<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 13, 1996
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
COMMISSION FILE NUMBER 1-10711
SIZZLER INTERNATIONAL, INC.
_______________________________________________________________________________
(Exact Name of Registrant as specified in its Charter)
DELAWARE 95-4307254
________________________________________________________________________________
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12655 WEST JEFFERSON BOULEVARD, LOS ANGELES, CALIFORNIA 90066
________________________________________________________________________________
(Address of Principal Executive Offices, including zip code)
(310) 827-2300
____________________________________________________________
(Registrant's telephone number, including area code)
____________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 15, 1996
- ---------------------------- --------------------------------
COMMON STOCK $0.01 PAR VALUE 29,191,325 SHARES
<PAGE>
PART I. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
October 13, April 30,
1996 1996
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 3) $ 23,531 $ 9,216
Receivables, net of reserves of $10,422 at
October 13, 1996 and $9,441 at April 30, 1996 3,759 5,026
Inventories 6,341 6,477
Prepaid expenses and other current assets 5,349 2,736
----------- ---------
Total current assets 38,980 23,455
----------- ---------
Property and equipment, net 127,986 135,231
Long-term notes receivable, net of reserves of $599
at October 13, 1996 and $1,200 at April 30, 1996 1,284 1,128
Intangible assets, net of accumulated amortization of
$646 at October 13, 1996 and $610 at April 30, 1996 1,624 996
Other assets, net of accumulated amortization and reserves of
$5 at October 13, 1996 and $4 at April 30, 1996 13,501 17,737
----------- ---------
Total assets $ 183,375 $ 178,547
=========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
October 13, April 30,
1996 1996
----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 10 $ 28,196
Accounts payable 13,314 14,390
Other current liabilities 10,412 17,755
Income taxes payable 1,403 2,844
----------- ----------
Total current liabilities 25,139 63,185
----------- ----------
Long-term Liabilities:
Long-term debt, net of current portion - 7,041
Deferred income taxes 5,985 9,032
Other liabilities 25,643 55,822
Liabilities subject to compromise under reorganization proceedings 83,612 -
----------- ----------
Total long-term liabilities 115,240 71,895
----------- ----------
Stockholders' Investment:
Capital stock -
Preferred, authorized 1,000,000 shares, $5 par value;
no shares issued - -
Common, authorized 50,000,000 shares, $0.01 par value;
outstanding 29,051,325 shares at October 13, 1996
and 27,767,706 shares at April 30, 1996 291 278
Additional paid-in capital 274,228 274,221
Retained earnings (deficit) (235,657) (235,526)
Cumulative foreign currency translation adjustments 4,134 4,494
----------- ----------
Total stockholders' investment 42,996 43,467
----------- ----------
Total liabilities and stockholders' investment $ 183,375 $ 178,547
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE TWENTY-FOUR WEEKS ENDED OCTOBER 13, 1996 AND OCTOBER 15, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
Restaurants $ 146,596 $ 201,514
Franchise operations 5,873 6,207
--------- ---------
Total revenues 152,469 207,721
--------- ---------
Cost of sales 56,106 74,246
Labor and related expenses 43,457 59,905
Other operating expenses 31,897 44,631
Depreciation and amortization 6,810 12,055
General and administrative expenses 12,940 14,807
Interest expense 484 734
Investment income (514) (483)
--------- ---------
Total costs and expenses 151,180 205,895
--------- ---------
Income before income taxes 1,289 1,826
Provision for income taxes 1,417 1,222
--------- ---------
Net income $ (128) $ 604
========= =========
Net income per common and common
equivalent share $ - $ 0.02
========= =========
Dividends per share $ - $ 0.08
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE TWELVE WEEKS ENDED OCTOBER 13, 1996 AND OCTOBER 15, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
Restaurants $ 65,660 $ 99,271
Franchise operations 2,373 2,949
--------- ---------
Total revenues 68,033 102,220
--------- ---------
Cost of sales 26,240 36,243
Labor and related expenses 19,043 29,924
Other operating expenses 13,869 22,077
Depreciation and amortization 3,224 6,036
General and administrative expenses 5,893 7,264
Interest expense 91 389
Investment income (237) (219)
--------- ---------
Total costs and expenses 68,123 101,714
--------- ---------
Income before income taxes (90) 506
Provision for income taxes 532 338
--------- ---------
Net income $ (622) $ 168
========= =========
Net income per common and common
equivalent share $ (0.02) $ 0.01
========= =========
Dividends per share $ - $ 0.04
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-FOUR WEEKS ENDED OCTOBER 13, 1996 AND OCTOBER 15, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ (128) $ 604
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,810 12,055
Deferred income taxes (benefit) 88 (1,397)
Provision for bad debts 498 59
Other 3,413 2,479
- ---------------------------------------------------- ------- --------
10,681 13,800
Changes in operating assets and liabilities:
Receivables 664 (2,204)
Inventories 623 (1,093)
Prepaid expenses and other current assets (2,535) 813
Accounts payable 15,538 (53)
Accrued liabilities (19,756) (10,613)
Income taxes payable (1,789) (77)
- ---------------------------------------------------- ------- --------
Net cash provided by (used in) operating activities 3,426 573
- ---------------------------------------------------- ------- --------
INVESTING ACTIVITIES
Additions to property and equipment (2,369) (15,099)
Disposal of property and equipment 1,554 367
Other, net 646 (938)
- ---------------------------------------------------- ------- --------
Net cash provided by (used in) investing activities (169) (15,670)
- ---------------------------------------------------- ------- --------
FINANCING ACTIVITIES
Issuance of long-term debt 11,310 7,000
Reduction of long-term debt (193) (1,300)
Dividends paid to stockholders - (2,222)
Other, net (59) -
- ---------------------------------------------------- ------- --------
Net cash provided by (used in) financing activities 11,058 3,478
- ---------------------------------------------------- ------- --------
Net increase (decrease) in cash and cash equivalents 14,315 (11,619)
- ---------------------------------------------------- ------- --------
Cash and cash equivalents at beginning of period 9,216 12,220
- ---------------------------------------------------- ------- --------
Cash and cash equivalents at end of period $23,531 $ 601
==================================================== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF OCTOBER 13, 1996
1. The interim consolidated condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1996 annual report on Form 10-K.
On June 2, 1996, Sizzler International, Inc. (the "Company") enacted a
comprehensive restructuring strategy designed to return the domestic
operations to profitability. This strategy included the closure of
restaurants in the U.S. and filing for bankruptcy protection through a
Chapter 11 proceeding. On June 2, 1996, the Company and four subsidiaries,
Sizzler Restaurants International, Inc., Buffalo Ranch Steakhouses, Inc.,
Tenly Enterprises, Inc., and Collins Properties, Inc., became Debtors-in-
Possession subject to the supervision of the U.S. Bankruptcy Court of the
Central District of California. The Company continues to conduct normal
business operations as Debtors-in-Possession subject to the jurisdiction of
the Bankruptcy Court and intends to propose a plan of reorganization for
each filing company. As Debtors-in-Possession, the Company may not engage
in transactions outside the ordinary course of business without approval of
the Bankruptcy Court.
Under Chapter 11, actions to enforce claims against the Company are stayed
if the claims arose, or are based on events that occurred, on or before the
petition date of June 2, 1996, and such claims cannot be paid or
restructured prior to the conclusion of the Chapter 11 proceedings or
approval of the Bankruptcy Court. Other liabilities may arise or be
subject to compromise as a result of rejection of executory contracts,
including leases, or the Bankruptcy Court's resolution of claims for
contingencies and other disputed amounts. Liabilities subject to
compromise in the accompanying consolidated condensed balance sheet
represent the Company's estimates of liabilities as of October 13, 1996
subject to adjustment in the reorganization process.
Liabilities subject to compromise under reorganization proceedings consist
of the following as of October 13, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accounts payable $16,614
Other liabilities 19,701
Long-term debt 46,514
Other 783
-------
$83,612
=======
</TABLE>
<PAGE>
The consolidated condensed financial statements have been prepared on a
going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. While the Chapter 11 cases are in process, the Company
continues in possession of its properties and operates and manages its
business as a Debtor-in-Possession pursuant to the Bankruptcy Code.
In the opinion of management, all adjustments necessary for fair
presentation of results of operations for the twenty-four weeks have been
included in the interim financial statements.
2. In the fourth quarter of fiscal 1996, the Company recorded a pre-tax
restructuring charge of $108.9 million. The restructuring costs included
predominately non-cash write-offs of assets and related disposition costs
associated with the closure of 116 restaurants in the United States. At
October 13, 1996, the Company had unused reserves of $28.0 million.
3. During the quarter ending October 13, 1996, a negative cash balance of
$4,577,000 was reclassified to accounts payable. This balance represents a
negative disbursement account and gift certificates issued and outstanding.
The balances in these accounts at April 30, 1996, were negative $11,033,000
and have not been restated on the balance sheet.
4. For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand and cash invested in securities maturing in 90 days or less.
The following are additional disclosure requirements of SFAS No. 95:
<TABLE>
<CAPTION>
FOR THE TWENTY-FOUR WEEKS ENDED,
--------------------------------
October 13, October 15,
1996 1995
--------------- -------------
<S> <C> <C>
Cash paid for (in thousands):
Interest (net of amount capitalized) $ 484 $ 734
Income taxes $3,443 $5,021
</TABLE>
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHAPTER 11 REORGANIZATION
- -------------------------
The Company's domestic operations have produced losses on declining revenues for
the past four years. As a result of these events, in the fourth quarter of
fiscal 1996, Management reviewed each U.S. restaurant and identified 87 that
were in markets with prospects for ongoing profitability. The remaining 130
restaurants the Company operated in the U.S. were determined to have
insufficient future prospects to warrant continued investment at their location.
Fourteen restaurants were closed in the fourth quarter of fiscal 1996 and the
remainder were closed in first quarter of fiscal 1997. At April 30, 1996, the
Company recorded a restructuring charge of $108.9 million. The restructuring
costs included predominantly non-cash write-offs of assets and related
disposition costs associated with the closure of the restaurants. Overall, the
restructuring charge reflects the efforts to redeploy capital to those core
markets which are expected to yield returns consistent with Management's
expectations and objectives, and to eliminate the Company's investment in non-
performing assets. As the reorganization continues, underperforming restaurants
will continue to be closely monitored and are subject to review.
On June 2, 1996 the Company enacted a comprehensive restructuring strategy
designed to return the U.S. operations to profitability. This strategy included
the closure of restaurants in the U.S. and filing for bankruptcy protection. On
June 2, 1996, the Company and four subsidiaries, Sizzler Restaurants
International, Inc., Buffalo Ranch Steakhouses, Inc., Tenly Enterprises, Inc.,
and Collins Properties, Inc. became Debtors-in-Possession subject to the
supervision of the U.S. Bankruptcy Court of the Central District of California
under Chapter 11 of the United States Bankruptcy Code. The debtor subsidiaries
own and operate substantially all of the Company's domestic restaurant
businesses and assets. The Company's International division businesses and
assets are owned and operated by separate subsidiaries and are not subject to
the U.S. Chapter 11 cases. The cases involving the Company and its debtor
subsidiaries are jointly administered under Case No. 96-16075 AG.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - TWENTY-FOUR WEEKS
- -------------------------------------------------------------
ENDED OCTOBER 13, 1996 VERSUS OCTOBER 15, 1995
- ----------------------------------------------
Domestic Company restaurant sales and franchised restaurant revenues (including
franchise fees, royalties and rental income) and International Company
restaurant sales
<PAGE>
and franchised restaurant revenues represent the Company's primary sources of
revenue. The addition or closure of restaurants, both Company and franchise, and
the sales volume of comparable restaurants (those restaurants open more than one
year) are important factors to consider in evaluating the Company's results.
Total revenues were $152.5 million for the first twenty-four weeks of fiscal
1997, which represents a decrease of $55.3 million, or 26.6 percent, compared to
the first twenty-four weeks of the prior fiscal year. This decrease is
primarily due to the closure of the 130 U.S. restaurants noted above. Since
October 15, 1995, there has been a net decrease of 119 Company-operated and a
net decrease of 38 franchised Sizzlers in operation. During the same period, the
Company added a net of two KFC restaurants. All seven Buffalo Ranch Steakhouse
restaurants were closed in the U.S. Revenues declined domestically by $55.5
million or 45.2 percent. International revenues increased by $293,000 or 0.4
percent compared to the first twenty-four weeks of the prior year.
Earnings before interest and taxes were $1.3 million for the first twenty-four
weeks of fiscal 1997, a decrease of $818,000 or 39.4 percent compared to the
prior year. In the International operations, earnings before interest and taxes
declined $2.8 million principally due to higher food costs and general and
administrative expenses. Earnings before interest and taxes improved
domestically by $2.0 million versus the prior year, primarily due to the impact
of closing underperforming restaurants. Pretax income for the first twenty-four
weeks of fiscal 1997 decreased $0.5 million to $1.3 million or 0.8 percent of
revenues. During fiscal 1996, pretax income was $1.8 million or 0.9 percent of
revenues.
Net income for the twenty-four weeks ended October 13, 1996, was a loss of
$128,000, resulting in no earnings per share, versus net income of $604,000 or
$0.02 per share in the prior year. The average primary shares were 28,955,000
for the twenty-four weeks ended October 13, 1996, versus 27,800,000 for the same
period last year.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant revenues accounted for 55.9 percent of consolidated
revenues. Revenues of $85.2 million were $293,000 or 0.4 percent higher than
the prior year primarily due to the impact of foreign currency exchange rates
and two additional KFC restaurants. Lower sales at Company-operated Sizzlers
were offset by higher sales at franchised Sizzlers as well as the additional KFC
restaurants. Since the second quarter of fiscal 1996, International operations
added a net of seven franchised Sizzler restaurants. A total of nine franchised
restaurants were opened in Puerto Rico, Thailand, South Korea, Singapore,
Australia and Japan, while one was closed in Taiwan and one in Australia. In
addition, three Company-operated Sizzlers in Canada were closed. There were
also two KFC restaurants opened in Queensland, Australia. As of October 13,
1996, the International operation included 132 Company-operated, joint ventured,
and franchised Sizzler restaurants, 93 KFC restaurants and one The Italian Oven
restaurant.
<PAGE>
On a comparative restaurant basis, average sales in Australian dollars for
Company-operated Sizzler restaurants and customer counts decreased 13.8 percent
and 15.0 percent, respectively due to increased competition in the casual dining
market, as well as recent adverse publicity regarding salad bars in general,
that has appeared in the Australian press. The average guest check increased
1.4 percent. The KFC restaurants decreased 1.4 percent in average restaurant
sales and 4.1 percent in the average number of customers per restaurant,
reflecting increased competition in the fast food industry partially offset by
the introduction of the breakfast menu. The average customer check has
increased 2.9 percent when compared to the prior year.
The Company's international franchise revenues increased $442,000 or 23.8
percent primarily due to the store openings mentioned above offset by lower
sales in the Australian market. At October 13, 1996, there were 89
international franchised Sizzler restaurants in Australia, Japan, Taiwan,
Thailand, Korea, Singapore, Indonesia, Guatemala and two U.S. territories,
versus 82 restaurants in eight countries and two U.S. territories at October 15,
1995.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 41.8 percent of the Company's
consolidated revenues. Sales by Company-operated restaurants reflect a decrease
of $54.8 million or 46.2 percent to $63.7 million when compared to the prior
year. This decline is due to the closure of domestic restaurants in the current
fiscal year. At October 13, 1996, the number of domestic Company-operated
restaurants was 84 versus 200 restaurants at October 15, 1995.
On a comparative restaurant basis, average sales per Company-operated restaurant
decreased 14.1 percent, average customers per restaurant declined 10.7 percent
and the average customer check decreased 3.8 percent. The sales decrease
reflects, in large part, consumer uncertainty regarding the store closures.
As previously discussed, Management believes that the Company's restructuring
program and the related transactions significantly improve overall prospects to
return to profitability and growth. Restructuring will provide opportunities to
enhance the Company's cash flow by reducing the Company's cost structure,
increasing the Company's ability to focus on repositioning the Sizzler concept,
and expediting the return of domestic operations to profitability.
Sizzler restaurants operate in highly competitive markets. Domestically, the
Company's strategy is to a) continue the elimination of non-performing assets,
and b) revitalize the Company's dated facilities and upgrade restaurant
operations.
The Company is convinced that successful execution of basic restaurant
operations in each of its restaurants is critical to its ongoing success.
Accordingly, significant effort is devoted to ensuring that all restaurants
offer quality food and service. Major emphasis
<PAGE>
is placed on the proper preparation and delivery of appealing menu items to the
consumer. All operations personnel are being retrained in menu execution, guest
interaction, sanitation and restaurant management and control.
Domestically, the loss before interest and taxes improved $2.0 million compared
to the prior year. This increase primarily reflects the improvement related to
closing underperforming restaurants.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.3 percent of consolidated revenues. Compared to the
prior year, revenues decreased $776,000 or 17.8 percent while earnings before
interest and taxes increased $1.9 million due to the reduction of general and
administrative expenses. The revenue decline reflects a net reduction of 45
franchised restaurants. Management expects that strategies being tested and
implemented by the Company will also improve sales and profits for domestic
franchisees. As of October 13, 1996, the number of domestic franchised
restaurants was 222 versus 267 restaurants at October 15, 1995.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, increased less
than 0.1 percentage points from the prior year. This slight increase reflects
higher food and other costs offset by lower occupancy costs and labor and
related expenses, resulting from the closure of unprofitable restaurants in the
U.S.
Net interest expense was $484,000 in fiscal 1997 and $734,000 in 1996.
The provision for income taxes increased from $1.2 million in fiscal 1996 to
$1.4 million in fiscal 1997. Under current accounting standards, the Financial
Accounting Standards Board Statement No. 109 "Accounting for Income Taxes" the
Company may not record a tax benefit for U.S. source losses. Since the Company
is not allowed to record a tax benefit for U.S. source losses, the provision for
income taxes reflects taxes on foreign operations.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - TWELVE WEEKS
- --------------------------------------------------------
ENDED OCTOBER 13, 1996 VERSUS OCTOBER 15, 1995
- ----------------------------------------------
Total revenues were $68.0 million for the second quarter of fiscal 1997, which
represents a decrease of $34.2 million, or 33.4 percent, compared to the second
quarter of the prior fiscal year. This decrease is primarily due to the closure
of the 130 U.S. restaurants noted above. Since October 15, 1995, there has been
a net decrease of 119 Company-operated and a net decrease of 38 franchised
Sizzlers in operation. During the same period, the Company added two KFC
restaurants in Australia and closed seven Buffalo Ranch Steakhouse restaurants
in the U.S. Revenues declined domestically by $32.3
<PAGE>
million or 54.7 percent. International revenues decreased $1.9 million or 4.3
percent compared to the second quarter of the prior year.
Earnings before interest and taxes were a loss of $236,000 for the second
quarter of fiscal 1997, a decrease of $912,000 or 134.9 percent compared to the
prior year. In the International operations, earnings before interest and taxes
declined $2.1 million principally due to higher general and administrative
expenses and lower sales. The loss before interest and taxes improved
domestically by $1.2 million versus the prior year, primarily due to the impact
of closing underperforming restaurants. Pretax income for the second quarter of
fiscal 1997 decreased $596,000 to a loss of $90,000 or 0.1 percent of revenues.
During fiscal 1996, pretax income was $506,000 or 0.5 percent of revenues.
Net income for the second quarter ended October 13, 1996, was a loss of $622,000
or $0.02 per share, versus net income of $168,000 or $0.01 per share in the
prior year. The average primary shares were 29,061,000 for the second quarter
ended October 13, 1996, versus 27,803,000 for the same period last year.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant revenues accounted for 60.6 percent of consolidated
revenues. Revenues of $41.3 million were $1.9 million or 4.3 percent lower than
the prior year primarily due to lower sales at Sizzler restaurants, offset by
the impact of foreign currency exchange rates, two additional KFC units and
higher sales at the KFC and The Italian Oven restaurants. Since the second
quarter of fiscal 1996, International operations added a net of seven franchised
Sizzler restaurants. Nine franchised restaurants were opened in Puerto Rico,
Thailand, South Korea, Singapore, Australia and Japan, while one was closed in
Taiwan and one in Australia. In addition, three Company-operated Sizzlers in
Canada were closed. There were also two KFC restaurants opened in Queensland,
Australia. As of October 13, 1996, the International operation included 132
Company-operated, joint ventured, and franchised Sizzler restaurants, 93 KFC
restaurants and one The Italian Oven restaurant.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 17.2 percent and 23.5
percent, respectively due to increased competition in the casual dining market,
as well as adverse salad bar publicity in Australia. The average guest check
increased 8.3 percent. The KFC restaurants decreased 2.3 percent in average
restaurant sales and 6.2 percent in the average number of customers per
restaurant, reflecting increased competition in the fast food industry. The
average customer check has increased 4.2 percent when compared to the prior
year.
The Company's international franchise revenues decreased $266,000 or 30.3
percent due to the lower sales in the Australian market. At October 13, 1996,
there were 89 international franchised Sizzler restaurants in Australia, Japan,
Taiwan, Thailand, Korea, Singapore, Indonesia, Guatemala and two U.S.
territories, versus 82 restaurants in eight
<PAGE>
countries and two U.S. territories at October 15, 1995.
Earnings before interest and taxes were down $2.1 million or 62.4 percent from
the prior year reflecting the lower sales as well as higher insurance and
general and administrative expenses.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 36.8 percent of the Company's
consolidated revenues. Sales by Company-operated Sizzler restaurants reflect a
decrease of $32.0 million or 56.1 percent to $25.0 million when compared to the
prior year. This decline is due to the closure of domestic restaurants in the
current fiscal year. At October 13, 1996, the number of domestic Company-
operated restaurants was 84 versus 200 restaurants at October 15, 1995.
On a comparative restaurant basis, average sales per Company-operated Sizzler
restaurant decreased 14.4 percent, average customers per restaurant declined
11.5 percent and the average customer check decreased 3.2 percent. The sales
decrease reflects, in large part, consumer uncertainty regarding the store
closures.
As previously discussed, Management believes that the Company's restructuring
program and the related transactions significantly improve overall prospects to
return to profitability and growth. Restructuring will provide opportunities to
enhance the Company's cash flow by reducing the Company's cost structure,
increasing the Company's ability to focus on repositioning the Sizzler concept,
and expediting the return of domestic operations to profitability.
Sizzler restaurants operate in highly competitive markets. Domestically, the
Company's strategy is to a) continue the elimination of non-performing assets,
and b) revitalize the Company's dated facilities and upgrade restaurant
operations.
The Company is convinced that successful execution of basic restaurant
operations in each of its restaurants is critical to its ongoing success.
Accordingly, significant effort is devoted to ensuring that all restaurants
offer quality food and service. Major emphasis is placed on the proper
preparation and delivery of appealing menu items to the consumer. All
operations personnel are being retrained in menu execution, guest interaction,
sanitation and restaurant management and control.
Domestically, the loss before interest and taxes improved $1.2 million compared
to the prior year. This increase primarily reflects the impact of closing
underperforming restaurants.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.6 percent of consolidated revenues. Compared to the
prior year, revenues decreased $310,000 or 15.0 percent while earnings before
interest and taxes
<PAGE>
increased $765,000 due to the reduction of general and administrative expenses.
The revenue decline reflects a net reduction of 45 franchised restaurants.
Management expects that strategies being tested and implemented by the Company
will also improve sales and profits for domestic franchisees. As of October 13,
1996, the number of domestic franchised restaurants was 222 versus 267
restaurants at October 15, 1995.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, increased 0.6
percentage points from the prior year. This increase is largely the result of
higher food and general and administrative expense, offset by lower occupancy
costs and labor and related expenses, reflecting the closure of unprofitable
restaurants in the U.S.
Net interest expense was $91,000 in fiscal 1997 and $380,000 in fiscal 1996.
The provision for income taxes increased from $338,000 for the second quarter of
fiscal 1996 to $532,000 in fiscal 1997. Under current accounting standards (the
Financial Accounting Standards Board Statement No. 109 "Accounting for Income
Taxes"), the Company may not record a tax benefit for U.S. source losses. Since
the Company is not allowed to record a tax benefit for U.S. source losses, the
provision for income taxes reflects taxes on foreign operations.
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
The Company's principal source of working capital is cash provided by operations
which amounted to $10.7 million for the first twenty-four weeks of fiscal 1997
versus $13.8 million for the same period of the prior year. Historically, the
company has maintained a relatively low current ratio, but because of the non
payment of pre bankruptcy liabilities, the current ratio was 1.6 at October 13,
1996. The current ratio was 0.4 at April 30, 1996. The Company's working
capital has generally been in a deficit position because, like most restaurant
businesses, substantially all sales are for cash, while credit is received from
trade suppliers.
The Company began to experience liquidity problems in 1996, due primarily to
continued sales declines in the Company's U.S. restaurants and costs associated
with the development of the Sizzler American Grill repositioning, and higher net
interest payments. The Company's working capital at October 13, 1996 was $13.8
million including cash and cash equivalents of $23.5 million. At April 30, 1996
the working capital deficit was $39.7 million.
At October 13, 1996, total assets were $183.4 million, an increase of $4.8
million or 2.7 percent from April 30, 1996 due primarily to the increase in cash
and cash equivalents.
<PAGE>
Property and equipment represented approximately 69.8 percent of total assets at
October 13, 1996 and 75.7 percent at April 30, 1996.
Capital expenditures were $2.4 million for the first twenty-four weeks of fiscal
1997, including new restaurant construction of $0.3 million and replacements of
$2.1 million. The Company anticipates continuing to build its International
operations through additional investment in Company-operated restaurants, joint
ventures and the development of the franchise system. The International
franchise restaurant base has grown by seven incremental franchised Sizzler
restaurants since the second quarter of the prior fiscal year. Two KFC
restaurants were also added to International operations since the second quarter
of last year. Domestically, no new unit growth is planned in fiscal 1997.
Instead, the Company will focus on the previously mentioned revitalization
program. The Company has entered into certain commitments for capital
expenditures necessary to efficiently operate and to improve the profitability
of existing businesses.
DEBT
- ----
During fiscal 1996, the Company began to experience liquidity problems resulting
from declining restaurant sales and higher operating costs which caused the
Company to not meet the required debt coverage ratio for the fiscal quarter
ended February 4, 1996, on its revolving line of credit. At April 30, 1996, as
a result of the Company's non-compliance with its line of credit covenants, no
additional credit was available under that facility.
As a result of the Chapter 11 cases filed on June 2, 1996, and the related
restructuring strategy, the Company relies primarily on internally generated
funds, supplemented, if required, by working capital advances under a new
Debtor-in-Possession line of credit facility, totaling $15.0 million on a
revolving loan basis, and sales of company owned closed restaurants, for its
liquidity. Management believes that funds available from these sources will be
sufficient to meet the Company's working capital, debt service related to the
Debtor-in-Possession credit facility and capital expenditure requirements. At
October 13, 1996 $15.0 million of the Debtor-in-Possession credit facility was
available.
On May 10, 1996, the beneficiary of the Company's letter of credit drew down on
the available balances totaling $11.3 million. The letter of credit was issued
to provide security for future amounts payable by the Company and its
subsidiaries under its captive insurance company, CFI Insurers, Ltd.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
EXHIBIT 11 - PART I
COMPUTATION OF PER SHARE EARNINGS
The weighted average number of shares used in the
computation of net income per share is as follows:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------ ------------------------
October 13, October 15, October 13, October 15,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average of outstanding shares 29,060,972 27,775,434 28,954,549 27,775,434
Common stock equivalents 0 27,340 33 24,797
---------- ---------- ---------- ----------
Primary shares 29,060,972 27,802,774 28,954,582 27,800,231
Additional shares 52 17,656 37 11,405
---------- ---------- ---------- ----------
Fully diluted shares 29,061,024 27,820,430 28,954,619 27,811,636
========== ========== ========== ==========
Net income used to calculate primary
and fully diluted earnings per share $ (622,000) $ 168,000 $ (128,000) $ 604,000
========== ========== ========== ==========
Earnings per share $ (0.02) $ 0.01 $ 0.00 $ 0.02
========== ========== ========== ==========
</TABLE>
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description
------- -----------
3.1 Certificate of Incorporation of Registrant, incorporated herein by
reference to Exhibit 3.1 to Amendment No. 1 to Registrant's Form S-4
Registration Statement Number 33-38412.
3.2 Bylaws of Registrant, incorporated herein by reference to Exhibit
3.2 to Amendment No. 2 to the Registrant's Form S-4 Registration
Statement Number 33-38412.
3.3 Certificate of Amendment of Bylaws of Registrant dated June 19,
1991, incorporated herein by reference to Exhibit 3.3 to the
Registrant's Form 10-K report for the fiscal year ended April 30,
1995.
4.1 Rights Agreement dated January 22, 1991 between The Bank of New York
and Registrant, incorporated herein by reference to Exhibit 4.1 to
Amendment No. 1 to the Registrant's Form S-4 Registration Statement
Number 33-38412.
4.2 Amendment to Rights Agreement dated March 20, 1996 between The Bank
of New York and the Registrant, incorporated herein by reference to
Exhibit 4.2 to the Registrant's Form 10-K report for the fiscal year
ended April 30, 1996.
4.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of Registrant, incorporated herein by reference to
Exhibit 4.2 to Amendment No. 1 to Registrant's Form S-4 Registration
Statement Number 33-38412.
10.1 Corporate Management Incentive Plan--Fiscal Year 1996 of Registrant,
incorporated herein by reference to Exhibit 10.1 to Registrant's
Form 10-K report for the fiscal year ended April 30, 1996.
10.2 Employee Savings Plan of Registrant, restated as of January 1, 1992,
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Form 10-K report for the fiscal year ended April 30, 1995.
10.3 Registrant's Executive Supplemental Retirement Plan (effective May
1, 1985, and including amendments through May 1, 1993), incorporated
herein by reference to Exhibit 10.3 to Registrant's Form 10-K report
for the fiscal year ended April 30, 1996.
10.4 Employment Agreement dated October 30, 1995 between Registrant and
Timothy J. Ryan, as amended May 1, 1996, incorporated herein by
reference to Exhibit 10.4 to Registrant's Form 10-K report for the
fiscal year ended April 30, 1996.
10.5 Employment Agreement dated May 1, 1996 between Registrant and Kevin
W. Perkins, incorporated herein by reference to Exhibit 10.5 to
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.6 Employment Agreement dated May 1, 1996 between Registrant and
Christopher R. Thomas, incorporated herein by reference to Exhibit
10.6 to Registrant's Form 10-K report for the fiscal year ended
April 30, 1996.
10.7 Employment Agreement dated May 1, 1996 between Registrant and David
J. Barton, incorporated herein by reference to Exhibit 10.7 to
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.8 Employment Agreement dated May 1, 1996 between Registrant and
Elizabeth A. Payne, incorporated herein by reference to Exhibit 10.8
to Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.9 Employment Agreement dated May 1, 1996 between Registrant and Ryan
S. Tondro, incorporated herein by reference to Exhibit 10.9 to
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.10 Employment Agreement dated May 1, 1996 between Registrant and
Richard C. Kowalski, incorporated herein by reference to Exhibit
10.10 to Registrant's Form 10-K report for the fiscal year ended
April 30, 1996.
10.11 Employment Agreement dated May 1, 1996 between Registrant and
Michael J. Raedeke, incorporated herein by reference to Exhibit
10.11 to Registrant's Form 10-K report for the fiscal year ended
April 30, 1996.
10.12 Form of Executive Bonus Program of Registrant dated May 1, 1996,
incorporated herein by reference to Exhibit 10.12 to Registrant's
Form 10-K report for the fiscal year ended April 30, 1996.
10.13 Paid Leave Plan and Trust and Summary Plan Description of
Registrant, as amended as of June 30, 1994, incorporated herein by
reference to Exhibit 10.5 to the Registrant's Form 10-K report for
the fiscal year ended April 30, 1995.
10.14 1991 Employee Stock Incentive Plan of Registrant, incorporated
herein by reference to Exhibit 10.4 to Amendment No. 1 to the
Registrant's Form S-4 Registration Statement Number 33-38412.
10.15 Stock Option Plan for Non-Employee Directors of Registrant,
incorporated herein by reference to Exhibit 99.1 to Registrant's
Form S-8 Registration Statement No. 33-83410.
10.16 Current form of Franchise Agreement used by Sizzler Restaurants
International, Inc., incorporated herein by reference to Exhibit
10.5 to Registrant's Form 10-K report for the fiscal year ended
April 30, 1991.
10.17 Current form of Franchise Development Agreement used by Sizzler
Restaurants International, Inc., incorporated herein by reference to
Exhibit 10.6 to Registrant's Form 10-K report for the fiscal year
ended April 30, 1991.
10.18 Development Agreement dated October 4, 1996 between Collins Foods
International Pty., Ltd. and Kentucky Fried Chicken Pty., Ltd.
10.19 Master Franchise Agreement dated October 4, 1996 between Collins
Foods International Pty., Ltd. and Kentucky Fried Chicken Pty., Ltd.
10.20 Australian Development Agreement dated February 1, 1996 by and
between The Italian Oven, Inc. and Registrant, incorporated herein
by reference to Exhibit 10.11 to Registrant's Form 10-K report for
the fiscal year ended April 30, 1995.
10.21 Form of The Italian Oven(R) Australian Franchise Agreement,
incorporated herein by reference to Exhibit 10.12 to Registrant's
Form 10-K report for the fiscal year ended April 30, 1995.
10.22 Revolving Credit Agreement dated as of March 22, 1995 by and among
Registrant, CFI Insurers, Ltd., The Bank of New York, Bank of
America N.T. & S.A., Credit Lyonnais Cayman Island Branch, Credit
Lyonnais Los Angeles Branch, and The Industrial Bank of Japan,
Limited, incorporated herein by reference to Exhibit 10.13 to
Registrant's Form 10-K report for the fiscal year ended April 30,
1995.
10.23 First Amendment to Revolving Credit Agreement dated as of September
18, 1995 among Registrant, CFI Insurers, Ltd., The Bank of New York,
Bank of America N.T. & S.A., Credit Lyonnais Cayman Island Branch,
Credit Lyonnais Los Angeles Branch, and The Industrial Bank of
Japan, Limited, incorporated herein by reference to Exhibit 10.22 to
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.24 Standstill Agreement dated March 8, 1996 by and among Registrant,
CFI Insurers, Ltd., The Bank of New York, Bank of America N.T. &
S.A., Credit Lyonnais Cayman Island Branch, Credit Lyonnais Los
Angeles Branch, and The Industrial Bank of Japan, Limited,
incorporated herein by reference to Exhibit 10.23 to Registrant's
Form 10-K report for the fiscal year ended April 30, 1996.
10.25 Second Standstill Agreement dated April 5, 1996 by and among
Registrant, CFI Insurers, Ltd., The Bank of New York, Bank of
America N.T. & S.A., Credit Lyonnais Cayman Island Branch, Credit
Lyonnais Los Angeles Branch, and The Industrial Bank of Japan,
Limited, incorporated herein by reference to Exhibit 10.24 to
Registrant's Form 10-K report for the fiscal year ended April 30,
1996.
10.26 Loan and Security Agreement dated as of July 15, 1996 among Sizzler
Restaurants International, Inc., Collins Properties, Inc. and
Foothill Capital Corporation.
11.00 Computation of Earnings (Loss) Per Share
27.00 Financial Data Schedule
(b) Reports on Form 8-K
Registrant has not filed any Form 8-K report during the quarter for which
this form 10-Q report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIZZLER INTERNATIONAL, INC.
Registrant
Date: November 22, 1996 /s/Kevin W. Perkins
----------------------------------------
Kevin W. Perkins
Chief Executive Officer
Date: November 22, 1996 /s/Christopher R. Thomas
----------------------------------------
Christopher R. Thomas
Executive Vice President, Finance
(Principal Financial Officer)
<PAGE>
[LOGO OF KENTUCKY FRIED CHICKEN APPEARS HERE]
DEVELOPMENT AGREEMENT
BETWEEN:
KENTUCKY FRIED CHICKEN PTY. LIMITED
AND
COLLINS FOODS INTERNATIONAL
PTY. LIMITED
EXHIBIT 10.18
<PAGE>
DEVELOPMENT AGREEMENT dated 4th day of October 1996
BETWEEN: KENTUCKY FRIED CHICKEN PTY LIMITED A.C.N. 000 587 780 having its
registered office at 20 Rodborough Road, Frenchs Forest, NSW,
2086 ("PRI")
AND: COLLINS FOODS INTERNATIONAL PTY. LIMITED ARBN 009 980 250, a
Nevada corporation having its principal executive office at
12655 West Jefferson Boulevard, Los Angeles, California, 90066
and its registered Australian office at 16 Edmondstone Street,
Newmarket. Qld, 4051 ("Franchisee")
BACKGROUND FACTS
PRI and/or its Affilliated Companies have developed a unique and valuable system
for the preparation, marketing and sale of certain quality food products under
various trade marks, service marks and trade names owned by them.
PRI is entitled to franchise to third parties the right to operate the Concept
using the Marks and the System.
PRI has agreed to grant Franchisee the right, and Franchisee has agreed to
accept the obligation, to develop Outlets in the Development Area under the
terms and conditions of this Agreement.
THE PARTIES AGREE:
1. DEFINITIONS
In this Agreement unless the context requires otherwise:
"Accounting Year" means PRI's financial year, as notified to Franchisee
by PRI.
"Affiliated Companies" means any companies which are part of one or more
ownership structures ultimately controlled by a common parent
corporation or common shareholders, including any related bodies
corporate within the meaning of the Corporations Law.
"Approvals" means all approvals, authorizations, consents, permits,
exemptions, licenses and any other actions required by law or by any
person, company or governmental authority in order for Franchisee to be
able to develop and operate Outlets within the Development Area.
"Concept" means the concept specified in Schedule 1.
"Deemed Franchise Agreement" means a document in the form set out in
Schedule 4.
"Development Area" means the area specified in Schedule 1.
"Development Fee" means the fee specified in Schedule 1.
"Development Schedule" means the development obligations specified in
Schedule 2.
"Expansion/Renewal Criteria" means PRI's expansion/renewal criteria for
multi-site franchisees, as specified in Schedule 3.
<PAGE>
-2-
"Franchise Agreement" means a franchise agreement in the form set out in
Schedule 6.
"Franchise Documents" means the Franchise Agreement together with any
other documents required by PRI to be executed in connection with the
development of Outlets by Franchisee pursuant to this Agreement.
"Manuals" means the manuals, notices and correspondence published or
issued from time to time by PRI in any form, containing the Standards
and other requirements, rules, procedures and guidelines relating to the
System.
"Marks" means the trademarks, service marks and trade names owned by PRI
or its Affiliated Companies and designated by PRI from time to time for
use in the System.
"Outlet" means an outlet conforming to the Concept.
"Plans" means the final plans, drawings and specifications for the site
and building in respect of a proposed Outlet.
"System" means the system for the preparation, marketing and sale of
food products under the Marks used in operating the Concept.
"Term" means the period specified in Schedule 1, unless earlier
terminated pursuant to Clause 9.
2. DEVELOPMENT FEE AND DEVELOPMENT SCHEDULE
2.1 On or prior to the date of this Agreement, Franchisee will pay the
Development Fee to PRI.
2.2 PRI grants to Franchisee the right to develop, and Franchisee accepts
the obligation to develop, Outlets in the Development Area during
the Term in compliance with the Development Schedule.
2.3 Franchisee must at all times comply strictly with the Development
Schedule by having, as a minimum, the number of Outlets referred to in
the Development Schedule open and operating in the Development Area by
the dates referred to in the Development Schedule. The parties agree
that time is of the essence in relation to the time periods specified in
the Development Schedule.
3. BUSINESS PLAN/APPROVALS/HUMAN RESOURCES
3.1 Prior to execution of this Agreement, Franchisee must have provided PRI
with a business plan including projected profit and loss statements,
balance sheets and cash flow statements for the Term. Franchisee will
update the business plan each year and provide a copy of each update to
PRI not later than each anniversary date of this Agreement. Each
business plan will be in the format of PRI's Annual Operating Plan as
notified to Franchisee by PRI from time to time.
3.2 Franchisee will obtain and maintain all Approvals required in the
Development Area to enable Franchisee to comply with this Agreement, in
addition to all Approvals required in respect of individual Outlets.
<PAGE>
-3-
3.3 Franchisee will at all times ensure that its business is adequately
staffed with properly qualified and trained employees, including by
employing people in the key positions and in accordance with the job
descriptions, competencies and profiles referred to in the Manuals or
otherwise notified to Franchisee by PRI from time to time.
4. EXPANSION/RENEWAL CRITERIA - -
4.1 Franchisee must comply with the Expansion/Renewal Criteria each year
during the Term. PRI will review Franchisee's compliance with the
Expansion/Renewal Criteria on an annual basis.
4.2 If PRI determines after its annual review that Franchisee is not in
compliance with the Expansion/Renewal Criteria, PRI will notify
Franchisee of its non-compliance and Franchisee will have 45 days in
which to remedy such non-compliance.
4.3 At the end of the 45 day period, PRI will undertake a further review, at
Franchisee's cost, to determine whether Franchisee has remedied its
non-compliance to PRI's satisfaction.
4.4 Franchisee's ongoing development rights under this Agreement will be
suspended and Franchisee will not be entitled to enter into any new
commitments in respect of any proposed sites until PRI has undertaken
the further review pursuant to Clause 4.3 and has notified Franchisee in
writing that PRI is satisfied that Franchisee is in compliance with the
Expansion/Renewal Criteria.
4.5 Franchisee acknowledges that the 45 day cure period provided for under
this Clause applies only for the purposes of determining Franchisee's
compliance with the Expansion/Renewal Criteria and will not limit PRI's
rights or ability to act in respect of any breach of any other provision
of this Agreement or of any provision of any franchise agreement between
the parties.
5. OUTLET DEVELOPMENT PROCEDURE
5.1 Franchisee will not take any step towards developing an Outlet without
first obtaining PRI's written approval of the site for the proposed
Outlet, which approval shall be in PRI's sole discretion to grant or
withhold. The following approval procedure will apply:
(a) Franchisee will submit a written site evaluation to PRI,
including preliminary plans showing site location, dimensions,
building type and placement, proposed layout and other relevant
documents and information relating to the site as may be
required by PRI.
(b) PRI will complete its evaluation of the proposed site and notify
Franchisee of its approval or rejection of the proposed site
and, if approved, any conditions applying to the approval.
(c) Within 30 days of receipt of PRI's notice of approval of any
proposed site, Franchisee will:
(i) establish to PRI that it has the necessary freehold or
leasehold interest in the site to enable it to develop
and operate the Outlet, and in the case of a leasehold
interest, on terms and conditions approved by PRI:
(ii) submit to PRI for PRI's approval 2 copies of the
proposed Plans; and
<PAGE>
-4-
(iii) execute and deliver to PRI the Franchise Document in respect
of the proposed Outlet and pay any initial fee specified in
the Franchise Agreement.
(d) Franchisee will be responsible for ensuring, at Franchisee's cost,
that all necessary Approvals have been obtained in Franchisee's name
in respect of the Plans (including any modifications required by PRI
under paragraph (e)).
(e) PRI will notify Franchisee of any modifications to the Plans
required by PRI and Franchisee must bear all costs associated with
such modifications. Franchisee must resubmit the modified Plans to
PRI within 10 days of receipt of PRI's notice of the modifications.
5.2 As soon as practicable after receipt of PRI's final approval of the Plans,
Franchisee will commence the construction and fitting out of the Outlet at
the approved site in accordance with the Plans and with the procedures set
out in the Manuals.
5.3 Within 6 months of receipt of PRI's notice of approval of the site,
Franchisee will complete the construction and fitting out the Outlet so
that it is ready for opening and will notify PRI of its intention to open
the Outlet for business. Franchisee will not open any Outlet for business
without first allowing PRI to inspect the Outlet and obtaining PRI's
written approval to open.
5.4 The time periods set out in this Clause 5 are designed to assist
Franchisee in meeting its development obligations under this Agreement.
Franchisee acknowledges that PRI will not deviate from or undermine the
integrity of its site approval process due to time constraints caused by
Franchisee and accordingly Franchisee's failure to comply with these time
periods may result in Franchisee failing to comply with the Development
Schedule.
5.5 All costs associated with the development by Franchisee of any Outlet
pursuant to this Agreement will be borne by Franchisee.
6. FIRST RIGHT OF REFUSAL
6.1 Subject to compliance by Franchisee with its development obligations
pursuant to Clause 2.3 and with the Expansion/Renewal Criteria pursuant to
Clause 4, Franchisee will have a first right of refusal during the Term in
respect of any new Outlet within the Development Area which PRI considers
appropriate for development in addition to the Outlets in the Development
Schedule, as follows:
(a) PRI will not itself commence developing, or franchise to a third
party the right to develop, a new Outlet at any site within the
Development Area without first offering to Franchisee in writing the
right to develop the relevant Outlet under the terms of the
Franchise Documents.
(b) Franchisee will have 30 days from its receipt of the written offer
to execute and deliver to PRI the Franchise Documents in respect of
the relevant Outlet, and establish to PRI's satisfaction that
Franchisee has the necessary freehold or leasehold interest in the
site to enable it to develop and operate the Outlet, and in the case
of the leasehold interest, on terms and conditions approved by PRI.
(c) Franchisee will submit for PRI's approval 2 copies of the proposed
Plans and will follow the procedures set out in Clauses 5.1(d),
5.1(e) and 5.2.
<PAGE>
-5-
(d) Franchisee must complete the development and open the relevant
Outlet within 6 months of receipt of the written offer from PRI.
6.2 If Franchisee falls on any occasion to comply with either Clause 6.1(b) or
Clause 6.1(d) then PRI will be entitled itself or by franchise to a third
party to develop the relevant Outlet.
7. EXECUTION OF FRANCHISE AGREEMENT
7.1 Notwithstanding Clause 5.1(c)(iii) and Clause 6.1(b), PRI may elect in
respect of one or more approved sites that Franchisee execute, in lieu of
a full-form Franchise Agreement, a Deemed Franchise Agreement. If PRI
chooses to adopt this approach, it will submit to Franchisee for execution
a Deemed Franchise Agreement duly completed with the Outlet Address and
Date of Grant for the relevant site or sites.
7.2 Upon PRI executing the Deemed Franchise Agreement, a separate Franchise
Agreement will be deemed to be effected in respect of each of the sites
referred to in the Deemed Franchise Agreement, with the appropriate Outlet
Address and Date of Grant duly completed in Schedule S of the Franchise
Agreement.
8. LIMITATIONS ON DEVELOPMENT RIGHTS
8.1 Franchisee acknowledges and agrees that Franchisee's development right and
first right of refusal under Clauses 2 and 6 apply only in respect of the
Concept and only within the Development Area. Other than as set out in
Clauses 2 and 6, no exclusive territory, protection or other right in
respect of the Development Area is expressly or impliedly granted to
Franchisee. Other than as set out in Clause 2 and 6, Franchisee
acknowledges that PRI reserves the right to use, and to grant to other
parties the right to use within the Development Area:
(a) the Marks and the System in any manner and at any location through
all concepts and distribution channels (other than the Concept)
currently existing or which may be developed in the future;
(b) the Marks and the System through the Concept at Outlets already
under construction or operating at the date of this Agreement, or
Outlets developed by PRI or a third party pursuant to Clause 6.2;
and
(c) all other marks, names or systems in connection with any product or
service in any manner and at any location.
8.2 Franchisee specifically acknowledges that PRI and its Affiliated Companies
and their franchisees operate other systems and concepts for the sale of
food products and services which may be competitive with the System and
may compete directly with the System within the Development Area.
9. TERMINATION
9.1 PRI may terminate this Agreement at any time during the Term by notice to
Franchisee effective immediately upon receipt by Franchisee of the notice
if any of the following events occur:
<PAGE>
-6-
(a) Franchisee is unable to pay its debts as and when they become
due or becomes insolvent or a liquidator, receiver, manager,
administrator or trustee in bankruptcy (or local equivalent) of
Franchisee or its business is appointed, whether provisionally
or finally, or an application or order for the winding up of
Franchisee is made or Franchisee enters into any composition or
scheme of arrangement:
(b) Franchisee fails to comply with its development obligations
referred to in Clause 2.3;
(c) PRI determines that Franchisee is not in compliance with the
Expansion/Renewal Criteria following PRI's review pursuant to
Clause 4.3;
(d) PRI notifies Franchisee that Franchisee has breached any term
or condition of this Agreement (other than Clause 2.3 or Clause
4) and Franchisee does not fully cure the breach to PRI's
satisfaction within the cure period provided for in the notice;
(e) an event occurs which gives rise to a right in PRI (or its
Affiliated Company) to terminate any franchise agreement
between PRI and Franchisee (or their respective Affiliated
Companies); or
(f) any party of this Agreement is held to be void, invalid or
otherwise unenforceable.
9.2 Notwithstanding any provision to the contrary in the Franchise
Agreement, the termination by PRI of this Agreement will not of itself
give PRI the right to terminate individual Franchise Agreements in
respect of either existing Outlets which are already being operated by
Franchisee, or PRI approved sites for which Franchisee is already
unconditionally committed to acquiring a freehold or leasehold interest
at the time of termination of this Agreement.
9.3 PRI's exercise of any of its rights under this Clause 9 will be in
addition to and not in limitation of any other rights and remedies it
may have in the event of any breach or default by Franchisee.
10. GUARANTEE/ NOTICES
10.1 Upon PRI's request, Franchisee will procure the execution by guarantors
approved by PRI of a guarantee of Franchisee's obligations and
liabilities under this Agreement and all Franchise Agreements entered
into pursuant to this Agreement, in the form required by PRI.
10.2 Any notice or other communication required or permitted to be given
under this Agreement will be in writing and properly addressed to the
addressee at the address specified in this Agreement (or any other
address notified by the addressee) and will be deemed received by the
addressee on the earlier of the date of delivery, the date of
transmission if sent by facsimile with receipt confirming completion of
transmission, or, if sent by pre-paid security or registered post, the
deemed postal receipt date specified in Schedule 1.
11. MISCELLANEOUS
11.1 This Agreement (and any Confidentiality Agreement that may have been
signed by the parties) constitutes the entire agreement between the
parties with respect to its subject matter and supersedes all prior
negotiations, agreements or understandings.
<PAGE>
-7-
11.2 Franchisee is an independent contractor and is not the agent,
representative, joint venturer, partner or employee of PRI. No fiduciary
relationship exists between PRI and Franchisee.
11.3 Franchisee will not sell, transfer or gift any of its rights under this
Agreement to any other party without PRI's prior written approval, which
may be witheld in PRI's sole discretion.
11.4 This Agreement will inure to the benefit of PRI, its successors and
assigns and may be transferred by PRI to any party without the prior
approval of Franchisee,
11.5 The delay or failure of any party to exercise any right or remedy
pursuant to this Agreement will not operate as a waiver of the right or
remedy and a waiver of any particular breach will not be a waiver of
any other breach. All rights and remedies under this Agreement are
cumulative and the exercise of one right or remedy will not limit the
exercise of any other right or remedy.
11.6 If any part of this Agreement is held to be void, invalid or otherwise
unenforceable, PRI may elect either to terminate this Agreement pursuant
to Clause 8.1 or to sever the void, invalid or unenforceable part in
which event the remainder of this Agreement will continue in full force
and effect.
11.7 The terms and conditions of this Agreement may be changed only in
writing signed by both parties, provided that the Manuals may be updated
by PRI from time to time in accordance with the Franchise Agreement.
11.8 This Agreement will be governed by and construed in accordance with the
law of the territory specified in Schedule 1 and the parties agree to
submit to the non-exclusive jurisdiction of the courts of that
territory.
11.9 Franchisee will pay to PRI all reasonable legal expenses incurred by PRI
in connection with this Agreement, including, without limitation, any
stamp duty and any expenses incurred in connection with the enforcement
of this Agreement, provided that PRI is not itself in breach of any term
or condition of this Agreement at the time of enforcement.
11.10 Each party will take all such steps, execute all such documents and do
all such acts and things as may be reasonably required by the other
party to give effect to any of the transactions contemplated by this
Agreement.
11.11 This Agreement is executed in English. A local language translation may
be attached, which the parties intend to be identical to the English
text. However, if any dispute arises as to the interpretation of the
language of this Agreement, the English text shall govern unless
otherwise prohibited under the law of the territory specified in
Schedule 1.
11.12 In the interpretation of this Agreement, unless the context indicates a
contrary intention:
(a) the obligations of more than one party will be joint and
several;
(b) words denoting the singular include the plural and vice versa
and words denoting any gender include all genders;
(c) headings are for convenience only and do not affect
interpretation;
(d) references to Clauses and Schedules are to clauses and schedules
of this Agreement, and the Schedules form part of this
Agreement; and
<PAGE>
-8-
(a) this Agreement may be executed in any number of counterparts, each of
which will be deemed an original but which together will constitute
one instrument.
EXECUTED as an agreement
THE COMMON SEAL of KENTUCKY )
FRIED CHICKEN PTY LIMITED was )
affixed in the presence of: )
/s/ SIGNATURE APPEARS HERE /s/ SIGNATURE APPEARS HERE
- ---------------------------- -----------------------------
Secretary Director
THE COMMON SEAL of )
COLLINS FOODS INTERNATIONAL )
PTY, LIMITED was affixed in the )
presence of: )
/s/ SIGNATURE APPEARS HERE /s/ SIGNATURE APPEARS HERE
- ----------------------------- -----------------------------
Secretary President
In Los Angeles, California
October 4, 1996
<PAGE>
-9-
SCHEDULE 1
INFORMATION SCHEDULE
CONCEPT: KFC Restaurant Outlets, excluding delivery and
"two-in-one" outlets.
DEEMED POSTAL RECEIPT DATE: 3 days after the date of posting
DEVELOPMENT AREA: Queensland
DEVELOPMENT FEE: NIL
GOVERNING LAW: New South Wales
TERM: 10 years commencing on the date of execution
of this Agreement
<PAGE>
-10-
SCHEDULE 2
DEVELOPMENT SCHEDULE
<TABLE>
<CAPTION>
DATE MINIMUM NO. OF OUTLETS
- ---- ----------------------
TO BE DEVELOPED AND OPENED
--------------------------
<S> <C>
On or before:
Last day of Period 13 in PRI's 1997 Accounting Year 4
Last day of Period 13 in PRI's 1998 Accounting Year 4
Last day of Period 13 in PRI's 1999 Accounting Year 4
Last day of Period 13 in PRI's 2000 Accounting Year 4
Last day of Period 13 in PRI's 2001 Accounting Year 4
Last day of Period 13 in PRI's 2002 Accounting Year 3
Last day of Period 13 in PRI's 2003 Accounting Year 3
Last day of Period 13 in PRI's 2004 Accounting Year 3
Last day of Period 13 in PRI's 2005 Accounting Year 3
Tenth anniversary of date of execution of this
Agreement 3
</TABLE>
<PAGE>
-11-
SCHEDULE 3
EXPANSION/RENEWAL CRITERIA
(A) Outlets fitted with current signage and equipment standards
(B) STAR 2000, or PRI's then current training programs, or alternative training
programs used by Collins Foods with PRI's approval, in use in all Outlets
(C) All Outlet Managers and Area Managers trained and certified under current
management training programs
(D) Approved field management structure in place
(E) Franchisee in compliance with all Franchise Agreements, including all fees
and payments up to date
(F) Same store PRA sales growth year-on-year equal to or better than average
PRA sales growth year-on-year across the KFC system in Austria
(G) Rolling 6 month average CHAMPS (or score under PRI's then current
equivalent system) across all Outlets equal to or better than rolling 6
month average score across KFC system in Australia
(H) Franchisee has management and financial capacity to expand its network of
Outlets
(I) Ongoing participation in PRI's consumer P & L tracking programs, including
(without limitation) brand tracking research, customer experience
monitoring and CHAMPS checks.
<PAGE>
-12-
SCHEDULE 4
DEEMED FRANCHISE AGREEMENT
As referenced in the Development Agreement dated _____________ between the
parties ("Development Agreement")
Upon PRI executing this document, a separate Franchise Agreement (as defined in
the Development Agreement) will be deemed to be effected in respect of each of
the following outlets. The relevant Outlet Address and Date of Grant set out
below will be deemed to be included in Schedule B of such Franchise Agreement.
Outlet Address Date of Grant
-------------- -------------
THE COMMON SEAL of )
KENTUCKY FRIED CHICKEN )
PTY LIMITED was affixed in )
the presence of: )
- --------------------------- ---------------------------
Director Director/Secretary
THE COMMON SEAL of )
COLLINS FOODS )
INTERNATIONAL PTY, LTD )
was affixed in the presence of: )
- --------------------------- ---------------------------
Director Director/Secretary
Date:
<PAGE>
-13-
SCHEDULE 5
ADDITIONAL PROVISIONS OF DEVELOPMENT AGREEMENT
(A) The definition of "Franchise Agreement" is amended to read as follows:
"Franchise Agreement" means:
(a) during the first 6 years of the Term: a franchise agreement in
the form set out in Schedule 6; and
(b) during the last 5 years of the Term: a franchise agreement in
the then current form used by PRI as at the fifth anniversary
of the date of execution of this Agreement, including (without
limitation) PRI's then current fees."
(B) Clause 2.3 is amended to read as follows:
"Franchisee must at all times comply strictly with the Development
Schedule by developing, opening and operating, as a minimum, the number
of new Outlets referred to in the Development Schedule in the
Development Area by the dates referred to in the Development Schedule.
The parties agree that time is of the essence in relation to the time
periods specified in the Development Schedule, except in the event of
war, civil commotion, fire, flood, earthquake, act of God or any other
cause beyond Franchisee's reasonable control.
(C) A new Clause 2.4 is added as follows:
"2.4 Franchisee's closure from time to time of any operating Outlet
in the Development Area, if such closure is approved by PRI,
will not entitle PRI to correspondingly increase the number of
Outlets referred to in the Development Schedule in the relevant
year."
(D) Clause 4.1 will be effective as from 1 December, 1997.
(E) Clause 5.1(b) is amended by the addition of the words "Within 30 days of
receipt of the written site evaluation" at the beginning of the Clause.
(F) In Clause 5.1(c), the period of 30 days is varied to 45 days.
(G) In Clause 5.1(e) the period of 10 days is varied to 30 days.
(H) Clause 5.3 is amended by changing the period of 6 months to 9 months and
including a further sentence at the end of the clause as follows:
"PRI will be deemed to have approved the opening of the Outlet if PRI
has not inspected the Outlet and disapproved its opening within 21 days
of PRI's CFO actually receiving Franchisee's notice of its intention to
open the Outlet. The deemed receipt provisions of Clause 10 will not
apply in respect of such notice to PRI's CFO."
(I) In Clause 6.1(b), the period of 30 days is varied to 45 days.
(J) In clause 6.1(d) the period of 6 months is varied to 9 months.
(K) Clause 9.1(c) will be effective as from 1 December, 1997.
<PAGE>
-14-
(L) A new Clause 9.4 is added as follows:
"9.4 Franchisee may terminate this Agreement at any time and for any
reason during the Term effective upon 3 months notice to PRI."
(M) Clause 10.1 is deleted.
(N) Clause 11.1 is amended to read as follows:
"This Agreement and the Master Franchise Agreement executed by the
parties contemporaneously with this Agreement constitute the entire
agreement between the parties with respect to their subject matter and
supersede all prior negotiations, agreements or understandings."
(O) Clause 11.3 is amended to read as follows:
"(a) Franchisee will not sell, transfer or gift any of its rights
under this Agreement to any other party without PRI's prior
written approval, which may be withheld in PRI's sole
discretion.
(b) In the event of an approved transfer by Franchisee of all KFC
outlets then operated by Franchisee to a single transferee in a
single transaction, Franchisee may transfer this Agreement,
subject to compliance by Franchisee with, and PRI granting
approval pursuant to, the transfer provisions of the Franchise
Agreement".
(P) Clause 11.9 will be amended by deletion of the words "and any expenses
incurred in connection with the enforcement of this Agreement, provided
that PRI is not itself in breach of any term or condition of this
Agreement at the time of enforcement."
<PAGE>
-15-
SCHEDULE 6
FRANCHISE AGREEMENT
See attached
<PAGE>
[LOGO OF KENTUCKY FRIED CHICKEN APPEARS HERE]
FRANCHISE AGREEMENT
BETWEEN:
KENTUCKY FRIED CHICKEN PTY. LIMITED
AND
COLLINS FOODS INTERNATIONAL
PTY. LIMITED
<PAGE>
AGREEMENT dated day of 1996
BETWEEN: KENTUCKY FRIED CHICKEN PTY LIMITED, A.C.N. 000 587 780 having
its registered office at 20 Rodborough Road, Frenchs Forest,
NSW, 2086 ("PRI")
AND: COLLINS FOODS INTERNATIONAL PTY. LIMITED, ARBN 009 980 250, a
Nevada corporation having its principal executive office at
12655 West Jefferson Boulevard, Los Angeles, California, 90066
and its registered Australian office at 16 Edmondstone Street,
Newmarket, Queensland, 4051 ("Franchisee")
BACKGROUND FACTS
PRI and/or its Affiliated Companies have developed a unique and valuable system
for the preparation, marketing and sale of certain quality food products under
various trade marks, service marks and trade names owned by them.
The System is a comprehensive restaurant system for the retailing of a limited
menu of uniform and quality food products, emphasising prompt and courteous
service in a clean and wholesome atmosphere which is intended to be particularly
attractive to families. The foundation and essence of the System is the
adherence by franchisees to standards and policies providing for the uniform
operation of all restaurants within the System including, but not limited to,
serving designated food and beverage products: the use of only prescribed
equipment and building layout and designs; and strict adherence to designated
food and beverage specifications and to prescribed standards of quality, service
and cleanliness in restaurant operations. Compliance by franchisees with the
foregoing standards and policies in conjunction with the trademarks, service
marks and trade names provides the basis for the valuable goodwill and wide
acceptance of the System. Moreover the establishment and maintenance of a close
personal working relationship with Franchisee in the conduct of the Business,
Franchisee's accountability for performance of the obligations contained in this
agreement, and Franchisee's adherence to the tenets of the System constitute the
essence of the license provided for herein.
PRI is entitled to grant to third parties, and has agreed to grant to
Franchisee, the right to use the System, the System Property and the Marks on
the terms and conditions of this Agreement.
In this Agreement, capitalized terms have the meanings specified in Schedule A.
THE PARTIES AGREE:
1. GRANT OF FRANCHISE
1.1 PRI grants to Franchisee the right to use the System, the System
Property and the Marks for the Term solely in connection with the
conduct of the Business at the Outlet and subject to the terms and
conditions of this Agreement.
1.2 At all times during the Term, Franchisee will use its best endeavours to
develop the Business and to increase the Revenues.
1.3 Franchisee will not, without PRI's prior written approval:
(a) conduct all or any part of the Business at any location other
than the Outlet; or
<PAGE>
-2-
(b) sub-license to any other party the right to use the System, the
System Property or the Marks.
1.4 No exclusive territory, protection or other right in the contiguous space,
area or market of the Outlet is expressly or impliedly granted to
Franchisee. PRI reserves the right to use, and to grant to other parties
the right to use, the Marks, the System and the System Property or any
other marks, names or systems in connection with any product or service
(including, without limitation, the Approved Products) at any location
other than the Outlet through any outlet, food service concept or
distribution channel. Franchisee acknowledges that as at the Date of
Grant, PRI and its Affiliated Companies and franchisees operate outlets
conforming to the Concept and also operate other systems for the sale of
food products and services which are competitive with the System and may
compete directly with the Business.
2. INITIAL FEE AND CONTINUING FEE
2.1 On or before the Date of Grant, Franchisee will pay the initial fee
specified in Schedule B to PRI.
2.2 On or before each Due Date, Franchisee will pay the Continuing Fee to PRI.
Each payment of the Continuing Fee will be accompanied by a statement of
the Revenue for the relevant Accounting Period, in the form required by
PRI from time to time.
2.3 Franchise's payments pursuant to this Agreement are in consideration
solely for the grant of rights in Clause 1.1 and not for PRI's performance
of any specific obligations or services.
3. MANUALS AND STANDARDS
3.1 At all times during the Term, Franchisee must comply with all of the
Standards and the Manuals and all applicable laws, regulations, rules, by-
laws, orders and ordinances in its conduct of the Business. The Manuals
are incorporated by reference into this Agreement.
3.2 PRI may, by notice to Franchisee, at any time change any of the Standards
or Manuals or introduce new Standards or Manuals. Franchisee acknowledges
and agrees that such changes or introductions will bind Franchisee upon
receipt as provided in Clause 20 and Franchisee will implement such
changes or introductions within the period specified in the notice.
3.3 In order to determine Franchisee's compliance with the Manuals and the
terms and conditions of this Agreement. PRI and its agents or
representative will have the right at all times during opening hours to
enter and inspect the Outlet without prior notice to Franchisee.
4. UPGRADES
PRI may, by notice to Franchisee, at any time require Franchisee to
upgrade or renovate all or part of the Outlet or its equipment, systems or
inventory to ensure compliance with the Standards, and Franchisee
acknowledges and agrees that such upgrades or renovations may require
significant capital expenditures and/or ongoing financial commitments.
Franchisee will implement any upgrade or renovation required by PRI within
the period specified in the notice.
<PAGE>
-3-
5. APPROVED PRODUCTS AND SUPPLIES
5.1 Franchisee will not prepare, market or sell at the Outlet any product or
service other than the Approved Products without PRI's prior written
approval. PRI will from time to time notify Franchisee of the Approved
Products and will specify those of the Approved Products which must be
offered for sale at the Outlet at all times.
5.2 PRI may, by notice to Franchisee, at any time change or withdraw any
Approved Product or add new Approved Products. Franchisee will
implement such changes, withdrawals and additions within the period
specified in the notice.
5.3 Franchisee will purchase the supplies, materials, equipment and services
used in the Business from suppliers who have been approved in writing by
PRI prior to the time of supply in accordance with the approval
procedures in the Manuals. Franchisee will not have any claim or action
against PRI in connection with any approved supplier's non-delivery,
delayed or non-conforming delivery.
6. ADVERTISING
6.1 Franchisee will spend, in the manner directed by PRI in writing from
time to time, an amount not less than the Advertising Contribution on
advertising and promoting the products and services of the Business and
the System. Without limitation, PRI may at any time during the Term
direct Franchisee:
(a) to pay all or part of the Advertising Contribution to PRI, in
which event PRI will apply the Advertising Contribution to the
costs of national and regional advertising and promotions
conducted by PRI in its discretion, provided that PRI will not
have any obligation to apply the Advertising Contribution for
the specific benefit of Franchisee or the Business and no
express or implied trust will be created in respect of the
Advertising Contribution;
(b) to pay all or part of the Advertising Contribution to a national
or regional co-operative advertising fund specified by PRI; or
(c) to spend all or part of the Advertising Contribution on local or
regional advertising and promotions, provided that if Franchisee
fails to spend the full amount directed by PRI, Franchisee will
pay the unspent amount to PRI within the period specified in a
written demand from PRI.
6.2 Franchisee will participate in such national and regional advertising
and promotions as PRI from time to time requires and Franchisee will not
have any claim or action against PRI in connection with the level of
success of any such advertising or promotion.
6.3 Franchisee will not execute or conduct any local or regional advertising
or promotion without PRI's prior written approval.
7. TRAINING
PRI will provide and Franchisee and Franchisee's employees will
undertake such initial and ongoing training and assistance as PRI in its
discretion considers appropriate. Franchisee will bear the full cost of
attendance at training programs. Franchisee will ensure that all store
<PAGE>
-4-
managers operating the Outlet have been certified by PRI as having
successfully completed PRI's current training programs from time to
time.
8. MARKS AND SYSTEM PROPERTY
8.1 The Marks, the System Property and the goodwill associated with them are
the exclusive property of PRI and/or its Affiliated Companies.
Franchisee will acquire no right, interest or benefit in or to them
other than the rights of use granted under this Agreement. All
accretions in the goodwill associated with the Marks and the System
Property resulting from Franchisee's use thereof are solely for the
benefit of PRI and its Affiliated Companies.
8.2 Franchisee will use the Marks only in such form and manner as is
specifically approved by PRI and Franchisee will follow PRI's
instructions regarding proper usage of the Marks in all respects. PRI
may, by notice to Franchisee, at any time change or withdraw any of the
Marks or designate new Marks and Franchisee will implement such changes,
withdrawals and additions within the period specified in the notice.
8.3 Franchisee will not use in the operation of the Business any trademarks,
service marks, trade names or indicia other than the Marks without PRI's
prior written approval. Franchisee will not use, register or apply to
register any trademarks, trade names or indicia similar to the Marks or
that in any way suggest an association or affiliation with the System.
8.4 Franchisee will do nothing to prejudice, damage or contest the validity
of the Marks, the System Property, the goodwill associated with them or
the ownership of them by PRI or its Affiliated Companies. Franchisee
will cooperate fully with PRI in the protection and defence of the Marks
and the System Property, which will be undertaken solely by PRI.
Franchisee will promptly notify PRI of any actual or potential
infringements of, or claims or actions brought by third parties in
respect of, the Marks or the System Property.
8.5 Any improvements to, and inventions and products derived from the Marks
the System Property or the Business during the Term, including those
attributable to Franchisee, will be the exclusive property of PRI or its
Affiliated Companies and will be promptly disclosed by Franchisee to
PRI. Franchisee hereby assigns to PRI all present and future right,
title and interest throughout the world in and to any such improvements,
inventions and products. Franchisee will take all actions and execute
all documents required by PRI for this purpose.
8.6 Franchisee agrees to join with PRI in any application to enter
Franchisee as a registered or permitted user of the Marks with any
governmental entity and Franchisee acknowledges that upon termination or
expiration of this Agreement, PRI may automatically cancel such entry.
9. CONFIDENTIALITY
9.1 Franchisee will at all times during and after the Term keep confidential
and not disclose to any person, other than with PRI's prior written
approval or to Franchisee's employees for the purposes of the Business,
the Manuals, all other materials containing or referring to the System
Property and all other information concerning PRI's business and affairs
which may come to Franchisee during the Term. Franchisee will ensure
that Franchisee's employees retain the Manuals and other materials and
information in confidence. This obligation of confidentiality does not
apply in respect of information in the public domain or previously known
to Franchisee otherwise than by breach of any obligation of
confidentiality, or disclosure required by law or an order of any court
or tribunal.
<PAGE>
- 5 -
9.2 Franchisee will not reproduce or part with possession of the Manuals or
other materials containing or referring to the System Property without
PRI's prior written approval and will return all copies of the Manuals and
other materials to PRI immediately upon the expiration or termination of
this Agreement or upon PRI's request.
10. ACCOUNTING RECORDS - -
10.1 Franchisee will establish and maintain an accounting system incorporating
methods, procedures, records and equipment satisfactory to PRI and in
compliance with the Manuals.
10.2 Franchisee will retain all records relating to the Business for the period
required by the tax authorities and PRI and its agents or representatives
will have the right at any reasonable time to inspect and audit the records
wherever they are located. Franchisee will fully cooperate and will
instruct its employees, agents or representatives to fully cooperate with
PRI and its agents or representatives during such inspections and audits.
If any inspection or audit discloses a deficiency in Franchisee's payment
of any amount payable or required to be spent by Franchisee pursuant to
this Agreement, Franchisee will immediately pay to PRI the deficiency plus
late payment interest pursuant to Clause 11.2. If the deficiency is equal
to or greater than 2% of the correct amount, Franchisee will also
immediately pay to PRI all of the costs incurred by PRI in the inspection
or audit.
11. PAYMENTS BY FRANCHISEE
11.1 Franchisee will pay all amounts due to PRI pursuant to this Agreement:
(a) in the currency specified in Schedule B or such other currency as
PRI notifies Franchisee from time to time, using, where applicable,
the exchange rate for conversion to the specified currency which is
posted on the day before the due date for payment by such bank as
is specified by PRI from time to time;
(b) into the bank account specified in Schedule B or in such other
manner as PRI notifies Franchisee from time to time; and
(c) without any deduction or set-off and free of any taxes, deductions
or withholdings other than as required by law. To the extent that a
deduction or withholding is required to be made by law, Franchise
will pay such increased amount as will, after deduction or
withholding, result in the receipt by PRI of the same amounts as
would have been received had no such deduction or withholding been
made.
11.2 Any amount not paid by Franchisee to PRI when due will bear late payment
interest calculated on a daily basis from the due date at the rate
specified in Schedule B. This interest will continue to apply after any
judgment.
11.3 Franchisee will pay promptly when due all taxes, duties, charges and levies
payable in respect of the Business and all debts and other financial
obligations incurred in the operation of the Business, including, without
limitation, all obligations to suppliers. If applicable, Franchisee will
observe, perform and comply with all obligations and covenants to the
lessor of the Outlet's premises.
<PAGE>
-6-
12. INSURANCE, INDEMNITY AND GUARANTEE
12.1 At all times during the Term, Franchisee will at its cost maintain the
Insurances prescribed in the Manuals. PRI must be named as an additional
insured party on the policies of Insurance. Franchisee will on demand
deliver to PRI certificates of insurance and will not commit any act or
omission which may render the insurances void or voidable.
12.2 Franchisee indemnifies and will keep indemnified PRI, its Affiliated
Companies and their agents, employees, directors, successors and assigns
from and against any and all claims, liabilities, losses, costs and
damages (including legal costs and expenses) arising directly or
indirectly in connection with or related to Franchisee's conduct of the
Business. PRI's exercise of any right pursuant to this Agreement,
including, without limitation, any exercise of the power of attorney
granted pursuant to Clause 15.4, or any act or omission by any agent,
representative, contractor, licensee or invitee of Franchisee.
12.3 As a precondition to the grant of rights pursuant to Clause 1.1,
Franchisee will procure the execution by the guarantors specified in
Schedule B (and such other guarantors as PRI requires in connection with
any approved transfer of any interest or share in Franchisee) of a
guarantee of Franchisee's obligations and liabilities under this
Agreement. In the form required by PRI and including such covenants by
the guarantors regarding the terms and conditions of this Agreement as
PRI may require.
13. PROTECTION OF SYSTEM PROPERTY AND GOODWILL OF SYSTEM
Franchisee covenants that neither Franchisee nor any affiliated Company
of Franchisee will directly or indirectly in any capacity, whether on its
own account or as a member, shareholder, director, employee, agent,
partner, joint venturer, advisor, consultant, lender or lessor, have any
interest in, be engaged in or perform any services for:
(a) during the Term, any business within the In-Term area specified in
Schedule B involving the wholesale or retail preparation, marketing
or sale of any food products without PRI's prior written approval,
provided that such approval will not be unreasonably withheld by PRI
if the business does not predominantly involve the preparation,
marketing or sale of pizza and pasta (collectively), chicken,
Mexican or burger products; and
(b) for 12 months following the expiration, termination or transfer of
this Agreement, any business within the post-Term area specified in
Schedule B involving the preparation, marketing or sale of products
similar to the Approved Products.
14. TRANSFERS AND CHARGES
14.1 Franchisee will not charge, pledge or otherwise encumber any interest in
or right under this Agreement. Franchisee will not charge, pledge or
otherwise encumber any interest in or asset of the Business without
giving PRI prior notice.
14.2 Franchisee will not sell, transfer or gift this Agreement or any interest
in this Agreement without first obtaining PRI's prior written approval of
the proposed transferees and then complying with all of PRI's transfer
procedures specified in the Manuals, including, without limitation,
paying to PRI the transfer fee specified in Schedule B and the costs and
expenses incurred by PRI in connection with the transfer.
<PAGE>
-7-
14.3 Franchisee will not, without PRI's prior written approval, permit any
sale, transfer or gift of any interest or share in Franchisee, issue any
new share in Franchisee to any party who is not a shareholder at the Date
of Grant or permit any reconstruction, amalgamation or other material
change in the structure or financial condition of Franchise.
14.4 If Franchisee proposes any sale or transfer of this agreement or any
interest in this Agreement, Franchisee will notify PRI of the agreed terms
and conditions and PRI will have the right itself to elect to proceed with
the sale or transfer on substantially the same terms and conditions within
60 days of receipt of Franchisee's notice. If PRI does not so proceed,
Franchisee will submit the proposed transferee for PRI's approval pursuant
to Clause 14.2.
15. DEFAULT AND TERMINATION
15.1 PRI may terminate this Agreement by notice to Franchisee effective upon
receipt by Franchisee of the notice, and/or adopt any of the remedies
specified in Clause 15.2, if any of the following events occur:
(a) Franchisee is unable to pay any of its debts when they become due or
becomes insolvent or a liquidator, receiver, manager, administrator
or trustee in bankruptcy (or local equivalent) of the Franchisee or
the Business is appointed, whether provisionally or finally, or an
application or order for the winding up of Franchisee is made or
Franchisee enters into any composition or scheme of arrangement;
(b) Franchisee breaches any of the terms and conditions of Clause 1.3,
5.1, 8, 9, 13 and 14;
(c) Franchisee commits any crime, offence or act which in PRI's
reasonable judgment is likely to adversely affect the goodwill of
the Business, the Marks, the System or the System Property;
(d) Franchisee knowingly or negligently maintains false records in
respect of the Business or submits any false report to PRI;
(e) Franchisee abandons or ceases to operate the Business for more than 3
consecutive days without PRI's prior written approval provided that
such approval will not be unreasonably withheld by PRI where the
abandonment or cessation is caused by war, civil commotion, fire,
flood, earthquake, act of God or any other cause beyond Franchisee's
reasonable control;
(f) any other agreement between PRI and Franchisee (or their respective
Affiliated Companies) is terminated;
(g) any part of this Agreement, or the guarantee referred to in Clause
12.3, is held to be void, invalid or otherwise unenforcable pursuant
to Clause 21.5;
(h) PRI notifies Franchisee that Franchisee has breached any term or
condition of this Agreement (other than Clause 1.3, 5.1, 8, 9, 13 and
14) or any other agreement between PRI and Franchisee (or their
respective Affiliated Companies) relating to the Business and
Franchisee does not fully cure the Breach to PRI's satisfaction
within the cure period provided for in the notice; or
<PAGE>
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(l) Franchisee breaches any term or condition of this Agreement (other
than Clauses 1.3, 5.1, 8, 9, 13 and 14) or any other agreement
between PRI and Franchisee (or their respective Affiliated Companies)
relating to the Business in circumstances where, in the preceding 24-
month period, Franchisee has been sent 2 notices pursuant to Clause
15.1 (h), whether or not Franchisee cured the prior breaches to PRI's
satisfaction.
15.2 If any of the events specified in Clause 15.1 occur, PRI may, in addition
and without prejudice to its rights under Clause 15.1:
(a) terminate, by notice to Franchisee, Franchisee's right under Clause
18 to renew the franchise hereby granted;
(b) terminate any development or option rights in respect of any system
or concept granted to Franchisee pursuant to any other agreement
between Franchisee and PRI (or their respective Affiliated
Companies);
(c) itself take whatever actions it considers necessary to cure the
breach at Franchisee's cost (including, without limitation,
administrative costs), such cost to be payable by Franchisee within
the period specified in a written demand from PRI;
(d) limit or withhold the supply of any products, supplies, materials,
equipment or services supplied to Franchisee by PRI or its
Affiliated Companies; or
(e) In the event that PRI has issued a notice pursuant to Clause 15.1(h)
in respect of a breach of Clause 3.1 and Franchisee has not fully
cured the breach to PRI's satisfaction within the cure period
provided for in the notice, PRI may take control of the Business for
a period of up to 30 days, for the purpose of rectifying the breach
and retraining Franchisee and Franchisee's employees at Franchisee's
cost, such cost to be payable by Franchisee within the period
specified in a written demand from PRI. During this period,
Franchisee and its employees must continue to attend the Outlet to
perform their responsibilities in the conduct of the Business, but
subject to the directions of PRI. Any obligations, liabilities or
costs incurred in respect of the Business during this period will be
Franchisee's responsibility and the indemnity in Clause 12.2 will
apply.
15.3 PRI's exercise of any of its rights under this Clause 15 will be in
addition to and not in limitation of any other rights and remedies it may
have in the event of any breach or default by Franchisee.
15.4 In the event of the expiration or termination of this Agreement, Franchisee
appoints PRI to be Franchisee's attorney with power to do in the name of
Franchisee and on Franchisee's behalf all acts and things necessary to
effect Franchisee's compliance with its obligations under this Agreement,
including, without limitation, executing documents. Franchisee agrees that
Franchisee will be bound by and will ratify all acts and things done by PRI
pursuant to this power of attorney.
16. CONSEQUENCES OF TERMINATION
16.1 Immediately upon the expiration or termination of this Agreement,
Franchisee will:
(a) pay all amounts owing to PRI;
<PAGE>
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(b) discontinue all use of the Marks and the System Property and
otherwise cease holding out any affiliation or association with PRI
or the System unless authorized pursuant to any other written
agreement with PRI;
(c) dispose of all materials bearing the Marks and all supplies in
accordance with PRI's instructions; and
(d) if PRI so requires, restore or de-identify the Outlet in accordance
with PRI's instructions.
16.2 If Franchisee fails to fulfill any of its obligations under Clause 16.1,
PRI may itself take whatever actions it considers necessary to fulfill
those obligations and invoice Franchisee for the full cost of such
actions, such invoice to be payable within 7 days.
16.3 For 60 days from the termination of this Agreement, PRI will have the
option to purchase, or to nominate a third party purchaser of, any of the
supplies held by Franchisee at cost price and any of the equipment or
signage at the Outlet at a price equal to book value less depreciation or
as otherwise agreed, and free of any charges or other security interests.
16.4 The rights and obligations under Clauses 8, 9, 10, 11, 12.2, 13(b),
15.2(c), 15.2(e), 16 will survive the expiration or termination of this
Agreement.
17. RIGHTS OF ENTRY
17.1 Notwithstanding Clause 3.3, Franchisee expressly authorizes PRI and its
agents or representatives to enter the Outlet, without prior notice to
Franchisees, for the purposes of Clauses 15.2(c), 15.2(e) and 16.2.
Franchisee hereby waives, and releases PRI from, any rights, actions or
claims which Franchisee may at any time have against PRI in connection
with PRI's entry into the Outlet.
17.2 Franchisee will execute any documents required by PRI in connection with
PRI's entry into the Outlet and use its best endeavours to procure any
consent required from any third party in connection with PRI's entry into
the Outlet.
18. RENEWAL
Upon the expiration of the Term, PRI will renew the franchise for the
renewal term specified in Schedule B if the following conditions are
satisfied:
(a) Franchisee requests the renewal in writing no more than 18 months
and no less than 12 months prior to the expiration of the Term;
(b) Franchisee's right to renew the franchise has not been terminated
under Clause 15.2(a) prior to the expiration of the Term;
(c) Franchisee is not at the expiration of the Term in breach of any
term or condition of this Agreement or any other agreement between
PRI and Franchisee (or their respective Affiliated Companies);
(d) Franchisee upgrades the Outlet to PRI's then current Standards for
new outlets prior to the expiration of the Term;
<PAGE>
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(e) Franchisee executes PRI's then current Franchise Agreement for new
franchisees, incorporating the then current continuing fees,
advertising contributions and other financial obligations but
excluding any further renewal, together with any other documents
required by PRI to be executed by Franchisee or such guarantors as
PRI requires; and
(f) Franchisee pays the renewal fee specified in Schedule B to PRI at
least 90 days prior to the expiration of the Term.
19. DISPUTE RESOLUTION
19.1 PRI and Franchisee will endeavour to resolve by mutual negotiation any
dispute arising between them in connection with this Agreement.
19.2 If PRI and Franchisee fail to resolve any dispute by mutual negotiation,
the parties may refer the dispute to a mutually agreed mediator for non-
binding mediation. The parties will bear the costs of any mediation
equally.
19.3 Such dispute resolution procedures will not in any way prejudice or limit
PRI's ability to exercise its rights under Clause 15 at any time.
20. NOTICES
Any notice or other communication required under this Agreement will be
in writing and properly addressed to the addressee at the address
specified in this Agreement (or any other address notified by the
addressee) and will be deemed received by the addressee on the earlier of
the date of delivery, the date of transmission if sent by facsimile with
receipt confirming completion of transmission or, if sent by pre-paid
security or registered post, the deemed postal receipt date specified in
Schedule B.
21. MISCELLANEOUS
21.1 This Agreement constitutes the entire agreement between the parties with
respect to its subject matter and supersedes all prior negotiations,
agreements or understandings.
21.2 Franchisee is an independent contractor and is not an agent,
representative, joint venturer, partner or employee of PRI. No fiduciary
relationship exists between PRI and Franchisee.
21.3 This Agreement will inure to the benefit of PRI, its successors and
assigns and may be transferred by PRI to any party without Franchisee's
prior approval.
21.4 The delay or failure of any party to exercise any right or remedy
pursuant to this Agreement will not operate as a waiver of the right or
remedy and a waiver of any particular breach will not be a waiver of any
other breach. All rights and remedies under this Agreement are cumulative
and the exercise of one right or remedy will not limit the exercise of
any other right or remedy.
21.5 If any part of this Agreement is held to be void, invalid or otherwise
unenforceable, PRI may elect either to terminate this Agreement pursuant
to Clause 15.1 or to sever the void, invalid or unenforceable part. In
which event the remainder of this Agreement will continue in full force
and effect.
<PAGE>
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21.6 The terms and conditions of this Agreement may be changed only in writing
signed by both parties, provided that the Standards and the Manuals may be
changed by the PRI from time to time pursuant to Clause 3.2.
21.7 This Agreement will be governed by and construed in accordance with the
law of the territory specified in Schedule B and the parties agree to
submit to the non-exclusive jurisdiction of the courts of that territory.
21.8 Franchisee will pay to PRI all reasonable legal expenses incurred by PRI
in connection with this Agreement, including, without limitation, any
stamp duty and any expenses incurred in connection with the enforcement of
this Agreement.
21.9 This Agreement is executed in English. A local language translation may be
attached, which the parties intend to be identical to the English text.
However, if any dispute arises as to the interpretation of the language of
this Agreement, the English text shall govern.
21.10 In the interpretation of this Agreement, unless the context indicates a
contrary intention:
(a) the obligations of more than one party will be joint and several;
(b) words denoting the singular include the plural and vice versa and
words denoting any gender include all genders;
(c) headings are for convenience only and do not affect interpretation;
(d) references to Clauses and Schedules are to clauses and schedules of
this Agreement; and the Schedule form part of this Agreement; and
(e) this Agreement may be executed in any number of counterparts, each
of which will be deemed an original but which together will
constitute one instrument.
-------------------------------------------------------------------
FRANCHISEE'S REPRESENTATION
Franchisee represents to PRI that:
(a) Franchisee has reviewed the Agreement with the assistance of
independent legal counsel and understands and accepts the
terms and conditions of this Agreement;
(b) Franchisee has relied upon its own investigations and
judgement in entering this Agreement and no inducements,
representations or warranties have been given in respect
of the Business or this Agreement; and
(c) Franchisee acknowledges that establishment and operation of
the Business will involve significant financial risks that
the success of the Business will depend upon the skills and
financial capacity of Franchisee and also upon changing
economic and market conditions.
-------------------------------------------------------------------
<PAGE>
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EXECUTED as an agreement
THE COMMON SEAL of )
KENTUCKY FRIED CHICKEN )
PTY LIMITED was affixed in the )
a presence of: )
- --------------------------------- ----------------------------------
Director/Secretary Director
THE COMMON SEAL of )
COLLINS FOODS INTERNATIONAL )
PTY LIMITED was affixed in the )
presence of: )
- --------------------------------- ----------------------------------
Director/Secretary Director
<PAGE>
SCHEDULE A -- DEFINITIONS
Accounting Period means any one of the periods making up PRI's financial year.
Advertising Contribution means the percentage of Revenues specified in
Schedule B.
Affiliated Companies means any companies which are part of one or more ownership
structures ultimately controlled by a common parent corporation or common
shareholder, including any related bodies corporate within the meaning of the
Corporations Law.
Approved Products means the products from time to time approved by PRI for sale
in the Business.
Business means the business of preparing, marketing and selling the Approved
Products under the Marks at the Outlet pursuant to this Agreement.
Concept means the concept franchised to Franchisee pursuant to this Agreement
and specified in Schedule B.
Continuing Fee means the percentage of Revenues specified in Schedule B.
Date of Grant means the date specified in Schedule B.
Due Date means the date specified in Schedule B or any other date notified by
PRI to Franchisee from time to time.
Manuals means the manuals, notices and correspondence published or issued from
time to time by PRI in any form, containing the Standards and other
requirements, rules, procedures and guidelines relating to the System.
Marks means the trademarks, service marks and trade names and other similar
rights owned by PRI or its Affiliated Companies and designated by PRI from time
to time for use in the Business.
Outlet means the outlet conforming to the Concept at the address specified in
Schedule B.
Revenues means all gross receipts received by Franchisee as payment for the
Approved Products and for all other goods and services sold at or from the
Outlet or the Business and all service fees but excludes sales or other tax
receipts required by law to be remitted, and in fact remitted by Franchisee, to
any government authority and no adjustment for cash shortages from cash
registers will be made.
Standards means the standards, specifications and other requirements of the
System from time to time determined, changed, or added to by PRI, including,
without limitation, with respect to the preparation, marketing and sale of the
Approved Products, customer service procedures, the design, decor and fit-out
of the Outlet, the equipment at the Outlet, and the content, quality and use of
advertising and promotional materials.
System means the system for the preparation, marketing and sale of food products
used in operating the Concept.
System Property means the contents of the Manuals and all other know how,
information, specifications, systems and data used by PRI in or in respect of
the System, including, without limitation, trade secrets, copyrights, designs,
patents and other intellectual property.
Term means the period specified in Schedule B.
<PAGE>
SCHEDULE B
INFORMATION SCHEDULE
Advertising Contribution: 6% of Revenues:
(Clause 6)
. 5% of Revenues to be paid by Franchisee to
PRI on or before each Due Date for
administration by PRI, through a National
Advertising Cooperative; and
. 1% of Revenues to be spent by Franchisee
on local advertising and promotions in
each Accounting Period
Bank: Westpac Banking Corporation
(Clause 11.1)
Bank Account: Account No. 119481
(Clause 11.1) BSB No. 34002
Concept: KFC Restaurant Outlet
Continuing Fee: 5% of Revenues
Currency: Australian Dollars
(Clause 11.1)
Date of Grant:
Due Date: 5 days after each Accounting Period
Governing Law: New South Wales
(Clause 21.7)
Guarantors: Not Applicable - no guarantee required by PRI.
(Clause 12.3)
In-Term Restraint Area: Australia and New Zealand
(Clause 13(a))
Initial Fee: $35,000
(Clause 2.1)
Interest Rate: Indicator lending rate quoted by Westpac Banking
(Clause 11.2) Corporation on the due date plus 2% per annum,
calculated on a daily basis.
Outlet Address:
Post-Term Restraint Area: As specified in Schedule C.
(Clause 13(b))
Postal Receipt Date: 3 days after the date of posting
(Clause 20)
Renewal Fee: (if applicable) $35,000 adjusted in line with the
(Clause 18(g)) percentage increase in the Consumer Price Index
(all groups - Sydney) from the Date of Grant.
<PAGE>
SCHEDULE B - INFORMATION SCHEDULE
Page 2
Renewal Term:
(Clause 18)
Term:
Transfer Fee: $35,000 adjusted in line with the percentage
(Clause 14.2) increase in the Consumer Price Index (all groups-Sydney)
from the Date of Grant.
<PAGE>
SCHEDULE C
ADDITIONAL PROVISIONS OF FRANCHISE AGREEMENT
C1. MAXIMUM RETAIL PRICE
--------------------
Franchisee will not permit any Approved Products to be sold at the Outlet
at any price exceeding the maximum retail prices advised by PRI to
Franchisee from time to time.
C2. FRANCHISING CODE PROVISION
--------------------------
Franchisee acknowledges that PRI is registered under the Franchising Code
of Practice, and accordingly Franchisee agrees to comply with all
provisions of the Franchising Code of Practice (as modified from time to
time).
C3. POST-TERM RESTRAINT AREA
------------------------
The non-competition restraint in Clause 13(b) of this Agreement will apply:
(i) within a radius of 5km of any KFC retail outlet located in
Australia:
(ii) within a radius of 1km of any KFC retail outlet located in
Australia:
(iii) within a radius of 1km of any KFC retail outlet located in
Queensland;
(iv) within a radius of 5 km of the Outlet;
(v) within a radius of 1 km of the Outlet.
This Clause C3 will have effect as if it were 5 separate covenants and if
any one or more of such separate covenants is or becomes invalid or
unenforceable for any reason then such invalidity or unenforceability will
not affect the validity or enforceability of any of the other separate
covenants.
C4. DELIVERY OPERATION
------------------
If PRI, in its discretion, determines to introduce delivery operations to
the System, PRI will have the right to require Franchise to deliver the
Approved Products from the Outlet, within a specified delivery area
determined by PRI in accordance with the Manuals and notified by PRI to
Franchisee. Franchisee acknowledges and agrees that such delivery
operations may require capital expenditures by Franchisee at the Outlet.
The terms and conditions under which Franchisee will conduct such delivery
operations will otherwise be as specified in the Manuals.
C5. AMENDMENT OF CLAUSE 15.1(l)
---------------------------
Clause 15.1(l) will only apply in respect of a terminated agreement between
an Affiliated Company of PRI and an Affiliated Company of Franchisee to the
extent that such termination results from a breach of the agreement by the
Affiliated Company of Franchisee. For the avoidance of doubt, Clause
15.1(f) will not apply in the event of the expiration of the term of any
other agreement between PRI and Franchisee (or their respective Affiliated
Companies).
<PAGE>
[LOGO OF KFC APPEARS HERE]
MASTER FRANCHISE AGREEMENT
BETWEEN:
KENTUCKY FRIED CHICKEN PTY. LIMITED
AND
COLLINS FOODS INTERNATIONAL
PTY. LIMITED
EXHIBIT 10.19
<PAGE>
AGREEMENT dated the fourth day of October, 1996
BETWEEN: KENTUCKY FRIED CHICKEN PTY LIMITED, A.C.N. 000 587 780 having its
registered office at 20 Rodborough Road, Frenchs Forest, NSW, 2086
("PRI")
AND: COLLINS FOODS INTERNATIONAL PTY. LIMITED, ARBN 009 980 250, a Nevada
corporation having its principal executive office at 12655 West
Jefferson Boulevard, Los Angeles, California, 90066 and its registered
Australian office at 16 Edmondstone Street, Newmarket Queensland, 4051
("Franchise")
BACKGROUND FACTS:
PRI and Franchisee have agreed to vary the terms of their franchise relationship
on the following terms and conditions.
THE PARTIES AGREE:
1. DEFINITIONS
1.1 In this Agreement, unless the context requires otherwise:
"CO-OP AGREEMENT DATE" means the date of execution by Franchisee of the
agreement establishing the National Ad Co-op.
"CPI INDEXED" means adjusted in line with the percentage increases in the
Consumer Price Index (All Groups - Sydney) with the Effective Date.
"DEVELOPMENT AGREEMENT" means the development agreement executed by the
parties contemporaneously with this Agreement.
"EFFECTIVE DATE" means the earlier of the date of execution of this
Agreement or 30 September, 1996.
"FORMER FRANCHISE AGREEMENT" means the agreement documenting the pre-
existing franchise arrangements between PRI and Franchisee in respect of
the Outlets.
"FRANCHISE AGREEMENT": means a franchise agreement in the form of the
agreement set out in Schedule 3.
"NATIONAL AD CO-OP" means the national advertising co-operative which PRI
intends to establish after the Effective Date.
"OUTLETS" means the 93 KFC outlets listed in Schedules 1 and 2.
1.2 All other capitalised terms in this Agreement will have the meaning
specified in Schedule A of the Franchise Agreement.
<PAGE>
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2. PAYMENT
In consideration of the rights and benefits granted by PRI under this
Agreement, Franchisee will pay to PRI the sum of $A836,000 on the date of
execution of this Agreement. The operation of this Agreement is subject to
and conditional upon this payment.
3. FRANCHISE AGREEMENTS
3.1 As from the Effective Date, PRI will grant to Franchisee and Franchisee
will accept 83 single-site franchises to operate the Outlets on the terms
and conditions of the Franchise Agreement.
3.2 Upon the execution of this Agreement, a Franchise Agreement will be deemed
to have been executed in respect of each Outlet. Schedule B of the
Franchise Agreement will be deemed to be completed in respect of each
Outlet as follows:
(a) the Outlet address will be as specified in Schedule 1 or Schedule 2
(whichever is applicable):
(b) the Term and the Renewal Term will be as specified in Schedule 1 or
Schedule 2 (whichever is applicable): and
(c) the Date of Grant will be the Effective Date.
3.3 The Franchise Agreement for each Outlet will be deemed to be amended as
set out in Clauses 4, 5, 6, and 7 for the currency of its term.
4. ADVERTISING CONTRIBUTIONS
Notwithstanding the provisions of Clause 6.1 of the Franchise Agreement:
(a) The operation of Clause 6.1(a) and 6.1(b) of the Franchise Agreement
will be suspended between the Effective Date and the earlier of the
Co-op Agreement Date and 1 February 1996 and, during this suspension
period, Franchisee will continue to spend, on local advertising and
promotions, the amount currently spent by Franchisee on local and
national advertising and promotions: and
(b) As from the Co-op Agreement Date, Clause 6.1(a) of the Franchise
Agreement will be deleted.
5. TRANSFER FEE
Notwithstanding the Transfer Fee payable under the Franchise Agreement for
each Outlet, in the event of a PRI approved sale by Franchisee of its
interests under one or more of the Franchise Agreements prior to 30
September, 2018, the Transfer Fees payable by Franchisee to PRI will be as
follows:
(a) In the event of a sale prior to 1 December, 1996: $35,000 per Outlet
up to a total cumulative cap of $2.5 million; or
<PAGE>
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(b) In the event of a sale on or after 1 December, 1996 and prior to 30
September, 2019: $35,000 CPI Indexed per Outlet up to a total
cumulative cap of $3.5 million CPI Indexed.
6. COMPETITIVE BUSINESS APPROVALS--
6.1 PRI acknowledges that, as a result of the ownership, operation and
licensing of a number of existing "Sizzler" and "The Italian Oven"
restaurants in Australia by one or more of Franchisee's Affiliated
Companies, Franchisee may directly or indirectly have an interest or be
engaged in businesses involving the preparation, marketing or sale of food
products covered by Clause 13(a) of the Franchise Agreement.
6.2 Pursuant to Clause 13(a) of the Franchise Agreement, as from the Effective
Date, the following approvals will apply:
(a) PRI approves the current involvement of Franchisee's Affiliated
Companies in the existing Sizzler Restaurants in Australia and waives
any right under Clause 13(a) to disapprove any preparation, marketing
or sale of food products in connection with the ownership, operation,
licensing and/or management by Franchisee and/or its Affiliated
Companies of any new Sizzler Restaurants in Australia, or the
alteration, remodelling or repositioning of any existing Sizzler
Restaurants in Australia, provided that such new or altered,
remodelled, or repositioned restaurants do not predominantly involve
the preparation, marketing or sale of any of the following food types
(each a "Designated Product"): pizza and pasta collectively; chicken;
Mexican; or burgers.
For the purpose of this provision, a "Sizzler Restaurant" is any
restaurant operated in whole or in part under the "Sizzler" mark
(including but not limited to Sizzler Steak Seafood, Salad, Sizzler
Cafe, Sizzler Express, Sizzler Flame Grill), whether or not in
association with other marks, provided that the association with the
other marks is not of itself covered by Clause 13(a) of the Franchise
Agreement.
For the purpose of this provision, a Sizzler Restaurant shall not be
"predominantly" involved in the preparation, marketing or sale of a
Designated Product so long as gross sales of that Designated Product
do not exceed 50% of the gross food sales, excluding beverage sales,
of that restaurant.
(b) PRI grants Franchisee a 3 year limited approval in respect of its
current involvement in Australia in the "The Italian Oven" business,
on the basis that Franchisee agrees to divest its interest in that
business to an entity other than an Affiliated Company within 3 years
from the Effective Date. Franchisee acknowledges that if Franchisee
has failed to so divest its interest in that business within 3 years
from the Effective Date, Franchisee will be in breach of the Franchise
Agreement and any new franchise agreements and, without prejudice to
any other rights and remedies PRI may have, it will be PRI's intention
to terminate all franchise agreements relating to the new KFC outlets
opened by Franchisee from the Effective Date.
7. UPGRADES
In the event of PRI requiring Franchisee, pursuant to Clause 4 of the
Franchise Agreement, to implement an upgrade of renovation of the Outlets
which is similarly to be implemented by PRI across any KFC outlets operated
by PRI in Australia, PRI will not require any such upgrade or
<PAGE>
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renovation to be implemented by Franchisee across the Outlets within a
period which involves a rate of implementation faster than the rate of
Implementation by PRI across any PRI company-operated stores.
8. TACO BELL
During the currency of the Development Agreement, subject to Franchisee not
being in default of any term or condition of the Franchise Agreement or the
Development Agreement, Franchisee will have a first right of refusal in
respect of TACO BELL in Queensland as follows:
(a) PRI will not itself commence developing, or franchise to a third party
the right to develop, TACO BELL in Queensland without first offering
to Franchisee in writing the right to develop TACO BELL under the
terms of PRI's then current franchise agreement and/or development
agreement, including the then current fees applicable to the type of
development opportunity being offered;
(b) Franchisee will have 90 days from its receipt of the written offer to
accept the offer by executing and delivering to PRI the franchise
agreement and/or development agreement and any other documents
required by PRI;
(c) If Franchisee fails to accept PRI's offer pursuant to paragraph (b),
PRI will be entitled itself or by franchise to a third party to pursue
the development of TACO BELL in Queensland.
9. DUAL-BRANDED OUTLETS
During the currency of the Development Agreement, subject to Franchisee not
being in default of any term or condition of the Franchise Agreement or the
Development Agreement, PRI will give Franchisee 90 days notice before
opening any "dual-branded" outlet under the KFC and PIZZA HUT brands in
Queensland.
10. TERMINATION AND RELEASE OF FORMER FRANCHISE AGREEMENTS
The parties agree that the Former Franchise Agreements will be terminated
with effect on and from the Effective Date. Each party hereby releases and
forever discharges the other party from and against all actions, claims,
damages and liabilities which it may have against the other party arising
out of the Former Franchise Agreements, provided that PRI's release of
Franchisee is subject to and conditional upon payment by Franchisee of all
fees and other amounts payable by Franchisee to PRI in respect of the
Outlets up to and including the Effective Date.
11. TERM AND TERMINATION OF THIS AGREEMENT
11.1 The term of this Agreement will commence on the Effective Date and will
continue until the expiration or termination of the last operative
Franchise Agreement in respect of an Outlet, unless earlier terminated
pursuant to Clause 11.2.
11.2 PRI may terminate this Agreement by notice to Franchisee effective
immediately upon receipt if any of the following events occur:
(a) Franchisee breaches any term or condition of this Agreement; or
<PAGE>
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(b) any of the Franchise Agreements in respect of the Outlets or any other
franchise agreement between PRI and Franchisee is terminated for any
reason.
11.3 The provisions of Clauses 5, 6 and 7 will survive the expiration of this
Agreement, and Clauses 6.1 and 6.2 (a) will survive the termination of this
Agreement, in respect of and during the currency of the Franchise
Agreements between PRI and Franchisee still in existence at the time of
expiration or termination.
12. TRANSFER
12.1 Except as specified in Clause 12.2, Franchisee may not transfer or assign
this Agreement to any other party without PRI's prior written approval,
which may be withheld in PRI's sole discretion.
12.2 In the event of an approved transfer by Franchisee of all the KFC outlets
operated by Franchisee to a single transferee in a single transaction,
Franchisee may transfer this Agreement, subject to compliance by Franchisee
with, and PRI granting approval pursuant to, Clause 14 of the Franchise
Agreement.
13. MISCELLANEOUS
13.1 Nothing in this Agreement applies to any KFC outlet developed by Franchisee
pursuant to the Development Agreement, or renewed by PRI after the
Effective Date and during the currency of the Development Agreement, except
Clause 5, 6, and 7.
13.2 This Agreement, the Development Agreement and the Franchise Agreements
constitute the entire agreement between the parties with respect to their
subject matter and supersede all prior negotiations, agreements or
understandings.
13.3 This Agreement will inure to the benefit of PRI, its successors and assigns
and may be transferred or assigned by PRI to any party without Franchisee's
prior approval.
13.4 The terms and conditions of this Agreement may be changed only in writing
signed by both parties.
13.5 This Agreement will be governed by and construed in accordance with the law
of New South Wales and the parties submit to the non-exclusive jurisdiction
of the courts of New South Wales.
13.6 The currency of the amounts referred to in this Agreement will be
Australian dollars.
13.7 References to clauses and schedules are to clauses and schedules of this
Agreement and the Schedules form part of this Agreement.
13.8 Any notice or other communication required or permitted under this
Agreement will be in writing and properly addressed to the addressee at the
address specified in the Agreement (or any other address notified by the
addressee) and will be deemed received by the addressee on the earlier of
the date of delivery, the date of transmission if sent by facsimile with
receipt confirming completion of transmission, or 3 days after the date of
posting if sent by pre-paid security or registered post.
<PAGE>
-6-
EXECUTED AS AN AGREEMENT
THE COMMON SEAL OF KENTUCKY )
FRIED CHICKEN PTY LIMITED was )
affixed in the presence of: )
/s/ Signature Appears Here /s/ Signature Appears Here
_____________________________ _____________________________
Director/Secretary Director
THE COMMON SEAL of )
COLLINS FOODS INTERNATIONAL )
PTY. LIMITED was affixed in the )
presence of: )
/s/ Signature Appears Here /s/ Signature Appears Here
- ----------------------------- -----------------------------
Secretary President
October 4, 1996
In Los Angeles, California
<PAGE>
-7-
SCHEDULE 1 - 63 OUTLETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
OUTLET TERM RENEWAL TERM
- --------------------------------------------------------------------------------------
<S> <C> <C>
MACKAY, Nabo Rd & George 23 years commencing on the NIL
Street Date of Grant
- --------------------------------------------------------------------------------------
Mt ISA, Marlon & Simpson 23 years commencing on the NIL
Streets Date of Grant
- --------------------------------------------------------------------------------------
CABOOLTURE, Morayfield Rd, 23 years commencing on the NIL
Morayfield Date of Grant
- --------------------------------------------------------------------------------------
BUNDABERG, 263 Bourbong 23 years commencing on the NIL
Street Date of Grant
- --------------------------------------------------------------------------------------
TOOWOOMBA 3, Ruthven & 23 years commencing on the NIL
Stennar Streets Date of Grant
- --------------------------------------------------------------------------------------
CAIRNS, Martyn & Mulgrave 23 years commencing on the NIL
Roads Date of Grant
- --------------------------------------------------------------------------------------
TOWNSVILLE 2 (GARBUTT), Ingham 23 years commencing on the NIL
Rd & Douglas Street Date of Grant
- --------------------------------------------------------------------------------------
IPSWICH (BOOVAL), Brisbane Rd & 23 years commencing on the NIL
Station St Date of Grant
- --------------------------------------------------------------------------------------
LOGAN CITY, Cnr, Wembley & 23 years commencing on the NIL
Maves Roads, Woodridge Date of Grant
- --------------------------------------------------------------------------------------
TOOWOOMBA 2 (WILSONTON), 22 years commencing on the NIL
Cnr. Bridge & Erin Streets Date of Grant
- --------------------------------------------------------------------------------------
NERANG (GOLD COAST), Hinkler 22 years commencing on the NIL
Drive Date of Grant
- --------------------------------------------------------------------------------------
SPRINGWOOD, Dennis St & Pacific 22 years commencing on the NIL
Highway Date of Grant
- --------------------------------------------------------------------------------------
TOWNSVILLE 3 (CRANBROOK), Cnr. 22 years commencing on the NIL
Ross River Rd & Alice Street, Date of Grant
Cranbrook
- --------------------------------------------------------------------------------------
STRATHPINE, Cnr Station & 22 years commencing on the NIL
Woodford Roads Date of Grant
- --------------------------------------------------------------------------------------
ROCKHAMPTON 2 - 8th, Cnr 22 years commencing on the NIL
George & Archer Streets Date of Grant
- --------------------------------------------------------------------------------------
INNISFAIL, 121 Edith Street 22 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------------
EARLVILLE (CAIRNS 2), 532 22 years commencing on the NIL
Mulgrave Rd Date of Grant
- --------------------------------------------------------------------------------------
REDBANK, Redbank Plaza 22 years commencing on the NIL
Shopping Centre Date of Grant
- --------------------------------------------------------------------------------------
ANNERLEY, 594-600 Ipswich Rd 21 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------------
MAROOCHYDORE, Cnr Aerodrome 21 years commencing on the NIL
& First Ave Date of Grant
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-8-
SCHEDULE 1 - 63 OUTLETS
<TABLE>
<CAPTION>
OUTLET TERM RENEWAL TERM
- --------------------------------------------------------------------------------
<S> <C> <C>
CLAYFIELD, Sandgate Rd 21 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------
NAMBOUR, Cnr Currie & Arundel 21 years commencing on the NIL
Drive Date of Grant
- --------------------------------------------------------------------------------
KEDRON, Gympie & Broughton 21 years commencing on the NIL
Streets Date of Grant
- --------------------------------------------------------------------------------
ASPLEY, Bruce Highway 21 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------
BRASSALL, 6B Hunter Street, 21 years commencing on the NIL
Brassall Date of Grant
- --------------------------------------------------------------------------------
LOGANISA (MARADEN), 92 21 years commencing on the NIL
Chambers Flat Rd Date of Grant
- --------------------------------------------------------------------------------
BROWNS PLAINS, Grand Plaza 21 years commencing on the NIL
Shopping Centre, 25 Browns Date of Grant
Plains Rd
- --------------------------------------------------------------------------------
BEENLEIGH, Beenleigh Plaza 20 years commencing on the NIL
City Rd Date of Grant
- --------------------------------------------------------------------------------
WYNNUM, Cnr. Wynnum Rd & 20 years commencing on the NIL
Capri Lane Date or Grant
- --------------------------------------------------------------------------------
GLADSTONE, 57 Dawson Rd 20 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------
ROCKHAMPTON 1 (NORTH), 20 years commencing on the NIL
Elizabeth Drive Date of Grant
- --------------------------------------------------------------------------------
GREENSLOPES, Logan Rd 20 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------
WARWICK, Cnr, Wood & Gay 20 years commencing on the NIL
Streets Date of Grant
- --------------------------------------------------------------------------------
SUNNYBANK, Mains Road & 20 years commencing on the NIL
McCullough Street Date of Grant
- --------------------------------------------------------------------------------
GYMPIE, Cnr, Wickham & 20 years commencing on the NIL
Channon Streets Date of Grant
- --------------------------------------------------------------------------------
DALBY, Cnr, Drayton & Pratten 20 years commencing on the NIL
Streets Date of Grant
- --------------------------------------------------------------------------------
TOWNSVILLE (HERMIT PARK), 19 years commencing on the NIL
Charters Towers Rd Date of Grant
- --------------------------------------------------------------------------------
GROVERLY, 161 Dawson Parade 19 years commencing on the NIL
Date of Grant
- --------------------------------------------------------------------------------
KELVIN GROVE, Kelvin Grove & 19 years commencing on the NIL
Park Streets Date of Grant
- --------------------------------------------------------------------------------
MARGATE (REDCLIFFE, Oxley 19 years commencing on the NIL
Street Date of Grant
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-9-
SCHEDULE 1 - 63 OUTLETS
<TABLE>
<CAPTION>
OUTLET TERM RENEWAL TERM
<S> <C> <C>
BENOWA, Benowa Gds, Shop Ctr, 19 years commencing on the Nil
Cnr, Benowa & Ashmore Rds Date of Grant
CENTENARY, Centenary Shop, Ctr. 19 years commencing on the Nil
171 Dandenong Rd, Mt Date of Grant
Ommaney
ROMA, Cnr. Quinton & Bowden 19 years commencing on the Nil
Streets Date of Grant
CLEVELAND, Shore St. Cleveland 19 years commencing on the Nil
Date of Grant
SMITHFIELD, Cnr McGregor & 19 years commencing on the Nil
Captain Cook Hwy, Smithfield, Date of Grant
Cairns
DEAGON, 8 Braun Street 18 years commencing on the Nil
Date of Grant
AYR, 212 Queen Street 18 years commencing on the Nil
Date of Grant
CAPALABA, Cnr. Old Cleveland Rd 18 years commencing on the Nil
& Dollery Street Date of Grant
TOOWOOMBA 1, Cnr. Margaret & 18 years commencing on the Nil
Pugh Streets Date of Grant
CALOUNDRA, 73 B Bowman Road 18 years commencing on the Nil
Date of Grant
MORNINGSIDE, 583 Wynnum Rd 18 years commencing on the Nil
Date of Grant
INGHAM, 82 Herbert Street 18 years commencing on the Nil
Date of Grant
EMERALD, Emerald Vil Shop Ctre. 18 years commencing on the Nil
Cnr Curt St & Hospital Rd Date of Grant
RUNAWAY BAY, Runaway Bay 18 years commencing on the Nil
Shop Centre Date of Grant
KALLANGUR, Anzac Ave 17 years commencing on the Nil
Date of Grant
PALM BEACH, The Pines 17 years commencing on the Nil
Shopping Centre, Elanora Date of Grant
ACACIA RIDGE, Cnr. Beaudesert 17 years commencing on the Nil
Rd & O'Connell Street Date of Grant
BEAUDESERT, Brisbane Street 17 years commencing on the Nil
Date of Grant
MAREEBA, 114 Byrnes Street 17 years commencing on the Nil
Date of Grant
</TABLE>
<PAGE>
-10-
SCHEDULE 1 - 63 OUTLETS
<TABLE>
<CAPTION>
OUTLET TERM RENEWAL TERM
<S> <C> <C>
COOLANGATTA, Showcase Shop. 17 years commencing on the Nil
Ctr, Marine Parade Date of Grant
MACKAY 2 (MT PLEASANT), Mt. 17 years commencing on the Nil
Pleasant Shopping Centre, Date of Grant
Phillip Street
DECEPTION BAY, Cnr Park & 17 years commencing on the Nil
Deception Bay Roads Date of Grant
MT. GRAVATT, Logan Road & 17 years commencing on the Nil
Creighton Street Date of Grant
</TABLE>
<PAGE>
-11-
SCHEDULE 2 - 30 OUTLETS
<TABLE>
<CAPTION>
OUTLET TERM RENEWAL TERM
<S> <C> <C>
KENMORE, 906 Moggill Rd 8 years commencing on the 12 years
Date of Grant
MIAMI, Gold Coast Hwy, & Oak 8 years commencing on the 12 years
Street Date of Grant
BILOELA, 10 Gladstone Road 8 years commencing on the 12 years
Date of Grant
HERVEY BAY, Cnr. Torquay Road 8 years commencing on the 12 years
& Taylor Streets Date of Grant
SOUTHPORT, 3 Frank Street 8 years commencing on the 12 years
Date of Grant
EVERTON PARK, Cnr. Strathpine & 8 years commencing on the 12 years
Griffin Date of Grant
HELENSVALE, Lot 18, Siganto 9 years commencing on the 11 years
Drive Date of Grant
MERMAID BEACH, 2505-2516 9 years commencing on the 11 years
Gold Coast Highway Date of Grant
CHARTERS TOWERS, 58 Gill Street 9 years commencing on the 11 years
Date of Grant
INDOOROOPILLY 1, Standford & 9 years commencing on the 11 years
Mogill Roads Date of Grant
KINGAROY, Cnr Young & Alfred 9 years commencing on the 11 years
Streets Date of Grant
MARYBOROUGH, Cnr Walker & 9 years commencing on the 11 years
Ferry Streets Date of Grant
NOOSA, 5 Sunshine Beach Rad 10 years commencing on the 10 years
Date of Grant
SURFERS PARADISE, Pacific 10 years commencing on the 10 years
Highway Date of Grant
MORANBAH, Moranbah Fair 10 years commencing on the 10 years
Shopping Centre, Moranbah Date of Grant
YEPPOON, Cnr. Adelaide St & 10 years commencing on the 10 years
Normanby Road Date of Grant
SUNNYBANK FOOD COURT, Shop 10 years commencing on the 10 years
107, Sunnybank Plaza, Cnr. Date of Grant
Mains & McCullough
AUSTRALIA FAIR, Aust Fair Shop 10 years commencing on the 10 years
Ctr., Southport, Gold Coast Date of Grant
LOGANHOLME, Pacific Hwy & 11 years commencing on the 9 years
Bryants Road Date of Grant
</TABLE>
<PAGE>
-12-
SCHEDULE 2 - 30 OUTLETS
<TABLE>
<CAPTION>
OUTLET TERM RENEWAL TERM
<S> <C> <C>
TRANSIT CENTRE, Shop 3.01, A 11 years commencing on the 9 Years
Foodcourt, Roma Street, Date of Grant
Brisbane
CAPALABA, Central F/C, Shop F8, 11 years commencing on the 9 Years
Capalaba, Moreton Bay Road Date of Grant
WATERFRONT PLACE, Shop 8, 11 years commencing on the 9 Years
Waterfront Pl, Eagle Street, Date of Grant
Brisbane
ROBINA, Shop TG4.57 Robina 11 years commencing on the 9 Years
Town Centre, Robina Parkway, Date of Grant
Robina
KANGAROO POINT, 6000 Main 11 years commencing on the 9 Years
Street Date of Grant
MYER CENTRE, Cinema Lev Myer 12 years commencing on the 8 Years
Ctr, Albert Street, Brisbane Date of Grant
NATHAN PLAZA, Shop 164, S'land 12 years commencing on the 8 Years
Shop Cent. Ross River Rd, Date of Grant
Townsville
EARLVILLE FOOD COURT, Earlville 12 years commencing on the 8 Years
Shopping Centre, Earlville Date of Grant
INDOOROOPILLY 2, Shop 228, F/C 12 years commencing on the 8 Years
Westfield Shop Twn, 318 Moggill Date of Grant
Road
PACIFIC FAIR, Shop 363, Pac Fair 12 years commencing on the 8 Years
Nerang - Broadbeach Rad, Date of Grant
Broadbeach
TOOMBUL, Shop 161, Westfield 12 years commencing on the 8 Years
Shopping Centre, Landpate Road Date of Grant
</TABLE>
<PAGE>
[LOGO OF KFC(R)]
FRANCHISE AGREEMENT
BETWEEN:
KENTUCKY FRIED CHICKEN PTY. LIMITED
AND
COLLINS FOOD INTERNATIONAL
PTY. LIMITED
<PAGE>
AGREEMENT dated day of 1996
BETWEEN: KENTUCKY FRIED CHICKEN PTY LIMITED, A.C.N. 000 587 780 having its
registered office at 20 Rodborough Road, Frenchs Forest, NSW, 2086
("PRI")
AND: COLLINS FOODS INTERNATIONAL PTY. LIMITED, ARBN 009 980 250, a Nevada
corporation having its principal executive office at 12655 West
Jefferson Boulevard, Los Angeles, California, 90066 and its registered
Australian office at 16 Edmondstone Street, Newmarket, Queensland,
4051 ("Franchisee")
BACKGROUND FACTS
PRI and/or its Affiliated Companies have developed a unique and valuable system
for the preparation, marketing and sale of certain quality food products under
various trade marks, service marks and trade names owned by them.
The System is a comprehensive restaurant system for the retailing of a limited
menu of uniform and quality food products, emphasising prompt and courteous
service in a clean and wholesome atmosphere which is intended to be particularly
attractive to families. The foundation and essence of the System is the
adherence by franchisees to standards and policies providing for the uniform
operation of all restaurants within the System including, but not limited to,
serving designated food and beverage products; the use of only prescribed
equipment and building layout and designs; and strict adherence to designated
food and beverage specifications and to prescribed standards of quality, service
and cleanliness in restaurant operations. Compliance by franchisees with the
foregoing standards and policies in conjunction with the trademarks, service
marks and trade names provides the basis for the valuable goodwill and wide
acceptance of the System. Moreover the establishment and maintenance of a close
personal working relationship with Franchisee in the conduct of the Business,
Franchisee's accountability for performance of the obligations contained in this
agreement, and Franchisee's adherence to the tenets of the System constitute the
essence of the license provided for herein.
PRI is entitled to grant to third parties, and has agreed to grant to
Franchisee, the right to use the System, the System Property and the Marks on
the terms and conditions of this Agreement.
In this Agreement, capitalised terms have the meanings specified in Schedule A.
THE PARTIES AGREE:
1. GRANT OF FRANCHISE
1.1 PRI grants to Franchisee the right to use the System, the System Property
and the Marks for the Term solely in connection with the conduct of the
Business at the Outlet and subject to the terms and conditions of this
Agreement.
1.2 At all times during the Term, Franchisee will use its best endeavours to
develop the Business and to increase the Revenues.
1.3 Franchisee will not, without PRI's prior written approval:
(a) conduct all or any part of the Business at any location other than the
Outlet; or
<PAGE>
-2-
(b) sub-license to any other party the right to use the System, the System
Property or the Marks.
1.4 No exclusive territory, protection or other right in the contiguous space,
area or market of the Outlet is expressly or impliedly granted to
Franchisee. PRI reserves the right to use, and to grant to other parties
the right to use, the Marks, the System and the System Property or any
other marks, names or systems in connection with any product or service
(including, without limitation, the Approved Products) at any location
other than the Outlet through any outlet, food service concept or
distribution channel. Franchisee acknowledges that, as at the Date of
Grant, PRI and its Affiliated Companies and franchisees operate outlets
conforming to the Concept and also operate other systems for the sale of
food products and services which are competitive with the System and may
compete directly with the Business.
2. INITIAL FEE AND CONTINUING FEE
2.1 On or before the Date of Grant, Franchisee will pay the initial fee
specified in Schedule B to PRI.
2.2 On or before each Due Date, Franchisee will pay the Continuing Fee to PRI.
Each payment of the Continuing Fee will be accompanied by a statement of
the Revenues for the relevant Accounting Period, in the form required by
PRI from time to time.
2.3 Franchisee's payments pursuant to this Agreement are in consideration
solely for the grant of rights in Clause 1.1 and not for PRI's performance
of any specific obligations or services.
3. MANUALS AND STANDARDS
3.1 At all times during the Term, Franchisee must comply with all of the
Standards and the Manuals and all applicable laws, regulations, rules, by-
laws, orders and ordinances in its conduct of the Business. The Manuals are
incorporated by reference into this Agreement.
3.2 PRI may, by notice to Franchisee, at any time change any of the Standards
or Manuals or introduce new Standards or Manuals. Franchisee acknowledges
and agrees that such changes or introductions will bind Franchisee upon
receipt as provided in Clause 20 and Franchisee will implement such changes
or introductions within the period specified in the notice.
3.3 In order to determine Franchisee's compliance with the Manuals and the
terms and conditions of this Agreement, PRI and its agents or
representatives will have the right at all times during opening hours to
enter and inspect the Outlet without prior notice to Franchisee.
4. UPGRADES
PRI may, by notice to Franchisee, at any time require Franchisee to upgrade
or renovate all or part of the Outlet or its equipment, systems or
inventory to ensure compliance with the Standards, and Franchisee
acknowledges and agrees that such upgrades or renovations may require
significant capital expenditures and/or ongoing financial commitments.
Franchisee will implement any upgrade or renovation required by PRI within
the period specified in the notice.
<PAGE>
- 3 -
5. APPROVED PRODUCTS AND SUPPLIES
5.1 Franchisee will not prepare, market or sell at the Outlet any product
or service other than the Approved Products without PRI's prior
written approval. PRI will from time to time notify Franchisee of the
Approved Products and will specify those of the Approved Products
which must be offered for sale at the Outlet at all times.
5.2 PRI may, by notice to Franchisee, at any time change or withdraw any
Approved Product or add new Approved Products. Franchisee will
implement such changes, withdrawals and additions within the period
specified in the notice.
5.3 Franchisee will purchase the supplies, materials, equipment and
services used in the Business from suppliers who have been approved in
writing by PRI prior to the time of supply in accordance with the
approval procedures in the Manuals. Franchisee will not have any claim
or action against PRI in connection with any approved supplier's non-
delivery, delayed or non-conforming delivery.
6. ADVERTISING
6.1 Franchisee will spend, in the manner directed by PRI in writing from
time to time, an amount not less than the Advertising Contribution on
advertising and promoting the products and services of the Business
and the System. Without limitation, PRI may at any time during the
Term direct Franchisee:
(a) To pay all or part of the Advertising Contribution to PRI, in
which event PRI will apply the Advertising Contribution to the
costs of national and regional advertising and promotions
conducted by PRI in its discretion, provided that PRI will not
have any obligation to apply the Advertising Contribution for the
specific benefit of Franchisee or the Business and no express or
implied trust will be created in respect of the Advertising
Contribution;
(b) to pay all or part of the Advertising Contribution to a national
or regional co-operative advertising fund specified by PRI; or
(c) to spend all or part of the Advertising Contribution on local or
regional advertising and promotions, provided that if Franchisee
fails to spend the full amount directed by PRI, Franchisee will
pay the unspent amount to PRI within the period specified in a
written demand from PRI.
6.2 Franchisee will participate in such national and regional advertising
and promotions as PRI from time to time requires and Franchisee will
not have any claim or action against PRI in connection with the level
of success of any such advertising or promotion.
6.3 Franchisee will not execute or conduct any local or regional
advertising or promotion without PRI's prior written approval.
7. TRAINING
PRI will provide and Franchisee and Franchisee's employees will
undertake such initial and ongoing training and assistance as PRI in
its discretion considers appropriate. Franchisee will bear the full
cost of attendance at training programs. Franchisee will ensure that
all store
<PAGE>
managers operating the Outlet have been certified by PRI as having
successfully completed PRI's current training programs from time to time.
8. MARKS AND SYSTEM PROPERTY
8.1 The Marks, the System Property and the goodwill associated with them are
the exclusive property of PRI and/or its Affiliated Companies. Franchisee
will acquire no right, interest or benefit in or to them other than the
rights of use granted under this Agreement. All accretions in the goodwill
associated with the Marks and the System Property resulting from
Franchisee's use thereof are solely for the benefit of PRI and its
Affiliated Companies.
8.2 Franchisee will use the Marks only in such form and manner as is
specifically approved by PRI and Franchisee will follow PRI's instructions
regarding proper usage of the Marks in all respects. PRI may, by notice to
Franchisee, at any time change or withdraw any of the Marks or designate
new Marks and Franchisee will implement such changes, withdrawals and
additions within the period specified in the notice.
8.3 Franchisee will not use in the operation of the Business any trademarks,
service marks, trade names or indicia other than the Marks without PRI's
prior written approval. Franchisee will not use, register or apply to
register any trademarks, trade names or indicia similar to the Marks or
that in any way suggest an association or affiliation with the System.
8.4 Franchisee will do nothing to prejudice, damage or contest the validity of
the Marks, the System Property, the goodwill associated with them or the
ownership of them by PRI or its Affiliated Companies. Franchisee will
cooperate fully with PRI in the protection and defence of the Marks and the
System Property, which will be undertaken solely by PRI. Franchisee will
promptly notify PRI of any actual or potential infringements of, or claims
or actions brought by third parties in respect of, the Marks or the System
Property.
8.5 Any improvements to, and inventions and products derived from the Marks the
System Property or the Business during the Term, including those
attributable to Franchisee, will be the exclusive property of PRI or its
Affiliated Companies and will be promptly disclosed by Franchisee to PRI.
Franchisee hereby assigns to PRI all present and future right, title and
interest throughout the world in and to any such improvements, inventions
and products. Franchisee will take all actions and execute all documents
required by PRI for this purpose.
8.6 Franchisee agrees to join with PRI in any application to enter Franchisee
as a registered or permitted user of the Marks with any governmental entity
and Franchisee acknowledges that upon termination or expiration of this
Agreement, PRI may automatically cancel such entry.
9. CONFIDENTIALITY
9.1 Franchisee will at all times during and after the Term keep confidential
and not disclose to any person, other than with PRI's prior written
approval or to Franchisee's employees for the purposes of the Business, the
Manuals, all other materials containing or referring to the System Property
and all other information concerning PRI's business and affairs which may
come to Franchisee during the Term. Franchisee will ensure that
Franchisee's employees retain the Manuals and other materials and
information in confidence. This obligation of confidentiality does not
apply in respect of information in the public domain or previously known to
Franchisee otherwise than by breach of any obligation of confidentiality,
or disclosure required by law or an order of any court or tribunal.
<PAGE>
-5-
9.2 Franchisee will not reproduce or part with possession of the Manuals or
other materials containing or referring to the System Property without
PRI's prior written approval and will return all copies of the Manuals
and other materials to PRI immediately upon the expiration or
termination of this Agreement or upon PRI's request.
10. ACCOUNTING RECORDS
10.1 Franchisee will establish and maintain an accounting system
incorporating methods, procedures, records and equipment satisfactory
to PRI and in compliance with the Manuals.
10.2 Franchisee will retain all records relating to the Business for the
period required by the tax authorities and PRI and its agents or
representatives will have the right at any reasonable time to inspect
and audit the records wherever they are located. Franchisee will fully
cooperate and will instruct its employees, agents or representatives to
fully cooperate with PRI and its agents or representatives during such
inspections and audits. If any inspection or audit discloses a
deficiency in Franchisee's payment of any amount payable or required to
be spent by Franchisee pursuant to this Agreement, Franchisee will
immediately pay to PRI the deficiency plus late payment interest
pursuant to Clause 11.2. If the deficiency is equal to or greater than
2% of the correct amount, Franchisee will also immediately pay to PRI
all of the costs incurred by PRI in the inspection or audit.
11. PAYMENTS BY FRANCHISEE
11.1 Franchisee will pay all amounts due to PRI pursuant to this Agreement:
(a) in the currency specified in Schedule B or such other currency as
PRI notifies Franchisee from time to time, using, where
applicable, the exchange rate for conversion to the specified
currency which is posted on the day before the due date for
payment by such bank as is specified by PRI from time to time;
(b) into the bank account specified in Schedule B or in such other
manner as PRI notifies Franchisee from time to time; and
(c) without any deduction or set-off and free of any taxes, deductions
or withholdings other than as required by law. To the extent that
a deduction or withholding is required to be made by law,
Franchisee will pay such increased amount as will, after deduction
or withholding, result in the receipt by PRI of the same amount as
would have been received had no such deduction or withholding been
made.
11.2 Any amount not paid by Franchisee to PRI when due will bear late payment
interest calculated on a daily basis from the due date at the rate
specified in Schedule B. This interest will continue to apply after any
judgment.
11.3 Franchisee will pay promptly when due all taxes, duties, charges and
levies payable in respect of the Business and all debts and other
financial obligations incurred in the operation of the Business,
including, without limitation, all obligations to suppliers. If
applicable, Franchisee will observe, perform and comply with all
obligations and covenants to the lessor of the Outlet's premises.
<PAGE>
-6-
12. INSURANCE, INDEMNITY AND GUARANTEE
12.1 At all times during the Term, Franchisee will at its cost maintain the
insurances prescribed in the Manuals. PRI must be named as an additional
insured party on the policies of insurance. Franchisee will on demand
deliver to PRI certificates of insurance and will not commit any act or
omission which may render the insurances void or voidable.
12.2 Franchisee indemnifies and will keep indemnified PRI, its Affiliated
Companies and their agents, employees, directors, successors and assigns
from and against any and all claims, liabilities, losses, costs and
damages (including legal costs and expenses) arising directly or
indirectly in connection with or related to Franchisee's conduct of the
Business, PRI's exercise of any right pursuant to this Agreement,
including, without limitation, any exercise of the power of attorney
granted pursuant to Clause 15.4, or any act or omission by any agent,
representative, contractor, licensee or invitee of Franchisee.
12.3 As a precondition to the grant of rights pursuant to Clause 1.1,
Franchisee will procure the execution by the guarantors specified in
Schedule B (and such other guarantors as PRI requires in connection with
any approved transfer of any interest or share in Franchisee) of a
guarantee of Franchisee's obligations and liabilities under this
Agreement, in the form required by PRI and including such covenants by the
guarantors regarding the terms and conditions of this Agreement as PRI may
require.
13. PROTECTION OF SYSTEM PROPERTY AND GOODWILL OF SYSTEM
Franchisee covenants that neither Franchisee nor any Affiliated Company of
Franchisee will directly or indirectly in any capacity, whether on its own
account or as a member, shareholder, director, employee, agent, partner,
joint venturer, advisor, consultant, lender or lessor, have any interest
in, be engaged in or perform any services for:
(a) during the Term, any business within the in-Term area specified in
Schedule B involving the wholesale or retail preparation, marketing
or sale of any food products without PRI's prior written approval,
provided that such approval will not be unreasonably withheld by PRI
if the business does not predominantly involve the preparation,
marketing or sale of pizza and pasta (collectively), chicken, Mexican
or burger products; and
(b) for 12 months following the expiration, termination or transfer of
this Agreement, any business within the post-Term area specified in
Schedule B involving the preparation, marketing or sale of products
similar to the Approved Products.
14. TRANSFERS AND CHARGES
14.1 Franchisee will not charge, pledge or otherwise encumber any interest in
or right under this Agreement. Franchisee will not charge, pledge or
otherwise encumber any interest in or asset of the Business without giving
PRI prior notice.
14.2 Franchisee will not sell, transfer or gift this Agreement or any interest
in this Agreement without first obtaining PRI's prior written approval of
the proposed transferee and then complying with all of PRI's transfer
procedures specified in the Manuals, including, without limitation, paying
to PRI the transfer fee specified in Schedule B and the costs and expenses
incurred by PRI in connection with the transfer.
<PAGE>
- 7-
14.3 Franchisee will not, without PRI's prior written approval, permit any
sale, transfer or gift of any interest or share in Franchisee, issue any
new share in Franchisee to any party who is not a shareholder at the Date
of Grant or permit any reconstruction, amalgamation or other material
change in the structure or financial condition of Franchisee.
14.4 If Franchisee proposes any sale or transfer of this Agreement or any
interest in this Agreement, Franchisee will notify PRI of the agreed
terms and conditions and PRI will have the right itself to elect to
proceed with the sale or transfer on substantially the same terms and
conditions within 60 days of receipt of Franchisee's notice. If PRI does
not so proceed, Franchisee will submit the proposed transferee for PRI's
approval pursuant to Clause 14.2.
15. DEFAULT AND TERMINATION
15.1 PRI may terminate this Agreement by notice to Franchisee effective upon
receipt by Franchisee of the notice, and/or adopt any of the remedies
specified in Clause 15.2, if any of the following events occur:
(a) Franchisee is unable to pay any of its debts when they become due or
becomes insolvent or a liquidator, receiver, manager, administrator
or trustee in bankruptcy (or local equivalent) of the Franchisee or
the Business is appointed, whether provisionally or finally, or an
application or order for the winding up of Franchisee is made or
Franchisee enters into any composition or scheme of arrangement;
(b) Franchisee breaches any of the terms and conditions of Clauses 1.3,
5.1, 8, 9, 13 and 14;
(c) Franchisee commits any crime, offence or act which in PRI's
reasonable judgment is likely to adversely affect the goodwill of
the Business, the Marks, the System or the System Property;
(d) Franchisee knowingly or negligently maintains false records in
respect of the Business or submits any false report to PRI;
(e) Franchisee abandons or ceases to operate the Business for more than
3 consecutive days without PRI's prior written approval provided
that such approval will not be unreasonably withheld by PRI where
the abandonment or cessation is caused by war, civil commotion,
fire, flood, earthquake, act of God or any other cause beyond
Franchisee's reasonable control;
(f) any other agreement between PRI and Franchisee (or their respective
Affiliated Companies) is terminated;
(g) any part of this Agreement, or the guarantee referred to in Clause
12.3, is held to be void, invalid or otherwise unenforceable
pursuant to Clause 21.5;
(h) PRI notifies Franchisee that Franchisee has breached any term or
condition of this Agreement (other than Clauses 1.3, 5.1, 8, 9, 13
and 14) or any other agreement between PRI and Franchisee (or their
respective Affiliated Companies) relating to the Business and
Franchisee does not fully cure the breach to PRI's satisfaction
within the cure period provided for in the notice; or
<PAGE>
(I) Franchisee breaches any term or condition of this Agreement (other
than Clauses 1.3, 5.1, 8, 9, 13 and 14) or any other agreement
between PRI and Franchisee (or their respective Affiliated Companies)
relating to the Business in circumstances where, in the preceding 24-
month period, Franchisee has been sent 2 notices pursuant to Clause
15.1(h), whether or not Franchisee cured the prior breaches to PRI's
satisfaction.
15.2 If any of the events specified in Clause 15.1 occur, PRI may, in addition
and without prejudice to its rights under Clause 15.1:
(a) terminate, by notice to Franchisee, Franchisee's right under Clause
18 to renew the franchise hereby granted;
(b) terminate any development or option rights in respect of any system
or concept granted to Franchisee pursuant to any other agreement
between Franchisee and PRI (or their respective Affiliated
Companies);
(c) itself take whatever actions it considers necessary to cure the
breach at Franchisee's cost (including, without limitation,
administrative costs), such cost to be payable by Franchisee within
the period specified in a written demand from PRI;
(d) limit or withhold the supply of any products, supplies, materials,
equipment or services supplied to Franchisee by PRI or its Affiliated
Companies; or
(e) in the event that PRI has issued a notice pursuant to Clause 15.1(h)
in respect of a breach of Clause 3.1 and Franchisee has not fully
cured the breach to PRI's satisfaction within the cure period
provided for in the notice, PRI may take control of the Business for
a period of up to 30 days, for the purpose of rectifying the breach
and retraining Franchisee and Franchisee's employees at Franchisee's
cost, such cost to be payable by Franchisee within the period
specified in a written demand from PRI. During this period,
Franchisee and its employees must continue to attend the Outlet to
perform their responsibilities in the conduct of the Business, but
subject to the directions of PRI. Any obligations, liabilities or
costs incurred in respect of the Business during this period will be
Franchisee's responsibility and the indemnity in Clause 12.2 will
apply.
15.3 PRI's exercise of any of its rights under this Clause 15 will be in
addition to and not in limitation of any other rights and remedies it may
have in the event of any breach or default by Franchisee.
15.4 In the event of the expiration or termination of this Agreement,
Franchisee appoints PRI to be Franchisee's attorney with power to do in
the name of Franchisee and on Franchisee's behalf all acts and things
necessary to effect Franchisee's compliance with its obligations under
this Agreement, including, without limitation, executing documents.
Franchisee agrees that Franchisee will be bound by and will ratify all
acts and things done by PRI pursuant to this power of attorney.
16. CONSEQUENCES OF TERMINATION
16.1 Immediately upon the expiration or termination of this Agreement,
Franchisee will:
(a) pay all amounts owing to PRI;
<PAGE>
- 9 -
(b) discontinue all use of the Marks and the System Property and
otherwise cease holding out any affiliation or association with PRI
or the System unless authorized pursuant to any other written
agreement with PRI;
(c) dispose of all materials bearing the Marks and all supplies in
accordance with PRI's instructions; and
(d) if PRI so requires, restore or de-identify the Outlet in accordance
with PRI's instructions.
16.2 If Franchisee fails to fulfill any of its obligations under Clause 16.1,
PRI may itself take whatever actions it considers necessary to fulfill
those obligations and Invoice Franchisee for the full cost of such
actions, such invoice to be payable within 7 days.
16.3 For 60 days from the termination of this Agreement, PRI will have the
option to purchase, or to nominate a third party purchaser of, any of the
supplies held by Franchisee at cost price and any of the equipment or
signage at the Outlet at a price equal to book value less depreciation or
as otherwise agreed, and free of any charges or other security interests.
16.4 The rights and obligations under Clauses 8, 9, 10, 11, 12.2, 13(b),
15.2(c), 15.2(e), 16 will survive the expiration or termination of this
Agreement.
17. RIGHTS OF ENTRY
17.1 Nothwithstanding Clause 3.3, Franchisee expressly authorises PRI and its
agents or representatives to enter the Outlet, without prior notice to
Franchisee, for the purposes of Clauses 15.2(c), 15.2(e) and 16.2.
Franchisee hereby waives, and releases PRI from, any rights, actions or
claims which Franchisee may at any time have against PRI in connection
with PRI's entry into the Outlet.
17.2 Franchisee will execute any documents required by PRI in connection with
PRI's entry into the Outlet and use its best endeavours to procure any
consent required from any third party in connection with PRI's entry into
the Outlet.
18. RENEWAL
Upon the expiration of the Term, PRI will renew the franchise for the
renewal term specified in Schedule B if the following conditions are
satisfied:
(a) Franchisee requests the renewal in writing no more than 18 months and
no less than 12 months prior to the expiration of the Term;
(b) Franchisee's right to renew the franchise has not been terminated
under Clause 15.2(a) prior to the expiration of the Term;
(c) Franchisee is not at the expiration of the Term in breach of any term
or condition of this Agreement or any other agreement between PRI and
Franchisee (or their respective Affiliated Companies);
(d) Franchisee upgrades the Outlet to PRI's then current Standards for new
outlets prior to the expiration of the Term;
<PAGE>
-10-
(e) Franchisee executes PRI's then current Franchise Agreement for new
franchisees, incorporating the then current continuing fees,
advertising contributions and other financial obligations but
excluding any right of further renewal, together with any other
documents required by PRI to be executed by Franchisee or such
guarantors as PRI requires; and
(f) Franchisee pays the renewal fee specified in Schedule B to PRI at
least 90 days prior to the expiration of the Term.
19. DISPUTE RESOLUTION
19.1 PRI and Franchisee will endeavour to resolve by mutual negotiation any
dispute arising between them in connection with this Agreement.
19.2 If PRI and Franchisee fail to resolve any dispute by mutual negotiation,
the parties may refer the dispute to a mutually agreed mediator for non-
binding mediation. The parties will bear the costs of any mediation
equally.
19.3 Such dispute resolution procedures will not in any way prejudice or limit
PRI's ability to exercise its rights under Clause 15 at any time.
20. NOTICES
Any notice or other communication required or permitted under this
Agreement will be in writing and properly addressed to the addressee at
the address specified in this Agreement (or any other address notified by
the addressee) and will be deemed received by the addressee on the earlier
of the date of delivery, the date of transmission if sent by facsimile
with receipt confirming completion of transmission or, if sent by pre-paid
security or registered post, the deemed postal receipt date specified in
Schedule B.
21. MISCELLANEOUS
21.1 This Agreement constitutes the entire agreement between the parties with
respect to its subject matter and supersedes all prior negotiations,
agreements or understandings.
21.2 Franchisee is an independent contractor and is not an agent,
representative, joint venturer, partner or employee of PRI. No fiduciary
relationship exists between PRI and Franchisee.
21.3 This Agreement will inure to the benefit of PRI, its successors and
assigns and may be transferred by PRI to any party without Franchisee's
prior approval.
21.4 The delay or failure of any party to exercise any right or remedy pursuant
to this Agreement will not operate as a waiver of the right or remedy and
a waiver of any particular breach will not be a waiver of any other
breach. All rights and remedies under this Agreement are cumulative and
the exercise of one right or remedy will not limit the exercise of any
other right or remedy.
21.5 If any part of this Agreement is held to be void, invalid or otherwise
unenforceable, PRI may elect either to terminate this Agreement pursuant
to Clause 15.1 or to sever the void, invalid or unenforceable part, in
which event the remainder of this Agreement will continue in full force
and effect.
<PAGE>
21.6 The terms and conditions of this Agreement may be changed only in writing
signed by both parties, provided that the Standards and the Manuals may be
changed by the PRI from time to time pursuant to Clause 3.2.
21.7 This Agreement will be governed by and construed in accordance with the
law of the territory specified in Schedule B and the parties agree to
submit to the non-exclusive jurisdiction of the courts of that territory.
21.8 Franchisee will pay to PRI all reasonable legal expenses incurred by PRI
in connection with this Agreement, including, without limitation, any
stamp duty and any expenses incurred in connection with the enforcement of
this Agreement.
21.9 This Agreement is executed in English. A local language translation may be
attached, which the parties intend to be identical to the English text.
However, if any dispute arises as to the interpretation of the language of
this Agreement,the English text shall govern.
21.10 In the interpretation of this Agreement, unless the context indicates a
contrary intention:
(a) the obligations of more than one party will be joint and several;
(b) words denoting the singular include the plural and vice versa and
words denoting any gender include all genders;
(c) headings are for convenience only and do not affect interpretation;
(d) references to Clauses and Schedules are to clauses and schedules of
this Agreement; and the Schedules form part of this Agreement; and
(e) this Agreement may be executed in any number of counterparts, each of
which will be deemed an original but which together will constitute
one instrument.
FRANCHISEE'S REPRESENTATION
Franchisee represents to PRI that:
(a) Franchisee has reviewed this Agreement with the assistance of
independent legal counsel and understands and accepts the terms
and conditions of this Agreement;
(b) Franchisee has relied upon its own investigations and judgment
in entering this Agreement and no inducements, representations
or warranties have been given in respect of the Business or this
Agreement; and
(c) Franchisee acknowledges that establishment and operation of the
Business will involve significant financial risks and that the
success of the Business will depend upon the skills and
financial capacity of Franchisee and also upon changing economic
and market conditions.
<PAGE>
- 12 -
EXECUTED as an agreement
THE COMMON SEAL of )
KENTUCKY FRIED CHICKEN )
PTY LIMITED was affixed in the )
presence of: )
- ------------------------------------ ------------------------------------
Director/Secretary Director
THE COMMON SEAL of )
COLLINS FOODS INTERNATIONAL )
PTY LIMITED was affixed in the )
presence of: )
- ------------------------------------ ------------------------------------
Director/Secretary Director
<PAGE>
SCHEDULE A - DEFINITIONS
ACCOUNTING PERIOD means any one of the periods making up PRI's financial year.
ADVERTISING CONTRIBUTION means the percentage of Revenues specified in Schedule
B.
AFFILIATED COMPANIES means any companies which are part of one or more ownership
structures ultimately controlled by a common parent corporation or common
shareholders, including any related bodies corporate within the meaning of the
Corporations Law.
APPROVED PRODUCTS means the products from time to time approved by PRI for sale
in the Business.
BUSINESS means the business of preparing, marketing and selling the Approved
Products under the Marks at the Outlet pursuant to this Agreement.
CONCEPT means the concept franchised to Franchisee pursuant to this Agreement
and specified in Schedule B.
CONTINUING FEE means the percentage of Revenues specified in Schedule B.
DATE OF GRANT means the date specified in Schedule B.
DUE DATE means the date specified in Schedule B or any other date notified by
PRI to Franchisee from time to time.
MANUALS means the manuals, notices and correspondence published or issued from
time to time by PRI in any form, containing the Standards and other
requirements, rules, procedures and guidelines relating to the System.
MARKS means the trademarks, service marks and trade names and other similar
rights owned by PRI or its Affiliated Companies and designated by PRI from time
to time for use in the Business.
OUTLET means the outlet conforming to the Concept at the address specified in
Schedule B.
REVENUES means all gross receipts received by Franchisee as payment for the
Approved Products and for all other goods and services sold at or from the
Outlet or the Business and all service fees but excludes sales or other tax
receipts required by law to be remitted, and in fact remitted by Franchisee, to
any government authority and no adjustment for cash shortages from cash
registers will be made.
STANDARDS means the standards, specifications and other requirements of the
System from time to time determined, changed, or added to by PRI, including,
without limitation, with respect to the preparation, marketing and sale of the
Approved Products, customer service procedures, the design, decor and fit-out of
the Outlet, the equipment at the Outlet, and the content, quality and use of
advertising and promotional materials.
SYSTEM means the system for the preparation, marketing and sale of food products
used in operating the Concept.
SYSTEM PROPERTY means the contents of the Manuals and all other know how,
information, specifications, systems and data used by PRI in or in respect of
the System, including, without limitation, trade secrets, copyrights, designs,
patents and other intellectual property.
TERM means the period specified in Schedule B.
<PAGE>
SCHEDULE B
INFORMATION SCHEDULE
ADVERTISING CONTRIBUTION: 6% of Revenues:
(Clause 6) * 5% of Revenues to be paid by Franchisee to PRI
on or before each Due Date for administration by
PRI through a National Advertising Cooperative;
and
* 1% of Revenues to be spent by Franchisee on
local advertising and promotions in each
Accounting Period.
BANK: Westpac Banking Corporation
(Clause 11.1)
BANK ACCOUNT: Account No. 119481
(Clause 11.1) BSB No. 34002
CONCEPT: KFC Restaurant Outlet
CONTINUING FEE: 5% of Revenues
CURRENCY: Australian Dollars
(Clause 11.1)
DATE OF GRANT:
DUE DATE: 5 days after each Accounting Period
GOVERNING LAW: New South Wales
(Clause 21.7)
GUARANTORS: Not Applicable - no guarantee required by PRI.
(Clause 12.3)
IN-TERM RESTRAINT AREA: Australia and New Zealand
(Clause 13(a)
INITIAL FEE: Not Applicable
(Clause 2.1)
INTEREST RATE: Indicator lending rate quoted by Westpac Banking
(Clause 11.2) Corporation on the due date plus 2% per annum,
calculated on a daily basis.
OUTLET ADDRESS:
POST-TERM RESTRAINT AREA: As specified in Schedule C.
(Clause 13(b))
POSTAL RECEIPT DATE: 3 days after the date of posting
(Clause 20)
RENEWAL FEE: (If applicable) $55,000 adjusted in line with the
(Clause 18(g)) percentage increase in the Consumer Price Index
(all groups - Sydney) from the Date of Grant.
RENEWAL TERM:
(Clause 18)
TERM:
TRANSFER FEE: $55,000 adjusted in line with the percentage
(Clause 14.2) increase in the Consumer Price Index (all groups -
Sydney) from the Date of Grant.
<PAGE>
SCHEDULE C
ADDITIONAL PROVISIONS OF FRANCHISE AGREEMENT
C1. MAXIMUM RETAIL PRICE
--------------------
Franchisee will not permit any Approved Products to be sold at the Outlet
at any price exceeding the maximum retail prices advised by PRI to
Franchisee from time to time.
C2. FRANCHISING CODE PROVISION
--------------------------
Franchisee acknowledges that PRI is registered under the Franchising Code
of Practice, and accordingly Franchisee agrees to comply with all
provisions of the Franchising Code of Practice (as modified from time to
time).
C3. POST-TERM RESTRAINT AREA
------------------------
The non-competition restraint in Clause 13(b) of this Agreement will
apply:
(i) within a radius of 5km of any KFC retail outlet located in
Australia;
(ii) within a radius of 1km of any KFC retail outlet located in
Australia;
(iii) within a radius of 1km of any KFC retail outlet located in
Queensland;
(iv) within a radius of 5km of the Outlet;
(v) within a radius of 1km of the Outlet.
This Clause C3 will have effect as if it were 5 separate covenants and if
any one or more of such separate covenants is or becomes invalid or
unenforceable for any reason then such invalidity or unenforceability will
not affect the validity or enforceability of any of the other separate
covenants.
C4. DELIVERY OPERATIONS
-------------------
If PRI, in its discretion, determines to introduce delivery operations to
the System, PRI will have the right to require Franchisee to deliver the
Approved Products from the Outlet, within a specified delivery area
determined by PRI in accordance with the Manuals and notified by PRI to
Franchisee. Franchisee acknowledges and agrees that such delivery
operations may require capital expenditures by Franchisee at the Outlet.
The terms and conditions under which Franchisee will conduct such delivery
operations will otherwise be as specified in the Manuals.
C5. AMENDMENT OF CLAUSE 15.1(f)
---------------------------
Clause 15.1(f) will only apply in respect of a terminated agreement between
an Affiliated Company of PRI and an Affiliated Company of Franchisee to the
extent that such termination results from a breach of the agreement by the
Affiliated Company of Franchisee. For the avoidance of doubt, Clause
15.1(f) will not apply in the event of the expiration of the term of any
other agreement between PRI and Franchisee (or their respective Affiliated
Companies).
<PAGE>
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND AMONG
SIZZLER RESTAURANTS INTERNATIONAL, INC.
COLLINS PROPERTIES, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF JULY 15, 1996
-- EXHIBIT 10.26 --
<PAGE>
================================================================================
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS AND CONSTRUCTION........................................... 1
1.1 Definitions ...................................................... 14
1.2 Accounting Terms ................................................. 14
1.3 Code ............................................................. 14
1.4 Construction ..................................................... 14
1.5 Schedules and Exhibits ........................................... 14
2. LOAN AND TERMS OF PAYMENT ............................................. 14
2.1 Revolving Advances ............................................... 14
2.2 Overadvances ..................................................... 15
2.3 Interest: Rates, Payments, and Calculations ...................... 15
2.4 Collection of Accounts ........................................... 16
2.5 Crediting Payments; Application of Collections ................... 17
2.6 Borrower's Designated Accounts ................................... 17
2.7 Maintenance of Loan Account; Statements of Obligations ........... 18
2.8 Fees ............................................................. 18
3. CONDITIONS; TERMS OF AGREEMENT ........................................ 19
3.1 Conditions to the Continued Effectiveness of this Agreement ...... 19
3.2 Conditions Precedent to Initial Advance .......................... 20
3.3 Conidtions Precedent to all Advances ............................. 21
3.4 Condition Subsequent ............................................. 21
3.5 Term ............................................................. 21
3.6 Effect of Termination ............................................ 22
3.7 Early Termination by Borrower .................................... 22
3.8 Termination Upon Event of Default ................................ 22
4. CREATION OF SECURITY INTEREST ......................................... 22
4.1 Grant of Security Interest ....................................... 22
4.2 Negotiable Collateral ............................................ 23
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral ....................................................... 23
</TABLE>
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<TABLE>
<S> <C> <C>
4.4 Delivery of Additional Documentation Required................. 23
4.4 Power of Attorney............................................. 23
4.6 Right to Inspect.............................................. 23
5. REPRESENTATIONS AND WARRANTIES....................................... 24
5.1 No Encumbrances............................................... 24
5.2 Equipment..................................................... 24
5.3 Location of Inventory and Equipment........................... 25
5.4 Inventory and Equipment Records............................... 25
5.5 Location of Chief Executive Office; FEIN...................... 25
5.6 Due Organization and Qualification; Subsidiaries.............. 25
5.7 Due Authorization; No Conflict................................ 25
5.8 Financial Condition........................................... 26
5.9 Solvency...................................................... 26
5.10 Employee Benefits............................................. 27
5.11 Environmental Condition....................................... 27
6. AFFIRMATIVE COVENANTS................................................ 27
6.1 Accounting Systems............................................ 27
6.2 Collateral Reporting.......................................... 27
6.3 Financial Statements, Reports, Certificates................... 28
6.4 Tax Returns................................................... 29
6.5 Title to Equipment............................................ 29
6.6 Maintenance of Equipment...................................... 29
6.7 Taxes......................................................... 29
6.8 Insurance..................................................... 30
6.9 No Setoffs or Counterclaims................................... 32
6.10 Location of Inventory and Equipment........................... 32
6.11 Compliance with Laws.......................................... 32
6.12 [intentionally omitted]....................................... 32
6.13 Leases........................................................ 32
7. NEGATIVE COVENANTS................................................... 32
7.1 Indebtedness.................................................. 33
7.2 Liens......................................................... 33
7.3 Restrictions on Fundamental Changes........................... 34
7.4 Disposal of Assets............................................ 34
7.5 Change Name................................................... 34
7.6 Guarantee..................................................... 34
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.7 Nature of Business............................................. 34
7.8 Prepayments and Amendments..................................... 34
7.9 Change of Control.............................................. 34
7.10 Consignments................................................... 34
7.11 Distributions.................................................. 34
7.12 Accounting Methods............................................. 35
7.13 Investments.................................................... 35
7.14 Transactions with Affiliates................................... 35
7.15 Suspension..................................................... 35
7.16 Use of Proceeds................................................ 35
7.17 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees......................................... 35
7.18 No Prohibited Transactions Under ERISA......................... 36
7.19 Capital Expenditures........................................... 36
8. EVENTS OF DEFAULT.................................................... 36
9. FOOTHILL'S RIGHTS AND REMEDIES....................................... 37
9.1 Rights and Remedies............................................ 37
9.2 Remedies Cumulative............................................ 39
10. TAXES AND EXPENSES................................................... 39
11. WAIVERS; INDEMNIFICATION............................................. 40
11.1 Demand; Protest; etc........................................... 40
11.2 Foothill's Liability for Collateral............................ 40
11.3 Indemnification................................................ 40
11.4 Suretyship Waivers and Consents................................ 41
12. NOTICES.............................................................. 41
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................... 43
14. DESTRUCTION OF BORROWER'S DOCUMENTS.................................. 44
15. GENERAL PROVISIONS................................................... 44
15.1 Effectiveness.................................................. 44
15.2 Successors and Assigns......................................... 44
15.3 Section Headings............................................... 44
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
15.4 Interpretation....................................................44
15.5 Severability of Provisions........................................45
15.6 Amendments in Writing.............................................45
15.7 Counterparts; Telefacsimile Execution.............................45
15.8 Integration.......................................................45
</TABLE>
SCHEDULES AND EXHIBITS
Schedule A-1 Affiliated DIP Real Property
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.10 Profit Sharing Plan
Schedule 6.10 Location of Inventory and Equipment
Schedule 7.1 Existing Indebtedness
Exhibit S-1 Suretyship Agreement
-iv-
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
July 15, 1996, between FOOTHILL CAPITAL CORPORATION, a California corporation
(Foothill"), with a place of business located at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333, on the one hand, and, on the
other hand, SIZZLER RESTAURANTS INTERNATIONAL, INC., a Delaware corporation
("SRI") and COLLINS PROPERTIES, INC., a Delaware corporation ("CPI").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
--------------
under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
--------
accounts, contract rights, and all other forms of obligations owing to a Debtor
arising out of the sale or lease of goods or the rendition of services by such
Debtor, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Administrative Fee Reserves" means reserves established, maintained,
---------------------------
and adjusted from time to time by Foothill against the Maximum Amount which
reserves are intended to approximate the aggregate amount by which (a) existing
accrued and unpaid administrative claims eligible for inclusion within the
Professional Fee Exception when approved by the Bankruptcy Court, exceed (b)
$1,500,000.
"Advances" has the meaning set forth in Section 2.1 (a).
-------- ---------------
"Affiliates" means, as applied to any Person, any other Person who
----------
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary
<PAGE>
voting power for the election of directors or the direct or indirect power to
direct the management and policies of a Person.
"Affiliated DIPs" means Buffalo Ranch Steakhouses, Inc. and Tenly
---------------
Enterprises, Inc., individually and collectively, as the context requires.
"Affiliated DIP Real Property" means the parcels of real property
----------------------------
and the improvements thereto identified on Schedule A-1.
------------
"Agreement" has the meaning set forth in the preamble hereto.
---------
"Authorized Officer" means any officer or other employee of a Debtor.
------------------
"Average Unused Portion of Maximum Amount" means, as of any date of
----------------------------------------
determination, (a) the Maximum Amount, less (B) the average Daily Balance of
----
Advances that were outstanding during the immediately preceding month.
"Bankruptcy Code" means the United Stated Bankruptcy Code (11 U.S.C
---------------
(S) 101 et seq.), as amended, and any successor statute.
------
"Bankruptcy Court" means the United States Bankruptcy Court for the
----------------
Central District of California.
"Bankruptcy Court Order" means an order entered following a hearing of
----------------------
the Bankruptcy Court, which order shall be in form and substance acceptable to
Foothill and its counsel, in their sole discretion.
"Bankruptcy Recoveries" means all actions, causes of action, and
---------------------
proceeds thereof arising from or related to the assertion by any Debtor, its
successors, of any claims under Sections 365, 544, 545, 547, 548, 549, 550, 551,
or 553(b) of the Bankruptcy Code.
"Borrower" means the Debtors, individually and collectively, jointly
--------
severally.
"Borrower's Books" means all of Borrower's books and records
----------------
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
-2-
<PAGE>
"Borrower's Designated Account" means (a) in the case of SRI, account
-----------------------------
number 2180018312 of SRI maintained with Borrower's Designated Account Bank, and
(b) in the case of CPI, account number 2180018339 of CPI maintained with
Borrower's Designated Account Bank.
"Borrower's Designated Account Bank" means Union Bank, whose office is
----------------------------------
located at 445 South Figueroa Street, Los Angeles, California and whose ABA
number is 12200496.
"Business Day" means any day that is not a Saturday, Sunday, or other
------------
day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
-----------------
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 25% of the total voting power of all classes of stock then
outstanding of Borrower entitled to vote in the election of directors.
"Closing Date" means the date of the making of the initial Advance.
------------
"Code" means the California Uniform Commercial Code.
----
"Collateral" means each of the following:
----------
(a) the Accounts,
(b) the Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of Borrower that now or hereafter come
into possession, custody, or control of Foothill, and
(i) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or
all of the Collateral, and any and all Accounts, Borrower's
Books, Equipment, General Intangibles, Inventory, Negotiable
Collateral, Real Property, money, deposit accounts, or other
tangible or intangible property resulting from the sale,
exchange, collection, or
-3-
<PAGE>
other disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof.
"Collections" means all cash, checks, notes, instruments, and other
-----------
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Commitment Date" means June 10, 1996.
---------------
"Concentration Account" means (a) in the case of SRI, account number
---------------------
2180014708 of SRI maintained with the Concentration Account Bank, and (b) in the
case of CPI, an account to be designated in writing by CPI to Foothill, such
account being maintained with the Concentration Account Bank.
"Concentration Account Bank" means Union Bank, whose office is located
--------------------------
at 445 South Figueroa Street, Los Angeles, California, and whose ABA number is
12200496.
"Daily Balance" means the amount of an Obligation owed at the end of a
-------------
given day.
"Debtor" means SRI or CPI, or both, as the context may require; it
------
being understood that the term "Debtor" does not include Sizzler International,
Inc., Tenly Enterprises, Inc., and Buffalo Ranch Steakhouses, Inc.
"deems itself insecure" means that the Person deems itself insecure in
---------------------
accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the giving
-------
of notice, the passage of time, or both, would be an Event of Default.
"Dollars or $" means United States dollars.
------------
"Early Termination Premium" has the meaning set forth in Section 3.7.
------------------------- ------------
-4-
<PAGE>
"Effective Date" means the later to occur of (a) the date on which
--------------
this Agreement is executed and delivered by Borrower and Foothill, or (b) the
date on which the Bankruptcy Court Order is entered.
"Equipment" means all of Borrower's present and hereafter acquired
---------
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), whenever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
-----
U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
---------------
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"Event of Default" has the meaning set forth in Section 8.
---------------- ---------
"FEIN" means Federal Employer Identification Number.
----
"Foothill" has the meaning set forth in the preamble to this
--------
Agreement.
"Foothill Account" has the meaning set forth in Section 2.4.
---------------- -----------
"Foothill Expenses" means all: costs or expenses (including taxes, and
-----------------
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; costs or expenses paid or
incurred by Foothill in connection with the negotiation and closing of the
transactions evidenced by this Agreement and the other Loan Documents,
including, reasonable attorneys fees and expenses, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
-5-
<PAGE>
record searches (including tax lien, litigation, and ucc searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic Personal Property Collateral or Real Property Collateral
appraisals), real estate surveys, real estate title policies and endorsements,
and environmental audits; provided, however, that Borrower's obligation to
-------- -------
reimburse Foothill for such costs or expenses incurred by Foothill in connection
with the negotiation, execution, and delivery of the Loan Documents required
hereunder to be executed and delivered on or prior to the Effective Date, and
any and all costs and expenses incurred by Foothill in connection with the
filings or recording of such Loan Documents, shall be limited to a maximum
amount of $40,000 (exclusive of the amount for the title policy charges
respecting the Mortgage Policy); provided further, however, that, following the
---------------- -------
occurrence and during the continuation of an Event of Default, any and all costs
and expenses (including mortgage recording charges, documentary stamp taxes,
intangibles taxes, or otherwise) of Foothill in recording or filing Mortgages,
financing statements, or fixture filings shall be Foothill Expenses; costs and
expenses incurred by Foothill in the disbursement of funds to Borrower (by wire
transfer or otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Personal Property Collateral or
the Real Property Collateral, or any portion thereof, irrespective of whether a
sale is consummated; costs and expenses paid or incurred by Foothill in
examining Borrower's Books; costs and expenses of third party claims or any
other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrower; and Foothill's reasonable
attorneys fees and expenses incurred in administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout" or a "restructuring" concerning Borrower), defending, or concerning
the Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect
----
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
-------------------
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, tradenames, trademarks, servicemarks, copyright,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs,
-6-
<PAGE>
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
-------------------
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Hazardous Materials" means (a) substances that are defined or listed
-------------------
in, or otherwise classified pursuant to , any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Headquarters Property" means the corporate headquarters of Borrower
---------------------
located at 12655 West Jefferson Boulevard, Los Angeles, California.
"Identified Value" means, with respect to any item of Real Property
----------------
Collateral, an agreed value for such item of Real Property Collateral set forth
in a side letter agreement executed and delivered by Borrower and Foothill on or
prior to the date of the execution and delivery of this Agreement.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
------------
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of Borrower, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other person.
"Insolvency Proceeding" means any proceeding commenced by or against
---------------------
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria,
-7-
<PAGE>
compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of
-----------------
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Inventory" means all present and future inventory in which a Debtor
---------
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of each Debtors' present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
---
regulations thereunder.
"Lien" means any interest in property securing an obligation owed to,
----
or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed or trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Loan Account" has the meaning set forth in Section 2.7.
------------ ------------
"Loan Documents" means this Agreement, the Mortgages, any note or
--------------
notes executed by Borrower and payable to Foothill, and any other agreement
entered into, now or in the future, in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in the
-----------------------
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (b) the material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of Foothill to enforce the Obligations or realize upon the
Collateral, (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
-8-
<PAGE>
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Material Adverse Change (Collateral)" means (a) a material adverse
------------------------------------
effect on the value of the Collateral or the amount that Foothill would be
likely to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (b) a material impairment
of the priority of Foothill's Liens with respect to the Collateral.
"Maximum Amount" means, as of any date of determination, the result of
--------------
(a) the Maximum Revolving Amount, minus (b) the amount, if any, of the
-----
Administrative Fee Reserves.
"Maximum Revolving Amount" means, as of any date of determination, the
------------------------
result of (a) $15,000,000, minus (b) if the Headquarters Property has been sold,
-----
the Net Proceeds received by Borrower from the sale of the Headquarters
Property, minus (c)(i)(y) 50% of the Net Proceeds received by Borrower from the
-----
sale or other disposition by Borrower of properties or assets on or after the
Commitment Date (other than the Headquarters Property, other than Ordinary
Course Dispositions, and other than personalty sold or otherwise disposed of by
Borrower on or prior to the Effective Date), plus (z) 50% of the Net Proceeds
received by the Affiliated DIPs from the sale or other disposition by them of
the Affiliated DIP Real Property, if the cumulative Net Proceeds received by
Borrower or the Affiliated DIPs on account of such sales or other dispositions
is greater than $12,500,000 and less than $20,000,001, and (ii)(y) 75% of the
Net Proceeds received by Borrower from the sale or other disposition by Borrower
of properties or assets on or after the Commitment Date (other than the
Headquarters Property, other than Ordinary Course Dispositions, and other than
personalty sold or otherwise disposed of by Borrower on or prior to the
Effective Date), plus (z) 75% of the Net Proceeds received by the Affiliated
DIPs from the sale or other disposition by them of the Affiliated DIP Real
Property, if the cumulative Net Proceeds received by Borrower or the Affiliated
DIPs on account of such sales or other dispositions is greater than $20,000,000.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to
---------
secure debt, executed by Borrower in favor of Foothill, the form and substance
of which shall be satisfactory of Foothill, that encumber the Real Property
Collateral and the related improvements thereto.
"Mortgage Policy" has the meaning set forth in Section 3.2(e)
--------------- --------------
-9-
<PAGE>
"Negotiable Collateral" means all of Borrower's present and future
---------------------
letters of credit, notes, drafts, instruments, certificated securities (so long
as the representation in Section 5.6(c) remains true and correct, excluding the
--------------
shares of stock of Subsidiaries of Borrower), documents, personal property
leases (wherein Borrower is the lessor), chattel paper, and Borrower's Books
relating to and of the foregoing.
"Net Proceeds" means (a) the gross proceeds received (including any
------------
proceeds received by way of a promissory note, installment contract, or other
deferred payment, such proceeds to be valued at their face amount without any
discount for the time value of money or any discount or increase as a result of
the applicable rate of interest) from a sale or other disposition, in each case,
minus (b) the sum of all reasonable legal, tax, and other fees and expenses
incurred in connection with such sale or other disposition.
"Net Cash Proceeds" means (a) the gross cash payments received
-----------------
(including any cash payments received by way of deferred payment of principal
pursuant to, or in liquidation of, any note or installment receivable or
otherwise, but only as and when received, except that, with respect to any cash
equivalents received, Borrower shall be deemed to have received on the date of
receipt thereof a cash payment equal to the fair value of such cash equivalents
on such date) from a sale or other disposition, in each case, minus (b) the sum
of all reasonable legal, tax, and other fees and expenses incurred in connection
with such sale or other disposition.
"Obligations" means all loans, Advances, debts, principal, interest,
-----------
premiums (including Early Termination Premiums), liabilities (including all
amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Expenses, lease payments, guaranties, covenants, and
duties owing by Borrower to Foothill of any kind and description (whether
pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between Foothill and Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including and debt,
liability, or obligation owing from Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not paid
when due and all Foothill Expenses that Borrower is required to pay or reimburse
by the Loan Documents, by law, or otherwise.
"Order Entry Date" means the date on which the Bankruptcy Court enters
----------------
the Bankruptcy Court Order.
"Ordinary Administrative Claims Exception" means the payment in the
----------------------------------------
ordinary course of business of any Debtor of administrative claims owed by such
Debtor,
-10-
<PAGE>
other than claims for fees and expenses of professionals or trustees, and
including the expenses and fees referred to in Sections 503(b), 365(d)(3), and
365(d)(10) of the Bankruptcy Code; provided, however, that the Ordinary
-------- -------
Administrative Claims Exception shall not be applicable following the occurrence
and during the continuance of an Event of Default.
"Ordinary Course Dispositions" means the sale, exchange, or other
----------------------------
disposition, free and clear of Foothill's security interest (other than its
security interest in the proceeds of such sale, exchange, or other disposition),
of any Equipment or Inventory for fair value and in the ordinary course of
Borrower's business as currently conducted.
"Overadvance" has the meaning set forth in Section 2.5.
----------- -----------
"Permitted Disposition" means (a) subject to the prior or concurrent
---------------------
satisfaction of the applicable Release Condition therefor, the sale, exchange,
or other disposition, free and clear of Foothill's security interest (other than
its security interest in the proceeds of such sale, exchange, or other
disposition), of Real Property Collateral and related Equipment, and (b)
Ordinary Course Dispositions.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
---------------
unpaid taxes that are not yet due and payable or that are being contested as
provided in Section 6.9, (c) Liens set forth on Schedule P-1 attached hereto,
----------- ------------
(d) the interests of lessors under operating leases and purchase money Liens of
lessors under capital leases to the extent that the acquisition or lease of the
underlying asset was permitted under Section 7.10 and so long as the Lien only
------------
attaches to the asset purchased or acquired and only secures the purchase price
of the asset, (e) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business of Borrower and not in connection with the
borrowing of money, for sums not yet delinquent or that are being contested in
good faith and by proper proceedings diligently pursued, provided that a reserve
or other appropriate provision, if any, required by GAAP shall have been made
therefor on the applicable financial statements of Borrower, (f) Liens arising
from deposits made in connection with obtaining worker's compensation or other
unemployment insurance, (g) Liens or deposits to secure performance of bids,
tenders, or leases (to the extent permitted under this Agreement), incurred in
the ordinary course of business of Borrower and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of Borrower, (i) Liens of or resulting
from any judgment or award that would not have a Material Adverse Effect and as
to which the time for the appeal or petition for rehearing of which has not yet
expired, or in respect of which Borrower is in good faith prosecuting an appeal
for a review, and in respect
-11-
<PAGE>
of which a stay of execution pending such appeal or proceeding for review has
been secured, (j) with respect to any Real Property Collateral, easements,
rights of way, zoning and similar covenants and restrictions, and similar
encumbrances that customarily exist on properties of Persons engaged in similar
activities and similarly situated and that in any event do not materially
interfere with or impair the use or operation of the Collateral by Borrower or
the value of Foothill's Lien thereon or therein, or materially interfere with
the ordinary conduct of the business of Borrower, and (k) Liens granted by
Borrower in and to any of its properties or assets (other than the Bankruptcy
Recoveries) pursuant to an order of the Bankruptcy Court so long as such Liens
are expressly stated by such order to be junior (not senior or equal) to the
Liens of Foothill.
"Permitted Protest" means the right of Borrower to protest any Lien,
-----------------
tax, or rental payment, other than any such Lien that secures the Obligations,
provided that (a) a reserve with respect to such obligation is established on
the books of Borrower in an amount that is reasonably satisfactory to Foothill,
(b) any such protest is instituted and diligently prosecuted by Borrower in good
faith, and (c) Foothill is satisfied that, while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Liens of Foothill in and to the Collateral.
"Person" means and includes natural persons, corporations, limited
------
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the
----------------------------
Real Property Collateral.
"Plan" means any defined benefit or contribution plan, program, or
----
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
"Professional Fees Exception" means, as of the date any determination
---------------------------
thereof is to be made, the following: (i) administrative claims, up to an
aggregate amount of $5,000,000 (as reduced as provided herein), for fees and
expenses owed to professionals that were incurred by any of the Debtors or any
statutory creditors' committee appointed in any of their Chapter 11 cases and
expenses of the members thereof, in each case to the extent that they are
allowed pursuant to Section 330 of the Bankruptcy Code, which such
administrative claims, up to $5,000,000 (as reduced as provided herein) shall
rank pari-passu with the administrative claims of Foothill and which such
----------
$5,000,000 amount shall be reduced, on a dollar-for-dollar basis, by the amount
of payments made on account of
-12-
<PAGE>
claims for professional fees and expenses incurred in the Debtors' Chapter 11
cases, and (ii) fees of the United States Trustee payable pursuant to 28 U.S.C.
(S) 1930(a)(6) in the Chapter 11 cases of the Debtors: provided that the
--------
Professional Fees Exception shall not apply prospectively with respect to such
claims that first arise following (a) conversion of any of the Chapter 11 cases
of the Debtors to a proceeding under Chapter 7 of the Bankruptcy Code, (b)
appointment of a trustee in any of the Chapter 11 cases of the Debtors, (c)
dismissal of any of the Chapter 11 cases of the Debtors, (d) Foothill's
commencement and diligent prosecution of foreclosure or disposition of the
Collateral after an Event of Default, or (e) the effective date of a confirmed
plan of reorganization in any of the Chapter 11 cases of the Debtors.
"Real Property" means any estates or interests in real property now
-------------
owned or hereafter acquired by Borrower.
"Real Property Collateral" means the parcels of real property and the
------------------------
related improvements thereto identified on Schedule R-1.
------------
"Reference Rate" means the variable rate of interest, per annum, most
--------------
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto,as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Release Condition" means that (a) no Default or Event of Default has
-----------------
occurred and is continuing or would result therefrom, (b) Borrower is receiving
at least the Release Price for the subject Real Property and is receiving at
least fair value for the subject Equipment, and (c) Maximum Amount has been
adjusted if and to the extent provided herein and, if applicable, Borrower has
repaid the Obligations to an amount less than or equal to the adjusted Maximum
Amount.
"Release Price" means, with respect to any item of Real Property
-------------
Collateral, Net Cash Proceeds equal to not less than 75% of the Identified Value
of such items of Real Property Collateral.
"Subsidiary" of a Person means a corporation, partnership, limited
----------
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors or appoint
other managers of such corporation, partnership, limited liability company, or
other entity.
-13-
<PAGE>
"Trademark Security Agreements" means a Trademark Security Agreements
-----------------------------
executed and delivered by Borrower to Foothill, in form and substance
satisfactory to Foothill.
"Triggering Event" means any of (a) the occurrence and continuation of
----------------
a Default or Event of Default, (b) Foothill deems itself insecure, or (c) the
outstanding Advances equal or exceed $10,000,000.
"Voidable Transfer" has the meaning set forth in Section 15.8.
----------------- ------------
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and
the term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereunder,"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. An Event of Default shall
"continue" or be "continuing" until such Event of Default has been waived in
writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions,and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions of
this Agreement, from and after the Order Entry Date up to the Maturity Date,
Foothill agrees to make advances ("Advances") to Borrower in an amount at any
one time outstanding not to exceed the Maximum Amount as in effect from time to
time.
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(b) Anything to the contrary in Section 2.1(a) above
--------------
notwithstanding, Foothill may create reserves against the Maximum Amount without
declaring an Event of Default if it determines that there has occurred a
Material Adverse Change.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to exceed
the Maximum Amount.
(d) Amounts borrowed pursuant to this Section 2.1. may be
------------
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Section 2.1. is greater
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than either the Dollar limitations set forth in Section 2.1 (an "Overadvance"),
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Borrower immediately shall pay to Foothill, in cash, the amount of such excess
to be used by Foothill to repay Advances outstanding under Section 2.1.
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2.3 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rates. Except as provided in clause (b) below,
all Obligations shall bear interest at a per annum rate of 1 percentage point
above the Reference Rate.
(b) Default Rate. From and after and during the continuation
of an Event of Default, all Obligations shall bear interest at a per annum rate
equal to 5 percentage points above the Reference Rate.
(c) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7% per annum. To the extent that
interest accrued hereunder at the rate set forth herein would be less than the
foregoing minimum daily rate, the interest rate chargeable hereunder for such
day automatically shall be deemed increased to the minimum rate.
(d) Payments. Interest hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), the fees and
charges provided for in Section 2.8(c) (as
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<PAGE>
and when accrued or incurred), and all other payments due under any Loan
Document to Borrower's Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded and shall thereafter accrue interest at the
rate then applicable to Advances hereunder.
(e) Computation. The Reference Rate as of the date this
Agreement is 8.25% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
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anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
---- -----
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received,
shall be applied to reduce the principal balance of the Obligations to the
extent of such excess.
2.4 COLLECTION OF ACCOUNTS. Borrower shall at all times maintain a
concentration account (the "Concentration Account") and shall remit, on a daily
basis, all of its Collections to such Concentration Account. Borrower, Foothill,
and the Concentration Account Bank shall enter into an agreement that, among
things, shall provide that, from and after the giving of notice by Foothill to
such Concentration Account Bank, the Concentration Account Bank shall remit all
proceeds received in such Concentration to an account (the "Foothill Account")
maintained by Foothill at a depositary selected by Foothill. Foothill agrees
that it will not give such notice to the Concentration Account Bank unless a
Triggering Event has occurred. Borrower agrees that all Collections and other
amounts received by Borrower from any source immediately upon receipt shall be
deposited into the Concentration Account or into a deposit account of Borrower's
the proceeds of which are remitted on a daily basis to the Concentration
Account. No arrangement contemplated hereby shall be modified by Borrower
without the prior written consent of Foothill. Upon the occurrence of a
Triggering Event, Foothill may
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<PAGE>
elect to notify the Concentration Account Bank to remit all amounts received in
the Concentration Account to the Foothill Account.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the
Concentration Account Bank or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under Section 2.1, but shall
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not be considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the Foothill
Account or unless and until such Collection item is honored when presented for
payment. From and after the Effective Date, Foothill shall be entitled to charge
Borrower for 1 Business Day of 'clearance' or 'float' at the rate set forth in
Section 2.6(a) or Section 2.6(b), as applicable, on all Collections that are
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received into the Concentration Account (regardless of whether forwarded to
Foothill by the Concentration Account Bank, whether provisionally applied to
reduce the Obligations under Section 2.1, or otherwise). This across-the-board 1
-----------
Business Day clearance or float charge on all Collections is acknowledged by the
parties to constitute an integral aspect of the pricing of Foothill's financing
of Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Foothill, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging 1 Business Day of interest on such Collections. Should
any Collection item not be honored when presented for payment, then Borrower
shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill only
if it is received into the Foothill Account on a Business Day on or before 11:00
a.m. Los Angeles time. If any Collection item is received into the Foothill
Account on a non-Business Day or after 11:00 a.m. Los Angeles time on a Business
Day, it shall be deemed to have been received by Foothill as the opening of
business on the immediately following Business Day.
2.6 BORROWER'S DESIGNATED ACCOUNTS. Foothill is authorized to make
the Advances under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Office of Borrower, or
without instructions if pursuant to Section 2.3(d). Each Debtor agrees to
--------------
establish and maintain its respective Borrower's Designated Account with
Borrower's Designated Account Bank for the purpose of receiving the proceeds of
the Advances requested by Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and Borrower, any Advance requested by a Debtor and
made by Foothill hereunder shall be made to its respective Borrower's Designated
Account.
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<PAGE>
2.7 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances, including,
accrued interest, Foothill Expenses, and any other payment Obligations of
Borrower. In accordance with Section 2.5, the Loan Account will be credited with
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all payments received by Foothill from Borrower or for Borrower's account,
including all amounts received in the Foothill Accounts from the Concentration
Account Bank. Foothill shall render statements regarding the Loan Account to
Borrower, including principal, interest, fees, and including an itemization of
all charges and expenses constituting Foothill Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill unless, within 30
days after receipt thereof by Borrower, Borrower shall deliver to Foothill by
registered or certified mail at its address specified in Section 12, written
----------
objection thereto describing the errors contained in any such statements.
2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) Commitment Fee. On the Effective Date, a commitment fee
of $150,000, which commitment fee previously was earned in full by the execution
and delivery of a commitment letter by Foothill and Borrower;
(b) Unused Line Fee. On the first day of each month from and
after the Effective Date during the term of this Agreement, an unused line fee
in an amount equal to .50% per annum times the Average Unused Portion of the
Maximum Amount;
(c) Financial Examination, Documentation, and Appraisal Fee.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Foothill; Foothill's customary appraisal fee
of $1,500 per day per appraiser, plus out-of-pocket expenses for each appraisal
of the Collateral performed by personnel employed by Foothill; and, the actual
charges paid or incurred by Foothill if it elects to employ the services of
one or more third Persons to perform such financial analyses and examinations
(i.e., audits) of Borrower or to appraise the Collateral. The foregoing
notwithstanding, so long as no Event of Default has occurred and is continuing,
Lender's charges for financial analyses and examinations and appraisals shall be
limited to $3,250 and $1,500, per annum, respectively; and
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<PAGE>
(d) Servicing Fee. On the first day of each month after
the Effective Date during the term of this Agreement, and thereafter so long as
any Obligations are outstanding, a servicing fee in all amount equal to $1,500.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS TO THE CONTINUED EFFECTIVENESS OF THIS AGREEMENT.
The continued effectiveness of this Agreement is subject to the fulfillment, to
the satisfaction of Foothill and its counsel, of each of the following
conditions on or before July 31, 1996:
(a) the Order Entry Date shall have occurred;
(b) Foothill shall have received a certificate from the
Secretary of each Debtor attesting to the resolutions of such Debtor's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which it is a party and authorizing specific
officers of such Debtor to execute the same;
(c) Foothill shall have received copies of each Debtor's
Governing Documents, as amended, modified, or supplemented, certified by the
Secretary of such Debtor;
(d) Foothill shall have received a certificate of status with
respect to each Debtor, each dated within 10 days of the Order Entry Date, such
certificates to be issued by the appropriate officer of the jurisdiction of
organization of such Debtor, which certificate shall indicate that such Debtor
is in good standing in such jurisdiction;
(e) Foothill shall have received certificates of status with
respect to each Debtor, each dated within 15 days of the Order Entry Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be qualified or licensed would have a Material Adverse
Change, which certificates shall indicate that such Debtor is in good standing
in such jurisdictions;
(f) Foothill shall have received satisfactory evidence that
all returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
Real Property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest); and
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<PAGE>
(g) all other documents and matters in connection with
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
3.2 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Foothill to make the initial Advance is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) Each of the conditions set forth in Section 3.1 shall
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have been fulfilled or shall have been waived by Foothill;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the agreement among Borrower, the Concentration
Account Bank, and Foothill;
ii) the Mortgages; and
iii) the Trademark Security Agreement;
(d) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
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6.8, the form and substance of which shall be satisfactory to Foothill and its
- ---
counsel;
(e) Foothill shall have received a mortgagee title
insurance policy (or a marked commitment to issue the same) for the Headquarters
Property issued by a title insurance company satisfactory to Foothill ("Mortgage
Policy") in an amount satisfactory to Foothill assuring Foothill that the
Mortgage on such Real Property Collateral is a valid and enforceable first
priority mortgage Lien free and clear of all defects and encumbrances except
Permitted Liens, and the Mortgage Policy shall otherwise be in form and
substance reasonably satisfactory to Foothill; and
(f) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
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<PAGE>
3.3 CONDITIONS PRECEDENT TO ALL ADVANCES. The following shall be
conditions precedent to all Advances hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
3.4 CONDITION SUBSEQUENT. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default hereunder):
(a) within 30 days of the Closing Date, deliver to Foothill the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.8, the form and substance of which shall
-----------
be satisfactory to Foothill and its counsel.
3.5 TERM. This Agreement shall become effective upon the execution
and delivery hereof by Borrower and Foothill and shall continue in full force
and effect for a term ending on the earliest of (a) the effective date of a
confirmed plan of reorganization for either or both of the Debtors, (b) the date
that is 2 years after the Effective Date (the "Stated Termination Date"), and
(c) the date of termination of this Agreement in accordance with its terms after
the occurrence and during the continuation of an Event of Default (such earliest
date being referred to herein as the "Maturity Date"). Either party may
terminate this Agreement effective on the Stated Maturity Date by giving the
other party at least 30 days prior written notice by registered or certified
mail, return receipt requested. The foregoing notwithstanding, Foothill shall
have the right to terminate its obligations under this Agreement immediately and
without notice upon the occurrence and during the continuation of an Event of
Default.
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3.6 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated.
3.7 EARLY TERMINATION BY BORROWER. The provisions of Section 3.4
-----------
that allow termination of this Agreement by Borrower only on the Stated Maturity
Date notwithstanding, Borrower has the option, at any time upon 30 days prior
written notice to Foothill, to terminate this Agreement by paying to Foothill,
in cash, the Obligations, in full and, if such termination and repayment occurs,
directly or indirectly, as a result of a refinancing transaction, together with
a premium (the "Early Termination Premium") equal to 0.5% of the then applicable
Maximum Revolving Amount.
3.8 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default that intentionally is
caused by Borrower for the purpose, in Foothill's reasonable judgment, of
avoiding payment of the Early Termination Premium provided in Section 3.5, in
-----------
view of the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall pay to Foothill upon
the effective date of such termination, a premium in an amount equal to the
Early Termination Premium. The Early Termination Premium shall be presumed to
be the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this Section
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3.8 shall be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired of
arising Personal Property Collateral in order to secure prompt repayment of any
and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Foothill's security
interests in the Personal Property Collateral shall attach to all Personal
Property Collateral without further act on the part of Foothill or Borrower.
Anything contained in this Agreement or any
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other Loan Document to the contrary notwithstanding, except for Permitted
Dispositions, Borrower has no authority, express or implied, to dispose of any
term or portion of the Personal Property Collateral or the Real Property
Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time after the occurrence and during the continuation of
Event of Default or that Foothill deems itself insecure, Foothill or Foothill's
designee may (a) notify customers or Account Debtors of Borrower that the
Accounts, general Intangibles, or Negotiable Collateral have been assigned to
Foothill or that Foothill has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to Foothill in their
original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, application for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill reasonably may request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral , and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by and appoints Foothill) as Borrower's true and lawful
attorney, with power to (a) if Borrower refuses to, or fails timely to execute
and deliver any of the documents described in Section 4.4, sign the name of
-----------
Borrower on any of the documents described in Section 4.4, (b) at any time that
-----------
an Event Default has occurred and is continuing or Foothill deems itself
insecure, sign Borrower's name on any invoice or bill of lading relating to any
Account, drafts against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors, (c) send requests for
verification of Accounts,
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(d) endorse Borrower's name on any Collection item that may come into Foothill's
possession, (e) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, notify the post office authorities
to change the address for delivery of Borrower's mail to an address designated
by Foothill, to receive and open all mail addressed to Borrower, and to retain
all mail relating to the Collateral and forward all other mail to Borrower, (f)
at any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms that Foothill determines to be reasonable, and Foothill
may cause to be executed and delivered any documents and releases that Foothill
determines to be necessary. The appointment of Foothill as Borrower's attorney,
and each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each Debtor,
jointly and severally, makes the following representations and warranties which
shall be true, correct, and complete in all respects as of the date hereof, and
shall be true, correct, and complete in all respects as of the Closing Date, and
at and as of the date of the making of each Advance made thereafter, as though
made on and as of the date of such Advance (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens except for Permitted Liens.
5.2 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
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5.3 LOCATION OF INVENTORY AND EQUIPMENT. Except for Equipment
having a value of not more than $100,000, the Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party and are located only at
the locations identified on Schedule 6.10 or otherwise permitted by Section
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6.10.
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5.4 INVENTORY AND EQUIPMENT RECORDS. Borrower keeps correct and
accurate records itemizing and describing the kind, type, quality, and quantity
of the Inventory and Equipment, and Borrower's cost therefor.
5.5 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of each Debtor is located in Los Angeles, California. SRI's FEIN is
95-2548114, and CPI's FEIN is 95-4316280.
5.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Debtor is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to have a
Material Adverse Change.
(b) Set forth on Schedule 5.6 attached hereto is a complete
------------
and accurate list of Borrower's direct and indirect Subsidiaries, showing: (i)
the jurisdiction of their incorporation; (ii) the number of shares of each
class of common and preferred stock authorized for each of such Subsidiaries;
and (iii) the number and the percentage of the outstanding shares of each such
class owned directly or indirectly by Borrower.
(c) None of Borrower's direct or indirect Subsidiaries has any
operations nor any net equity.
5.7 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by each Debtor of
this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by each debtor of
this Agreement and the Loan Documents to which it is a party do not and will not
(i) violate any provision of federal,state, or local law or regulation
(including Regulations G, T, U, and X of the Federal Reserve Board) applicable
to such Debtor, the Governing
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Documents of such Debtor, or any order, judgment, or decree of any court or
other Governmental Authority binding on such Debtor, (ii) result in or require
the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of such Debtor, other than Permitted Liens, or (iii)
require any approval of stockholders of Debtor.
(c) Other than (i) the obtaining of the Bankruptcy Court
Order, (ii) the taking of any other action expressly required under this
Agreement and the Loan Documents, (iii) the taking of any required action with
or by any state or local Governmental Authority that regulates the sale of
alcoholic beverages or business franchises, and (iv) any required or appropriate
filing or disclosure to the Securities and Exchange Commission or the New York
Stock Exchange, the execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which Borrower is a party do not and will
not require any registration with, consent, or approval, or notice to, or other
action with or by, any federal, state, foreign, or other Governmental Authority
or other Person.
(d) This Agreement and the Loan Documents to which each Debtor
is a party, and all other documents contemplated hereby and thereby, when
executed and delivered by such Debtor will be the legally valid and binding
obligations of such Debtor, enforceable against such Debtor in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws relating to or limiting creditors' rights generally.
(e) The Liens granted by each Debtor to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.8 FINANCIAL CONDITION. All financial statements relating to
Borrower that have been delivered by Borrower to Foothill have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been a
Material Adverse Change (Collateral) with respect to Borrower since the date of
the latest financial statements submitted to Foothill on or before the Effective
Date.
5.9 SOLVENCY. No transfer of property is being made by Borrower
and no obligation is being incurred by Borrower in connection with the
transactions contemplated
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by this Agreement or the other Loan Documents with the intent to hinder, delay,
or defraud either present or future creditors of Borrower.
5.10 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries,
or any of their ERISA Affiliates maintains or contributes to any Plan other than
Borrower's profit sharing plan described on Schedule 5.10.
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5.11 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials. None of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by Borrower. Borrower has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.
6. AFFIRMATIVE COVENANTS.
Each Debtor, jointly and severally, covenants and agrees that, so long
as any credit hereunder shall be available and until full and final payment of
the Obligations, and unless Foothill shall otherwise consent in writing,
Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP and also maintains records pertaining to the Collateral that contain
information as from time to time may be requested by Foothill. Borrower also
shall keep a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on a
monthly basis, and in any event, by no later than the 10th day of each month
during the term of this Agreement, a listing of each of Borrower's currently
operating restaurants, (b) on a monthly basis, and in any event, by no later
than the 10th day of each month during the term of this Agreement, a listing of
each of Borrower's restaurants that have been closed during the
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prior 90 day period, (c) on a monthly basis, and in any event, by no later than
the 10th day of each month during the term of this Agreement, a listing of
Borrower's restaurants that are projected to be closed or sold during the
upcoming 180 day period, (d) on a monthly basis, and in any event, by no later
than the 10th day of each month during the term of this Agreement, a detailed
listing of the properties or assets that have been sold or otherwise disposed of
since the Commitment Date (other than Ordinary Course Dispositions and other
than personalty sold or otherwise disposed of by Borrower on and after the
Commitment Date and on or prior to the Effective Date) and a statement of the
Net Proceeds received by Borrower from each such sale or other disposition, (e)
on a weekly basis, a statement of the existing accrued and unpaid administrative
claims eligible for inclusion within the Professional Fees Exception when
approved by the Bankruptcy Court, and (f) such other reports as to the
Collateral or the financial condition of Borrower as Foothill may request from
time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after the
end of each month during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering Borrower's
operations during such period; and (b) as soon as available, but in any event
within 90 days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants do not have knowledge of the existence
of any Default or Event of Default. Such audited financial statements shall
include a balance sheet, profit and loss statement, and statement of cash flow
and, if prepared, such accountants' letter to management. Borrower agrees to
deliver financial statements prepared on a combined and consolidating basis so
as to present each Borrower on a combined basis and each Debtor separately.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the financial condition of
Borrower.
Each month, together with the financial statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Foothill a certificate signed by
--------------
its chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to
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Foothill hereunder have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present the financial
condition of Borrower, (ii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), and (iii) on the date of delivery
of such certificate to Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, to the extent of any non-
compliance or Default or Event of Default, describing such non-compliance as to
which he or she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill may request. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding Borrower's business
affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower immediately
shall deliver to Foothill, properly endorsed, any and all evidences of ownership
of, certificates of title, or applications for title to any items of Equipment.
6.6 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.7 TAXES. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of
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its property shall be paid in full, before delinquency or before the expiration
of any extension period, except to the extent that the validity of such
assessment or tax (other than payroll taxes arising after the date of filing by
Borrower of Chapter 11 cases under the Bankruptcy Code or taxes arising after
the date of filing by Borrower of Chapter 11 cases under the Bankruptcy Code
that are the subject of a United States federal tax lien) shall be the subject
of a Permitted Protest. Borrower shall make due and timely payment or deposit of
all such federal, state, and local taxes, assessments, or contributions required
of it by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Borrower will make timely payment or deposit of all tax payments and withholding
taxes required of it by applicable laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability, and local, state, and federal income
taxes, and will, upon request, furnish Foothill with proof satisfactory to
Foothill indicating that Borrower has made such payments or deposits.
6.8 INSURANCE.
(a) At its expense, keep the Personal Property Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Personal Property Collateral, as
well as insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the
type necessary to insure the Improvements and Chattels (as such terms are
defined in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collison, and other risks from time to
time included under "extended coverage" policies, in such amounts as Foothill
may require, but in any event in amounts sufficient to prevent Borrower from
becoming a co-insurer under such policies, (ii) combined single limit bodily
injury and property damages insurance against any loss, liability, or damages
on, about, or relating to each parcel of Real Property Collateral, in an amount
of not less than $10,000,000; (iii) business rental insurance covering annual
receipts for a 12 month period for each parcel of Real Property Collateral; and
(iv) insurance for such other risks as Foothill may require. Replacement costs,
at Foothill's option, may be redetermined by an insurance appraiser,
satisfactory to Foothill, not more frequently than once every 12 months at
Borrower's cost.
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(c) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which have
a Best's rating of A for capital and X for financial stability. All such
insurance shall, with respect to hazard insurance and such other insurance as
Foothill shall specify, shall contain a California Form 438BFU (NS) mortgagee
endorsement, or an equivalent endorsement satisfactory to Foothill, showing
Foothill as sole loss payee thereof, and shall contian a waiver of warranties.
Every policy of insurance referred to in this Section 6.8 shall contain an
-----------
agreement by the insurer that it will not cancel such policy except after 30
days prior written notice to Foothill and that any loss payable thereunder shall
be payable notwithstanding any act or negligence of Borrower or Foothill which
might, absent such agreement, result in a forfeiture of all or a part of such
insurance payment and notwithstanding (i) occupancy or use of the Real Property
Collateral for purposes more hazardous than permitted by the terms of such
policy, (ii) any foreclosure or other action or proceeding taken by Foothill
pursuant to the Mortgages upon the happening of an Event of Default, or (iii)
any change in title or ownership of the Real Property Collateral. Borrower shall
deliver to Foothill certified copies of such policies of insurance and evidence
of the payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Borrower
shall give Foothill prompt notice of any loss covered by such insurance and
Foothill shall have the right to adjust any loss. Foothill shall have the
exclusive right to adjust all losses payable under any such insurance policies
without any liability to Borrower whatsoever in respect of such adjustments. Any
monies received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Foothill to be applied
at the option of Foothill either to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect, or shall be disbursed to
Borrower under stage payment terms satisfactory to Foothill for application to
the cost of repairs, replacements, or restorations. All repairs, replacements,
or restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, Foothill
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Foothill shall determine.
(e) Borrower shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be maintained
under this Section 6.8, unless Foothill is included thereon as named insured
-----------
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local
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<PAGE>
equivalent. Borrower immediately shall notify Foothill whenever such separate
insurance is taken out, specifying the insurer thereunder and full particulars
as to the policies evidencing the same, and originals of such policies
immediately shall be provided to Foothill.
6.9 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.10 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the location identified on Schedule 6.10; provided, however,
------------- -------- -------
that Borrower may amend Schedule 6.10 so long as such amendment occurs by
-------------
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary or advisable to perfect and continue perfected Foothill's
security interests in such assets.
6.11 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules regulations and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to have a Material Adverse Change.
6.12 [INTENTIONALLY OMITTED].
6.13 LEASES. Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest or
Borrower is entitled not to make such payments pursuant to and without violating
any provision of the Bankruptcy Code or of any order of the Bankruptcy Court
(including, without limitation, the ability of Borrower to cease making payments
under lease rejected in accordance with the provisions of the Bankruptcy Code or
an order of the Bankruptcy Court). To the extent that Borrower fails timely to
make payment of such rents and other amounts payable when due under its leases,
Foothill shall be entitled, in its discretion, to reserve an amount equal to
such unpaid amounts against the Maximum Amount.
7. NEGATIVE COVENANTS.
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Each Debtor, jointly and severally, covenants and agrees that, so long
as any credit hereunder shall be available and until full and final payment of
the Obligations, Borrower will not do any of the following without Foothill's
prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth on Schedule 7.1 attached hereto;
------------
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
-----------
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayments of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced
under Section 7.1(d) and so long as the replacement Liens only encumber those
--------------
assets or property that secured the original Indebtedness). Anything contained
herein to the contrary notwithstanding, in no event shall Borrower create,
incur, assume, or permit to exist, directly or indirectly, any Lien on or with
respect to the Bankruptcy Recoveries; provided that nothing in this sentence
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shall prohibit any attorney retained to prosecute Bankruptcy Recoveries from
claiming an attorneys' Lien under applicable state law with respect to any
Bankruptcy Recoveries prosecuted by such attorney.
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7.3 RESTRICTIONS ON FUNDAMENTAL CHARGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of related
transactions, all or any substantial part of its property or assets.
7.4 DISPOSAL OF ASSETS. Except for Permitted Dispositions,
sell, lease, assign, transfer, or otherwise dispose of any of Borrower's
properties or assets.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third Person expect by endorsement
of instruments or items of payment for deposit to the account of Borrower or
which are transmitted or turned over to Foothill.
7.7 NATURE OF BUSINESS. Make any change in the principal
nature of Borrower's business.
7.8 PREPAYMENTS AND AMENDMENTS. (a) Except in connection with
a refinancing permitted by Section 7.1(d), prepay, redeem, retire, defease,
--------------
purchase, or otherwise acquire any Indebtedness owing to any third Person,
other than the Obligations in accordance with this Agreement, and (b) directly
or indirectly, amend, modify, alter, increase, or change any of the terms or
conditions of any agreement, instrument, document, indenture, or other writing
evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), or
------------------------
(d) if the effect thereof reasonably could be expected to have a Material
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Adverse Change.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on bill and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of Borrower's capital stock, of any
class, whether now or hereafter outstanding.
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7.12 ACCOUNTING METHODS. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Foothill pursuant to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 INVESTMENTS. Directly on indirectly make, acquire, or incur
any liabilities (including contingent obligations) for or in connection with (a)
the acquisition of the securities (whether debt or equity) of, or other interest
in, a Person, (b) loans, advances, capital contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.16 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than (a) on the Closing Date, to pay
transactional costs and expenses incurred in connection with this Agreement, and
(b) thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes.
7.17 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary or advisable to perfect and
continue perfected Foothill's security interest. Except for Equipment having a
value of not more than $100,000, the Inventory and Equipment shall not at any
time now or hereafter be stored with a bailee, warehouseman, or similar party.
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7.18 No Prohibited Transactions Under ERISA. Create or maintain any
Plan.
7.19 Capital Expenditures. Make capital expenditures (a) during the
first 12 months following the Effective Date in excess of $14,000,000, and (b)
during the term of this Agreement in excess of $20,000,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest,
fees and charges due Foothill, reimbursement of Foothill Expenses, or other
amounts constituting Obligations);
8.2 If Borrower fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Foothill;
8.3 If there is a Material Adverse Change (Collateral);
8.4 If any third Person obtains from the Bankruptcy Court relief
from the automatic stay under the Bankruptcy Code to permit such Person to
attach, seize, subject to a writ or distress warrant, or levy upon, or obtain
possession of, a material portion of any Debtor's Collateral in connection with
a claim of such Person of $100,000 or more;
8.5 If a trustee is appointed in any Debtor's Chapter 11 case or if
any Debtor's Chapter 11 case is converted to a case under Chapter 7 of the
Bankruptcy Code;
8.6 If any Debtor is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.7 If a notice of Lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or
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more of such entities becomes a Lien, whether choate or otherwise, upon any of
Borrower's properties or assets and the same is not paid on the payment date
thereof;
8.8 [intentionally omitted];
8.9 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of Borrower's properties or assets; or
8.10 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default, Foothill may, at its election, without
notice of its election and without demand, except to the extent expressly
required below or to the extent expressly required by the Bankruptcy Court
Order, do any one or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations immediately due and payable;
(b) Cease extending credit to or for the benefit of Borrower;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill;
(d) [intentionally omitted];
(e) [intentionally omitted];
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Personal Property Collateral if Foothill so requires, and
to make the Personal Property Collateral available to Foothill as Foothill may
designate. With respect to any of Borrower's owned or leased premises, Borrower
hereby grants Foothill a license to enter into possession of such premises and
to occupy the same, without charge, for up to 120 days in order to
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exercise any of Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(g) [intentionally omitted];
(h) [intentionally omitted];
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral. Foothill is hereby granted a license
or other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Foothill's benefit;
(j) Apply to the Bankruptcy Court, upon 5 Business Days notice
to Borrower, Borrower's counsel, counsel for the official creditors committee in
such case, counsel for the unofficial committee of banks in such case (so long
as such a committee exists and is represented by counsel), and the United States
Trustee (which 5 Business Days notice hereby conclusively,is agreed to be
sufficient notice), for one or more of the following forms of relief: (a)
appointment of an examiner for Borrower; (b) appointment of a trustee for
Borrower; (c) conversion of a Chapter 11 case to a case under Chapter 7 of the
Bankruptcy Code; or (d) dismissal of the bankruptcy case. Borrower hereby
expressly agrees that 5 Business Days notice shall be adequate notice for the
requesting of the foregoing specified forms of relief in the event of the
occurrence and continuation of an Event of Default hereunder, and Borrower
expressly waives any right to object to the adequacy of notice in connection
with a request for any of the foregoing specified forms of relief if such 5
Business Days notice is given and an Event of Default is found to exist. Nothing
in this paragraph shall limit the right of Foothill to apply to the Bankruptcy
Court for such other or further relief as may be justified and appropriate, and
nothing in this paragraph shall limit the other rights and remedies of Foothill
provided for elsewhere in this Agreement or in any other Loan Document;
(k) Sell the Personal Property Collateral at either a public
or private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Foothill determines is commercially reasonable. It is not necessary
that the Personal Property Collateral be present at any such sale;
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(l) Foothill shall give notice of the disposition of the
Personal Property Collateral as and to the extent required by Division 9 of the
California Commercial Code;
(m) Foothill may credit bid and purchase at any public sale;
(n) Foothill shall have all other rights and remedies available
to it at law or in equity pursuant to any other Loan Documents, including, the
Mortgages; and
(o) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
Anything in this Section 9.1 to the contrary notwithstanding, Foothill shall not
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exercise any of the remedies provided for in subsections (d), (f), (g), (i),
-------------------
(k), (l) or (n) of this Section 9.1 except upon 30 days prior written notice to
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the Debtor that has rights in the Collateral that is being disposed of, unless
Foothill has determined in good faith that exigent circumstances exist (such as,
without limitation, fraud, concealment, conversion, waste, or abscondment) such
that Foothill's ability to be repaid the Obligations, or the realizable value of
Foothill's interest in the Collateral, would be materially impaired or
jeopardized as a consequence of the delay occasioned by the giving of such prior
written notice, in which event Foothill promptly shall give written notice to
Borrower of the exercise of such remedies concurrent with or following the
exercise of such remedies. The foregoing notice requirement shall not be
applicable to actions taken by Foothill in accordance with the terms of the Loan
Documents that are not premised upon the existence of an Event of Default, such
as, by way of illustration and not by way of limitation, applicable of funds
collected from the Collection Account in the ordinary course of business to the
reduction of the Obligations.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
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If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that such
failure by Borrower could result in a Material Adverse Change, in its discretion
and without prior notice to Borrower, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's Loan Account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.8 and take any action
-----------
with respect to such policies as Foothill deems prudent. Any such amounts paid
by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of any such
expense, tax, or lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayments,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands suits, actions, investigations, proceedings,
and damages, and all reasonable attorneys fees and disbursements and other costs
and expenses actually incurred in connection therewith (as
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<PAGE>
and when they are incurred and irrespective of whether suit is brought,) at any
time asserted against, imposed upon, or incurred by any of them in connection
with or as a result of or related to the execution, delivery, enforcement,
performance, and administration of this Agreement and any other Loan Documents
or the transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
------------
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
114 SURETYSHIP WAIVERS AND CONSENTS. The Debtors represent to
Foothill that they are integral parts of a consolidated enterprise, and that
each Debtor will receive direct and indirect benefits from the availability of
the joint credit facility provided for herein, and from the ability to access
the collective credit resources of the consolidated enterprise that is the
Borrower. Each Debtor irrevocably authorizes each other Debtor to act on its
behalf in requesting, authorizing, and using the proceeds of loans made
hereunder, and each Debtor agrees to be bound by the acts of each of the others
in connection with the Loan Documents. In furtherance of the foregoing, each of
the Debtors agrees to execute and sign the Suretyship Agreement attached hereto
as Exhibit S-1.
-----------
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to SRI: SIZZLER RESTAURANTS INTERNATIONAL, INC.
12655 West Jefferson Boulevard
Los Angeles, California 90066
Attn: Christopher R. Thomas
Fax No: 310.821.6811
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<PAGE>
with copies to: PACHULSKI, STANG, ZIEHL & YOUNG P.C.
10100 Santa Monica Boulevard, Suite 1100
Los Angles, California 90067
Attn: Brad Godshall, Esq.
Fax No. 310.277.6910
with copies to: LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attn: Peter M. Gilhuly, Esq.
Fax No. 213.891.8763
with copies to: O'MELVENY & MYERS
400 South Hope Street
Los Angeles, California 90071
Attn: Evan Jones, Esq.
Fax No. 213.669.6407
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: BROBECK, PHILEGER & HARRISON LLP
550 South Street, Suite 2100
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.239.1324
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
----------
than notices by Foothill in connection with Section 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or transmitted by telefacsimile
or other similar method set forth above.
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<PAGE>
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERTO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA
(INCLUDING THE BANKRUPTCY CODE), IT BEING THE INTENT OF THE PARTIES THAT FEDERAL
LAW SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HERETO WITHOUT REGARD TO
THE APPLICATION OF ANY PROVISION OF STATE LAW. TO THE EXTENT THAT FEDERAL LAW
WOULD APPLY THE LAW OF ANY STATE AS THE FEDERAL RULE FOR THE PURPOSES OF THIS
AGREEMENT, THE PARTIES AGREE THAT THE LAWS OF THE STATE OF CALIFORNIA (EXCLUSIVE
OF SECTION 9102(4)-(8) OF THE CODE, SECTIONS 580a, 580d AND 726 OF THE CODE OF
CIVIL PROCEDURE, THE PROVISIONS OF THE VEHICLE CODE THAT REQUIRE THE NOTATION OF
A SECURED PARTY'S LIEN UPON THE CERTIFICATE OF TITLE, AND THE PROVISIONS OF THE
CODE THAT REQUIRE THE FILING OF FINANCING STATEMENTS OR FIXTURE FILINGS TO
PERFECT A SECURITY INTEREST) SHALL BE USED TO SUPPLEMENT APPLICABLE FEDERAL LAW.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE
BANKRUPTCY COURT. EACH DEBTOR AND FOOTHILL WAIVE, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13.
EACH DEBTOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH DEBTOR AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
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<PAGE>
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill 4 months after
they are delivered to or received by Foothill, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
- -------- -------
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been
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<PAGE>
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but by the failure to deliver an original executed counterpart shall
not affect the validity, enforceability, and binding effect of this Agreement.
15.8 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
SIZZLER RESTAURANTS
INTERNATIONAL, INC.
a Delaware corporation
By /s/ Signature Appears Here
---------------------------
Title: EVP
-----------------------
COLLINS PROPERTIES, INC.
a Delaware corporation
By /s/ Signature Appears Here
---------------------------
Title: EVP
-----------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Signature Appears Here
---------------------------
Title: SVP
-----------------------
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996
<PERIOD-START> MAY-01-1996 MAY-01-1995
<PERIOD-END> OCT-13-1996 OCT-15-1995
<CASH> 23,531 9,216
<SECURITIES> 0 0
<RECEIVABLES> 14,181 14,467
<ALLOWANCES> 10,422 9,441
<INVENTORY> 6,341 6,477
<CURRENT-ASSETS> 38,980 23,455
<PP&E> 242,643 246,061
<DEPRECIATION> 114,657 110,830
<TOTAL-ASSETS> 183,375 178,547
<CURRENT-LIABILITIES> 25,139 63,185
<BONDS> 0 0
0 0
0 0
<COMMON> 291 278
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 183,375 178,547
<SALES> 146,596 201,514
<TOTAL-REVENUES> 152,469 207,721
<CGS> 56,106 74,246
<TOTAL-COSTS> 150,696 205,161
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 484 734
<INCOME-PRETAX> 1,289 1,826
<INCOME-TAX> 1,417 1,222
<INCOME-CONTINUING> (128) 604
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (128) 604
<EPS-PRIMARY> 0.00 0.02
<EPS-DILUTED> 0.00 0.02
</TABLE>
