employee or agent under such
policy or policies.
c. In the event of any payment to Indemnitee under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who, at the written request of the
Company, shall take all reasonable action necessary to secure such rights,
including the execution of such documents as are necessary to enable the Company
to bring suit to enforce such rights.
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<PAGE> 13
d. The Company shall not be liable under this Agreement
to make any payment of amounts otherwise indemnifiable hereunder or for which
advancement is provided hereunder if and to the extent that Indemnitee has
otherwise actually received such amounts from another source under an insurance
policy, contract, agreement or otherwise.
e. The Company's obligation hereunder to advance
Expenses to or indemnify Indemnitee as a result of Indemnitee's service at the
request of the Company as a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise (or, prior to consummation of the Offer, at the request of
International and, in the case of the Independent Directors, at the request of
International prior to the effective time of the Merger) shall be reduced by any
amount Indemnitee actually collects as advancement of Expenses or
indemnification from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
Section 12. DURATION OF AGREEMENT; SUCCESSORS. This Agreement shall be
effective as of the Effective Date and shall continue until and terminate upon
the later of (a) the date that is 10 years after the date that Indemnitee shall
have ceased to serve as a director, or (b) the date of the final termination
(including all appeals) of all pending Proceedings in respect of which
Indemnitee may be entitled to advancement of Expenses or indemnification
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
of this Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law ) and shall insure to the benefit of Indemnitee and
Indemnitee's heirs, executors, personal representatives and administrators. This
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
Section 13. SEVERABILITY. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable for any reason whatsoever, (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, (b) such invalid, illegal or unenforceable provision shall be deemed
reformed to the extent necessary to conform to applicable law and to give
maximum effect to the intent of the parties hereto, and (c) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 14. EXCEPTION TO RIGHT TO ADVANCEMENT OF EXPENSES AND
INDEMNIFICATION. Notwithstanding any other provision of this Agreement (but
without limiting the operation of
13
<PAGE> 14
Section 10(e) and subject to the next sentence), and except as otherwise
prohibited by law or by the Company's Certificate of Incorporation or By-laws,
Indemnitee shall not be entitled to advancement of Expenses or indemnification
under this Agreement with respect to any Proceeding, or any claim therein,
brought or made by Indemnitee against the Company unless such Proceeding, or
claim therein, shall have been approved in writing in advance of the filing of
such Proceeding, or claim therein, by or at the direction of the Board.
Notwithstanding the preceding sentence, Indemnitee shall be entitled to
advancement of Expenses and indemnification under this Agreement with respect to
any Proceeding, or any claim therein, brought or made by Indemnitee against the
Company to recover and receive any amounts or benefits due to Indemnitee
pursuant to (a) the Company's Certificate of Incorporation or By-laws, (b) any
agreement, arrangement or understanding between Indemnitee and the Company, or
(c) any agreement, arrangement or understanding between the Company and any
third party for Indemnitee's benefit to the extent Indemnitee is successful
therein. The limitation contained in the first sentence of this Section 14 shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.
Section 15. PRIORITY OF INDEMNIFICATION RIGHTS AGAINST INTERNATIONAL.
Notwithstanding anything to the contrary contained in this Agreement, Indemnitee
agrees to pursue Indemnitee's rights to indemnification and advancement of
Expenses under this Agreement before pursuing or seeking to enforce any other
rights to indemnification or advancement of Expenses against or from
International or any of its successors, assigns or affiliates (excluding the
Company), as to which Indemnitee may be entitled under applicable law, the
Company's Certificate of Incorporation or Bylaws, any other agreement, any vote
of stockholders or resolution of directors, or otherwise.
Section 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 18. DEFINITIONS. For purposes of this Agreement:
a. "Change in Control" means a change in control of the
Company occurring after the Effective Date of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; PROVIDED, HOWEVER, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is
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<PAGE> 15
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest, (ii) the
Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
b. "Corporate Status" describes the status of a person
who is or was a director, officer, employee or agent of the Company (or, prior
to consummation of the Offer, of International) or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the Company (or who was,
prior to consummation of the Offer, serving at the request of International,
and, in the case of the Independent Directors, serving at the request of
International prior to the effective time of the Merger) or who is or was an
Independent Director.
c. "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
d. "Effective Date" means _______ __, 199_.
e. "Expenses" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of expert witnesses,
private investigators and professional advisors (including, without limitation,
accountants and investment bankers), travel expenses, duplicating costs,
printing and binding costs, costs of preparation of demonstrative evidence and
other courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone charges,
postage, delivery service fees, and all other disbursements, costs or expenses
of the type customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, being or preparing to be a
witness in, or otherwise participating in, a Proceeding.
f. "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent (i) the
Company, International (in the case of an Indemnitee who was an Independent
Director or a director, officer, employee or agent of International prior to
consummation of the Offer or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person was
serving at the request of International prior to consummation of the Offer and,
in the case of the Independent Directors, prior to the effective time of the
Merger) or Indemnitee in any matter material to
15
<PAGE> 16
either such party, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company, International (in the case of an
Indemnitee who was an Independent Director or a director, officer, employee or
agent of International prior to consummation of the Offer or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person was serving at the request of International prior
to consummation of the Offer and, in the case of the Independent Directors,
prior to the effective time of the Merger) or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
g. "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding, whether civil, criminal, administrative or investigative,
except one initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights under this Agreement.
Section 19. MODIFICATION AND WAIVER. Except as specifically provided in
Section 2 of this Agreement with respect to changes in applicable law, no
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No amendment, alteration or termination of this Agreement or
any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by Indemnitee in Indemnitee's Corporate Status prior to
such amendment, alteration or termination.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees to notify the
Company in writing promptly upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may result in advancement of Expenses or
indemnification hereunder; PROVIDED, HOWEVER, that the failure to give any such
notice shall not disqualify Indemnitee from the right to receive advancements of
Expenses or to be indemnified hereunder unless the Company's ability to defend
in such Proceeding is materially and adversely prejudiced.
Section 21. NOTICES IN GENERAL. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if (a) delivered by hand and receipted for by the party to whom
such notice or other communication shall have been directed, (b) transmitted by
facsimile and receipt is acknowledged, or (c) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
If to Indemnitee, to:
---------------------
---------------------
---------------------
16
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Attn:
----------------
If to the Company to:
---------------------
---------------------
---------------------
Attn:
----------------
or such other address as may have been furnished in the manner provided in this
Section 20 to Indemnitee by the Company or to the Company by Indemnitee, as the
case may be.
Section 22. CONTRIBUTION. If the indemnification provided for in this
Agreement is unavailable to Indemnitee for any reason whatsoever, the Company,
in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee to the fullest extent permissible under applicable law, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (a) the relative benefits received by the Company and Indemnitee as a
result of the events and transactions giving rise to such Proceeding, and (b)
the relative fault of the Company (and its directors, officers, employees and
agents) and Indemnitee in connection with such events and transactions.
Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, each of the Company and Indemnitee hereby
irrevocably and unconditionally (a) agrees that any action or proceeding arising
out of or in connection with this Agreement shall be brought only in the
Delaware Court and not in any other state or federal court in the United States
of America or any court in any other country, (b) consents to submit to the
exclusive jurisdiction of the Delaware Court for purposes of any action or
proceeding arising out of or in connection with this Agreement, irrevocably
appoints, to the extent such party is not a resident of the State of Delaware,
___________________________________ as its agent in the State of Delaware as
such party's agent for acceptance of legal process in connection with any such
action or proceeding against such party, with the same legal force and validity
as if served upon such party personally within the State of Delaware, (d) waives
any objection to the laying of venue of any such action or proceeding in the
Delaware Court, and (e) waives, and agrees not to plead or to make, any claim
that any such action or proceeding brought in the Delaware Court has been
brought in an improper or otherwise inconvenience forum.
Section 24. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Indemnitee that (a) the Company has all
necessary power and authority to enter into, and be bound by the terms of, this
Agreement, and the execution,
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<PAGE> 18
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company, and (b) this Agreement, when executed and
delivered by the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the enforcement of creditors' rights generally.
Section 25. DEFENSE OF UNDERLYING PROCEEDINGS.
a. NOTICE BY INDEMNITEE. Indemnitee agrees to notify the
Company promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any Proceeding
which may result in the Company being obligated to indemnify Indemnitee or
advance Indemnitee Expenses as provided in this Agreement; provided, however,
that the failure to give any such notice shall not disqualify Indemnitee from
the right to receive such indemnification or advancement of Expenses unless the
Company's ability to defend in such Proceeding is materially and adversely
prejudiced.
b. DEFENSE BY COMPANY. Subject to the provisions of the
last sentence of this Section 24(b) and of Section 24(c) hereof, the Company
shall have the right to defend Indemnitee in any Proceeding which may result in
the Company being obligated to indemnify Indemnitee or advance Indemnitee
Expenses as provided in this Agreement; provided, however that the Company shall
notify Indemnitee of any such decision to defend within ten (10) days of receipt
of notice of any such Proceeding under Section 24(a) hereof. The Company shall
not, without the prior written consent of Indemnitee, consent to the entry of
any judgment against Indemnitee or enter into any settlement or compromise which
does not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which release shall
be in form and substance satisfactory to Indemnitee. This Section 24(b) shall
not apply to a Proceeding brought by Indemnitee under Sections 10 or 14 hereof.
c. INDEMNITEE'S RIGHT TO COUNSEL. Notwithstanding the
provisions of Section 24(b) hereof, if in a Proceeding to which Indemnitee is a
party by reason of Indemnitee's Corporate Status, Indemnitee has separate
defenses or counterclaims to assert with respect to any issue which may not be
consistent with the position of other defendants in such Proceeding, Indemnitee
shall be entitled to be represented by separate legal counsel of Indemnitee's
choice at the expense of the Company. In addition, if the Company fails to
comply with any of its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this Agreement void or
unenforceable, or institutes any action, suit or proceeding to deny or to
recover from Indemnitee the benefits intended to be provided to Indemnitee
hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's
choice, at the expense of the Company, to represent Indemnitee in connection
with any such matter.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: UNIQUE CASUAL RESTAURANTS, INC.
By: By:
------------------------------ ------------------------------------
Name:
Title:
INDEMNITEE
----------------------------------------
Name:
19
<PAGE> 1
Exhibit 14
REORGANIZATION AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
DAKA, INC.
UNIQUE CASUAL RESTAURANTS, INC.
COMPASS GROUP PLC
AND
COMPASS HOLDINGS, INC.
MAY 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 General......................................................................................... 2
Section 1.2 References to Time.............................................................................. 5
ARTICLE II
CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES
Section 2.1 Contribution.................................................................................... 5
Section 2.2 Transfer and Assumption......................................................................... 6
Section 2.3 Nonassignable Contracts......................................................................... 6
Section 2.4 Pro-Ration of Items as of the Offer Closing Date................................................ 7
ARTICLE III
RECAPITALIZATION OF UCRI; THE DISTRIBUTION
Section 3.1 UCRI Capitalization............................................................................. 7
Section 3.2 Recapitalization of UCRI........................................................................ 7
Section 3.3 Effectiveness of the Distribution............................................................... 7
Section 3.4 Mechanics of the Distribution................................................................... 7
Section 3.5 Cooperation..................................................................................... 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of UCRI.......................................................... 9
Section 4.2 Representations and Warranties of International and Daka........................................ 9
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
Section 5.1 UCRI Board...................................................................................... 10
Section 5.2 Contractual Arrangements........................................................................ 10
Section 5.3 Intercompany Services........................................................................... 11
Section 5.4 Insurance....................................................................................... 11
ARTICLE VI
ACCESS TO INFORMATION
Section 6.1 Provision of Corporate Records.................................................................. 11
Section 6.2 Access to Information........................................................................... 12
Section 6.3 Retention of Records............................................................................ 13
Section 6.4 Confidentiality................................................................................. 13
Section 6.5 Reimbursement................................................................................... 14
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
ARTICLE VII
EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS
<S> <C> <C>
Section 7.1 Employment Matters.............................................................................. 14
Section 7.2 Daka Savings Plan............................................................................... 14
Section 7.3 Welfare Plans................................................................................... 14
Section 7.4 Stock Options and Employee Stock Purchase Plan.................................................. 16
(a) Employee and Director Stock Options......................................................... 16
(b) Adjustment of International Options......................................................... 16
Section 7.5 Transfer to UCRI of Corporate-Owned Life Insurance Policies..................................... 17
Section 7.6 Vacation Pay and Sick Leave Pay................................................................. 17
Section 7.7 Change of Plan Sponsor.......................................................................... 17
Section 7.8 Severance Pay................................................................................... 18
Section 7.9 Collective Bargaining Agreements; Labor Relations Matters; Withdrawal Liability................. 18
Section 7.10 Preservation of Rights to Amend or Terminate Benefit Plans...................................... 19
Section 7.11 Other Liabilities............................................................................... 19
Section 7.12 Compliance...................................................................................... 19
ARTICLE VIII
TAX MATTERS
Section 8.1 Tax Matters..................................................................................... 20
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Obligations of International...................................................... 20
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Further Assurances.............................................................................. 21
Section 10.2 Survival of Agreements.......................................................................... 22
Section 10.3 Entire Agreement................................................................................ 22
Section 10.4 Expenses........................................................................................ 22
Section 10.5 Governing Law................................................................................... 22
Section 10.6 Notices......................................................................................... 22
Section 10.7 Amendment and Modification...................................................................... 23
Section 10.8 Successors and Assigns; No Third-Party Beneficiaries............................................ 23
Section 10.9 Enforcement..................................................................................... 23
(a) Specific Performance........................................................................ 23
(b) Jurisdiction................................................................................ 23
Section 10.10 Counterparts.................................................................................... 23
Section 10.11 Interpretation.................................................................................. 23
Section 10.12 Termination..................................................................................... 24
</TABLE>
ii
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<TABLE>
<S> <C>
List of Schedules:
Schedule 1.1(a) List of Foodservice Assets
Schedule 1.1(b) List of Foodservice Employees
Schedule 7.6 List of Benefit Plans
Schedule 7.8 List of Collective Bargaining Agreements retained by International and the International
Affiliated Group
List of Exhibits:
Exhibit 5.1(b) Form of Indemnification Agreement
Exhibit 9.1(c)(i) Form of Smith Helms Mulliss & Moore, L.L.P. Legal Opinion
Exhibit Form of Freshfields Legal Opinion
9.1(c)(ii)
</TABLE>
iii
<PAGE> 5
REORGANIZATION AGREEMENT
This Reorganization Agreement (the "Agreement") is dated as of May 27,
1997, by and among DAKA INTERNATIONAL, INC., a Delaware corporation
("International"), DAKA, INC., a Massachusetts corporation ("Daka"), UNIQUE
CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), COMPASS GROUP PLC, a
public limited company incorporated in England and Wales ("Compass") and COMPASS
HOLDINGS, INC., a Delaware corporation ("Compass Holdings").
RECITALS:
WHEREAS, International owns all of the issued and outstanding capital stock
of Daka and all of the issued and outstanding capital stock of UCRI; and
WHEREAS, the Boards of Directors of International and Daka each have
approved, and International has entered into, an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement") by and among International,
Compass, Compass Holdings and Compass Interim, Inc., a Delaware corporation
("Compass Interim"), pursuant to which this Agreement and certain other related
agreements will be executed to accomplish the following transactions:
(i) Compass Holdings will offer to purchase for cash all of the shares
of International Common Stock subject only to the Offer Conditions
set forth in Exhibit 1.1(a) of the Merger Agreement (the "Offer");
(ii) Immediately prior to the Distribution (as defined below), (a)
Daka will distribute certain assets to International as
dividends; (b) International will assume certain liabilities of
Daka; (c) International will contribute certain assets to UCRI as
capital contributions; and (d) UCRI will assume certain
liabilities of International (the transactions described in
clauses (a), (b), (c) and (d) above are referred to collectively
as the "Contribution");
(iii) International will distribute on a pro rata basis (the
"Distribution") all of the issued and outstanding shares of $.01
par value common stock, of UCRI (the "UCRI Common Stock") to the
holders of $.01 par value common stock of International (the
"International Common Stock"); and
(iv) Compass Interim will merge with and into International (the
"Merger").
WHEREAS, the purpose of the Contribution and the Distribution is to make
possible the Merger by divesting International and Daka of businesses and
operations to be conducted by UCRI and the Restaurant Subsidiaries (as defined
below), which Compass is unwilling to acquire;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and this Agreement is intended to
be and is adopted as a plan of reorganization thereunder;
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Contribution, the Distribution and the other transactions contemplated
hereby and to set forth other agreements and the relationship of the parties
following the Contribution, the Distribution, and such other transactions;
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 GENERAL. Capitalized terms used in this Agreement not otherwise
defined herein shall have the meanings assigned thereto in the Merger Agreement.
As used in this Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Action" means any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any arbitration or other tribunal.
"Assignment and Assumption Agreement" has the meaning set forth in Section
5.2 of this Agreement.
<PAGE> 6
"Assumed Daka Liabilities" means, collectively, all Liabilities of Daka,
including but not limited to those Liabilities of Daka reflected within the
financial ledgers of Daka denoted as companies 11 and 14, except the Foodservice
Liabilities.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions located in the Commonwealth of Massachusetts are
obligated by law or executive order to close.
"CDV" means Casual Dining Ventures, Inc., a Delaware corporation.
"Champps" means Champps Entertainment, Inc., a Minnesota corporation.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Collective Bargaining Agreement" means those collective bargaining and
other labor agreements listed on Schedule 4.2(k)(iv)(C).
"Contributed Assets" means, collectively, all of those assets and
properties, tangible or intangible, of any kind and description of International
other than the Foodservice Assets (including but not limited to the Distributed
Assets and the stock of the Restaurant Subsidiaries
"Daka Bill of Sale" has the meaning set forth in Section 5.2(a) of this
Agreement.
"Distributed Assets" means all of the assets and properties, tangible or
intangible of any kind and description of Daka other than Foodservice Assets.
"Foodservice Assets" means all of the assets and properties, tangible and
intangible, listed on Schedule 1.1(a).
"Foodservice Employee" means (i) any individual who at the Offer Closing
Time is an officer or employee of any member of either Group and who is set
forth on Schedule 1.1(b) hereof (which Schedule will be updated by mutual
agreement of UCRI and Compass prior to the Offer Closing Time), and (ii) all
employees of Daka as of the Offer Closing Time, a list of whom shall be provided
by International to Compass prior to the Offer Closing Time pursuant to Section
7.1(b) excluding any employee of International or Daka located at each such
company's headquarters in Danvers, Massachusetts unless included on Schedule
1.1(b). Schedule 1.1(b) and the list provided under Section 7.1(b) shall include
a list of officers or employees actively at work and a list of individuals not
actively at work but on (i) approved leave (including, without limitation,
leaves of absence granted by reason of family leave, medical leave, short-term
disability leave, and maternity or paternity leave, in all cases which began
before the Offer Closing Time) who may become Foodservice Employees upon their
written notice to International that they are available to work or (ii) layoff
(with recall rights) from active employment, other than any individual who, as
of the Offer Closing Time, has been determined to be permanently disabled under
existing Benefit Plans of International.
"Foodservice Liabilities" means the following liabilities: (i) the Funded
Debt (as defined in Section 5.1(f) (ii) of the Merger Agreement), (ii) all
obligations of performance or payment relating to or arising after the Offer
Closing Time from the Foodservice Assets and the conduct of the Foodservice
Business (as defined in the preamble to the Merger Agreement) to be performed or
paid by the terms thereof after the Offer Closing Time, except for each of those
purchase contracts between International and Coca-Cola, Lamb Weston and Bunge,
(iii) all Liabilities relating to the employment of all Foodservice Employees
after the Offer Closing Time, and (iv) the monetary obligations of Compass under
the Series A Preferred Stock Purchase Agreement (as defined in the Merger
Agreement).
"French Quarter" means French Quarter Coffee Co., a Delaware corporation.
"Fuddruckers" means Fuddruckers, Inc., a Texas corporation.
"Great Bagel" means The Great Bagel and Coffee Company, a Delaware
corporation.
"Group" means the UCRI Group or the International Group.
"Information" has the meaning set forth in Section 6.2 of this Agreement.
"Information Statement" means the information statement to be sent to the
holders of International Common Stock in connection with the Distribution.
"Intellectual Property Agreement" means those agreements pursuant to which
International and UCRI are providing for the right of Daka to use the "French
Quarter Coffee," "Good Natured Cafe" and "Leo's Deli" names and marks.
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"International Bill of Sale" has the meaning set forth in Section 5.2(b) of
this Agreement.
"International Board" means the Board of Directors of International and
their duly elected or appointed successors.
"International Business" means any business conducted by any member of the
International Group immediately following the Offer Closing Time.
"International Documents" has the meaning set forth in Section 4.2(b) of
this Agreement.
"International Group" means International, Daka and Daka's Subsidiaries.
"International Options" has the meaning set forth in Section 7.4 of this
Agreement.
"La Salsa" means La Salsa Holding Co., a California corporation.
"Liabilities" means collectively claims, debts, liabilities, royalties,
license fees, losses, costs, expenses, deficiencies, litigation proceedings,
taxes, levies, imposts, duties, deficiencies, assessments, attorneys' fees,
charges, allegations, demands, damages, judgments or obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown and whether or not the same would
properly be reflected on a balance sheet, including all costs and expenses
relating thereto.
"Pulseback" means Pulseback, Inc., a Vermont corporation.
"Qualified Plan" means a Benefit Plan which is an employee pension benefit
plan (within the meaning of Section 3(2) of ERISA) and which constitutes or is
intended in good faith to constitute a qualified plan under Section 401(a) of
the Code.
"Record Date" means the date to be determined by the International Board,
as the record date for determining shareholders of International Common Stock
entitled to receive the Distribution.
"Restaurant Subsidiaries" means, collectively, CDV, Champps, French
Quarter, Fuddruckers, Great Bagel, Pulseback, Specialty Concepts, and La Salsa
and their Subsidiaries.
"Specialty Concepts" means Specialty Concepts, Inc., a Delaware
corporation.
"UCRI Assets" means all of the assets and properties, tangible and
intangible, of any kind, nature and scope, used or held by any member of either
Group immediately prior to the Offer Closing Time, except for the Foodservice
Assets.
"UCRI Business" means all businesses and activities conducted by any member
of either Group immediately prior to the Offer Closing Time, except for the
Foodservice Business.
"UCRI Documents" has the meaning set forth in Section 4.1(b) of this
Agreement.
"UCRI Employee" means any individual who at any time is or was an officer
or employee of any member of either Group, other than an Foodservice Employee.
"UCRI Group" means UCRI and all other Subsidiaries of UCRI.
"UCRI Liabilities" means (i) all Liabilities of either Group as of the
Offer Closing Time except the Foodservice Liabilities, (ii) all Liabilities
relating to or arising from the UCRI Business, (iii) all Liabilities relating to
the employment of all employees of either Group prior to the Offer Closing Time,
and (iv) all Assumed Daka Liabilities.
"Welfare Plan" means any Benefit Plan, which is not a Qualified Plan and
which provides medical, health, dental, disability, accident, life insurance,
death, dependent care or other welfare benefits, including any post-employment
non-cash benefits or retiree medical benefits.
SECTION 1.2 REFERENCES TO TIME. All references to times of the day in this
Agreement shall refer to Boston, Massachusetts time.
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<PAGE> 8
ARTICLE II
CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES
SECTION 2.1 CONTRIBUTION. Subject to the terms and conditions of this
Agreement, International and UCRI shall cause, immediately prior to the
Distribution:
(a) all of Daka's right, title and interest in the Distributed Assets
to be conveyed, assigned, transferred and delivered to International as a
dividend;
(b) all of Daka's duties, obligations and responsibilities under the
Assumed Daka Liabilities to be assumed by International;
(c) all of International's equity interests in the Restaurant
Subsidiaries and any other direct Subsidiaries of International other than
Daka to be conveyed, assigned, transferred and delivered to UCRI as a
capital contribution;
(d) all of International's right, title and interest in the
Contributed Assets to be conveyed, assigned, transferred and delivered to
UCRI as a capital contribution;
(e) all of the UCRI Liabilities and duties, obligations and
responsibilities thereunder to be assumed by UCRI or its Subsidiaries.
SECTION 2.2 TRANSFER AND ASSUMPTION.
(a) In connection with the conveyance, assignment, transfer and
delivery of the assets and properties and the assumption of the Liabilities
as contemplated by this Article II, (i) International and UCRI shall
execute or cause to be executed by the appropriate parties and delivered to
the appropriate parties such deeds, bills of sale, stock powers,
certificates of title, assignments of leases and contracts and other
instruments of conveyance, assignment, transfer and delivery necessary to
evidence such conveyance, assignment, transfer and delivery and (ii)
International and UCRI will execute and deliver such instruments of
assumption as and to the extent necessary to evidence such assumption.
(b) Each of the parties shall use its best efforts prior to, as of and
after the Offer Closing Time to take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate
and make effective the transactions contemplated by this Article II.
SECTION 2.3 NONASSIGNABLE CONTRACTS. Anything contained herein to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any lease, license agreement, contract, agreement, sales order, purchase
order, open bid or other commitment or asset if an assignment or attempted
assignment of the same without the consent of the other party or parties thereto
would constitute a breach thereof or in any way impair the rights of either
Group thereunder. International shall, prior to the Contribution, use its
reasonable best efforts to obtain all consents and waivers and to resolve all
impracticalities of assignments or transfers necessary to convey to UCRI and the
Restaurant Subsidiaries the assets discussed in Section 2.1. If any such consent
is not obtained or if an attempted assignment would be ineffective or would
impair either Group's rights under any such lease, license agreement, contract,
agreement, sales order, purchase order, open bid or other commitment or asset so
that UCRI or the Restaurant Subsidiaries would not receive such rights, then (i)
International shall use its reasonable best efforts to provide or cause to be
provided to UCRI or the appropriate Restaurant Subsidiary, to the extent
permitted by law, the benefits of any such lease, license agreement, contract,
agreement, sales order, purchase order, open bid or other commitment or asset,
and shall pay or cause to be paid to UCRI or the appropriate Restaurant
Subsidiary when received all moneys received by the International Group with
respect to any such lease, license agreement, contract, agreement, sales order,
purchase order, open bid or other commitment or asset and (ii) in consideration
thereof, UCRI or the appropriate Restaurant Subsidiary shall pay, perform and
discharge on behalf of the International Group all of the International Group's
debts, liabilities, obligations and commitments thereunder in a timely manner
and in accordance with the terms thereof. In addition, International shall take
such other actions as may be reasonably requested by UCRI in order to place
UCRI, insofar as reasonably possible, in the same position as if such lease,
license agreement, contract, agreement, sales order, purchase order, open bid or
other commitment or Asset had been transferred as contemplated hereby and so all
the benefits and burdens relating thereto shall inure to the UCRI Group. If and
when such consents and approvals are obtained, the transfer of the applicable
Asset shall be effected in accordance with the terms of this Agreement.
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<PAGE> 9
SECTION 2.4 PRO-RATION OF ITEMS AS OF THE OFFER CLOSING DATE. In connection
with all determinations to be made pursuant to this Agreement, the following
principles shall be applied with respect to the allocation of items between the
UCRI Business and the International Business:
(a) All accrued operating income and operating expense items of the
Foodservice Business shall be adjusted and allocated between UCRI and
International to the extent necessary to reflect the principle that all
such income and expenses attributable to the operation of the Foodservice
Business on or before the Offer Closing Time shall be for the account of
UCRI and all such income and expenses attributable to the operation of the
Foodservice Business after the Offer Closing Time shall be for the account
of International;
(b) All expenses that relate to services, facilities, personnel or
other matters provided for in the Transition Agreement as defined in the
Post-Closing Covenants Agreement shall be allocated in accordance with such
agreement without regard to generally accepted accounting principles or
other criteria; and
(c) to the extent not inconsistent with the express provisions of this
Agreement, the allocation provided in clause (a) above shall be made in
accordance with GAAP (as defined in the Post-Closing Covenants Agreement).
ARTICLE III
RECAPITALIZATION OF UCRI; THE DISTRIBUTION
SECTION 3.1 UCRI CAPITALIZATION. The authorized number of shares of capital
shares of capital stock of UCRI is 35,000,000 shares, consisting of 5,000,000
shares of Preferred Stock, $.01 par value, and 30,000,000 shares of UCRI Common
Stock. The current equity capitalization of UCRI consists of 1,000 issued and
outstanding shares of UCRI Common Stock (the "Existing UCRI Common Stock"), all
of which is owned beneficially and of record by International.
SECTION 3.2 RECAPITALIZATION OF UCRI. Immediately prior to the Offer
Closing Time, International shall cause UCRI to exchange the Existing UCRI
Common Stock owned by International for a total number of shares of UCRI Common
Stock equal to the total number of shares of International Common Stock
outstanding as of the Record Date.
SECTION 3.3 EFFECTIVENESS OF THE DISTRIBUTION. The Distribution shall be
effective as of the Offer Closing Time.
SECTION 3.4 MECHANICS OF THE DISTRIBUTION. Immediately before the Offer
Closing Time, International shall distribute all outstanding shares of UCRI
Common Stock to holders of record of International Common Stock on the Record
Date on the basis of one share of UCRI Common Stock for each share of
International Common Stock outstanding on the Record Date. All shares of UCRI
Common Stock issued in the Distribution shall be duly authorized, validly
issued, fully paid and nonassessable.
SECTION 3.5 COOPERATION.
(a) As promptly as practicable after the date hereof and not later than 10
business days prior to the Offer Closing Time:
(i) International and UCRI shall prepare, and International shall file
with the SEC and mail to the holders of the equity securities of the
International, the Information Statement, which shall set forth appropriate
disclosure concerning UCRI and its Subsidiaries, the UCRI Assets, the
Contribution, the Distribution and certain other matters. International and
UCRI shall also prepare, and International shall file with the SEC, the
Form 10 which shall include or incorporate by reference the Information
Statement and International and UCRI shall use reasonable efforts to cause
the Form 10 to be declared effective under the Exchange Act.
(ii) International and UCRI shall cooperate in preparing, filing with
the SEC and causing to become effective any registration statements or
amendments thereto which are appropriate to reflect the establishment of,
or amendments to, any employee benefit and other plans contemplated by this
Agreement.
(iii) International and UCRI shall take all such action as may be
necessary or appropriate under state securities or "Blue Sky " laws in
connection with the transactions contemplated by this Agreement.
(iv) International and UCRI shall prepare, and UCRI shall file and
seek to make effective, an application to permit listing of the UCRI Common
Stock on the Nasdaq National Market.
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<PAGE> 10
(b) In addition to the actions specifically provided for elsewhere in this
Agreement, each of the parties hereto shall use its best efforts prior to, as of
and after the Offer Closing Time to take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, using its best efforts to obtain the consents and approvals,
to enter into any amendatory agreements and to make the filings and applications
necessary or desirable to have been obtained, entered into or made in order to
consummate the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF UCRI. UCRI hereby represents
and warrants to International, Daka and Compass as follows:
(a) ORGANIZATION, STANDING AND POWER. UCRI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. UCRI has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted.
(b) AUTHORITY. UCRI has all requisite power and authority to
execute this Agreement and the Ancillary Agreements to which it is or
will be party (collectively, the "UCRI Documents") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement and the other UCRI Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of UCRI. This Agreement
has been duly executed and delivered by UCRI, and each of the other UCRI
Documents will be duly executed and delivered by UCRI at or prior to the
Offer Closing Time, and when so executed and delivered will constitute,
a legal, valid and binding obligation of UCRI enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, fraudulent conveyance, or similar laws relating to
creditors' rights and general principles of equity.
(c) NO CONFLICT. The execution, delivery and performance by UCRI of
this Agreement and by UCRI of the other UCRI Documents will not
contravene, violate, result in a breach of or constitute a default under
(i) any provision of applicable law or of the articles of incorporation
or bylaws of UCRI or any other member of the UCRI Group or (ii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to UCRI or any other member of the UCRI Group or any of their
properties or Assets.
(d) APPROVALS. No consent, approval, order, authorization of, or
registration, declaration or filing with, any governmental entity is
required in connection with the making or performance by UCRI of this
Agreement or the other UCRI Documents, except as set forth in the Merger
Agreement.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF INTERNATIONAL AND DAKA. Each
of International and Daka, jointly and severally, hereby represents and warrants
to UCRI as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of International and
Daka is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation. Each of
International and Daka has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted.
(b) AUTHORITY. Each of International and Daka has all requisite
power and authority to execute this Agreement and the Ancillary
Agreements to which it is or will be party (collectively, the
"International Documents") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the other International Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of International or Daka,
as appropriate. This Agreement has been duly executed and delivered by
each of International and Daka, and each of the other International
Documents will be duly executed and delivered by International and/or
Daka, as appropriate, at or prior to the Offer Closing Time, and when so
executed and delivered will constitute, a legal, valid and binding
obligation of International and/or Daka enforceable against
International and/or Daka in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or
similar laws relating to creditors' rights and general principles of
equity.
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<PAGE> 11
(c) NO CONFLICT. The execution, delivery and performance by
International and Daka of this Agreement and by International and Daka
of the other International Documents will not contravene, violate,
result in a breach of or constitute a default under (i) any provision of
applicable law or of the articles of incorporation or bylaws of
International or Daka or (ii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to International or Daka or any
of their properties or assets.
(d) APPROVALS. No consent, approval, order, authorization of, or
registration, declaration or filing with, any governmental entity is
required in connection with the making or performance by International
or Daka of this Agreement or the other International Documents, except
as set forth in the Merger Agreement.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
SECTION 5.1 UCRI BOARD. Prior to the Offer Closing Time, International
shall (a) take such actions as are necessary such that UCRI's Board of Directors
is comprised of those individuals named as directors in the Information
Statement and (b) execute for the benefit of all directors and officers named in
Schedule 5.1(b) an indemnification agreement substantially in the form of
Exhibit 5.1(b) hereto.
SECTION 5.2 CONTRACTUAL ARRANGEMENTS. At the Closing, effective immediately
prior to the Offer Closing Time,
(a) Daka shall execute and deliver to International a Bill of Sale,
in a form mutually reasonably agreed to between UCRI and Compass (the
"Daka Bill of Sale");
(b) International shall execute and deliver to UCRI a Bill of Sale,
in a form mutually reasonably agreed to between UCRI and Compass (the
"International Bill of Sale");
(c) UCRI, International and Daka shall enter into an Assignment and
Assumption Agreement in a form mutually reasonably agreed to between
UCRI and Compass regarding the UCRI Assets and the UCRI Liabilities (the
"Assignment and Assumption Agreement");
(d) UCRI, International, Daka and Compass shall enter into license
agreements in forms mutually reasonably agreed to among them with regard
to the use, without charge, by Compass or its Subsidiaries of the
"French Quarter Coffee," "Good Natured Cafe" and "Leo's Deli" names and
marks.
SECTION 5.3 INTERCOMPANY SERVICES. All intercompany services provided by
the UCRI Group to the International Group or by the International Group to the
UCRI Group shall terminate as of the Offer Closing Time unless otherwise
provided in any Ancillary Agreement or any other agreement contemplated thereby
or hereby.
SECTION 5.4 INSURANCE.
(a) Prior to the Offer Closing Time, UCRI will amend or otherwise
modify all insurance policies and related insuring agreements pertaining
to the Foodservice Assets (the "Insurance Policies") to reflect that all
reimbursement, premium payment or other obligations and assets, as
applicable, of International based on occurrences prior to the Offer
Closing Time will become obligations of UCRI under the Insurance
Policies as of the Offer Closing Time. UCRI will pay all required
premiums and other payment or reimbursement obligations arising under
the Insurance Policies and will be responsible for all correspondence
with the insurance companies and will provide assistance to the
insurance companies with the administration of any and all claims under
the Insurance Policies.
(b) Notwithstanding the provisions of subparagraph (a) above, UCRI
shall cause each of International and Daka to remain as named insureds
without cost to such entities under the Insurance Policies.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.1 PROVISION OF CORPORATE RECORDS.
(a) Prior to or as promptly as practicable after the Offer Closing
Time, International shall deliver to UCRI all corporate books and
records of the UCRI Group as well as copies or, to the extent not
detrimental
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in the reasonable opinion of International to the interests of
International, originals, of all books, records and data relating
exclusively to the UCRI Assets, the UCRI Business, or the UCRI
Liabilities, including, but not limited to, all books, records and data
relating to the purchase of materials, supplies and services, financial
results, sale of products, records of the UCRI Employees, commercial
data, research done by or for UCRI, catalogues, brochures, training and
other manuals, sales literature, advertising and other sales and
promotional materials, maintenance records and drawings, all active
agreements, active litigation files and government filings. To the
extent that originals of such books, records and data are provided to
UCRI, UCRI shall provide International copies thereof as reasonably
requested in writing by International. Notwithstanding the above,
International shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
UCRI, and International shall provide such copies of all books, records
and data only to the extent that such action is not prohibited by the
terms of any agreements pertaining to such information or is not
prohibited by law. International or UCRI agrees to advise Compass of any
such contractual or legal prohibitions and to indemnify Compass pursuant
to Article II of the Post-Closing Covenants Agreement for any
Indemnifiable Losses incurred by Compass as a result thereof. After the
Offer Closing Time, all books, records and copies so delivered shall be
the property of UCRI. Notwithstanding the above, International shall not
be required to make copies, other than pursuant to Section 6.2 of this
Agreement, of any portion of any books, records or data to the extent
such portion relates exclusively to the Foodservice Assets, the
Foodservice Business or to Foodservice Liabilities.
(b) Prior to or as promptly as practicable after the Offer Closing
Time, UCRI shall deliver to International all corporate books and
records of International Group as well as copies or, to the extent not
detrimental in the reasonable opinion of UCRI to the interests of UCRI,
originals, of all books, records and data relating exclusively to the
Foodservice Assets; the Foodservice Business, or the Foodservice
Liabilities, including, but not limited to, all books, records and data
relating to the purchase of materials, supplies and services, financial
results, sale of products, records of the Foodservice Employees,
commercial data, research done by or for International, catalogues,
brochures, training and other manuals, sales literature, advertising and
other sales and promotional materials, maintenance records and drawings,
all active agreements, active litigation files and government filings.
To the extent that originals of such books, records and data are
provided to International, International shall provide UCRI copies
thereof as reasonably requested in writing by UCRI. Notwithstanding the
above, UCRI shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
International, and UCRI shall provide such copies of all books, records
and data only to the extent that such action is not prohibited by the
terms of any agreements pertaining to such information or is not
prohibited by law. From and after the Offer Closing Time, all books,
records and copies so delivered shall be the property of International.
Notwithstanding the above, UCRI shall not be required to make copies,
other than pursuant to Section 6.2 of this Agreement, of any portion of
any books, records or data to the extent such portion relates
exclusively to the UCRI Assets, the UCRI Business or to UCRI
Liabilities.
SECTION 6.2 ACCESS TO INFORMATION. After the Offer Closing Time, each of
International and UCRI shall afford to the other and to the other's agents,
employees, accountants, counsel and other designated representatives, reasonable
access and duplicating rights during normal business hours to all records,
books, contracts, instruments, computer and other information ("Information")
within such party's (including all Subsidiaries') possession relating to such
other party's businesses, assets or liabilities, insofar as such access is
reasonably required by such other party. Without limiting the foregoing, such
Information may be requested under this Section for audit, accounting, claims,
litigation and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations.
SECTION 6.3 RETENTION OF RECORDS. Except as otherwise required by law or
agreed in writing, or as otherwise provided in the Tax Allocation Agreement,
each of International and UCRI shall retain, for a period of at least one year
following the Offer Closing Time, all significant Information in such party's
possession or under its control relating to the business, assets or liabilities
of the other party and, after the expiration of such one-year period, prior to
destroying or disposing of any of such Information, (a) the party proposing to
dispose of or destroy any such Information shall provide no less than 30 days
prior written notice to the other party, specifying the Information proposed to
be destroyed or disposed of, and (b) if, prior to the scheduled date for such
destruction or disposal, the other party requests in writing that any of the
Information proposed to be destroyed or disposed of be delivered to such other
party, the party proposing to dispose of or destroy such Information promptly
shall arrange for the delivery of the requested Information to a location
specified by, and at the expense of, the requesting party.
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SECTION 6.4 CONFIDENTIALITY.
(a) Except as required by law or regulation, each Group will hold,
and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in confidence in accordance with the
Confidentiality Agreement, dated January 2, 1997, between Compass and
International.
(b) After the Offer Closing Time, each Group shall hold, in strict
confidence, all Information obtained from the other Group prior to the
Offer Closing Time or furnished to it pursuant to this Agreement or any
other agreement referred to herein which relates to or concerns the
business conducted by such other Group, and such Information shall not
be used by it to the detriment of the other Group, or disclosed by it or
its agents, officers, employees or directors without the prior written
consent of such other Group unless and to the extent that (a) disclosure
is compelled by judicial or administrative process or, in the opinion of
such Group's counsel, by other requirements of law, or (b) such Group
can show that such Information was (i) available to such Group on a
nonconfidential basis prior to its disclosure by the other Group, (ii)
in the public domain through no fault of such Group, (iii) lawfully
acquired by such Group from other sources after the time that it was
furnished to such Group pursuant to this Agreement or any other
agreement referred to herein, or (iv) independently developed by such
Group. Notwithstanding the foregoing, each Group shall be deemed to have
satisfied its obligations of confidentiality under this Section with
respect to any Information concerning or supplied by the other Group if
it exercises substantially the same care with regard to such Information
as it takes to preserve confidentiality for its own similar Information.
SECTION 6.5 REIMBURSEMENT. Each member of any Group providing Information
pursuant to Sections 6.2 or 6.3 to any member of the other Group shall be
entitled to receive from the recipient, upon presentation of an invoice
therefor, payment of all out-of-pocket costs and expenses as may reasonably be
incurred in providing such Information.
ARTICLE VII
EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS
SECTION 7.1 EMPLOYMENT MATTERS.
(a) Compass Holdings agrees to cause International or Daka to offer
to retain all Foodservice Employees as of 12:01 a.m. on the Offer
Closing Date. Notwithstanding the foregoing, nothing contained herein
shall be construed as obligating Compass Holdings, International or any
of its affiliates (i) to offer employment after the Offer Closing Date
to any employee whose employment with International or Daka terminates
for any reason prior to the Offer Closing Date, (ii) to offer any term
or condition of employment (including base salary and other benefits)
except as provided by this Article or to maintain any such term or
condition for any period following the Offer Closing Date, or (iii) to
recall any employee who does not have recall rights.
(b) Prior to the Offer Closing Time, International shall furnish
Compass or Compass Holdings with (i) a list of all officers or employees
of Daka as of the Offer Closing Time and (ii) information as to (x) the
rate of base salary in effect for each Foodservice Employee immediately
before the Offer Closing Time, (y) each Foodservice Employee's position
with International immediately before the Offer Closing Time and (z)
each Foodservice Employee's prior service with International or Daka as
of the Offer Closing Time.
SECTION 7.2 DAKA SAVINGS PLAN. International shall take, or cause to be
taken, all actions necessary and appropriate to amend the Daka Savings and
Retirement Plan (the "Daka Savings Plan") to remove International as sponsor and
named fiduciary and shall name UCRI as sponsor and named fiduciary of the Daka
Savings Plan prior to the Offer Closing Time. International shall also take such
actions as necessary to fully vest as of the Offer Closing Time each participant
who is an Foodservice Employee in his or her account balance under the Daka
Savings Plan.
SECTION 7.3 WELFARE PLANS.
(a) International shall take, or cause to be taken, all actions
necessary and appropriate to amend each and every Welfare Plan covering
its employees ("International Welfare Plans") to remove International as
sponsor and named fiduciary and shall name UCRI as sponsor and named
fiduciary of each such Benefit Plan prior to the Offer Closing Time.
Compass shall take, or cause to be taken, all actions necessary and
appropriate to cause either (i) its existing welfare benefit plans to be
amended, or (ii) new welfare benefit plans to be
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adopted which will cover the Foodservice Employees who were covered by
the International Welfare Plans as of the Offer Closing Time (and their
dependents as appropriate) immediately following the Offer Closing Time
(the "New Welfare Plans"). Compass shall cause the New Welfare Plans to
provide benefits similar to the benefits available to the eligible
Foodservice Employees under the International Welfare Plans on the date
immediately preceding the Offer Closing Time including waiving any
pre-existing condition requirement unless such requirement applied to
such Foodservice Employee under the International Welfare Plans. Compass
shall also cause the New Welfare Plans, to the extent applicable, to
credit such Foodservice Employees with the term of service credited to
such employees as of the Offer Closing Time under the terms of the
applicable International Welfare Plan. Compass will cause the
Foodservice Employees to receive credit for payments made under any of
the International Welfare Plans during the plan year in which the Offer
Closing Time occurs for purposes of satisfying the applicable
deductibles, employee co-payments and maximum out-of-pocket limits of
the applicable New Welfare Plans during the plan year in which the Offer
Closing Time occurs.
(b) Except as otherwise noted in this Section 7.3, International
shall cause one or more members of the UCRI Group to assume and be
solely responsible for, or cause its insurance carriers or agents to be
responsible for, all liabilities for welfare benefit claims incurred
prior to the Offer Closing Time under the International Welfare Plans.
For purposes of this Section 7.3, disability claims are incurred on the
date on which the disability is incurred or, in the case of a disability
which is not incurred on a single, identifiable date, the date on which
the disability was diagnosed; medical and dental services are incurred
when an individual is provided with medical or dental care; death
benefit claims are incurred at the time of death of the insured, all
notwithstanding any other provision of any welfare benefit plan to the
contrary. At the Offer Closing Time, the Foodservice Employees will
cease participation in the International Welfare Plans, except to the
extent (i) that a Foodservice Employee or a covered dependent of a
Foodservice Employee is hospitalized or otherwise not actively at work
and on approved leave as of the Offer Closing Time, in which case such
individual shall continue to be covered under the appropriate
International Welfare Plan until the individual is discharged from the
hospital or returns from approved leave or (ii) they elect continued
coverage under such plans pursuant to COBRA or other provisions of the
International Welfare Plans. UCRI shall be responsible for all
qualifying events under COBRA and COBRA claims incurred under the
International Welfare Plans prior to the Offer Closing Time or as a
result of the consummation of the transactions contemplated by this
Agreement or the Merger Agreement.
(c) UCRI and UCRI Group shall be responsible for any retiree
medical, life insurance or other benefits that are now or may hereafter
become payable with respect to any former employee of International or
one of its Affiliates who retired from the UCRI Group or the
International Group prior to the Offer Closing Time and who met the
eligibility requirements for such benefits at that time. The Foodservice
Employees who retire from International or Compass after the Offer
Closing Time shall not be entitled to retiree medical and life insurance
benefits from either the International Welfare Plans or the New Welfare
Plans.
SECTION 7.4 STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN.
(a) EMPLOYEE AND DIRECTOR STOCK OPTIONS. Effective as of the Offer
Closing Time, UCRI shall adopt (and International, as sole shareholder
of UCRI, shall approve) a stock option and restricted stock plan (the
"UCRI Stock Plan") for the benefit of employees of UCRI, Foodservice
Employees and non-employee directors of UCRI (including those
non-employee directors of International who, following the Distribution,
will become non-employee directors of UCRI (the "Non-Employee
Directors")), which plan shall permit the adjustments contemplated in
Section 7.4(b) hereof and shall be administered so as to qualify under
Rule 16b-3 promulgated under the Exchange Act. Options to acquire
International Common Stock, regardless of whether such options have
vested in the individual holding such option, which have been granted to
UCRI Employees, Non-Employee Directors, Foodservice Employees and former
employees of International (other than UCRI Employees) pursuant to
International's 1994 Equity Incentive Plan, the 1988 Incentive Stock
Option Plan, the 1988 Nonqualified Stock Option Plan or the Senior
Executive Stock Option Plan (collectively, the "International Plans")
and which have not been exercised immediately prior to the Distribution
(collectively, the "International Options") shall, pursuant to the
equitable adjustment provisions of the applicable plan under which such
options were granted and effective as of the Offer Closing Time, be
treated as provided in this Section 7.4.
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(b) ADJUSTMENT OF INTERNATIONAL OPTIONS. Each (X) International
Option not intending to qualify as an "incentive stock option" under
Section 422 of the Code (a "Nonqualified Stock Option") granted pursuant
to any of the International Plans and held by a UCRI Employee,
Foodservice Employee or Non-Employee Director , and (Y) International
Option intending to qualify as an "incentive stock option" under Section
422 of the Code (an "Incentive Stock Option") granted pursuant to any of
the International Plans and held by a UCRI Employee or a Foodservice
Employee , shall be adjusted to provide the option holder with an
adjusted Nonqualified Stock Option from the relevant International Plan
and a Nonqualified Stock Option from the UCRI Stock Plan, by the
following procedure (i) the option holder shall receive an adjusted
International Option under the relevant International Plan for the
number of shares of International Common Stock relating to the
Nonqualified Stock Option or Incentive Stock Option but at an exercise
price per share to be determined as described hereinafter, and (ii) the
option holder also shall receive an option under the UCRI Stock Plan to
acquire shares of UCRI Common Stock (a "UCRI Option"), in an amount
equal to the number of shares of International Common Stock relating to
the Nonqualified Stock Option or Incentive Stock Option at an exercise
price per share to be determined as described hereinafter. The exercise
price per share of each International Option which becomes an adjusted
Nonqualified Stock Option under the relevant International Plan shall be
equal to the quotient obtained by dividing (w) the exercise price per
share of such Nonqualified Stock Option or Incentive Stock Option prior
to adjustment (the "Pre-Adjustment Exercise Price") by (x) the
International Plan Adjustment Factor (as hereinafter defined), and the
exercise price per share of each Nonqualified Stock Option which, as a
result of the adjustments in this Section 7.4(b), provides the option
holder with an option under the UCRI Stock Plan to purchase UCRI Common
Stock, shall be equal to the quotient obtained by dividing (y) the
Pre-Adjustment Exercise Price by (z) the UCRI Stock Plan Adjustment
Factor (as hereinafter defined). In each case the resulting exercise
price per share shall be rounded up or down to the nearest cent. The
"International Plan Adjustment Factor " shall mean an amount equal to
the quotient obtained by dividing (1) the sum of (A) the Offer Price (as
defined in the Merger Agreement), plus (B) the per share fair market
value of UCRI Common Stock, determined based on the average closing
price of the UCRI Common Stock over the three-consecutive-day trading
period immediately following the Offer Closing Time (such per share fair
market value being referred to as the "UCRI Value"), by (2) the Offer
Price. The "UCRI Stock Plan Adjustment Factor" shall mean an amount
equal to the quotient obtained by dividing (1) the sum of (A) the Offer
Price plus (B) the UCRI Value, by (2) the UCRI Value. Each International
Option which becomes an adjusted Nonqualified Stock Option under the
relevant International Plan as a result of the adjustments in this
Section 7.4(b) shall remain subject to the same terms and conditions as
such Nonqualified Stock Option or Incentive Stock Option prior to such
adjustment, except that all International Options which prior to the
adjustments in this Section 7.4(b) were Incentive Stock Options shall be
Nonqualified Stock Options after such adjustment.
(c) DISPOSITION OF INTERNATIONAL OPTIONS. Following the adjustments
described in Section 7.4(b), all International Options shall be
cancelled and the option holders shall receive payment from UCRI for the
value of each option holders' International Options as provided in
Section 1.5 of the Merger Agreement.
(d) EMPLOYEE STOCK PURCHASE PLAN. Prior to the Offer Closing Time,
International shall take all actions necessary or appropriate under the
DAKA International Employee Stock Purchase Plan (the "Stock Purchase
Plan") to (i) cause the Offering (as that term is defined in the Stock
Purchase Plan) beginning on April 1, 1997 to end on the business day
immediately preceding the Record Date, (ii) permit no additional
Offerings under the Stock Purchase Plan to occur after the Record Date
and (iii) cause all shares of International Common Stock purchasable by
participating employees of International or its Subsidiaries (the
"Participating Employees") under the Stock Purchase Plan with respect to
such Offering (the "Purchasable Shares") to be deemed issued and
outstanding for purposes of the Distribution as of the Record Date,
whereby such participating employees will receive shares of UCRI as if
they had held the Purchasable Shares on the Record Date. No Purchasable
Shares will actually be issued by International to the Participating
Employees and in lieu thereof the Participating Employees shall be
entitled to receive from International, for each Purchasable Share of
International Common Stock, cash payment from UCRI of the amount
provided in Section 1.5 of the Merger Agreement.
SECTION 7.5 TRANSFER TO UCRI OF CORPORATE-OWNED LIFE INSURANCE POLICIES.
International shall take, or cause to be taken, all actions necessary and
appropriate to transfer ownership of any life insurance policies on the lives of
its executives (other than Allen R. Maxwell) owned by International to UCRI.
Section 7.6 Vacation Pay and Sick Leave
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Pay. UCRI shall assume all liability for earned or accrued vacation pay and
banked or earned/accrued sick leave pay accrued by Foodservice Employees and
UCRI Employees through the Offer Closing Time. Vacation pay and sick leave for
Foodservice Employees after the Offer Closing Time will be provided pursuant to
Compass' vacation and sick leave policies.
SECTION 7.7 CHANGE OF PLAN SPONSOR. Prior to the Offer Closing Time,
International shall take such action as necessary to remove International or
Daka as sponsor and, if applicable, named fiduciary of the Benefit Plans listed
in Schedule 7.7, and name UCRI sponsor and named fiduciary of such Benefit
Plans.
SECTION 7.8 SEVERANCE PAY.
(a) The cessation of employment by individuals who, in connection
with the Distribution, cease to be employees of the International Group
and become employees of the UCRI Group, shall not be deemed a severance
of employment from either Group for purposes of any Benefit Plan that
provides for the payment of severance, salary continuation or similar
benefits. International, UCRI and Compass agree that none of the
transactions contemplated by this Agreement or the Merger Agreement
shall result in or be deemed a severance of employment from either Group
for purposes of any Benefit Plan other than the DAKA Savings Plan that
provides for payment of severance, salary continuation or similar
benefits and International shall take, or cause to be taken, all action
necessary and appropriate to amend the Daka International, Inc.
Severance Program for Eligible Associates (and any other similar Benefit
Plan) as may be necessary to assure compliance with this Section.
(b) UCRI and the UCRI Group shall assume and be solely responsible
for all liabilities and obligations whatsoever in connection with claims
for severance pay benefits without regard to when such claims are made
under the terms of the Daka International, Inc. Severance Pay Program
for Eligible Associates or any other severance plan or policy sponsored
by any member of the International Group prior to the Offering Closing
Time, including, without limitation, claims made by any individuals who,
in connection with the Distribution, cease to be employees of the
International Group, whether or not such individuals are offered or
accept employment with either Group. International shall be responsible
for the payment of severance pay benefits payable pursuant to any New
Welfare Plan that may be established after the Offer Closing Time to
provide severance pay benefits to Foodservice Employees at the time of
their termination.
SECTION 7.9 COLLECTIVE BARGAINING AGREEMENTS; LABOR RELATIONS MATTERS;
WITHDRAWAL LIABILITY.
(a) As of the Offer Closing Time, International and the
International Group shall retain and be responsible only for the
Collective Bargaining Agreements, and only to the extent such agreements
relate to the terms and conditions of employment of the Foodservice
Employees. UCRI and UCRI Group shall assume and be solely responsible
for all liabilities or claims made or arising under any collective
bargaining agreement covering the terms and conditions of any employee
of either Group relating to any period of time prior to the Offer
Closing Time, including, but not limited to, any back pay or benefits
due for periods prior to the Offer Closing Time as a result of good
faith bargaining without regard to when such agreement is reached.
(b) As of the Offer Closing Time, UCRI and the UCRI Group shall
assume and be solely responsible for any and all claims or proceedings
against International or Daka relating to the alleged violation of any
legal requirement pertaining to labor relations or employment matters,
including but not limited to any charge, claim or action or complaint
filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, the DOL or any other
federal or state body, any organizational activity or other labor or
unemployment dispute against International or Daka without regard to
when such charge, claim or action or complaint is brought or filed to
the extent that the allegations relate to any period prior to the Offer
Closing Time.
(c) As of the Offer Closing Time, UCRI and the UCRI Group shall
assume and be solely responsible for that portion of any withdrawal
liabilities arising at any time prior to and within five years following
the Offer Closing Time in connection with a Multiemployer Plan to which
International or Daka is required to contribute pursuant to the terms of
a Collective Bargaining Agreement listed on Schedule 7.9, which portion
is equal to the greater of (A) the "potential withdrawal liability"
disclosed in Schedule 4.2(l) of the Disclosure Schedule under Section
4.2(l) (i) of the Merger Agreement, if any amount is disclosed, and (B)
an amount that bears the same proportion to the total withdrawal
liability as the number of Foodservice Employees covered by such
Multiemployer Plan at the Offer Closing Time bears to the total number
of International or Daka
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employees covered by such Multiemployer Plan on the date of notification
by such plan of such withdrawal liability.
SECTION 7.10 PRESERVATION OF RIGHTS TO AMEND OR TERMINATE BENEFIT PLANS.
Subject to the provisions of this Article, no provision of this Agreement,
including the agreement of International or UCRI that it or any member of the
International Group or the UCRI Group will make a contribution or payment to or
under any Benefit Plan herein referred to for any period or the agreement of
Compass to permit participation in or provide similar benefits to Foodservice
Employees, shall be construed as a limitation on the right of International or
UCRI, or any member of the International Group or the UCRI Group, or of Compass,
to amend such Benefit Plan or terminate its participation therein or change the
level or value of benefits provided thereunder, and no provision of this
Agreement shall be construed to create a right in any employee or former
employee or beneficiary of such employee or former employee under a Benefit Plan
which such employee or former employee or beneficiary would not otherwise have
under the terms of the Benefit Plan itself. Notwithstanding the above, however,
International and UCRI each agree that it shall not make or cause to be made any
amendments to any Benefit Plan, nor shall it terminate any Benefit Plan, in a
manner which would violate the covenants set forth in this Agreement, except as
may be required to comply with applicable law, but subject to the provisions of
this Article.
SECTION 7.11 OTHER LIABILITIES. As of the Offer Closing Time, UCRI shall
assume and be solely responsible for all earned salaries, wages, bonuses,
severance payments or other current or deferred compensation retirement, welfare
or fringe benefits of all UCRI Employees, regardless of whether earned or
accrued before or after the Offer Closing Time and of all Foodservice Employees
to the extent earned or accrued prior to the Offer Closing Time.
SECTION 7.12 COMPLIANCE. Notwithstanding anything to the contrary in this
Article, to the extent any actions of the parties contemplated in this Article
are determined prior to the Distribution to violate law or result in unintended
tax liability for Foodservice Employees or UCRI Employees, such action may be
modified to avoid such violation of law or unintended tax liability.
ARTICLE VIII
TAX MATTERS
SECTION 8.1 TAX MATTERS. Notwithstanding anything to the contrary in this
Agreement, liabilities of the parties for Taxes (as defined in the Tax
Allocation Agreement) are subject to the terms of the Tax Allocation Agreement.
ARTICLE IX
CONDITIONS
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF INTERNATIONAL. The obligations of
International to consummate the Contribution and the Distribution hereunder
shall be subject to the fulfillment of each of the following conditions:
(a) All of the transactions contemplated by Article II shall have
been consummated.
(b) Compass, Compass Holdings and Compass Interim shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date,
and International shall have received a certificate signed on behalf of
Compass by the chief executive officer and the chief financial officer
of Compass to such effect.
(c) International shall have received opinions of Smith Helms
Mulliss & Moore, L.L.P. and Freshfields, each dated the Closing Date, in
substantially the forms of EXHIBIT 9.1(C)(I) and EXHIBIT 9.1(C)(II),
respectively.
(d) Simultaneously with the Offer Closing, Compass shall have paid
to The Chase Manhattan Bank on behalf of International all Funded Debt
under the Credit Facility and secured a release of all Liens with
respect to Funded Debt.
(e) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of
the Contribution or the Distribution shall be in effect and no such
litigation or legal action shall have been threatened or shall be
pending. No action, suit or other proceeding shall be pending by any
Governmental Entity that, if successful, would restrict or prohibit the
consummation of the Contribution or the Distribution.
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(f) Any applicable waiting periods under the HSR Act or the
Exon-Florio Amendment shall have expired or been terminated.
(g) The Form 10 shall have been declared effective by the
Securities and Exchange Commission.
(h) Compass Holdings shall have accepted for payment pursuant to
the Offer a number of validly tendered shares of International Common
Stock which, when added to the shares of International Common Stock then
beneficially owned by Compass, Compass Holdings and its affiliates or
Compass Interim, constitutes two-thirds of the shares of International
Common Stock then outstanding and represents two-thirds of the voting
power of the shares of International Common Stock then outstanding on a
fully diluted basis on the date of purchase.
(i) The representations and warranties of Compass contained in the
Merger Agreement shall be true and correct in all material respects.
(j) No statute, rule, regulation, decree, order or injunction shall
have been promulgated, enacted, entered, or enforced or any legal or
administrative proceeding initiated by any United States federal or
state government, governmental authority or court which would prohibit
the consummation of the Contribution, the Distribution, the Offer, or
the Merger.
(k) There shall not have been a Material Adverse Change (as defined
in the Merger Agreement) or any event that could reasonably be expected
to result in a Material Adverse Change.
(l) Allen Maxwell shall have entered into an employment agreement
with International and Daka in form and substance satisfactory to
Compass and Allen Maxwell shall not have indicated to International,
Daka or Compass that he does not intend to abide by the terms of such
agreement.
(m) Compass shall have paid to International the amount due under
Section 6.7(b) of the Merger Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 FURTHER ASSURANCES. Each party hereto shall cooperate
reasonably with the other parties, and execute and deliver, or use its
reasonable best efforts to cause to be executed and delivered, all instruments,
including instruments of conveyance, assignment and transfer, and to make all
filings with, and to obtain all consents, approvals or authorizations of, any
governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement, in order
to effectuate the provisions and purposes of this Agreement and the transfers of
assets and Liabilities and the other transactions contemplated hereby or in any
of the Ancillary Agreements.
SECTION 10.2 SURVIVAL OF AGREEMENTS. All covenants and agreements of the
parties hereto contained in this Agreement shall survive the Offer Closing Time.
SECTION 10.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Merger Agreement and the Ancillary Agreements shall constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof, superseding all previous negotiations, commitments and writings with
respect to such subject matter.
SECTION 10.4 EXPENSES. All fees and expenses incurred in connection with
the Merger, the Distribution, this Agreement, the Merger Agreement and the
transactions contemplated by this Agreement, the Merger Agreement and the
Ancillary Agreements shall be paid in accordance with Section 6.1 of the Merger
Agreement and Section 3.4 of the Post-Closing Covenants Agreement, whether or
not the Distribution is consummated.
SECTION 10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES, AS TO ALL MATTERS, INCLUDING
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES.
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SECTION 10.6 NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to any other party shall be in writing and shall
be deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
If to a member of the International Group or Compass:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
If to a member of the UCRI Group:
Daka International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: General Counsel
SECTION 10.7 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented, and rights hereunder may be waived, only by a written
agreement signed by International, UCRI, Daka and Compass. No waiver of any
term, provision or condition of or failure to exercise or delay in exercising
any rights or remedies under this Agreement, in one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of such term,
provision, condition, right or remedy or as a waiver of any other term,
provision or condition of, or right or remedy under, this Agreement.
SECTION 10.8 SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of each party hereto and each of their respective successors and
permitted assigns, which shall include the entity resulting from the Merger, but
neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by (i) the UCRI Group without the prior written
consent of Compass or the International Group (which consent shall not be
unreasonably withheld) and (ii) the International Group or Compass, as the case
may be, without the prior written consent of the UCRI Group (which consent shall
not be unreasonably withheld). This Agreement is solely for the benefit of each
Group and is not intended to confer upon any other Person any rights or remedies
hereunder. The covenants and agreements of UCRI and its Subsidiaries contained
herein are an inducement to Compass and International to enter into the Merger
and may be endorsed by either entity following the Contribution and Distribution
and the Merger.
SECTION 10.9 ENFORCEMENT.
(a) SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.
(b) JURISDICTION. To the extent a court action is authorized above,
the parties hereby consent to the jurisdiction of the United States
District Court of Delaware. Each of the parties waives personal service
to any and all process upon them and each consent that all such service
of process be made by certified mail directed to them at their address
shown in Section 10.6 hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER.
SECTION 10.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 10.11 INTERPRETATION. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
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contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 10.12 TERMINATION. In the event the Merger Agreement is terminated,
notwithstanding any provision hereof, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Offer Closing Time by and in the
sole discretion of the International Board without the approval of any other
party hereto or of International's shareholders. In the event of such
termination, no party hereto shall have any Liability to any Person by reason of
this Agreement.
16
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DAKA INTERNATIONAL, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
DAKA, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
COMPASS HOLDINGS, INC.
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
17
<PAGE> 1
Exhibit 15
TAX ALLOCATION AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
UNIQUE CASUAL RESTAURANTS, INC.
AND
COMPASS GROUP PLC
MAY 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1 Definitions..................................................................................... 1
ARTICLE II
FILING OF TAX RETURNS
2.1 Preparation of Tax Returns...................................................................... 5
2.2 Pre-Distribution Tax Returns.................................................................... 5
2.3 Post-Distribution Tax Returns................................................................... 6
ARTICLE III
PAYMENT OF TAXES
3.1 Allocation of Tax Liabilities................................................................... 6
3.2 Tax Refunds, Carrybacks and Carryforwards....................................................... 7
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1 Straddle Period Taxes........................................................................... 8
4.2 Calculations and Determinations................................................................. 9
4.3 Principles of Determination..................................................................... 10
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
5.1 Indemnification................................................................................. 10
5.2 Notice of Indemnity............................................................................. 12
5.3 Tax Contests.................................................................................... 12
5.4 Timing Adjustments.............................................................................. 13
5.5 Gross up for Taxes.............................................................................. 13
5.6 Right to Offset................................................................................. 14
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
6.1 Cooperation and Exchange of Information......................................................... 14
6.2 Record Retention................................................................................ 14
ARTICLE VII
GENERAL PROVISIONS
7.1 Further Assurances.............................................................................. 15
7.2 Entire Agreement................................................................................ 15
7.3 Governing Law................................................................................... 15
7.4 Notices......................................................................................... 15
7.5 Amendment and Modification...................................................................... 16
7.6 Assignment...................................................................................... 16
7.7 No Third Party Beneficiaries.................................................................... 16
7.8 Enforcement..................................................................................... 16
7.9 Counterparts.................................................................................... 17
7.10 Interpretation.................................................................................. 17
7.11 Severability.................................................................................... 17
7.12 Termination..................................................................................... 17
7.13 Agent........................................................................................... 18
</TABLE>
i
<PAGE> 3
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT (the "Agreement") is dated as of May 27,
1997, among DAKA INTERNATIONAL, INC., a Delaware corporation ("International"),
UNIQUE CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), and COMPASS
GROUP PLC, a public limited company incorporated in England and Wales
("Compass").
RECITALS
WHEREAS, International, Compass, Compass Holdings, Inc., a Delaware
corporation ("Compass Holdings"), and Compass Interim, Inc., a wholly owned
subsidiary of Compass Holdings ("Compass Interim"), have entered into an
Agreement and Plan of Merger dated as of May 27, 1997 (the "Merger Agreement"),
providing for the Offer and the Merger (each as defined in the Merger Agreement)
of Compass Interim with and into International;
WHEREAS, International, Daka, Compass and Compass Holdings have entered
into a Reorganization Agreement dated as of the date hereof (the "Reorganization
Agreement");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Offer;
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Reorganization Agreement
to consummate the Contribution and the Distribution (each as defined in the
Reorganization Agreement); and
WHEREAS, Compass and International, on behalf of each of them and the
International Group (as defined herein) and UCRI, on behalf of itself and the
UCRI Group (as defined herein), wish to provide for the allocation between the
International Group and the UCRI Group of all responsibilities, liabilities and
benefits relating to or affecting Taxes (as hereinafter defined) paid or payable
by either of them for all taxable periods, whether beginning before, on or after
the Closing Date (as hereinafter defined) and to provide for certain other
matters;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to such terms in the Merger
Agreement or the Reorganization Agreement, as the case may be. As used in this
Agreement, the following terms shall have the following respective meanings:
"Actually Realized" or "Actually Realizes" means, with respect to any Tax
Refund, the earlier of (i) the date on which the relevant party receives a
payment from a Taxing Authority, (ii) if the relevant party may elect to apply a
payment against any liability to the Taxing Authority, the date on which the
party would receive the payment in the absence of such election, or (iii) the
date on which the relevant party makes a payment to a Taxing Authority (or, if
earlier, the date on which such payment is due), the amount of which is reduced
by the Tax Refund or any portion thereof (including any deemed payment the
amount of which has been netted to zero). With respect to any Taxes, Income Tax
Benefit or Income Tax Detriment, "Actually Realized" or "Actually Realizes"
means the date on which the relevant party makes a payment to a Taxing Authority
(or, if earlier, the date on which such payment is due), the amount of which is
increased or decreased (or netted to zero) by the effect of such item, or, if
the effect of the item is to increase or decrease the amount of a Tax Refund,
the date determined as if the item were a Tax Refund.
"Affiliated Group" means the Affiliated group of which International is the
common parent.
"Carryforward Item" means any tax credit or loss carryforward of the
International Group or the UCRI Group, or any of their members, arising in the
Tax Indemnification Period.
"Closing Date" means the date on which the Distribution occurs or is deemed
to occur for Federal Income Tax purposes. Solely for purposes of this Agreement,
the Distribution shall be deemed effective as of the close of business on the
Closing Date.
<PAGE> 4
"Combined Taxes" means all Taxes due with respect to any combined,
consolidated or unitary state, local or foreign corporate Tax liability for all
Pre-Distribution Taxable Periods and Straddle Periods with respect to Joint Tax
Returns.
"Group" means either the International Group or the UCRI Group, as the
context provides.
"Income Tax Benefit" means for any taxable period the excess of (i) the
hypothetical Income Tax liability of the taxpayer for the taxable period
calculated as if the Timing Difference, Reverse Timing Difference or
Carryforward Item, as the case may be, had not occurred or not been available
but with all other facts unchanged, over (ii) the actual Income Tax liability of
the taxpayer for the taxable period, taking into account the Timing Difference,
Reverse Timing Difference or Carryforward Item, as the case may be (treating an
Income Tax Refund as a negative Income Tax liability for purposes of such
calculation).
"Income Tax Detriment" means for any taxable period the excess of (i) the
actual Income Tax liability of the taxpayer for the taxable period, calculated
taking into account the Timing Difference or Reverse Timing Difference, as the
case may be, over (ii) the hypothetical Income Tax liability of the taxpayer for
the taxable period, calculated as if the Timing Difference or Reverse Timing
Difference, as the case may be, had not occurred but with all other facts
unchanged (treating an Income Tax Refund as a negative Income Tax liability for
purposes of such calculation).
"Income Taxes" means any Tax based upon, measured by, or calculated with
respect to (i) net income or profits (including, but not limited to, any capital
gains, minimum Tax and any Tax on items of Tax preference, but not including
sales, use, real property gains, real or personal property, gross or net
receipts, transfer or similar Taxes) or (ii) multiple bases (including, but not
limited to, corporate franchise, doing business or occupation Taxes) if one or
more of the bases upon which such Tax may be based upon, measured by, or
calculated with respect to, is described in clause (i) above.
"Indemnitee" has the meaning set forth in Section 5.2.
"Indemnitor" has the meaning set forth in Section 5.2.
"Indemnity Issue" has the meaning set forth in Section 5.2.
"International Group" means International, Daka and Daka's Subsidiaries.
"International Tax Item" means a Tax Item that is attributable to the
International Group and is not a UCRI Tax Item.
"Joint Tax Return" means any Tax Return that includes a member of the
International Group and a member of the UCRI Group.
"UCRI Group" means UCRI and all other Subsidiaries of UCRI, determined
immediately after the Distribution and the Merger.
"UCRI Tax Item" means a Tax Item solely attributable to the UCRI Group.
"Non-Filing Party" means the group or member of a group which is included
in any Tax Return but is not the Responsible Party or a member of the
Responsible Party's group with respect to such Tax Return.
"Other Taxes" has the meaning set forth in Section 3.1(c).
"Post-Distribution Taxable Period" means a taxable period beginning after
the Closing Date.
"Post-Tax Indemnification Period" means any Post-Distribution Taxable
Period and that portion, beginning on the day after the Closing Date, of any
Straddle Period.
"Pre-Distribution Taxable Period" means a taxable period ending on (and
including) or before the Closing Date.
"Responsible Party" means the party responsible for the filing of a Tax
Return as determined under Section 2.2.
"Reverse Timing Difference" means an increase in income, gain or recapture,
or a decrease in deduction, loss or credit, as calculated for Income Tax
purposes, of the taxpayer for the Tax Indemnification Period coupled with an
increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"Straddle Period" means a taxable period that includes but does not end on
the Closing Date.
2
<PAGE> 5
"Tax" or "Taxes" means all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, federal or other body, and without
limiting the generality of the foregoing, shall include income, sales, use, ad
valorem, gross receipts, license, value added, franchise, transfer, recording,
withholding, payroll, wage withholding, employment, excise, occupation,
unemployment insurance, social security, business license, business
organization, stamp, environmental, premium and property taxes, together with
any related interest (including the actual interest that would have accrued if
there were no netting of Taxes), penalties and additions to any such tax, or
additional amounts imposed by any Taxing Authority (domestic or foreign) upon
the International Group, the UCRI Group, Compass or any of their respective
members or divisions or branches or Affiliates.
"Tax Audit Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for or refunds or adjustments
with respect to Taxes.
"Tax Deficiency" means a net increase in Taxes payable as a result of a Tax
Audit Proceeding or an amendment of a Tax Return or an event having a similar
effect.
"Tax Indemnification Period" means any Pre-Distribution Taxable Period and
that portion, ending on the Closing Date, of any Straddle Period.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credits or any other item which is taken
into account in determining taxable income or is otherwise taken into account in
determining Taxes paid or payable, including an adjustment under Section 481 of
the Code resulting from a change in accounting method.
"Tax Records" has the meaning set forth in Section 6.3.
"Tax Refund" means a refund of Taxes (including a reduction in Taxes as a
result of any credit or any offset against Taxes or Tax Items) reduced (but not
below zero) by any net increase in Taxes Actually Realized by the recipient (or
its Affiliate) thereof as a result of the receipt thereof.
"Tax Return" means any return, filing, questionnaire, information return or
other document required to be filed, including requests for extensions of time,
filings made with respect to estimated tax payments, claims for refund and
amended returns that may be filed, for any period with any Taxing Authority
(whether domestic or foreign) in connection with any Tax or Taxes (whether or
not a payment is required to be made with respect to such filing).
"Taxing Authority" means any governmental or quasi-governmental body
exercising any Taxing authority or Tax regulatory authority.
"Timing Difference" means an increase in income, gain or recapture, or a
decrease in deduction, loss or credit, as calculated for Income Tax purposes, of
the taxpayer for any Post-Tax Indemnification Period coupled with an increase in
deduction, loss or credit, or a decrease in income, gain or recapture, of the
taxpayer for the Tax Indemnification Period.
"Transfer Taxes" means all transfer, documentary, sales, use, registration,
value-added and other similar Taxes (including all applicable real estate
transfer Taxes and real property transfer gains Taxes) and related amounts
(including any penalties, interest and additions to Tax) arising as a result of
or otherwise incurred in connection with any of the transactions contemplated by
the Merger Agreement or the Ancillary Agreements.
ARTICLE II
FILING OF TAX RETURNS
2.1 PREPARATION OF TAX RETURNS. All Tax Returns described in Section 2.2
hereof filed after the date of this Agreement, in the absence of a controlling
change in law or circumstances, shall be prepared on a basis consistent with the
elections, accounting methods, conventions and principles of taxation used for
the most recent taxable periods for which Tax Returns involving similar Tax
Items have been filed and in a manner that does not unreasonably accelerate
deductions or defer income between Tax Indemnification Periods and Post-Tax
Indemnification Periods. Notwithstanding the foregoing, either Group may prepare
Tax Returns inconsistent with such elections, accounting methods, conventions
and principles to the extent that such Tax Returns would not increase the
economic burden of or a reduction in Tax attributes of the other party.
3
<PAGE> 6
2.2 PRE-DISTRIBUTION TAX RETURNS.
(a) CONSOLIDATED FEDERAL TAX RETURNS. Subject to the provisions of Section
4.2, the Affiliated Group consolidated Federal Tax Returns (including amendments
thereto) required to be filed or actually filed for any Pre-Distribution Taxable
Period after the date hereof shall be prepared and filed or caused to be
prepared and filed by UCRI.
(b) OTHER PRE-DISTRIBUTION TAXABLE PERIOD AND STRADDLE PERIOD TAX RETURNS.
Subject to the provisions of Section 4.2:
(i) All Tax Returns (including amendments thereto) other than those
described in Section 2.2(a), 2.2(b)(ii), and 2.2(b)(iii), which include a
member of the Affiliated Group that are required to be filed or are
actually filed for a Pre-Distribution Taxable Period shall be prepared and
filed or caused to be prepared and filed by UCRI;
(ii) All Tax Returns (including amendments thereto) other than those
described in Section 2.2(a) and 2.2(b)(i), which include, after the Closing
Date, a member of the International Group that are required to be filed or
are actually filed for a Straddle Period shall be prepared and filed or
caused to be prepared and filed by International;
(iii) All Tax Returns (including amendments thereto) other than those
described in Section 2.2(a) and 2.2(b)(ii), which include a member of the
UCRI Group that are required to be filed or are actually filed for a
Straddle Period shall be prepared and filed or caused to be prepared and
filed by UCRI; and
(iv) In the event that the Non-Filing Party reasonably determines that
the Responsible Party will not be able to timely file any Tax Return and
that such inability of the Responsible Party is not attributable to the
failure of the Non-Filing Party to perform under this Agreement, the
Non-Filing Party may, after giving the Responsible Party written notice,
prepare and file or cause to be prepared and filed such Tax Return. If the
Non-Filing Party elects to file any such Tax Return, the Non-Filing Party
shall be deemed to be the Responsible Party for purposes of this Agreement
other than this Section 2.2(b)(iv).
2.3 POST-DISTRIBUTION TAX RETURNS. All Tax Returns for all
Post-Distribution Taxable Periods shall be the responsibility of the UCRI Group
if such Tax Returns relate to a member or members of the UCRI Group or their
respective assets or businesses, and shall be the responsibility of the
International Group if such Tax Returns relate to a member or members of the
International Group or their respective assets or businesses.
ARTICLE III
PAYMENT OF TAXES
3.1 ALLOCATION OF TAX LIABILITIES.
(a) CONSOLIDATED FEDERAL TAX LIABILITIES. UCRI shall pay or cause to be
paid, on a timely basis, all Taxes due with respect to the consolidated Federal
Tax liability for all Pre-Distribution Taxable Periods of the Affiliated Group.
(b) OTHER TAXES. Except as otherwise provided in this Agreement, the
Responsible Party shall pay or cause to be paid, on a timely basis, all Other
Taxes. In the event that UCRI is the Non-Filing Party, UCRI hereby assumes and
agrees to pay directly to or at the direction of International, at least two
days prior to the date payment (including estimated payment) thereof is due,
those Other Taxes for all Pre-Distribution Taxable Periods and the portion,
ending on the Closing Date, of any Straddle Period which have not been paid on
or before the Closing Date. The Non-Filing Party hereby assumes and agrees to
pay directly or at the direction of the Responsible Party, at least two days
prior to the date payment (including estimated payments) thereof is due, the
Non-Filing Party's allocable share of those Other Taxes for the portion,
commencing on the day after the Closing Date, of any Straddle Period which have
not been paid on or before the Closing Date.
(c) POST-DISTRIBUTION TAXES. Except as provided otherwise in this
Agreement, all Taxes for all Post-Distribution Taxable Periods shall be paid or
caused to be paid by the party responsible under this Agreement for filing the
Tax Return pursuant to which such Taxes are due or, if no such Tax Returns are
due, by the party liable for such Taxes.
3.2 TAX REFUNDS, CARRYBACKS AND CARRYFORWARDS.
(a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as otherwise provided in
this Agreement, International shall be entitled to retain the portion of all Tax
Refunds of Taxes of which the International Group bears the economic
4
<PAGE> 7
burden under the terms of this Agreement, and UCRI shall be entitled to receive
within ten days after Actually Realized by the International Group, the portion
of all Tax Refunds of Taxes of which the UCRI Group bears the economic burden
under the terms of this Agreement. Notwithstanding the foregoing, all Tax
Refunds resulting from the carryback of any International Tax Item arising in a
Post-Tax Indemnification Period to a Tax Indemnification Period (determined in a
manner analogous to the determination of an Income Tax Benefit) shall be for the
account and benefit of the International Group.
(b) CARRYBACKS. Except as otherwise provided in this Agreement, any Tax
Refund resulting from the carryback of any UCRI Tax Item arising in a Post-Tax
Indemnification Period to a Tax Indemnification Period (determined in a manner
analogous to the determination of an Income Tax Benefit) shall be for the
account of UCRI, and International shall pay over to UCRI any such Tax Refund
within ten days after it is Actually Realized by International or any member of
the International Group (including for this purpose Compass and its Affiliates).
(c) CARRYFORWARDS. Except as otherwise provided in this Agreement,
International shall pay over to UCRI the amount of the Income Tax Benefit
associated with any Carryforward Item within ten days after such Income Tax
Benefit is Actually Realized by International or any member of the International
Group (including for this purpose Compass and its Affiliates)
(d) REFUND CLAIMS.
(i) UCRI shall file or cause to be filed, and International shall
reasonably cooperate with UCRI in connection with, any claims for Tax
Refund to which UCRI is entitled pursuant to this Section 3.2 or any other
provision of this Agreement. UCRI shall reimburse International for any
reasonable out-of-pocket costs and expenses incurred by any member of the
International Group in connection with such cooperation.
(ii) International shall be permitted to file at International's sole
expense, and UCRI shall reasonably cooperate with International in
connection with, any claims for Tax Refund to which International is
entitled pursuant to this Section 3.2 or any other provision of this
Agreement. International shall reimburse UCRI for any reasonable
out-of-pocket costs and expenses incurred by any member of the UCRI Group
in connection with such cooperation.
(iii) Any claim for a Tax Refund, other than Tax Refunds which are
attributable solely to a member of the UCRI Group, to which UCRI is
entitled under this Agreement shall be subject to the International Group's
consent (such consent not to be unreasonably withheld or delayed), to be
exercised in a manner analogous to that set forth in Section 4.2.
(iv) Any claim for a Tax Refund, other than Tax Refunds which are
attributable solely to a member of the International Group, to which the
International Group is entitled under this Agreement shall be subject to
the UCRI Group's consent (such consent not to be unreasonably withheld or
delayed), to be exercised in a manner analogous to that set forth in
Section 4.2.
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1 STRADDLE PERIOD TAXES. In the case of any Straddle Period:
(a) the periodic Taxes of the International Group and the UCRI Group that
are not based on income or receipts (e.g., property Taxes) for the portion,
ending on the Closing Date, of any Straddle Period shall be computed based on
the ratio of the number of days in such portion of the Straddle Period and the
number of days in the entire taxable period;
(b) Taxes of the International Group and the UCRI Group for the portion,
ending on the Closing Date, of any Straddle Period (other than Taxes described
in Section 4.1(a) above) shall be computed as if such taxable period ended as of
the close of business on the Closing Date, and, in the case of any Taxes of the
International Group and the UCRI Group attributable to the ownership by any
member of the International Group and the UCRI Group of any equity interest in
any partnership or other "flowthrough" entity, as if a taxable period of such
partnership or other "flowthrough" entity ended as of the close of business on
the Closing Date; and
5
<PAGE> 8
(c) with respect to any Joint Tax Return for the portion, beginning on the
day after the Closing Date, of a Straddle Period, the allocation of Tax
liability between the International Group, on the one hand, and the UCRI Group,
on the other hand, shall be determined in a manner analogous to that set forth
in Treasury Regulation Section 1.1552-1(a)(2).
4.2 CALCULATIONS AND DETERMINATIONS.
(a) All calculations and determinations, including the preparation of Tax
Returns, required to be made pursuant to this Agreement, shall be made in good
faith by the Responsible Party on a basis consistent with prior years and in a
manner that does not unreasonably accelerate or defer deductions or income
between Tax Indemnification Periods and Post-Tax Indemnification Periods. The
Responsible Party will prepare and submit to the Non-Filing Party preliminary
drafts of any calculations (including calculations of the amount for which the
Non-Filing Party will be liable under this Agreement) no later than 90 days
prior to the due date (taking into account any extensions). Notwithstanding the
foregoing, in the event that the first day of such 90 day period is less than 45
days after the close of the Taxable Period, such time period shall be reduced to
the number of days remaining prior to the due date of such Tax Return after
subtracting 45 days after the close of the Taxable Period. Such calculations and
Returns determinations shall be subject to the written approval of the
Non-Filing Party, which approval shall not be unreasonably withheld or delayed.
If the Non-Filing Party's written approval of such calculations and
determinations is withheld, the Non-Filing Party shall so notify the Responsible
Party by the later of (i) the date that is 65 days prior to the date on which
the applicable Tax Returns are to be filed or (ii) the date that is 10 days
after the Non-Filing Party receives preliminary drafts of such calculations or
determinations. Notwithstanding the foregoing, no party shall be required to
submit to the other any calculations, determinations or Tax Returns with respect
to Post-Distribution Taxable Periods.
(b) Whenever the Non-Filing Party is required to make any calculations or
determinations in support of the calculations and determinations referred to in
Section 4.2(a), the Non-Filing Party shall, and shall cause each appropriate
member of its group to, prepare and submit to the Responsible Party, at the
Responsible Party's expense, no later than 120 days prior to the due date
(taking into account any extensions), preliminary drafts of any material
calculations (including calculations of the amount for which the Non-Filing
Party will be liable under this Agreement) or determinations and such other
information as the Responsible Party shall reasonably request, and if requested
by the Responsible Party, access (during reasonable business hours and upon
reasonable advance notice) to copies of the relevant portions of any Tax
Returns, reports or other statements. Notwithstanding the foregoing, in the
event that the first day of such 120 day period is less than 45 days after the
close of the Taxable Period, such time period shall be reduced to the number of
days remaining prior to the due date of such Tax Return after subtracting 45
days after the close of the Taxable Period.
(c) If International and UCRI are unable to agree upon any such
calculations and determinations in the manner set forth in this Section 4.2,
such dispute shall be submitted to Deloitte & Touche, L.L.P., Charlotte, North
Carolina, no later than 60 days prior to the date on which the applicable Tax
Returns are to be filed. Deloitte & Touche, L.L.P. shall then determine a
resolution to such dispute and shall notify International and UCRI of its
resolution no later than 45 days prior to the date on which the applicable Tax
Returns are to be filed. In the event that International or UCRI are unable to
accept any resolution determined by Deloitte & Touche, L.L.P., the party that
does not accept Deloitte & Touche, L.L.P.'s determination may select another
nationally recognized accounting firm to make such determination and such
nationally recognized accounting firm shall notify International and New
International of its resolution no later than 30 days prior to the date on which
the applicable Tax Returns are to be filed. In the event that the resolutions of
Deloitte & Touche, L.L.P. and the nationally recognized accounting firm do not
agree, a third mutually acceptable nationally recognized accounting firm,
jointly selected by Deloitte & Touche, L.L.P. and the second accounting firm,
shall make the final resolution, which resolution shall be final and binding on
International and UCRI, and shall notify International and UCRI of its
resolution no later than two weeks prior to the date on which the applicable Tax
Returns are to be filed. The determinations of the accounting firms shall be in
accordance with tax practices normally used in similar matters and similar
industries. The fees of the accounting firms incurred in resolving the dispute
shall be shared equally by International and UCRI.
4.3 PRINCIPLES OF DETERMINATION. In implementing this Agreement, except as
otherwise specifically provided, the parties shall make any adjustments that are
necessary to ensure that, with respect to Taxes for Straddle Periods or Pre-
Distribution Taxable Periods, payments and reimbursements between the parties
reflect the principles that International is to bear responsibility for Taxes
for International Group (and any Affiliates) that are attributable to the
portion, after the Closing Date, of any Straddle Period (calculated by treating
the day after the Closing Date as the first day of a
6
<PAGE> 9
taxable period), and that UCRI is to bear responsibility for all other Taxes for
Straddle Periods and Pre-Distribution Taxable Periods.
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
5.1 INDEMNIFICATION.
(a) UCRI INDEMNIFICATION. Except as otherwise provided in Section 5.1(b),
UCRI and the UCRI Group shall be liable for and shall indemnify, defend and hold
harmless the members of the International Group and Compass and each of their
respective Affiliates and representatives from and against (A) all Taxes of the
International Group and the UCRI Group for Pre-Distribution Taxable Periods, (B)
all Taxes of the International Group and the UCRI Group for the portion, ending
on the Closing Date, of any Straddle Period, (C) all Taxes of the UCRI Group for
the portion, beginning on the day after the Closing Date (calculated by treating
the day after the Closing Date as the first day of a taxable period), of any
Straddle Period, (D) all Taxes of the UCRI Group for Post-Distribution Taxable
Periods, (E) all liability (as a result of Treasury Regulation Section
1.1502-6(a) or otherwise) for Income Taxes of any person (other than a member of
the International Group or of the UCRI Group or any of Compass or its
Affiliates) which is or has ever been Affiliated with any member of the UCRI
Group or with which any member of the UCRI Group joins or has ever joined (or is
or has ever been required to join) in filing any consolidated, combined or
unitary Tax Return for any Pre-Distribution Taxable Period or Straddle Period,
(F) all liability (as a result of Treasury Regulation Section 1.1502-6(a) or
otherwise) for Income Taxes of any person (other than a member of the
International Group or of the UCRI Group) which has been on or before the
Closing Date Affiliated with any member of the International Group or with which
any member of the International Group joins or has joined on or before the
Closing Date in filing any consolidated, combined or unitary Tax Return for any
Pre-Distribution Taxable Period or Straddle Period, (G) any Transfer Taxes
imposed in connection with or as a result of the Contribution and/or the
Distribution, and one-half of any Transfer Taxes imposed in connection with or
as a result of the Merger, (H) all Taxes for any taxable period (whether
beginning before, on or after the Closing Date) that would not have been payable
but for the breach by any member of the UCRI Group of any representation,
warranty or obligation under this Agreement, (I) all Taxes for any taxable
period (whether beginning before, on or after the Closing Date) that would not
have been payable but for the inaccuracy of the representations and warranties
contained in clauses (ix) or (xii) of Section 4.2(o) of the Merger Agreement or
the breach of the covenant contained in Section 5.1(l) of the Merger Agreement,
(J) all liability for Taxes resulting from the Contribution or Distribution and
(K) all liability for any reasonable legal, accounting, appraisal, consulting or
similar fees and expenses relating to the foregoing.
(b) INTERNATIONAL AND COMPASS INDEMNIFICATION. Except as otherwise provided
in Section 5.1(a), International and Compass shall be liable for and shall
indemnify, defend and hold harmless the members of UCRI Group and each of their
respective Affiliates and representatives from and against (A) all Taxes of
International Group (which, for purposes of all clauses of this Section 5.1(b),
shall include Compass and its Affiliates) for Post-Distribution Taxable Periods,
(B) all Taxes of International Group for the portion, beginning on the day after
the Closing Date (calculated by treating the day after the Closing Date as the
first day of a taxable period), of any Straddle Period, (C) all Taxes for any
taxable period (whether beginning before, on or after the Closing Date) that
would not have been payable but for the breach by any member of International
Group of any representation, warranty or obligation under this Agreement, (D)
all liability for any reasonable legal, accounting, appraisal, consulting or
similar fees and expenses relating to the foregoing, and (E) one-half of any
Transfer Taxes imposed in connection with or as a result of the Merger.
(c) PAYMENTS. Any indemnity payment required to be made pursuant to this
Section 5.1 shall be paid within 30 days after the indemnified party makes
written demand upon the indemnifying party, but in no case earlier than five
business days prior to the date on which the relevant Taxes are required to be
paid (or would be required to be paid if no such Taxes are due) to the relevant
Taxing Authority (including estimated Tax payments).
5.2 NOTICE OF INDEMNITY. Whenever a party hereto (hereinafter an
"Indemnitee") becomes aware of the existence of an issue raised by any Taxing
Authority which could reasonably be expected to result in a determination that
would increase the liability for any Tax of the other party hereto or any member
of such party's Group for any Post-Tax Indemnification Period (in the case of
International Group) or for any Tax Indemnification Period (in the case of the
UCRI Group) or require a payment hereunder to the other party (hereinafter an
"Indemnity Issue"), the Indemnitee shall in good faith promptly give notice to
such other party (hereinafter the "Indemnitor") of such Indemnity Issue. The
7
<PAGE> 10
failure of any Indemnitee to give such notice shall not relieve any Indemnitor
of its obligations under this Agreement except to the extent such Indemnitor or
its Affiliate is actually prejudiced by such failure to give notice.
5.3 TAX CONTESTS. The Indemnitor and its representatives, at the
Indemnitor's expense, shall be entitled to participate (A) in all conferences,
meetings or proceedings with any Taxing Authority, the subject matter of which
is or includes an Indemnity Issue and (B) in all appearances before any court,
the subject matter of which is or includes an Indemnity Issue. The Responsible
Party for the Tax Return with respect to which there could be an increase in
liability for any Tax or with respect to which a payment could be required
hereunder shall have the right to decide as between the parties hereto how such
matter is to be dealt with and finally resolved with the appropriate Taxing
Authority and shall control all audits and similar proceedings. If no Tax Return
is or was required to be filed in respect of an Indemnity Issue, the Indemnitor
shall be treated as the Responsible Party with respect thereto. The Responsible
Party agrees to cooperate in the settlement of any Indemnity Issue with the
other party and to take such other party's interests into account. If the
Indemnitor is not the Responsible Party, such cooperation may include permitting
the Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise
resolve any Indemnity Issue. If UCRI is the Responsible Party and if the Taxes
at issue in the aggregate may equal or exceed $25,000 (computed taking into
account reasonably anticipated future year Tax costs on a present value basis),
(i) UCRI shall not settle any such Indemnity Issue without the prior written
consent of Compass, which consent shall not be unreasonably withheld, (ii)
Compass, and counsel of its own choosing, shall have the right to participate
fully, at its own expense, in all aspects of the defense of such Indemnity
Issue, (iii) UCRI shall inform Compass, reasonably promptly in advance, of the
date, time and place of all administrative and judicial meetings, conferences,
hearings and other proceedings relating to such Indemnity Issue, (iv) Compass
shall, at its own expense, be entitled to have its representatives (including
counsel, accountants and consultants) attend and participate in any such
administrative and judicial meetings, conferences, hearings and other
proceedings relating to such Indemnity Issue, (v) UCRI shall provide to Compass
all information, document requests and responses, proposed notices of
deficiency, notices of deficiency, revenue agent's reports, protests, petitions
and any other documents relating to such Indemnity Issue promptly upon receipt
from, or in advance of submission to (as the case may be), the relevant Taxing
Authority or courts and (vi) UCRI shall not file or submit any protests, briefs,
responses, petitions or other documents relating to such Indemnity Issue with
such relevant Taxing Authority or courts without the prior written consent of
Compass, which consent shall not be unreasonably withheld or delayed, provided
that UCRI may make such filing or submission if required to comply with any
deadline imposed by law (including by order of a court or administrative
authority) if UCRI has made commercially reasonable efforts to obtain such prior
consent.
5.4 TIMING ADJUSTMENTS.
(a) TIMING DIFFERENCES. If a Tax Audit Proceeding, an amendment of a Tax
Return, or any payment adjustment described in Section 2.6 of the Post-Closing
Covenants Agreement results in a Timing Difference, and such Timing Difference
results in a decrease in an indemnity obligation UCRI has or would otherwise
have under Section 5.1 and/or an increase in the amount of a Tax Refund to which
UCRI is entitled to under Section 3.2, then in each Post-Tax Indemnification
Period in which International Group Actually Realizes an Income Tax Detriment,
UCRI shall pay to International an amount equal to such Income Tax Detriment;
provided, however, that the aggregate payments which UCRI shall be required to
make under this Section 5.4(a) with respect to any Timing Difference shall not
exceed the aggregate amount of the Income Tax Benefits realized by the UCRI
Group for all taxable periods. UCRI shall make all such payments within ten days
after International notifies UCRI that the relevant Income Tax Detriment has
been Actually Realized.
(b) REVERSE TIMING DIFFERENCES. If a Tax Audit proceeding, an amendment of
a Tax Return or any payment adjustment described in Section 2.6 of the
Post-Closing Covenants Agreement results in a Reverse Timing Difference, and
such Reverse Timing Difference results in an increase in an indemnity obligation
of UCRI under Section 5.1 and/or a decrease in the amount of a Tax Refund to
which UCRI is or would otherwise be entitled to under Section 3.2, then in each
Post-Tax Indemnification Period in which International Group Actually Realizes
an Income Tax Benefit, International shall pay to UCRI within ten days after
International has Actually Realized such Income Tax Benefit an amount equal to
such Income Tax Benefit; provided, however, that the aggregate payments which
International shall be required to make under this Section 5.4(b) which respect
to any Reverse Timing Difference shall not exceed the aggregate amount of the
Income Tax Detriments realized by the UCRI Group for all taxable periods and by
the International Group for all Tax Indemnification Periods as a result of such
Reverse Timing Difference.
5.5 GROSS UP FOR TAXES. It is the intention of the parties that payments
and asset transfers made pursuant to this Agreement are to be treated as
relating back to the Contribution as an adjustment to the assets and liabilities
contributed
8
<PAGE> 11
thereunder, and the parties shall not take any position inconsistent with such
intention before any Taxing Authority, unless, with respect to any payment, any
party receives an opinion of counsel to the effect that there is no substantial
authority for such position or unless a final determination (as defined in
Section 1313 of the Code), with respect to the recipient party, causes any such
payment not to be so treated. To the extent that any Taxing Authority makes such
a final determination, any amount received by the Indemnitee, to the extent that
it is treated as an item of income or gain for federal income tax purposes and
is not offset by the amount of any tax benefit allowed to the Indemnitee for the
payment or incurrence of any liability from which the Indemnity Issue arises,
shall be increased by 40%. For purposes of this Section 5.5, the Indemnity Issue
amount shall not, in any case, include the gross-up determined under this
Section 5.5.
5.6 RIGHT TO OFFSET. Any party making a payment under this Agreement shall
have the right to reduce any such payment by any amounts owed to it by the other
party to this Agreement pursuant to the Merger Agreement or any other Ancillary
Agreement.
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
6.1 COOPERATION AND EXCHANGE OF INFORMATION.
(a) Each party hereto, on behalf of itself and its Affiliates, agrees to
provide the other party hereto with such cooperation and information as such
other party shall reasonably request in connection with the preparation or
filing of any Tax Return or claim for Tax Refund not inconsistent with this
Agreement or in conducting any audit or other proceeding in respect to Taxes or
to carry out the provisions of this Agreement.
(b) To the extent necessary to carry out the purposes of this Agreement and
subject to the other provisions of this Agreement, such cooperation and
information shall include without limitation the designation of an officer of
International for the purpose of (i) signing Tax Returns, cashing refund checks,
pursuing refund claims, (ii) attending meetings with Taxing Authorities, (iii)
defending audits and (iv) promptly forwarding copies of appropriate notices and
forms or other communications received from or sent to any Taxing Authority
which relate to the Tax Indemnification Period and providing copies of all
relevant Tax Returns for the Tax Indemnification Period, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by Taxing Authorities, including without limitation,
foreign Taxing Authorities, and records concerning the ownership and Tax basis
of property, which either party may possess. Such officer shall have the
authority, subject to the rights of UCRI under this Agreement and at UCRI's
direction, to execute powers of attorney (including Form 2848) on behalf of each
member of the Affiliated Group with respect to Tax Returns and Taxes for the Tax
Indemnification Period. The services of such officer shall not be unreasonably
withheld.
(c) Each party to this Agreement shall make, or shall cause its Affiliates
to make, their employees and facilities available on a mutually convenient basis
to provide an explanation of any documents or information provided hereunder.
6.2 RECORD RETENTION. Notwithstanding Section 6.3 of the Reorganization
Agreement, International and UCRI agree to (i) retain all Tax Returns, related
schedules and workpapers, and all material records and other documents as
required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto ("Tax Records") existing on the date hereof or
created through the Closing Date, for 10 years from the Closing Date and (ii)
allow the other parties to this Agreement and their representatives (and
representatives of any of its Affiliates), at times and dates reasonably
acceptable to the retaining party, to inspect, review and make copies of such
records, and have access to such employees, as International and UCRI may
reasonably deem necessary or appropriate from time to time, such activities to
be conducted during normal business hours and without disruption to either of
its businesses. At the end of the 10-year period described in clause (i),
International or UCRI, as the case may be, shall transfer such records (or cause
such records to be transferred) to the other party (at such other party's sole
expense), unless such other party notifies International or UCRI, as the case
may be, within 90 days prior to the expiration of the 10-year period, that such
other party does not desire to receive such Tax Records, in which case
International or UCRI, as the case may be, may destroy or otherwise dispose of
such undesired documents. Notwithstanding the foregoing, International and UCRI
may mutually agree in writing that such records and other documents may be
destroyed or otherwise disposed of before the end of the 10-year period.
9
<PAGE> 12
ARTICLE VII
GENERAL PROVISIONS
7.1 FURTHER ASSURANCES. Each party hereto shall cooperate reasonably with
the other parties, and execute and deliver, or use its reasonable best efforts
to cause to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture or
other instrument, and take all such other actions as such party may reasonably
be requested to take by any other party hereto from time to time, consistent
with the terms of this Agreement, in order to effectuate the provisions and
purposes of this Agreement and the other transactions contemplated hereby or in
any of the Ancillary Agreements.
7.2 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
the Merger Agreement and the Ancillary Agreements shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof,
superseding all previous negotiations, commitments and writings with respect to
such subject matter.
7.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
7.4 NOTICES. Any notice, request, instruction or other document to be given
hereunder by any party to any other party shall be in writing and shall be
deemed to have been duly given (a) on the first business day occurring on or
after the date of transmission if transmitted by facsimile (upon confirmation of
receipt by journal or report generated by the facsimile machine of the party
giving such notice), (b) on the first business day occurring on or after the
date of delivery if delivered personally, or (c) on the first business day
following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) if to Compass or International after the Closing Date, to
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
(b) if to UCRI or International before the Closing Date, to
Daka International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Attention: General Counsel
7.5 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented, and rights hereunder may be waived, only by a written agreement
signed by duly authorized officers of the respective parties. No waiver of any
term, provision or condition of or failure to exercise or delay in exercising
any rights or remedies under this Agreement, in one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of such term,
provision, condition, right or remedy or as a waiver of any other term,
provision or condition of, or right or remedy under, this Agreement.
7.6 ASSIGNMENT. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion, except that any party hereto may assign any of its rights
hereunder to a successor to all or any part of its business. Except as
aforesaid, any such conveyance, assignment or transfer without the express
written consent of the other parties shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
7.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement is
intended to confer upon any person or entity other than the parties hereto and
their respective successors and permitted assigns, any benefit, right or
remedies.
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7.8 ENFORCEMENT.
(a) The parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.
(b) Except for claims barred by the applicable statute of limitations
(which may not be pursued by the parties in any judicial, arbitral or other
forum), any and all disputes between the parties that arise out of or relate to
this Agreement or any other agreement between the parties entered into in
connection herewith or the transactions contemplated hereby or thereby, and
which cannot be amicably settled, shall be determined solely and exclusively by
arbitration administered by the American Arbitration Association ("AAA") under
its commercial arbitration rules for such disputes at its office in Boston,
Massachusetts. The parties expressly, unconditionally and irrevocably waive any
right to recision, repudiation or any similar remedy in any legal action
hereunder. The arbitration panel (the "Panel") shall be formed of three
arbitrators approved by the AAA, one to be appointed by Compass, one to be
appointed by UCRI, and the third to be appointed by the first two or, in the
event of failure to agree within 30 days, by the President of the AAA. Judgment
on the award rendered by the Panel may be entered in any court having
jurisdiction thereof.
(c) To the extent a court action is authorized above, the parties hereby
consent to the jurisdiction of the United States District Court of
Massachusetts. Each of the parties waives personal service to any and all
process upon them and each consent that all such service of process be made by
certified mail directed to them at their address shown in Section 7.4 hereof.
THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER.
7.9 COUNTERPARTS. For the convenience of the parties, this Agreement may be
executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
7.10 INTERPRETATION. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
7.11 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in good faith in
an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
7.12 TERMINATION. In the event the Merger Agreement is terminated,
notwithstanding any provision hereof, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Closing Date by and in the sole
discretion of the International Board without the approval of any other party
hereto or of International's shareholders. In the event of such termination, no
party hereto shall have any Liability to any Person by reason of this Agreement.
7.13 AGENT. Any consent rights of members of the UCRI Group under this
Agreement shall be exercised by UCRI on behalf of the UCRI Group, and any
notices given by International Group to UCRI shall be deemed to be given to each
member of the UCRI Group. Any consent rights of International Group under this
Agreement shall be exercised by Compass on behalf of International Group, and
any notices given by UCRI to Compass shall be deemed to be given to each member
of International Group.
11
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
DAKA INTERNATIONAL, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
12
<PAGE> 1
Exhibit 16
POST-CLOSING COVENANTS AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
DAKA, INC.
UNIQUE CASUAL RESTAURANTS, INC.
CHAMPPS ENTERTAINMENT, INC.
FUDDRUCKERS, INC.
COMPASS GROUP PLC
AND
COMPASS HOLDINGS, INC.
MAY 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions..................................................................................... 2
ARTICLE II
INDEMNIFICATION
Section 2.1 Indemnification by UCRI......................................................................... 3
Section 2.2 Indemnification by Compass and Compass Holdings................................................. 5
Section 2.3 Procedures Relating to Indemnification.......................................................... 7
Section 2.4 Certain Limitations............................................................................. 8
Section 2.5 Absence of Contribution......................................................................... 10
Section 2.6 Gross up for Taxes.............................................................................. 10
Section 2.7 Exclusivity of Tax Allocation Agreement......................................................... 10
ARTICLE III
OTHER AGREEMENTS
Section 3.1 Transfer Taxes.................................................................................. 10
Section 3.2 Transition Matters.............................................................................. 10
Section 3.3 Insurance....................................................................................... 10
Section 3.4 Expenses........................................................................................ 11
Section 3.5 Covenant Not to Compete......................................................................... 11
Section 3.6 Performance by UCRI of Certain Merger Agreement Covenants; Further Assurances................... 12
Section 3.7 Surety Bonds.................................................................................... 12
Section 3.8 Net Worth....................................................................................... 12
Section 3.9 Duty to Defend.................................................................................. 12
Section 3.10 Guaranty by Champps and Fuddruckers............................................................. 13
Section 3.11 Pending Litigation.............................................................................. 13
ARTICLE IV
TRADE RECEIVABLES AND OBLIGATIONS
Section 4.1 Authorization................................................................................... 13
Section 4.2 Collection of Trade Receivables................................................................. 14
Section 4.3 Payment of Obligations.......................................................................... 14
Section 4.4 Settlement Payments............................................................................. 15
Section 4.5 Reporting....................................................................................... 15
Section 4.6 Billing......................................................................................... 15
Section 4.7 Right of Setoff................................................................................. 15
Section 4.8 Termination of Compass' Obligations............................................................. 16
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
ARTICLE V
POST-CLOSING PAYMENTS
<S> <C> <C>
Section 5.1 Definitions..................................................................................... 16
Section 5.2 Balance Sheet Adjustments....................................................................... 19
Section 5.3 Managed Volume/Profitability Adjustment......................................................... 20
Section 5.4 Determination of Adjustments.................................................................... 21
ARTICLE VI
MISCELLANEOUS AND GENERAL
Section 6.1 Modification or Amendment....................................................................... 22
Section 6.2 Waiver; Remedies................................................................................ 22
Section 6.3 Counterparts.................................................................................... 22
Section 6.4 Governing Law................................................................................... 22
Section 6.5 Notices......................................................................................... 22
Section 6.6 Entire Agreement................................................................................ 23
Section 6.7 Certain Obligations............................................................................. 23
Section 6.8 Assignment...................................................................................... 23
Section 6.9 Severability.................................................................................... 23
Section 6.10 No Third Party Beneficiaries.................................................................... 23
Section 6.11 Enforcement..................................................................................... 24
</TABLE>
<TABLE>
<S> <C>
List of Schedules:
Schedule 4.2 Trade Receivables
Schedule 4.3(a) Types of Obligations
Schedule 5.1(a) Customer Contract Contribution Calculation Methodology
Schedule 5.1(b) Nonrecurring Item Intangible Assets
Schedule 5.3(a) Calculation of Foodservice Segment Income as of March 29, 1997
</TABLE>
ii
<PAGE> 4
POST-CLOSING COVENANTS AGREEMENT
THIS POST-CLOSING COVENANTS AGREEMENT is dated as of May 27, 1997 (the
"Agreement"), among DAKA INTERNATIONAL, INC., a Delaware corporation
("International"), DAKA, INC., a Massachusetts corporation ("Daka"), CHAMPPS
ENTERTAINMENT, INC., a Minnesota corporation ("Champps"), FUDDRUCKERS, INC., a
Texas corporation ("Fuddruckers"), UNIQUE CASUAL RESTAURANTS, INC., a Delaware
corporation ("UCRI"), COMPASS GROUP PLC, a public limited company incorporated
in England and Wales ("Compass"), and COMPASS HOLDINGS, INC., a Delaware
corporation ("Compass Holdings").
RECITALS:
WHEREAS, International, Compass, Compass Holdings and Compass Interim,
Inc., a Delaware corporation ("Compass Interim"), have entered into an Agreement
and Plan of Merger dated as of the date hereof (the "Merger Agreement"),
providing for the Merger (as defined in the Merger Agreement) of Compass Interim
with and into International;
WHEREAS, each of the respective Boards of Directors of International and
Compass has approved a tender offer whereby Compass Holdings will offer to
purchase for cash any and all of the common stock, par value $.01 per share, of
International (the "International Common Stock") subject only to the conditions
set forth in Exhibit 1.1(a) to the Merger Agreement (the "Offer");
WHEREAS, International, Daka, UCRI, Compass and Compass Holdings have
entered into a Reorganization Agreement dated as of the date hereof (the
"Reorganization Agreement"), pursuant to which (a) UCRI or its Subsidiaries will
acquire from International or Daka the UCRI Assets (as defined in the
Reorganization Agreement) and will assume the UCRI Liabilities (as defined in
the Reorganization Agreement) (the "Contribution"), and (b) all of the issued
and outstanding shares of common stock, par value $.01 per share, of UCRI (the
"UCRI Common Stock") will be distributed on a pro rata basis to International's
stockholders (the "Distribution");
WHEREAS, Champps and Fuddruckers will become the principal restaurant
subsidiaries of UCRI and as such will have a direct economic interest and
financial benefits from the transactions described in the Merger Agreement and
desire to induce Compass, Compass Holdings and Compass Interim to enter into the
Merger Agreement and Offer;
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern certain matters
that may arise following the Offer, the Contribution, the Distribution and the
Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Reorganization Agreement, as the case may be. The
following terms are defined in the Sections of this Agreement indicated below:
<TABLE>
<CAPTION>
TERM SECTION LOCATION
<S> <C>
AAA.............................................................................. 6.11(b)
Basket Amount.................................................................... 2.4(d)
Calculation Memorandum........................................................... 5.2(e)
Champps.......................................................................... Introduction
Closing Date Financial Statements................................................ 5.1(b)
Closing Date Current Asset Shortfall............................................. 5.1(a)
Compass Indemnities.............................................................. 2.1
Criminal Matters................................................................. 2.1(e)
Differential..................................................................... 5.2(b)
Filings.......................................................................... 2.1(b)
Foodservice Current Assets....................................................... 5.1(a)
French Quarter Rebates........................................................... 5.2(a)(viii)
Fuddruckers...................................................................... Introduction
GAAP............................................................................. 5.1
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
TERM SECTION LOCATION
<S> <C>
Headquarters Lease............................................................... 2.1(k)
Indemnifiable Losses............................................................. 2.1
Indemnitee....................................................................... 2.3(a)
Lost Customer Contract Managed Volume............................................ 5.2(a)(ii)
Lost Customer Contract Profit.................................................... 5.2(a)(iii)
Lost Customer Contracts.......................................................... 5.2(a)(i)
Managed Volume/Profit Adjustment................................................. 5.2(d)
Managed Volume Differential...................................................... 5.2(c)
Minimum Net Worth................................................................ 3.9(a)
New Customer Contract............................................................ 5.2(a)(iv)
New Customer Contract Managed Volume............................................. 5.2(a)(v)
New Customer Contract Profit..................................................... 5.2(a)(vi)
Nonrecurring Items............................................................... 5.2(a)(vii)
Obligations...................................................................... 4.3(a)
Panel............................................................................ 6.11(b)
Profit Differential.............................................................. 5.2(b)
Restricted Business.............................................................. 3.6(a)
Smithsonian Contract Adjustment.................................................. 5.3
Special Liabilities.............................................................. 2.1(d)
Special Liability Claim.......................................................... 2.3(b)
Termination Date................................................................. 4.8
Third Party Claim................................................................ 2.1(b)
Trade Receivables................................................................ 4.2(a)
Transition Agreement............................................................. 3.2
UCRI Indemnitees................................................................. 2.1(b)
UCRI Obligations................................................................. 3.8
Venturino Claim.................................................................. 2.1(d)
</TABLE>
ARTICLE II
INDEMNIFICATION
SECTION 2.1 INDEMNIFICATION BY UCRI. Except as otherwise specifically
provided in the Merger Agreement or an Ancillary Agreement and subject to the
provisions of this Article II and Article V, UCRI hereby agrees to indemnify,
defend and hold harmless Compass, each Affiliate of Compass, including any of
its Subsidiaries (including, after the Offer Closing Time, International, Daka
and any Subsidiary of Daka) (the "Compass Indemnitees") from and against, and
pay or reimburse the Compass Indemnitees for, all losses, liabilities, damages
(including punitive damages), deficiencies, obligations, fines, taxes, expenses,
claims, claims for benefits, demands, actions, suits, proceedings, judgments or
settlements, whether or not (except as provided in Section 2.1(b)) resulting
from Third Party Claims (as defined in Section 2.1(b) herein), including
interest and penalties recovered by a third party with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense thereof or in asserting,
preserving or enforcing any of the rights hereunder ("Indemnifiable Losses"), as
incurred:
(a) relating to or arising from the UCRI Assets or the UCRI
Liabilities (as defined in the Reorganization Agreement), including without
limitation the Special Liabilities, as defined below (including the failure
by UCRI or any of its Subsidiaries to pay, perform or otherwise discharge
such UCRI Liabilities in accordance with their terms), whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted before,
at or after the Offer Closing Time;
(b) relating to or arising from a claim by any Person who is not UCRI
or an Affiliate of UCRI (other than International or Daka) (collectively,
the "UCRI Indemnitees") or one of the Compass Indemnitees (a "Third Party
Claim") that there is any untrue statement or alleged untrue statement of a
material fact contained in any of the Schedule 14D-1, Schedule 14D-9, the
Form 10, the Information Statement, the Proxy Statement or any other
document filed or required to be filed with the SEC in connection with the
transactions contemplated by the
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Merger Agreement or Reorganization Agreement, or any preliminary or final
form thereof or any amendment or supplement thereto (the "Filings"), or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; but only (i)
in the case of the Schedule 14D-1 with respect to information provided by
UCRI, International or Daka in writing relating to UCRI, International or
Daka, as the case may be, contained in or omitted from such Filings or (ii)
in the case of the Proxy Statement, information that is derived from
filings made by International with the SEC prior to the Offer Closing Time;
(c) relating to or arising from the breach by UCRI or any of its
Subsidiaries of any agreement or covenant or from an inaccuracy in any
representation or warranty of International or Daka contained in the Merger
Agreement or an Ancillary Agreement which does not by its express terms
expire at the Offer Closing Time;
(d) (i) any civil Action or (ii) any action by a Governmental Entity
where such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring or
existing prior to the Offer Closing Time and relating to International,
including, but not limited to, (w) Rita Venturino et al. v. Daka
International, Inc. and William H. Baumhauer, Civil Action No. 96-12109-GAO
(D. Mass.) (the "Venturino Claim"), including all claims for relief
asserted in the Venturino Claim, any amended complaint or any action which
is consolidated with the Venturino Claim, and including any claims similar
to the Venturino Claim (as amended), including but not limited to any civil
actions in state or federal court or claims in arbitration, brought by
shareholders who purchased or sold securities within the class period
described in the Venturino Claim, whether individually or as a group by
reason of "opting out" of or being excluded from the Venturino Claim or by
reason of the Venturino Claim not being certified or being decertified as a
class action, (x) any other class or individual securities action relating
to a time period prior to the Offer Closing Time, (y) any claim or action
relating to or arising from any events, occurrences, actions, omissions,
facts or circumstances occurring prior to the Offer Closing Time by
International, Daka or their Affiliates in connection with the performance
of the transactions contemplated by the Merger Agreements or Ancillary
Agreements, or (z) relating to or arising from any matter set forth on
Schedule 4.2(g) to the Disclosure Schedule (collectively, the "Special
Liabilities");
(e) relating to or arising from any actual or alleged criminal
violation of any law, rule or regulation of any Governmental Entity
("Criminal Matters") by International or any of its Subsidiaries, including
Daka, or any director, officer, employee or agent of International or any
of its Subsidiaries, including Daka, occurring or alleged to have occurred
prior to the Offer Closing Time or any Criminal Matters by UCRI or any of
its Subsidiaries, or any director, officer, employee or agent of UCRI or
any of its Subsidiaries occurring or alleged to have occurred prior to or
after the Offer Closing Time;
(f) relating to or arising from any claim that the execution, delivery
or performance by UCRI, International or Daka of each of the Merger
Agreement or the Ancillary Agreements to which it is or will be a party or
the consummation of the transactions contemplated thereby results in a
violation or breach of, or constitutes a default or impermissible transfer
under, or gives rise to any right of termination, first refusal or consent
under or gives rise to any right of amendment, cancellation or acceleration
of any material benefit under, any Material Contract other than a Customer
Contract;
(g) relating to or arising from (i) the Benefit Plans or Multiemployer
Plans sponsored or contributed to by any member of the International
Affiliated Group, but only with regard to events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted (A) prior
to the Offer Closing Time, (B) in connection with or as a result of the
consummation of the transactions contemplated by the Merger Agreement or
any Ancillary Agreement including but not limited to Section 1.5 of the
Merger Agreement or Section 7.4 of the Reorganization Agreement or (C) with
respect to Multiemployer Plans to the extent provided in Section 7.9 of the
Reorganization Agreement, (ii) the employment of any Foodservice Employee
prior to the Offer Closing Time, (iii) the employment or termination of any
UCRI Employee whether before, on or after the Offer Closing Time;
(h) relating to or arising from the collection of Trade Receivables or
the payment of Obligations (each as defined below) pursuant to Article IV;
provided, that UCRI shall have no obligation to indemnify under this
Section 2.1(h) for Indemnifiable Losses that are finally determined to have
resulted primarily from the gross negligence or willful misconduct of
Compass or its Subsidiaries;
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(i) relating to or arising from the Stock Purchase Agreement dated as
of May 26, 1997, by and among Compass, Compass Holdings, International, and
the Stockholders named therein other than monetary obligations thereunder
relating to the purchase of the Series A Preferred Stock;
(j) relating to or arising from the repayment by Compass or its
Subsidiaries of any bonus or similar payments paid to International or Daka
prior to the Offer Closing Time required under the various purchasing
contracts set forth on Schedule 4.2(k)(iv)(H) or 4.2(k)(iv)(K) of the
Disclosure Schedule; provided, that UCRI shall be liable only for a
prorated portion of any such repayments based on the proportion of the
total period over which the relevant parameter for calculating such bonus
or payment under the terms of the relevant contract is calculated
represented by the portion of such period ending as of the Offer Closing
Time; or
(k) relating to or arising from that lease agreement to which
International is lessee and relating to the real property located at One
Corporate Place, 55 Ferncroft Place, Danvers, Massachusetts (the
"Headquarters Lease"), except for Compass' rental payment obligations as
sublessee to UCRI pursuant to the Transition Agreement (as defined in
Section 3.2).
SECTION 2.2 INDEMNIFICATION BY COMPASS AND COMPASS HOLDINGS. Except as
otherwise specifically provided in the Merger Agreement or any Ancillary
Agreement and subject to the provisions of this Article II, Compass and Compass
Holdings (jointly and severally) shall indemnify, defend and hold harmless the
UCRI Indemnitees from and against, and pay or reimburse the UCRI Indemnitees
for, all Indemnifiable Losses, as incurred:
(a) relating to or arising from the Food service Assets, Foodservice
Liabilities or the conduct of the Foodservice Business where such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing and asserted after
the Offer Closing Time;
(b) relating to or arising from a Third Party Claim that there is any
untrue statement or alleged untrue statement of a material fact contained
in any of the Filings, or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; but only in the case of the Schedule 14D-9, Form 10,
Information Statement or Proxy Statement with respect to information
provided by Compass or its Subsidiaries (excluding International and Daka
prior to the Offer Closing Time) in writing relating to Compass or its
Subsidiaries contained in or omitted from such Filings;
(c) relating to or arising from the breach by Compass or its
Subsidiaries (other than International or Daka) of any agreement or
covenant, or from an inaccuracy in any representation or warranty of
Compass or its Subsidiaries (other than International or Daka) contained in
the Merger Agreement or an Ancillary Agreement (other than an agreement or
covenant assumed by UCRI pursuant to an Ancillary Agreement) which does not
by its express terms expire at the Offer Closing Time;
(d) relating to or arising from any actual or alleged Criminal Matters
by Compass or any of its Subsidiaries, including International or Daka, or
any director, officer, employee or agent of Compass or any of its
Subsidiaries, including International or Daka, after the Offer Closing
Time, occurring or alleged to have occurred prior to or after the Offer
Closing Time, but, in the case of International or Daka, only where such
matters do not relate to a pattern or course of conduct commencing prior to
the Offer Closing Time;
(e) relating to or arising from the employment of any Foodservice
Employee, but only with regard to events, occurrences, actions, omissions,
facts or circumstances occurring, existing or asserted after the Offer
Closing Time;
(f) relating to or arising from the collection of Trade Receivables or
the payment of Obligations by Compass or its Subsidiaries pursuant to
Article IV, but only in the event that such Indemnifiable Losses are
finally determined to have resulted primarily from the gross negligence or
willful misconduct of Compass or its subsidiaries; or
(g) relating to or arising from the repayment by UCRI of any bonus or
similar payments paid to Compass or its Subsidiaries after the Offer
Closing Time required under the various purchasing contracts set forth on
Schedule 4.2(k)(iv)(H) or 4.2(k)(iv)(K) of the Disclosure Schedule;
provided, that Compass or its Subsidiaries shall be liable only for a
prorated portion of any such repayments based on the proportion of the
total period over which the relevant parameter for calculating such bonus
or payment under the terms of the relevant contract is calculated
represented by the portion of such period beginning as of the Offer Closing
Time.
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SECTION 2.3 PROCEDURES RELATING TO INDEMNIFICATION.
(a) In order for a Compass Indemnitee or a UCRI Indemnitee (together,
the "Indemnitees") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a Third Party
Claim, such Indemnitee must notify the party who may become obligated to
provide indemnification hereunder (the "indemnifying party") in writing,
and in reasonable detail, of the Third Party Claim reasonably promptly, and
in any event within 20 business days after receipt by such Indemnitee of
written notice of the Third Party Claim; provided, however, that failure to
give such notification shall not affect the indemnification provided
hereunder except to the extent the indemnifying party shall have been
actually prejudiced as a result of such failure (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice); and provided
further, however, that with respect to any matter for which UCRI is the
indemnifying party, UCRI shall be deemed to have received notice with
respect to all matters by or against Compass or any of its Subsidiaries
notice of which was actually received by an officer of International prior
to the Offer Closing Time. After any required notification (if applicable),
the Indemnitee shall deliver to the indemnifying party, promptly after the
Indemnitee's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third
Party Claim.
(b) If a Third Party Claim is against an Indemnitee, the indemnifying
party will be entitled to participate in the defense thereof and, if it so
chooses, to assume the defense thereof (at the expense of the indemnifying
party) with counsel selected by the indemnifying party and reasonably
satisfactory to the Indemnitee; provided, however, that in case of a claim
made by any person against an Indemnitee relating to a Special Liability (a
"Special Liability Claim"), UCRI (at UCRI's expense) shall assume the
defense thereof with defense counsel selected by UCRI. Should the
indemnifying party so elect (or, in the case of a Special Liability Claim,
be obligated) to assume the defense of a Third Party Claim, the
indemnifying party will not be liable to the Indemnitee for any legal
expenses subsequently incurred (or, in the case of a Special Liability
Claim, incurred) by the Indemnitee in connection with the defense thereof.
If the indemnifying party assumes (or, in the case of a Special Liability
Claim, is obligated to assume) such defense, the Indemnitee shall have the
right to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the indemnifying party,
it being understood that the indemnifying party shall control such defense,
and the indemnifying party shall promptly, at its expense, provide to the
Indemnitee copies of all relevant filings, correspondence, memoranda and
related documents. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the Indemnitee for any period during which
the indemnifying party has not assumed (or, in the case of a Special
Liability Claim, is in breach of its obligation to assume) the defense
thereof (other than during any period in which the Indemnitee shall have
failed to give notice of the Third Party Claim as provided above) or in the
event that there has been a breach of the terms of the insurance policies
related to any Special Liability Claims and as to which Compass or its
Subsidiaries is a beneficiary. If the indemnifying party chooses (or, in
the case of a Special Liability Claim, is obligated) to defend or prosecute
a Third Party Claim, all the parties hereto shall cooperate in the defense
or prosecution thereof, which cooperation shall include the retention in
accordance with the Reorganization Agreement and (upon the indemnifying
party's request) the provision to the indemnifying party of records and
information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
If the indemnifying party chooses (or, in the case of a Special Liability
Claim, is obligated) to defend or prosecute any Third Party Claim, the
Indemnitee will agree to any settlement, compromise or discharge of such
Third Party Claim which the indemnifying party may recommend and which by
its terms obligates the indemnifying party to pay the full amount of
liability in connection with such Third Party Claim; provided, however,
that, without the Indemnitee's consent, the indemnifying party shall not
consent to entry of any judgment or enter into any settlement (w) that
provides for injunctive or other nonmonetary relief having a material
adverse effect on the Foodservice Business, (x) that involves a Criminal
Matter or (y) that involves an allegation of conduct which could result in
the suspension or debarment of the Indemnitee from contracting with any
Governmental Entity. UCRI shall reimburse Compass on a monthly basis for
any reasonable out-of-pocket expenses actually incurred by Compass or its
Subsidiaries in providing support or other resources at UCRI's request
relating to any Special Liability Claim in an amount equal to Compass'
costs thereof.
(c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not
involve a Third Party Claim, the Indemnitee shall deliver notice of such
claim with reasonable promptness to the indemnifying party. The failure by
any Indemnitee so to notify the indemnifying
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party shall not relieve the indemnifying party from any liability which it
may have to such Indemnitee under this Agreement, except to the extent that
the indemnifying party shall have been actually prejudiced by such failure.
If the Indemnitee has provided the indemnifying party two such notices not
less than 30 days apart and the indemnifying party does not notify the
Indemnitee prior to the expiration of a 30-calendar-day period following
its receipt of the second such notice that the indemnifying party disputes
its liability to the Indemnitee under this Agreement, such claim specified
by the Indemnitee in such notice shall be automatically submitted for
arbitration pursuant to Section 6.11(b) hereof. If the indemnifying party
has timely disputed its liability with respect to such claim, as provided
above, the indemnifying party and the Indemnitee shall proceed in good
faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by arbitration as
provided in Section 6.11.
SECTION 2.4 CERTAIN LIMITATIONS.
(a) The amount of any Indemnifiable Losses or other liability for
which indemnification is provided under this Agreement shall be net of any
amounts actually recovered by the Indemnitee from third parties (including,
without limitation, amounts actually recovered under insurance policies)
with respect to such Indemnifiable Losses or other liability. Any
indemnifying party hereunder shall be subrogated to the rights of the
Indemnitee upon payment in full of the amount of the relevant Indemnifiable
Loss. An insurer who would otherwise be obligated to pay any claim shall
not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto. If any Indemnitee recovers an amount from a
third party in respect of an Indemnifiable Loss for which indemnification
is provided in this Agreement after the full amount of such Indemnifiable
Loss has been paid by an indemnifying party or after an indemnifying party
has made a partial payment of such Indemnifiable Loss and the amount
received from the third party exceeds the remaining unpaid balance of such
Indemnifiable Loss, then the Indemnitee shall promptly remit to the
indemnifying party the excess (if any) of (i) the sum of the amount
theretofore paid by the indemnifying party in respect of such Indemnifiable
Loss plus the amount received from the third party in respect thereof, less
(ii) the full amount of such Indemnifiable Loss or other liability.
(b) The amount of any Indemnifiable Losses or other Liability for
which indemnification is provided under this Agreement or any other amounts
payable or reimbursable by one party to another under this Agreement shall
be increased or decreased to take account of any net Tax (as defined in the
Tax Allocation Agreement) cost or any net Tax benefit in a manner analogous
to that described in Section 5.5 of the Tax Allocation Agreement.
(c) Notwithstanding any other provisions of the Merger Agreement or
any of the Ancillary Agreements, the Compass Indemnitees shall not have any
right to make claims for indemnification pursuant to Section 2.1 with
respect to (i) any matter which is the basis of an adjustment pursuant to
Article V hereof, it being understood that such adjustments constitute the
Compass Indemnitees' sole recourse and remedy with respect to such matters
to the exclusion of this Article II, or (ii) breaches of representations
and warranties in the Merger Agreement after the period for which such
representations or warranties survive pursuant to Section 9.1 of the Merger
Agreement.
(d) (i) Neither UCRI nor Compass shall have any liability under
Section 2.1 or Section 2.2, respectively, unless the aggregate of all
Indemnifiable Losses for which UCRI or Compass would, but for this Section
2.4, be liable under Section 2.1 or Section 2.2, respectively, exceeds on a
cumulative pre-tax basis an amount equal to $250,000 (the "Basket Amount"),
and then only the amount by which such Indemnifiable Losses exceed the
Basket Amount; provided that the Basket Amount shall not apply to amounts
paid in connection with the Venturino Claim (which amounts shall be paid in
their entirety).
(ii) No Indemnifiable Losses actually paid by UCRI or Compass pursuant
to any provision other than Section 2.1 or Section 2.2, respectively, or in
connection with the Venturino Claim, shall be deemed to be an Indemnifiable
Loss for purposes of determining whether the aggregate amount of
Indemnifiable Losses exceeds the Basket Amount. Neither UCRI nor Compass
shall have any liability under Section 2.1 or Section 2.2, respectively,
with respect to the breach of or inaccuracy in any representation or
warranty unless notice of any such breach or inaccuracy is given pursuant
to Section 2.3 prior to the expiration of the survival period provided in
the Merger Agreement for the relevant representation or warranty.
SECTION 2.5 ABSENCE OF CONTRIBUTION. In no event shall UCRI have a right of
contribution against International or Daka in connection with the indemnities of
International and Daka found in this Article II, the Merger Agreement or any of
the Ancillary Agreements.
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SECTION 2.6 GROSS UP FOR TAXES. It is the intention of the parties to this
Agreement that payments and asset transfers made by the parties to each other
after the Offer Closing Time pursuant to the Post-Closing Covenants Agreement
are to be treated as relating back to the Contribution as an adjustment to the
assets and liabilities contributed thereunder, and the parties shall take
positions consistent with such intention with any Taxing Authority (as defined
in the Tax Allocation Agreement), unless with respect to any payment any party
receives an opinion of counsel to the effect that there is no substantial
authority for such a position or unless a final determination (as defined in
Section 1313 of the Code) with respect to the recipient party causes any such
payment not to be so treated. To the extent that any Taxing Authority makes such
a final determination, any amount received by the Indemnitee, to the extent that
it is treated as an item of income or gain for federal income tax purposes and
is not offset by the amount of any tax benefit allowed to the Indemnitee for the
payment or incurrence of any liability from which the payment arises, shall be
increased by 40%. For purposes of this Section 2.6, the Indemnifiable Loss
amount shall not, in any case, include the gross-up determined in this Section
2.6.
SECTION 2.7 EXCLUSIVITY OF TAX ALLOCATION AGREEMENT. Notwithstanding
anything in this Agreement, the Merger Agreement or the Reorganization Agreement
to the contrary, the Tax Allocation Agreement shall be the exclusive agreement
among the parties with respect to all Tax matters, including indemnification in
respect of Tax matters and including Timing Adjustments in Section 5.4 of the
Tax Allocation Agreement.
SECTION 2.8 EXCLUSIVITY OF THIS ARTICLE. The indemnification rights of the
parties provided in this Article II constitute the exclusive remedy of the
parties with respect to all matters described in this Article II.
ARTICLE III
OTHER AGREEMENTS
SECTION 3.1 TRANSFER TAXES. UCRI and Compass shall comply with Section
3.2(f) of the Merger Agreement.
SECTION 3.2 TRANSITION MATTERS. UCRI and Compass shall prior to the Offer
Closing Time enter into a Transition Agreement in a mutually agreeable form
which addresses the matters set forth in EXHIBIT 3.2.
SECTION 3.3 INSURANCE.
(a) UCRI will abide by the terms of the Insurance Policies and will
fulfill its obligations as provided in Section 5.4 of the Reorganization
Agreement.
(b) Except as otherwise specifically provided in the Merger Agreement,
the Reorganization Agreement or any other Ancillary Agreement, with respect
to any loss, liability or damage relating to the Foodservice Assets arising
out of events occurring prior to the Offer Closing Time, UCRI will assert
any such claims under the Insurance Policies with respect to such loss,
liability or damage in accordance with the terms thereof. Upon the request
of UCRI, Compass will use reasonable best efforts to assist UCRI in
resolving any such claims under the Insurance Policies with respect to such
loss, liability or damage. Notwithstanding the foregoing sentence, UCRI
shall have full responsibility to assert any claim with respect to the
Foodservice Assets arising out of events occurring prior to the Offer
Closing Time and UCRI assumes full responsibility for all costs, payment
obligations and reimbursement obligations relating to such claims.
SECTION 3.4 EXPENSES. Except as otherwise expressly provided in the
Ancillary Agreements, UCRI shall be responsible for and agree to pay such
expenses which, as provided in Section 6.1 of the Merger Agreement, are the
responsibility of International or Daka, but only to the extent they were
incurred before the Offer Closing Time; provided that International may, prior
to the Offer Closing Time, pay any such expenses that would otherwise be or
become otherwise the responsibility of UCRI.
SECTION 3.5 COVENANT NOT TO COMPETE. In consideration of the payment of the
Merger Consideration (as defined in the Merger Agreement) and the parties'
respective representations, warranties, covenants and agreements contained in
the Merger Agreement and the Ancillary Agreements, UCRI agrees that, for a
period of five years following the Offer Closing Time, neither it nor any of its
Subsidiaries will directly or indirectly, either individually or as an agent,
partner, shareholder, investor, consultant or in any other capacity:
(a) Participate or engage in, or assist others in participating or
engaging in, the business of providing contract catering, contract food and
vending services to business and industry, educational institutions,
airports, healthcare, museums or other similar leisure facilities in the
continental United States but excluding the foodservice provided
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at retail outlets such as cinemas, theaters, stores, shopping centers and
the like (the "Restricted Business"); PROVIDED, HOWEVER, that UCRI without
violating this Section 3.6, may own a passive investment of in the
aggregate not more than 2% of the issued and outstanding stock of a
publicly held corporation, partnership or other entity engaged in the
business of providing food service or vending services;
(b) Influence or attempt to influence any customer of Compass, Compass
Holdings, International or Daka to divert its business from Compass,
International or Daka to any Person then engaged in any aspect of the
Restricted Business in competition with Compass, International or Daka; or
(c) Solicit or hire any of the Foodservice Employees at the district
manager level or above, either during the term of such person's employment
by Compass, International or Daka or within 12 months after such person's
employment has ceased for any reason, to work for UCRI or any Person in any
aspect of Foodservice (including vending service) in competition with
Compass, International or Daka; provided, that this subsection (c) shall
not apply to Foodservice Employees (i) terminated by Compass, International
or Daka after the Offer Closing Time or (ii) who have been employed by
Persons other than Compass, International or Daka for at least six months
prior to being hired by UCRI or its Subsidiaries.
SECTION 3.6 PERFORMANCE BY UCRI OF CERTAIN MERGER AGREEMENT COVENANTS;
FURTHER ASSURANCES. The parties hereto agree that UCRI, as successor to
International and Daka subsequent to the Contribution, will perform in all
respects the covenants applicable to International or Daka in the Merger
Agreement and will receive in all respects the benefits applicable to
International or Daka thereunder.
SECTION 3.7 SURETY BONDS. UCRI represents it has no surety bonds relating
to any UCRI Asset, the UCRI Business or any UCRI Liability.
SECTION 3.8 NET WORTH.
(a) For a period ending on the later of three years following the
Offer Closing Time or the resolution of all claims for indemnification
under Section 2.1, UCRI and its Subsidiaries, on a consolidated basis, will
maintain at all times a net worth (determined in accordance with generally
accepted accounting principles, consistently applied) of not less than
$50,000,000 (the "Minimum Net Worth").
(b) During the foregoing period, UCRI will provide to Compass, within
45 days following the end of each of UCRI's fiscal quarters, a certificate
of the Chief Financial Officer of UCRI certifying UCRI's continuing
compliance with the foregoing covenant.
(c) In the event that UCRI shall fail to meet the Minimum Net Worth,
it shall immediately provide alternate secured collateral for any such
claims for indemnification in a form reasonably satisfactory to Compass.
SECTION 3.9 DUTY TO DEFEND.
(a) UCRI covenants and agrees that it will vigorously and in good
faith defend the Compass Indemnitees in any proceeding or claim of which it
has assumed the defense (or is required to assume the defense) pursuant to
Section 2.1 or Section 2.3, including but not limited to the Special
Liabilities and any Third Party Claim.
(b) In the event that UCRI determines to settle any claim, including
but not limited to the Special Liabilities or any Third Party Claim, the
Compass Indemnitees shall have no duty or obligation to contribute to any
settlement, and the failure of any Compass Indemnitee to contribute to any
settlement shall in no way excuse or discharge the duties and obligations
of UCRI pursuant to Section 2.1 or Section 2.3.
SECTION 3.10 GUARANTY BY CHAMPPS AND FUDDRUCKERS.
(a) Each of Champps and Fuddruckers hereby, jointly and severally,
continuously and unconditionally guarantees to Compass and its Subsidiaries
the full and prompt payment and performance of all obligations of UCRI
under the Ancillary Agreements, including, without limitation, any and all
amounts owed or to be owed under Article II or Article V hereof, whenever
the same, or any part thereof, shall become due and payable in accordance
with the terms of the Ancillary Agreements (the "Guaranty").
(b) Notwithstanding the foregoing Section 3.10(a), the Guaranty shall
be limited to those obligations of UCRI that become due for payment or for
which performance shall have begun and as to which UCRI has been properly
put on notice of a potential claim of Indemnifiable Loss on or before
December 31, 1998.
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(c) Champps and Fuddruckers each hereby agree that Compass or its
Subsidiaries may at any time and from time to time without notice to
Champps or Fuddruckers renew, amend, modify or extend the time of payment
or performance of any obligations guaranteed by this Section 3.10 one or
more times and grant and allow such indulgences or compromises in
connection therewith as it may deem advisable without discharging,
releasing or in any manner affecting the liability of Champps or
Fuddruckers under this Section 3.10.
(d) Champps and Fuddruckers agree that this is a Guaranty of payment
and performance and not of collection, and each hereby waives any right it
may have to require that any action be brought against UCRI or to require
that resort be had to any security.
SECTION 3.11 PENDING LITIGATION. In defending and reaching resolution of
the pending litigation, the Company will consider International's name, existing
goodwill, and reputation in the foodservice industry.
ARTICLE IV
TRADE RECEIVABLES AND OBLIGATIONS
SECTION 4.1 AUTHORIZATION. Under the terms of the Reorganization Agreement,
the Trade Receivables (as defined below) and the Obligations (as defined below)
have been assigned and transferred to UCRI. UCRI hereby appoints Daka as its
agent, after the Offer Closing Time, for purposes of collection of the Trade
Receivables and payment of the Obligations, with the power and authority to act
in the name and on behalf of UCRI as fully as UCRI may act on its own behalf.
UCRI hereby authorizes and directs Daka to pay the Obligations and to collect
the Trade Receivables, as described in this Article IV.
SECTION 4.2 COLLECTION OF TRADE RECEIVABLES.
(a) Commencing at the Offer Closing Time and continuing thereafter for
a period of not more than four months, Daka will use prompt, diligent and
reasonable efforts, in the same manner as its regular collection practices
for its own trade receivables, to collect those trade receivables owned by
UCRI and to be set forth on a schedule to be delivered to Daka by UCRI at
the Offer Closing Time (the "Trade Receivables"). The existing Daka credit
manager will be made available by UCRI on a basis reasonably acceptable to
it to Compass during the first eight weeks following the Offer Closing Time
and will be given access to the necessary records and International
personnel to ensure that such regular collection practices are followed.
Compass shall assign adequate personnel to the collection of Trade
Receivables.
(b) Notwithstanding anything to the contrary contained herein, Daka
shall have no obligation to institute any action or other litigation before
any court, agency, arbitrator or tribunal to collect, or enforce any rights
of UCRI with respect to the Trade Receivables. In each instance where the
institution of an action or lawsuit is appropriate, Daka will allow UCRI to
collect such Trade Receivables and to pursue any such remedies. Daka shall
not, without UCRI's prior written consent, compromise or settle for less
than full face value any of the Trade Receivables unless Daka pays UCRI the
full amount of any deficiency.
(c) Daka acknowledges that UCRI is prepared to assist Daka with
special collection efforts for selected Trade Receivables. In the event
that Daka, in its reasonable discretion, requests such efforts, UCRI shall
to the extent it deems such efforts appropriate make its personnel
available therefor; provided, that Daka shall have no obligation to
undertake any such special collection efforts. In the event UCRI offers
assistance to Daka with respect to the collection of the Trade Receivables,
Daka shall (i) grant UCRI access to relevant personnel and records and (ii)
to the extent Daka deems appropriate, if any, allow UCRI to communicate
directly with any customer.
(d) Subject to the following sentences, any payment received from any
customer shall be applied to the invoice specified by the customer or, if a
payment amount equals an invoice amount for such customer, then to that
invoice. If the customer shall fail to specify the invoice to which such
payment shall be applied and payment does not equal an invoice, then the
payment shall be applied to the oldest invoice existing for such customer.
If an older invoice is outstanding for a customer but the customer
specifies that a payment should be applied to a newer invoice, then Daka
shall be obligated to do one of the following: (i) apply the payment to the
older receivable for the benefit of UCRI or (ii) turn over the older
receivable to UCRI so as to permit UCRI to pursue collection and all
available remedies.
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SECTION 4.3 PAYMENT OF OBLIGATIONS.
(a) Commencing at the Offer Closing Time and continuing thereafter for
a period of not more than four months, Daka shall pay from the collected
Trade Receivables those obligations of UCRI to be set forth on a schedule
to be delivered to Daka by UCRI at the Offer Closing Time (the
"Obligations"), but which schedule shall consist only of the types of
obligations set forth on Schedule 4.3(a) hereto (the "Obligations"). The
obligation of Daka to pay Obligations shall be limited to the actual amount
of Trade Receivables collected by it.
(b) UCRI may elect to provide to Daka from time to time a schedule
setting forth the priority and timing of proposed payments of the
Obligations. If such schedule has been provided, Daka will follow that
schedule unless it determines that adherence to the schedule will have a
material adverse effect on its ability to operate the Foodservice Business
in the ordinary course or impair the credit of Daka.
(c) The amount of accrued but unpaid vacation and sick leave pay
reflected in the Closing Date Financial Statements (which amount shall be a
UCRI Liability (as defined in the Reorganization Agreement)) shall be paid
by UCRI to Compass as provided in Section 4.4(b), whereupon Compass shall
release UCRI from any further liability or obligation in connection
therewith.
SECTION 4.4 SETTLEMENT PAYMENTS.
(a) For the period commencing as of the Offer Closing Time and ending
eight weeks thereafter, Compass shall have no obligation to remit any
collected Trade Receivables to UCRI.
(b) Not later than the Business Day next following the last day of the
eighth week after the Offer Closing Time, Compass shall remit to UCRI the
amount, if any, by which the aggregate of the collected Trade Receivables
exceeds the aggregate amount of the Obligations actually paid by Daka plus
any adjustments determined in good faith and derived from the Closing Date
Financial Statements by Compass pursuant to Section 5.4(a) (but prior to
any final resolution by arbitration pursuant to Section 5.4(b)).
Thereafter, Compass shall remit any such net amount to UCRI not later than
the Business Day next following the end of each succeeding two-week period.
SECTION 4.5 REPORTING. On or before the fifth business day after the end of
each two-week period during the period which Daka is acting as UCRI's agent
hereunder, Daka shall produce a report showing all collections of Trade
Receivables and payments of Obligations during the relevant two-week period and
on a cumulative basis since the Offer Closing Time.
SECTION 4.6 BILLING. Daka will separately bill each customer for goods and
services provided through the Offer Closing Time promptly after the Offer
Closing Time in accordance with prior practice, which amount shall be part of
the Trade Receivables.
SECTION 4.7 RIGHT OF SETOFF. In addition to, but without duplication of,
its rights pursuant to Section 4.4(b), Compass shall have the right to setoff
against (a) any amounts owing to UCRI under Section 4.4 and (b) any obligation
to turn over outstanding Trade Receivables under Section 4.8(a) (i) any or all
amounts which have been finally determined to be actually due from UCRI to
Compass pursuant to Article V (including Section 5.4(b) thereof).
SECTION 4.8 TERMINATION OF COMPASS' OBLIGATIONS.
(a) Notwithstanding anything contained herein to the contrary, not
later than the fifth Business Day following the date that is four months
after the Closing Date (the "Termination Date"), (i) Daka shall turn over
all outstanding Trade Receivables and Obligations to UCRI for collection or
payment by UCRI, at which time all of Daka's and Compass' obligations under
this Article IV shall cease except the obligation to make payments as
provided under Sections 4.4, and the obligations under Section 4.8(b) and
(ii) UCRI shall remit promptly to Compass the amount, if any, by which the
aggregate of the Obligations paid by Daka exceeds the Trade Receivables
collected by Daka through the Termination Date.
(b) For the 12-month period following the Termination Date, Compass
agrees to make available to UCRI, at no cost, on a mutually convenient
basis, copies of such records and information (and access to such employees
as may be reasonably necessary to explain such records and information) as
UCRI may reasonably request in connection with its collection of the Trade
Receivables or payment of the Obligations; provided, that UCRI shall
reimburse Compass for any reasonable out-of-pocket expenses actually
incurred by Compass or its Subsidiaries in providing such records,
information or employees in an amount equal to Compass' actual costs
thereof within five business days following receipt by UCRI from Compass of
notice thereof.
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ARTICLE V
POST-CLOSING PAYMENTS
SECTION 5.1 DEFINITIONS.
When used in this Article V, the following terms have the following
meaning:
"APPLIED PERCENTAGE" means the difference of (i) the percentage calculated
by dividing (A) the sum of (x) excess allocations to the extent actually
reflected in the Closing Date Financial Statements and (y) purchasing rebates to
the extent actually reflected in the Closing Date Financial Statements by (B)
the Total Foodservice Managed Volume minus (ii) 2% (see Schedule 5.3(a) for
illustration purposes).
"CLOSING DATE FINANCIAL STATEMENTS" means the financial statements prepared
in accordance with Section 5.4 in accordance with GAAP (as defined below) with
respect to the Foodservice Business for the period beginning on June 30, 1996
and ending on the earlier of June 28, 1997 or the Offer Closing Time, which
financial statements shall be prepared as if the Offer Closing Time were the end
of a fiscal year (with usual year-end accruals or expenses).
"CUSTOMER CONTRACT CONTRIBUTION" means (i) with respect to any foodservice
contract that is a so-called "profit and loss" contract, the difference between
total revenues and direct operating costs (excluding general and administrative
fees), in each case determined in accordance with GAAP and (ii) with respect to
any foodservice contract that is a so-called "management fee" contract, the sum
of management fees and support fees, minus any costs incurred in connection with
any guaranteed budgeted subsidy, in each case determined in accordance with
GAAP. Schedule 5.1(a) sets forth the methodology to be used in determining
"Customer Contract Contribution" with respect to a typical contract based on
Daka's customary profit and loss statement for contract administration and
internal financial reporting purposes. The parties understand and acknowledge
that for purposes of calculating any Profit Differential pursuant to Section
5.3(a) hereof, Customer Contract Contribution with respect to a particular
contract may be a positive or a negative amount and will be counted in both
cases.
"FRENCH QUARTER COFFEE REBATE" means an amount calculated by multiplying
(A) the total rebates with respect to French Quarter Coffee purchases actually
reflected in the Closing Date Financial Statements by (B) a fraction the
numerator of which is the actual usage of French Quarter Coffee by the
Foodservice Business and the denominator of which is the total usage of French
Quarter Coffee by International and all Subsidiaries (including the Restaurant
Business) during the period covered by the Closing Date Financial Statements.
"GAAP" means generally accepted accounting principles consistently applied
and, to the extent consistent with generally accepted accounting principles,
International's past policies and practices with respect to its historical
consolidated financial statements and the Foodservice Business Financial
Statements (as defined in the Merger Agreement); provided, however, that the
scope of materiality will be adjusted to reflect the relative size of the
Foodservice Business compared to International prior to the Distribution.
"INVENTORY" means all inventories, supplies and materials of any kind used
or held for use in the Foodservice Business, including food, paper supplies,
packaging materials, small wares, and the like, but excluding all inventory
that, under the terms of the applicable Customer Contract, is owned by the
college, university, school, academy or business to which food services are
provided. Inventory shall be valued at its book value determined in accordance
with GAAP (as defined above).
"LOST CUSTOMER CONTRACT" means any Customer Contract which is terminated or
cancelled between June 29, 1996 and the Offer Closing Time, or as to which
during such period any officer of International or Daka at the level of Regional
Vice-President or above has received written or oral notice that (i) the
customer party thereto plans or intends to terminate or cancel such Customer
Contract, or (ii) one or more separate locations under such contract will be
eliminated (whereupon all amounts calculated by reference to a Lost Customer
Contract will be prorated to reflect only such eliminated locations); provided
that the term Lost Customer Contract shall not include (A) any Customer Contract
where the customer party thereto enters into a foodservice contract with or
awards a foodservice contract to Compass or any of its Affiliates after May 1,
1997, or (B) the Customer Contracts with the Smithsonian Institute with respect
to the Museum of Natural History and Museum of American History in Washington,
D.C.
"LOST CUSTOMER CONTRACT MANAGED VOLUME" means the Managed Volume with
respect to the relevant Lost Customer Contract to the extent actually reflected
in the Closing Date Financial Statements.
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"LOST CUSTOMER CONTRACT PROFIT" means the algebraic sum of (a) the Customer
Contract Contribution with respect to the relevant Lost Customer Contract to the
extent actually reflected in the Closing Date Financial Statements and (b) the
product of the Applied Percentage multiplied by the Lost Customer Contract
Managed Volume. The parties acknowledge and understand that for purposes of
calculating any Profit Differential pursuant to Section 5.3(a) hereof, Lost
Customer Contract Profit may be a positive or a negative amount and will be
counted in both cases.
"MANAGED VOLUME" means the total revenues, determined in accordance with
GAAP, from the particular contract, arrangement or other agreement relating to
the Foodservice Business to which reference is made (for those accounts operated
on a management fee basis, the amount of total revenues shall be calculated as
if such account had been operated on a profit and loss basis), plus any subsidy
paid to the contract foodservice provider or payable by any party under any such
contract, arrangement or agreement.
"NEW CUSTOMER CONTRACT" means any foodservice contract that is or would be
included in the list of Customer Contracts delivered pursuant to the Merger
Agreement if in effect as of the date hereof which (i) is entered into by Daka
or International between June 29, 1996 and the Offer Closing Date, or (ii) as to
which during such period any officer of Daka or International at the level of
Regional Vice-President or above has received written or oral notice that (A)
the relevant customer has awarded the contract to or intends to enter into such
contract with Daka or International or (B) one or more separate locations will
be added under such contract (whereupon the amount calculated as a New Customer
Contract will be prorated to reflect only such new locations).
"NEW CUSTOMER CONTRACT MANAGED VOLUME" means the projected annualized
Managed Volume with respect to the relevant New Customer Contract for the first
12 months of operation as mutually agreed between International and Compass (but
if not agreed, then subject to arbitration pursuant to Section 6.11) and
determined on the basis of the bid package submitted by Daka or International
and, if available, the actual terms, conditions and schedules of the actual New
Customer Contract, net of the Managed Volume with respect to such New Customer
Contract to the extent actually reflected in the Closing Date Financial
Statements.
"NEW CUSTOMER CONTRACT PROFIT" means the algebraic sum of (a) the projected
annualized Customer Contract Contribution with respect to the relevant New
Customer Contract for the first 12 months of operation as mutually agreed
between International and Compass (but if not agreed, then subject to
arbitration pursuant to Section 6.11) and determined on the basis of the bid
package submitted by Daka or International and, if available, the actual terms,
conditions and schedules of the actual New Customer Contract, net of the
Customer Contract Contribution with respect to such New Customer Contract to the
extent actually reflected in the Closing Date Financial Statements and (b) the
product of the Applied Percentage multiplied by the New Customer Contract
Managed Volume (adjusted to the extent the Applied Percentage has already been
reflected in the bid package).
"NONRECURRING ITEMS" means the net algebraic sum of (A) International's
amortization expense for those intangible assets described on Schedule 5.1(b) as
reflected in the Closing Date Financial Statements, plus (B) any expenditures
actually reflected in the Closing Date Financial Statements where the nature of
the relevant transaction, entry or reported item is deemed either infrequent,
extraordinary or nonrecurring or is outside the ordinary course of the
Foodservice Business as historically conducted by International and Daka (such
as, for example, litigation settlements paid in excess of reserves, if any,
which relate to an incident which arose in a prior year) minus (C) any income
actually reflected in the Closing Financial Statements that cannot be replicated
in future periods in the ordinary course of the Foodservice Business as
historically conducted by International and Daka (such as, for example,
reduction in cost of sales resulting from duplicate payments arising prior to
June 30, 1996). Nonrecurring Items will exclude normal fluctuations in the
Foodservice Business, such as school enrollment or closure for renovations, and
Lost Customer Contracts. With respect to (B) and (C) above, any such item will
be excluded unless such item individually exceeds $50,000.
"OPERATING CASH" means all cash on hand at individual sites where the
Foodservice Business is conducted, including, without limitation, cash held in
registers, petty cash and the like, but excluding all cash held in bank accounts
or at financial institutions and checks, negotiable instruments, credit card
receivables and the like.
"PREPAID EXPENSES" means all prepaid expenses relating to the Foodservice
Business as reflected in the Closing Date Financial Statements.
"TOTAL FOODSERVICE MANAGED VOLUME" means the total managed volume of the
Foodservice Business as reflected in the Closing Date Financial Statements.
Attached hereto as Schedule 5.3(a) is the calculation of such amount as of March
29, 1997 for illustration purposes.
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"TOTAL FOODSERVICE SEGMENT MEASURE" means the total segment income for the
Foodservice Business as reflected in the Closing Date Financial Statements.
Attached hereto as Schedule 5.3(a) is the calculation of such amount as of March
29, 1997 for illustration purposes.
SECTION 5.2 BALANCE SHEET ADJUSTMENTS.
(a) To appropriately adjust the Contribution, the sum of the following
shall be determined as of the Offer Closing Time: (i) Inventory (based on a
physical count completed within two business days after the Offer Closing
Time but subject to audit by Deloitte & Touche, LLP), (ii) Operating Cash
(based on an actual counting and reconciliation completed within two
business days after the Offer Closing Time) and (iii) Prepaid Expenses (the
sum of (i), (ii) and (iii); the "Foodservice Current Assets"). If the
Foodservice Current Assets are less than $10,000,000, then UCRI shall pay
to Compass as provided in Section 5.4 an amount equal to such shortfall, if
any.
(b) To appropriately adjust the aggregate Offer Price and Merger
Price, the following shall be determined: (i) the product of $7.50 times
the sum of (A) the total number of issued and outstanding shares of
International Common Stock as of the Offer Closing Time plus (B) the total
number of shares of International Common Stock into which all shares of
Series A Preferred Stock issued and outstanding as of the Offer Closing
Time are convertible, minus (ii) the sum of (A) $85,000,000 plus (B) the
amount paid by International to Compass pursuant to Section 6.7(a) (ii) of
the Merger Agreement. UCRI shall pay to Compass as provided in Section 5.4
such amount, if any.
SECTION 5.3 MANAGED VOLUME/PROFITABILITY ADJUSTMENT.
(a) The Profit Differential shall be calculated as follows:
(i) Determine the Total Foodservice Segment Income;
(ii) Subtract the aggregate Lost Customer Contract Profit of all
Lost Customer Contracts;
(iii) Add the aggregate New Customer Contract Profit for all New
Customer Contracts;
(iv) Add the French Quarter Coffee Rebate;
(v) Add or subtract, as appropriate, the Nonrecurring Items; and
(vi) Subtract $20,500,000 from the amount calculated in (i)
through (v) (whether a positive or a negative amount, the
"Profit Differential");
(b) The Managed Volume Differential shall be calculated as follows:
(i) Determine the Total Foodservice Managed Volume;
(ii) Subtract the aggregate Lost Customer Contract Managed Volume
for all Lost Customer Contracts;
(iii) Add the aggregate New Customer Contract Managed Volume for
all New Customer Contracts; and
(iv) Subtract $289,300,000 from the amount calculated in (i)
through (iii) (whether a positive or a negative amount, the
"Managed Volume Differential");
(c) The Managed Volume/Profit Adjustment shall be calculated as
follows:
(i) Divide the Managed Volume Differential by $289,300,000 and
multiply the resulting fraction by 50%;
(ii) Divide the Profit Differential by $20,500,000 and multiply
the resulting fraction by 50%; and
(iii) Add (algebraically) the results of (i) and (ii) and multiply
that fraction by $195,000,000 (the "Managed Volume/Profit
Adjustment").
(d) Not later than five business days after the Managed Volume/Profit
Adjustment is finally determined pursuant to Section 5.4, the parties shall
cause the Managed Volume/Profit Adjustment to be paid as follows:
(i) If the Managed Volume/Profit Adjustment is a negative number,
then UCRI shall pay such amount to Compass;
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(ii) If the Managed Volume/Profit Adjustment is a positive number,
then Compass shall pay such amount to UCRI.
SECTION 5.4 DETERMINATION OF ADJUSTMENTS.
(a) As soon as practicable and in any event not later than 40 days
after the Offer Closing Date, Compass shall deliver to UCRI unaudited
Closing Date Financial Statements and an itemized list (the "Proposed
Adjustment List") setting forth all amounts calculated pursuant to Sections
5.2 and 5.3, with a brief explanation in reasonable detail thereof. Such
list shall show the net amount credited to or charged against the account
of UCRI (the "Proposed Adjustment Amount"). International shall give UCRI
access to relevant records, workpapers and accounting personnel. Subject to
the dispute resolution provisions set forth below, if the Proposed
Adjustment Amount is a credit to the account of UCRI, Compass shall pay
such amount in cash to UCRI; if the Proposed Adjustment Amount is a charge
to the account of UCRI, UCRI shall pay such amount in cash to Compass.
Except as provided otherwise below, payment of the Proposed Adjustment
Amount shall be made in cash not later than five business days following
the delivery of the Proposed Adjustment List.
(b) Not later than 10 days following the delivery of the unaudited
Closing Date Financial Statements and the Proposed Adjustment List, UCRI
may furnish Compass with written notification of any dispute concerning any
items shown thereon or omitted therefrom together with a brief explanation
in reasonable detail in support of UCRI's position in respect thereof. UCRI
and Compass shall consult to resolve any such dispute for a period of 10
days following the notification thereof. If such 10-day consultation period
expires and the dispute has not been resolved, Compass and International
shall submit the unaudited Closing Date Financial Statements to the Boston
office of Deloitte & Touche, LLP, for audit and the Proposed Adjustment
List for review. Deloitte & Touche, LLP, shall deliver the audited Closing
Date Financial Statements, its calculation of the final adjustment amount
based thereon (the "Final Adjustment Amount") (together with a brief
explanation of the basis thereof) to UCRI and Compass not later than 45
days following its receipt of the unaudited Closing Date Financial
Statements and the Proposed Adjustment List. The Final Adjustment Amount
shall be paid in cash by the party required to pay the same within five
business days after the delivery of a copy of such report to UCRI and
Compass.
(c) The Proposed Adjustment List (to the extent not disputed within
the specified period by UCRI), any mutually agreed written settlement of
any dispute concerning the Proposed Adjustment List, or any determination
of disputed items and specification of the Final Adjustment Amount and the
audited Closing Date Financial Statements shall be final, conclusive and
binding on the parties hereto for purposes of determining the adjustment
amount to be paid pursuant to this Article V, if any.
(d) Compass Holdings and New International shall each pay 50% of the
fees and expenses of Deloitte & Touche, LLP in connection with the audit of
the Closing Date Financial Statements.
ARTICLE VI
MISCELLANEOUS AND GENERAL
SECTION 6.1 MODIFICATION OR AMENDMENT. The parties hereto may modify or
amend this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties.
SECTION 6.2 WAIVER; REMEDIES. No delay on the part of any party hereto in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of any party hereto of any right, power
or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. No waiver will be
effective hereunder unless it is in writing. Unless otherwise provided, the
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or in equity.
SECTION 6.3 COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
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SECTION 6.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
SECTION 6.5 NOTICES. Any notice, request, instruction or other
communication to be given hereunder by any party to any other shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (ii) on the first business day following the date of dispatch if
delivered by Federal Express or other nationally reputable next-day courier
service, or (iii) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) If to UCRI:
New Daka International, Inc.
One Corporate Place
55 Ferncroft Place
Danvers, Massachusetts 09123-4001
Attention: General Counsel
(b) If to Compass, International or Daka:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Attention: General Counsel
SECTION 6.6 ENTIRE AGREEMENT. The Merger Agreement, the Ancillary
Agreements and the Confidentiality Agreement constitute the entire agreement,
and supersede all other prior agreements, understandings, representations and
warranties, both written and oral, among the parties, with respect to the
subject matter hereof and thereof.
SECTION 6.7 CERTAIN OBLIGATIONS. Whenever this Agreement requires any of
the Subsidiaries of any party to take any action, this Agreement will be deemed
to include an undertaking on the part of such party to cause such Subsidiary to
take such action.
SECTION 6.8 ASSIGNMENT. No party to this Agreement shall convey, assign or
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion, except that any party hereto may assign any of its rights
hereunder to a successor to all or any part of its business. Except as
aforesaid, any such conveyance, assignment or transfer without the express
written consent of the other parties shall be void ab initio. No assignment of
this Agreement shall relieve the assigning party of its obligations hereunder.
SECTION 6.9 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
SECTION 6.10 NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement is intended to confer upon any person or entity other than the parties
hereto and their respective successors and permitted assigns, any benefit, right
or remedies.
SECTION 6.11 ENFORCEMENT.
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(a) The parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in
addition to any other remedy to which they are entitled at law or in
equity.
(b) Except for claims barred by the applicable statute of limitations
(which may not be pursued by the parties in any judicial, arbitral or other
forum), any and all disputes between the parties that arise out of or
relate to this Agreement or any other agreement between the parties entered
into in connection herewith or the transactions contemplated hereby or
thereby, and which cannot be amicably settled, shall be determined solely
and exclusively by arbitration administered by the American Arbitration
Association ("AAA") under its commercial arbitration rules for such
disputes at its office in Boston, Massachusetts. The parties expressly,
unconditionally and irrevocably waive any right to recision, repudiation or
any similar remedy in any legal action hereunder. The arbitration panel
(the "Panel") shall be formed of three arbitrators approved by the AAA, one
to be appointed by Compass, one to be appointed by UCRI, and the third to
be appointed by the first two or, in the event of failure to agree within
30 days, by the President of the AAA. Judgment on the award rendered by the
Panel may be entered in any court having jurisdiction thereof.
(c) To the extent a court action is authorized above, the parties
hereby consent to the jurisdiction of the United States District Court of
Delaware. Each of the parties waives personal service to any and all
process upon them and each consent that all such service of process be made
by certified mail directed to them at their address shown in Section 6.5
hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF
ANY ACTION INSTITUTED HEREUNDER.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
DAKA INTERNATIONAL, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
UNIQUE CASUAL RESTAURANTS, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
DAKA, INC.
By: /s/ DONALD C. MOORE
DONALD C. MOORE
SENIOR VICE PRESIDENT
CHAMPPS ENTERTAINMENT, INC.
By: /s/ DONALD C. MOORE
TITLE: SENIOR VP
FUDDRUCKERS, INC.
By: /s/ DONALD C. MOORE
TITLE: SENIOR VP
16
<PAGE> 20
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
DIRECTOR
COMPASS HOLDINGS, INC.
By: /s/ MICHAEL J. BAILEY
MICHAEL J. BAILEY
CHIEF EXECUTIVE OFFICER
17
<PAGE> 1
Exhibit 17
BEAR STEARNS Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
January 2, 1997
Mr. Michael J. Bailey
President and Chief Executive Officer
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, NC 28217
Re: Confidentiality Agreement (the "Agreement")
-------------------------------------------
Dear Mr. Bailey:
In connection with your consideration of a possible acquisition (the
"Transaction") of Daka, Inc., ("Daka") the food service subsidiary of DAKA
International, Inc. (together with its subsidiaries, affiliates and division the
"Company"), Compass Group USA, Inc. (together with its parents, subsidiaries and
affiliates, "you") has requested the right to review certain non-public
information regarding Daka and the Company. In consideration of, and as a
condition to, furnishing you with such information and any other information in
respect to Daka in connection with the Transaction (whether communicated in
writing or communicated orally) delivered to you by us or by your respective,
directors, officers, employees, advisors, agents or "controlling persons"
designated as such by us to you and your Representatives (within the meaning of
the Securities Exchange Act of 1934, as amended (the "1934 Act")) (such
designated persons or entities being herein referred to collectively as our
"representatives") in connection with your consideration of a Transaction in
respect of Daka (such information being herein referred to as "Evaluation
Material"), the Company hereby requests your agreement as follows:
1. The Evaluation Material will be used solely for the purpose of
evaluating a possible Transaction in respect of Daka with the Company
involving your or your affiliates, and unless and until you have
completed such Transaction pursuant to a definitive agreement between
you or any such affiliate and the Company, such Evaluation Material
will be kept strictly confidential by you or your affiliates,
directors, officers, employees, advisors, agents or controlling
persons (such affiliates and other persons being herein referred to
collectively as "your Representatives"), except that the Evaluation
Material or portions thereof may be disclosed to those of your
Representatives who need to know such information for the purpose of
evaluating a possible Transaction in respect of Daka with the Company
or for such other purpose as the Company may specifically authorize in
writing (it being understood that prior to such disclosure your
Representatives will be informed of the confidential nature of
the Evaluation Material and shall agree to be bound by this
Agreement). You
<PAGE> 2
agree to be responsible for any breach of this Agreement by your
Representatives.
2. The term "Evaluation Material" means any and all information
concerning the Company (whether prepared by the Company, its advisors
or otherwise and irrespective of the form of communication) that is
furnished to you or to your Representatives now or in the future by or
on behalf of the Company. The term "Evaluation Material" does not
include information which (a) is or becomes available to the public
generally (other than as a result of a disclosure by your or one of
your Representatives), (b) was within your possession prior to the
date hereof or prior to its being furnished to you by or on behalf of
the Company, provided that the source of such information was not
bound by a confidentiality agreement of which you have actual
knowledge with or other contractual, legal or fiduciary obligation of
confidentiality to the Company of which you have actual knowledge or
any other party with respect to such information of which you have
actual knowledge, (c) becomes available to you on a non-confidential
basis from a source other than the Company or one of its
Representatives, provided that such sources is not bound by a
confidentiality agreement of which you have actual knowledge with or
other contractual, legal or fiduciary obligation of confidentiality to
the Company of which you have actual knowledge or any other party with
respect to such information of which you have actual knowledge, or (d)
was independently developed by you without reference to the Evaluation
Material.
3. In the event that you or any of your Representatives are requested or
required (by oral questions, interrogatories, requests for information
or documents in legal proceedings, subpoena, civil investigative
demand or other similar process) to disclose any of the Evaluation
Material, you shall provide the Company with prompt written notice of
any such request or requirement so that the Company may seek a
protective order or other appropriate remedy or waive compliance with
the provisions of this Agreement. If the absence of a protective order
or other remedy or a waiver by the Company, you or one of your
Representatives is nonetheless legally compelled to disclose
Evaluation Material to any tribunal or else stand liable for contempt
or suffer other censure or penalty, your or such Representative may,
without liability hereunder, disclose to such tribunal that portion of
the Evaluation Material which your counsel advises you is legally
required to be disclosed, provided that you shall exercise your
reasonable best efforts to preserve the confidentiality of the
Evaluation Material, including without limitation, by cooperating with
the Company to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the
Evaluation Material by such tribunal.
4. Unless otherwise required by law in the opinion of your counsel,
neither you nor your Representatives will, without our prior written
consent, disclose to any person either the fact that discussions or
negotiations are taking place concerning a possible Transaction in
respect of Daka between the Company
2
<PAGE> 3
and you, or any of the terms, conditions or other facts with respect
to any such possible Transaction, including the status thereof and the
fact that the Evaluation Material has been made available to you
provided, however, you may, without the prior written consent of the
Company, make such disclosure as it has been advised by your legal
counsel is required by applicable law, if you have used all reasonable
efforts to consult with the Company and to obtain the Company's
consent, but have been unable to do so in a timely manner. The term
"person" as used in this letter agreement shall be interpreted broadly
to include the media and any corporation, limited liability
corporation, partnership, group, individual or other entity.
5. Until the earliest of (i) the consummation by you or a third party of
a Transaction, (ii) the acquisition of the Company by a third party,
or (iii) two years from the date of this Agreement, you agree not to
initiate or maintain contact (except for those contacts made in the
ordinary course of business consistent with your past practice) with
any officer, director, employee of the district manager level or above
of the Company or employees employed at the Company's corporate
headquarters regarding the business, operations, prospects or finances
of the Company and you agree not to actively solicit the employment of
any such officer, director, employee of the district manager level or
above of the Company, employees employed at the Company's corporate
headquarters or agent except with the express written permission of
the Company, other than those persons contacted in the ordinary course
of business consistent with your past practice. Unless otherwise
agreed to by the Company in writing, all (i) communications regarding
any possible Transaction, (ii) requests for additional information,
(iii) requests for facility tours or management meetings, and (iv)
discussions or questions regarding procedures, will be submitted or
directed to Bear, Stearns & Co. Inc. ("Bear Stearns").
6. For a period of two years from the date of this Agreement, you and
your affiliates shall not directly or indirectly, and you shall cause
any person or entity controlled by you not to, without the prior
written consent of the Board of Directors of the Company, (i) in any
manner, acquire, agree to acquire or make any proposal to acquire,
directly or indirectly, any securities or property of the Company,
(ii) propose to enter into, directly or indirectly, any merger,
consolidation, recapitalization, business combination or other similar
transaction involving the Company or Daka, (iii) make, or in any way
participate in any "solicitation" of "proxies" (as such terms are used
in the proxy rules of the Securities and Exchange Commission) to vote,
or seek to advise or influence any person with respect to the voting
of any voting securities of the Company, (iv) form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of
the 1934 Act with respect to any voting securities of the Company, (v)
otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of
3
<PAGE> 4
Directors or policies of the Company, (vi) disclose any intention,
plan or arrangement inconsistent with the foregoing, or (vii) advise,
assist or encourage any other persons in connection with any of the
foregoing. You also agree during such period not to (x) request the
Company (or its Representatives), directly or indirectly, to amend or
waive any provision of this paragraph (including this sentence), (y)
take any action which might require the Company or any of its
affiliates to make a public announcement regarding this Agreement or
the possibility of a merger, consolidation, business combination or
other similar transaction, including, without limitation, the
Transaction, or (z) communicate with the Company's shareholders
regarding the subject matter of this Agreement.
7. In addition, you hereby acknowledge that you are aware, and that you
will advise your Representatives who receive the Evaluation Material,
that the United States securities laws prohibit any person who has
material, non-public information concerning the matters which are the
subject of this Agreement from purchasing or selling securities of the
Company (and options, warrants and rights relating thereto) from
communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person (including,
without limitation any of your Representatives) is likely to purchase
or sell such securities.
8. You understand and acknowledge that neither the Company nor Bear
Stearns is making any representation or warranty, express or implied,
as to the accuracy or completeness of the Evaluation Material or any
other information provided to you by the Company or Bear Stearns.
Neither the Company nor Bear Stearns nor our respective affiliates or
Representatives, nor any of our respective officers, directors,
employees, agents or controlling persons (within the meaning of the
1934 Act) shall have any liability to you or any other person
(including, without limitation, any of your Representatives) resulting
from your use of the Evaluation Material.
9. You and the company agree that unless and until a definitive agreement
between the Company and you with respect to any Transaction has been
executed and delivered, neither you nor the Company will be under any
legal obligation of any kind whatsoever with respect to such a
Transaction by virtue of (i) this Agreement or (ii) any written or
oral expression with respect to such a Transaction by you or your
Representatives, any of the Company's directors, officers, employees,
agents, advisors or Representatives except, in the case of this
letter, for the matters specifically agreed to herein.
10. You agree that the Company has not granted you any license, copyright,
or similar right with respect to any of the Evaluation Material or any
other information provided to you by the Company or Bear Stearns.
4
<PAGE> 5
11. If you determine that you do not wish to proceed with the Transaction,
you will promptly advise the Company and Bear Stearns in writing of
that decision. In that case, or in the event that (i) a Transaction is
not consummated by you or (ii) at any time the Company requests, you
will promptly deliver to the Company all of the Evaluation Material,
including all copies, reproductions, summaries, analyses or extracts
thereof or based thereon in your possession or in the possession of
any of your Representatives. In the event of such a request by the
Company for the return of the Evaluation Material, you agree to
destroy all documents, memoranda, notes, studies and analyses prepared
by you or any of your Representatives based on information contained
in the Evaluation Material. Notwithstanding the return or destruction
of the Evaluation Material, you and your Representative will continue
to be bound by your obligations or confidentiality and other
obligations hereunder in accordance with the terms and the duration
specified herein.
12. Without prejudice to the rights and remedies otherwise available to
either party, either party shall be entitled to equitable relief by
way of injunction and specific performance if the other party or the
other party's Representatives breach or threatened to breach any of
the provisions of this Agreement. You agree to waive, and to cause
your Representatives to waive, any requirement for the securing or
posting of any bond in connection with such remedy. In the event of
litigation relating to this Agreement, if a court of competent
jurisdiction determines that a party or any of its Representatives
have materially breached this Agreement, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party
the reasonable legal fees and expenses incurred by such prevailing
party in connection with such litigation, including any appeal
therefrom.
13. The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of Delaware. The
parties hereto hereby irrevocably and unconditionally consent to the
exclusive jurisdiction of the courts of the State of Delaware for any
action, suit or proceeding arising out of or relating to this
agreement or the Transaction, and agree not to commence any action,
suit or proceeding related thereto except in such courts. The parties
hereto further hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding
arising out of or relating to this agreement in the courts of the
State of Delaware, and hereby further irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such
action, suit or proceeding brought in any such court has been brought
in any such court has been brought in an inconvenient forum. You
further agree that service of any process, summons, notice or document
by U.S. registered mail to your address set forth above shall be
effective service of process for any action, suit or proceeding
brought against you in any such court.
5
<PAGE> 6
14. Neither the holding of such discussions between the Company and you,
nor the provision by the Company of the Evaluation Material, will be
construed as in obligation of either party to refrain from engaging,
at any time and in any place, in the same business or any business
similar or dissimilar to the business in which the other party is now
engaged.
15. Neither the Company nor you, nor either party's respective directors,
officers, employees, agents or Representatives will, without prior
written consent of the other make any public statements or public
announcement or any release to trade publications or to the press,
with respect to the discussions regarding your possible purchase of
Daka except as may be necessary, in the opinion of the disclosing
party's counsel to comply with the requirements of any law,
governmental order or regulation. Further, neither the Company nor
you, nor either party's respective directors, officers, employees,
agents or Representatives will, without the prior written consent of
the other party, make any statement to any of the other party's
competitors, existing or prospective customers, or any third parties
(except your counsel, accountants, appraisers and investment bankers),
with respect to such discussions.
16. The benefits of this Agreement shall inure to the respective
successors and assigns of the parties hereto and of the indemnified
parties hereunder and their successors and assigns and
representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns.
17. It is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) that any term or provision hereof is
invalid or unenforceable, (i) the remaining terms and provisions
hereof shall be impaired and shall remain in full force and effect and
(ii) the invalid or unenforceable provision or term shall be replaced
by a term or provision that is valid and enforceable and that comes
closest to expressing the intention of such invalid or unenforceable
term or provision.
18. This Agreement embodies the entire agreement and understanding of the
parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to the matters provided for
herein. No alteration, waiver, amendment, change or supplement hereto
shall be binding or effective unless the same is set forth in writing
signed by a duly authorized representative
of each party and may be modified or waived only by a separate letter
executed by the Company and you expressly so modifying and waiving
such Agreement.
19. For the convenience of the parties, any number of counterparts of this
Agreement may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all
such counterparts taken together shall constitute one and the same
Agreement.
6
<PAGE> 7
This Agreement is being delivered to you in duplicate. Kindly execute and
return one copy of this letter which will constitute our Agreement with respect
to the subject matter of this letter.
Very truly yours,
BEAR, STEARNS & CO. INC.
for itself and on behalf of
DAKA International, Inc.
By: /s/ Marc Sznajderman
-----------------------
Marc Sznajderman
Vice President
Confirmed and Agreed to
this 2nd day of January 1997
Compass Group USA, Inc.
By: /s/ Michael J. Bailey
--------------------------
Name:
Title:
7
<PAGE> 1
Contacts: William H. Baumhauer,
Chairman and CEO
Donald C. Moore, Senior VP
and CFO
Telephone: (508) 774-9115
Market: Nasdaq/NMS
Symbol: DKAI
FOR IMMEDIATE RELEASE
MAY 28, 1997
DAKA INTERNATIONAL, INC. ANNOUNCES
----------------------------------
SALE OF ITS FOODSERVICE BUSINESS
--------------------------------
Danvers, Massachusetts, May 28, 1997 -- DAKA International, Inc.
(NASDAQ:DKAI) today announced it has entered into definitive agreements with
Compass PLC ("Compass") for the sale of its foodservice business for a purchase
price of $195 million, subject to certain adjustments. The transaction is
expected to be consummated through a spin-off of the Company's restaurant
businesses (the "Spin-Off"), a tender offer (the "Offer") for all shares of DAKA
International, Inc. by Compass at a price of $7.50 per share, payable at the
closing in cash, and the repayment by Compass of up to $110 million in
indebtedness of the Company.
Prior to the consummation of the Offer, the Company intends to make
various contributions of assets and liabilities and equity interests to Unique
Casual Restaurants, Inc., a Delaware corporation, wholly-owned by the Company
and formed solely for the purpose of divesting the Company of all its restaurant
businesses. Immediately prior to the consummation of the Offer, and conditioned
upon the successful completion of the Offer, the Company intends to distribute
to holders of record of the Company's stock on June 24, 1997 (or such later date
as the Board may determine subject to the terms of the Offer), one share of
Unique Casual Restaurants, Inc. for each share of the Company's common stock
owned by such holder on the record date.
As a result, in the transaction as a whole, each holder of the Company's
common stock who tenders shares pursuant to the Offer will receive as
consideration for each share of the Company's common stock an amount equal to
$7.50 per share in cash from Compass and one share of Unique Casual Restaurants,
Inc. as a distribution from the Company. Unique Casual Restaurants, Inc. will
apply for listing of its common stock on Nasdaq and it is expected that a
"when-issued" trading market will develop on or about the record date. There can
be no assurance as to prices at which such common stock will trade before or
after the date the shares are distributed.
After giving effect to the Spin-Off, the assets of the Company will
consist only of the contract catering and vending businesses. Unique Casual
Restaurants, Inc. will own and operate the Company's restaurant businesses,
consisting primarily of its Fuddruckers and Champps Americana casual dining
restaurants, and its Great Bagel and Coffee business.
William H. Baumhauer, Chairman and Chief Executive Officer said, "We are
pleased to be able to announce the sale of our foodservice business to Compass
and the spin-off of our restaurant businesses to our new public company, Unique
Casual Restaurants, Inc. Over the past few months, the Board of Directors has
been exploring strategic alternatives to improve shareholder value, alleviate
the Company's significant debt and provide the best opportunity to return to
profitability. We believe the transaction announced today accomplishes these
objectives. We believe the price paid for the foodservice business of $195
million is fair and will, through the tender offer and spin-off, free up some of
the value of the Company to its shareholders."
<PAGE> 2
Mr. Baumhauer said, "The foodservice business has been very profitable for
our Company; however, our significant short-term debt has crippled our ability
to grow and has significantly impacted our overall profitability. As a result of
this transaction, we will be able to concentrate on the continued turnaround of
Fuddruckers and the expansion of Champps. Our new company is anticipated to have
a net worth of over $100 million and will be basically debt-free."
The Company reported that Unique Casual Restaurants, Inc.'s management
team would include Mr. Baumhauer as Chairman and CEO, Dean Vlahos, the founder
of Champps, as President and CEO of Champps, and Donald C. Moore as CFO of the
new company. Mr. Baumhauer said, "The management team of Unique Casual
Restaurants, Inc. has significant restaurant industry experience and we are
optimistic that our new company will be profitable in its first year of
operation."
The Company reported that the transaction announced today would be taxable
to its shareholders. The Company expects to treat the Spin-Off as a redemption
of its stock. The value of a share of Unique Casual Restaurants, Inc., plus
$7.50 per share received as a result of the Offer, will represent the total
consideration received per share by holders of Company stock. The Company
believes that the excess of the total consideration over the shareholder's basis
in their shares of Company stock should qualify as capital gain. Further
guidance on the possible impact to individual shareholders will be set forth in
filings to be made with the Securities and Exchange Commission and in future
mailings of information to shareholders.
Unique Casual Restaurants, Inc. will own, operate and franchise
approximately 250 restaurants with system wide sales of over $325 million and
projected revenues of over $200 million. The Company reported there were no
Company-owned Fuddruckers under construction at May 27, 1997 and none are
planned for fiscal 1998. Two Company-owned and one franchised Champps have
opened in the current quarter, and the Company believes it will open six new
Champps restaurants in fiscal 1998. There are presently 11 franchised
Fuddruckers and no franchised Champps locations under development.
Statements made in this press release include forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements involve certain risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements, including uncertainties regarding the listing of
Unique Casual Restaurants, Inc. on the Nasdaq, the successful completion of the
Offer, the effectiveness of initiatives to lower selling, general and
administrative expenses, the ability to improve operations within the core
businesses and the Company's ability to open new restaurants consistent with its
plans. Information on significant potential risks and uncertainties that may
cause such differences include, but are not limited to, those mentioned in the
Company's filings with the Securities and Exchange Commission including the
information statement to be filed by Unique Casual Restaurants, Inc. relating to
the Spin-Off.
#####
<PAGE> 1
[DAKA LOGO]
ONE CORPORATE PLACE
55 FERNCROFT ROAD
DANVERS, MA 01923-4001
May 29, 1997
Dear DAKA International Stockholder:
I am pleased to inform you that on May 27, 1997, DAKA International, Inc.
(the "Company") entered into an Agreement and Plan of Merger providing for the
acquisition by Compass Holdings, Inc. ("Compass"), a wholly owned subsidiary of
Compass Group PLC, of the Company's contract catering and vending business (the
"Foodservice Business"), which is primarily operated by Daka, Inc., a wholly
owned subsidiary of the Company, for approximately $195 million in cash
(including the repayment by Compass of up to $110 million in indebtedness of the
Company).
As required by the Agreement and Plan of Merger, Compass has commenced a
cash tender offer (the "Offer") to purchase all outstanding shares of the
Company's Common Stock (the "Company Shares") at a price of $7.50 net per share
payable in cash at the closing. The Offer is conditioned upon, among other
things, satisfaction of the condition that there be validly tendered and not
withdrawn prior to the expiration of the Offer, a number of Company Shares that
represents two-thirds of the total voting power of the Company. Following the
purchase of Company Shares under the Offer and the satisfaction of certain other
conditions, including such approval by the Company's stockholders as may be
required by law, the Company and Compass Interim, Inc., a wholly owned
subsidiary of Compass, will merge (the "Merger") and each Company Share not
purchased in the Offer (other than Company Shares held by stockholders who have
perfected any appraisal rights available under Delaware law and Company Shares
owned by Compass, the Company or any of their subsidiaries) will be converted
into the right to receive $7.50 in cash or such higher price per share as may be
paid pursuant to the Offer, without interest.
In addition, prior to the consummation of the Offer, the Company will (i)
transfer the businesses of the Company and its subsidiaries other than the
Foodservice Business, including the Fuddruckers and Champps Americana restaurant
chains, to Unique Casual Restaurants, Inc., a newly formed Delaware corporation
that was established to hold all of the assets of the Company other than those
related to the Foodservice Business, and (ii) declare a dividend (conditioned
upon the satisfaction or waiver by Compass of all of the conditions to the Offer
other than the condition that the Distribution (as defined below) be
consummated) of one share of common stock of Unique Casual Restaurants, Inc. for
each Company Share held of record on June 24, 1997 (or such later date as the
Board of Directors of the Company may determine subject to the terms of the
Offer if the expiration date of the Offer is extended by Compass past June 25,
1997) (collectively, the "Distribution").
As a result, in the Offer and Distribution taken together, each stockholder
who tenders Company Shares pursuant to the Offer will receive $7.50 per share in
cash from Compass and one share of Unique Casual Restaurants, Inc. from the
Company for each share tendered. Unique Casual Restaurants, Inc. will apply for
listing of its common stock on Nasdaq and it is expected that a "when-issued"
trading market will develop on or about the record date for the Distribution.
There can be no assurance as to prices at which such common stock will trade
before or after the date the shares of common stock of Unique Casual
Restaurants, Inc. are distributed. After giving effect to the Distribution, the
assets of the Company will consist only of the Foodservice Business. Unique
Casual Restaurants, Inc. will own and operate the Company's restaurant
businesses, consisting primarily of its Fuddruckers and Champps Americana casual
dining restaurants and its Great Bagel and Coffee Company business.
<PAGE> 2
May 29, 1997
Page 2
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE
MERGER AND THE DISTRIBUTION, HAS DETERMINED THAT THE OFFER, THE MERGER AND THE
DISTRIBUTION ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE
COMPANY AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE STOCKHOLDERS OF THE
COMPANY.
Over the past few months, the Board of Directors of the Company has been
exploring strategic alternatives to improve stockholder value, alleviate the
Company's significant debt and provide the best opportunity to return to
profitability. The Board of Directors of the Company believes the Offer, Merger
and Distribution, taken together, accomplish these objectives. The price to be
paid by Compass for the Foodservice Business of approximately $195 million is
fair and, through the Offer and the Distribution, some of the value of the
Company will be distributed to its stockholders. Although the Foodservice
Business has been very profitable for the Company, the Company's significant
short term debt has crippled its ability to grow and has significantly impacted
overall profitability. As a result of this transaction, management will be able
to concentrate on the continued turnaround of Fuddruckers and the expansion of
Champps Americana. Unique Casual Restaurants, Inc. is anticipated to have a net
worth of over $100 million and will be basically debt-free.
In arriving at its recommendation, the Board of Directors has given careful
consideration to a number of factors as described in the enclosed Schedule 14D-9
filed with the Securities and Exchange Commission, including the opinion of
Bear, Stearns & Co. Inc., the Company's financial advisor, that as of the date
of the opinion, the shares of Unique Casual Restaurants, Inc. to be received by
the holders of Company Shares in the Distribution and the consideration to be
received by the holders of Company Shares in the Offer and the Merger, taken
together, are fair from a financial point of view to such holders. The Schedule
14D-9 contains other important information relating to the Offer, and you are
encouraged to read the Schedule 14D-9 carefully.
Accompanying this letter and Schedule 14D-9 are (i) an Information
Statement, which is attached as Annex I to the Schedule 14D-9 and (ii) Compass'
Offer to Purchase, dated May 29, 1997, together with related materials,
including the Letter of Transmittal to be used for tendering Company Shares.
These documents set forth the terms and conditions of the Offer and provide
instructions as to how to tender Company Shares. We urge you to read the
enclosed material carefully.
On behalf of the Board of Directors and management of the Company, we thank
you for your support.
Sincerely,
/s/ William H. Baumhauer
William H. Baumhauer
Chairman, Chief Executive
Officer and President
<PAGE> 1
[BEAR STEARNS LOGO] BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
SAO PAULO - LONDON - PARIS - GENEVA
BEIJING - HONG KONG - SHANGHAI - TOKYO
May 21, 1997
Board of Directors
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923-4001
Members of the Board:
We understand that DAKA International, Inc. ("DAKA"), Daka, Inc., New Daka
International, Inc. ("New Daka") and Compass Group, PLC ("Compass Group") have
entered into a Post-Closing Covenants Agreement (the "Covenants Agreement") and
Reorganization Agreement (the "Reorganization Agreement"), each dated as of the
date hereof, and DAKA, New Daka and Compass Group have entered into a Tax
Allocation Agreement, dated as of the date hereof (the "Tax Allocation
Agreement," and together with the Covenants Agreement and the Reorganization
Agreement, the "Reorganization Documents"), which provide, among other things,
for the contribution of certain businesses of DAKA to New Daka, and the
distribution (the "Distribution") of all of the issued and outstanding shares
(the "New Shares") of common stock of New Daka to the holders of the outstanding
shares (the "Existing Shares") of common stock of DAKA. The terms and conditions
of the Distribution are more fully set forth in the Reorganization Documents. We
also understand that DAKA, Compass Group, Compass Holdings, Inc. ("Compass
Holdings"), and Compass Interim, Inc. ("Compass Interim") have entered into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, for (i) the commencement by
Compass Holdings of a tender offer to purchase for cash (the "Offer") any and
all of the Existing Shares at a price of not less than $7.50 per Existing Share
and (ii) the subsequent merger (the "Merger") of Compass Interim with and into
DAKA. Pursuant to the Merger, DAKA will become a wholly-owned subsidiary of
Compass Holdings and each Existing Share issued and outstanding immediately
prior to the Effective Time (as defined in the Merger Agreement) (other than any
Existing Shares held by Compass Group or any subsidiary of Compass Group,
Existing Shares held in the treasury or by a subsidiary of DAKA and any Existing
Shares as to which holders thereof have duly exercised dissenter's rights),
shall be converted into the right to receive $7.50 in cash, or any higher price
paid per Existing Share in the Offer. The terms and conditions of the Offer and
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether, taken together, the New
Shares to be received by the holders of Existing Shares in the Distribution and
the consideration to be received by the holders of Existing Shares in the Offer
and the Merger are fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
i. analyzed certain publicly available financial statements and other
information of DAKA;
ii. analyzed certain internal pro forma financial statements and other
financial and operating data covering the businesses of New Daka prepared
by the management of DAKA;
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<PAGE> 2
Board of Directors
Daka International, Inc.
iii. analyzed certain pro forma financial projections related to the
businesses of New Daka prepared by the management of DAKA;
iv. analyzed certain internal financial statements and other financial
and operating data concerning Daka, Inc. prepared by the management of
DAKA;
v. analyzed the estimated financial results of Daka, Inc. for fiscal
1997 prepared by the management of DAKA;
vi. discussed the past and current operations and financial condition
and the prospects of DAKA with senior executives of DAKA;
vii. reviewed reported prices and trading activity for the Existing
Shares;
viii. compared the financial performance of DAKA and the prices and
trading activity of the Existing Shares with that of certain other
comparable publicly-traded companies and their securities;
ix. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
x. participated in discussions and negotiations among representatives
of DAKA, Compass Group and their financial and legal advisors;
xi. participated in a process involving solicitation of interest from,
and discussions and negotiations with, certain parties other than Compass
Group with respect to the food service businesses of DAKA;
xii. reviewed the Merger Agreement and the Reorganization Documents;
and
xiii. performed such other analyses as we have deemed appropriate.
In the course of our review, we have relied upon and assumed without
independent verification the accuracy and completeness of the financial and
other information provided to us by DAKA, Daka, Inc. and New Daka, among others,
and the reasonableness of the assumptions made with respect to the projected
financial results of DAKA and New Daka. We have not assumed any responsibility
for such information and we have further relied upon the assurances of the
managements of DAKA, Daka, Inc. and New Daka, that they are unaware of any facts
that would make the information provided to us incomplete or misleading. With
respect to the projected financial results or estimates of DAKA and New Daka,
which were furnished to us, we have assumed that such financial projections or
estimates, as the case may be, have been reasonably prepared by DAKA and New
Daka, respectively, on bases reflecting the best currently available estimates
and good faith judgments of the future competitive and operating environments
and related financial performance. We have, with your approval, relied upon (i)
your counsel's analysis of the tax consequences of the Distribution, the Offer
and the Merger and (ii) your counsel and accountants as to all other legal and
accounting matters relating to the Distribution, the Offer and the Merger. In
arriving at our opinion, we have not performed, nor were we furnished with, any
independent appraisal of the assets of DAKA, Daka, Inc. and New Daka. We express
no opinion as to the value of the New Shares upon issue to the holders of
Existing Shares or the price or range of prices at which the New Shares will
trade or the liquidity of any such trading subsequent to the consummation of the
Distribution. We have also relied upon the view of the management of DAKA with
respect to the appropriateness of the liabilities assumed by New Daka pursuant
to the Reorganization Documents in light of New Daka's cash needs and strategic
objectives, which view we believe properly is to be determined by management.
Our opinion assumes that DAKA has provided to us all relevant or appropriate
information relating to all inquiries for such information made by us and that
there are no changes subsequent to the date hereof to the Merger Agreement, the
Reorganization Documents and all documents to be filed by DAKA and Compass Group
with any governmental agency from the forms that have
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<PAGE> 3
Board of Directors
Daka International, Inc.
been provided to us on the date hereof. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date of this opinion.
We have acted as financial advisor to DAKA in connection with the
Distribution, the Offer and the Merger and will receive a fee for such services,
payment of which is contingent upon the consummation of the transactions
contemplated by the Merger Agreement and the Reorganization Documents. In the
past, Bear, Stearns & Co. Inc. and its affiliates have provided financial
advisory and financing services for DAKA and have received fees for the
rendering of these services. Alan Schwartz, a member of the Board of DAKA, is
Senior Managing Director -- Corporate Finance of Bear, Stearns & Co. Inc. and a
director of its parent, The Bear Stearns Companies, Inc. Bear, Stearns & Co.
Inc. makes a market in the Existing Shares and, accordingly, may hold a long or
a short position therein.
Based on the foregoing, and assuming the Distribution, the Offer and the
Merger were consummated on the date hereof, we are of the opinion on the date
hereof that, taken together, the New Shares to be received by the holders of
Existing Shares in the Distribution and the consideration to be received by the
holders of Existing Shares in the Offer and the Merger are fair from a financial
point of view to such holders.
It is understood that this letter is for the information of the Board of
Directors of DAKA only in connection with its consideration of the Distribution,
the Offer and the Merger and may not be used for any other purpose, nor
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, in any manner for any purpose, other than inclusion in any filings by DAKA
made with the Securities and Exchange Commission and NASDAQ relating to the
Offer, without our prior written consent. This letter is not intended to be and
does not constitute a recommendation to any holder of Existing Shares whether to
tender any Existing Shares in the Offer.
Very truly yours,
Bear, Stearns & Co., Inc.
By: Anthony J. Magro
------------------------------------
Senior Managing Director
3
<PAGE> 1
Exhibit 21
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 26,
1997, is between DAKA International, Inc., a Delaware corporation
("International"), Compass Group PLC, a public limited company incorporated in
England and Wales ("Compass"), Compass Holdings, Inc., a Delaware corporation
("Compass Holdings" or "Purchaser"), First Chicago Equity Corporation (f/k/a
First Capital Corporation of Chicago) an Illinois corporation ("FCEC"), Cross
Creek Partners I, an Illinois general partnership ("Cross Creek") and certain
other parties signatory hereto (collectively with FCEC and Cross Creek, the
"Stockholders" and each a "Stockholder").
RECITALS
--------
WHEREAS, International and the Stockholders entered into a Preferred
Stock Purchase Agreement dated as of October 23, 1991 and amended on December
19, 1991 (the "Preferred Stock Purchase Agreement"), pursuant to which
International issued and sold to the Stockholders, and the Stockholders
purchased from International, shares of Series A Preferred Stock, par value $.01
per share, of International (the "International Preferred Stock") and warrants
(the "Warrants") exercisable for shares of Common Stock, par value $.01 per
share, of International (the "International Common Stock") upon redemption of
the International Preferred Stock;
WHEREAS, the Board of Directors of Compass has approved a tender offer
pursuant to which Compass Holdings will offer to purchase for cash (the "Offer")
any and all of the International Common Stock, subject to the terms and
conditions contained in an Agreement and Plan of Merger (the "Merger Agreement")
to be entered into by and among Compass, Compass Holdings, International and
certain other parties;
WHEREAS, the Board of Directors of International has approved a plan of
contribution and distribution pursuant to a Reorganization Agreement (the
"Reorganization Agreement") to be entered into by and among International, Daka,
Inc., a wholly owned subsidiary of International ("Daka"), a newly formed,
wholly owned subsidiary of International ("New International"), Compass and
Compass Holdings, pursuant to which, prior to consummation of the Offer, (a) all
of the assets and liabilities of the restaurant business currently operated by
International and certain other assets and liabilities (other than in each case
any funded indebtedness) of International, together with the shares of its
subsidiaries not engaged in the food catering, contract catering and vending
business, will be contributed to New International (the "Contribution"), and (b)
all of the Common Stock, par value $.01 per share, of New International (the
"New International Common Stock") will be distributed on a pro rata basis to the
holders of International Common Stock, including the holders of International
Preferred Stock on an as-converted basis (the "Distribution");
<PAGE> 2
WHEREAS, as of the date hereof, the Stockholders beneficially own
11,911.545 shares of International Preferred Stock (the "Stockholder Shares")
and Warrants to purchase 264,701 shares of International Common Stock upon
redemption of the Stockholder Shares (the "Stockholder Warrants"); and
WHEREAS, as a condition to the willingness of Compass to enter into the
Merger Agreement and make the Offer, and of International, Daka and New
International to enter into the Reorganization Agreement and effect the
Contribution and Distribution, Compass Holdings has agreed to purchase from the
Stockholders, and the Stockholders have agreed to sell to Compass Holdings, all
of the Stockholder Shares and all of the Stockholder Warrants on the terms and
conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound, Purchaser and the
Stockholders hereby agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 PURCHASE AND SALE OF STOCKHOLDER SHARES.
(a) On the Closing Date (as hereinafter defined) and subject
to the terms and conditions set forth herein, (i) the Stockholders shall
transfer, assign and deliver to Purchaser, and Purchaser shall purchase from the
Stockholders, all of the Stockholder Shares and all of the Stockholder Warrants
then beneficially owned by the Stockholders, and (ii) Purchaser shall pay or
cause to be paid to the Stockholders in exchange therefor cash in an aggregate
amount (the "Purchase Price") equal to the total number of shares of Conversion
Stock (which, as defined in the Certificate of Designation, Preferences and
Rights of Preferred Stock establishing and designating the International
Preferred Stock (the "Certificate of Designation"), equals 264,701 as of the
date hereof and is subject to adjustment as provided therein) into which the
Stockholder Shares are convertible as of the Closing Date, multiplied by the
Offer Price (which, as defined in the Merger Agreement, equals $7.50 and is
subject to increase (but not decrease) as provided therein).
(b) On the business day immediately preceding the Offer
Closing Date (as defined in the Merger Agreement), International shall pay or
cause to be paid and shall deliver or cause to be delivered to the Stockholders
all accrued and unpaid dividends on the International Preferred Stock,
including, without limitation, any and all accrued and unpaid cash dividends and
stock dividends payable in shares of International Common Stock calculated
through the Closing Date (collectively, the "Accrued Dividends"); provided,
however, that any accrued and unpaid stock dividends relating to the
Distribution shall be paid, and International shall deliver or cause to be
delivered to the Stockholders certificates therefor, on the payment date
established by the Board of Directors of the Company for such dividends.
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<PAGE> 3
1.2 DIVIDENDS. The parties acknowledge that, in accordance with Section
1D of the Certificate of Designation, the Stockholders are entitled to receive
from International on an as-converted basis any and all dividends (whether
payable in cash, securities or other property) declared upon the International
Common Stock (whether payable in cash, securities or other property, a "Common
Stock Dividend")), provided that the record date for any such Common Stock
Dividend is a date prior to the Closing Date, including, without limitation, the
dividend to be declared by International in connection with the Distribution.
Purchaser and International acknowledge and agree that the record date (the
"Record Date") for the dividend to be declared by International in connection
with the Distribution shall be a date prior to the Closing and that the
Stockholders shall be entitled to receive shares of New International Common
Stock in connection therewith on account of their shares of International
Preferred Stock on an as-converted basis. International represents and warrants
to the Stockholders that its Board of Directors has fixed the Record Date as the
close of business on June 24, 1997; provided, however, that the Board of
Directors of International reserves the right to change the Record Date to a
date after (but not before) June 24, 1997, subject to the terms and conditions
of the Reorganization Agreement and the Merger Agreement. International agrees
that in the event that its Board of Directors (or authorized committee thereof)
resolves to change the Record Date, International shall provide the Stockholders
with notice of such change on the date on which International's Board of
Directors (or authorized committee thereof) so resolves.
1.3 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Stockholder Shares (the "Closing") shall
take place (a) at the offices of Smith Helms Mulliss & Moore, L.L.P., 214 North
Church Street, Charlotte, North Carolina, on the day immediately following the
day on which Compass Holdings accepts for payment and pays for shares of
International Common Stock pursuant to the Offer, or (b) at such other time,
date or place as the parties hereto may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date." At the Closing,
Purchaser shall pay the Purchase Price to the Stockholders (by wire transfer of
immediately available funds to one or more accounts designated in writing by the
Stockholders) and, subject to the proviso of Section 1.1(b), on the business day
immediately preceding the Offer Closing Date International shall pay or cause to
be paid and deliver or cause to be delivered to the Stockholders all Accrued
Dividends to the same accounts, against, in the case of the Purchase Price,
delivery to Purchaser of (i) certificates for the Stockholder Shares so
purchased, duly endorsed or accompanied by stock powers duly executed in blank,
and (ii) properly completed assignments in the form of Exhibit II to the Daka
International, Inc. Stock Purchase Warrant dated January 17, 1992.
1.4 WAIVER. Each of the Stockholders agrees that upon the Closing, each
of the Stockholders shall be deemed to have waived all rights or claims of any
nature whatsoever which any such Stockholder had or may have had under the
Preferred Stock Purchase Agreement.
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<PAGE> 4
1.5 CONVERSION OF PREFERRED STOCK. Notwithstanding anything to the
contrary provided herein, the Stockholders may sell or otherwise transfer any of
the Stockholder Shares or Stockholder Warrants prior to the earlier of the
Closing or the termination of this Agreement only (A) upon the conversion of
such Stockholder Shares into shares of International Common Stock at the
election of the Stockholders, or (B) in connection with the sale of such shares
of International Common Stock issued to the Stockholders upon such conversion in
a transaction pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"). In the event that any Stockholder converts
any Stockholder Shares pursuant to this Section 1.5, International shall deliver
or cause to be delivered to such Stockholder, within two (2) days following
notice of conversion of such Stockholder Shares and delivery to International of
the certificates representing such Stockholder Shares, certificates for the
number of Conversion Shares into which such Stockholder Shares are then
convertible, and such certificates shall not bear any restrictive legend. Each
of the Stockholders (i) represents that as of the date hereof it is not, and
covenants that as of any date on which such Stockholder sells or transfers
Stockholder Shares pursuant to this Section 1.5 it shall not be, an "affiliate"
(as that term is defined in Rule 144 promulgated under the Securities Act) of
International and represents that it has not been, and covenants that as of any
date on which such Stockholder sells or transfers Stockholder Shares pursuant to
this Section 1.5 it will not have been, an affiliate of International during the
preceding three months, and (ii) represents that a period of two (2) years has
elapsed since the later of the date such Stockholder Shares were acquired from
International or from an affiliate of International, as calculated as described
in Rule 144(d) promulgated under the Securities Act.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF COMPASS AND COMPASS
HOLDINGS. Each of Compass and Compass Holdings hereby represent and warrant to
the Stockholders as follows:
(a) ORGANIZATION AND GOOD STANDING. Compass is a public
limited company duly incorporated and registered under the laws of England and
Wales. Compass Holdings is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) POWER AND AUTHORIZATION. Each of Compass and Compass
Holdings has the legal right, power and authority to enter into and perform its
obligations under this Agreement and the other agreements and documents required
to be delivered by it hereunder. The execution, delivery and performance by
Compass and Compass Holdings of this Agreement and the Merger Agreement have
been duly authorized by all necessary corporate action on the part of each of
Compass and Compass Holdings. This Agreement and the Merger Agreement constitute
the legal, valid and binding obligation of each of Compass and Compass Holdings,
enforceable against it in accordance with its terms.
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<PAGE> 5
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by Compass and Compass Holdings nor
consummation of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the Memorandum and Articles of
Association of Compass or the certificate of incorporation or bylaws of Compass
Holdings, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority, or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Compass, any of its Subsidiaries or any of their respective
assets.
(d) NO BROKERS. Neither Compass nor any of its Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or the Stockholders to
pay any finder's fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby, except that Compass has engaged Patricof &
Co. Capital Corp. and NationsBanc Capital Markets, Inc. as its financial
advisors in connection with the transactions contemplated by the Merger
Agreement and is responsible for all fees, commissions, and like payments
arising from such engagements, and International has engaged Bear Stearns & Co.,
Inc. as its financial advisor in connection with the transactions contemplated
by the Merger Agreement and is responsible for all fees, commissions, and like
payments arising from such engagement. Other than the foregoing arrangements,
neither Compass nor Compass Holdings is aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby, and each of Compass and Compass Holdings
shall indemnify and hold each of the Stockholders harmless against any such
claim.
2.2 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each
Stockholder hereby severally (and not jointly with respect to the other
Stockholders) represents and warrants to Compass and Compass Holdings as
follows:
(a) OWNERSHIP OF SHARES. As of the date of this Agreement and,
except to the extent of any conversion, sale or transfer of any Stockholder
Shares in accordance with Section 1.5, as of the Closing Date, such Stockholder
owns or shall own of record or beneficially the Stockholder Shares and the
Stockholder Warrants set forth on EXHIBIT A opposite such Stockholder's name and
such shares and warrants constitute all of the shares of International Preferred
Stock and warrants to purchase shares of International Common Stock upon
redemption of Stockholder Shares, respectively, owned of record or beneficially
by such Stockholder. Such Stockholder will not sell or transfer any Stockholder
Shares or Stockholder Warrants prior to the earlier of the Closing or the
termination of this Agreement (except as provided in Section 1.5). Upon transfer
and delivery by such Stockholder to Purchaser of the Stockholder Shares and the
Stockholder Warrants owned by such Stockholder pursuant to this
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<PAGE> 6
Agreement, Purchaser shall acquire ownership of such shares and warrants, free
and clear of all adverse claims (other than any created by or through
Purchaser).
(b) ORGANIZATION AND GOOD STANDING. Each of FCEC and Cross
Creek is duly organized, validly existing and in good standing under the laws of
the State of Illinois.
(c) POWER AND AUTHORIZATION. Such Stockholder has full legal
right, power and authority to enter into and perform its obligations under this
Agreement and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by such Stockholder of this
Agreement have been duly authorized by all necessary action on the part of such
Stockholder. This Agreement constitutes the legal, valid and binding obligation
of such Stockholder, enforceable against it in accordance with its terms.
(d) CONSENTS AND APPROVALS: NO VIOLATION. Neither the
execution and delivery of this Agreement by such Stockholder nor consummation by
such Stockholder of the transactions contemplated hereby will conflict with any
of the organizational documents of such Stockholder.
(e) NO BROKERS. Such Stockholder has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of such entity or Purchaser to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or consummation of the transactions
contemplated hereby, and such Stockholder shall indemnify and hold each of
Compass and Compass Holdings harmless against any such claim.
ARTICLE 3. CONDITIONS PRECEDENT
3.1 MUTUAL CONDITION. The obligations of the parties hereto to
enter into and consummate the transactions contemplated hereby are subject to
the acceptance for payment and payment by Purchaser of shares of International
Common Stock pursuant to the Offer.
3.2 CERTAIN CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The
obligations of Purchaser to enter into and consummate the transactions
contemplated hereby are further subject to the fulfillment (or waiver in writing
by Purchaser in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of the Stockholders
contained in this Agreement shall be true and correct on and as of the date
hereof and in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date (except to the
extent of any changes or developments expressly contemplated by the terms of
this Agreement); and
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<PAGE> 7
(b) the Stockholders shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by the Stockholders on or prior to the Closing
Date.
3.3 CERTAIN CONDITIONS PRECEDENT TO THE STOCKHOLDERS' OBLIGATIONS.
The obligations of the Stockholders to enter into and complete the transactions
contemplated hereby are further subject to the fulfillment (or waiver in writing
by the Stockholders in its sole discretion) on or prior to the Closing Date of
the conditions that:
(a) the representations and warranties of Compass and Compass
Holdings contained in this Agreement shall be true and correct on and as of the
date hereof and in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date;
(b) Each of Compass and Compass Holdings shall have performed
and complied in all material respects with all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date; and
(c) The Stockholders shall be entitled to receive shares of
New International Common Stock pursuant to the Distribution as contemplated by
Section 1.2.
(d) International shall have caused to be delivered to the
Stockholders a letter from Goodwin, Procter & Hoar LLP permitting the
Stockholders to rely on the opinion of Goodwin, Procter & Hoar LLP delivered to
Compass pursuant to the Merger Agreement to the effect that registration of the
Distribution is not required under Section 5 of the Securities Act, as such
opinion relates to the shares of New International Common Stock to be issued to
the Stockholders pursuant to the Distribution.
ARTICLE 4. MISCELLANEOUS
4.1 FURTHER ACTION. The parties hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may reasonably be required to effect the
transactions contemplated hereby, in any case at the expense of the requesting
party.
4.2 PARTIES IN INTEREST; ASSIGNMENT. Except as provided in Section
2.2(a), none of the parties to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
parties hereto. This Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns.
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<PAGE> 8
4.3 ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement contains
the entire understanding between the parties hereto with respect to its specific
subject matter. This Agreement may be amended only by written instrument duly
executed by the parties hereto. No party may waive any term, provision, covenant
or restriction of this Agreement except by a duly signed writing referring to
the specific provision to be waived.
4.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered personally
or transmitted by telex, fax or telegram, to the respective parties as follows:
(a) If to the Stockholders:
First Chicago Equity Corporation
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Eric C. Larson
Cross Creek Partners I
c/o First Capital Corporation of Chicago
Three First National Plaza, Suite 1210
Chicago, IL 60670
Attn: Eric C. Larson
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Ted H. Zook, Esq.
(b) If to Compass or Compass Holdings:
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, NC 28271
Attn: General Counsel
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<PAGE> 9
(c) If to International:
DAKA International, Inc.
One Corporate Place
55 Ferncroft Road
Danvers, MA 01923
Attn: General Counsel
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Ettore A. Santucci, P.C.
or to such other address as any party may have furnished to the others in
writing.
4.5 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the internal laws of the State of Delaware.
4.7 Termination.
-----------
(a) This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing:
(i) by Purchaser, International or the
Stockholders, if the Merger Agreement shall have been terminated;
(ii) by mutual consent of Purchaser,
International and the Stockholders;
(iii) by the Stockholders, if any of Compass or
Compass Holdings has failed to perform in any material respect any of
its respective obligations required to be performed by it under this
Agreement unless failure to so perform has been caused by or results
from a breach of this Agreement by the Stockholders;
(iv) by Purchaser, if any of the Stockholders
shall have failed to perform in any material respect any of the
obligations required to be performed by it under this Agreement unless
failure to so perform has been caused by or results from a breach of
this Agreement by any of Compass or Compass Holdings;
(v) by Purchaser or the Stockholders, if the
Closing does not occur
9
<PAGE> 10
on or prior to July 31, 1997;
(vi) by the Stockholders, if the Stockholders
have sold or transferred all of the Stockholder Shares pursuant to Section 1.5
hereof; or
(vii) by the Stockholders, if the Merger Agreement
is not entered into by the parties thereto within three business days after the
date of this Agreement.
(b) A party terminating this Agreement pursuant to
Section 4.7 shall give written notice thereof to each other party hereto,
whereupon this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by any party; PROVIDED,
however, that if such termination is by Purchaser pursuant to Section 4.7(a)(iv)
or if such termination is by the Stockholders pursuant to Section 4.7(a)(iii),
nothing herein shall affect the non-breaching party's or parties' right to
damages on account of such other party's or parties' breach.
4.8 REMEDIES. The Stockholders acknowledge that the Stockholder
Shares are unique and that Purchaser will not have an adequate remedy at law if
the Stockholders fail to perform any of their obligations hereunder, and the
Stockholders agree that Purchaser shall have the right, in addition to any other
right it has, to specific performance or equitable relief by way of injunction
if the Stockholders fail to perform any of their obligations hereunder.
4.9 COUNTERPARTS; HEADINGS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same document. The article and
section headings contained herein are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
4.10 EXPENSES. Each of the parties hereto shall pay the fees and
expenses it incurs in connection with this Agreement, other than as a result of
the breach hereof by any other party hereto, except that the parties acknowledge
that International shall pay to the Stockholders at the Closing (or promptly
upon written demand by the Stockholders if the Closing does not occur for any
reason other than breach of this Agreement by the Stockholders) an amount of
cash equal to the Stockholders' documented out-of-pocket fees and expenses
(including legal fees and expenses) actually incurred by them in connection with
this Agreement. International shall cause New International to become jointly
and severally obligated with International under this Section 4.10 and shall
provide the Stockholders with written evidence thereof promptly upon demand. The
provisions of this Section 4.10 shall survive any termination of this Agreement
pursuant to Section 4.7.
4.11 CERTAIN DEFINITIONS. For purposes of the Agreement:
10
<PAGE> 11
(a) "beneficially owned" shall have the meaning set forth in
Rule 13d-3 promulgated under the Exchange Act, as such Rule is in effect on the
date hereof.
(b) "business day" means any day which is neither a Saturday
or Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
(c) As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" when used with respect to any party means any corporation,
partnership, joint venture, business trust or other entity, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization.
(d) As used in this Agreement, the word "person" means an
individual, a corporation, a partnership, an association, a joint-stock company,
a trust, a limited liability company, any unincorporated organization or any
other entity.
(e) As used in this Agreement, the word "affiliate" shall have
the meaning set forth in Rule 144 of the Securities Act.
11
<PAGE> 12
{Signature Page to Stock Purchase Agreement}
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written.
DAKA INTERNATIONAL, INC.
By: /s/ Donald C. Moore
----------------------------------------
Name:
Title:
COMPASS GROUP, PLC
By: /s/ Michael J. Bailey
----------------------------------------
Name:
Title:
COMPASS HOLDINGS, INC.
By: /s/ Michael J. Bailey
----------------------------------------
Name:
Title:
FIRST CHICAGO EQUITY CORPORATION
By: /s/ Timothy A. Dugan
----------------------------------------
Name: Timothy A. Dugan
Title: Attorney-in-Fact
CROSS CREEK PARTNERS I
By: /s/ Timothy A. Dugan
----------------------------------------
Name: Timothy A. Dugan
Title: Attorney-in-Fact
*
--------------------------------------------
John G. Schreiber
12
<PAGE> 13
**
--------------------------------------------
Jennifer C. Schreiber Trust
**
--------------------------------------------
Heather E. Schreiber Trust
**
--------------------------------------------
Amy D. Schreiber Trust
**
--------------------------------------------
Michael D. Schreiber Trust
**
--------------------------------------------
Matthew D. Schreiber Trust
**
--------------------------------------------
Nicholas J. Schreiber Trust
**
--------------------------------------------
Molly E. Schreiber Trust
**
--------------------------------------------
Kaitlin E. Schreiber Trust
* /s/ Timothy A. Dugan
--------------------------------------------
by: Timothy A. Dugan
-----------------------------------------
pursuant to a Power of Attorney dated
May 23, 1997
** /s/ Timothy A. Dugan
--------------------------------------------
by: Timothy A. Dugan
-----------------------------------------
pursuant to a Power of Attorney dated
May 23, 1997
13
<PAGE> 14
<TABLE>
EXHIBIT A
---------
<CAPTION>
Stockholder Stockholder Shares Stockholder Warrants
- ----------- ------------------ --------------------
<S> <C> <C>
FCEC 9,926.400 220,587.000
Cross Creek 1,323.415 29,409.000
John G. Schreiber 330.865 7,352.556
(c/o Mayer, Brown & Platt)
Jennifer C. Schreiber Trust 41.425 920.556
(c/o Mayer, Brown & Platt)
Heather E. Schreiber Trust 41.425 920.556
(c/o Mayer, Brown & Platt)
Amy D. Schreiber Trust 41.425 920.556
(c/o Mayer, Brown & Platt)
Michael D. Schreiber Trust 41.470 921.556
(c/o Mayer, Brown & Platt)
Matthew D. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
Nicholas J. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
Molly E. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
Kaitlin E. Schreiber Trust 41.280 917.333
(c/o Mayer, Brown & Platt)
</TABLE>
14
