<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14D-1
(RULE 14D-100)
TENDER OFFER STATEMENT PURSUANT TO SECTION
14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
DAKA INTERNATIONAL, INC.
(Name of Subject Company (Issuer))
COMPASS HOLDINGS, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
COMPASS GROUP PLC
(Bidders)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class of Securities)
234068203
(CUSIP Number of Class of Securities)
MARY H. KERCHER, GENERAL COUNSEL
COMPASS GROUP USA, INC.
2400 YORKMONT ROAD
CHARLOTTE, NORTH CAROLINA 28217
(704) 329-4034
FACSIMILE (704) 329-4010
(Name, Address and Telephone Number of Persons Authorized to
Receive Notices and Communications on Behalf of Bidder)
WITH A COPY TO:
BOYD C. CAMPBELL, JR.
SMITH HELMS MULLISS & MOORE, L.L.P.
214 NORTH CHURCH STREET
CHARLOTTE, NORTH CAROLINA 28202
(704) 343-2030
FACSIMILE (704) 358-0252
CALCULATION OF FILING FEE
[CAPTION]
<TABLE>
<S> <C>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
<S> <C>
$83,612,265 $16,723
</TABLE>
* For purposes of calculating the filing fee only. This calculation assumes the
purchase of all 11,148,302 shares of common stock, par value $.01 per share,
of DAKA International, Inc. ("Shares") at $7.50 per share in cash.
** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent
of the aggregate value of cash offered by Compass Holdings, Inc. for such
shares.
[ ]CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2) AND
IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR
SCHEDULE AND THE DATE OF ITS FILING.
Amount Previously Paid: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
<PAGE>
CUSIP NO. 234068203 14D-1
<TABLE>
<C> <S>
1 NAME OF REPORTING PERSON: Compass Holdings, Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 56-1870425
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
None
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES [ ]
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
N/A
10 TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
CUSIP NO. 234068203 14D-1
<TABLE>
<C> <S>
1 NAME OF REPORTING PERSON: Compass Group PLC
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: N/A
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
BK
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
England and Wales
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
None
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES [ ]
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
N/A
10 TYPE OF REPORTING PERSON
CO
</TABLE>
<PAGE>
This Statement relates to a tender offer by Compass Holdings, Inc. (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Compass
Group PLC, a public limited company incorporated under the laws of England and
Wales (the "Parent"), to purchase all outstanding shares of common stock, par
value $.01 per share (the "Shares") of DAKA International, Inc., a Delaware
corporation (the "Company"), at a purchase price of $7.50 per Share, net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated May 29, 1997 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute the
"Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto,
respectively, and which are incorporated herein by reference.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is DAKA International, Inc. The address
of the principal executive offices of the Company is set forth in Section 7
("Certain Information Concerning the Company") of the Offer to Purchase.
(b) The exact title of the class of equity securities being sought in the
Offer is the common stock, par value $.01 per share, of the Company. The
information set forth in the Introduction of the Offer to Purchase is
incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) through (d), (g) The information set forth in Section 8 ("Certain
Information Concerning the Purchaser and Parent") of the Offer to Purchase, and
in Schedule I thereto, is incorporated herein by reference.
(e) and (f) None of the Purchaser or Parent, nor, to the best of their
knowledge, any of the persons listed in Schedule I of the Offer to Purchase, has
during the last five years (i) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) and (b) The information set forth in the Introduction and Section 10
("Background of the Offer; the Merger Agreement; the Distribution; the Tax
Allocation Agreement; the Post-Closing Covenants Agreement") and Section 8
("Certain Information Concerning the Purchaser and Parent") of the Offer to
Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (b) The information set forth in Section 9 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF BIDDER.
(a) through (e) The information set forth in the Introduction and Section
11 ("Purpose of the Offer, the Merger and the Distribution; Plans for the
Company") of the Offer to Purchase is incorporated herein by reference.
(f) and (g) The information set forth in Section 12 ("Effect of the Offer
on the Market for the Shares; Stock Exchange Listing; Registration Under the
Exchange Act") of the Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in Section 8 ("Certain Information
Concerning the Purchaser and Parent") and Schedule I of the Offer to Purchase is
incorporated herein by reference.
<PAGE>
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction, Section 8 ("Certain
Information Concerning the Purchaser and Parent") and Section 10 ("Background of
the Offer; The Merger Agreement; the Distribution; the Tax Allocation Agreement;
the Post-Closing Covenants Agreement") of the Offer to Purchase is incorporated
herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and in Section 17 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information Concerning the
Purchaser and Parent") of the Offer to Purchase and the Financial Statements set
forth in Exhibit (g) hereto are incorporated herein by reference.
The incorporation by reference herein of the above-mentioned financial
information does not constitute an admission that such information is material
to a decision by a security holder of the Company whether to sell, tender or
hold securities being sought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b) and (c) The information set forth in Section 16 ("Certain Legal
Matters; Regulatory Approvals") of the Offer to Purchase is incorporated herein
by reference.
(d) The information set forth in Section 12 ("Effect of the Offer on the
Market for the Shares; Stock Exchange Listing; Registration under the Exchange
Act") and Section 16 ("Certain Legal Matters; Regulatory Approvals") of the
Offer to Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference in its entirety.
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
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(a)(1) Offer to Purchase, dated May 29, 1997
(a)(2) Form of Letter of Transmittal
(a)(3) Form of Letter from MacKenzie Partners, Inc., to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees
(a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients
(a)(5) Notice of Guaranteed Delivery
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
(a)(7) Form of tombstone advertisement, dated May 29, 1997
(a)(8) Form of press release issued by Parent on May 27, 1997
(b) None
(c)(1) Agreement and Plan of Merger, dated as of May 27, 1997, by and among Parent, Purchaser, Compass Interim, Inc.
and the Company (incorporated herein by reference from Exhibit A to the Offer to Purchase filed as Exhibit
(a)(1) hereto)
(c)(2) Reorganization Agreement, dated as of May 27, 1997, by and among the Company, Daka, Inc., Unique Casual
Restaurants, Inc., Parent and Purchaser
(c)(3) Tax Allocation Agreement, dated as of May 27, 1997, among the Company, Unique Casual Restaurants, Inc., Parent
and Purchaser
(c)(4) Post-Closing Covenants Agreement, dated as of May 27, 1997, among the Company, Daka, Inc., Unique Casual
Restaurants, Inc., Champps Entertainment, Inc., Fuddruckers, Inc., Parent and Purchaser
(c)(5) Stock Purchase Agreement, dated May 26, 1997, among Parent, Purchaser, the Company and the Series A Preferred
Stockholders
(c)(6) Employment Agreement, dated May 23, 1997, among Compass Group USA, Inc., the Company, Daka, Inc. and Allen R.
Maxwell
(d) None
(e) Not applicable
(f) None
(g) Financial Statements of Parent
</TABLE>
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
COMPASS GROUP PLC
By: /s/ MICHAEL J. BAILEY
NAME: MICHAEL J. BAILEY
TITLE: DIRECTOR
COMPASS HOLDINGS, INC.
By: /s/ MICHAEL J. BAILEY
NAME: MICHAEL J. BAILEY
TITLE: CHIEF EXECUTIVE OFFICER
Dated: May 29, 1997
<PAGE>
EXHIBIT INDEX
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EXHIBIT DESCRIPTION PAGE
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(a)(1) Offer to Purchase, dated May 29, 1997...................................
(a)(2) Form of Letter of Transmittal...........................................
(a)(3) Form of Letter from MacKenzie Partners, Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees....................
(a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees to Clients...........................................
(a)(5) Notice of Guaranteed Delivery...........................................
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.....................................................
(a)(7) Form of tombstone advertisement, dated May 29, 1997.....................
(a)(8) Form of press release issued by Parent on May 27, 1997..................
(b) None
(c)(1) Agreement and Plan of Merger, dated as of May 27, 1997, by and among
Parent, Purchaser, Compass Interim, Inc. and the Company (incorporated
herein by reference from Exhibit A to the Offer to Purchase filed as
Exhibit (a)(1) hereto)..................................................
(c)(2) Reorganization Agreement, dated as of May 27, 1997, by and among the
Company, Daka, Inc., Unique Casual Restaurants, Inc., Parent and
Purchaser...............................................................
(c)(3) Tax Allocation Agreement, dated as of May 27, 1997, among the Company,
Unique Casual Restaurants, Inc., Parent and Purchaser...................
(c)(4) Post-Closing Covenants Agreement, dated as of May 27, 1997, among the
Company, Daka, Inc., Unique Casual Restaurants, Inc., Champps
Entertainment, Inc., Fuddruckers, Inc., Parent and Purchaser............
(c)(5) Stock Purchase Agreement, dated May 26, 1997, among Parent, Purchaser,
the Company and the Series A Preferred Stockholders.....................
(c)(6) Employment Agreement, dated May 23, 1997, among Compass Group USA, Inc.,
the Company, Daka, Inc. and Allen R. Maxwell............................
(d) None
(e) Not applicable
(f) None
(g) Financial Statements of Parent
</TABLE>
<PAGE>
OFFER TO PURCHASE FOR CASH
All Outstanding Shares of Common Stock
of
DAKA INTERNATIONAL, INC.
at
$7.50 Net Per Share
by
Compass Holdings, Inc.
an indirect wholly owned subsidiary
of
Compass Group PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS
HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY
FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED HEREIN).
THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE
EXPECTED TO RESULT IN (A) THE DISTRIBUTION TO THE STOCKHOLDERS OF DAKA
INTERNATIONAL, INC. (THE "COMPANY") OF SHARES OF STOCK IN A NEW ENTITY THAT WILL
OWN THE BUSINESSES OF THE COMPANY, INCLUDING THE FUDDRUCKERS AND CHAMPPS
RESTAURANT CHAINS, OTHER THAN ITS FOODSERVICE BUSINESS (THE "DISTRIBUTION") AND
(B) THE ACQUISITION OF THE COMPANY'S FOODSERVICE BUSINESS BY COMPASS GROUP PLC
("PARENT") PURSUANT TO THE OFFER AND MERGER DESCRIBED HEREIN.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER AND THE DISTRIBUTION, DETERMINED THAT THE OFFER, THE MERGER AND THE
DISTRIBUTION ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS ACCEPTANCE OF THE
OFFER BY THE STOCKHOLDERS OF THE COMPANY.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED (INCLUDING SHARES THAT REMAIN SUBJECT TO GUARANTEED DELIVERY
PROCEDURES) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES OF
COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "SHARES"), OF THE COMPANY WHICH,
WHEN ADDED TO THE NUMBER OF SHARES THEN BENEFICIALLY OWNED BY PARENT, PURCHASER
AND ITS AFFILIATES OR COMPASS INTERIM, INC. (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 PURSUANT TO THE SERIES A PREFERRED STOCK
PURCHASE AGREEMENT (AS DEFINED HEREIN) ARE CONVERTIBLE), CONSTITUTES AT LEAST
TWO-THIRDS OF THE SUM 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. SEE SECTION 15 FOR OTHER CONDITIONS TO THE
OFFER.
IMPORTANT
Any stockholder desiring to tender Shares should either (1) complete and
sign the Letter of Transmittal (or facsimile thereof) in accordance with the
instructions in the Letter of Transmittal and deliver it to the Depositary with
the certificate(s) representing tendered Shares and all other required documents
or tender such Shares pursuant to the procedures for book-entry transfer set
forth in Section 3 herein or (2) request his or her broker, dealer, commercial
bank, trust company or other nominee to effect the transaction for him or her. A
stockholder having Shares registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contact such person if he or she
desires to tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis may tender such Shares
pursuant to the guaranteed delivery procedure set forth in Section 3 herein.
Questions and requests for assistance or additional copies of this Offer to
Purchase, the Letter of Transmittal and other Tender Offer Materials may be
directed to the Information Agent at its address and telephone number set forth
on the back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal and the other tender offer materials may
also be obtained from the Information Agent or from brokers, dealers, commercial
banks or trust companies.
The Depositary for the Offer is:
The Bank of New York
The Information Agent for the Offer is:
MacKenzie Partners, Inc.
May 29, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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1. Terms of the Offer; Expiration Date....................................................................... 4
2. Acceptance for Payment and Payment........................................................................ 5
3. Procedure for Tendering Shares............................................................................ 5
4. Withdrawal Rights......................................................................................... 7
5. Certain Tax Considerations................................................................................ 8
6. Price Range of Shares; Dividends.......................................................................... 9
7. Certain Information Concerning the Company................................................................ 9
8. Certain Information Concerning the Purchaser and Parent................................................... 12
9. Source and Amounts of Funds............................................................................... 14
10. Background of the Offer; the Merger Agreement; the Distribution; the Tax Allocation Agreement; the
Post-Closing Covenants Agreement.......................................................................... 15
11. Purpose of the Offer, the Merger and the Distribution; Plans for the Company.............................. 29
12. Effect of the Offer on the Market for the Shares; Stock Exchange Listing; Registration under the Exchange
Act....................................................................................................... 29
13. Dividends and Distributions............................................................................... 30
14. Extension of Tender Period; Amendment; Termination........................................................ 31
15. Certain Conditions to the Offer........................................................................... 32
16. Certain Legal Matters; Regulatory Approvals............................................................... 34
17. Fees and Expenses......................................................................................... 36
18. Miscellaneous............................................................................................. 36
Schedule I -- Directors and Executive Officers of Parent and the Purchaser
Exhibit A -- Agreement and Plan of Merger
</TABLE>
<PAGE>
To the Holders of Common Stock of DAKA INTERNATIONAL, INC.
INTRODUCTION
Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and an
indirect wholly owned subsidiary of Compass Group PLC, a public limited company
incorporated in England and Wales (the "Parent"), hereby offers to purchase all
outstanding shares of common stock (the "Common Stock"), par value $.01 per
share, of DAKA International, Inc., a Delaware corporation (the "Company")
(collectively, the "Shares"), at a purchase price of $7.50 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"). Tendering stockholders will not be obligated to pay
brokerage fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares by the
Purchaser pursuant to the Offer. The Purchaser will pay all charges and expenses
of The Bank of New York (the "Depositary") and MacKenzie Partners, Inc. (the
"Information Agent") incurred in connection with the Offer. See Section 17.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED (INCLUDING SHARES THAT REMAIN SUBJECT TO GUARANTEED DELIVERY
PROCEDURES) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) A
NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN BENEFICIALLY
OWNED BY PARENT, PURCHASER AND ITS AFFILIATES OR COMPASS 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 PURSUANT TO THE
SERIES A PREFERRED STOCK PURCHASE AGREEMENT (AS DEFINED HEREIN) ARE
CONVERTIBLE), CONSTITUTES AT LEAST TWO-THIRDS OF THE SUM 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 (THE "MINIMUM
CONDITION"). SEE SECTION 15 FOR OTHER CONDITIONS TO THE OFFER.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS" OR THE
"BOARD") HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE DISTRIBUTION
(EACH AS DEFINED BELOW), DETERMINED THAT THE OFFER, THE MERGER AND THE
DISTRIBUTION ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS ACCEPTANCE OF THE
OFFER BY THE STOCKHOLDERS OF THE COMPANY.
The Company is a diversified foodservice and restaurant company operating
in the contract foodservice management industry and the restaurant industry. The
Offer is one of a series of steps agreed between Parent and the Purchaser and
the Company which are intended to result in the Purchaser's acquisition of the
Company's contract foodservice management business and the retention of the
Company's restaurant and related business by the Company's stockholders.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 27, 1997 (the "Merger Agreement"), among Parent, Purchaser, Compass
Interim, Inc., a Delaware corporation and a direct, wholly owned subsidiary of
the Purchaser ("Compass Interim") and the Company. The Merger Agreement
provides, among other things, that upon the terms and subject to the conditions
therein, as soon as practicable after the Offer Closing Time (as hereinafter
defined), Compass Interim will be merged with and into the Company (the
"Merger"), with the Company being the corporation surviving the Merger (the
"Surviving Corporation"). Each outstanding Share (other than Dissenting Shares
(as hereinafter defined)) not owned by Parent, the Purchaser, the Company or any
of their subsidiaries will be converted into and represent the right to receive
$7.50 in cash or any higher price that may be paid per Share in the Offer,
without interest (the "Merger Price"). See Section 10.
Immediately prior to the Offer Closing Time, the Company will undertake a
series of transactions to transfer certain assets related to its restaurant
businesses, including the Fuddruckers and Champps restaurant chains, to Unique
Casual Restaurants, Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of the Company ("New International"), and distribute (the
"Distribution") all of the issued and outstanding shares of
2
<PAGE>
common stock, par value $.01 per share (the "New International Shares") of New
International to the holders of Shares on a record date to be determined by the
Board of Directors of the Company (the "Distribution Record Date"), pursuant to
a Reorganization Agreement, dated as of May 27, 1997, among the Company, Daka,
Inc. ("Daka"), New International, Parent and the Purchaser (the "Reorganization
Agreement"). Because the Purchaser will not accept Shares for payment pursuant
to the Offer until the Distribution Record Date has occurred, a record holder of
Shares who tenders Shares pursuant to the Offer (and who does not subsequently
withdraw and sell such Shares) will be the record holder thereof on the
Distribution Record Date. Accordingly, in the event that Shares are accepted for
payment pursuant to the Offer, such record holders will be entitled to receive,
in respect of each Share tendered, (i) $7.50 net in cash from the Purchaser and
(ii) one New International Share from the Company. As a result of the
Distribution, New International will own and operate all the businesses of the
Company and its subsidiaries, other than the food catering, contract catering
and vending business currently operated by the Company and its wholly owned
subsidiary Daka and certain other assets and liabilities (the "Foodservice
Business"). After the Distribution, the Company will continue to own only the
Foodservice Business. Accordingly, upon consummation of the Offer and the
Merger, Parent will have acquired only the Foodservice Business. Consummation of
the Offer is conditioned upon, among other things, the Distribution Record Date
having been set (the "Distribution Condition"). The Distribution Record Date is
not expected to occur before Tuesday, June 24. The Merger is conditioned upon,
among other things, the Distribution having been consummated in all material
respects. The distribution of the New International Shares pursuant to the
Distribution is conditioned, among other things, upon the Purchaser having
accepted for payment Shares tendered pursuant to the Offer. In the Merger
Agreement, the Purchaser has agreed to extend the Offer until the first business
day following the Distribution Record Date; provided that in the event certain
conditions to the Offer are not satisfied, Purchaser has agreed to extend the
period of time the Offer is open until such conditions are satisfied or until
July 31, 1997, whichever is earlier. The Company has advised Parent and the
Purchaser that, prior to the time that notice of the Distribution Record Date is
given and at least 10 days prior to the Expiration Date (as defined below), it
will file with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form 10 (the "Form 10") and to distribute to holders
of Shares the information statement contained in the Form 10 (the "Information
Statement") with respect to the business, operations and management of New
International. See Section 10.
Once the conditions to the Offer, including the Minimum Condition, are
satisfied and the Purchaser accepts the Shares tendered for payment pursuant to
the Offer, the Distribution will be consummated and the Merger will occur as
soon as practicable thereafter. If following the Offer the Purchaser holds a
number of Shares that satisfies the Minimum Condition but which is less than 90%
of all of the outstanding Shares, then in accordance with Section 251 of the
General Corporation Law of the State of Delaware (the "GCL"), the Merger
Agreement will be submitted for approval at a special meeting of the
stockholders of the Company. As a result of the Minimum Condition and the
Purchaser's beneficial ownership of two-thirds or more of all of the outstanding
Shares, the Purchaser, acting alone, would be able to approve the Merger
Agreement at such meeting. If following the Offer the Purchaser holds 90% or
more of the outstanding Shares, the Purchaser intends to cause the Merger to
occur as a short-form merger (without the need for a stockholders' meeting) in
accordance with the terms of Section 253 of the GCL. See Short-Form Merger,
Section 16. In either case, each Share remaining outstanding after the Offer
Closing Time and not owned by Parent, the Purchaser, the Company or any of their
subsidiaries (other than Shares as to which the holders thereof have properly
demanded dissenters' appraisal rights) will become the right to receive cash in
the amount of the Merger Price.
Bear Stearns & Co. Inc. ("Bear Stearns"), financial advisor to the Company,
has delivered to the Board of Directors of the Company its written opinion that
as of the date of such opinion, the shares of New International Common Stock to
be received in the Distribution and the consideration to be received by the
holders of Shares in the Offer and the Merger, taken together, are fair from a
financial point of view to such holders. A copy of such opinion is included with
the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to stockholders concurrently herewith,
and stockholders are urged to read the opinion in its entirety for a description
of the assumptions made, factors considered and procedures followed by Bear
Stearns.
Separately, Parent, the Purchaser, the Company, 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 the
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<PAGE>
Company (the "Series A Preferred Stock") (collectively, the "Series A Preferred
Stockholders"), have entered into a certain Stock Purchase Agreement, dated as
of May 26, 1997 (the "Series A Preferred Stock Purchase Agreement"), pursuant to
which the Purchaser 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 the warrants exercisable for Shares upon redemption
of the Series A Preferred Stock (the "Warrants") at a cash purchase price equal
to the product of the Offer Price multiplied by the number of Shares into which
such shares of Series A Preferred Stock are convertible as of the Offer Closing
Time. The sale is scheduled to close as soon as practicable following the Offer
Closing Time and is contingent upon the consummation of the Offer in accordance
with its terms. The Series A Preferred Stockholders will receive no
consideration in the Offer or in the Merger.
According to the Company, as of April 30, 1997, there were 11,148,302
Shares outstanding, and 264,701 Shares issuable upon conversion of the Series A
Preferred Stock. Also according to the Company, as of April 30, 1997, the only
shares of capital stock of the Company that would have been entitled to vote on
a transaction such as the Merger were the 11,148,302 Shares then outstanding and
the 264,701 votes represented by the 11,911.545 shares of Series A Preferred
Stock then outstanding. As a result, the Purchaser believes that the Minimum
Condition would be satisfied if at least 7,343,968 Shares are validly tendered
and not withdrawn prior to the Expiration Date.
This Offer to Purchase and the related Letter of Transmittal contain
important information and should be read in their entirety before any decision
is made with respect to the Offer.
1. Terms of the Offer; Expiration Date. Upon the terms and subject to the
conditions of the Offer, the Purchaser will accept for payment and pay for all
Shares that have been validly tendered prior to the Expiration Date and not
withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00
Midnight, New York City time, on Wednesday, June 25, 1997, unless and until the
Purchaser, as provided below, shall 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 the Purchaser, shall expire.
Pursuant to the Merger Agreement, the Purchaser will extend the period of time
during which the Offer is open if the Offer would otherwise expire prior to the
first business day following the Distribution Record Date; provided that in the
event certain conditions to the Offer are not satisfied, Purchaser has agreed to
extend the period of time the Offer is open until such conditions are satisfied
or until July 31, 1997, whichever is earlier. The Purchaser will not otherwise
extend the period of time during which the Offer is open without the prior
written consent of the Company, unless any of the conditions described in
Section 15 shall not have been satisfied, or unless Purchaser reasonably
determines that such extension is necessary to comply with any legal or
regulatory requirements relating to the Offer.
The Offer is subject to certain significant conditions set forth in Section
15, including satisfaction of the Minimum Condition, the Distribution Condition
and the expiration or termination of the waiting periods applicable to the
Purchaser's acquisition of Shares pursuant to the Offer under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and the Exon-Florio Amendment to the Defense Production Act (the "Exon-Florio
Amendment"). If any such condition is not satisfied, the Purchaser may, subject
to the terms of the Merger Agreement, (i) terminate the Offer and return all
tendered Shares to tendering stockholders, (ii) extend the Offer and, subject to
withdrawal rights as set forth in Section 4, retain all such Shares until the
expiration of the Offer as so extended, (iii) other than as described in Section
15, waive such condition and, subject to any requirement to extend the period of
time during which the Offer is open, purchase all Shares validly tendered and
not withdrawn by the Expiration Date or (iv) delay acceptance for payment of or
payment for Shares, subject to applicable law, until satisfaction or waiver of
the conditions to the Offer. In the Merger Agreement, the Purchaser has agreed,
subject to the conditions in Section 15 and its rights under the Offer, to
accept for payment Shares as promptly as practicable following the Distribution
Record Date. For a description of the Purchaser's right to extend the period of
time during which the Offer is open, and to amend, delay or terminate the Offer,
see Section 14.
The Company has provided or will provide the Purchaser with the Company's
stockholder list and security position listings for the purpose of disseminating
the Offer to holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
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<PAGE>
2. Acceptance for Payment and Payment. Upon the terms and subject to the
conditions of the Offer, the Purchaser will accept for payment and pay for all
Shares validly tendered and not properly withdrawn by the Expiration Date at the
earliest possible time on such date (the "Offer Closing Time") as promptly as
practicable following the Distribution Record Date. For a description of the
Purchaser's right to terminate the Offer and not accept for payment or pay for
Shares or to delay acceptance for payment or payment for Shares, see Section 14.
Subject to satisfaction of the Conditions of the Offer, the closing of the Offer
(the "Offer Closing") will take place immediately prior to the Offer Closing
Time, and the date on which the Offer Closing occurs is referred to as the
"Offer Closing Date." The parties to the Merger Agreement have agreed 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.
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment tendered Shares when, as and if the Purchaser gives oral or written
notice to the Depositary of its acceptance of the tenders of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made by
deposit of the purchase price with the Depositary, which will act as agent for
the tendering stockholders for the purpose of receiving payments from the
Purchaser and transmitting such payments to tendering stockholders. In all
cases, payment for Shares accepted for payment pursuant to the Offer will be
made only after timely receipt by the Depositary of certificates for such Shares
(or of a confirmation of a book-entry transfer of such Shares into the
Depositary's account at one of the Book-Entry Transfer Facilities (as defined in
Section 3)), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other required documents. For a description of the
procedure for tendering Shares pursuant to the Offer, see Section 3.
Accordingly, payment may be made to tendering stockholders at different times if
delivery of the Shares and other required documents occur at different times.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER ON THE
CONSIDERATION PAID FOR SHARES PURSUANT TO THE OFFER, REGARDLESS OF ANY DELAY IN
MAKING SUCH PAYMENT.
If the Purchaser increases the consideration to be paid for Shares pursuant
to the Offer, the Purchaser will pay such increased consideration for all Shares
purchased pursuant to the Offer.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted for more Shares than are tendered,
certificates for such unpurchased or untendered Shares will be returned (or, in
the case of Shares tendered by book-entry transfer, such Shares will be credited
to an account maintained at one of the Book-Entry Transfer Facilities), without
expense to the tendering stockholder, as promptly as practicable following the
expiration or termination of the Offer.
3. Procedure for Tendering Shares. To tender Shares pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of Transmittal
must be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase and either (i) certificates for the Shares to be
tendered must be received by the Depositary at one of such addresses or (ii)
such Shares must be delivered pursuant to the procedures for book-entry transfer
described below (and a confirmation of such delivery received by the Depositary
including an Agent's Message (as defined below) if the tendering stockholder has
not delivered a Letter of Transmittal), in each case prior to the Expiration
Date, or (b) the guaranteed delivery procedure described below must be complied
with. The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to and received by the Depositary and forming a part of a
book-entry confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such book-entry
confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant.
The Depositary will establish an account with respect to the Shares at each
of The Depository Trust Company and Philadelphia Depository Trust Company
(collectively referred to as the "Book-Entry Transfer Facilities") for purposes
of the Offer within two business days after the date of this Offer to Purchase,
and any financial institution that is a participant in the system of any
Book-Entry Transfer Facility may make delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the procedures of such Book-Entry Transfer Facility.
However, although delivery of Shares may be effected through book-entry
transfer, the Letter of Transmittal (or facsimile thereof) properly completed
and duly executed together with any required signature guarantees or an Agent's
Message and any other required documents
5
<PAGE>
must, in any case, be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the guaranteed delivery procedure described below must be complied with.
Delivery of the Letter of Transmittal and any other required documents to a
Book-Entry Transfer Facility does not constitute delivery to the Depositary.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States (each, an "Eligible Institution"). Signatures on a Letter
of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed
by the registered holder of the Shares tendered therewith and such holder has
not completed the box entitled "Special Payment Instructions" on the Letter of
Transmittal or (b) if such Shares are tendered for the account of an Eligible
Institution. See Instructions 1 and 5 of the Letter of Transmittal.
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates evidencing such Shares are not immediately available
or such stockholder cannot deliver such Shares and all other required documents
to the Depositary by the Expiration Date, or such stockholder cannot complete
the procedure for delivery by book-entry transfer on a timely basis, such Shares
may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by
the Depositary (as provided below) by the Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of
the Book-Entry Transfer Facilities), together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any
required signature guarantee or an Agent's Message and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three Nasdaq Stock Market trading days after the date of execution
of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice.
The method of delivery of Share certificates and all other required
documents, including through Book-Entry Transfer Facilities, is at the option
and risk of the tendering stockholder and the delivery will be deemed made only
when actually received by the Depositary. If certificates for Shares are sent by
mail, registered mail with return receipt requested, properly insured, is
recommended.
Under the federal income tax laws, the Depositary will be required to
withhold 31% of the amount of any payments made to certain stockholders pursuant
to the Offer. In order to avoid such backup withholding, each tendering
stockholder must provide the Depositary with such stockholder's correct taxpayer
identification number and certify that such stockholder is not subject to such
backup withholding by completing the Substitute Form W-9 included in the Letter
of Transmittal (see Instruction 10 of the Letter of Transmittal) or by filing a
Form W-9 with the Depositary prior to any such payments. If the stockholder is a
nonresident alien or foreign entity not subject to back-up withholding, the
stockholder must provide the Depositary a completed Form W-8 Certificate of
Foreign Status prior to receipt of any payments.
By executing a Letter of Transmittal, a tendering stockholder irrevocably
appoints designees of the Purchaser as such stockholder's proxies in the manner
set forth in the Letter of Transmittal to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by the Purchaser (and any and all other Shares or other securities
issued or issuable in respect of such Shares on or after May 27, 1997, other
than any New International Shares distributed in respect of the Shares in
connection with the Distribution). All such proxies shall be irrevocable and
coupled with an interest in the tendered Shares. Such appointment is effective
only upon the acceptance for payment of such Shares by the Purchaser. Upon such
acceptance for payment, all prior proxies and consents granted by such
stockholder with respect to such Shares and other securities will, without
further action, be revoked, and no subsequent proxies may be given nor
subsequent written consents executed by such stockholder (and, if given or
executed, will be deemed ineffective). Such
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<PAGE>
designees of the Purchaser will be empowered to exercise all voting and other
rights of such stockholder as they, in their sole discretion, may deem proper at
any annual, special or adjourned meeting of the Company's stockholders, by
written consent or otherwise. The Purchaser reserves the right to require that,
in order for Shares to be validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser is able to exercise full
voting rights with respect to such Shares and other securities (including voting
at any meeting of stockholders then scheduled or acting by written consent
without a meeting).
The Company has advised Parent and the Purchaser that it expects that
commencing on and after the Distribution Record Date and up to the date New
International Shares are distributed pursuant to the Distribution, the Shares
will trade on The Nasdaq Stock Market with due bills attached. These due bills
will entitle a purchaser of a Share to receive one New International Share upon
the distribution thereof. Stockholders of the Company need not tender their due
bills in order for their Shares to be accepted for exchange, and the Purchaser
will not accept any due bills pursuant to the Offer.
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer, as well as the tendering stockholder's representation
and warranty that such stockholder has the full power and authority to tender
and assign the Shares tendered. The Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Purchaser, in its sole discretion, which determination
shall be final and binding. The Purchaser reserves the absolute right to reject
any or all tenders of Shares determined by it not to be in proper form or the
acceptance for payment of or payment for which may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right
to waive any defect or irregularity in any tender of Shares. No tender of Shares
will be deemed to have been properly made until all defects and irregularities
relating thereto have been cured or waived. The Purchaser's interpretation of
the terms and conditions of the Offer in this regard will be final and binding.
None of the Purchaser, Parent, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defect or
irregularity in tenders or incur any liability for failure to give any such
notification.
4. Withdrawal Rights. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are
irrevocable, except that they may be withdrawn after July 27, 1997 unless
theretofore accepted for payment as provided in this Offer to Purchase.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must specify
the name of the person who tendered the Shares to be withdrawn and the number of
Shares to be withdrawn and the name of the registered holder of the Shares, if
different from that of the person who tendered such Shares. If the Shares to be
withdrawn have been delivered to the Depositary, a signed notice of withdrawal
with (except in the case of Shares tendered by an Eligible Institution)
signatures guaranteed by an Eligible Institution must be submitted prior to the
release of such Shares. In addition, such notice must specify, in the case of
Shares tendered by delivery of certificates, the name of the registered holder
(if different from that of the tendering stockholder) and the serial numbers
shown on the particular certificates evidencing the Shares to be withdrawn or,
in the case of Shares tendered by book-entry transfer, the name and number of
the account at one of the Book-Entry Transfer Facilities to be credited with the
withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn Shares may be retendered by again following one of the procedures
described in Section 3 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. None of the
Purchaser, Parent, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defect or irregularity in any
notice of withdrawal or incur any liability for failure to give any such
notification.
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5. Certain Tax Considerations. The following summary addresses the material
federal income tax consequences to holders of Shares who sell their Shares in
the Offer. The summary does not address all aspects of federal income taxation
that may be relevant to particular holders of Shares and thus, for example, may
not be applicable to holders of Shares who are not citizens or residents of the
United States or holders of Shares who are employees and who acquired their
Shares pursuant to the exercise of incentive stock options; nor does this
summary address the effect of any applicable foreign, state, local or other tax
laws. The discussion assumes that each holder of Shares holds such Shares as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code"). Stockholders are urged to consult their own tax
advisors as to the precise federal, state, local, foreign and other tax
consequences of the proposed transactions.
Tax Consequences of Receipt of Cash and New International Shares. Assuming
that the Purchaser accepts the Offer and the Distribution and the Merger are
consummated, stockholders who hold their Shares of record on the Distribution
Record Date, and who also tender their Shares in the Offer or have such Shares
exchanged for the Merger Price upon consummation of the Merger, will be deemed
for income tax purposes to have received for each such Share consideration
consisting of (i) one New International Share and (ii) $7.50 in cash.
Stockholders who hold their Shares of record on the Distribution Record Date,
and who sell such Shares after the date as of which the Distribution shall be
effected (the "Distribution Date") other than pursuant to the Offer or the
Merger, will be deemed for income tax purposes to have received consideration
consisting of (i) one New International Share and (ii) the proceeds from the
sale of their Shares. In each of the above-mentioned cases, the receipt of such
consideration will be a taxable transaction for federal income tax purposes, and
may also be a taxable transaction under applicable state, local, foreign and
other tax laws. The foregoing transactions should be treated as a single
integrated transaction in which a holder of Shares receives such consideration
in exchange for such holder's Shares and in complete termination of such
holder's interest in the Company. In such case, a holder of Shares will
recognize gain or loss equal to the difference between (i) the sum of the amount
of cash plus the fair market value of the New International Shares received
(which fair market value likely will equal the average trading value per New
International Share on the first few Nasdaq trading days following the Offer
Closing Date) and (ii) such holder's adjusted tax basis for such holder's
Shares. Such gain or loss will be capital gain or loss and will be long-term
capital gain (or loss) if, on the date of the exchange, the stockholder has held
his Shares for more than one year. If a holder of Shares owns more than one
block of stock and such blocks were acquired at different times, the holding
period must be determined for each block.
However, there can be no assurance that the Internal Revenue Service (the
"IRS") will not contend that only the cash was received as a payment for the
outstanding Shares, and that the receipt of New International Shares instead
should be taxable to the recipient as a distribution from the Company under
Section 301 of the Code. If the IRS were to make such contention and prevail (i)
the cash received by a holder of Shares would still be treated as received in
exchange for such holder's Shares and (ii) the Distribution, in an amount equal
to the fair market value of the distributed New International Shares, would be
taxable as a dividend to the holders of Shares to the extent of the Company's
current and accumulated earnings and profits. The amount of the Distribution in
excess of such earnings and profits would first be treated as a non-taxable
return of capital to the extent of each holder's basis in such Shares, and such
holder's tax basis in such Shares would be reduced accordingly (but not below
zero), and thereafter as a capital gain from the sale or exchange of Shares. For
purposes of Section 301 of the Code, if a holder owns more than one block of
Shares, the consideration received must be allocated ratably among the blocks in
the proportion that the number of Shares in a particular block bears to the
total number of Shares held by the holder.
With respect to corporate stockholders, to the extent, if any, that the
receipt of New International Shares was treated as a dividend under the
foregoing rules, such dividend generally should be eligible for the 70%
"dividends received deduction." A corporate stockholder's ability to use the
dividends received deduction, however, is subject to a number of limitations,
including those relating to "debt financed portfolio stock" under Section 246A
of the Code and the 46-day holding period requirement of Section 246(c).
Moreover, even if the dividends received deduction were fully available, any
such dividend might constitute an "extraordinary dividend" subject to the
provisions of Section 1059 of the Code, which generally requires a corporate
stockholder which has not held stock for a period of two years prior to the
dividend announcement date to reduce its basis for (thereby increasing its gain
on a subsequent or contemporaneous sale of) such stock by the portion of the
dividend which is untaxed by reason of the dividends received deduction.
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Regardless of whether the receipt of the New International Shares is
treated as a taxable exchange or a distribution under Section 301 of the Code, a
holder's tax basis in the New International Shares generally will be equal to
the fair market value of the New International Shares on the Distribution Date.
Dissenters. The Purchaser believes that a holder of Shares who does not
sell such holder's Shares in the Offer or the Merger and perfects such holder's
dissenters' rights probably would recognize capital gain or loss at the Merger
Effective Time (as defined under "Merger Agreement") equal to the difference
between the amount realized, including the fair market value of the New
International Shares, by such holder and such holder's basis in such holder's
Shares.
Withholding. Unless a stockholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Code (and regulations promulgated thereunder), such stockholder may be
subject to a "backup" withholding tax of 31% with respect to the amount received
in the Offer, the Merger or as a result of the exercise of the holder's
dissenters rights. Stockholders should contact their brokers to ensure
compliance with such procedures. Foreign stockholders should consult with their
tax advisors regarding withholding taxes in general.
THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED HEREIN
FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH HOLDER OF SHARES IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER, THE MERGER AND THE
DISTRIBUTION.
6. Price Range of Shares; Dividends. The Shares are listed and traded on
The Nasdaq Stock Market as a National Market security (the "Nasdaq National
Market") under the symbol "DKAI". The following table sets forth, for the
periods indicated, the reported high and low sales prices per share for the
Shares on the Nasdaq National Market as published in financial sources:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Year Ended July 1, 1995:
First Quarter........................................................ $15.50 $13.50
Second Quarter....................................................... $16.25 $12.88
Third Quarter........................................................ $18.00 $14.50
Fourth Quarter....................................................... $23.88 $17.00
Year Ended June 29, 1996:
First Quarter........................................................ $33.75 $23.00
Second Quarter....................................................... $33.63 $22.75
Third Quarter........................................................ $27.50 $19.88
Fourth Quarter....................................................... $33.00 $22.75
Year Ending June 28, 1997:
First Quarter........................................................ $23.25 $ 8.75
Second Quarter....................................................... $10.38 $ 8.25
Third Quarter........................................................ $ 9.98 $ 6.13
Fourth Quarter (through May 27)...................................... $12.38 $ 5.88
</TABLE>
The Company has never paid cash dividends on shares of its Common Stock. In
addition, throughout the periods indicated above, the terms of the Company's
line-of-credit agreement have prohibited the payment of dividends on the
Company's Common Stock.
The closing sales price of the Shares as reported by the Nasdaq National
Market was $11.25 per share on May 27, 1997, the last full day of trading prior
to the first public announcement of the Offer.
Stockholders are urged to obtain a current market quotation for the shares.
7. Certain Information Concerning the Company. The Company is a Delaware
corporation and its principal executive offices are located at One Corporate
Place, 55 Ferncroft Road, Danvers, Massachusetts 01923. The Company principally
operates though the following wholly owned subsidiaries: (i) Daka, Inc., a
Delaware corporation ("Daka"); (ii) Fuddruckers, Inc., a Texas corporation
("Fuddruckers"); (iii) Champps Entertainment, Inc., a Minnesota corporation
("Champps"); (iv) Casual Dining Ventures, Inc., a Delaware corporation ("CDV");
(v)
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The Great Bagel and Coffee Company, a Delaware corporation ("GBC"); (vi) French
Quarter Coffee Co., a Delaware corporation ("French Quarter"); (vii) La Salsa
Holding Co., a California corporation ("La Salsa"); Pulseback, Inc., a Vermont
corporation ("Pulseback"); and (viii) Specialty Concepts, Inc., a Delaware
corporation ("SCI").
The Company is a diversified foodservice and restaurant company operating
in the contract foodservice management industry and the restaurant industry.
Daka provides contract foodservice management at a variety of schools and
colleges, corporate offices, factories, healthcare facilities, museums and
government offices. Fuddruckers owns, operates and franchises Fuddruckers
restaurants, which specialize in moderately-priced, casual dining for families
and adults. Champps owns, licenses and franchises Champps Americana restaurants,
which specialize in providing an upper-scale, casual theme dining experience to
a broad customer base, including business professionals, families and adults.
GBC owns, operates and franchises a dining concept that features fresh-baked
bagels and distinctive cream cheeses, gourmet coffees and sandwiches in a cafe
setting. Although GBC's operating results are included within the Company's
reported foodservice financial information in the Company's Annual Report on
Form 10-K for the year ended June 29, 1996 (the "Company 10-K"), GBC is not part
of the Foodservice Business to be acquired by Parent and the Purchaser and all
of the Foodservice Business financial information contained in this Offer to
Purchase excludes GBC's operating results.
In the fiscal year ended June 29, 1996, the foodservice segment generated
55.5% of the Company's total revenues and 57.3% of its operating profit, while
the restaurant segment (including GBC) generated 44.5% of the Company's total
revenues and 42.7% of its operating profit.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file
reports and other information with the Commission relating to its business,
financial condition and other matters. Information, as of particular dates,
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interest of such persons in transactions with the Company is required
to be described in periodic statements distributed to the Company's stockholders
and filed with the Commission. These reports, proxy statements and other
information, including the Company 10-K and the Schedule 14D-9, can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: the New York Regional
Office, 13th Floor, 7 World Trade Center, Suite 1300, New York, New York 10048;
and the Chicago Regional Office, Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is an
electronic filer pursuant to the Commission's Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") System. Accordingly, the aforementioned reports
and other information may be obtained by searching the Key Word "Daka" in the
"EDGAR Archives" at the Commission's Web site on the World Wide Web (address:
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, NW, Washington, DC 20006-1506, because the Shares are
listed on The Nasdaq Stock Market as a National Market security.
The above information concerning the Company and the information contained
herein regarding the Distribution have been taken from or based upon the Company
10-K and other publicly available documents on file with the Commission, other
publicly available information and information provided by the Company. Although
neither the Purchaser nor Parent has any knowledge that would indicate that such
information is untrue, neither the Purchaser nor Parent takes any responsibility
for, or makes any representation with respect to, the accuracy or completeness
of such information or for any failure by the Company to disclose events that
may have occurred and may affect the significance or accuracy of any such
information but which are unknown to the Purchaser or Parent.
A copy of this Offer to Purchase, and certain of the agreements referred to
herein, are attached as exhibits to the Purchaser's Tender Offer Statement on
Schedule 14D-1, dated May 29, 1997 (the "Schedule 14D-1"), which has been filed
with the Commission. The Schedule 14D-1 and the exhibits thereto, along with
such other documents as may be filed by the Purchaser with the Commission, may
be examined and copied from the offices of the Commission in the manner set
forth in the fourth paragraph of this Section 7.
10
<PAGE>
The summary unaudited data for the Foodservice Business (the "Foodservice
Business Financial Data") in the following table has been provided to Parent and
the Purchaser by the Company. The Company has advised Parent and the Purchaser
that the Foodservice Business Financial Data has been derived from the
consolidated financial statements of the Company. This financial data is
presented in considerably less detail than complete financial statements and
does not include all of the disclosures required by generally accepted
accounting principles. Neither Parent nor the Purchaser assumes any
responsibility for the accuracy of the Foodservice Business Financial Data.
FOODSERVICE BUSINESS
Summary Financial Information(1)
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Years Ended
July 2, 1994 July 1, 1995 June 29, 1996
<S> <C> <C> <C>
Revenues....................................... $156,469 $197,107 $ 221,068
Costs and Expenses............................. 131,372 169,231 192,621
Operating Income Before Overheads.............. 25,097 27,876 28,447
Income Before Taxes............................ 9,007 10,754 8,058
Net Income..................................... $ 5,404 $ 6,452 $ 4,834
<CAPTION>
As of Fiscal Year Ended
July 2, 1994 July 1, 1995 June 29, 1996
<S> <C> <C> <C>
Current Assets................................. $ 30,607 $ 34,966 $ 38,996
Noncurrent Assets.............................. 18,828 36,443 40,117
Current Liabilities............................ 23,579 25,775 21,009
Noncurrent Liabilities......................... $ 44,647 $ 68,434 $ 95,294
</TABLE>
1 Basis of Presentation. The accompanying combined summary financial information
includes the combined financial information of the Foodservice Business (i.e.
Daka, Inc. and its consolidated subsidiaries) but excludes such information
for GBC. The accompanying summary financial information is historical in
nature and does not represent the income and expenses, assets and liabilities
actually acquired by the Purchaser (as noted in the Reorganization Agreement
(as described herein)).
11
<PAGE>
8. Certain Information Concerning the Purchaser and Parent. Parent is a
public limited company incorporated under the laws of England and Wales, is one
of the world's two largest foodservice companies, is one of the top 150 UK
quoted companies, as ranked by market capitalization of approximately
(pounds)2.2 billion as of April 30, 1997, and employs approximately 120,000
people worldwide. Parent's foodservice operations include food catering,
contract catering and vending. Parent is organized geographically into the UK,
Continental Europe and the Rest of the World and the US and also by industry
sector within each of these divisions. The industry sectors are: Business and
Industry, Education, Healthcare, Travel, Sports and Events, Vending, Executive
Dining, Shopping and Leisure, and Corrections. The principal executive offices
of Parent are located at Cowley House, Guildford Street, Chertsey, Surrey,
England KT16 9BA, and its telephone number at that location is 44-1932-573000.
Parent owns 100% of the outstanding capital stock of Compass Overseas Holdings,
Ltd. ("Compass Overseas").
Compass Overseas is a company incorporated under the laws of England and
Wales and a wholly owned subsidiary of Parent. Compass Overseas is a holding
company whose holdings include Parent's interests in United States subsidiaries.
Compass Overseas' principal executive offices are located at Cowley House,
Guildford Street, Chertsey, Surrey, England KT16 9BA, and its telephone number
at that location is 44-1932 573000. Compass Overseas owns 100% of the
outstanding capital stock of the Purchaser.
The Purchaser is a Delaware corporation and a wholly owned indirect
subsidiary of Parent. Purchaser holds Parent's investments in Parent's US
subsidiaries. Because the Purchaser is a holding company with no distinct
operations and because the Purchaser's financial information is consolidated
with that of Parent, no meaningful financial information regarding the Purchaser
is available. The principal executive offices of the Purchaser are located at
2400 Yorkmont Road, Charlotte, North Carolina 28217, and its telephone number at
that location is (704) 329-4000.
The name, citizenship, business address, principal occupation or employment
and five-year employment history of each of the directors and executive officers
of the Purchaser and Parent are set forth in Schedule I hereto.
12
<PAGE>
Set forth below is a summary of certain consolidated financial information
with respect to Parent and its consolidated subsidiaries excerpted or derived
from the information contained in Parent's Annual Reports to Shareholders for
the fiscal years ended October 2, 1994, October 1, 1995 and September 29, 1996.
The following consolidated financial information of Compass Group PLC has been
prepared on the basis of accounting principles generally accepted in the United
Kingdom ("UK GAAP"), which differ in certain material respects from generally
accepted accounting principles in the United States of America ("US GAAP"). Such
differences include, but are not limited to, the accounting for goodwill and
other intangibles, which are written off against retained earnings under UK
GAAP, but are required to be recorded as an asset and amortized as a reduction
of earnings over their estimated useful lives, not to exceed 40 years, for
purposes of US GAAP. At September 29, 1996, shareholders' equity (deficit) had
been reduced by the write-off of accumulated goodwill of (pounds)1,568.8
million.
COMPASS GROUP PLC
Selected Summary Consolidated Financial Information
<TABLE>
<CAPTION>
As of and for the six
months ended (1)
As of and for the fiscal year ended (1) March
1996 March March 1997
1994 1995 1996 (2) 1996 1997 (2)
(pounds) (pounds) (pounds) $ (pounds) (pounds) $
<S> <C> <C> <C> <C> <C> <C> <C>
(in millions except per share data)
Profit and loss data (3)
Turnover.......................... 917.9 1,505.8 2,651.9 4,325.2 1,242.9 1,717.5 2,801.2
Net Income (4).................... 39.4 54.0 99.4 162.1 54.5 41.1 67.0
Earnings per share (4)............ 0.192 0.226 0.316 0.515 0.173 0.129 0.210
Dividends per share............... 0.0675 0.0760 0.0860 0.1403 0.0275 0.0310 0.0506
Balance sheet data (3)
Total assets...................... 467.5 720.5 807.1 1,316.4 618.5 782.0 1,275.4
Long-term debt.................... 249.5 516.1 535.8 873.9 371.8 530.2 864.8
Shareholders' equity (deficit).... (143.9) (488.9) (557.7) (909.6) (445.0) (520.1) (848.3)
</TABLE>
(1) Compass' operations are all considered to fall into one class of business,
namely foodservice.
(2) Amounts in US dollars have been translated solely for the convenience of the
reader, at an exchange rate of $1.6310:(pounds)1, Noon Buying Rate at May
23, 1997.
(3) The Consolidated Financial Statements have been prepared in accordance with
UK GAAP.
(4) Net Income and Earnings per share for fiscal years ended 1994, 1995 and 1996
and the six months ended March 1996 include the results of the Healthcare
Division which was disposed of at a profit on December 11, 1996.
Furthermore, the fiscal year ended 1996 included an exceptional
restructuring cost. Certain profit and loss data excluding the exceptional
profit on disposal and the restructuring charge are as follows:
<TABLE>
<CAPTION>
As of and for the six
As of and for the fiscal year months ended
ended March March March
1994 1995 1996 1996 1996 1997 1997
(pounds) (pounds) (pounds) $ (pounds) (pounds) $
<S> <C> <C> <C> <C> <C> <C> <C>
(in millions except per share data)
Net Income...................................... 39.4 54.0 83.5 136.2 34.5 41.1 67.0
Earnings per share.............................. 0.192 0.226 0.265 0.432 0.110 0.129 0.210
</TABLE>
13
<PAGE>
Separately, Parent, the Purchaser, the Company, and the Series A Preferred
Stockholders have entered into the Series A Preferred Stock Purchase Agreement,
pursuant to which the Purchaser 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 the Warrants at a purchase price equal to the
product of the Offer Price multiplied by the number of Shares into which such
shares of Series A Preferred Stock are convertible as of the Offer Closing Time.
The sale is scheduled to occur as soon as practicable following the Offer
Closing Time and is contingent upon the consummation of the Offer in accordance
with its terms. The purchase price is to 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.
Except as set forth in this Offer to Purchase, none of Parent, Compass
Overseas, the Purchaser or any of their affiliates (collectively the "Purchaser
Entities"), or, to the best knowledge of any of the Purchaser Entities, any of
the persons listed on Schedule I, has any contract, arrangement, understanding
or relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, none of the Purchaser Entities,
or, to the best knowledge of any of the Purchaser Entities, any of the persons
listed on Schedule I, has had, since June 27, 1993, any business relationships
or transactions with the Company or any of its executive officers, directors or
affiliates that would require reporting under the rules of the Commission.
Except as set forth in this Offer to Purchase, since June 27, 1993, there have
been no contacts, negotiations or transactions between the Purchaser Entities,
or their respective subsidiaries or, to the best knowledge of any of the
Purchaser Entities, any of the persons listed on Schedule I, and the Company or
its affiliates, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors or a sale or other
transfer of a material amount of assets. Except for the Series A Preferred Stock
Purchase Agreement, none of the Purchaser Entities or, to the best knowledge of
any of the Purchaser Entities, any of the persons listed on Schedule I,
beneficially owns any Shares or has effected any transactions in the Shares in
the past 60 days.
9. Source and Amounts of Funds. The total amount of funds required by the
Purchaser to acquire all outstanding Shares pursuant to the Offer and the
Merger, to consummate the transactions contemplated by the Merger Agreement, and
to pay fees and expenses related to the Offer and the Merger is estimated to be
approximately $199 million (the "Total Funds Amount"). The Purchaser plans to
obtain all funds needed for the Offer and the Merger through loans from Parent
or an existing or newly formed subsidiary of Parent (the "Funding Subsidiary")
which will be funded from cash accounts and Parent's available lines of credit
or credit facilities to be established by Parent or the Funding Subsidiary prior
to the Offer Closing Time. No final decisions have been made by Parent
concerning the source of funds to be used for purchase of the Shares. However,
the Offer is not conditioned on obtaining financing, and Parent has available
under existing lines of credit amounts in excess of the Total Funds Amount.
Moreover, a Funding Subsidiary may be used to provide the Total Funds Amount
only if a credit facility is established and in place prior to the Offer Closing
Time; otherwise, Parent will provide the Total Funds Amount.
Parent anticipates that any indebtedness incurred to fund the Offer and the
Merger will be repaid from a variety of sources, which may include, but may not
be limited to, funds generated internally by Parent and its affiliates (or in
the case of indebtedness incurred by Funding Subsidiary, by Funding Subsidiary
and its affiliates), bank refinancing, and the public or private sale of debt
securities. Decisions concerning the method of repayment will be made based on
Parent's review from time to time of the feasibility of particular actions and
on prevailing interest rates and market conditions.
14
<PAGE>
10. Background of the Offer; the Merger Agreement; the Distribution; the
Tax Allocation Agreement; the Post-Closing Covenants Agreement.
BACKGROUND OF THE OFFER
Among the elements of Parent's announced business strategy are a focus on
specific industry sectors and an intent to expand internationally through
acquisitions. In implementing that strategy, Parent began to focus on the large
and diverse United States foodservice market. Parent made its first significant
expansion into the United States market with the acquisition of Canteen
Corporation in 1994, and Parent has made a number of acquisitions since that
date. The acquisition of the Company's education foodservice operations
developed as a logical means to enhance Parent's business internationally in
this specific industry sector.
From February through December 1995, representatives of Patricof & Co.
Capital Corp. ("Patricof") pursued general infrequent contacts and discussions
with the Company concerning its strategy for its foodservice business. Patricof
also talked with Michael Bailey, the Chief Executive Officer of Parent's US
Division, together with other senior officers of Parent's US Division, to
discuss Parent's strategy in the United States, as well as possible acquisition
candidates (including the Company) that Patricof believed would fit within that
strategy. In December 1995, Parent engaged Patricof to act as its financial
advisor with respect to certain foodservice acquisitions.
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 Foodservice Business of the
Company. The Company and Parent entered into a Confidentiality Agreement
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 announcement of a
proposal for any extraordinary transaction with respect to the Company. Parent
subsequently obtained various financial and other information regarding the
Company in general and its foodservice business in particular.
Following Parent's review of certain financial and other information
regarding the Foodservice Business and other due diligence, and various
discussions between the Company and Parent and their respective financial and
legal advisors, Mr. Bailey, Mr. Baumhauer and various other members of their
respective management teams met on several occasions to discuss the terms of a
possible acquisition of the Foodservice Business by Parent. Thereafter,
throughout March, April and May 1997, Parent and the Company and their
respective legal advisors negotiated the terms of a possible transaction.
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 proposed transaction, New
International and the proposed Distribution 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, the Tax Allocation 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 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. On May 27, 1997,
the parties thereto executed and delivered the Merger Agreement and the
Ancillary Agreements.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement. A
copy of the Merger Agreement (with certain Exhibits omitted) is attached hereto
as Exhibit A and is incorporated herein by reference. Such summary is qualified
in its entirety by reference to the Merger Agreement. Capitalized terms used in
this Offer to Purchase not otherwise defined herein shall have the meanings
assigned thereto in the Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer by the
Purchaser. The 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 not expected to occur before June
24, 1997 the fourth week of June. Subject only to the conditions described in
paragraph (d) of Section 15, the 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
15
<PAGE>
subject to the satisfaction of the Distribution Condition, the Minimum Condition
and certain other conditions that are described in Section 15. The 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 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.
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 as soon as practicable 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 the
Purchaser (the "Merger Effective Time"). 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 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 the Company,
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 GCL 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 the 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.
Reservation of Right to Revise Transaction Structure. Pursuant to the
Merger Agreement, the Parent may at any time change the method of effecting the
Merger to provide for a merger of a wholly owned subsidiary other than Compass
Interim with the Company 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 Shares as provided in the
Merger Agreement, or (b) adversely affect the tax treatment to the Company's
stockholders as a result of receiving such consideration (in the opinion of
Parent's outside counsel). In the event Parent determines to exercise its right
to substitute a different wholly owned subsidiary for Compass Interim under the
Merger Agreement, the Merger Agreement shall promptly be amended to add such
subsidiary as a party thereto, and all references in the Merger Agreement to
Compass Interim shall be deemed references to such subsidiary.
Approval of 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 (the "Proxy Statement"), soliciting the vote of the
stockholders of the Company with respect to the Merger Agreement and the Merger
at the Special Meeting. Section 253 of the GCL would permit the Merger to occur
without a vote of the Company's stockholders (a "short-form merger") if the
Purchaser were to acquire at least 90% of all of the outstanding Shares in the
Offer. If the Purchaser acquires 90% or more of the outstanding Shares in the
Offer, the Purchaser intends to cause the Merger to occur as a short-form
merger.
Representations and Warranties. The Merger Agreement includes
representations and warranties by the Company and Daka to Parent, Purchaser and
Compass Interim as to (a) the corporate organization, standing and power of the
Company and Daka, (b) the Company's capitalization, (c) the authorization of the
Merger Agreement and the Ancillary Agreements and the approval of the Offer, the
Merger and the Merger Agreement by the
16
<PAGE>
Company's Board of Directors in a manner sufficient to render inapplicable to
the Offer, the Merger, and the transactions contemplated by the Merger Agreement
and the Ancillary Agreements Section 203 of the GCL and any applicable
provisions in the Company's Certificate of Incorporation or Bylaws, (d)
noncontravention of laws and agreements and the absence of the need (except as
specified) for governmental consents, (e) the filing of all required reports,
schedules, forms, statements and other documents with the Commission, (f) the
accuracy of the Company's financial statements and filings with the Commission,
(g) the accuracy of information included in the Schedule 14D-9, the Form 10 and
the Information Statement or supplied by the Company for inclusion in the Tender
Offer Statement on Schedule 14D-1 with respect to the Offer, the accompanying
offer to purchase related letter of transmittal letter (together with any
supplements or amendments thereto, collectively the "Offer Documents"), (h) the
conduct of the Foodservice Business in the ordinary course and the absence of
any material adverse change with respect to the Company or Daka or any event
that could reasonably be expected to have a material adverse effect on the
Company or Daka taken as a whole, (i) pending or threatened litigation, (j) the
Company's compliance with applicable laws, (k) brokers and finders employed by
the Company, (l) the nature of the Foodservice Business, (m) material contracts
of the Company and Daka, (n) certain matters relating to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and certain employment and
labor relations matters, (o) certain matters relating to intellectual property,
(p) certain matters relating to taxes, (q) certain matters related to insurance
policies, (r) the accuracy of the Foodservice Business Financial Statements (as
defined in the Merger Agreement), (s) certain matters relating to the
outstanding indebtedness of the Company and its subsidiaries, (t) certain
matters relating to environmental matters, and (u) various other matters
relating to the Company, Daka and the Foodservice Business.
The Merger Agreement also includes representations and warranties by
Parent, Purchaser and Compass Interim to the Company, as to (a) the corporate
organization, standing and power of Parent, Purchaser and Compass Interim, (b)
the authorization of the Merger Agreement and the Ancillary Agreements to which
Parent, Purchaser and Compass Interim are parties, (c) noncontravention of laws
and agreements and the absence of the need (except as specified) for
governmental consents, (d) the accuracy of information included in the Offer
Documents or supplied by the Parent for inclusion in the Information Statement
and certain filings with the Commission, (e) Parent's access to sufficient funds
to complete the Offer, (f) the absence of Parent's receipt of 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 the
Merger Agreement or the Ancillary Agreements, (g) the absence of any required
action by the ordinary shareholders of Parent to approve the Merger Agreement or
the Ancillary Agreements and the transactions contemplated thereby, and (h)
brokers and finders employed by Parent.
Business of International 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 (as defined under "THE
DISTRIBUTION -- The Reorganization Agreement"), the Distribution and the other
transactions expressly provided for in the Reorganization Agreement and the Tax
Allocation Agreement, dated May 27, 1997, by and among the Company, New
International and Parent (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 shall 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 or redemption of capital stock, (e) charter
or by-law 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 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
17
<PAGE>
or with any person (other than the 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 Company may furnish or cause to be furnished information and may
participate in such discussions and negotiations directly or through its
representatives if another person or group makes an offer or proposal which,
based upon the identity of the person making such offer or proposal and the
terms thereof, and the availability of adequate financing therefor, the
Company'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 the Merger Agreement (a "Higher Offer"). Subject to compliance
by the Company's Board of Directors 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 Company's Board of Directors 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 Company's Board of Directors, 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 of incorporation 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.
Certain Covenants of Parent and Purchaser. 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 in
connection with the Merger Agreement and the transactions contemplated thereby.
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 New International Shares distributed in the
Distribution. Parent has agreed further that for a period of three years after
the Offer Closing Time, it will not modify the rights of certain non-executive
directors of the Company to indemnification and will cause the Company and the
Surviving Corporation to include in their Certificate of Incorporation and
Bylaws provisions with respect to the right of directors and officers to
indemnification substantially similar to such provisions in the Certificate of
Incorporation 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 itself or its Subsidiaries with respect to the Offer, the
Contribution, the Distribution 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 or other public or private third party,
required to be obtained, made or
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satisfied by the Company or any of its Subsidiaries in connection with the
Contribution, 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
itself 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 the 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. The Company and Daka will deliver to the Parent certified
Board of Directors resolutions authorizing each of the Contribution, 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 Offer Closing Time, the Company
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 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 shall 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 banks party thereto and The Chase Manhattan Bank, 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
shall not exceed $110,000,000.
Simultaneously with the Offer Closing Time, Purchaser shall, or shall cause
the Company to, repay the Funded Debt and shall 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 Date (as defined in the Merger Agreement) 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, as Agent for the Company's lenders, simultaneous with the Offer
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 outstanding options ("International
Options") to acquire Shares which are held by any employee or consultant or
former employee or consultant or director or former director of the Company or
any of its subsidiaries 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 International Options and the
other matters set forth in the Reorganization Agreement, all International
Options which are outstanding immediately prior to Purchaser's acceptance for
payment and payment for Shares pursuant to the Offer shall, regardless of
whether such International Options are vested and exercisable be canceled as of
the Offer Closing Time and the holders thereof shall be entitled to receive from
New International, for each share 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 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 DAKA International
Employee Stock Purchase Plan (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 such
Offering (the "Purchasable Shares"). In lieu of receiving Purchasable Shares,
the Participating Employees will 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 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
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amount shall be payable by New International not later than 30 days after the
Offer Closing Time, whereafter all rights of Participating Employees under the
Stock Purchase Plan shall terminate.
As a result of the foregoing actions, no persons holding International
Options or interests in the Stock Purchase Plan will receive any consideration
in the Offer or the Merger. In addition, 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).
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, the Company
agrees to pay the fees and expenses of Bear Stearns, and Parent agrees to pay
the fees and expenses of Patricof, NationsBanc Capital Markets, Inc. ("NCMI"),
the Information Agent and the Depositary, as well as the filing fees for the HSR
Filing. Notwithstanding the foregoing, the Purchaser and New International have
agreed to share equally any transfer taxes, other than transfer taxes imposed on
any holder of Shares, imposed in connection with or as a result of the Merger.
Conditions. 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 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 the Company 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.
In the event that Parent or the Company terminates the Merger Agreement as
a result of certain acts or omissions by the Board of Directors 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
enter 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, 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.
Offer Closing Date Payments. The Merger Agreement provides that at the
Offer Closing, the Company shall deliver to Compass 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
Series A Preferred Stock is convertible, minus $85,000,000, which amount is
expected to be an aggregate of approximately $2,100,000. In addition, Parent
shall deliver to New International any amount by which the aggregate of all
principal, accrued but unpaid interest and fees outstanding under the Credit
Facility is less than $110,000,000.
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THE DISTRIBUTION
The Reorganization Agreement
The Reorganization Agreement contains the basic terms of the Distribution.
The following is a summary of certain provisions of the Reorganization
Agreement. A copy of the Distribution Agreement is attached as an exhibit to the
Schedule 14D-1 and is incorporated herein by reference. The Reorganization
Agreement may be examined, and copies may be obtained, as set forth in Section 7
above. The following summary is qualified in its entirety by reference to the
Reorganization Agreement.
Contribution and Distribution. New International, which is a wholly owned
subsidiary of the Company, was recently organized for the purpose of
consummating the Contribution, the Distribution and the Merger, and the other
transactions described therein. Immediately prior to the Distribution and the
Offer Closing Time , the Company will contribute certain assets and equity
interests in CDV, Champps, French Quarter, Fuddruckers, GBC and other
subsidiaries other than Daka (the "New International Group") to New
International (the "Contribution"). Immediately thereafter, and effective as of
the Offer Closing Time, the Company will accomplish the Distribution by
distributing on a pro rata basis all of the issued and outstanding New
International Shares to the holders of the Shares. Consummation of the
Contribution and the Distribution is a condition to the Merger.
Terms of the Reorganization Agreement. The Reorganization Agreement
provides that immediately prior to the Offer Closing Time, the Company, Daka and
Daka's subsidiaries (the "International Group") will contribute to New
International all of the assets and properties, (the "New International
Assets"), used or held by any member of either the New International Group or
the International Group immediately prior to the Offer Closing Time, excluding
the specifically identified foodservice assets to be acquired by Parent in the
Merger (the "Foodservice 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 obligations. At the
same time, New International will assume all of the Assumed Daka Liabilities (as
defined in the Reorganization Agreement). 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 New International Group or the 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 Purchaser.
Immediately prior to the Offer Closing Time, the Company will cause New
International to exchange the existing shares of 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. Not later than 10 business days prior to the Offer Closing Date,
the Company and New International shall prepare and file with the Commission and
mail to the holders of the equity securities of the Company, the Information
Statement setting forth appropriate disclosure concerning New International and
its subsidiaries, the New International Assets, the Contribution, the
Distribution and certain other matters. The Company and New International shall
also prepare and the Company shall file with the Commission, the Form 10 which
shall include or incorporate by reference the Information Statement, and the
Company shall use reasonable efforts to cause the Form 10 to be declared
effective under the Exchange Act. Furthermore, the Company and New International
shall take all such actions as may be necessary or appropriate under state
securities laws in connection with the transactions set forth in the
Reorganization Agreement, and the Company and New International will prepare,
and New International will file and seek to make effective, an application to
permit listing of the New International Common Stock on The Nasdaq Stock Market.
The purpose and effect of the Contribution is to facilitate the Merger by
separating the assets and liabilities of the restaurant business (the
"Restaurant Business") currently operated by the Company, together with shares
of
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its subsidiaries not engaged in the Foodservice Business, and to transfer such
assets and liabilities to New International. Accordingly, the Foodservice
Business of the Company, will constitute certain of the businesses, assets and
liabilities of the Company at the time of the Merger.
In connection with all determinations to be made with respect to transfers
of assets to New International pursuant to the Contribution and the assumption
of liabilities by New International in relation to the Contribution, the
Reorganization Agreement provides that the following principles will be applied
with respect to the allocation of items between the New International Business
and the International Business (each as defined in the Reorganization
Agreement):
(a) All accrued operating income and operating expense items of the
Foodservice Business will be adjusted and allocated between New International
and the Company 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 New International
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
the Company;
(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 the
Reorganization Agreement, the allocation provided in clause (a) above shall be
made in accordance with GAAP (as defined in the Post-Closing Covenants
Agreement).
The Distribution will be effective as of the Offer Closing Time.
Immediately before the Offer Closing Time, the Company will distribute all
outstanding New International Shares to holders of record of International
Common Stock on the Distribution Record Date on the basis of one share of New
International Common Stock for each share of International Common Stock
outstanding on the Distribution Record Date. All shares of New International
Common Stock issued in the Distribution will be duly authorized, validly issued,
fully paid and nonassessable.
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 and assets, as applicable, 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 has
agreed 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 and to cause each of the Company and Daka to remain as named
insureds without cost to such entities under the Insurance Policies.
Employee Benefits and Labor Matters. 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 welfare
benefit plans, or amend existing welfare benefit 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. Foodservice Employees may be
permitted to roll over their Company retirement plan account balances into one
or more Compass retirement plans, subject to their terms. Except as otherwise
noted in the Reorganization Agreement, the Company shall cause one or more
members of the New International Group 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 Company Welfare Plans.
The Reorganization Agreement provides that New International and New
International 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 the Company or one of its affiliates who retired from the
New International 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 the Company or Parent 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.
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Effective as of the Offer Closing Time, New International will adopt (and
the Company, as sole shareholder of New International, will approve) a stock
option and restricted stock plan (the "New International Stock Plan") for the
benefit of employees of New International, Foodservice Employees and
non-employee directors of New International. Options to acquire Shares which
have been granted to New International employees, non-employee directors and
employees and former employees of the Company pursuant to the Company Plans (as
defined in the Reorganization Agreement) will, pursuant to the equitable
adjustment provisions of the applicable plan under which such options were
granted and effective as of the Distribution Date, be adjusted so as to provide
the optionholder with the right to acquire Shares at a price adjusted to reflect
the Distribution. In addition, and as part of the adjustment of options under
the Company Plans, optionholders under the Company Plans shall receive an option
under the New International Stock Plan which shall entitle such option holder to
purchase a number of shares of New International Common Stock. Both options will
have an exercise price determined in accordance with the terms of the
Reorganization Agreement. In addition, the Company shall cause the employee
stock purchase plan to end on the business day immediately preceding the Record
Date and to deem all Shares purchasable by participating employees as issued and
outstanding for purposes of the Distribution.
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 Employees
through the Offer Closing Time. Vacation pay and sick leave for Foodservice
employees after the Offer Closing Time will be provided under Parent's vacation
and sick leave policies.
The New International 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 or any of the severance plans
sponsored by any member of the International Group prior to the Offer Closing
Time, including, without limitation, 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. The Company
will 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.
Under the Reorganization Agreement, as of the Offer Closing Time, the
Company and the International Group shall 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 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 either group relating to any period of time on or before
the Offer Closing Time.
Also under the Reorganization Agreement, New International and the New
International Group generally shall be responsible for claims or proceedings
against the Company or Daka relating to 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 any multiemployer plan beyond certain
threshold amounts decided in the Reorganization Agreement.
Employment Matters. Pursuant to the Reorganization Agreement, Parent has
agreed to cause the Company or Daka to offer to retain all Foodservice Employees
(as defined in the Reorganization Agreement) as of 12:01 a.m. on the Offer
Closing Date. Notwithstanding the foregoing, nothing contained in the
Reorganization Agreement is to be construed as obligating Purchaser, the
Surviving Corporation or any of its affiliates (i) to offer employment after the
Offer Closing Time to any employee whose employment with the Company or Daka
terminates for any reason prior to the Offer Closing Time, (ii) to offer any
term or condition of employment (including base salary and other benefits)
except as specifically provided in the Reorganization Agreement or to maintain
any such term or condition for any period following the Offer Closing Time or
(iii) to recall any employee who does not have recall rights.
License of Certain Intellectual Property. New International and Parent have
agreed to enter into certain license agreements on terms and conditions
reasonably acceptable to them, to be effective upon the Offer Closing Time,
pursuant to which New International will grant Parent and Daka exclusive,
royalty free licenses to use certain proprietary marks, trade dress and systems
in connection with the operation of the Foodservice Business.
Conditions of the Contribution and 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
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the Distribution, the transactions accomplishing the Contribution must have been
consummated; (ii) Parent, Purchaser and Compass Interim shall 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 Date, and the Company
shall 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 shall have received opinions of Smith Helms Mulliss & Moore,
L.L.P. and Freshfields, each dated the Closing Date, in substantially the forms
attached as Exhibits to the Reorganization Agreement; (iv) simultaneously with
the Offer Closing, Parent shall have paid to The Chase Manhattan Bank, N.A. on
behalf of the Company all Funded Debt under the Credit Facility and secured a
release of all liens with respect to 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 shall be in effect, no such
litigation or legal action shall have been threatened or shall be pending, and
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; (vi) any applicable waiting periods under the
HSR Act or the Exon-Florio Amendment will have expired or been terminated; (vii)
the Form 10 will have been declared effective by the Commission; (viii) the
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 or any event that could reasonably
be expected to result in a Material Adverse Change; (xii) Allen R. Maxwell will
not have indicated that he does not intend to abide by the terms of his
employment agreement.
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 come due 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 GCL (which is applicable to the Distribution), a corporation
generally may make distributions to its stockholders only out of its surplus
(net assets minus statutory capital) and not out of statutory 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's stockholders return the New International Shares to
the Company or to a fund for the benefit of the Company's creditors.
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.
THE TAX ALLOCATION AGREEMENT
The following is a summary of certain provisions of the Tax Allocation
Agreement. A copy of the Tax Allocation Agreement is included as an exhibit to
the Schedule 14D-1 and is incorporated herein by reference. The Tax Allocation
Agreement may be examined, and copies may be obtained, as set forth in Section 7
above. The following summary is qualified in its entirety by reference to the
Tax Allocation Agreement.
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
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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 Post-Closing Covenants Agreement includes significant undertakings on
the part of New International with respect to its operations after the Offer
Closing Time and potential liability and payments due to the Company after the
Offer Closing Time. While the amount of payments, if any, which might be payable
to the Company by New International under the Post-Closing Covenants Agreement
cannot be quantified at this time, the aggregate amount of such payments could
have a material effect on the financial condition of New International.
The following is a summary of certain provisions of the Post-Closing
Covenants Agreement. A copy of the Post-Closing Covenants Agreement is included
as an exhibit to the Schedule 14D-1 and is incorporated herein by reference. The
Post-Closing Covenants Agreement may be examined, and copies may be obtained, as
set forth in Section 7 above. The following summary is qualified in its entirety
by reference to the Post-Closing Covenants Agreement.
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 and subsidiary of Parent, (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
Indemnitees 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
Assets 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, the "New International Indemnitees") or 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 SEC 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 or Proxy Statement 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 the Offer Closing Time; (iv) any
civil action or 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 the Company, including, but not limited to, the Special Liabilities (as
defined in the Post-Closing Covenants Agreement) relating to certain claims and
litigation pending as of or relating to a time period prior to the Offer Closing
Time, as well as claims and actions relating to or arising from actions or
omissions occuring 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 Covenants 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
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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
International Group, but only with regard to events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted either prior
to the Offer Closing Time or in connection with or as a result of the
consummation of certain transactions contemplated by the Merger Agreement, the
Reorganization Agreement or any Ancillary 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, that New International shall 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 Series A Preferred Stock Purchase Agreement other than
monetary obligations thereunder relating to the purchase of the Series A
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 contracts set forth in the Post-Closing Covenants Agreement
on a prorated basis, based on the number of months such purchasing contract was
in effect prior to and after the Offer Closing Time; or (xi) the Headquarters
Lease (as defined in the Post-Closing Covenants Agreement), except Compass'
obligations as sublessee.
Indemnification by Parent and Purchaser. 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, Parent and the Purchaser (jointly and
severally) will indemnify, defend and hold harmless the New International
Indemnitees from and against, and 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 the New International 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 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 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 an Ancillary Agreement (other than an agreement or
covenant assumed by New International pursuant to the Merger Agreement or 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 circumstances occurring, existing or asserted after the
Offer Closing Time; (vi) the collection of trade receivables or the payment of
obligations 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; or (vii) the
repayments by New International of any bonus or similar payments paid to Compass
or its subsidiaries after the Offer Closing Time under the purchasing contracts
set forth in the Post-Closing Covenants Agreement on a prorated basis, based on
the number of months such purchasing contract was in effect prior to and after
the Offer Closing Time.
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Limitation on Indemnification Obligations. The Post-Closing Covenants
Agreement provides that 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 the Special Liabilities (which amounts shall
be paid in their entirety). In no event shall New International have a right of
contribution against the Company or Daka in connection with Indemnitees of the
Company and Daka found in the Post-Closing Covenants Agreement, the Merger
Agreement or any of the Ancillary Agreements.
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
arising 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 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 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 Offer 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.
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, healthcare, museums or other similar leisure
facilities in the continental United States but excluding the foodservice
provided at retail outlets such as cinemas, theaters, stores, shopping centers
and the like (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, 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 shall not apply to Foodservice Employees (i)
terminated by Parent, the Company or Daka after the Effective 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 three years following the Offer Closing Time or the
resolution of all claims for indemnification under the Post-Closing Covenants
Agreement, 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 three-year 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 shall immediately provide alternative secured collateral for such
claims for indemnification in a form reasonably satisfactory to Parent.
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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 (as
defined in the Post-Closing Covenants Agreement) 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 shall
have no duty or obligation to contribute to any settlement, and the failure of
any Compass Indemnitee to so contribute shall 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 shall 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.
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 Trade Receivables. The
obligation of Daka to pay such Obligations shall be limited to the actual amount
of Trade Receivables collected by Daka. After the close of the eighth week after
the Offer Closing Time, Parent will remit to New International certain amounts
of collected Trade Receivables in excess of the sum of (x) the aggregate amount
of Obligations actually paid by Daka, plus (y) any adjustments determined
pursuant to the Closing Date Financial Statements, (as defined in the
Post-Closing Convenants Agreement) to be owed by New International to Parent.
Thereafter, Parent will remit any such net amount to 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 value of the
Foodservice Current Assets (as defined in the Post-Closing Covenants Agreement
and determined from the audited 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 the sum of (x) $85,000,000 plus (y) 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) in the event that there are lost customer contracts or new
customer contracts during the twelve months immediately preceding the Offer
Closing Date, New International and Parent each agree to pay the other, as
appropriate, by wire transfer, an additional Managed Volume/Profit Adjustment
calculated in accordance with the Post-Closing Covenants Agreement. To the
extent there is any amount owing from New International to Parent for
Post-Closing Payments relating to any Foodservice Current Asset shortfall,
outstanding Share value calculation or Managed Volume/Profitability Adjustment,
Parent will have a right of set-off against any amounts owing to New
International with respect to Parent's obligation to remit excess Trade
Receivables as summarized above.
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Transitional Arrangements. New International, the Company and Parent have
agreed to enter into a Transition Agreement to be effective upon consummation of
the Merger with respect to certain transitional arrangements (the "Transition
Agreement"). The Transition Agreement will 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's 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.
11. Purpose of the Offer, the Merger and the Distribution; Plans for the
Company. The purpose of the Offer, the Merger and the Distribution is for the
Purchaser to acquire control of the entire equity interest of the Foodservice
Business. Consummation of the Offer will provide the Purchaser with at least a
two-thirds equity interest in the Company. As described above, as a result of
the Distribution, the Company will continue to own only the Foodservice
Business. The Merger will allow the Purchaser to acquire all outstanding Shares
not tendered and purchased pursuant to the Offer. The acquisition of the entire
equity interest in the Foodservice Business has been structured as a cash tender
offer followed by the Distribution and a cash merger in order to provide a
prompt and orderly transfer of ownership of the Foodservice Business from the
public stockholders to Parent and to provide stockholders with cash and New
International Shares for all their Shares. The purchase of Shares pursuant to
the Offer will increase the likelihood that the Merger will be effected.
Except as noted in this Offer to Purchase, neither Parent nor the Purchaser
has any present plans or proposals that would result in an extraordinary
corporate transaction, such as a merger, reorganization, liquidation, relocation
of operations, or sale or transfer of assets, involving the Company or any of
its subsidiaries, or any material changes in the Company's corporate structure
or business or the composition of its management or personnel.
12. Effect of the Offer on the Market for the Shares; Stock Exchange
Listing; Registration under the Exchange Act. The purchase of Shares pursuant to
the Offer will reduce the number of Shares that might otherwise trade publicly
and may reduce the number of holders of Shares, which could adversely affect the
liquidity and market value of the remaining Shares held by stockholders other
than the Purchaser. The Purchaser cannot predict whether the reduction in the
number of Shares that might otherwise trade publicly would have an adverse or
beneficial effect on the market price for or marketability of the Shares or
whether it would cause future market prices to be greater or less than the Offer
price.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of The Nasdaq Stock Market for
continued listing and may, therefore, be delisted from such stock market. The
Nasdaq Stock Market's published guidelines require that an issuer have at least
200,000 publicly held shares (exclusive of holdings of officers, directors or
beneficial owners of more than 10%), held either by at least 400 beneficial
shareholders or 300 beneficial shareholders of round lots, with a market value
of at least $1 million and must have net tangible assets of at least either $1
million, $2 million or $4 million depending on profitability levels during the
issuer's four most recent fiscal years. If these standards are not met, shares
of an issuer might nevertheless continue to be included in The Nasdaq Stock
Market with quotations published in The Nasdaq Stock Market's "Additional List"
or in one of the "Local Lists," but if the number of beneficial holders were to
fall below 300, or if the number of publicly held shares were to fall below
100,000 or there were not at least two registered and active market makers for
the shares, the NASD's rules provide that such shares would no longer be
"qualified" for reporting by The Nasdaq Stock Market.
If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of the NASD for continued
inclusion in The Nasdaq Stock Market or in any other tier of The Nasdaq Stock
Market, and the shares are no longer included in The Nasdaq National Market or
in any other tier of The Nasdaq Stock Market, the market for the Shares could be
adversely affected.
If The Nasdaq Stock Market were to delist the Shares, it is possible that
the Shares would trade in the over-the-counter market and that price quotations
for the Shares would be reported through other sources. The extent of the public
market for the Shares and availability of such quotations would, however, depend
upon such factors as the number of holders and/or the aggregate market value of
the publicly held Shares at such time, the interest in maintaining a market in
the Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act, as described below, and other
factors.
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The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, the Shares might no
longer constitute "margin securities" for the purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as collateral
for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated if the Shares are not listed on a national
securities exchange and there are fewer than 300 holders of record. Termination
of the registration of the Shares under the Exchange Act would substantially
reduce the information required to be furnished by the Company to holders of
Shares and to the Commission and would make certain of the provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section 16
(b), the requirement of furnishing a proxy or information statement in
connection with stockholder action and the related requirement of an annual
report to stockholders and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions, no longer applicable to the
Shares. Furthermore, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of the ability to dispose of such
securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). If registration of the Shares under the Exchange
Act were terminated, the Shares would no longer be "margin securities" or
eligible for listing on a securities exchange or Nasdaq reporting. It is the
current intention of Parent to deregister the Shares after consummation of the
Offer if the requirements for termination of registration are met.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, shareholders of the Company may have certain rights
under the GCL to dissent and demand appraisal of, and payment in cash for the
fair value of, the Shares. Such rights, if the statutory procedures are complied
with, could lead to a judicial determination of the fair value (excluding any
element of value arising form accomplishment or expectation of the Merger)
required to be paid in cash to such dissenting holders for their Shares. Any
such judicial determination of the fair value of Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
market value of the Shares, including asset values and the investment value of
the Shares. The value so determined could be more or less than the purchase
price per Share pursuant to the Offer or the consideration per Share to be paid
in the Merger. The foregoing summary of the rights of dissenting shareholders
does not purport to be a complete statement of the procedures to be followed by
shareholders desiring to exercise their dissenters' rights. The preservation and
exercise of dissenters' rights are conditioned on strict adherence to the
applicable provisions of Delaware law.
In addition, the Merger will have to comply with other applicable
procedural and substantive requirements of Delaware law, including any duties to
minority shareholders imposed upon a controlling or, if applicable, majority
shareholder.
The Commission has adopted Rule 13e-3 under the Exchange Act, which is
applicable to certain "going private" transactions and which may under certain
circumstances be applicable to the Merger or another business combination
following the purchase of Shares pursuant to the Offer in which Purchaser seeks
to acquire the remaining Shares not held by it. Purchaser believes, however,
that if the Merger is consummated within one year of the purchase of Shares
pursuant to the Offer, Rule 13e-3 will not be applicable to the Merger.
Purchaser believes that if the Merger is not consummated within one year of its
purchase of Shares pursuant to the Offer, Rule 13e-3 may be applicable to the
Merger. Rule 13e-3 requires, among other things, that certain financial
information concerning the Company and certain information relating to the
fairness of the proposed transaction and the consideration offered to minority
stockholders in such transaction be filed with the Commission and disclosed to
stockholders prior to consummation of the transaction.
13. Dividends and Distributions. If, on or after the date of the Merger
Agreement, the Company should (i) split, combine or otherwise change the Shares
or its capitalization, (ii) issue or sell any additional securities of the
Company or otherwise cause an increase in the number of outstanding securities
of the Company (except for Shares issuable upon the exercise of employee stock
options outstanding on the date of the Merger Agreement) or (iii) acquire
currently outstanding Shares or otherwise cause a reduction in the number of
outstanding Shares, then, without prejudice to the Purchaser's rights under
Sections 1 and 15, the Purchaser, in its sole discretion, subject to the terms
of the Merger Agreement, may make such adjustments as it deems appropriate in
the purchase price and other terms of the Offer.
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If, on or after the date of the Merger Agreement, the Company should
declare or pay any dividend on the Shares or make any distribution (including,
without limitation, cash dividends, the issuance of additional Shares pursuant
to a stock dividend or stock split, the issuance of other securities or the
issuance of rights for the purchase of any securities) with respect to the
Shares, other than New International Shares payable or distributable in respect
of the Shares in connection with the Distribution, that is payable or
distributable to stockholders of record on a date prior to the transfer to the
name of the Purchaser or its nominee or transferee on the Company's stock
transfer records of the Shares purchased pursuant to the Offer, then, without
prejudice to the Purchaser's rights under Sections 1 and 15, any such dividend,
distribution or right to be received by the tendering stockholders will be
received and held by the tendering stockholders for the account of the Purchaser
and will be required to be promptly remitted and transferred by each tendering
stockholder to the Depositary for the account of the Purchaser, accompanied by
appropriate documentation of transfer. Pending such remittance and subject to
applicable law, the Purchaser will be entitled to all rights and privileges as
owner of any such dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by the Purchaser in its sole discretion.
14. Extension of Tender Period; Amendment; Termination. The Purchaser
expressly reserves the right, in its sole discretion, at any time or from time
to time, regardless of whether or not any of the events set forth in Section 15
shall have occurred or shall have been determined by the Purchaser to have
occurred, subject to the terms of the Merger Agreement and applicable rules of
the Commission, (i) to extend the period of time during which the Offer is open
and thereby delay acceptance for payment of, and the payment for, any Shares, by
giving oral or notice of such extension to the Depositary and (ii) to amend the
Offer in any respect by giving oral or written notice of such amendment to the
Depositary. In the Merger Agreement, Parent and the Purchaser have agreed not to
extend the Expiration Date beyond the initial Expiration Date without the prior
written consent of the Company unless one or more of the conditions set forth in
Section 15 shall not be satisfied or unless Parent reasonably determines that
such extension is necessary to comply with any legal or regulatory requirements
relating to the Offer. Purchaser has also agreed in the Merger Agreement,
subject to the terms and conditions thereof, to extend the Expiration Date if
the Offer would otherwise expire prior to (i) the Distribution Record Date, (ii)
the expiration or termination of any applicable waiting period under the HSR Act
or the Exon-Florio Amendment or (iii) the satisfaction of the Minimum Condition.
In no event, however, will the Purchaser extend the Expiration Date beyond July
31, 1997. In the Merger Agreement, the Purchaser expressly reserves the right to
amend the terms or conditions of the Offer; provided, that without the consent
of the Company, the Purchaser will not amend the terms or conditions of the
Offer to change the form of consideration to be paid or decrease the price per
Share payable in the Offer, the number of Shares sought in the Offer or to
impose conditions to the Offer in addition to those set forth in Section 15,
broaden the scope of the conditions set forth in Section 15 or to amend any
other term of the Offer in any manner adverse to the holders of Shares. The
rights reserved by the Purchaser in this paragraph are in addition to the
Purchaser's rights to terminate the Offer pursuant to Section 15. Any extension,
amendment or termination will be followed as promptly as practicable by public
announcement thereof, the announcement in the case of an extension to be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rules 14d-4(c) and 14e-1(d) under the Exchange Act. Any
reduction in the purchase price pursuant to the Merger Agreement will be
considered an amendment to the Offer, and will be followed by the appropriate
announcement. Without limiting the obligation of the Purchaser under such Rules
or the manner in which the Purchaser may choose to make any public announcement,
the Purchaser currently intends to make announcements by issuing a release to
the Dow Jones News Service or the Reuters News Service.
The Purchaser also reserves the right, in its sole discretion, subject to
the terms of the Merger Agreement, in the event any of the conditions specified
in Section 15 shall not have been satisfied and so long as Shares have not
theretofore been accepted for payment, to delay (except as otherwise required by
applicable law) acceptance for payment of or payment for Shares or to terminate
the Offer and not accept for payment or pay for Shares.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 4. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the
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<PAGE>
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including the Minimum Condition), the Purchaser will disseminate additional
tender offer materials and extend the Offer to the extent required by Rules
14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which
the Offer must remain open following material changes in the terms of the Offer
or information concerning the Offer, other than a change in price or a change in
percentage of securities sought, will depend upon the facts and circumstances,
including the relative materiality of the terms or information. With respect to
a change in price or a change in percentage of securities sought, a minimum ten-
business-day period is generally required to allow for adequate dissemination to
stockholders and investor response. If prior to the Expiration Date, the
Purchaser should decide to increase the price per Share being offered in the
Offer, such increase will be applicable to all stockholders whose Shares are
accepted for payment pursuant to the Offer. As used in this Offer to Purchase,
"business day" means any day other than Saturday, Sunday or a federal holiday
and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York
City time as computed in accordance with Rule 14d-l under the Exchange Act.
15. Certain Conditions to the Offer. Notwithstanding any other provision of
the Offer, the Purchaser shall 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 HSR Act or the Exon-Florio Amendment shall
not have expired or been terminated, (b) the Distribution Condition shall not
have been satisfied, (c) the Minimum Condition shall not 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, (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 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 continue to use such best efforts, Purchaser may not
terminate the Offer until such five business day period has expired without
the breach being cured, except for any such breaches that, individually or
in the aggregate, would not have a Material Adverse Effect on the the
Company and Daka as a whole; 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 Commission of
the Schedule 14D-1, Schedule 14D-9 or Form 10), which would (i) prohibit
the Purchaser from consummating the Offer or the Merger, (ii) prohibit New
International from consummating the Distribution
32
<PAGE>
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
(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
transactions 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 his Employment
Agreement with the Company and Daka; 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; 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 the officers and inside directors of
the Company shall not have been delivered to Parent; or
(q) letters of resignation from certain executive officers and
directors of the Company 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 Convenants Agreement; or
(t) the Company shall have failed to have assigned or transferred to
New International the Headquarters Lease (as defined in the Post-Closing
Covenants Agreement).
33
<PAGE>
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) above may be waived only by mutual consent
of the 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.
16. Certain Legal Matters; Regulatory Approvals. Except as described in
this Section 16, based on a review of publicly available filings by the Company
with the Commission and other publicly available information concerning the
Company, neither Parent nor the Purchaser is aware of any license or regulatory
permit that appears to be material to the business of the Company and its
subsidiaries, taken as a whole, that might be adversely affected by the
acquisition of Shares by the Purchaser or Parent pursuant to the Offer, the
Merger or otherwise or of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required prior to the acquisition of Shares by the Purchaser or Parent
pursuant to the Offer, the Merger or otherwise. Should any such approval or
other action be required, Parent and the Purchaser currently contemplate that it
will be sought. While the Purchaser does not currently intend to delay the
acceptance for payment of Shares tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that adverse consequences might not result to the
business of the Company or the Purchaser Entities or that certain parts of the
business of the Company or Parent might not have to be disposed of in the event
that such approvals were not obtained or any other actions were not taken. The
Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions, including conditions relating to the legal
matters discussed in this Section 16. See Section 15.
State Takeover Statutes. The Company is incorporated under the laws of the
State of Delaware. Section 203 of the GCL limits the ability of a Delaware
corporation to engage in business combinations with "interested stockholders"
(defined as any beneficial owner of 15% or more of the outstanding voting stock
of the corporation) unless, among other things, the corporation's board of
directors has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder." The Company has represented in the Merger Agreement that it
properly elected that Section 203 of the GCL be inapplicable to the Offer, the
Merger and the transactions contemplated in the Merger Agreement and the
Ancillary Agreements. At a meeting on May 22, 1997, the Board of Directors
approved the Merger Agreement, the Merger, the Offer and the Purchaser's
purchase of Shares pursuant to the Offer. Accordingly, the provisions of Section
203 of the GCL have been satisfied with respect to the Offer and the Merger and
such provisions will not delay the consummation of the Merger.
A number of other states have adopted "takeover" statutes that purport to
apply to attempts to acquire corporations that are incorporated in such states,
or whose business operations have substantial economic effects in such states,
or which have substantial assets, security holders, employees, principal
executive offices or places of business in such states.
In Edgar v. MITE Corporation, the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Act, which,
as a matter of state securities law, made takeovers of corporations meeting
certain requirements more difficult. However, in CTS Corp. v. Dynamics Corp. of
America, the Supreme Court held that a state may, as a matter of corporate law
and, in particular, those laws concerning corporate governance, constitutionally
disqualify a potential acquirer from voting on the affairs of a target
corporation without prior approval of the remaining stockholders, provided that
such laws were applicable under certain conditions, including, in particular,
that the corporation has a substantial number of stockholders in the state and
is incorporated there.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
"takeover" statutes. The Purchaser does not know whether any of these statutes
will, by their terms, apply to the Offer, and has not complied with any such
statutes other than that adopted by the State of Delaware. To the extent that
certain provisions of these statutes purport to apply to the Offer, the
Purchaser believes that there are reasonable bases for contesting such statutes.
If any person should seek to apply any state takeover statute, the Purchaser
would take such action as then appears desirable, which action may include
challenging the validity or applicability of any such statute in appropriate
court proceedings. If it is asserted that one or more takeover statutes apply to
the Offer, and it is not determined by an appropriate
34
<PAGE>
court that such statute or statutes do not apply or are invalid as applied to
the Offer, the Purchaser might be required to file certain information with, or
receive approvals from, the relevant state authorities, and the Purchaser might
be unable to purchase or pay for Shares tendered pursuant to the Offer, or be
delayed in continuing or consummating the Offer. In such case, the Purchaser may
not be obligated to accept for payment or pay for Shares tendered. See Section
15.
Antitrust. Under the HSR Act, certain acquisitions may not be consummated
unless information has been furnished to the Federal Trade Commission ("FTC")
and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and certain waiting period requirements have been satisfied. The
Offer and the acquisition of Shares pursuant to the Merger Agreement are subject
to the HSR Act. On or about May 29, 1997 Parent filed a Notification and Report
Form with respect to the Offer.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a
15-calendar-day waiting period following the filing by Parent. Accordingly, the
waiting period with respect to the Offer will expire at 11:59 p.m., New York
City time, on or about June 13, 1997, unless Parent receives a request for
additional information or documentary material, or the Antitrust Division and
the FTC terminate the waiting period prior thereto. If, within such 15-day
waiting period, either the Antitrust Division or the FTC requests additional
information or material from Parent concerning the Offer, the waiting period
will be extended and would expire at 11:59 p.m., New York City time, on the
tenth calendar day after the date of substantial compliance by Parent with such
request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Parent. The
Purchaser will not accept for payment Shares tendered pursuant to the Offer
unless and until the waiting period requirements imposed by the HSR Act with
respect to the Offer have been satisfied. See Section 15.
No separate HSR Act waiting period requirements with respect to the Merger
Agreement will apply, so long as the 15-day waiting period expires or is
terminated. Thus, all Shares may be acquired pursuant to the Offer at the close
of the 15-day waiting period or on the tenth calendar day after the date of
substantial compliance with a request for additional information (assuming all
other conditions to the Offer have been satisfied or waived in accordance with
the provisions thereof).
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger Agreement. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Parent or its subsidiaries.
Private parties and state attorneys general may also bring legal action under
the Antitrust Laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which Parent and
the Company are engaged, Parent and the Purchaser believe that the acquisition
of Shares by the Purchaser will not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition of
Shares by the Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result. See Section 15 for certain conditions to the
Offer, including conditions with respect to litigation and certain governmental
actions.
Exon-Florio. Section 721 of the Defense Production Act of 1950, as amended
(the "Exon-Florio Amendment"), empowers the President of the United States to
prohibit or suspend an acquisition of, or investment in, a United States company
by a foreign person if the President finds, after investigation, credible
evidence that the foreign person might take action that threatens to impair the
national security of the United States and that other provisions of existing law
do not provide adequate and appropriate authority to protect the national
security. Any
35
<PAGE>
determination that an investigation is called for must be made within 30 days of
notice of the proposed transaction. In the event such a determination is made,
any such investigation must be completed within 45 days of such determination.
Thereafter, any decision to take action must be announced within 15 days of
completion of the investigation. Authority under the Exon-Florio Amendment has
been delegated to the Chairman of the Committee on Foreign Investment in the
United States ("CFIUS"). On or about May 29, 1997, Parent and the Company
jointly notified CFIUS in writing of the transactions described herein and
provided CFIUS with the necessary information. Accordingly, the waiting period
with respect to the Offer will expire at 11:59 p.m., New York City Time, on or
about June 28, 1997, unless Parent receives a request for additional information
or notice of further investigation by CFIUS. Parent does not believe that such
transactions threaten to impair the national security of the United States and
does not anticipate that an investigation will be initiated.
Commission Approval of Information Statement. The Company intends to file
the Information Statement with the Commission as part of a registration
statement of the New International Shares under the Exchange Act.
Margin Rules. The Purchaser and Parent believe that the requirements of the
margin regulations promulgated by the Federal Reserve Board are not applicable
to the financing of the Offer and the Merger.
17. Fees and Expenses. Parent and the Purchaser have engaged NCMI and
Patricof to act as financial advisors to Parent in connection with the Merger
and the Offer. As compensation for their services as financial advisors, Parent
will pay each of NCMI and Patricof a transaction fee upon consummation of the
Merger. Purchaser also has agreed to reimburse NCMI and Patricof for their
expenses, including reasonable counsel fees, and to indemnify them against
certain liabilities and expenses, including certain liabilities under the
Federal securities laws.
The Purchaser has retained MacKenzie Partners, Inc. to act as the
Information Agent and The Bank of New York to act as the Depositary in
connection with the Offer. The Information Agent may contact holders of Shares
by mail, telephone, telex, facsimile, telegraph and personal interview and may
request brokers, dealers, commercial banks, trust companies and other nominees
to forward the Offer material to beneficial owners. The Information Agent and
Depositary each will receive reasonable and customary compensation for their
services, will be reimbursed for certain reasonable out-of-pocket expenses and
will be indemnified against certain liabilities and expenses in connection
therewith, including certain liabilities under the Federal securities laws. The
Depositary has not been retained to make solicitations or recommendations in
connection with the Offer.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or other persons for soliciting tenders of Shares pursuant to
the Offer (other than the fees of the Information Agent). Brokers, dealers,
commercial banks and trust companies will be reimbursed by the Purchaser for
reasonable expenses incurred by them in forwarding material to their customers.
18. Miscellaneous. The Purchaser is not aware of any jurisdiction in which
the making of the Offer is not in compliance with applicable law. If the
Purchaser becomes aware of any jurisdiction in which the making of the Offer
would not be in compliance with applicable law, the Purchaser will make a good
faith effort to comply with any such law. If, after good faith effort, the
Purchaser cannot comply with any such law, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) the holders of Shares residing in
such jurisdiction. In those jurisdictions where securities or blue sky laws
require the Offer to be made by a licensed broker or dealer, the Offer is being
made on behalf of the Purchaser by one or more registered brokers or dealers
which are licensed under the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser or Parent not contained in this Offer
to Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized.
The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-l
and any amendments thereto, including exhibits, may be inspected and copies may
be obtained at the same places and in the same manner as set forth in Section 7
(except they will not be available at the regional offices of the Commission).
COMPASS HOLDINGS, INC.
May 29, 1997
36
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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 KT16 9BA. 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>
Name Positions and Offices Principal Occupation and Business Experience
(Age at 4/30/97) Held with Parent During Past Five Years; Outside Directorships
<S> <C> <C>
John M. Thomson* Non-executive Chairman Non-executive chairman of Parent since March
(69) 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* Director, Chief Executive Director of Parent since 1995 and Chief
(48) Officer, US Division 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, Massachusetts 02154.
Denis P. Cassidy* Non-executive Director Non-executive Director of Parent since June
(64) 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 H
Liberty Public Limited Company and Oliver
Group PLC and is a Non-executive Director of
Seeboard PLC.
Peter E. B. Cawdron* Non-executive Director Non-executive Director since 1993; Group
(53) 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.
Alain F. Dupuis* Executive Director; President Executive Director and President of Eurest
(52) of Eurest International International subsidiary of Parent since
Division 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* Group Finance Director Group Finance Director of Parent since 1997.
(40) Prior to 1997, Mr. Lynch was Finance Director
of Parent's UK Division.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
Name Positions and Offices Principal Occupation and Business Experience
(Age at 4/30/97) Held with Parent During Past Five Years; Outside Directorships
<S> <C> <C>
Francis H. Mackay * Chief Executive and Deputy Chief Executive and Deputy Chairman of Parent
(52) Chairman since 1991 and 1994, respectively;
Non-executive Director of Centrica PLC,
Healthcall PLC and Allied Carpets Group PLC.
Roger J. Matthews* Managing Executive Director Managing Executive Director of Parent since
(42) 1997. Prior to 1997, Mr. Matthews was
Executive Director of Group Finance.
John Du Monceau* Non-executive Director Non-executive Director of Parent since 1995;
(58) 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 Secretary Secretary of Parent since 1989.
(44)
Gerard Pelisson* Non-executive Director Non-executive Director of Parent since 1995;
(65) 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* Executive Director; Chief Chief Executive Officer of Parent's UK and
(53) Executive Officer of UK and Scandinavian Operations since 1995. From 1993
Scandinavian Catering to 1995, Mr. Ternofsky was Executive Director
Division 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 of 1993, having been a
Non-executive Director since 1987.
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER.
<TABLE>
<CAPTION>
Name Position and Offices Principal Occupation and Business Experience
(Age at 4/30/97) Held with Purchaser During Past Five Years; Outside Directorships
<S> <C> <C>
Michael J. Bailey* Director, President and Chief See above.
(48) Executive Officer
Francis H. Mackay * Director See above.
(52)
Roger J. Matthews* Director See above.
(42)
Mary H. Kercher Vice President, General Counsel Vice President, General Counsel and Secretary of
(35) and Secretary 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>
I-2
<PAGE>
Exhibit A
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>
TABLE OF CONTENTS
ARTICLE I
THE OFFER
<TABLE>
<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
</TABLE>
ARTICLE II
THE MERGER
<TABLE>
<C> <S> <C>
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
</TABLE>
ARTICLE III
EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES
<TABLE>
<C> <S> <C>
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
</TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<C> <S> <C>
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>
<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
</TABLE>
ARTICLE V
COVENANTS
<TABLE>
<C> <S> <C>
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
</TABLE>
ARTICLE VI
ADDITIONAL AGREEMENTS
<TABLE>
<C> <S> <C>
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>
<TABLE>
<C> <S> <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
</TABLE>
ARTICLE VII
CONDITIONS PRECEDENT
<TABLE>
<C> <S> <C>
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
</TABLE>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
<TABLE>
<C> <S> <C>
Section 8.1 Termination.................................................................................. 43
Section 8.2 Effect of Termination........................................................................ 44
Section 8.3 Amendment.................................................................................... 45
Section 8.4 Extension; Waiver............................................................................ 45
</TABLE>
ARTICLE IX
GENERAL PROVISIONS
<TABLE>
<C> <S> <C>
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
</TABLE>
ARTICLE X
DEFINITIONS
<TABLE>
<C> <S> <C>
Section 10.1 General...................................................................................... 48
Section 10.2 Certain Definitions.......................................................................... 51
</TABLE>
LIST OF EXHIBITS:
<TABLE>
<C> <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>
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>
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.
A-6
<PAGE>
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
A-7
<PAGE>
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.
A-8
<PAGE>
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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<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>
A-38
<PAGE>
<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.
A-39
<PAGE>
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
A-40
<PAGE>
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
A-41
<PAGE>
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.
A-42
<PAGE>
(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.
A-43
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the Shares
and any other required documents should be sent by each shareholder of the
Company or his or her broker, dealer, commercial bank, trust company or other
nominee to the Depositary as follows:
The Depositary for the Offer is:
The Bank of New York
<TABLE>
<CAPTION>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
<S> <C> <C>
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>
For Information by Telephone:
(800) 507-9357
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or
other tender offer materials may be directed to the Information Agent at its
telephone number and address listed below. You may also contact your broker,
dealer, commercial bank or trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
(logo of MACKENZIE PARTNERS, INC.)
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
<PAGE>
EXHIBIT (A)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
DAKA INTERNATIONAL, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED MAY 29, 1997
BY
COMPASS HOLDINGS, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF
COMPASS GROUP PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS EXTENDED. COMPASS HOLDINGS, INC.
HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING
THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE).
The Depositary:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
<S> <C> <C>
The Bank of New York (For Eligible Institutions Only) The Bank of New York
Tender & Exchange Department (212) 815-6213 Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>
<TABLE>
<CAPTION>
FOR INFORMATION BY TELEPHONE:
<S> <C> <C>
(800) 507-9357
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates are to be forwarded herewith or if delivery is to be made by
book-entry transfer to the Depositary's account at The Depository Trust Company
("DTC") or the Philadelphia Depository Trust Company ("PDTC"), which are
hereinafter collectively referred to as the "Book-Entry Transfer Facilities,"
pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as
defined below). Stockholders whose certificates are not immediately available or
who cannot deliver their certificates and all other documents required hereby to
the Depositary prior to the Expiration Date (as defined in Section 1 of the
Offer to Purchase) or who cannot comply with the book-entry transfer procedures
on a timely basis must tender their Shares (as defined below) according to the
guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase.
See Instruction 2. Delivery of documents to a Book-Entry Transfer Facility does
not constitute delivery to the Depositary.
<PAGE>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH DTC OR PDTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
Check Box of Book-Entry Transfer Facility (check one):
[ ] DTC [ ] PDTC
Account Number Transaction Code Number
[ ]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution that Guaranteed Delivery
Check Box of Book-Entry Transfer Facility if Delivered by Book-Entry Transfer
(check one):
[ ] DTC [ ] PDTC
Account Number (if delivered by Book-Entry Transfer) Transaction Code
Number
BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON CERTIFICATE(S))
<S><C>
DESCRIPTION OF SHARES TENDERED
CERTIFICATE(S) TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
TOTAL NUMBER OF SHARES
CERTIFICATE NUMBER(S)* REPRESENTED BY CERTIFICATE(S)** NUMBER OF SHARES TENDERED**
Total Shares....................................................................
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by any certificates delivered to the Depositary
are being tendered. See Instruction 4.
</TABLE>
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Compass Holdings, Inc. (the "Purchaser"), a
Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a
public limited company incorporated in England and Wales ("Parent"), the
above-described shares of common stock (the "Common Stock"), par value $.01 per
share, of DAKA International, Inc., a Delaware corporation (the "Company") (the
"Shares") at $7.50 per Share, net to the seller in cash, without interest, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated May 29, 1997 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with the Offer
to Purchase, constitute the "Offer").
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns and transfers to, or upon the order
of, the Purchaser all right, title and interest in and to all of the Shares that
are being tendered hereby (and any and all other Shares or other securities or
property issued or issuable in respect thereof on or after May 27, 1997, other
than the shares of Unique Casual Restaurants, Inc. (the "New International
Shares") distributed in respect of the Shares in connection with the
Distribution (as such terms are defined in the Offer to Purchase)) (such other
Shares, securities or property other than the New International Shares being
referred to herein as the "Other Securities") and irrevocably appoints the
Depositary the true and lawful agent and attorney-in- fact of the undersigned
with respect to such Shares (and any such Other Securities) with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver certificates for such Shares (and any
such Other Securities), or transfer ownership of such Shares on the account
books maintained by either of the Book-Entry Transfer Facilities (and any such
Other Securities), together in any such case with all accompanying evidences of
transfer and authenticity, to or upon the order of the Purchaser, upon receipt
by the Depositary, as the undersigned's agent, of the purchase price (adjusted,
if appropriate, as provided in the Offer to Purchase), (b) present such Shares
(and any such Other Securities) for transfer on the books of the Company and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares (and any such Other Securities), all in accordance with the terms
of the Offer.
The undersigned hereby irrevocably appoints Mary H. Kercher and Timothy E.
Flemming, and each of them or any other designees of the Purchaser, the
attorneys and proxies of the undersigned, each with full power of substitution,
to exercise such voting and other rights as each such attorney and proxy or his
substitute shall, in his sole discretion, deem proper, and otherwise act
(including pursuant to written consent) with respect to all of the Shares
tendered hereby which have been accepted for payment by the Purchaser prior to
the time of such vote or action (and any and all Other Securities issued or
issuable in respect thereof on or after May 27, 1997), which the undersigned is
entitled to vote at any meeting of stockholders of the Company (whether annual
or special and whether or not an adjourned meeting), or written consent in lieu
of such meeting, or otherwise. This proxy is coupled with an interest in the
Shares tendered hereby and is irrevocable and is granted in consideration of,
and is effective upon, the acceptance for payment of such Shares by the
Purchaser in accordance with the terms of the Offer. Such acceptance for payment
shall revoke all prior proxies granted by the undersigned with respect to such
Shares (and any such Other Securities) and no subsequent proxies may be given
(and if given will be deemed not to be effective) with respect thereto by the
undersigned. The Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser is able to exercise full
voting and other rights of a record holder or beneficial holder, including
rights in respect of acting by written consent, with respect to such Shares and
Other Securities.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any and all Other Securities issued or issuable in respect thereof
on or after May 27, 1997), and that when the same are accepted for payment by
the Purchaser, the Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances, and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any signature guarantees or
additional documents deemed by the Depositary or the Purchaser to be necessary
or desirable to complete the sale, assignment and transfer of the Shares
tendered hereby (and any and all such Other Securities). In addition, the
undersigned shall promptly remit and transfer to the Depositary for the account
of the Purchaser any such
3
<PAGE>
Other Securities issued to the undersigned on or after May 27, 1997, in respect
of the Shares tendered hereby, accompanied by appropriate documentation of
transfer, and pending such remittance or appropriate assurance thereof, the
Purchaser shall be entitled to all rights and privileges as owner of any such
Other Securities and may withhold the entire purchase price or deduct from the
purchase price the amount or value thereof, as determined by the Purchaser in
its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated in
the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, the Purchaser may not be required to accept for payment any of the
Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions," please
issue the check for the purchase price and/or return any certificates for Shares
not tendered or not accepted for payment in the name(s) of the registered
holder(s) appearing under "Description of Shares Tendered." Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the check
for the purchase price and/or return any certificates for Shares not tendered or
accepted for payment (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing under "Description of Shares
Tendered." In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price and/or return any certificates for Shares not purchased (together
with accompanying documents as appropriate) in the name(s) of, and deliver said
check and/or return such certificates to, the person or persons so indicated.
Stockholders tendering Shares by book-entry transfer may request that any Shares
not accepted for payment be returned by crediting such account maintained at DTC
or PDTC as such stockholder may designate by making an appropriate entry under
"Special Payment Instructions." The undersigned recognizes that the Purchaser
has no obligation pursuant to the Special Payment Instructions to transfer any
Shares from the name of the registered holder(s) thereof if the Purchaser does
not accept for payment any of the Shares so tendered.
4
<PAGE>
<TABLE>
<S> <C> <C>
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not
tendered or not purchased and/or the check for the
purchase price of Shares purchased are to be issued in
the name of someone other than the undersigned, or if
Shares tendered by book-entry transfer which are not
purchased are to be returned by credit to an account at
one of the Book-Entry Transfer Facilities.
Issue: [ ] Check
[ ] Share Certificate(s) to:
Name
(Please Print)
Address
(Include Zip Code)
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
[ ] Credit unpurchased Shares tendered by book-entry
transfer to the account set forth below:
Credit Appropriate Box:
[ ] DTC [ ] PDTC
(Account Number)
</TABLE>
<TABLE>
<S> <C> <C>
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not
tendered or not purchased and/or the check for the
purchase price of Shares purchased are to be sent to
someone other than the undersigned or to the
undersigned at an address other than that appearing
under "Description of Shares Tendered."
Mail: [ ] Check
[ ] Share Certificate(s) to:
Name
(Please Print)
Address
(Include Zip Code)
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
IMPORTANT
STOCKHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
X
(Signature(s) of Owner(s))
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to become
registered holder(s) by certificates and documents transmitted herewith. If signature
is by trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or any other person acting in a fiduciary or representative capacity,
please provide the following information. See Instruction 5.)
Dated , 1997
Name(s)
(Please Print)
Capacity (full title)
Address
(Include Zip Code)
Area Code and Telephone Number
Tax Identification or Social Security Number
(See Substitute Form W-9 Below)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
Name
(Please Print)
Name of Firm
Address
(Include Zip Code)
Area Code and Telephone Number
Dated , 1997
</TABLE>
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on all Letters of Transmittal must
be guaranteed by a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc., or by a commercial bank
or trust company having an office or correspondent in the United States (each of
the foregoing being referred to as an "Eligible Institution"), unless (i) this
Letter of Transmittal is signed by the registered holder(s) of Shares (which
term, for the purposes of this document, shall include any participant in a
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares) and such holder(s) has (have) not completed either the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on this Letter of Transmittal or (ii) such shares are
tendered for the account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by stockholders either
if certificates for Shares are to be forwarded herewith or if a tender of Shares
is to be made pursuant to the procedures for delivery by book-entry transfer set
forth in Section 3 of the Offer to Purchase. Certificates for all physically
tendered Shares, or confirmation ("Book-Entry Confirmation") of any book-entry
transfer into the Depositary's account at DTC or PDTC of Shares delivered by
book-entry transfer as well as a properly completed and duly executed Letter of
Transmittal, must be received by the Depositary, at one of the addresses set
forth herein prior to the Expiration Date (as defined in Section 1 of the Offer
to Purchase). Stockholders whose certificates are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot comply with the book-entry
transfer procedures on a timely basis may tender their Shares by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase.
Pursuant to such procedure, (i) such tender must be made by or through an
Eligible Institution, (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form provided by the Purchaser, must
be received by the Depositary (as provided in (iii) below) prior to the
Expiration Date and (iii) the certificates for all physically tendered Shares
(or Book-Entry Confirmation with respect to such Shares), as well as a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three Nasdaq
Stock Market trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR
SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH EITHER
BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING
STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND DOCUMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY
DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to stockholders who tender by
book-entry transfer.) If fewer than all the Shares evidenced by any certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such case, new
certificate(s) for the remainder of the Shares that were evidenced by the old
certificate(s) will be sent to the registered holder, unless otherwise provided
in the appropriate box on this Letter of Transmittal, as soon as practicable
after the Expiration Date. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or any
change
7
<PAGE>
whatsoever. If any of the Shares tendered hereby are held of record by two or
more persons, all such persons must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or any person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by certificates listed and transmitted hereby, no endorsements
of certificates or separate stock powers are required unless payment is to be
made to or certificates for Shares not tendered or purchased are to be issued in
the name of a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares, evidenced by certificates listed and
transmitted hereby, the certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on the certificates. Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of Shares to it or its order pursuant to the Offer. If,
however, payment of the purchase price is to be made to, or if certificates for
Shares not tendered or purchased are to be registered in the name of, any person
other than the registered holder(s), or if certificates for tendered shares are
registered in the name of any person other than the person(s) signing this
letter of transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such other person) payable on account of the
transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check is to be issued
in the name of and/or certificates for Shares not tendered or not purchased are
to be returned to a person other than the signer of this Letter of Transmittal
or if a check is to be sent and/or such certificates are to be returned to
someone other than the signer above, the appropriate boxes on this Letter of
Transmittal should be completed. Stockholders tendering Shares by book-entry
transfer may request that Shares not purchased be credited to such account
maintained at the Book-Entry Transfer Facility as such stockholder designates
under "Special Delivery Instructions". If no such instructions are given, any
such Share not purchased will be returned by crediting the account at the
Book-Entry Transfer Facility designated above.
8. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may
be directed to, or additional copies of the Offer to Purchase and this Letter of
Transmittal may be obtained from, the Information Agent at the telephone numbers
and addresses set forth below. Stockholders may also contact their broker,
dealer, commercial bank or trust company.
9. WAIVER OF CONDITIONS. Except as otherwise provided in the Offer to
Purchase, the Purchaser reserves the right in its sole discretion to waive in
whole or in part at any time or from time to time any of the specified
conditions of the Offer or any defect or irregularity in tender with regard to
any Shares tendered.
10. SUBSTITUTE FORM W-9. The tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"), generally
the stockholder's social security or employer identification number, on
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify whether he or she is subject to backup withholding of federal
income tax. If a tendering stockholder is subject to backup withholding, he or
she must cross out item (2) of the Certification Box on Substitute Form W-9.
Failure to provide the information on Substitute Form W-9 may subject the
tendering stockholder to 31% federal income tax withholding on the payment of
the purchase price. If the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future, he
or she should write "Applied For" in the space provided for the TIN in Part I,
sign and date the Substitute Form W-9 and sign and date the Certificate of
Awaiting Taxpayer Identification Number. If
8
<PAGE>
"Applied For" is written in Part I and the Depositary is not provided with a TIN
within 60 days, the Depositary will withhold 31% of payments for surrendered
Shares thereafter until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF) TOGETHER WITH
CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR
TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
UNDER FEDERAL TAX LAW, A STOCKHOLDER WHOSE TENDERED SHARES ARE ACCEPTED FOR
PAYMENT IS REQUIRED TO PROVIDE THE DEPOSITARY (AS PAYER) WITH SUCH STOCKHOLDER'S
CORRECT TIN ON SUBSTITUTE FORM W-9 BELOW. IF SUCH STOCKHOLDER IS AN INDIVIDUAL,
THE TIN IS HIS SOCIAL SECURITY NUMBER. IF THE DEPOSITARY IS NOT PROVIDED WITH
THE CORRECT TIN, THE STOCKHOLDER MAY BE SUBJECT TO A $50 PENALTY IMPOSED BY THE
INTERNAL REVENUE SERVICE. IN ADDITION, PAYMENTS THAT ARE MADE TO SUCH
STOCKHOLDER WITH RESPECT TO SHARES PURCHASED PURSUANT TO THE OFFER MAY BE
SUBJECT TO BACKUP WITHHOLDING.
CERTAIN STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND CERTAIN
FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING
REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT
RECIPIENT, THAT STOCKHOLDER MUST SUBMIT A STATEMENT, SIGNED UNDER PENALTIES OF
PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS. SUCH STATEMENTS CAN BE
OBTAINED FROM THE DEPOSITARY. SEE THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
INSTRUCTIONS.
IF BACKUP WITHHOLDING APPLIES, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31%
OF ANY PAYMENTS MADE TO THE STOCKHOLDER. BACKUP WITHHOLDING IS NOT AN ADDITIONAL
TAX. RATHER, THE TAX LIABILITY OF PERSONS SUBJECT TO BACKUP WITHHOLDING WILL BE
REDUCED BY THE AMOUNT OF TAX WITHHELD. IF WITHHOLDING RESULTS IN AN OVERPAYMENT
OF TAXES, A REFUND MAY BE OBTAINED.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of his correct TIN by completing the
Substitute Form W-9 contained herein certifying that the TIN provided on the
Substitute Form W- 9 is correct (or that such stockholder is awaiting a TIN) and
that (1) the stockholder has not been notified by the Internal Revenue Service
that he is subject to backup withholding as a result of failure to report all
interest or dividends, or (2) the Internal Revenue Service has notified the
stockholder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
If the tendering stockholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, he or she should
write "Applied For" in the space provided for the TIN in Part I, sign and date
the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I and the Depositary
is not provided with a TIN within 60 days, the Depositary will withhold 31% of
all payments of the purchase price until a TIN is provided to the Depositary.
9
<PAGE>
<TABLE>
<S> <C> <C>
PAYER'S NAME: THE BANK OF NEW YORK, AS DEPOSITARY
SUBSTITUTE
FORM W-9 PART I -- PLEASE PROVIDE YOUR TIN TIN
IN THE BOX AT RIGHT AND CERTIFY Social Security Number
BY SIGNING AND DATING BELOW: OR
Employer Identification Number
Department of the
Treasury Internal
Revenue Service. PART 2 -- For Payees NOT subject to backup withholding, see the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as
instructed therein.
OR
Payee's Request for CERTIFICATION -- Under the penalties of perjury, I certify that:
Taxpayer (1) The number shown on this form is my correct taxpayer identification number (or I am
waiting for a number to be issued to me), and
Identification
Number (TIN) (2) I am not subject to backup withholding because either I have not been notified by
the Internal Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or the IRS has notified me P
that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another notification from the
IRS that you are no longer subject to backup withholding, do not cross out item (2).
(Also see instructions in the enclosed Guidelines.)
Signature Date , 1997
Sign Here (arrow) Name:
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART I
OF SUBSTITUTE FORM W-9.
<TABLE>
<S> <C>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under the penalties of perjury that a taxpayer identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal
Revenue Service Center or Social Security Administration Officer, or (b) I intend to mail or deliver an application
in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment,
31% of all reportable payments made to me thereafter will be withheld until I provide a number.
Signature(s) Date
<CAPTION>
</TABLE>
10
<PAGE>
(DO NOT WRITE IN SPACES BELOW)
<TABLE>
<CAPTION>
DATE RECEIVED ACCEPTED BY CHECKED BY
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SHARES SHARES SHARES CHECK AMOUNT SHARES CERTIFICATE
SURRENDERED TENDERED ACCEPTED NUMBER OF CHECK RETURNED NUMBER
</TABLE>
<TABLE>
<CAPTION>
DELIVERY PREPARED BY CHECKED BY DATE
<S> <C> <C>
</TABLE>
The Information Agent for the Offer is:
(logo of MACKENZIE PARTNERS, INC.)
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
11
<PAGE>
EXHIBIT (A)(3)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
DAKA INTERNATIONAL, INC.
AT $7.50 NET PER SHARE
BY
COMPASS HOLDINGS, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
COMPASS GROUP PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS
HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY
FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE).
May 29, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Compass Holdings, Inc. (the "Purchaser"), a
Delaware corporation and a wholly owned subsidiary of Compass Group PLC,
a public limited company incorporated in England and Wales ("Parent"), to
act as Information Agent in connection with its offer to purchase all
outstanding shares of common stock, par value $.01 per share (the
"Shares"), of DAKA International, Inc., a Delaware corporation (the
"Company"), at $7.50 per Share, net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in the
Purchaser's Offer to Purchase, dated May 29, 1997 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), copies of which are enclosed herewith. The Offer
is being made in connection with the Agreement and Plan of Merger, dated
as of May 27, 1997, among Parent, Purchaser, Compass Interim, Inc. and the
Company.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING
VALIDLY TENDERED (INCLUDING SHARES THAT REMAIN SUBJECT TO GUARANTEED
DELIVERY PROCEDURES) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE
OFFER A NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN
BENEFICIALLY OWNED BY PARENT, PURCHASER AND ITS AFFILIATES OR COMPASS
INTERIM, INC. (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 PURSUANT TO THE SERIES A PREFERRED STOCK AGREEMENT (AS
DEFINED IN THE OFFER TO PURCHASE) ARE CONVERTIBLE), CONSTITUTES AT LEAST
TWO-THIRDS OF THE SUM 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 DEFINED IN THE OFFER TO
PURCHASE).
For your information and for forwarding to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, we are enclosing the following documents:
1. Offer to Purchase, dated May 29, 1997;
2. Letter of Transmittal for your use and for the information of
your clients, together with Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing
information relating to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if
the Shares and all other required documents cannot be delivered
to the Depositary by the Expiration Date (as defined in the Offer
to Purchase) or if the procedures for book-entry transfer cannot
be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name
of your nominee, with space provided for obtaining such clients'
instructions with regard to the Offer; and
5. Return envelope addressed to The Bank of New York, as Depositary.
<PAGE>
Your attention is directed to the following:
1. The tender price is $7.50 per Share, net to the seller in cash.
2. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE
OFFER, THE DISTRIBUTION AND THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, HAS APPROVED THE MERGER
AGREEMENT, THE OFFER, THE DISTRIBUTION AND THE MERGER, AND RECOMMENDS
THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES
PURSUANT TO THE OFFER.
3. The Offer and withdrawal rights will expire at 12:00 midnight,
New York City time, on Wednesday, June 25, 1997, unless the Offer is
extended.
4. The Offer is being made for all of the outstanding Shares. The
Offer is conditioned upon, among other things, there being validly
tendered (including Shares that remain subject to guaranteed delivery
procedures) and not withdrawn prior to the expiration of the Offer a
number of Shares which, when added to the number of Shares then
beneficially owned by Parent, Purchaser and its affiliates or Compass
Interim, Inc. (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 pursuant to the Series A Preferred Stock Agreement
(as defined in the Offer to Purchase) are convertible), constitutes at
least two-thirds of sum 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 defined in the
Offer to Purchase).
5. Shareholders who tender Shares will not be obligated to pay
brokerage fees, commissions or, except as set forth in Instruction 6 of
the Letter of Transmittal, transfer taxes on the purchase of Shares by
the Purchaser pursuant to the Offer.
The Company has advised Parent and the Purchaser that, prior to the time
notice of the Distribution Record Date is given and at least ten days prior
to the Expiration Date, it will distribute to holders of Shares an
information statement ("the Information Statement") with respect to the
business, operations and management of Unique Casual Restaurants, Inc. a
newly formed Delaware corporation and a wholly owned subsidiary of the
Company ("the Information Statement"). See Section 10 of the Offer to
Purchase.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such
extension or amendment), the Purchaser will be deemed to have accepted for
payment, and will pay for, all Shares validly tendered and not properly
withdrawn prior to the Expiration Date (as defined in the Offer to Purchase)
when, as and if the Purchaser gives oral or written notice to the Depositary
of the Purchaser's acceptance of such Shares for payment pursuant to the
Offer. Payment for Shares purchased pursuant to the Offer will be made only
after timely receipt by the Depositary of certificates for such Shares (or
confirmation of a book-entry transfer of such Shares into the Depositary's
account at one of the Book-Entry Transfer Facilities (as defined in the Offer
to Purchase)), a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) (unless, in the case of a book-entry transfer, an
Agent's Message (as defined in the Offer to Purchase) is utilized) and any
other documents required by the Letter of Transmittal.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal, with any required signature guarantees and
any other required documents, should be sent to the Depositary, and
certificates representing the tendered Shares should be delivered, all in
accordance with the instructions set forth in the Letter of Transmittal and
the Offer to Purchase.
If holders of Shares wish to tender their Shares, but it is
impracticable for them to deliver their certificates on or prior to the
Expiration Date or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures specified in Section 3 of the Offer to Purchase.
The Purchaser will not pay any fees or commissions to any broker or
dealer or other person (other than the Information Agent as described in the
Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer.
The Purchaser will, however, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs and
expenses incurred by them in forwarding materials to their customers. The
Purchaser will pay all stock transfer taxes applicable to its purchase of
Shares pursuant to the Offer, subject to Instruction 6 of the Letter of
Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER
IS EXTENDED. COMPASS HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE
FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE
OFFER TO PURCHASE).
Any inquiries you may have with respect to the Offer should be addressed
to, and additional copies of the enclosed materials may be obtained by
contacting the undersigned at (800) 322-2885 or (212) 929-5500 (call
collect).
Very truly yours,
MACKENZIE PARTNERS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY PERSON AS AN AGENT OF THE PURCHASER, THE COMPANY, ANY AFFILIATE OF
THE COMPANY, COMPASS GROUP PLC, THE INFORMATION AGENT OR THE DEPOSITARY, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT
ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
EXHIBIT (A)(4)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
DAKA INTERNATIONAL, INC.
AT
$7.50 NET PER SHARE
BY
COMPASS HOLDINGS, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF
COMPASS GROUP PLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS
HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY
FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE).
May 29, 1997
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated May
29, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer") and other materials relating to
the Offer by Compass Holdings, Inc. (the "Purchaser"), a Delaware
corporation and a wholly owned subsidiary of Compass Group PLC, a public
limited company incorporated in England and Wales (the "Parent"), to
purchase all outstanding shares of common stock, par value $.01 per share
(the "Shares"), of DAKA International, Inc., a Delaware corporation (the
"Company"), at $7.50 per Share, net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in the
Offer. This material is being sent to you as the beneficial owner of
Shares held by us for your account but not registered in your name. A
TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS
LETTER IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender any
or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender price is $7.50 per Share, net to the seller in cash,
without interest.
2. The Offer and withdrawal rights will expire at 12:00 Midnight,
New York City time, on Wednesday, June 25, 1997, unless the Offer
is extended. Compass Holdings, Inc. has agreed to extend the
Offer until the first business day following the Distribution
Record Date (as defined in the Offer to Purchase).
3. The Offer is being made as part of a series of transactions that
are expected to result in (i) the distribution to the
stockholders of the Company of shares of stock in a new
corporation that will own the restaurant business and all other
businesses of the Company other than its foodservice business and
(ii) the acquisition of the Company's foodservice business by the
Purchaser pursuant to the Offer and the Merger (as defined in the
Offer to Purchase).
<PAGE>
4. The Board of Directors of the Company has unanimously approved
the Offer, the Merger and the Distribution, determined that the
Offer, the Merger and the Distribution are fair to the
stockholders of the Company and are in the best interests of the
stockholders of the Company, and recommends acceptance of the
Offer and approval and adoption of the Merger Agreement by the
stockholders of the Company.
5. The Offer is conditioned upon, among other things, there being
validly tendered (including Shares that remain subject to
guaranteed delivery procedures) and not withdrawn prior to the
Expiration Date (as defined in the Offer to Purchase) a number of
Shares which, when added to the number of Shares then
beneficially owned by Parent, Purchaser and its affiliates or
Compass Interim, Inc. (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 pursuant to the
Series A Preferred Stock Agreement (as defined in the Offer to
Purchase) are convertible), constitutes at least two-thirds of
the sum of the total number of Shares then outstanding plus the
number of Series A Convertible 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
defined in the Offer to Purchase).
6. Any stock transfer taxes applicable to the sale of Shares to the
Purchaser pursuant to the Offer will be paid by the Purchaser,
except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
The Company has advised Parent and the Purchaser that, prior to the
time notice of the Distribution Record Date is given and at least ten days
prior to the Expiration Date, it expects to distribute to holders of
Shares an information statement ("the Information Statement") with respect
to the business, operations and management of Unique Casual Restaurants,
Inc., a newly formed Delaware corporation and a wholly owned subsidiary of
the Company. See Section 10 of the Offer to Purchase.
The Offer is being made to all holders of Shares. The Offer is not
being made to, nor will tenders be accepted from or on behalf of, holders
of Shares in any jurisdiction in which the making of the Offer or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where the securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of the Purchaser by or one or
more registered brokers or dealers licensed under the laws of such
jurisdictions.
If you wish to have us tender any or all of the Shares held by us for
your account, please so instruct us by completing, executing and returning
to us the instruction form set forth below. Please forward your
instructions to us in ample time to permit us to submit a tender on your
behalf prior to the expiration of the Offer. If you authorize the tender
of your Shares, all such Shares will be tendered unless otherwise
specified on the instruction form set forth below.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
DAKA INTERNATIONAL, INC.
BY
COMPASS HOLDINGS, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
COMPASS GROUP PLC
The undersigned acknowledge(s) receipt of your letter and the
enclosed Offer to Purchase, dated May 29, 1997, and the related Letter of
Transmittal, in connection with the offer by Compass Holdings, Inc., a
Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a
public limited company incorporated in England and Wales, to purchase for
cash all outstanding shares of common stock, par value $.01 per share (the
"Shares"), of DAKA International, Inc., a Delaware corporation.
This will instruct you to tender the number of Shares indicated below
(or if no number is indicated below, all Shares) that are held by you for
the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to be
Tendered: Shares*
Signature(s)
Dated: , 1997
Please Print Name(s)
Please Print Address(es)
Area Code and Telephone Number(s)
Tax, Identification, or
Social Security Number(s)
* I (We) understand that if I (we) sign this instruction form without
indicating a lesser number of Shares in the space above, all Shares held
by you for my (our) account will be tendered.
3
<PAGE>
EXHIBIT (A)(5)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
DAKA INTERNATIONAL, INC.
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if the certificates representing shares of
common stock, par value $.01 per share, of DAKA International, Inc. (the
"Shares") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or if time will not permit all
required documents to reach the Depositary at or prior to the expiration of the
Offer. Such form may be delivered by hand or transmitted by telegram, facsimile
transmission, telex or mail to the Depositary. See Section 3 of the Offer to
Purchase.
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
<S> <C> <C>
Tender & Exchange Department (For Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 FOR INFORMATION BY TELEPHONE: New York, New York 10286
(800) 507-9357
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Compass Holdings, Inc. (the "Purchaser"),
a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a
public limited company incorporated in England and Wales, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated May 29, 1997
(the "Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, the number of
Shares indicated below pursuant to the guaranteed delivery procedure set forth
in Section 3 of the Offer to Purchase.
Number of Shares:
Share Certificate Numbers (if available):
If Shares will be delivered by book-entry transfer, check one box:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
Dated: , 1997
Name(s) of Record Holder(s):
Please Type or Print
Address(es)
Zip Code
Area Code and Telephone Number:
Signature(s)
Dated: , 1997
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States (each, an "Eligible Institution"), hereby guarantees that either the
certificates representing the Shares tendered hereby in proper form for
transfer, or timely confirmation of a book-entry transfer of such Shares into
the Depositary's account at The Depository Trust Company or the Philadelphia
Depository Trust Company (pursuant to guaranteed delivery procedures set forth
in Section 3 of the Offer to Purchase), together with a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantee and any other required documents, will be
received by the Depositary at one of its addresses set forth above within three
(3) Nasdaq Stock Market trading days after the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
Name of Firm:
Address:
Zip Code
Area Code and Telephone Number:
Authorized Signature
Name:
Please Type or Print
Title:
Dated: , 1997
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF
TRANSMITTAL.
2
<PAGE>
EXHIBIT (A)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens: I.E.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: I.E., 00-00000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GIVE THE GIVE THE
TAXPAYER TAXPAYER
IDENTIFICATION IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF -- FOR THIS TYPE OF ACCOUNT: NUMBER OF --
<CAPTION>
</TABLE>
<TABLE>
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Husband and wife The actual owner of the
(joint account) account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the
minor is the only
contributor, the
minor(1)
6. Account in the name of guardian The ward, minor, or
or committee for a designated incompetent(3)
ward, minor or incompetent
person(3)
7. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is
also trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under State law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or pension The legal entity (Do not
trust furnish the identifying
number of the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number or employer identification number
(4) Show your individual name. You may also enter your business name. You may
use your social security number or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
(Bullet) A corporation.
(Bullet) A financial institution.
(Bullet) An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual
retirement plan.
(Bullet) The United States or any agency or instrumentality thereof.
(Bullet) A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
(Bullet) A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
(Bullet) An international organization or any agency or instrumentality thereof.
(Bullet) A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
(Bullet) A real estate investment trust.
(Bullet) A common trust fund operated by a bank under section 584(a) of the
Code.
(Bullet) An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
(Bullet) An entity registered at all times under the Investment Company Act of
1940.
(Bullet) A foreign central bank of issue.
(Bullet) A futures commission merchant registered with the Commodity Futures
Trading Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
(Bullet) Payments to nonresident aliens subject to withholding under section
1441 of the Code.
(Bullet) Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
(Bullet) Payments of patronage dividends where the amount received is not paid
in money.
(Bullet) Payments made by certain foreign organizations.
(Bullet) Payments made to an appropriate nominee.
(Bullet) Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
(Bullet) Payments of interest on obligations issued by individuals. NOTE: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
(Bullet) Payments of tax-exempt interest (including exempt-interest dividends
under section 852 of the Code).
(Bullet) Payments described in section 6049(b)(5) of the Code to nonresident
aliens.
(Bullet) Payments on tax-free covenant bonds under section 1451 of the Code.
(Bullet) Payments made by certain foreign organizations.
(Bullet) Payments of mortgage interest to you.
(Bullet) Payments made to an appropriate nominee.
Exempt payees described above should file substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND INTEREST PAYMENTS -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 20% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you
make a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying
certifications or affirmations may be subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE>
EXHIBIT (A)(7)
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER
TO SELL SHARES. THE OFFER IS MADE SOLELY BY THE OFFER TO PURCHASE, DATED
MAY 29, 1997, AND THE RELATED LETTER OF TRANSMITTAL AND IS NOT BEING
MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS
OF SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE
OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE LAWS OF SUCH JURISDICTION. IN THOSE
JURISDICTIONS WHERE SECURITIES, BLUE SKY OR OTHER
LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED
BROKER OR DEALER, THE OFFER SHALL BE DEEMED
TO BE MADE ON BEHALF OF THE PURCHASER BY
ONE OR MORE REGISTERED BROKERS
OR DEALERS LICENSED UNDER
THE LAWS OF SUCH
JURISDICTIONS.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
DAKA INTERNATIONAL, INC.
AT
$7.50 NET PER SHARE
BY
COMPASS HOLDINGS, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
COMPASS GROUP PLC
Compass Holdings, Inc., a Delaware corporation (the "Purchaser") and an
indirect wholly owned subsidiary of Compass Group PLC, a public limited company
incorporated in England and Wales ("Parent"), is offering to purchase all
outstanding shares of common stock, par value $.01 per share (the "Shares"), of
Daka International, Inc., a Delaware corporation (the "Company"), at $7.50 per
Share, net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated May 29, 1997 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. THE PURCHASER
HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE
DISTRIBUTION RECORD DATE (AS DEFINED BELOW).
THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE EXPECTED
TO RESULT IN (A) THE DISTRIBUTION TO THE COMPANY'S STOCKHOLDERS OF SHARES OF
STOCK IN A NEW ENTITY THAT WILL OWN ALL THE BUSINESSES OF THE COMPANY, INCLUDING
THE FUDDRUCKERS AND CHAMPPS RESTAURANT CHAINS, OTHER THAN ITS FOODSERVICE
BUSINESS (AS DEFINED BELOW) AND (B) THE ACQUISITION OF THE COMPANY'S FOODSERVICE
BUSINESS BY PARENT PURSUANT TO THE OFFER AND MERGER DESCRIBED HEREIN.
<PAGE>
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of May 27, 1997 ( the "Merger Agreement"), among Parent, the Purchaser, Compass
Interim, Inc., a Delaware corporation and a wholly owned subsidiary of the
Purchaser, ("Compass Interim"), and the Company. The Merger Agreement provides
that, among other things, the Purchaser will make the Offer and that following
the purchase of Shares pursuant to the Offer and the satisfaction of the other
conditions set forth in the Merger Agreement and in accordance with relevant
provisions of the Delaware General Corporation Law, Compass Interim will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation and will be a
wholly owned subsidiary of Parent. At the effective time of the Merger (the
"Effective Time"), each Share issued and outstanding immediately prior to the
Effective Time (other than, with certain exceptions described in the Merger
Agreement, Shares held by the Company as treasury stock or by any subsidiary of
the Company or by Parent, the Purchaser or any other subsidiary of Parent and
other than Shares held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such Shares in
accordance with Section 262 of the Delaware General Corporation Law) will be
converted into the right to receive cash without interest in an amount equal to
the price per Share paid pursuant to the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE
MERGER AND THE DISTRIBUTION, DETERMINED THAT THE OFFER, THE MERGER AND THE
DISTRIBUTION ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS ACCEPTANCE OF THE
OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF
THE COMPANY.
The Offer is conditioned upon, among other things, there being validly
tendered (including Shares that remain subject to guaranteed delivery
procedures) and not withdrawn prior to the Expiration Date (as defined in the
Offer to Purchase) a number of Shares which, when added to the number of Shares
then beneficially owned by Parent, Purchaser and its affiliates or Compass
Interim (including the Shares (the "Series A Converted Shares") into which the
shares of Series A Preferred Stock of the Company to be acquired pursuant to the
Series A Preferred Stock Purchase Agreement (as defined in the Offer to
Purchase) are convertible), constitutes at least two-thirds of the sum 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 (the
"Minimum Condition").
Effective as of the closing of the Offer, the Company will distribute (the
"Distribution") common stock (the "UCRI Shares") of Unique Casual Restaurants,
Inc., a newly formed Delaware corporation and a wholly owned subsidiary of the
Company ("UCRI"), to the holders of Shares on a record date to be determined by
the Board of Directors of the Company (the "Distribution Record Date"), pursuant
to a Reorganization Agreement, dated as of May 27, 1997, among the Company,
Daka, Inc., UCRI, Parent and Purchaser (the "Reorganization Agreement"). Because
the Purchaser will not accept Shares for payment pursuant to the Offer until the
Distribution Record Date has occurred, a record holder of Shares who tenders
Shares pursuant to the Offer (and who does not subsequently withdraw and sell
such Shares) will be the record holder thereof on the Distribution Record Date.
Accordingly, in the event that Shares are accepted for payment pursuant to the
Offer, such record holders will be entitled to receive, in respect of each Share
tendered, $7.50 net in cash from the Purchaser and one UCRI Share from the
Company. As a result of the Distribution, UCRI will own and operate all the
businesses of the Company and its subsidiaries, including the Fuddruckers and
Champps restaurant chains, other than the food catering, contract catering and
vending business as conducted by the Company and its wholly owned Daka, Inc.
subsidiary and certain other assets and liabilities (the "Foodservice
Business"). After the Distribution, the Company will continue to own only the
Foodservice Business and, accordingly, upon consummation of the Offer and the
Merger, Parent will have acquired only the Foodservice Business. Consummation of
the Offer is conditioned upon, among other things, the Distribution Record Date
having been set (the "Distribution Condition"). The Distribution Record Date is
not expected to occur before June 24, 1997. The Merger is conditioned upon,
among other things, the Distribution having been consummated in all material
respects. The distribution of the UCRI Shares pursuant to the Distribution is
conditioned upon the Purchaser having accepted for payment Shares tendered
pursuant to the Offer. In the Merger Agreement, the Purchaser has agreed to
extend the Offer until immediately after the Distribution Record Date. The
Company has advised Parent and the Purchaser that, prior to the time notice of
the Distribution Record Date is given and at least ten days prior to the
Expiration Date (as defined below), it will distribute to holders of Shares an
information statement with respect to the business, operations and management of
UCRI (the "Information Statement"). See Section 10.
The Offer is subject to certain conditions set forth in the Offer to Purchase.
If any such condition is not satisfied, the Purchaser may (i) terminate the
Offer and return all tendered Shares to tendering stockholders, (ii) subject to
the terms of the Merger Agreement, extend the Offer and, subject to withdrawal
rights as set forth below, retain all such Shares until the expiration of the
Offer as so extended, (iii) subject to the terms of the Merger Agreement, waive
such condition and, subject to any requirement to extend the time during which
the Offer is open, purchase all Shares validly tendered and not withdrawn prior
to the Expiration Date or (iv) delay acceptance for payment of or payment for
Shares, subject to applicable law, until satisfaction or waiver of the
conditions to the Offer.
<PAGE>
The Purchaser reserves the right, at any time or from time to time in
accordance with the terms of the Merger Agreement, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to The Bank of New York (the "Depositary"). Any such extension will be
followed as promptly as practicable by public announcement thereof no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled date on which the Offer was to expire. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the right of a tendering stockholder to withdraw such stockholder's
Shares.
For purposes of the Offer, the Purchaser shall be deemed to have accepted for
payment tendered Shares when, as and if the Purchaser gives oral or written
notice to the Depositary of its acceptance of the tenders of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary of certificates for such Shares (or a
confirmation of a book-entry transfer of such Shares into the Depositary's
account at one of the Book-Entry Transfer Facilities (as defined in the Offer to
Purchase)), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of
Transmittal.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn at any time after July 27, 1997 unless theretofore
accepted for payment as provided in the Offer to Purchase. To be effective, a
written, telegraphic, or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth in the Offer
to Purchase and must specify the name of the person who tendered the Shares to
be withdrawn and the number of Shares to be withdrawn. If the Shares to be
withdrawn have been delivered to the Depositary, a signed notice of withdrawal
with (except in the case of Shares tendered by an Eligible Institution (as
defined in the Offer to Purchase)) signatures guaranteed by an Eligible
Institution must be submitted prior to the release of such Shares. In addition,
such notice must specify, in the case of Shares tendered by delivery of
certificates, the name of the registered holder (if different from that of the
tendering stockholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn, or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at one of
the Book-Entry Transfer Facilities to be credited with the withdrawn Shares.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule
14d-6 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, is contained in the Offer to Purchase and is incorporated
herein by reference.
The Company has agreed to provide the Purchaser with the Company's stockholder
list and security position listings for the purpose of disseminating the Offer
to holders of Shares. The Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Requests for copies of the Offer to Purchase, the related Letter of
Transmittal and other tender offer materials may be directed to the Information
Agent as set forth below, and copies will be furnished promptly at the
Purchaser's expense. The Purchaser will not pay any fees or commissions to any
broker or dealer or any other person (other than the Information Agent) for
soliciting tenders of Shares pursuant to the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
(logo of MACKENZIE PARTNERS, INC.)
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
May 29, 1997
<PAGE>
EXHIBIT (A)(8)
FOR RELEASE: MAY 27, 1997
CONTACT: GINGER SMITH
(704) 329-4018
COMPASS GROUP PLC ANNOUNCES INTENT TO PURCHASE CONTRACT FOODSERVICE,
CATERING AND VENDING OPERATIONS FROM DAKA INTERNATIONAL, INC.
MAY 27, 1997 (CHARLOTTE, NC) . . . Compass Group PLC, the world's leading
contract foodservice management company, is pleased to announce that Compass
Holdings, Inc. has entered into a definitive agreement with Daka International
for Compass Group to acquire the contract foodservice business of Daka
International. The acquisition will be accomplished through a series of steps in
which Daka International will spin off its restaurant business to its
shareholders and a cash tender offer by Compass Group for all of the shares of
common stock of Daka International. Compass Group will not acquire the
non-foodservice business of Daka International. Following completion of the
tender offer, Compass Group will take steps to merge Daka International with one
of its subsidiaries.
The transaction has an estimated total cash value of $195 million,
approximately $85 million of which will be paid to Daka International's
stockholders through a cash tender offer of $7.50 per share, and $110 million of
which will be used to repay Daka International debt. Daka International
stockholders will also receive shares of a new company that will own all of Daka
International's non-foodservice business.
The acquisition is subject to federal regulatory clearance, acceptance of
the tender offer by a minimum of two-thirds of International's shareholders, and
certain other conditions. Compass Group plans to finance the acquisition with
funds from established cash sources. The Bank of New York is Depository in the
tender offer and MacKenzie Partners, Inc. is the Information Agent.
On announcing the acquisition, Mike Bailey, president and CEO, Compass
Group, USA Division said, "After following Daka's progress over the past 20
years, I am convinced that this partnership will truly enhance our position in
the US education foodservice market -- a sector we see as having extraordinary
growth opportunities in the future."
Bill Baumhauer, Chairman and CEO of Daka International said, "Although the
sale of our foodservice division was a difficult decision to make, we are
pleased to be able to have our clients and associates team-up with Compass
Group. I am confident that the standards of excellence that we strived for at
Daka will continue with Compass Group."
According to Bailey, Allen Maxwell, president and COO of Daka
International, will remain president of Daka and become a member of the Compass
Group USA Division board following the acquisition. "We are truly delighted to
have Allen join us. Together we will progress with our stated business strategy
of further development in the education market, and continue our efforts in
strategic business segmentation."
"This creates an ideal situation for Daka," says Maxwell. "By combining our
resources and talents with Compass Group we are now in position to become the
industry leader in educational food service. I have admired and respected Mike
Bailey for many years and consider this partnership a "win-win" for our client,
customers, and employees," says Maxwell.
Compass Group, incorporated in England and Wales, is one of the world's
largest foodservice companies and employs over 120,000 people worldwide.
Daka International, headquartered in Danvers, Massachusetts, is a
diversified foodservice and restaurant company operating in the contract
foodservice management industry and the restaurant industry. Daka, Inc. operates
approximately 310 contracts in 710 locations in 34 states across the US and
employs approximately 9,700 people.
For more information contact Ginger Smith, director of marketing and
communications, Compass Group, USA Division at (704) 329-4018.
# # #
<PAGE>
EXHIBIT (C)(2)
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
</TABLE>
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
Section 1.1 General......................................................................................... 2
Section 1.2 References to Time.............................................................................. 5
</TABLE>
ARTICLE II
CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES
<TABLE>
<S> <C> <C>
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
</TABLE>
ARTICLE III
RECAPITALIZATION OF UCRI; THE DISTRIBUTION
<TABLE>
<S> <C> <C>
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
</TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C> <C>
Section 4.1 Representations and Warranties of UCRI.......................................................... 9
Section 4.2 Representations and Warranties of International and Daka........................................ 9
</TABLE>
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
<TABLE>
<S> <C> <C>
Section 5.1 UCRI Board...................................................................................... 10
Section 5.2 Contractual Arrangements........................................................................ 10
Section 5.3 Intercompany Services........................................................................... 11
Section 5.4 Insurance....................................................................................... 11
</TABLE>
ARTICLE VI
ACCESS TO INFORMATION
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
</TABLE>
ARTICLE VII
EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS
<TABLE>
<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
</TABLE>
ARTICLE VIII
TAX MATTERS
<TABLE>
<S> <C> <C>
Section 8.1 Tax Matters..................................................................................... 20
</TABLE>
ARTICLE IX
CONDITIONS
<TABLE>
<S> <C> <C>
Section 9.1 Conditions to Obligations of International...................................................... 20
</TABLE>
ARTICLE X
GENERAL PROVISIONS
<TABLE>
<S> <C> <C>
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
<PAGE>
<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>
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>
"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.
2
<PAGE>
"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.
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
(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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(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.
14
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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
15
<PAGE>
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
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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
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EXHIBIT (C)(3)
TAX ALLOCATION AGREEMENT
BY AND AMONG
DAKA INTERNATIONAL, INC.
UNIQUE CASUAL RESTAURANTS, INC.
AND
COMPASS GROUP PLC
MAY 27, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
</TABLE>
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
1.1 Definitions..................................................................................... 1
</TABLE>
ARTICLE II
FILING OF TAX RETURNS
<TABLE>
<S> <C> <C>
2.1 Preparation of Tax Returns...................................................................... 5
2.2 Pre-Distribution Tax Returns.................................................................... 5
2.3 Post-Distribution Tax Returns................................................................... 6
</TABLE>
ARTICLE III
PAYMENT OF TAXES
<TABLE>
<S> <C> <C>
3.1 Allocation of Tax Liabilities................................................................... 6
3.2 Tax Refunds, Carrybacks and Carryforwards....................................................... 7
</TABLE>
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
<TABLE>
<S> <C> <C>
4.1 Straddle Period Taxes........................................................................... 8
4.2 Calculations and Determinations................................................................. 9
4.3 Principles of Determination..................................................................... 10
</TABLE>
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
<TABLE>
<S> <C> <C>
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
</TABLE>
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
<TABLE>
<S> <C> <C>
6.1 Cooperation and Exchange of Information......................................................... 14
6.2 Record Retention................................................................................ 14
</TABLE>
ARTICLE VII
GENERAL PROVISIONS
<TABLE>
<S> <C> <C>
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
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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>
"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>
"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>
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
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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
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(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
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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
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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
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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.
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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
<PAGE>
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>
EXHIBIT (C)(4)
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
</TABLE>
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
Section 1.1 Definitions..................................................................................... 2
</TABLE>
ARTICLE II
INDEMNIFICATION
<TABLE>
<S> <C> <C>
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
</TABLE>
ARTICLE III
OTHER AGREEMENTS
<TABLE>
<S> <C> <C>
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
</TABLE>
ARTICLE IV
TRADE RECEIVABLES AND OBLIGATIONS
<TABLE>
<S> <C> <C>
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
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
</TABLE>
ARTICLE V
POST-CLOSING PAYMENTS
<TABLE>
<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
</TABLE>
ARTICLE VI
MISCELLANEOUS AND GENERAL
<TABLE>
<S> <C> <C>
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>
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>
<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
2
<PAGE>
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;
3
<PAGE>
(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.
4
<PAGE>
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
5
<PAGE>
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
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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
Exhibit (c)(5)
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>
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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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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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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(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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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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(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.
7
<PAGE>
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 Chicago Equity Corporation
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
8
<PAGE>
(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>
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>
(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>
{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: Donald C. Moore
Title: Sr. VP
COMPASS GROUP, PLC
By: /s/ Michael J. Bailey
___________________________
Name: Michael J. Bailey
Title: Director
COMPASS HOLDINGS, INC.
By: /s/ Michael J. Bailey
__________________________
Name: Michael J. Bailey
Title: Chief Executive Officer
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: General Partner
*
------------------------------
John G. Schreiber
12
<PAGE>
**
------------------------------
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/ T. A. Dugan
------------------------------
by: First Chicago Equity Corporation
by: Timothy A. Dugan
pursuant to a Power of Attorney dated
May 23, 1997
** /s/ T. A. Dugan
------------------------------
by: First Chicago Equity Corporation
by: Timothy A. Dugan
pursuant to a Power of Attorney dated
May 23, 1997
13
<PAGE>
EXHIBIT A
<TABLE>
<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
<PAGE>
<PAGE>
EXHIBIT (C)(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").
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
<PAGE>
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.
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 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.
2
<PAGE>
(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.
(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.
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
3
<PAGE>
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 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;
(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
(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
4
<PAGE>
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 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.
5
<PAGE>
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 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, 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
6
<PAGE>
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.
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.
7
<PAGE>
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
8
<PAGE>
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 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.
9
<PAGE>
EXHIBIT G
COMPASS GROUP PLC
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
COMPASS GROUP PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS PAGE
<S> <C>
COMPASS GROUP PLC
Report of Independent Auditors......................................................................................... F-1
Consolidated Profit and Loss Account for the fifty-two week periods ended September 29, 1996 and October 1, 1995 and
the fifty-three week period ended October 2, 1994.................................................................... F-2
Consolidated Statement of Total Recognized Gains and Losses and Reconciliation of Movements in Consolidated
Shareholders' Deficit for the fifty-two week periods ended September 29, 1996 and October 1, 1995 and the fifty-three
week period ended October 2, 1994.................................................................................... F-3
Consolidated Balance Sheet at September 29, 1996 and October 1, 1995................................................... F-4
Company Balance Sheet at September 29, 1996 and October 1, 1995........................................................ F-5
Consolidated Cash Flow Statement for the fifty-two week periods ended September 29, 1996 and October 1, 1995 and the
fifty-three week period ended October 2, 1994........................................................................ F-6
Notes to the Consolidated Cash Flow Statement.......................................................................... F-7
Notes to the Financial Statements...................................................................................... F-9
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
COMPASS GROUP PLC
Unaudited Interim Consolidated Profit and Loss Account for the 26 week periods ended March 30, 1997 and March 31,
1996................................................................................................................. F-35
Unaudited Interim Consolidated Balance Sheet at 30 March 1997 and 31 March 1996........................................ F-36
Unaudited Interim Consolidated Cash Flow Statement for the 26 week periods ended March 30, 1997 and March 31, 1996..... F-37
Notes to the Unaudited Interim Consolidated Cash Flow Statement........................................................ F-38
Notes to the Unaudited Interim Consolidated Financial Statements....................................................... F-39
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COMPASS GROUP PLC
We have audited the accompanying consolidated balance sheets of Compass
Group PLC and its subsidiaries ("the company") as of September 29, 1996 and
October 1, 1995 and the related consolidated profit and loss account, and
statements of total recognized gains and losses, changes in consolidated
shareholders' deficit and cash flows for the 52 week periods ended September 29,
1996 and October 1, 1995 and the 53 week period ended October 2, 1994. These
consolidated financial statements are the responsibility of the management of
the company. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom and the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the financial position of the company
at September 29, 1996 and October 1, 1995 and the results of its operations and
cash flows for the 52 week periods ended September 29, 1996 and October 1, 1995
and the 53 week period ended October 2, 1994 in conformity with accounting
principles generally accepted in the United Kingdom.
DELOITTE & TOUCHE
Chartered Accountants and Registered Auditors
London, England
December 10, 1996
F-1
<PAGE>
COMPASS GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
52 WEEK 52 WEEK
PERIOD PERIOD
EXCEPTIONAL ENDED ENDED
BEFORE ITEMS SEP 29 OCT 1
EXCEPTIONAL (NOTE 1996 1995
ITEMS 5) TOTAL TOTAL
TURNOVER NOTES (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
Continuing operations............................. 2,522.6 - 2,522.6 1,436.1
Acquisitions...................................... 114.3 - 114.3 -
2,636.9 - 2,636.9 1,436.1
Discontinued operations........................... 15.0 - 15.0 69.7
TOTAL TURNOVER.................................... 2 2,651.9 - 2,651.9 1,505.8
OPERATING COSTS................................... 3 (2,515.1) (6.7) (2,521.8) (1,414.6)
OPERATING PROFIT
Continuing operations............................. 129.7 - 129.7 75.4
Acquisitions...................................... 3.9 (6.7) (2.8) -
133.6 (6.7) 126.9 75.4
Discontinued operations........................... 3.2 - 3.2 15.8
OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY
UNDERTAKINGS.................................... 136.8 (6.7) 130.1 91.2
Share of profits of associated undertakings....... 7.0 - 7.0 -
TOTAL OPERATING PROFIT............................ 2 143.8 (6.7) 137.1 91.2
DISCONTINUED OPERATIONS
Sale of healthcare division....................... 5 - 20.0 20.0 -
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST..... 143.8 13.3 157.1 91.2
Interest receivable and similar income............ 7.4 - 7.4 1.2
Interest payable and similar charges.............. 6 (36.9) - (36.9) (19.2)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION..... 114.3 13.3 127.6 73.2
Tax on profit on ordinary activities.............. 7 (29.6) 2.6 (27.0) (18.8)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION...... 84.7 15.9 100.6 54.4
Equity minority interests......................... (1.2) - (1.2) (0.4)
PROFIT FOR THE FINANCIAL PERIOD................... 83.5 15.9 99.4 54.0
Dividends......................................... 8 (27.3) - (27.3) (22.0)
PROFIT FOR THE PERIOD RETAINED.................... 18 56.2 15.9 72.1 32.0
EARNINGS PER SHARE................................ 9 31.6p 22.6p
EARNINGS PER SHARE -- ADJUSTED.................... 9 26.5p 22.6p
<CAPTION>
53
WEEK
PERIOD
ENDED
OCT 2
1994
TURNOVER TOTAL
(POUNDS)M
<S> <C>
Continuing operations............................. 851.2
Acquisitions...................................... -
851.2
Discontinued operations........................... 66.7
TOTAL TURNOVER.................................... 917.9
OPERATING COSTS................................... (855.1)
OPERATING PROFIT
Continuing operations............................. 48.4
Acquisitions...................................... -
48.4
Discontinued operations........................... 14.4
OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY
UNDERTAKINGS.................................... 62.8
Share of profits of associated undertakings....... -
TOTAL OPERATING PROFIT............................ 62.8
DISCONTINUED OPERATIONS
Sale of healthcare division....................... -
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST..... 62.8
Interest receivable and similar income............ 1.2
Interest payable and similar charges.............. (8.3)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION..... 55.7
Tax on profit on ordinary activities.............. (16.1)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION...... 39.6
Equity minority interests......................... (0.2)
PROFIT FOR THE FINANCIAL PERIOD................... 39.4
Dividends......................................... (15.0)
PROFIT FOR THE PERIOD RETAINED.................... 24.4
EARNINGS PER SHARE................................ 19.2p
EARNINGS PER SHARE -- ADJUSTED.................... 19.2p
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED
GAINS AND LOSSES
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Profit for the financial period.................................................... 99.4 54.0 39.4
Unrealized surplus on revaluation of properties.................................... - - 4.5
Currency translation differences on foreign currency net investments............... 3.9 3.7 4.1
Total gains and losses recognised in the period.................................... 103.3 57.7 48.0
</TABLE>
NOTE OF HISTORICAL COST PROFITS AND LOSSES
There is no material difference between the reported operating profit and
the equivalent historical cost amount. On an historical cost basis, the
exceptional profit on disposal of the healthcare division would have been
approximately (pounds)25.0m higher, giving a profit on ordinary activities
before taxation of (pounds)152.6m in 1996.
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
52 52 53
WEEK WEEK WEEK
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
SEP 29 OCT 1 OCT 2
1996 1995 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Profit for the financial period.................................................... 99.4 54.0 39.4
Dividends......................................................................... (27.3) (22.0) (15.0)
72.1 32.0 24.4
Other recognised gains and losses relating to the period (net).................... 3.9 3.7 8.6
New share capital subscribed...................................................... 10.7 307.9 151.5
Shares to be issued............................................................... 68.3 21.2 -
Goodwill arising on acquisitions.................................................. (235.9) (709.8) (368.7)
Goodwill transferred on disposal of business...................................... 12.1 - -
Net increase in shareholders' deficit............................................. (68.8) (345.0) (184.2)
Opening shareholders' deficit..................................................... (488.9) (143.9) 40.3
Closing shareholders' deficit..................................................... (557.7) (488.9) (143.9)
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMPASS GROUP PLC
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEP 29 OCT 1
1996 1995
FIXED ASSETS NOTES (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Tangible assets, net.................................................................. 10 256.1 295.6
Investments........................................................................... 11 14.1 15.6
270.2 311.2
CURRENT ASSETS
Stocks................................................................................ 12 73.0 50.5
Debtors: amounts falling due within one year, net..................................... 13 323.4 248.8
amounts falling due after more than one year, net............................. 13 50.3 28.1
Cash at bank and in hand.............................................................. 90.2 81.9
536.9 409.3
CREDITORS: amounts falling due within one year........................................ 14 (708.1) (562.5)
NET CURRENT LIABILITIES............................................................... (171.2) (153.2)
TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 99.0 158.0
CREDITORS: amounts falling due after more than one year............................... 15 (584.5) (580.2)
PROVISIONS FOR LIABILITIES AND CHARGES................................................ 16 (69.2) (64.2)
EQUITY MINORITY INTERESTS............................................................. (3.0) (2.5)
NET LIABILITIES....................................................................... 2 (557.7) (488.9)
CAPITAL AND RESERVES
Called up share capital............................................................... 17 15.9 15.5
Shares to be issued (including premium)............................................... 17 68.3 21.2
Share premium account................................................................. 18 680.8 649.3
Revaluation reserve................................................................... 18 - 25.0
Other reserve: goodwill............................................................... 18 (1,568.8) (1,345.0)
Profit and loss account............................................................... 18 246.1 145.1
TOTAL EQUITY SHAREHOLDERS' DEFICIT.................................................... (557.7) (488.9)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPASS GROUP PLC
COMPANY BALANCE SHEET
<TABLE>
<CAPTION>
SEP 29 OCT 1
1996 1995
FIXED ASSETS NOTES (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Tangible assets, net.................................................................. 10 9.9 8.1
Investments........................................................................... 11 1,781.0 1,608.8
1,790.9 1,616.9
CURRENT ASSETS
Debtors: amounts falling due within one year, net..................................... 13 17.8 37.8
amounts falling due after more than one year, net............................. 13 20.0 16.1
Cash at bank and in hand.............................................................. 15.1 5.0
52.9 58.9
CREDITORS: amounts falling due within one year........................................ 14 (262.9) (124.5)
NET CURRENT LIABILITIES............................................................... (210.0) (65.6)
TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 1,580.9 1,551.3
CREDITORS: amounts falling due after more than one year............................... 15 (524.2) (537.6)
NET ASSETS............................................................................ 1,056.7 1,013.7
CAPITAL AND RESERVES
Called up share capital............................................................... 17 15.9 15.5
Shares to be issued (including premium)............................................... 17 68.3 21.2
Share premium account................................................................. 18 680.8 649.3
Profit and loss account............................................................... 18 291.7 327.7
TOTAL EQUITY SHAREHOLDERS' FUNDS...................................................... 1,056.7 1,013.7
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMPASS GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES (note I)..... 177.8 120.1 94.2
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received...................................... 7.8 1.2 1.2
Interest paid.......................................... (29.4) (19.1) (8.3)
Dividends paid......................................... (24.9) (16.7) (12.0)
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE............................. (46.5) (34.6) (19.1)
TAXATION
UK corporation tax paid................................ (4.6) (7.8) (11.6)
Overseas tax paid...................................... (18.1) (10.6) (3.9)
TOTAL TAX PAID......................................... (22.7) (18.4) (15.5)
FREE CASH FLOW......................................... 108.6 67.1 59.6
INVESTING ACTIVITIES
Purchase of tangible fixed assets...................... (70.2) (57.0) (38.3)
Purchase of investments................................ - (4.4) (3.7)
Purchase of businesses (note VII)...................... (177.2) (236.0) (354.8)
Sale of business (note VII)............................ 163.8 - -
Sale of tangible fixed assets.......................... 4.7 2.8 2.4
NET CASH OUTFLOW FROM INVESTING ACTIVITIES............. (78.9) (294.6) (394.4)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING (note V).... 29.7 (227.5) (334.8)
FINANCING (note IV)
Issue of ordinary share capital........................ (1.8) (1.9) (151.5)
Decrease/(increase) in loans........................... 3.9 (263.7) (189.7)
Capital element of finance lease rentals............... 5.2 4.6 0.4
NET CASH OUTFLOW/(INFLOW) FROM FINANCING 7.3 (261.0) (340.8)
INCREASE IN CASH AND CASH EQUIVALENTS (note II)........ 22.4 33.5 6.0
29.7 (227.5) (334.8)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMPASS GROUP PLC
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
I. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES:
Operating profit................................................................. 130.1 91.2 62.8
Depreciation..................................................................... 45.8 38.7 21.9
Loss on disposal of fixed assets................................................. - 0.2 0.3
Increase in stocks............................................................... (5.0) (1.4) (1.8)
(Increase)/decrease in debtors................................................... (19.2) (4.5) 3.3
Increase/(decrease) in creditors and provisions.................................. 26.1 (4.1) 7.7
Net cash inflow from operating activities........................................ 177.8 120.1 94.2
II. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE PERIOD:
Balance at beginning of period................................................... 65.3 30.7 24.2
Net cash inflow in period before adjustments for the effect of foreign exchange
rate change................................................................... 22.4 33.5 6.0
Effect of foreign exchange rate change........................................... 2.4 1.1 0.5
Balance at end of period......................................................... 90.1 65.3 30.7
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN
SEP 29 1996 OCT 1 1995 PERIOD OCT 2 1994 PERIOD
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
III. ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AS
SHOWN ON THE BALANCE SHEET:
Cash at bank and in hand...................................... 90.2 81.9 8.3 52.8 29.1
Bank overdrafts............................................... (0.1) (16.6) 16.5 (22.1) 5.5
90.1 65.3 24.8 30.7 34.6
</TABLE>
<TABLE>
<CAPTION>
SHARE CAPITAL OBLIGATIONS
(INCLUDING UNDER FINANCE
PREMIUM) LOANS LEASES
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
IV. ANALYSIS OF CHANGES IN FINANCING DURING THE PERIOD:
Balance at October 3 1994............................................................. 356.9 244.1 9.3
Cash flows from financing............................................................. 1.9 263.7 -
Issue of shares for non-cash consideration............................................ 327.2 - -
Inception of finance lease contracts.................................................. - - 5.6
Arising on acquisition................................................................ - 3.8 4.0
Capital element of finance lease rentals.............................................. - - (4.6)
Effect of foreign exchange rate change................................................ - (4.6) -
Balance at October 1 1995............................................................. 686.0 507.0 14.3
Cash flows from financing............................................................. 1.8 (3.9) -
Issue of shares for non-cash consideration............................................ 77.2 - -
Inception of finance lease contracts.................................................. - - 4.4
Arising on acquisition................................................................ - 29.4 9.0
Capital element of finance lease rentals.............................................. - - (5.2)
Balance at September 29 1996.......................................................... 765.0 532.5 22.5
</TABLE>
F-7
<PAGE>
COMPASS GROUP PLC
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT-CONTINUED
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
V. ANALYSIS OF CHANGES IN NET BORROWINGS:
Opening net borrowings at beginning of period.................................... 441.7 213.4 34.3
Net cash (inflow)/outflow before financing....................................... (29.7) 227.5 334.8
Capital element of finance lease rentals......................................... 5.2 4.6 0.4
Arising on acquisition........................................................... 29.4 3.8 -
Issue of ordinary share capital.................................................. (1.8) (1.9) (151.5)
Effect of foreign exchange rate change........................................... (2.4) (5.7) (4.6)
Closing net borrowings at end of period.......................................... 442.4 441.7 213.4
Net borrowings comprise loans and overdrafts less cash and cash equivalents.
</TABLE>
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK 52 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994 SEP 29 1996
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
PURCHASES PURCHASES PURCHASES DISPOSALS
<S> <C> <C> <C> <C>
VI. PURCHASE AND DISPOSAL OF BUSINESSES:
Net assets acquired/(disposed of):
Tangible fixed assets.............................................. 70.1 28.8 81.9 (129.7)
Investment in associates........................................... 0.3 3.4 - -
Stocks............................................................. 19.6 16.3 21.0 (2.1)
Debtors............................................................ 83.8 135.2 52.3 (10.0)
Cash............................................................... 26.7 37.5 - (3.2)
Bank overdrafts/loans.............................................. (11.5) (6.1) (13.2) -
Creditors.......................................................... (133.3) (211.5) (130.6) 10.5
Provisions......................................................... (4.9) (9.8) (45.3) -
Tax................................................................ 1.1 (21.2) (2.4) -
Minority interests................................................. (0.5) (1.6) 2.8 -
Share of net assets already owned at date of acquisition........... (4.7) - - -
46.7 (29.0) (33.5) (134.5)
Profit on disposal and costs and liabilities retained.............. - - - (32.2)
Goodwill acquired/(disposed of).................................... 243.0 709.8 368.7 (12.1)
289.7 680.8 335.2 (178.8)
Satisfied by:
Cash payable/(receivable).......................................... 162.5 268.7 331.3 (170.8)
Shares and shares to be issued..................................... 77.2 327.2 - -
Deferred consideration............................................. 31.6 84.9 3.9 -
Loan notes......................................................... 18.4 - - -
Deferred consideration receivable.................................. - - - (8.0)
289.7 680.8 335.2 (178.8)
VII. ANALYSIS OF NET OUTFLOW OF CASH AND CASH EQUIVALENTS IN RESPECT
OF THE PURCHASE AND DISPOSAL OF SUBSIDIARY UNDERTAKINGS:
Cash consideration paid/(received net of liabilities settled)...... 162.5 268.7 331.3 (167.0)
Cash (acquired)/disposed of........................................ (26.7) (37.5) - 3.2
Overdrafts acquired................................................ 0.5 2.3 13.2 -
136.3 233.5 344.5 (163.8)
Deferred consideration and costs relating to previous
acquisitions.................................................... 40.9 2.5 10.3 -
177.2 236.0 354.8 (163.8)
</TABLE>
There were no disposals of businesses in the 52 week period ended October 1
1995 or in the 53 week period ended October 2 1994.
F-8
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United Kingdom ("UK GAAP") and are
presented under the historical cost convention as modified by the revaluation of
land and buildings. The particular policies adopted are described below. Amounts
are expressed in pounds sterling.
In preparing these financial statements, certain reclassifications and
changes in presentation have been made to the financial statements presented in
the Compass Group PLC Annual Reports in order to conform more closely with
accounting presentation and disclosure requirements applicable in the United
States. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and assets at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(A) ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention
as modified by the revaluation of certain tangible fixed assets.
(B) CONSOLIDATION
The consolidated financial statements include the financial statements of
Compass Group PLC and its subsidiary undertakings ("subsidiary companies") and
associated undertakings drawn up to 29 September 1996. In accordance with local
statutory requirements, the results of certain overseas companies have been
drawn up to 30 September 1996.
(C) GOODWILL
Purchased goodwill is written off direct to reserves in the period in which
it arises.
(D) FOREIGN CURRENCIES
The assets and liabilities of foreign subsidiary companies are translated
into sterling at the rates of exchange ruling at the period end. Gains and
losses resulting from the realignment of opening foreign currency balances to
the period end rates and on inter-company long term loans are treated as
movements on reserves.
The results of foreign subsidiary companies are translated into sterling at
the average rates of exchange for the accounting period. Gains or losses
resulting from the translation of these results from the average rates to the
period end rates are treated as movements on reserves. All other exchange
differences are dealt with through the profit and loss account.
(E) STOCKS
Stocks are valued at the lower of cost and net realisable value.
(F) DEFERRED EXPENDITURE
Expenditure incurred during the rebranding or development of catering
outlets prior to commencement of trading is carried forward within prepayments
and written off over a period of between one and five years so as to properly
match costs and revenues.
(G) TURNOVER
Turnover represents the invoiced value, excluding value added tax, of goods
and services supplied to third parties.
(H) TANGIBLE FIXED ASSETS AND DEPRECIATION
Fixed assets are carried at cost or professional valuation less
depreciation, which is provided on their book values at rates calculated to
write down each asset to its residual value over its estimated remaining useful
life on a straight line basis, within the following ranges:
F-9
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
1 ACCOUNTING POLICIES -- Continued
-- Freehold buildings: 2% per annum
-- Long term leasehold property: 2% per annum
-- Short term leasehold property: the life of the lease
-- Plant and machinery: 10% to 25% per annum
-- Fixtures and fittings: 10% to 25% per annum
-- Freehold land is not depreciated
(I) INVESTMENTS IN SUBSIDIARY COMPANIES
Investments held as fixed assets are stated at cost, less any provision for
permanent diminution in value.
(J) PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS
Pension costs and other post-retirement benefits, which are periodically
calculated by professionally qualified actuaries, are charged against profits so
that the expected costs of providing pensions are recognised during the period
in which benefit is derived from the employee's services.
(K) DEFERRED TAX
Deferred tax is provided at the anticipated tax rates on timing differences
arising from the inclusion of items of income and expenditure in tax
computations in periods different from those in which they are included in the
financial statements to the extent that it is probable that a liability or asset
will crystallize in the future.
(L) LEASES
Assets held under finance leases and hire purchase contracts are
capitalised at their fair value on the inception of the leases and depreciated
over their estimated useful lives. The finance charges are allocated over the
period of the lease in proportion to the capital amount outstanding.
Rental costs under operating leases are charged to the profit and loss
account in equal annual amounts over the period of the leases.
F-10
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
2 TURNOVER, OPERATING PROFIT AND NET LIABILITIES
<TABLE>
<CAPTION>
52 WEEK 52 WEEK
CONTINUING DISCONTINUED PERIOD ENDED CONTINUING DISCONTINUED PERIOD ENDED CONTINUING
OPERATIONS ACQUISITIONS OPERATIONS SEP 29 1996 OPERATIONS OPERATIONS OCT 1 1995 OPERATIONS
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TURNOVER
Catering.......... 2,522.6 114.3 - 2,636.9 1,436.1 - 1,436.1 851.2
Healthcare........ - - 15.0 15.0 - 69.7 69.7 -
2,522.6 114.3 15.0 2,651.9 1,436.1 69.7 1,505.8 851.2
Geographical
analysis:
-- United
Kingdom......... 579.8 7.9 15.0 602.7 494.2 69.7 563.9 456.1
-- Continental
Europe and
the rest of the
world........... 1,179.4 98.0 - 1,277.4 244.9 - 244.9 196.5
-- North
America......... 763.4 8.4 - 771.8 697.0 - 697.0 198.6
2,522.6 114.3 15.0 2,651.9 1,436.1 69.7 1,505.8 851.2
OPERATING PROFIT
Catering* **...... 136.7 (2.8) - 133.9 75.4 - 75.4 48.4
Healthcare........ - - 3.2 3.2 - 15.8 15.8 -
136.7 (2.8) 3.2 137.1 75.4 15.8 91.2 48.4
Geographical
analysis:
-- United
Kingdom......... 40.4 0.2 3.2 43.8 35.2 15.8 51.0 31.0
-- Continental
Europe and
the rest of the
world*.......... 64.0 3.8 - 67.8 13.1 - 13.1 10.8
-- North
America**....... 32.3 (6.8) - 25.5 27.1 - 27.1 6.6
136.7 (2.8) 3.2 137.1 75.4 15.8 91.2 48.4
<CAPTION>
53 WEEK
DISCONTINUED PERIOD ENDED
OPERATIONS OCT 2 1994
(POUNDS)M (POUNDS)M
<S> <C> <C>
TURNOVER
Catering.......... - 851.2
Healthcare........ 66.7 66.7
66.7 917.9
Geographical
analysis:
-- United
Kingdom......... 66.7 522.8
-- Continental
Europe and
the rest of the
world........... - 196.5
-- North
America......... - 198.6
66.7 917.9
OPERATING PROFIT
Catering* **...... - 48.4
Healthcare........ 14.4 14.4
14.4 62.8
Geographical
analysis:
-- United
Kingdom......... 14.4 45.4
-- Continental
Europe and
the rest of the
world*.......... - 10.8
-- North
America**....... - 6.6
14.4 62.8
</TABLE>
* Including (pounds)7.0 million for associates in 1996 (1995: (pounds)nil;
1994: (pounds)nil)
** Including (pounds)6.7 million for exceptional restructuring costs in 1996
(1995: (pounds)nil; 1994: (pounds)nil)
F-11
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
2 TURNOVER, OPERATING PROFIT AND NET LIABILITIES -- Continued
<TABLE>
<CAPTION>
52 WEEK 52 WEEK
PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M
<S> <C> <C>
NET LIABILITIES
Continuing operations:
Catering
-- United Kingdom................................................................................ (41.8) (37.9)
-- Continental Europe and the rest of the world.................................................. (58.0) (92.6)
-- North America................................................................................. (15.5) (45.5)
(115.3) (176.0)
Discontinued operations:
Healthcare
-- United Kingdom................................................................................ - 128.8
(115.3) (47.2)
Loans and overdrafts less cash and cash equivalents............................................... (442.4) (441.7)
(557.7) (488.9)
</TABLE>
3 OPERATING COSTS
<TABLE>
<CAPTION>
53 WEEK
PERIOD
ENDED
52 WEEK PERIOD ENDED SEP 29 1996 52 WEEK PERIOD ENDED OCT 1 1995 OCT 2 1994
CONTINUING ACQUISITIONS DISCONTINUED TOTAL CONTINUING DISCONTINUED TOTAL CONTINUING
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Movement in stocks of
finished goods and work in
progress................... (2.3) - - (2.3) (2.5) - (2.5) (3.0)
Raw materials and
consumables................ 1,030.9 39.7 1.9 1,072.5 586.8 8.1 594.9 342.1
Other external charges....... 290.8 30.3 4.7 325.8 177.5 19.8 197.3 99.4
Staff costs.................. 1,029.4 45.4 5.2 1,080.0 563.9 22.3 586.2 345.4
Depreciation of tangible
fixed assets
-- owned assets........... 39.8 1.3 - 41.1 30.9 3.7 34.6 18.1
-- leased assets.......... 4.3 0.4 - 4.7 4.1 - 4.1 0.8
2,392.9 117.1 11.8 2,521.8 1,360.7 53.9 1,414.6 802.8
Other external charges
include:
Property lease rentals....... 9.6 10.0
Concession rentals........... 94.1 71.5
Fees paid to the auditors:
Auditors' remuneration....... 1.2 0.7
Taxation..................... 0.4 0.2
Other fees................... 0.2 0.1
1.8 1.0
<CAPTION>
53 WEEK PERIOD ENDED OCT 2 1994
DISCONTINUED TOTAL
(POUNDS)M (POUNDS)M
<S> <C> <C>
Movement in stocks of
finished goods and work in
progress................... - (3.0)
Raw materials and
consumables................ 7.4 349.5
Other external charges....... 21.0 120.4
Staff costs.................. 20.9 366.3
Depreciation of tangible
fixed assets
-- owned assets........... 3.0 21.1
-- leased assets.......... - 0.8
52.3 855.1
Other external charges
include:
Property lease rentals....... 5.4
Concession rentals........... 37.2
Fees paid to the auditors:
Auditors' remuneration....... 0.6
Taxation..................... 0.2
Other fees................... 0.1
0.9
</TABLE>
Further fees of (pounds)0.3m (1995: (pounds)0.9m; 1994: (pounds)0.6m) have
also been paid to Deloitte & Touche in respect of acquisitions of subsidiary
companies where costs have been charged as part of the cost of acquisition.
As permitted by Section 230 of the Companies Act 1985, the profit and loss
account for the parent company is not presented as part of these accounts. The
consolidated profit for the period includes a loss of (pounds)8.7m for the 52
week period to September 29 1996 and profits of (pounds)329.7m and (pounds)11.1m
for the 52 week period to October 1 1995 and for the 53 week period to October 2
1994 respectively which are dealt with in the accounts of the parent company.
F-12
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
4 DIRECTORS AND EMPLOYEES
DIRECTORS' EMOLUMENTS
The gross emoluments of directors, including incentive compensation but
excluding pension and National Insurance contributions, were in the bands shown
below.
<TABLE>
<CAPTION>
NUMBER OF DIRECTORS
1996 1995 1994
<S> <C> <C> <C>
(pounds) 0-(pounds) 5,000 1 4* 1
(pounds) 15,001-(pounds) 20,000 - - 1
(pounds) 20,001-(pounds) 25,000 1 1 -
(pounds) 25,001-(pounds) 30,000 1 1 -
(pounds) 35,001-(pounds) 40,000 1 - -
(pounds) 45,001-(pounds) 50,000 - 1 -
(pounds) 50,001-(pounds) 55,000 1 - -
(pounds)115,001-(pounds)120,000 1* - -
(pounds)150,001-(pounds)155,000 - 1 -
(pounds)190,001-(pounds)195,000 - - 1
(pounds)230,001-(pounds)235,000 - - 1
(pounds)270,001-(pounds)275,000 - - 1
(pounds)280,001-(pounds)285,000 - - 1
(pounds)295,001-(pounds)300,000 - 1 -
(pounds)310,001-(pounds)315,000 1 - -
(pounds)315,001-(pounds)320,000 1 - -
(pounds)320,001-(pounds)325,000 1 - -
(pounds)325,001-(pounds)330,000 - 1 -
(pounds)330,001-(pounds)335,000 1 1 -
(pounds)345,001-(pounds)350,000 1 - -
(pounds)555,001-(pounds)560,000 1 1 -
</TABLE>
* Directors for part of the period only.
EMPLOYEES
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
NUMBER NUMBER NUMBER
<S> <C> <C> <C>
The average number of employees, including part time employees, was:
United Kingdom:
Catering........................................................................... 35,651 27,864 23,853
Healthcare......................................................................... - 1,550 1,582
35,651 29,414 25,435
Overseas........................................................................... 72,192 25,860 11,057
107,843 55,274 36,492
The aggregate remuneration of all employees comprised: (POUNDS)M (POUNDS)M (POUNDS)M
Wages and salaries................................................................. 886.2 485.3 318.5
Social security costs.............................................................. 178.6 89.6 39.7
Other pension costs................................................................ 15.2 11.3 8.1
1,080.0 586.2 366.3
</TABLE>
F-13
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
4 DIRECTORS AND EMPLOYEES -- Continued
<TABLE>
<CAPTION>
52 WEEK 52 WEEK
PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995
REMUNERATION AND SHARE OPTION INFORMATION (POUNDS)000 (POUNDS)000
<S> <C> <C>
The aggregate emoluments of the directors of Compass Group PLC were as follows:
Salary............................................................................................ 1,822 1,244
Incentive compensation............................................................................ 634 536
2,456 1,780
Pension and National Insurance contributions...................................................... 251 307
2,707* 2,087
</TABLE>
* This includes three directors for a full year, who were only directors for a
part of the 52 week period ended October 1 1995.
The aggregate remuneration of the individual directors of Compass Group PLC
was as follows:
<TABLE>
<CAPTION>
CASH 52 WEEK
INCENTIVE LONG TERM PERIOD ENDED
SALARY BENEFITS COMPENSATION SUB-TOTAL INCENTIVE SEP 29 1996
(POUNDS)000 (POUNDS)000 (POUNDS)000 (POUNDS)000 (POUNDS)000 (POUNDS)000
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE
F H Mackay*.............................. 360 37 54 451 105 556
M J Bailey............................... 220 23 33 276 71 347
C D Bucknall............................. 195 28 29 252 61 313
A F Dupuis............................... 205 16 31 252 70 322
J R Greenwood............................ 109 9 - 118 - 118
(resigned July 19 1996)
R J Matthews............................. 215 22 32 269 63 332
F L Ternofsky............................ 215 20 32 267 53 320
NON-EXECUTIVE
D P Cassidy.............................. 25 - - 25 - 25
P E B Cawdron............................ 30 - - 30 - 30
J Du Monceau............................. 38 - - 38 - 38
J M Thomson**............................ 55 - - 55 - 55
Total.................................... 1,667 155 211 2,033 423 2,456
<CAPTION>
52 WEEK
PERIOD ENDED
OCT 1 1995
(POUNDS)000
<S> <C>
EXECUTIVE
F H Mackay*.............................. 559
M J Bailey............................... 3
C D Bucknall............................. 299
A F Dupuis............................... 3
J R Greenwood............................ 151
(resigned July 19 1996)
R J Matthews............................. 335
F L Ternofsky............................ 329
NON-EXECUTIVE
D P Cassidy.............................. 22
P E B Cawdron............................ 28
J Du Monceau............................. 1
J M Thomson**............................ 50
Total.................................... 1,780
</TABLE>
* Highest paid director ** Chairman
The National Insurance contributions of the Chairman were (pounds)nil
(1995; (pounds)nil) and the National Insurance and pension contributions of the
highest paid director were (pounds)87,128 (1995: (pounds)101,820). The Chairman
was not granted any options under the employee share option schemes to subscribe
for shares (1995: nil) while the highest paid director was granted options to
subscribe for 102,240 shares (1995: 100,000 shares).
During the 52 week period ended October 1 1996, a long-term incentive bonus
scheme was introduced for the executive directors. The incentive is based on
specific performance targets for a three year period, starting in 1994/95, and
is partly payable in cash and partly by the Company allocating shares to the
individual via the Company's ESOP. The cash incentive compensation shown above
was paid in December 1996 and is based on targets relating to 1995/96. The
shares are part of a long term share ownership plan, which would involve the
executive in keeping his entitlement for at least five years in order to be able
to obtain the maximum shares available. Financial targets to be met include
earnings per share target, profit before taxation target and profit before
interest for divisional directors. The non-executive directors do not
participate in the incentive scheme. G Pelisson served as a non-executive
director during the period but received no remuneration.
F-14
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
4 DIRECTORS AND EMPLOYEES -- Continued
The maximum number of shares to be allocated to the directors under the
scheme are as follows:
<TABLE>
<CAPTION>
BENEFITS
AS AT ARISING IN AS AT
OCT 1 1995 THE YEAR SEP 29 1996
<S> <C> <C> <C>
F H Mackay............................................................................... 39,840 21,350 61,190
M J Bailey............................................................................... 23,950 14,450 38,400
C D Bucknall............................................................................. 16,960 12,400 29,360
A F Dupuis............................................................................... - 14,250 14,250
R J Matthews............................................................................. 23,950 12,800 36,750
F L Ternofsky............................................................................ 23,150 10,800 33,950
</TABLE>
DIRECTORS' INTERESTS IN THE SHARES OF COMPASS GROUP PLC
The interests, as defined by the Companies Act 1985, of the directors,
their spouses and minor children in the ordinary shares of 5p each of the
Company were as follows:
<TABLE>
<CAPTION>
OPTIONS OVER SHARES
SHARES GRANTED EXERCISED
OCT 1 1995 SEP 29 1996 OCT 1 1995 DURING YEAR DURING YEAR
<S> <C> <C> <C> <C> <C>
J M Thomson................................... 5,263 5,263 - - -
F H Mackay.................................... 644,945 644,945 1,156,838 102,240 8,816*
M J Bailey.................................... - - 170,806 60,000 -
C D Bucknall.................................. 878,966 878,966 577,608 63,733 -
D P Cassidy................................... - 5,208 - - -
P E B Cawdron................................. 1,300 1,300 - - -
A F Dupuis.................................... - 716,504 - 60,000 -
R J Matthews.................................. 2,768 2,768 591,716 60,000 -
J Du Monceau.................................. - 206,903 - - -
F L Ternofsky................................. 11,973 11,973 350,207 63,733 -
<CAPTION>
SEP 29 1996
<S> <C>
J M Thomson................................... -
F H Mackay.................................... 1,250,262
M J Bailey.................................... 230,806
C D Bucknall.................................. 641,341
D P Cassidy................................... -
P E B Cawdron................................. -
A F Dupuis.................................... 60,000
R J Matthews.................................. 651,716
J Du Monceau.................................. -
F L Ternofsky................................. 413,940
</TABLE>
G Pelisson had no interest in shares or options over shares during the
period.
* The exercise price was (pounds)1.23 per share and the market value at the
date of exercise was (pounds)5.42 per share.
At September 29 1996 Messers Mackay, Bailey, Bucknall, Dupuis, Matthews and
Ternofsky had a technical interest in 3,940,230 shares held by the Group's
Employee Share Trust. At October 1 1995, Messrs Mackay, Bailey, Bucknall,
Dupuis, Matthews and Ternofsky had a similar technical interest in 4,248,169
shares. There were no interests in loan stock at either date. In addition, the
ESOP is entitled to acquire 3,740,000 shares under a call arrangement entered
into with NatWest Securities on May 17 1996 at a price of (pounds)5.28 and these
directors are also regarded as having an interest in these shares for UK
Companies Act purposes.
The mid-market price of the shares at October 1 1995 and September 29 1996
was (pounds)4.24 and (pounds)5.59 respectively. The share price fluctuated
between (pounds)4.24 per share and (pounds)6.16 per share in the 52 week period
ended September 29 1996.
F-15
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
4 DIRECTORS AND EMPLOYEES -- Continued
An analysis of options held by directors at September 29 1996 is set out
below.
<TABLE>
<CAPTION>
OPTION PRICE
(PENCE) EXERCIZABLE M J BAILEY C D BUCKNALL A F DUPUIS F H MACKAY R J MATTHEWS F L TERNOFSKY
<S> <C> <C> <C> <C> <C> <C> <C>
UNDER THE EXECUTIVE SHARE OPTION SCHEME
157.25p May 24 1992-May 24 1999 - - - 99,877 - -
160.38p Jul 3 1993-Jul 3 2000 - - - 177,562 59,926 -
183.36p Jul 1 1994-Jul 1 2001 - - - 37,731 22,195 -
184.73p Dec 20 1994-Dec 20 2001 - 221,954 - 66,585 46,610 -
191.94p Jan 15 1995-Jan 15 1999 - - - 77,682 53,267 -
189.23p Aug 5 1995-Aug 5 1999 - 110,977 - 166,465 122,074 -
239.27p May 20 1996-May 20 2000 - 105,530 - 211,060 116,083 -
231.21p May 24 1996-May 24 2003 31,659 - - - - -
241.16p Jun 30 1996-Jun 30 2003 - - - - - 211,060
291.86p Apr 28 1997-Apr 28 2004 79,147 79,147 - 211,060 105,530 79,147
388.00p Jul 12 1998-Jul 12 2002 60,000 60,000 - 100,000 60,000 60,000
528.00p* May 16 1999-May 16 2003 60,000 60,000 60,000 100,000 60,000 60,000
230,806 637,608 60,000 1,248,022 645,685 410,207
UNDER THE SAYE OPTION SCHEME
286.00p Sep 1 2000-Mar 31 2003 - - - - 6,031 -
462.00p* Sep 1 2001-Mar 31 2004 - 3,733 - 2,240 - 3,733
- 3,733 - 2,240 6,031 3,733
<CAPTION>
OPTION PRICE
(PENCE) TOTAL
<S> <C>
UNDER THE EXECUTIVE SHARE OPTION SCHEME
157.25p 99,877
160.38p 237,488
183.36p 59,926
184.73p 335,149
191.94p 130,949
189.23p 399,516
239.27p 432,673
231.21p 31,659
241.16p 211,060
291.86p 554,031
388.00p 340,000
528.00p* 400,000
3,232,328
UNDER THE SAYE OPTION SCHEME
286.00p 6,031
462.00p* 9,706
15,737
</TABLE>
* Options granted during the year
PENSIONS
Directors' pensions are based on salary only, with bonuses and other
benefits excluded. All executive directors are members of the Compass Group PLC
Final Salary Pension Scheme apart from A F Dupuis. The non-executive directors
are not members of any Compass Group PLC pension scheme.
DIRECTORS' SERVICE CONTRACTS
Each of the executive directors has a service agreement with Compass Group
PLC. All of these service agreements have rolling notice periods of two years.
This has been considered by the Remuneration Committee and it has been decided
to retain these notice periods on the basis that it is appropriate to the nature
of the Company's business. The non-executive directors do not have service
agreements with Compass Group PLC.
DIRECTORS' INTERESTS IN CONTRACTS
No contract subsisted during or at the end of the financial year in which
any director of the Company has or had a material interest.
5 EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Exceptional operating costs -- continuing operations
Restructuring costs arising from Service America acquisition....................... (6.7) - -
Exceptional profit -- discontinued operations
Profit on disposal of healthcare division.......................................... 20.0 - -
</TABLE>
F-16
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
5 EXCEPTIONAL ITEMS -- Continued
During the period ended September 29, 1996 the Group disposed of its
interest in Compass Healthcare Limited, which constituted the Group's healthcare
division, for (pounds)178.8m at a profit of (pounds)20.0m. The profit is after
deducting goodwill of (pounds)12.1m which was previously written off directly to
reserves. No tax is expected to arise on the profit on disposal.
6 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Bank loans and overdrafts.......................................................... 28.4 12.0 8.3
Other loans........................................................................ 8.5 7.2 -
36.9 19.2 8.3
</TABLE>
7 TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
52 WEEK 52 WEEK 53 WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995 OCT 2 1994
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
United Kingdom:
Corporation tax.................................................................... 3.7 9.3 10.9
Deferred tax....................................................................... 1.5 (3.4) 3.1
Adjustments in respect of prior years.............................................. - (0.1) (1.3)
5.2 5.8 12.7
Overseas:
Tax payable........................................................................ 23.2 11.9 5.0
Deferred tax....................................................................... (4.3) 1.1 (1.6)
Tax on share of profits of associated undertakings................................. 2.8 - -
Adjustments in respect of prior years.............................................. 2.7 - -
24.4 13.0 3.4
Total tax charge before exceptional items.......................................... 29.6 18.8 16.1
Exceptional items:
Overseas tax....................................................................... (2.6) - -
27.0 18.8 16.1
</TABLE>
United Kingdom corporation tax has been charged at 33% (1995: 33%; 1994:
33%). The Group tax charge is reduced below this rate since tax is charged at a
lower effective rate on overseas earnings.
8 DIVIDENDS
<TABLE>
<CAPTION>
52 WEEK 52 WEEK
PERIOD ENDED PERIOD ENDED
SEP 29 1996 OCT 1 1995
PER SHARE (POUNDS)M PER SHARE (POUNDS)M PER SHARE
<S> <C> <C> <C> <C> <C>
Dividends on ordinary shares of 5p each
Interim......................................... 2.75p 8.7 2.45p 5.8 2.19p
Final........................................... 5.85p 18.6 5.15p 16.2 4.56p
8.60p 27.3 7.60p 22.0 6.75p
<CAPTION>
53 WEEK
PERIOD ENDED
OCT 2 1994
(POUNDS)M
<S> <C>
Dividends on ordinary shares of 5p each
Interim......................................... 4.2
Final........................................... 10.8
15.0
</TABLE>
F-17
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
8 DIVIDENDS -- Continued
The interim dividend per share for 1994 has been adjusted to take account
of the bonus element of the June 1994 rights issue.
9 EARNINGS PER SHARE
The calculation of earnings per share has been based on profit after
taxation and minority interests of (pounds)99.4m (1995: (pounds)54.0m; 1994:
(pounds)39.4m) and a weighted average number of 314,514,772 shares (1995:
238,364,632 shares; 1994: 205,020,012 shares).
The calculation of adjusted earnings per share has been based on profit
after taxation and minority interests of (pounds)83.5m, after adjusting for the
profit on sale of business and exceptional restructuring costs net of tax, and a
weighted average number of 314,514,772 shares. The adjusted earnings per share
figure has been disclosed as it is considered to give a more comparable
indication of the underlying trading performance.
No material dilution of earnings per share would arise if all outstanding
share options were exercised and the shares to be issued in relation to the
acquisition of Service America and PFM had been issued at the respective dates
of acquisition.
10 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD LONG SHORT PLANT FIXTURES
LAND AND LEASEHOLD LEASEHOLD AND AND
BUILDINGS PROPERTY PROPERTY MACHINERY FITTINGS TOTAL
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C> <C>
GROUP
COST OR VALUATION
At October 2 1995.......................................... 133.6 15.3 4.0 148.5 128.6 430.0
Currency adjustment........................................ (0.1) (0.2) 0.1 0.7 (2.0) (1.5)
Additions.................................................. 6.7 0.1 1.9 37.2 24.3 70.2
Businesses acquired........................................ 17.5 - 1.3 63.6 14.9 97.3
Disposals.................................................. (0.9) - (0.2) (6.9) (8.3) (16.3)
Businesses disposed of..................................... (102.6) (12.1) (0.2) (10.1) (20.1) (145.1)
Transfer between categories................................ 0.3 - - 12.7 (13.0) -
At September 29 1996....................................... 54.5 3.1 6.9 245.7 124.4 434.6
DEPRECIATION
At October 2 1995.......................................... 4.5 0.5 0.7 63.8 64.9 134.4
Currency adjustment........................................ (0.1) - - (0.2) (1.6) (1.9)
Charge for the 52 week period.............................. 1.3 0.1 0.7 29.6 14.1 45.8
Businesses acquired........................................ 2.2 (0.1) 0.4 16.0 8.7 27.2
Disposals.................................................. (0.1) - - (5.2) (6.3) (11.6)
Businesses disposed of..................................... (0.9) - (0.1) (3.7) (10.7) (15.4)
Transfer between categories................................ - - 0.1 6.6 (6.7) -
At September 29 1996....................................... 6.9 0.5 1.8 106.9 62.4 178.5
NET BOOK VALUE
At September 29 1996....................................... 47.6 2.6 5.1 138.8 62.0 256.1
At October 1 1995.......................................... 129.1 14.8 3.3 84.7 63.7 295.6
</TABLE>
F-18
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
10 TANGIBLE FIXED ASSETS -- Continued
The total cost or valuation for freehold land and buildings and long and
short leasehold property comprises:
<TABLE>
<CAPTION>
SHORT
FREEHOLD LAND AND LEASEHOLD
BUILDINGS LONG LEASEHOLD PROPERTY PROPERTY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 SEP 29 1996
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
At 1994 valuation............................... 2.7 96.6 - 12.1 -
At cost......................................... 51.8 37.0 3.1 3.2 6.9
Total........................................... 54.5 133.6 3.1 15.3 6.9
<CAPTION>
SHORT LEASEHOLD
PROPERTY
OCT 1 1995
(POUNDS)M
<S> <C>
At 1994 valuation............................... -
At cost......................................... 4.0
Total........................................... 4.0
</TABLE>
Historical cost figures for freehold land and buildings and long and short
leasehold property, being the original cost to the Group and the related
depreciation, are:
<TABLE>
<CAPTION>
SHORT
FREEHOLD LAND AND LEASEHOLD
BUILDINGS LONG LEASEHOLD PROPERTY PROPERTY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 SEP 29 1996
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
Historical cost................................. 56.6 116.6 3.1 10.7 6.9
Depreciation.................................... (7.1) (7.7) (0.5) (0.7) (1.8)
49.5 108.9 2.6 10.0 5.1
<CAPTION>
SHORT LEASEHOLD
PROPERTY
OCT 1 1995
(POUNDS)M
<S> <C>
Historical cost................................. 4.0
Depreciation.................................... (0.7)
3.3
</TABLE>
No capitalised interest is included in the current period figures. The
prior period figures include (pounds)1.6m of interest capitalised of which
(pounds)0.2m was capitalised during that period. Tax relief at 33% had been
claimed on all interest capitalised.
One freehold property in Birmingham was revalued by Freeth Melhuish on
October 2 1994 on the basis of open market value for existing use at
(pounds)0.7m and one freehold property in Hammersmith was valued by Conrad
Ritblat Sinclair Goldsmiths, Chartered Surveyors, on October 2 1994 at
(pounds)2.0m on the basis of open market value for existing use.
The net book value of the Group's tangible fixed assets includes in respect
of assets held under finance leases, freehold buildings and long and short
leasehold property (pounds)8.4m (1995: (pounds)0.2m), plant and machinery
(pounds)12.6m (1995: (pounds)9.4m) and fixtures and fittings (pounds)0.4m (1995:
(pounds)0.3m).
<TABLE>
<CAPTION>
FREEHOLD
LAND AND PLANT AND FIXTURES AND
BUILDINGS MACHINERY FITTINGS TOTAL
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
COMPANY
COST
At October 2 1995.................................................... 7.3 0.5 0.7 8.5
Additions............................................................ - 0.3 1.9 2.2
Disposals............................................................ - - (0.3) (0.3)
At September 29 1996................................................. 7.3 0.8 2.3 10.4
DEPRECIATION
At October 2 1995.................................................... - 0.1 0.3 0.4
Charge for the 52 week period........................................ 0.1 0.2 0.1 0.4
Disposals............................................................ - - (0.3) (0.3)
At September 29 1996................................................. 0.1 0.3 0.1 0.5
NET BOOK VALUE
At September 29 1996................................................. 7.2 0.5 2.2 9.9
At October 1 1995.................................................... 7.3 0.4 0.4 8.1
</TABLE>
F-19
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
11 INVESTMENTS HELD AS FIXED ASSETS
<TABLE>
<CAPTION>
GROUP COMPANY
INVESTMENT
IN ASSOCIATED OWN SUBSIDIARY COMPANIES
COMPANIES SHARES TOTAL SHARES LOANS
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
COST
At October 2 1995............................................ 3.3 12.3 15.6 1,066.3 542.5
Additions.................................................... 0.5 1.1 1.6 188.0 115.4
Eurest France -- share of net assets owned at acquisition
(note 19).................................................. (4.7) - (4.7) - -
Disposals.................................................... - (1.4) (1.4) (37.5) -
Share of retained profits less losses........................ 4.2 - 4.2 - -
Other movements.............................................. (1.2) - (1.2) (1.5) -
Repaid....................................................... - - - - (92.2)
At September 29 1996......................................... 2.1 12.0 14.1 1,215.3 565.7
<CAPTION>
COMPANY
TOTAL
(POUNDS)M
<S> <C>
COST
At October 2 1995............................................ 1,608.8
Additions.................................................... 303.4
Eurest France -- share of net assets owned at acquisition
(note 19).................................................. -
Disposals.................................................... (37.5)
Share of retained profits less losses........................ -
Other movements.............................................. (1.5)
Repaid....................................................... (92.2)
At September 29 1996......................................... 1,781.0
</TABLE>
Own shares represent the shares in Compass Group PLC held by the Compass
Group Employee Share Trust. These shares are listed on a recognised investment
exchange, and their market value at September 29 1996 was (pounds)22.0m (1995:
(pounds)18.0m). The nominal value held at September 29 1996 was (pounds)0.2m
(1995: (pounds)0.2m). The dividends on these shares of (pounds)0.3m (1995:
(pounds)0.2m) are included in interest receivable and similar income.
F-20
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
11 INVESTMENTS HELD AS FIXED ASSETS -- Continued
Principal subsidiary companies are:
<TABLE>
<CAPTION>
Percentage interest
Country of registration or incorporation Principal activities held at Sep 29 1996
<S> <C> <C>
ENGLAND AND WALES
Compass Contract Services (U.K.) Ltd. Provision of food services to commerce, industry, 100
and the retail world
Chartwells Ltd. Provision of food services to the education market 100
Bateman Catering Ltd. Provision of food services to the healthcare market 100
Compass Services (U.K.) Ltd. Provision of food services to commerce, industry, 100
and the retail world
Compass Group (U.K.) Ltd. Holding company 100
Travellers Fare Ltd. Provision of food services at railway stations 100
Letheby & Christopher Ltd. Sports and events catering 100
Compass Overseas Holdings Ltd. Holding company 100
Compass Overseas Holdings No. 2 Ltd. Holding company 100
Scandinavian Service Partner Restaurants Ltd. Provision of airport terminal catering services 100
New Famous Foods Ltd. Provision of branded catering options 100
Payne & Gunter Ltd. Sports and events catering 100
CONTINENTAL EUROPE
Scandinavian Service Partner A/S, Denmark Holding company 100
Copenhagen Airport Restaurants A/S, Denmark Provision of airport terminal catering services 100
Scandinavian Service Partner Provision of food services to commerce and industry 100
Virksomhedsrestauranter A/S, Denmark
Scandinavian Service Partner Hospital Catering A/S, Provision of hospital catering services 100
Denmark
Scandinavian Service Partner Restaurants AB, Sweden Provision of airport terminal catering services 100
Scandinavian Service Partner Foretagsrestauranger Provision of food services to commerce and industry 100
AB, Sweden
Scandinavian Service Partner Hospital Catering AB, Provision of hospital catering services 100
Sweden
Scandinavian Service Partner Restaurants A/S, Provision of airport terminal catering services 100
Norway
Scandinavian Service Partner Offshore & Industrial Provision of food services to commerce and industry 100
Catering A/S, Norway
Bergen Supply A/S, Norway Catering supplier 100
Scandinavian Service Partner S.A., Spain Provision of airport terminal catering services 100
Eindhoven Catering Services Beheer B.V., Holland Provision of food services to commerce and industry 100
Scandinavian Service Partner Ireland Limited Provision of airport terminal catering services 100
Scandinavian Service Partner S.A., France Provision of airport terminal catering services 100
Service Partner Restaurants B.V., Holland Provision of airport terminal catering services 100
Eurest France S.A. Provision of food services to commerce and industry 100
Eurest Deutschland GmbH, Germany Provision of food services to commerce and industry 100
Eurest Nederland B.V., Holland Provision of food services to commerce and industry 100
Eurest Belgilux, Belgium Provision of food services to commerce and industry 100
Eurest S.A., Spain Provision of in-flight catering services 100
Eurest Colectividades, S.A., Spain Provision of food services to commerce and industry 100
Socersa, Spain Provision of food services to commerce and industry 100
Eurest Luxembourg S.A., Luxembourg Provision of food services to commerce and industry 100
Eurest Portugal S.A., Portugal Provision of food services to commerce and industry 100
Eurest Restaurations Betriebsgesellschaft Mbh, Provision of food services to commerce and industry 100
Austria
Eurest Suisse S.A., Switzerland Provision of food services to commerce and industry 100
Eurest SPOL s.r.o., Czech Republic Provision of food services to commerce and industry 100
Eurest International B.V., Holland Holding company 100
USA
Compass Group USA, Inc. Provision of food and vending services to commerce 100
and industry
Compass Holdings Inc. Holding company 100
Consolidated Coin Caterers Corporation Provision of food and vending services to commerce 100
and industry
Statewide Services Inc. Provision of site support services 80
Flik International Inc. Provision of food services to commerce 100
IM Vending Inc. Owns trademarks 100
Professional Food-Service Management, Inc. Provision of food services to the education market 100
</TABLE>
All companies operate principally in their country of incorporation.
F-21
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
12 STOCKS
<TABLE>
<CAPTION>
SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M
<S> <C> <C>
GROUP
Food and beverage stocks............................................................................ 61.6 42.6
Other stocks........................................................................................ 11.4 7.9
73.0 50.5
</TABLE>
13 DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Amounts falling due within one year
Trade debtors............................................................. 290.3 218.5 0.2 0.1
Amounts owed by subsidiary companies...................................... - - 13.2 36.9
Corporation tax recoverable............................................... - - 3.2 -
Other debtors............................................................. 29.8 26.5 0.5 0.6
Prepayments and accrued income............................................ 13.8 10.7 0.7 0.2
Provision for doubtful accounts........................................... (10.5) (6.9) - -
323.4 248.8 17.8 37.8
Amounts falling due after more than one year
Other debtors............................................................. 27.0 6.0 19.4 11.9
Deferred tax.............................................................. 27.3 22.1 4.6 4.2
Provision for doubtful accounts........................................... (4.0) - (4.0) -
50.3 28.1 20.0 16.1
</TABLE>
<TABLE>
<CAPTION>
PROVIDED UNPROVIDED
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
DEFERRED TAX ANALYSIS
GROUP
Capital allowances in excess of depreciation.............................. (2.2) (2.0) (0.2) (6.7)
Gain deferred by rollover relief.......................................... - - - (1.5)
Other timing differences.................................................. 7.2 4.0 1.7 0.5
Overseas deferred tax..................................................... 17.7 16.1 46.9 35.9
22.7 18.1 48.4 28.2
Unrelieved advance corporation tax........................................ 4.6 4.0 - -
27.3 22.1 48.4 28.2
</TABLE>
Deferred tax has been provided throughout the Group in accordance with the
accounting policy shown in note 1 [K.]. No provision has been made for potential
tax liabilities which might arise in the event of the distribution of
unappropriated profits or reserves of overseas subsidiary companies as there is
no current intention to distribute such reserves.
<TABLE>
<CAPTION>
PROVIDED UNPROVIDED
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
COMPANY
Timing differences........................................................ - 0.2 - -
Unrelieved advance corporation tax........................................ 4.6 4.0 - -
4.6 4.2 - -
</TABLE>
F-22
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
13 DEBTORS -- Continued
<TABLE>
<CAPTION>
GROUP COMPANY
(POUNDS)M (POUNDS)M
<S> <C> <C>
The movements on deferred tax are as follows:
At October 2 1995.......................................................................................... 22.1 4.2
Arising from acquisitions.................................................................................. 1.3 -
Credited/(charged) to profit and loss account.............................................................. 0.7 (0.2)
Currency adjustment........................................................................................ (0.2) -
Other movements............................................................................................ 3.4 0.6
At September 29 1996....................................................................................... 27.3 4.6
</TABLE>
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Loan notes................................................................ 6.4 - 6.4 -
Bank loans................................................................ 6.9 1.4 4.3 -
Bank overdrafts........................................................... 0.1 16.6 - -
Obligations under finance leases.......................................... 5.9 3.8 - -
Trade creditors........................................................... 229.4 173.8 4.2 5.9
Amounts owed to subsidiary companies...................................... - - 159.2 51.8
Corporation tax payable................................................... 17.7 20.2 - 2.2
Overseas tax.............................................................. 35.4 37.4 - -
Other tax and social security costs....................................... 77.2 75.9 0.1 0.2
Other creditors........................................................... 104.1 85.8 1.9 1.1
Deferred consideration.................................................... 55.1 46.8 50.0 43.4
Accruals and deferred income.............................................. 151.3 84.6 18.2 3.7
Proposed dividend......................................................... 18.6 16.2 18.6 16.2
708.1 562.5 262.9 124.5
</TABLE>
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Loan notes................................................................ 280.6 94.5 275.8 94.5
Bank loans................................................................ 238.6 411.1 225.7 404.6
Obligations under finance leases.......................................... 16.6 10.5 - -
Other creditors........................................................... 25.7 21.1 - -
Deferred consideration.................................................... 23.0 43.0 22.7 38.5
584.5 580.2 524.2 537.6
</TABLE>
F-23
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR -- Continued
Repayments of the balances as at September 29 1996 fall due as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
LOAN BANK FINANCE OTHER SEP 29 1996
NOTES LOANS LEASES CREDITORS TOTAL
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
GROUP
Between one and two years.................................. 11.1 1.3 4.6 11.3 28.3
Between two and five years................................. 56.1 229.6 6.9 32.3 324.9
In more than five years.................................... 213.4 7.7 5.1 5.1 231.3
280.6 238.6 16.6 48.7 584.5
<CAPTION>
OCT 1 1995
TOTAL
(POUNDS)M
<S> <C>
GROUP
Between one and two years.................................. 298.6
Between two and five years................................. 224.0
In more than five years.................................... 57.6
580.2
</TABLE>
<TABLE>
<CAPTION>
LOAN BANK OTHER SEP 29 1996 OCT 1 1995
NOTES LOANS CREDITORS TOTAL TOTAL
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
COMPANY
Between one and two years........................................... 6.8 - - 6.8 286.5
Between two and five years.......................................... 56.0 225.7 22.7 304.4 196.9
In more than five years............................................. 213.0 - - 213.0 54.2
275.8 225.7 22.7 524.2 537.6
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Bank loans:
Repayable otherwise than by instalments within 5 years.................... 245.5 412.4 230.0 404.6
Repayable by instalments after 5 years.................................... - 0.1 - -
245.5 412.5 230.0 404.6
Less: amounts falling due within one year................................. (6.9) (1.4) (4.3) -
Amounts falling due after more than one year.............................. 238.6 411.1 225.7 404.6
</TABLE>
The Group has fixed term, fixed interest private placements totalling
US$420m at interest rates between 7.55% and 8.015%. Of this amount 41% has been
swapped to floating rates based on US Libor plus a margin. US$334m
((pounds)213.4m) is repayable in instalments in six to fifteen years.
16 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
GROUP
ACTUARIALLY
FAIR DETERMINED
VALUE PROVISIONS OTHER TOTAL
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
At October 2 1995.................................................................. 7.9 44.5 11.8 64.2
Arising from acquisitions.......................................................... - 4.9 - 4.9
Expenditure in the period.......................................................... (0.5) (2.1) (0.5) (3.1)
(Credited)/charged to profit and loss account...................................... (0.2) 0.9 0.7 1.4
Reclassification from current liabilities.......................................... - 1.0 0.8 1.8
Currency adjustment................................................................ 0.1 0.4 (0.5) -
At September 29 1996............................................................... 7.3 49.6 12.3 69.2
</TABLE>
Actuarially determined provisions are in respect of the long term
proportion of liabilities for self-insured schemes and concessionary benefits
for present and former employees.
F-24
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
17 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M
<S> <C> <C>
Ordinary shares of 5p each authorised 500,000,000 (1995 -- 500,000,000)......................... 25.0 25.0
Allotted and fully paid 317,188,887 (1995 -- 309,831,285)....................................... 15.9 15.5
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF CONSIDERATION
SHARES (POUNDS)M
<S> <C> <C>
Ordinary shares of 5p each allotted as at October 2 1995........................................ 309,831,285
Ordinary shares issued during the 52 week period ended September 29 1996 fully paid:
Eurest International acquisition................................................................ 4,910,460 21.2
P F M acquisition............................................................................... 1,604,113 8.9
Share options................................................................................... 843,029 1.8
Total ordinary shares of 5p each allotted and fully paid during the 52 week period ended
September 29 1996............................................................................... 7,357,602 31.9
Ordinary shares of 5p each allotted as at September 29 1996..................................... 317,188,887
</TABLE>
Shares to be issued represents 12,221,047 shares (value (pounds)68.3m)
which at September 29 1996 remained to be issued in respect of the acquisitions
of PFM and Service America (1995: 4,910,460 shares (value (pounds)21.2m) in
respect of the Eurest International acquisition).
SHARE OPTION SCHEMES
At September 29 1996, employees held options for a total of 14,388,569
ordinary shares of 5p each under all of the Company's share option schemes
analysed as follows.
Under the Company's employee share option schemes for directors and senior
executives at September 29 1996, employees held options for 10,107,107 ordinary
shares of 5p each as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE EXERCISABLE
<S> <C> <C>
17,311 1.23p Dec 16 1990 -- Dec 16 1997
8,655 1.23p Jul 22 1991 -- Jul 22 1998
22,194 157.25p May 24 1992 -- Jun 16 1998
322,924 157.25p May 24 1992 -- May 24 1999
469,418 160.38p Jul 3 1993 -- Jul 3 2000
87,669 183.36p Jul 1 1994 -- Jul 1 2001
335,149 184.73p Dec 20 1994 -- Dec 20 2001
189,212 191.94p* Jan 15 1995 -- Jan 15 1999
790,150 189.23p* Aug 5 1995 -- Aug 5 1999
506,544 239.27p* May 20 1996 -- May 20 2000
690,163 231.21p May 24 1996 -- May 24 2003
211,060 241.16p Jun 30 1996 -- Jun 30 2003
768,772 291.86p Apr 28 1997 -- Apr 28 2001
923,386 291.86p* Apr 28 1997 -- Apr 28 2004
337,000 325.00p* Jun 27 1997 -- Jun 27 2001
10,000 338.00p Jan 4 1998 -- Jan 4 2005
1,536,500 388.00p* Jul 12 1998 -- Jul 12 2002
80,000 492.00p* Feb 23 1999 -- Feb 23 2003
2,801,000 528.00p* May 16 1999 -- May 16 2003
</TABLE>
* These options will not involve the issue of new shares.
F-25
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
17 CALLED UP SHARE CAPITAL -- Continued
Under the Company's SAYE option scheme at September 29 1996, employees held
options for 4,281,462 ordinary shares of 5p each as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE EXERCISABLE
<S> <C> <C>
45,418 143.28p Sep 1 1994 -- Mar 31 1997
52,582 122.53p Sep 1 1995 -- Mar 31 1998
81,679 155.88p Sep 1 1996 -- Mar 31 1999
344,496 186.96p Sep 1 1997 -- Mar 31 2000
630,292 194.26p Sep 1 1998 -- Mar 31 2001
862,627 248.00p Sep 1 1999 -- Mar 31 2002
657,499 286.00p Sep 1 2000 -- Mar 31 2003
406,660 294.00p May 18 2000
1,200,209 462.00p Sep 1 2001 -- Mar 31 2004
</TABLE>
18 RESERVES
<TABLE>
<CAPTION>
CONSOLIDATED
SHARE PROFIT AND
PREMIUM REVALUATION LOSS
ACCOUNT RESERVE GOODWILL ACCOUNT
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
GROUP
At October 2 1995............................................................ 649.3 25.0 (1,345.0) 145.1
Foreign exchange translation differences..................................... - - - 3.9
Premium on ordinary shares issued net of expenses............................ 29.8 - - -
Retained profit for the period............................................... - - - 72.1
Options exercised............................................................ 1.7 - - -
Transfer on disposal of healthcare division.................................. - (25.0) 12.1 25.0
Goodwill arising on acquisition of businesses................................ - - (235.9) -
At September 29 1996......................................................... 680.8 - (1,568.8) 246.1
</TABLE>
GOODWILL
The consolidated goodwill represents the excess of the consideration for
the operations acquired over the fair value of the net assets acquired. The
goodwill has been written off to shareholders' equity and is maintained as a
separate negative reserve.
<TABLE>
<CAPTION>
SHARE PROFIT AND
PREMIUM LOSS
ACCOUNT ACCOUNT
(POUNDS)M (POUNDS)M
<S> <C> <C>
COMPANY
At October 2 1995....................................................................................... 649.3 327.7
Premium on ordinary shares issued net of expenses....................................................... 29.8 -
Retained loss for the period............................................................................ - (36.0)
Options exercised....................................................................................... 1.7 -
At September 29 1996.................................................................................... 680.8 291.7
</TABLE>
F-26
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
19 ACQUISITIONS
52 WEEK PERIOD ENDED SEPTEMBER 29 1996:
<TABLE>
<CAPTION>
FAIR VALUE
CONSIDERATION OF ASSETS
AND COSTS ACQUIRED GOODWILL
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Eurest France........................................................................... 156.0 7.0 149.0
Service America......................................................................... 89.4 34.3 55.1
PFM..................................................................................... 17.3 (1.0) 18.3
Other acquisitions in the period........................................................ 27.0 6.4 20.6
Total acquisitions in the period........................................................ 289.7 46.7 243.0
Adjustments in respect of Eurest International.......................................... (2.4)
Other prior period adjustments.......................................................... (4.7)
235.9
</TABLE>
Other prior period adjustments relate to acquisitions made in 1994/5 and
deferred consideration relating to earlier acquisitions. Acquisitions did not
make a material contribution to Group cash flows in the period. All acquisitions
were accounted for under the acquisitions method of accounting.
A EUREST FRANCE
On June 20 1996 the Group acquired an additional 33.5% of the issued share
capital of Financiere Eurest SA and its subsidiary undertakings (Eurest France)
for (pounds)73.6m. On August 29 1996 the Group acquired the remaining 33.2% of
the issued share capital of Financiere Eurest SA and its subsidiary undertakings
for (pounds)82.4m including costs. Of the total purchase price, (pounds)7.6m was
deferred until April 1 1997 and (pounds)22.7m until October 1 1998.
Adjustments have been made to reflect the provisional fair value of assets
acquired as follows:
<TABLE>
<CAPTION>
ACCOUNTING
NET ASSETS FAIR VALUE POLICY
ACQUIRED ADJUSTMENTS REALIGNMENT
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Goodwill and intangible fixed assets...................................... 21.8 - (21.8)
Tangible fixed assets..................................................... 11.1 - 7.4
Stocks.................................................................... 7.5 - -
Debtors................................................................... 62.4 - -
Cash...................................................................... 18.3 - -
Bank loans................................................................ (10.0) - -
Creditors................................................................. (73.0) (1.0) (8.0)
Provisions................................................................ - - (3.1)
Tax....................................................................... - 0.3 (0.2)
Share of net assets already owned at the date of acquisition.............. (4.7) - -
33.4 (0.7) (25.7)
<CAPTION>
FAIR VALUE TO
THE GROUP
(POUNDS)M
<S> <C>
Goodwill and intangible fixed assets...................................... -
Tangible fixed assets..................................................... 18.5
Stocks.................................................................... 7.5
Debtors................................................................... 62.4
Cash...................................................................... 18.3
Bank loans................................................................ (10.0)
Creditors................................................................. (82.0)
Provisions................................................................ (3.1)
Tax....................................................................... 0.1
Share of net assets already owned at the date of acquisition.............. (4.7)
7.0
</TABLE>
Adjustments for accounting policy realignment principally relate to writing
off of goodwill, recognizing post-retirement benefits and adjusting for the
effect of leases required to be treated as finance leases under UK GAAP.
The results of Eurest France for the year ended February 28 1996 showed a
profit before tax on ordinary activities of (pounds)17.6m. The results from
March 1 1996 to June 20 1996 showed a profit before tax on ordinary activities
of (pounds)5.7m.
B SERVICE AMERICA
On the last day of the period the Group acquired the dining and vending
assets of Service America Corporation for (pounds)89.4m including costs and the
settlement of certain liabilities retained by the vendors. Of the total purchase
price part was
F-27
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
19 ACQUISITIONS -- Continued
satisfied by 12,025,920 shares to be issued in four tranches at 6 monthly
intervals commencing March 1997, part by the payment of (pounds)8.4m ($13.1m) in
cash, and the balance by the issue of (pounds)12.8m ($20.0m) of loan notes
bearing interest at 6.5%. The loan notes are repayable in equal instalments in
September 1997 and September 1998.
Adjustments have been made to reflect the provisional fair value of assets
acquired as follows:
<TABLE>
<CAPTION>
ACCOUNTING
NET ASSETS FAIR VALUE POLICY
ACQUIRED ADJUSTMENTS REALIGNMENT
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Tangible fixed assets..................................................... 54.8 (4.1) (10.7)
Stocks.................................................................... 10.5 - -
Debtors................................................................... 10.3 (0.4) -
Cash...................................................................... 6.0 - -
Creditors................................................................. (18.5) (8.6) (5.0)
63.1 (13.1) (15.7)
<CAPTION>
FAIR VALUE TO
THE GROUP
(POUNDS)M
<S> <C>
Tangible fixed assets..................................................... 40.0
Stocks.................................................................... 10.5
Debtors................................................................... 9.9
Cash...................................................................... 6.0
Creditors................................................................. (32.1)
34.3
</TABLE>
A provision for integrating the operations of Service America into the USA
division of (pounds)6.7m has been charged to the Group's profit and loss account
in the period.
Adjustments for accounting policy realignment and fair value adjustments in
respect of tangible fixed assets relate to the restatement of vending machines
and other assets acquired to their estimated market value. The adjustments to
creditors relate to liabilities for staff holiday pay, and other liabilities not
previously recognized by Service America Corporation.
The results of Service America for the year ended March 30 1996 showed a
loss before tax on ordinary activities of (pounds)8.3m. The results from March
31 1996 to September 29 1996 showed a loss on ordinary activities before tax of
(pounds)4.5m.
C PFM
On August 2 1996 the Group acquired the whole of the issued share capital
of Professional Food-Service Management Inc. (PFM) for (pounds)17.3m including
costs. Of the total purchase price part was satisfied by cash (pounds)5.9m
($9.3m), part by the issue of 1,604,113 shares, part by the issue of
(pounds)1.6m ($2.5m) of interest bearing loan notes, and in addition deferred
consideration in cash and shares of up to $2m is payable 2 years after
completion subject to certain performance conditions.
Adjustments have been made to reflect the provisional fair value of assets
acquired as follows:
<TABLE>
<CAPTION>
ACCOUNTING
NET ASSETS FAIR VALUE POLICY
ACQUIRED ADJUSTMENTS REALIGNMENT
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Tangible fixed assets..................................................... 4.2 - -
Stocks.................................................................... 1.1 - -
Debtors................................................................... 4.5 - -
Cash...................................................................... 2.2 - -
Bank loans................................................................ (1.0) - -
Creditors................................................................. (9.0) (1.5) -
Provisions................................................................ (1.2) (0.6) -
Tax....................................................................... 1.3 - (1.0)
2.1 (2.1) (1.0)
<CAPTION>
FAIR VALUE TO
THE GROUP
(POUNDS)M
<S> <C>
Tangible fixed assets..................................................... 4.2
Stocks.................................................................... 1.1
Debtors................................................................... 4.5
Cash...................................................................... 2.2
Bank loans................................................................ (1.0)
Creditors................................................................. (10.5)
Provisions................................................................ (1.8)
Tax....................................................................... 0.3
(1.0)
</TABLE>
D OTHER ACQUISITIONS
Other assets acquired during the period are shown below, relating to
businesses in the inflight, sports & events and healthcare catering market
sectors.
F-28
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
19 ACQUISITIONS -- Continued
Adjustments have been made to reflect the provisional fair value of assets
acquired as follows:
<TABLE>
<CAPTION>
ACCOUNTING
NET ASSETS FAIR VALUE POLICY
ACQUIRED ADJUSTMENTS REALIGNMENT
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Intangible fixed assets................................................... 0.2 - (0.2)
Tangible fixed assets..................................................... 7.8 - (0.4)
Investment in associates.................................................. 0.3 - -
Stocks.................................................................... 0.5 - -
Debtors................................................................... 8.1 (1.1) -
Cash...................................................................... 0.2 - -
Bank overdrafts/loans..................................................... (0.5) - -
Creditors................................................................. (8.5) (0.2) -
Tax....................................................................... (0.1) - 0.8
Minority interest......................................................... (0.3) 0.1 (0.3)
7.7 (1.2) (0.1)
<CAPTION>
FAIR VALUE TO
THE GROUP
(POUNDS)M
<S> <C>
Intangible fixed assets................................................... -
Tangible fixed assets..................................................... 7.4
Investment in associates.................................................. 0.3
Stocks.................................................................... 0.5
Debtors................................................................... 7.0
Cash...................................................................... 0.2
Bank overdrafts/loans..................................................... (0.5)
Creditors................................................................. (8.7)
Tax....................................................................... 0.7
Minority interest......................................................... (0.5)
6.4
</TABLE>
52 WEEK PERIOD ENDED OCTOBER 1 1995:
<TABLE>
<CAPTION>
FAIR VALUE OF
CONSIDERATION ASSETS
AND COSTS ACQUIRED GOODWILL
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Eurest Group.......................................................................... 662.1 (14.9) 677.0
Other acquisitions in the period...................................................... 18.7 (5.2) 23.9
Prior period acquisitions............................................................. - (8.9) 8.9
680.8 (29.0) 709.8
</TABLE>
Prior period acquisitions relate to those made in 1993/4 and the
adjustments to the fair value of assets acquired principally relate to
reorganization, relocation and unrecorded liabilities. Acquisitions did not make
a material contribution to Group profits or cash flows in the period. All
acquisitions were accounted for under the acquisitions method of accounting.
Adjustments have been made to reflect the provisional fair value of assets
acquired during the period as follows:
E EUREST INTERNATIONAL
On September 25 1995 the Group acquired the whole of the issued share
capital of Efthor Holding B.V., certain other companies and their respective
subsidiary undertakings and minority shareholdings, which together comprise the
Eurest Group, for (pounds)662.1m including costs. Of the total purchase price,
up to (pounds)11.3m was deferred until November 1995, up to (pounds)6.4m until
March 31 1996, up to (pounds)19.4m until June 24 1996, up to (pounds)38.9m until
October 2 1995, and up to (pounds)4.4m until certain conditions are satisfied.
F-29
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
19 ACQUISITIONS -- Continued
<TABLE>
<CAPTION>
NET TANGIBLE ACCOUNTING
ASSETS FAIR VALUE POLICY FAIR VALUE TO
ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Tangible fixed assets................................................. 28.7 - (1.0) 27.7
Investment in associates.............................................. 3.4 - - 3.4
Stocks................................................................ 15.9 - - 15.9
Debtors............................................................... 129.8 - - 129.8
Bank loans............................................................ (3.5) - - (3.5)
Bank overdrafts....................................................... (1.7) - - (1.7)
Cash.................................................................. 36.4 - - 36.4
Creditors............................................................. (177.5) (12.8)* - (190.3)
Provisions............................................................ (5.9) - (3.9) (9.8)
Tax................................................................... (15.3) (5.9) - (21.2)
Minority interests.................................................... (1.6) - - (1.6)
8.7 (18.7) (4.9) (14.9)
</TABLE>
*THIS ITEM IS PRINCIPALLY PROVISIONS FOR REORGANIZATION, RELOCATION AND
UNRECORDED LIABILITIES.
The results of Eurest International for the year ended December 31 1994
show profit before tax on ordinary activities of (pounds)31.0m. Equivalent
figures extracted from the unaudited management accounts for January 1 1995 to
the date of acquisition show profit before tax on ordinary activities of
(pounds)31.3m.
F OTHER ACQUISITIONS
Other assets acquired during the period are shown below. They principally
relate to the acquisition of Flik International which was acquired in May 1995
for (pounds)14.5m, of which (pounds)4.5m is deferred until 1997, and Stavanger
Catering A/S in June 1995 for (pounds)4.2m.
<TABLE>
<CAPTION>
NET TANGIBLE ACCOUNTING
ASSETS FAIR VALUE POLICY FAIR VALUE TO
ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Tangible fixed assets................................................. 1.1 - - 1.1
Intangible fixed assets............................................... 0.8 - (0.8) -
Stocks................................................................ 0.4 - - 0.4
Debtors............................................................... 5.4 - - 5.4
Bank loans............................................................ (0.3) - - (0.3)
Bank overdrafts....................................................... (0.6) - - (0.6)
Cash.................................................................. 1.1 - - 1.1
Creditors............................................................. (5.9) (6.4)* - (12.3)
2.0 (6.4) (0.8) (5.2)
</TABLE>
*THIS ITEM IS PRINCIPALLY PROVISIONS FOR REORGANIZATION AND UNRECORDED
LIABILITIES.
F-30
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
19 ACQUISITIONS -- Continued
53 WEEK PERIOD ENDED OCTOBER 2 1994:
<TABLE>
<CAPTION>
FAIR VALUE OF
CONSIDERATION ASSETS
AND COSTS ACQUIRED GOODWILL
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Canteen Corporation................................................................... 311.7 (25.5) 337.2
Other acquisitions in the period...................................................... 23.5 (1.8) 25.3
Prior period acquisitions............................................................. - (6.2) 6.2
335.2 (33.5) 368.7
</TABLE>
Prior period acquisitions relate to those made in 1993, and the adjustments
to the fair value of assets acquired principally relate to surplus property
costs. All acquisitions were accounted for under the acquisition method of
accounting.
Adjustments have been made to reflect the provisional fair value of assets
acquired in 1994 as follows:
G CANTEEN CORPORATION
On June 17 1994 the Group acquired the whole of the issued share capital of
IM Vending Inc, the holding company of Canteen Corporation and its subsidiaries,
together "Canteen", for (pounds)311.7m including costs.
<TABLE>
<CAPTION>
NET TANGIBLE ACCOUNTING
ASSETS FAIR VALUE POLICY FAIR VALUE TO
ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Tangible fixed assets............................................. 78.1 (0.5) - 77.6
Intangible assets................................................. 5.3 - (5.3) -
Stocks............................................................ 19.8 (0.1) - 19.7
Debtors........................................................... 46.3 - - 46.3
Bank overdrafts................................................... (12.7) - - (12.7)
Creditors......................................................... (104.5) (6.8)* - (111.3)
Provisions........................................................ (35.7) (6.1)* - (41.8)
Taxation.......................................................... (0.1) (3.2) - (3.3)
(3.5) (16.7) (5.3) (25.5)
</TABLE>
*THESE ITEMS ARE PRINCIPALLY PROVISIONS FOR REORGANIZATION, RELOCATION AND
UNRECORDED LIABILITIES.
The results of Canteen for the year ended December 25 1993 show profits
before tax on ordinary activities before non-recurring expenses of US$35.2m.
Equivalent figures extracted from the unaudited management accounts for December
26 1993 to the date of the acquisition show profits before tax on ordinary
activities of US$13.3m.
H OTHER ACQUISITIONS
Other assets acquired during the period are shown below. They principally
relate to the acquisition of Eindhoven Catering Services Beheer B.V., (Holland)
which was acquired in June 1994 for (pounds)7.5m, Compagnie de Restauration et
de Service Aeroportuaires (France) which was acquired in May 1994 for
(pounds)10.5m, Chestermark which was acquired in November 1993 for (pounds)3.4m,
and Roux Fine Dining Ltd which was acquired in December 1993 for (pounds)1.0m.
Consideration stated above includes costs.
F-31
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
19 ACQUISITIONS -- Continued
<TABLE>
<CAPTION>
NET TANGIBLE ACCOUNTING
ASSETS FAIR VALUE POLICY FAIR VALUE TO
ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Tangible fixed assets............................................ 5.7 (1.4) - 4.3
Intangible fixed assets.......................................... 6.9 - (6.9) -
Stocks........................................................... 1.3 - - 1.3
Debtors.......................................................... 6.1 (0.1) - 6.0
Bank overdrafts.................................................. (0.5) - - (0.5)
Creditors........................................................ (7.9) (2.4)* - (10.3)
Provisions....................................................... - (2.7) - (2.7)
Taxation......................................................... (0.2) 0.5 - 0.3
Minority interest................................................ (0.2) - - (0.2)
11.2 (6.1) (6.9) (1.8)
</TABLE>
*THIS ITEM IS PRINCIPALLY PROVISIONS FOR REORGANIZATION AND UNRECORDED
LIABILITIES.
20 PENSIONS
The Group operates a number of defined contribution and defined benefit
plans covering the majority of the workforce. The pension cost of these plans
for the period was (pounds)15.2m (1995: (pounds)11.3m; 1994: (pounds)8.1m) of
which (pounds)9.5m (1995: (pounds)5.9m; 1994: (pounds)3.3m) relates to overseas
plans. Within the UK there are two main plans:
(i) Compass Group Money Purchase Pension Plan, which is a defined
contributions arrangement.
(ii) Compass Group Final Salary Pension Plan, which is a defined
benefits arrangement. This is operated on a prefunded basis. The
funding policy is to contribute such variable amounts, on the
advice of the Actuary, as achieves a 100% funding level on a
projected salary basis. Actuarial assessments covering expense
and contributions are carried out by independent qualified
actuaries.
In overseas countries the Group provides pension arrangements in accordance
with statutory requirements and local customs and practices.
In Denmark, the Netherlands and Ireland the Group operates insured benefit
pension plans where the Group contributions represent the insurance companies'
assessment of the annual cost of the benefits earned in that year.
In the United States the main plan is a defined benefit plan. The funding
policy, in accordance with Government guidelines, is to contribute such variable
amounts, on the advice of the Actuary, as achieves a 100% funding level on a
projected salary basis.
In other countries Group employees participate primarily in state
arrangements to which the Group makes the appropriate contributions.
The pension cost of the Final Salary Pension Plan for the period to
September 29 1996 has been assessed in accordance with the advice of
professionally qualified consulting actuaries based in the UK on an actuarial
valuation at April 6 1995. This was made using the projected unit method and the
most significant actuarial assumptions adopted for determining pension costs and
contributions were as follows:
<TABLE>
<CAPTION>
UK
<S> <C>
(i) Rate of return on investments................................................................................ 9.5% p.a.
(ii) Rate of increase in pensionable pay......................................................................... 7.5% p.a.
(iii) Rate of increase in pension................................................................................. 4.0% p.a.
</TABLE>
In the UK assets were valued having regard to the notional income which
they would produce assuming that UK equity dividends increase in future at the
rate of 5 per cent per annum.
F-32
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
20 PENSIONS -- Continued
The results of the valuation in the UK showed that the value of the assets
at April 6 1995 represented 112% of the value of the accrued benefits after
allowing for expected future increases in pensionable pay and pensions. The
market value of the plan's assets was (pounds)65.8m as at April 6 1995. In the
USA the market value of the plan's assets was US$72.9m as at January 1 1995 and
based on a review at that date, the value of the assets represented 98% of the
accrued benefits after allowing for expected future increases in pensionable pay
and pensions.
There have been no material changes to the pension arrangements since the
valuation and review dates. The assets of the plans are held in separate funds
administered by trustees and are independent of the Group's finances.
At the balance sheet date, outstanding employer and employee contributions
amount to (pounds)1.5m and (pounds)0.4m respectively.
The pension cost charged to the profit and loss account is such as to
spread the cost of pensions over the working lives with the Group of employees
who are members of the plans.
21 CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
GROUP COMPANY
SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
Performance bonds and guarantees of indemnities and overdrafts of
subsidiary and associated undertakings.................................... 52.5 44.9 10.6 8.2
</TABLE>
22 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
SEP 29 1996 OCT 1 1995
(POUNDS)M (POUNDS)M
<S> <C> <C>
Contracted for but not provided for in the accounts................................................. 2.3 4.5
</TABLE>
23 OPERATING LEASE COMMITMENTS
At September 29 1996 the Group was committed to making the following
payments during the next 52 week period in respect of operating leases:
<TABLE>
<CAPTION>
LAND AND BUILDINGS CONCESSIONS OTHER
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
Leases which expire:
Within 1 year.................................................................. 0.6 11.6 1.5
Within 2 to 5 years............................................................ 2.9 10.8 4.7
After 5 years.................................................................. 2.1 8.6 0.3
5.6 31.0 6.5
</TABLE>
24 FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C> <C>
Turnover.................................................................. 345.1 497.0 917.9 1,505.8 2,651.9
Operating profit.......................................................... 36.9 46.8 62.8 91.2 137.1
Profit on ordinary activities before taxation............................. 31.8 41.5 55.7 73.2 127.6
Profit on ordinary activities after taxation.............................. 21.2 27.9 39.6 54.4 100.6
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
PENCE PENCE PENCE PENCE PENCE
<S> <C> <C> <C> <C> <C>
Earnings per share.............................................................. 14.1 17.0 19.2 22.6 31.6
Adjusted earnings per share..................................................... 15.7 17.0 19.2 22.6 26.5
Net dividends per share......................................................... 5.55 6.06 6.75 7.60 8.60
</TABLE>
F-33
<PAGE>
COMPASS GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
24 FIVE YEAR SUMMARY -- Continued
Earnings per share and net dividends per share have been adjusted for the
bonus element of the rights issues during 1993 and 1994 and the capitalisation
issue during 1994. Adjusted earnings per share has been calculated after
adjusting for abortive acquisition costs in 1992 and for profits on disposal of
business and exceptional restructuring costs in 1996.
F-34
<PAGE>
COMPASS GROUP PLC
UNAUDITED INTERIM CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
26 WEEK
PERIOD ENDED BEFORE
MARCH 30 1997 EXCEPTIONAL ITEM EXCEPTIONAL ITEM
UNAUDITED UNAUDITED UNAUDITED
NOTES (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
TURNOVER
Continuing operations............................... 1,717.5 1,227.9 -
Discontinued operations............................. - 15.0 -
TOTAL TURNOVER...................................... 1 1,717.5 1,242.9 -
OPERATING COSTS (1,642.6) (1,184.0) -
Exceptional item -- continuing operations........... - - -
OPERATING PROFIT
Continuing operations............................... 74.9 55.7 -
Discontinued operations............................. - 3.2 -
OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY
UNDERTAKINGS........................................ 74.9 58.9 -
Share of profits of associated undertakings 0.5 4.5 -
TOTAL OPERATING PROFIT 1 75.4 63.4 -
DISCONTINUED OPERATIONS
Sale of healthcare division......................... 2 - - 20.0
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST....... 75.4 63.4 20.0
Interest receivable and similar income 1.5 3.2 -
Interest payable and similar charges (20.5) (18.8) -
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION....... 56.4 47.8 20.0
Tax on profit on ordinary activities................ 3 (15.0) (12.7) -
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION........ 41.4 35.1 20.0
Equity minority interests........................... (0.3) (0.6) -
PROFIT FOR THE FINANCIAL PERIOD..................... 41.1 34.5 20.0
Dividends........................................... 4 (9.9) (8.7) -
PROFIT FOR THE PERIOD RETAINED...................... 6 31.2 25.8 20.0
EARNINGS PER SHARE.................................. 12.9p
EARNINGS PER SHARE - ADJUSTED....................... 12.9p 11.0p
<CAPTION>
26 WEEK
MARCH 31 1996
TOTAL
UNAUDITED
(POUNDS)M
<S> <C>
TURNOVER
Continuing operations............................... 1,227.9
Discontinued operations............................. 15.0
TOTAL TURNOVER...................................... 1,242.9
OPERATING COSTS (1,184.0)
Exceptional item -- continuing operations........... -
OPERATING PROFIT
Continuing operations............................... 55.7
Discontinued operations............................. 3.2
OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY
UNDERTAKINGS........................................ 58.9
Share of profits of associated undertakings 4.5
TOTAL OPERATING PROFIT 63.4
DISCONTINUED OPERATIONS
Sale of healthcare division......................... 20.0
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST....... 83.4
Interest receivable and similar income 3.2
Interest payable and similar charges (18.8)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION....... 67.8
Tax on profit on ordinary activities................ (12.7)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION........ 55.1
Equity minority interests........................... (0.6)
PROFIT FOR THE FINANCIAL PERIOD..................... 54.5
Dividends........................................... (8.7)
PROFIT FOR THE PERIOD RETAINED...................... 45.8
EARNINGS PER SHARE.................................. 17.3p
EARNINGS PER SHARE - ADJUSTED.......................
</TABLE>
The calculation of earnings per share was based on profit after taxation
and minority interests of (pounds)41.1m (1996: (pounds)54.5m) and a weighted
average number of 317,365,264 shares (1996: 314,821,474 shares). The calculation
of adjusted earnings per share for the 26 week period ended March 31 1996 was
based on profit after taxation and minority interests of (pounds)34.5m.
See accompanying notes to unaudited interim consolidated financial statements.
F-35
<PAGE>
COMPASS GROUP PLC
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 30 1997 MARCH 31 1996
UNAUDITED UNAUDITED
NOTES (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets, net.................................................................. 254.8 179.4
Investments........................................................................... 16.0 18.6
270.8 198.0
CURRENT ASSETS
Stocks................................................................................ 68.3 52.2
Debtors: amounts falling due within one year, net..................................... 339.4 262.7
amounts falling due after more than one year, net............................. 54.8 40.5
Cash at bank and in hand.............................................................. 48.7 65.1
511.2 420.5
CREDITORS: amounts falling due within one year........................................ (639.8) (598.5)
NET CURRENT LIABILITIES............................................................... (128.6) (178.0)
TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 142.2 20.0
CREDITORS: amounts falling due after more than one year............................... (592.9) (396.7)
PROVISIONS FOR LIABILITIES AND CHARGES................................................ 5 (66.3) (65.2)
EQUITY MINORITY INTERESTS............................................................. (3.1) (3.1)
NET LIABILITIES....................................................................... (520.1) (445.0)
CAPITAL AND RESERVES
Called up share capital............................................................... 15.9 15.7
Shares to be issued (including premium)............................................... 68.3 -
Share premium account................................................................. 6 681.5 670.6
Other reserve: goodwill............................................................... 6 (1,597.6) (1,339.8)
Profit and loss account............................................................... 6 311.8 208.5
TOTAL EQUITY SHAREHOLDERS' DEFICIT.................................................... (520.1) (445.0)
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-36
<PAGE>
COMPASS GROUP PLC
UNAUDITED INTERIM CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
26 WEEK 26 WEEK
PERIOD ENDED PERIOD ENDED
MARCH 30 1997 MARCH 31 1996
UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM
OPERATING ACTIVITIES (Note 1)................................... 80.2 69.2
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received............................................... 1.3 3.2
Interest paid................................................... (18.8) (13.0)
Interest element of finance lease rental payments............... (0.8) (0.4)
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE......................................................... (18.3) (10.2)
TAXATION
UK corporation tax paid......................................... (2.2) (1.5)
Overseas tax paid............................................... (13.5) (7.0)
TOTAL TAX PAID.................................................. (15.7) (8.5)
FREE CASH FLOW.................................................. 46.2 50.5
CAPITAL EXPENDITURE
Purchase of tangible fixed assets............................... (42.5) (33.7)
Sale of tangible fixed assets................................... 1.4 2.6
TOTAL CAPITAL EXPENDITURE....................................... (41.1) (31.1)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings and investment in associated
undertakings.................................................... (62.1) (22.1)
Sale of subsidiary undertaking.................................. - 163.8
TOTAL ACQUISITIONS AND DISPOSALS................................ (62.1) 141.7
EQUITY DIVIDENDS PAID........................................... (18.9) (16.2)
NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES............. (122.1) 94.4
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING...................... (75.9) 144.9
FINANCING
Issue of ordinary share capital................................. 0.7 0.3
Debt due within a year: (Decrease)/increase in bank loans and
loan notes...................................................... (2.3) 1.4
Debt due beyond a year: Increase/(decrease) in bank loans and
loan notes...................................................... 44.6 (152.7)
Capital element of finance lease rentals........................ (3.8) (2.4)
NET CASH INFLOW/(OUTFLOW) FROM FINANCING........................ 39.2 (153.4)
(DECREASE)/INCREASE IN CASH IN THE PERIOD....................... (36.7) (8.5)
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT (Note II)
Decrease in cash in the period.................................. (36.7) (8.5)
Cash (inflow)/outflow from increase in debt
and lease finance............................................... (38.5) 153.7
Change in net debt resulting from cash flows.................... (75.2) 145.2
New finance leases.............................................. (2.8) (1.2)
Effect of foreign exchange rate change.......................... 43.5 (5.6)
MOVEMENT IN NET DEBT IN THE PERIOD.............................. (34.5) 138.4
OPENING NET DEBT................................................ (464.9) (456.0)
CLOSING NET DEBT................................................ (499.4) (317.6)
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-37
<PAGE>
COMPASS GROUP PLC
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
26 WEEK 26 WEEK
PERIOD ENDED PERIOD ENDED
MARCH 30 1997 MARCH 31 1996
UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M
<C> <S> <C> <C>
I RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW
FROM OPERATING ACTIVITIES:
Operating profit........................................................................ 74.9 58.9
Depreciation............................................................................ 30.9 22.0
Decrease/(increase) in stocks........................................................... 0.4 (3.8)
Increase in debtors..................................................................... (37.9) (26.8)
Increase in creditors and provisions.................................................... 11.9 18.9
Net cash inflow from operating activities............................................... 80.2 69.2
</TABLE>
<TABLE>
<CAPTION>
OTHER
EXCHANGE NON-CASH
SEP 29 1996 CASH FLOW MOVEMENTS CHANGES MARCH 30 1997
AUDITED UNAUDITED UNAUDITED UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<C> <S> <C> <C> <C> <C> <C>
II ANALYSIS OF NET DEBT:
Cash at bank and in hand.............................. 90.2 (34.9) (6.6) - 48.7
Overdrafts............................................ (0.1) (1.8) 0.5 - (1.4)
90.1 (36.7) (6.1) - 47.3
Debt due within 1 year................................ (13.3) 2.3 0.5 - (10.5)
Debt due after 1 year................................. (519.2) (44.6) 47.7 - (516.1)
Finance leases........................................ (22.5) 3.8 1.4 (2.8) (20.1)
(555.0) (38.5) 49.6 (2.8) (546.7)
Total................................................. (464.9) (75.2) 43.5 (2.8) (499.4)
</TABLE>
<TABLE>
<CAPTION>
26 WEEK 26 WEEK
PERIOD ENDED PERIOD ENDED
MARCH 30 1997 MARCH 31 1996
UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M
<C> <S> <C> <C>
III ANALYSIS OF CHANGES IN LOANS AND OVERDRAFTS
LESS LIQUID RESOURCES:
Opening net borrowings.................................................................. (442.4) (441.7)
Net cash (outflow)/inflow before financing.............................................. (75.9) 144.9
Capital element of finance lease rentals................................................ (3.8) (2.4)
Issue of ordinary share capital......................................................... 0.7 0.3
Effect of foreign exchange rate change.................................................. 42.1 (5.6)
Closing net borrowings.................................................................. (479.3) (304.5)
</TABLE>
Closing net borrowings shown above exclude finance leases at March 30 1997 of
(pounds)20.1m (March 31 1996: (pounds)13.1m).
F-38
<PAGE>
COMPASS GROUP PLC
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
26 WEEK 26 WEEK
PERIOD ENDED PERIOD ENDED
MARCH 30 1997 MARCH 31 1996
UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M
<S> <C> <C>
1 TURNOVER AND OPERATING PROFIT
TURNOVER
Catering...................................................................................... 1,717.5 1,227.9
Discontinued operations:
Healthcare.................................................................................... - 15.0
1,717.5 1,242.9
Geographical analysis:
-- United Kingdom............................................................................ 308.2 267.8
-- Continental Europe and the rest of the world.............................................. 812.6 589.8
-- North America............................................................................. 596.7 370.3
Discontinued operations:
-- United Kingdom............................................................................ - 15.0
1,717.5 1,242.9
OPERATING PROFIT
Catering*..................................................................................... 75.4 60.2
Discontinued operations:
Healthcare.................................................................................... - 3.2
75.4 63.4
Geographical analysis:
-- United Kingdom............................................................................ 19.7 17.3
-- Continental Europe and the rest of the world*............................................. 37.9 28.1
-- North America............................................................................. 17.8 14.8
Discontinued operations:
-- United Kingdom............................................................................ - 3.2
75.4 63.4
</TABLE>
* Including (pounds)0.5m for associates in 1997 (1996: (pounds)4.5m).
2 EXCEPTIONAL ITEM
During the 26 week period ended March 31 1996 the Group disposed of its
interest in Compass Healthcare Limited, which constituted the Group's
healthcare division, for (pounds)178.8m at a profit of (pounds)20.0m.
F-39
<PAGE>
COMPASS GROUP PLC
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
26 WEEK 26 WEEK
PERIOD ENDED PERIOD ENDED
MARCH 30 1997 MARCH 31 1996
UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M
<S> <C> <C>
3 TAX ON PROFIT ON ORDINARY ACTIVITIES
United Kingdom:
Corporation tax............................................................................... 4.1 1.2
Deferred tax.................................................................................. 0.8 (1.1)
4.9 0.1
Overseas:
Tax payable................................................................................... 12.4 11.4
Deferred tax.................................................................................. (2.3) -
Tax on share of profits of associated undertakings............................................ 0.2 1.2
Adjustments in respect of prior years......................................................... (0.2) -
10.1 12.6
Total tax charge.............................................................................. 15.0 12.7
</TABLE>
<TABLE>
<CAPTION>
26 WEEK
PERIOD
26 WEEK ENDED
PERIOD ENDED MARCH 31
MARCH 30 1997 1996
UNAUDITED UNAUDITED
PER PER
SHARE (POUNDS)M SHARE
<CAPTION>
<S> <C> <C> <C>
4 DIVIDENDS
Dividends on ordinary shares of 5p each
Interim..................................................................................... 3.10p 9.9 2.75p
Final....................................................................................... - - -
3.10p 9.9 2.75p
<CAPTION>
26 WEEK
PERIOD
ENDED
MARCH 31 1996
UNAUDITED
(POUNDS)M
<S> <C>
4 DIVIDENDS
Dividends on ordinary shares of 5p each
Interim..................................................................................... 8.7
Final....................................................................................... -
8.7
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
ACTUARIALLY
FAIR DETERMINED
VALUE PROVISIONS OTHER TOTAL
(POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C> <C>
5 PROVISIONS FOR LIABILITIES AND CHARGES
At September 30 1996....................................................................... 7.3 49.6 12.3 69.2
Arising from acquisitions.................................................................. - - 0.6 0.6
Expenditure in the period.................................................................. - (0.5) - (0.5)
Charged to profit and loss account......................................................... - 0.6 - 0.6
Reclassification from/(to) current liabilities............................................. 0.5 (1.3) - (0.8)
Currency adjustment........................................................................ (0.1) (2.1) (0.6) (2.8)
At March 30 1997........................................................................... 7.7 46.3 12.3 66.3
</TABLE>
Actuarially determined provisions are in respect of the long term
proportion of liabilities for self-insured schemes and concessionary benefits
for present and former employees.
F-40
<PAGE>
COMPASS GROUP PLC
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED
SHARE PROFIT &
PREMIUM LOSS
ACCOUNT GOODWILL ACCOUNT
UNAUDITED UNAUDITED UNAUDITED
(POUNDS)M (POUNDS)M (POUNDS)M
<S> <C> <C> <C>
6 RESERVES
At September 30 1996.................................................................... 680.8 (1,568.8) 246.1
Foreign exchange translation differences................................................ - - 34.5
Retained profit for the period.......................................................... - - 31.2
Options exercised....................................................................... 0.7 - -
Goodwill arising on acquisition of business............................................. - (28.8) -
At March 30 1997........................................................................ 681.5 (1,597.6) 311.8
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE CLOSING
RATE RATE
<S> <C> <C>
7 EXCHANGE RATES
Exchange rates for major currencies used during the period after taking into account the Group's hedging
arrangements were:
Belgian Franc............................................................................................. 47.27 56.41
Danish Krone.............................................................................................. 8.87 10.42
Dutch Guilder............................................................................................. 2.57 3.07
French Franc.............................................................................................. 7.77 9.21
German Mark............................................................................................... 2.30 2.73
Luxembourg Franc.......................................................................................... 47.27 56.41
Norwegian Krone........................................................................................... 9.90 10.81
Portuguese Escudo......................................................................................... 236.25 275.47
Spanish Peseta............................................................................................ 191.48 231.62
Swedish Krona............................................................................................. 10.31 12.35
Swiss Franc............................................................................................... 1.87 2.37
US Dollar................................................................................................. 1.51 1.63
</TABLE>
8 SUBSEQUENT EVENT
Subsequent to the announcement of the Group's interim results, a cash tender
offer totalling US $197 million has been made for the entire common stock of
Daka International, Inc.
F-41
