<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
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 0-19548
KOO KOO ROO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3132583
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11075 SANTA MONICA BOULEVARD, SUITE 225, LOS ANGELES, CA 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 479-2080
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
------- -------
As of August 10, 1998, the registrant had issued and outstanding
54,488,063 shares of common stock, $.01 par value per share.
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KOO KOO ROO, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998 1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1998 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
</TABLE>
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PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. - Financial Statements
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1997 * 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,754,601 $ 5,175,055
Marketable securities 5,712,454 2,340,221
Receivables - trade 627,174 82,525
Notes receivable 760,988 433,334
Inventories 691,939 581,822
Prepaid expenses 1,000,077 1,172,229
------------ ------------
Total current assets 15,547,233 9,785,186
PROPERTY AND EQUIPMENT, net 41,856,321 37,943,104
INVESTMENTS IN AND ADVANCES TO RELATED ENTITIES 653,494 -
INTANGIBLES AND OTHER ASSETS, net 10,713,955 9,936,949
------------ ------------
$ 68,771,003 $ 57,665,239
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,983,296 $ 3,344,932
Other accrued liabilities 3,751,552 2,890,603
Accrued payroll 731,800 862,400
Reserves for store closings and disposal costs 1,450,000 5,399,639
Net liabilities and reserves of discontinued operations 1,699,953 407,893
Current portion of long-term debt 316,760 2,764,051
------------ ------------
Total current liabilities 12,933,361 15,669,518
------------ ------------
NOTES AND LOANS PAYABLE, LONG-TERM 12,848,310 13,292,862
------------ ------------
MINORITY INTEREST 240,440 415,162
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; 175,342 and 0 shares of Series A and
215,839 and 16,925 shares of Series B, Adjustable
Convertible Preferred Stock issued and outstanding
(aggregate liquidation preference $25,173,850 and $1,692,500) 3,912 169
Common stock, $.01 par value, 75,000,000 shares authorized;
26,770,170 and 52,485,075 shares issued and outstanding 267,702 524,850
Additional paid-in capital 106,631,872 107,573,165
Accumulated deficit (63,413,964) (79,564,164)
Treasury stock, 147,012 and 151,012 shares at cost (238,493) (246,323)
Common stock issued for unearned compensation (502,137) -
------------ ------------
Total stockholders' equity 42,748,892 28,287,697
------------ ------------
$ 68,771,003 $ 57,665,239
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</TABLE>
* Derived from restated audited financial statements.
Page 1 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
RESTAURANT SALES $15,949,468 $22,730,426 $27,172,728 $ 45,066,386
----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Food, labor and related costs 11,078,732 15,218,902 19,199,077 30,562,076
Occupancy expenses 1,350,020 1,767,716 2,293,271 3,639,259
Other operating expenses 5,009,719 5,234,596 8,618,692 11,029,556
Depreciation and amortization 1,250,402 1,229,549 2,453,304 2,447,975
Restructuring and other charges (193,866) - (193,866) 11,757,118
----------- ----------- ----------- ------------
Total 18,495,007 23,450,763 32,370,478 59,435,984
----------- ----------- ----------- ------------
LOSS FROM OPERATIONS (2,545,539) (720,337) (5,197,750) (14,369,598)
OTHER INCOME (EXPENSE):
Interest and other income (expense) 350,436 (383,250) 528,145 (706,218)
Equity in net loss of joint ventures (203,303) - (338,303) -
Minority interest in net loss of joint venture 97,975 142,106 157,160 234,877
----------- ----------- ----------- ------------
LOSS FROM CONTINUING OPERATIONS (2,300,431) (961,481) (4,850,748) (14,840,939)
LOSS FROM DISCONTINUED OPERATIONS (596,679) - (1,541,009) -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING - - - (1,276,952)
----------- ----------- ----------- ------------
NET LOSS (2,897,110) (961,481) (6,391,757) (16,117,891)
DIVIDENDS ON PREFERRED STOCK (1,372,895) - (2,095,756) (32,309)
----------- ----------- ----------- ------------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $(4,270,005) $ (961,481) $(8,487,513) $(16,150,200)
=========== =========== =========== ============
BASIC AND DILUTED LOSS PER SHARE:
Loss from continuing operations $ (0.19) $ (0.02) $ (0.39) $ (0.33)
Loss from discontinued operations (0.03) - (0.09) -
Cumulative effect of change in accounting - - (0.03)
----------- ----------- ----------- ------------
Net Loss $ (0.22) $ (0.02) $ (0.48) $ (0.36)
=========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 19,046,463 50,683,529 17,601,149 44,429,435
=========== =========== =========== ============
</TABLE>
Page 2 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,391,757) $(16,117,891)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,730,440 2,447,975
Cumulative effect of change in accounting - 1,276,952
Minority interest (308,583) 234,877
Gain on sale of assets (200,588) -
Restructuring and other charges, including store closings - 11,757,118
Changes in operating assets and liabilities:
Receivables - 172,215
Inventories (221,083) 110,117
Prepaid expenses and other assets (113,223) (530,348)
Accounts payable 926,022 132,114
Accrued expenses and other liabilities 545,986 (510,254)
Accrued expenses for store closings and other charges - (2,900,106)
------------ ------------
Net cash used in operating activities (3,032,786) (3,927,231)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,423,477) (4,214,167)
Acquisition of Hamburger Hamlet (10,476,955) -
Purchase of marketable securities (9,350,130) (399,938)
Sale of marketable securities 9,886,455 3,772,171
Pre-opening costs (761,363) -
Proceeds from sale/leaseback of store assets 1,418,039 -
Payments on notes receivable 100,000 -
Notes and loans to employees and others (658,613) (62,144)
Lease acquisition and other (74,871) (717,369)
Investments in and advances to related entities (1,164,450) (20,526)
------------ ------------
Net cash used in investing activities (18,505,365) (1,641,973)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing and private placements 26,685,435 3,000,000
Debt repayments (201,927) (108,157)
Minority capital contributions 75,622 160,439
Preferred stock cash dividends (292,861) (54,794)
Repurchase of common stock (109,970) (7,830)
Exercise of common stock options and warrants 204 1,000,000
------------ ------------
Net cash provided by financing activities 26,156,503 3,989,658
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,618,352 (1,579,546)
CASH AND CASH EQUIVALENTS, beginning of period 4,591,318 6,754,601
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 9,209,670 $ 5,175,055
============ ============
</TABLE>
Page 3 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The consolidated financial statements include the accounts of Koo Koo Roo,
Inc. (the "Company"), its majority-owned subsidiaries and limited partnerships
in which the Company has a controlling interest. All significant inter-company
transactions and balances have been eliminated.
The accompanying unaudited condensed consolidated financial statements were
prepared on the accrual basis of accounting. In the opinion of management, all
adjustments (consisting only of normal, recurring accruals) which are necessary
for a fair presentation of the financial results for the periods presented have
been made. The interim period results of operations are not necessarily
indicative of the results of operations for the full year. The financial
statements presented herein should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
NOTE 2 - NET LOSS PER SHARE
Basic earnings per share includes no dilution and is computed by dividing
net loss applicable to common stockholders by the weighted average number of
common shares outstanding during the periods presented. Dilutive earnings per
share reflects the potential dilution of securities that could share in the
earnings, such as shares issuable upon the exercise of options and warrants to
purchase common stock or the conversion of convertible securities. Shares
issuable upon the exercise of options and warrants to purchase common stock or
the conversion of convertible securities outstanding during the periods
presented were not included in diluted earnings per share since their effect
would be anti-dilutive. The net loss attributable to common stockholders has
been adjusted for deemed dividends and dividends paid on preferred stock.
NOTE 3 - NEW ACCOUNTING STANDARD
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-
Up Activities." SOP 98-5 requires that costs of start-up activities should be
expensed as incurred. SOP 98-5 is effective for years beginning after December
15, 1998 and earlier application is permitted and encouraged. Accordingly, the
Company has elected to expense such costs commencing January 1, 1998 and has
recorded, as of January 1, 1998, the cumulative effect of the change in
accounting method, or $1,276,952, related to the adoption of SOP 98-5 in the
accompanying condensed statement of operations for the six months ended June 30,
1998.
NOTE 4 - EMPLOYEE STOCK OPTIONS
The Company has two stock award plans for selected eligible employees
and consultants. The two plans cover an aggregate of 5,000,000 shares of Common
Stock. On March 24, 1998 the Company's Board of Directors agreed to reset the
exercise price of employee options covering approximately 2,700,000 shares from
an average of $3.75 per option to $1.56 per option.
Page 4 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - FIRST QUARTER RESTRUCTURING
During March 1998, the Company developed and approved a plan to restructure
the Company. The restructuring plan provides for, among other things, a
reduction in the number of store openings planned for 1998, a reduction in the
number of employees at the corporate office and the Company's decision to divest
non-core businesses. In addition, the Company decided to exit the Washington D.
C. market and closed three Koo Koo Roo California Kitchen restaurants and
abandoned a lease for a fourth location. In connection with this restructuring
plan, the Company recognized charges during the three months ended March 31,
1998 as follows:
<TABLE>
<S> <C>
Severance costs $ 2,800,000
Joint venture impairment reserve 674,000
Write-off of Arrosto assets 990,000
Other miscellaneous items 453,460
-----------
4,917,460
Store closings and other charges 6,839,658
-----------
Total $11,757,118
===========
</TABLE>
During June 1998, the Company completed the sale of its Arrosto Coffee
assets, including the roasting plant and its only stand-alone retail store. The
Company received net cash proceeds of approximately $285,000. In addition, the
buyer assumed the lease obligations relating to the roasting plant and stand-
alone retail store. In connection with this transaction the Company entered
into a twenty-six month agreement to purchase coffee from Arrosto's new owner.
The purchase agreement may be terminated by the Company if the quality of the
coffee is not maintained and under certain other conditions.
In connection with the restructuring plan and related charges, during the
six months ended June 30, 1998, the Company expended cash totaling $1,387,452
relating to the restructuring efforts, net of proceeds received from the sale of
assets.
NOTE 6 - DISCONTINUED OPERATIONS
In March 1996, the Company acquired 90% of the common stock of Color Me
Mine, Inc., a small chain of paint-your-own ceramics studios located in Southern
California. The acquisition was accounted for using the pooling of interest
method of accounting. In November 1997, the Company initiated a plan to divest
Color Me Mine. Accordingly, the Company has reclassified the operations of
Color Me Mine as discontinued operations in the accompanying financial
statements. The Company recorded an estimated loss of $7.0 million related to
the anticipated divestiture of the assets of Color Me Mine, including
approximately $1,200,000 for estimated losses during the phase out period. The
accompanying condensed consolidated balance sheet as of December 31, 1997 has
been restated to reflect the net assets and the estimated loss as a single
amount as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------- ------------
<S> <C> <C>
Current assets $ 1,971,761 $ 1,107,885
Non-current assets 4,719,843 4,455,361
Liabilities (1,391,557) (1,255,427)
----------- -----------
Net assets 5,300,047 4,307,819
Reserve for loss on disposition (7,000,000) (4,715,712)
----------- -----------
Net liabilities of discontinued operations $(1,699,953) $ (407,893)
=========== ===========
</TABLE>
Page 5 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During the six months ended June 30, 1998, the Company recorded Color Me
Mine's net losses of approximately $2,172,340 (including write-offs of certain
assets by the subsidiary) as adjustments against the related reserve for
discontinued operations. The Company is in negotiations with a prospective
purchaser for the assets of Color Me Mine, although definitive agreements have
not been signed and there can be no assurance that such transaction will be
completed or as to the terms thereof.
NOTE 7 - PREFERRED STOCK CONVERSIONS AND WARRANTS
During the six months ended June 30, 1998, 175,342 shares of the Company's
5% Series A Adjustable Convertible Preferred Stock were converted into 4,474,210
shares of the Company's Common Stock. In addition, 200,861 shares of the
Company's 6% Series B Adjustable Convertible Preferred Stock were converted into
20,120,281 shares of the Company's Common Stock. Since June 30, 1998 the Company
issued 2,002,988 shares of common stock relating to the conversion of 16,225
shares of the Company's 6% Series B Adjustable, Convertible Preferred Stock. As
of August 13, 1998, 700 shares of 6% Series B Adjustable Convertible Preferred
shares remain outstanding. The Company also issued 1,120,414 shares of common
stock in connection with the exercise of previously issued options and warrants
to purchase common stock.
NOTE 8 - LICENSING AGREEMENTS
During the quarter ended June 30, 1998, the Company entered into licensing
agreements with two separate groups to license its Koo Koo California Kitchen
concept in England and in the State of Israel. Each agreement provides for a
development schedule for the licensees to open a minimum number of restaurants
during the next five years. The Company received up front fees of $450,000 upon
execution of the agreements. The Company will receive additional licensing fees
at the time the restaurants are opened and continuing royalty payments based on
the revenues of such restaurants. The Company will not be required to supply any
of the required capital. Pursuant to the licensing agreements, the Company is
required to provide the licensees with various services and assistance,
including training and store openings.
NOTE 9 - PROPOSED MERGER
In June 1998, the Company entered into a definitive agreement to merge with
Family Restaurants, Inc. ("FRI"), an operator of approximately 275 full service
Mexican restaurants, primarily located in the United States. Both companies'
Board of Directors have unanimously approved the merger agreement. The Company
is preparing proxy materials to be mailed to the stockholders related to a
special meeting of stockholders. No date for the meeting has yet been
established.
Under the terms of the merger agreement, Koo Koo Roo stockholders will
receive one share of FRI common stock in exchange for each share they currently
own, representing approximately 31% of the outstanding common shares of the new
company which will be renamed Koo Koo Roo Enterprises, Inc. The merger agreement
provides for certain fees to be paid to FRI in the event the Company terminates
the merger agreement. The merger will be accounted for as a purchase.
Concurrent with the signing of the merger agreement, FRI provided a
$3,000,000 loan to The Hamlet Group, Inc., a wholly-owned subsidiary of the
Company. The note provides for quarterly interest payments at the prime rate
and is collateralized by certain assets of The Hamlet Group, Inc. Assuming the
proposed merger with FRI is approved, the note will be due on June 9, 2000. In
the event the merger is terminated, depending on the reasons therefor, the note
is due on either June 9, 1999, or no later than sixty days after the termination
of the merger agreement.
Page 6 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The discussion below and elsewhere in this Report on Form 10-Q include
forward looking statements about the future business results and activities of
the Company which, by their very nature, involve a number of risks and
uncertainties. For an explanation of certain of these risks and uncertainties,
see the matters discussed in the last paragraph of this Introduction section and
the materials referred to therein.
The Company adopted a plan to restructure its operations and concentrate
its efforts on its core business of operating restaurants during the quarter
ended March 31, 1998. In connection with this plan, the Company closed the
three remaining Koo Koo Roo California Kitchen stores located in the Washington
D.C. area. The Company intends to focus it efforts on operating restaurants in
California and Nevada and the Company will continue to operate three restaurants
with its joint venture partner in Florida and has plans to open one additional
restaurant in Florida. The Company also has a 28% ownership interest in three
restaurants operated in Toronto, Ontario, Canada. In addition, the Company will
continue to operate 14 Hamburger Hamlet restaurants acquired during 1997. As
part of the restructuring efforts, the Company recognized restructuring and
other charges of $11,757,118 related to store closings, reductions in corporate
staffing levels, closing its Arrosto coffee plant and various other charges,
which includes the write down of Koo Koo Roo's investment in its Canadian joint
venture. The Company believes that these steps, along with continued
improvement in operating efficiencies at the stores, will help improve
operating results during 1998 and in future periods.
In June 1998, the Company entered into a definitive agreement to merge with
FRI, an operator of approximately 275 full service Mexican restaurants,
primarily located in the United States. Both companies' Board of Directors have
unanimously approved the merger agreement. The Company is preparing proxy
materials to be mailed to stockholders related to a special meeting of
stockholders. No date for the meeting has yet been established.
Under the terms of the merger agreement, Koo Koo Roo stockholders will
receive one share of FRI common stock in exchange for each share they currently
own, representing approximately 31% of the outstanding common shares of the new
company which will be renamed Koo Koo Roo Enterprises, Inc. The merger
agreement provides for certain fees to be paid to FRI in the event the Company
terminates the merger agreement. The merger will be accounted for as a
purchase.
Concurrent with the signing of the merger agreement, FRI provided a
$3,000,000 loan to The Hamlet Group, Inc., a wholly-owned subsidiary of the
Company. The note provides for quarterly interest payments at the prime rate
and is collateralized by certain assets of The Hamlet Group, Inc. Assuming the
proposed merger with FRI is approved, the note will be due June 9, 2000. In the
event the merger is terminated, depending on the reasons therefor, the note is
due on either June 9, 1999, or no later than sixty days after the termination of
the merger agreement.
During the quarter ended June 30, 1998, the Company entered into licensing
agreements with two separate groups to license its Koo Koo California Kitchen
concept in England and in the State of Israel. Each agreement provides for a
development schedule for the licensees to open a minimum number of restaurants
during the next five years. The Company received up front fees of $450,000 upon
execution of the agreements. The Company will receive additional licensing fees
at the time the restaurants are opened and continuing royalty payments based on
the revenues of such restaurants. The Company will not be required to supply any
of the required capital. Pursuant to the licensing agreements, the Company is
required to provide the licensees with various services and assistance,
including training and store openings.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-
Up Activities." SOP 98-5 requires that costs of start-up activities should be
expensed as incurred. SOP 98-5 is effective for years beginning after December
15, 1998 and earlier application is permitted and encouraged. Accordingly, the
Company has elected to expense such costs commencing January 1, 1998 and has
recorded, as of January 1, 1998, the cumulative effect of the change in
accounting method, or $1,276,952, related to the adoption of SOP 98-5 in the
accompanying condensed statement of operations for the six months ended June 30,
1998.
As of August 10, 1998, the Company operated 52 restaurants, including 14
Hamburger Hamlet restaurants and the Company's Canadian joint venture partner
operated three Koo Koo Roo restaurants in Toronto, Ontario.
Many of the statements made herein are forward looking and, among other
things, relate to the prospects for the Company to expand and attain profitable
operations. The Company has historically incurred net losses and the Company
presently anticipates that it will continue to incur operating losses during
1998. However, the Company believes that the operating losses should begin to
decrease during the next calendar year both in the aggregate and as a percentage
of sales. Management presently cannot predict precisely when the Company may
achieve profitable operations. The opening of the additional stores, which would
contribute to Company profitability, is subject to factors
Page 7 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
outside the control of management, including, among other things, locating
sites, negotiating and executing leases on acceptable terms, obtaining
governmental permits and the construction and completion of new restaurants by
contractors.
QUARTER TO QUARTER COMPARISON
RESTAURANT OPERATIONS
Restaurant sales for the three months ended June 30, 1998 amounted to
$22,730,426 compared to $15,949,468 for the three months ended June 30, 1997, an
increase of 43%. The increase in revenues was primarily produced by 25 Koo Koo
Roo restaurants which operated during both the current quarter and the same
quarter of 1997 and 12 new restaurants opened during the remainder of 1997 and
the first quarter of 1998, plus $7,962,978 in restaurant sales from 14 Hamburger
Hamlet restaurants acquired in May 1997. Comparable same store sales for the Koo
Koo Roo restaurants in operation for a period of 18 months or more increased by
2.4% for the quarter ended June 30, 1998 compared to the same period in 1997.
Gross profit (sales less food, labor and related costs) for the three
months ended June 30, 1998 increased to $7,511,524 from $4,870,736 for the same
quarter of 1997. As a percentage of sales, gross profit increased to 33.0%
during the three months ended June 30, 1998 compared to 30.5% for the same
period of 1997. Gross profit generally increases in mature stores (those open
more than three months) and is lower in newly opened stores. The Hamburger
Hamlet restaurants contributed to the overall improvement in the gross profit
percentage. Cost of sales improvements were related to improvements in
operating efficiencies, waste reduction and increased sales volume, which
resulted in lower food, beverage and paper costs as a percentage of sales.
These improvements are a net of an increase in labor costs of 1.0%, as a
percentage of sales, during 1998 compared to 1997.
Occupancy costs increased to $1,767,716 for the three months ended June 30,
1998, compared to $1,350,020 for the three months ended June 30, 1997.
Occupancy costs as a percentage of sales improved to 7.8% in the current
quarter, compared to 8.5% for the three months ended June 30, 1997.
Depreciation and amortization expenses decreased to $1,229,549 from
$1,250,402 for 1998. Depreciation and amortization during the three months ended
June 30, 1997 included $269,280 of pre-opening cost amortization. As discussed
above, effective January 1, 1998, the Company no longer amortizes pre-opening
costs.
Other operating expenses, which include other store operating and corporate
overhead expenses, amounted to $5,234,596 for the three months ended June 30,
1998 compared to $5,009,719 for 1997. As a percentage of sales, operating
expenses decreased from 31.4% in 1997 to 23.0% for the quarter ended June 30,
1998. The improvement resulted from higher sales volume, the addition of the
Hamburger Hamlet restaurants and reductions in general and administrative costs
implemented during the fourth quarter of 1997 and the first quarter of 1998.
Minority interest represents the limited partners' interest in three
partnerships which are controlled by the Company. Pursuant to the partnership
agreements, profits and losses and cash distributions are allocated based on
ownership percentage. The financial results of the partnerships have been
consolidated with those of the Company.
Page 8 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
SIX MONTH COMPARISON
Restaurant sales for the six months ended June 30, 1998 amounted to
$45,066,386 compared to $27,172,728 for the six months ended June 30, 1997, an
increase of 65.9%. The increase in revenues was primarily produced by 23 Koo
Koo Roo restaurants which operated during the current year and the same period
of 1997 and 9 new restaurants opened during 1997 and five new restaurants opened
in 1998, net of store closings, plus $15,763,172 in restaurant sales from 14
Hamburger Hamlet restaurants acquired in May 1997. Comparable same store sales
for the Koo Koo Roo restaurants in operation for a period of 18 months or more
increased by 4.2% for the six months ended June 30, 1998 compared to the same
period in 1997.
Gross profit (sales less food, labor and related costs) for the six months
ended June 30, 1998 increased to $14,504,310 from $7,973,651 for the same period
in 1997. As a percentage of sales, gross profit increased to 32.2% during the
six months ended June 30, 1998 compared to 29.3% for the same period in 1997.
Gross profit generally increases in mature stores (those open more than three
months) and is lower in newly opened stores. Cost of sales improvements were
related to improvements in operating efficiencies, waste reduction and increased
sales volume, which resulted in lower food, beverage and paper costs as a
percentage of sales. These improvements are net of an increase in labor costs
of 1.5%, as a percentage of sales, during 1998 compared to 1997.
Occupancy costs increased to $3,639,259 for the six months ended June 30,
1998, compared to $2,293,271 for the same period in 1997. Occupancy costs as a
percentage of sales decreased to 8.1% for the six months ended June 30, 1998
compared to 8.4% for the same period in 1997.
Depreciation and amortization expenses decreased to $2,447,975 from
$2,453,304 for 1998. Depreciation and amortization during the six months ended
June 30, 1997 included $591,469 of pre-opening cost amortization. As discussed
above, effective January 1, 1998, the Company no longer amortizes pre-opening
costs.
Other operating expenses, which include other store operating and corporate
overhead expenses, amounted to $11,029,556 for the six months ended June 30,
1998 compared to $8,618,692 for 1997. The increase was due to several factors,
including, new Koo Koo Roo store openings and the acquisition of the 14
Hamburger Hamlet restaurants. As a percentage of sales, operating expenses
decreased from 31.7% in 1997 to 24.5% in 1998. The improvement resulted from
higher sales volume, the addition of the Hamburger Hamlet restaurants and
reductions in general and administrative costs implemented during the fourth
quarter of 1997 and the first quarter of 1998.
Minority interest represents the limited partners' interest in three
partnerships which are controlled by the Company. Pursuant to the partnership
agreements, profits and losses and cash distributions are allocated based on
ownership percentage. The financial results of the partnerships have been
consolidated with those of the Company.
DISCONTINUED OPERATIONS
In November 1997, the Company decided to divest its 90%-owned subsidiary,
Color Me Mine. Accordingly, the Company has reclassified the operations of
Color Me Mine as discontinued operations in the accompanying financial
statements.
Page 9 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Total cash, cash equivalents and marketable securities at June 30, 1998
amounted to $7,515,276. During the past two years the Company expended cash
resources principally to build new Koo Koo Roo California Kitchen stores,
acquire 14 Hamburger Hamlet restaurants, expand the operations of Color Me Mine
and finance consolidated operating losses. During the first six months of 1998,
the Company completed the construction of and opened five new Koo Koo Roo
restaurants. In addition, as of June 30, 1998, three Koo Koo Roo restaurants
were in various stages of construction and the Company had signed leases for two
other locations.
Net cash used in operating activities amounted to $3,927,231 during the six
months ended June 30, 1998, compared to $3,032,786 for the same period in 1997.
The increase in net cash used in operating activities was primarily due to
reductions in accrual liabilities related to store closings and discontinued
operations.
Net cash used in investing activities, including purchases of property and
equipment, together with costs for acquiring ground leases for certain
locations, amounted to $1,641,973 during the six months ended June 30, 1998.
Also included in investing activities were purchases and sales of marketable
securities which resulted in net funds provided of $3,372,233 during the six
months ended June 30, 1998
Net cash, provided by financing activities amounted to $3,989,658 for the
six months ended June 30, 1998. The Company received $1,000,000 from the
exercise of common stock options and warrants during the six months ended June
30, 1998 which were partially offset by cash dividends on preferred stock and
debt repayments. In June 1998 the Company, through The Hamburger Hamlet Group,
Inc., received $3,000,000 in loan proceeds from FRI in connection with the
proposed merger.
At June 30 1998, management has provided a 100% valuation allowance against
the net deferred tax assets represented primarily by its net operating loss
carry forwards. Such allowance was necessary because the Company was not able
to determine that it was more likely than not that the net deferred tax asset
would be realized.
CAPITAL RESOURCES
Concurrent with the signing of the merger agreement, FRI provided a
$3,000,000 loan to The Hamlet Group, Inc., a wholly-owned subsidiary of the
Company. The note provides for quarterly interest payments at the prime rate
and is collateralized by certain assets of The Hamlet Group, Inc. Assuming the
proposed merger with FRI is approved, the note is due June 9, 2000. In the
event the merger is terminated, depending on the reasons therefor, the note is
due on either June 9, 1999, or no later than sixty days after the termination of
the merger agreement.
In August 1997, the Company issued $12,000,000 aggregate principal amount
of Senior Notes due August 2000 (the "Senior Notes") to an institutional
investor in a private placement. The Senior Notes provide for interest at the
rate of 13% per annum payable quarterly. The Senior Notes also included five-
year warrants to purchase 330,000 shares of the Company's Common Stock at a
price of $5.375 per share. The Company is required to redeem $2,500,000
principal amount of the Senior Notes on February 28, 1999. Mandatory
redemptions of the balance, prior to the due date of the Senior Notes, are only
required if there is a change of control, sale of securities resulting in
proceeds in excess of $20,000,000 or certain dispositions of assets as outlined
in the Senior Notes. The Company presently expects to repay the Senior Notes
with the closing of the proposed merger with FRI.
Page 10 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
After giving effect to recent steps to slow the Company's development
program, management believes that the Company's existing capital resources will
be sufficient to fund its planned operations and growth for the next 12 months.
The Company's short and long-term debt as of June 30, 1998 amounts to
$16,056,913. Management estimates that capital expenditures will approximate
$2,890,000 to $3,240,000 for stores under construction, plus new locations
planned for the remainder of 1998.
The timing of future capital requirements will be affected by, among other
things, the number of stores opened, operational results, real estate
development, and other potential corporate opportunities. In the ordinary course
of its business, the Company regularly investigates and enters into negotiations
related to business opportunities. Subject to the consummation of the proposed
merger with FRI, the Company may seek additional funds from public or private
offerings of debt or equity, or may seek bank financing facilities or other
strategic alternatives.
The Company is in the process of determining what, if any, steps have to be
taken to cure any potential computer software problems associated with the year
2000. Based on preliminary discussions with the Company's software vendors, the
Company has determined that it will not incur any material liability to upgrade
computer programs to accommodate the year 2000.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS.
The Company has become subject to various lawsuits, claims and other legal
matters in the ordinary course of conducting its business. As of the date of
this Report, management believes that there are no legal proceedings pending
which, if determined adversely to the Company, would be expected to have a
material adverse effect on the Company's consolidated financial position and
results of operations.
ITEM 2. CHANGES IN SECURITIES.
During the six months ended June 30, 1998, 175,342 shares of the Company's
5% Series A Adjustable Convertible Preferred Stock were converted into 4,474,210
shares of the Company's Common Stock for no additional consideration, pursuant
to the terms thereof. In addition, 200,861 shares of the Company's 6% Series B
Adjustable Convertible Preferred Stock were converted into 20,120,281 shares of
the Company's Common Stock for no additional consideration, pursuant to the
terms thereof. Since June 30, 1998 the Company issued 2,002,988 shares of common
stock relating to the conversion of 16,225 shares of the Company's 6% Series B
Adjustable, Convertible Preferred Stock. As of August 13, 1998, 700 shares of 6%
Series B Adjustable Convertible Preferred shares remain outstanding. The Company
also issued 1,120,414 shares of common stock in connection with the exercise of
previously issued options and warrants to purchase common stock.
Such securities referenced under this Item 2 were issued in reliance upon
the exemption from the registration provided in Section 4(2) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In May 1998, the stockholders approved an amendment to the Company's
Certificate of Incorporation increasing the authorized common stock from 50
million to 75 million share The Company received 32,741,532 votes in favor of
the amendment, 1,029,674 opposed and 143,239 abstained. 33,914,445 shares voted
or 72.17%.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -
2.1 Agreement and Plan of Merger, dated June 9, 1998, by and among
Family Restaurants, Inc., FRI-Sub, Inc. and Koo Koo Roo, Inc.
10.1 Stock Purchase Agreement, dated June 9, 1998, by and between FRI-
MRD Corporation and Koo Koo Roo, Inc.
10.2 Bridge Loan Agreement, dated June 9, 1998, among The Hamburger
Hamlet Group, Inc. as borrower, Koo Koo Roo, Inc., H.H.K. of
Virginia, Inc. and H.H. of Maryland, Inc., as Guarantors and FRI-
MRD Corporation as lender.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K - filed during the quarter ended June 30, 1998.
- Current report on Form 8-K, filed April 3, 1998, incorporating the
Company's press release regarding the appointment of new officers
and changes to the Company's Board of Directors.
- Current report on Form 8-K, filed June 11, 1998, incorporating the
Company's press release regarding the definitive merger agreement
entered into with Family Restaurants, Inc.
Page 12 of 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
KOO KOO ROO, INC.
Date: August 14, 1998 /s/ William M. McKay
--------------------------
William M. McKay
Chief Financial Officer
Date: August 14, 1998 /s/ Jeanne Giles
--------------------------
Jeanne Giles
Principal Accounting Officer
Page 13 of 13
<PAGE>
EXHIBIT 2.1
----------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
FAMILY RESTAURANTS, INC.
FRI-SUB, INC.
and
KOO KOO ROO, INC.
Dated as of June 9, 1998
----------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I
DEFINITIONS....................................................................................... 1
SECTION 1.1 Definitions........................................................................ 1
-----------
ARTICLE II
THE MERGER........................................................................................ 9
SECTION 2.1 The Merger......................................................................... 9
----------
SECTION 2.2 Effects of the Merger.............................................................. 9
---------------------
SECTION 2.3 Certificate of Incorporation and By-Laws........................................... 10
----------------------------------------
SECTION 2.4 Directors.......................................................................... 10
---------
SECTION 2.5 Officers........................................................................... 10
--------
SECTION 2.6 Conversion of Shares............................................................... 10
--------------------
SECTION 2.7 Stock Plans........................................................................ 11
-----------
SECTION 2.8 Warrants........................................................................... 12
--------
SECTION 2.9 Tax Treatment...................................................................... 13
-------------
ARTICLE III
EXCHANGE OF SHARES................................................................................ 13
SECTION 3.1 Surrender of Certificates.......................................................... 13
-------------------------
SECTION 3.2 No Dividends....................................................................... 14
------------
SECTION 3.3 Return to FRI...................................................................... 15
-------------
SECTION 3.4 Dissenting Shares.................................................................. 15
-----------------
SECTION 3.5 No Further Transfer................................................................ 15
-------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FRI AND MERGER-SUB.............................................. 16
SECTION 4.1 Organization, Standing and Qualification........................................... 16
----------------------------------------
SECTION 4.2 Capitalization..................................................................... 16
--------------
SECTION 4.3 Authorization of Agreement and Other Documents..................................... 17
----------------------------------------------
SECTION 4.4 No Violation....................................................................... 18
------------
</TABLE>
i
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<TABLE>
<CAPTION>
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<S> <C>
SECTION 4.5 Absence of Certain Changes......................................................... 19
--------------------------
SECTION 4.6 Insurance.......................................................................... 20
---------
SECTION 4.7 Financial Statements; Full Disclosure.............................................. 21
-------------------------------------
SECTION 4.8 Suppliers; Franchisees............................................................. 21
----------------------
SECTION 4.9 Intellectual Property.............................................................. 22
---------------------
SECTION 4.10 Litigation........................................................................ 22
----------
SECTION 4.11 Labor Matters..................................................................... 22
-------------
SECTION 4.12 Taxes............................................................................. 24
-----
SECTION 4.13 Employee Benefit Plans; ERISA..................................................... 25
-----------------------------
SECTION 4.14 Change in Control................................................................. 27
-----------------
SECTION 4.15 Governmental Consents............................................................. 27
---------------------
SECTION 4.16 Title to Properties............................................................... 27
-------------------
SECTION 4.17 Environmental Matters............................................................. 28
---------------------
SECTION 4.18 Books and Records................................................................. 28
-----------------
SECTION 4.19 Contracts; No Defaults............................................................ 29
----------------------
SECTION 4.20 Form S-4; KKR Proxy Statement..................................................... 29
-----------------------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF KKR............................................................. 30
SECTION 5.1 Organization, Standing and Qualification.......................................... 30
----------------------------------------
SECTION 5.2 Capitalization.................................................................... 31
--------------
SECTION 5.3 Authorization of Agreement and Other Documents.................................... 31
----------------------------------------------
SECTION 5.4 No Violation...................................................................... 32
------------
SECTION 5.5 Absence of Certain Changes........................................................ 33
--------------------------
SECTION 5.6 Insurance......................................................................... 34
---------
SECTION 5.7 Financial Statements; Full Disclosure............................................. 35
-------------------------------------
SECTION 5.8 Suppliers; Franchisees............................................................ 35
----------------------
SECTION 5.9 Intellectual Property............................................................. 36
---------------------
SECTION 5.10 Litigation........................................................................ 36
----------
SECTION 5.11 Labor Matters..................................................................... 36
-------------
SECTION 5.12 Taxes............................................................................. 38
-----
SECTION 5.13 Employee Benefit Plans; ERISA..................................................... 39
-----------------------------
SECTION 5.14 Change in Control................................................................. 41
-----------------
SECTION 5.15 Governmental Consents............................................................. 41
---------------------
SECTION 5.16 Title to Properties............................................................... 41
-------------------
SECTION 5.17 Environmental Matters............................................................. 42
---------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
SECTION 5.18 Books and Records................................................................. 43
-----------------
SECTION 5.19 Contracts; No Defaults............................................................ 43
----------------------
SECTION 5.20 Form S-4; Proxy Statement......................................................... 45
-------------------------
ARTICLE VI
COVENANTS OF FRI.................................................................................. 45
SECTION 6.1 Sale of the Hamlet Shares to FRI-MRD............................................... 45
------------------------------------
SECTION 6.2 Loan to KKR........................................................................ 45
-----------
SECTION 6.3 Conduct of Business Pending Merger................................................. 46
----------------------------------
SECTION 6.4 No Solicitation.................................................................... 48
---------------
SECTION 6.5 Amendment of Certificate and Bylaws;
------------------------------------
Recapitalization.................................................................. 49
----------------
SECTION 6.6 Nasdaq National Market Quotation................................................... 49
--------------------------------
SECTION 6.7 Indemnification and Insurance...................................................... 49
-----------------------------
SECTION 6.8 Employee Benefits; Severance....................................................... 51
----------------------------
SECTION 6.9 Filing of Form S-8................................................................. 51
------------------
ARTICLE VII
COVENANTS OF KKR.................................................................................. 51
SECTION 7.1 Sale of the Hamlet Shares to FRI-MRD............................................... 51
------------------------------------
SECTION 7.2 Loan to KKR........................................................................ 52
-----------
SECTION 7.3 Conduct of Business Pending Merger................................................. 52
----------------------------------
SECTION 7.4 No Solicitation.................................................................... 55
---------------
SECTION 7.5 KKR Stockholder Approval........................................................... 55
------------------------
SECTION 7.6 Affiliates......................................................................... 55
----------
SECTION 7.7 Employee Benefit Matters........................................................... 56
------------------------
ARTICLE VIII
MUTUAL COVENANTS.................................................................................. 56
SECTION 8.1 Access to Information.............................................................. 56
---------------------
SECTION 8.2 Preparation of Form S-4 and the
-------------------------------
KKR Proxy Statement.............................................................. 57
-------------------
SECTION 8.3 Reasonable Efforts................................................................. 57
------------------
SECTION 8.4 Brokers or Finders................................................................. 57
------------------
</TABLE>
iii
<PAGE>
<TABLE>
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<S> <C>
SECTION 8.5 Notification of Certain Matters.................................................... 58
-------------------------------
SECTION 8.6 Further Information................................................................ 58
-------------------
SECTION 8.7 Fees and Expenses.................................................................. 58
-----------------
SECTION 8.8 Accountants' Letters............................................................... 59
--------------------
SECTION 8.9 Public Announcements............................................................... 60
--------------------
ARTICLE IX
CONDITIONS........................................................................................ 60
SECTION 9.1 Conditions to Each Party's Obligation to
----------------------------------------
Effect the Merger................................................................ 60
-----------------
SECTION 9.2 Conditions of Obligations of FRI................................................... 61
--------------------------------
SECTION 9.3 Conditions of Obligations of KKR................................................... 62
--------------------------------
ARTICLE X
TERMINATION AND AMENDMENT......................................................................... 63
SECTION 10.1 Termination....................................................................... 63
-----------
SECTION 10.2 Effect of Termination............................................................. 64
---------------------
SECTION 10.3 Amendment......................................................................... 64
---------
SECTION 10.4 Extension; Waiver................................................................. 64
-----------------
ARTICLE XI
MISCELLANEOUS..................................................................................... 65
SECTION 11.1 Notices........................................................................... 65
-------
SECTION 11.2 Descriptive Headings.............................................................. 66
--------------------
SECTION 11.3 Counterparts...................................................................... 66
------------
SECTION 11.4 Entire Agreement; Assignment...................................................... 66
----------------------------
SECTION 11.5 Governing Law..................................................................... 66
-------------
SECTION 11.6 Specific Performance.............................................................. 66
--------------------
SECTION 11.7 Parties in Interest............................................................... 66
-------------------
SECTION 11.8 Attorneys' Fees................................................................... 67
---------------
SECTION 11.9 Survival of Representations and Warranties........................................ 67
------------------------------------------
SECTION 11.10 Obligation of FRI................................................................ 67
-----------------
SECTION 11.11 Validity......................................................................... 67
--------
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit 1.1 - Terms of Permitted Transactions
Exhibit 2.1 - Form of Certificate of Merger
Exhibit 6.1 - Form of Hamlet Stock Purchase Agreement
Exhibit 6.2 - Form of Bridge Loan Agreement
Exhibit 6.5A1 - Forms of FRI Amended Certificate of Incorporation
Exhibit 6.5A2 - Form of FRI Amended Bylaws
Exhibit 6.5B - Form of further Amendment to FRI Certificate of Incorporation
Exhibit 7.6 - Form of Rule 145 Affiliate Agreement
Exhibit 8.8 - Form of Joint Press Release
Exhibit 9.2(c) - Form of KKR's Officer's Certificate
Exhibit 9.2(d) - Form of Opinion of Counsel to KKR
Exhibit 9.3(c) - Reconstituted Board of Directors of FRI
Exhibit 9.3(d) - Form of FRI's Officer's Certificate
Exhibit 9.3(e) - Form of Opinion of Counsel to FRI
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 9, 1998,
---------
by and among Family Restaurants, Inc., a Delaware corporation ("FRI"), FRI-Sub,
---
Inc., a Delaware corporation and indirect wholly owned subsidiary of FRI
("Merger-Sub") and Koo Koo Roo, Inc., a Delaware corporation ("KKR").
- ------------ ---
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following definitions when used herein
-----------
shall have the following meanings:
"Acquisition Proposal" means with respect to any Person, any offer or proposal
--------------------
for, or any indication of interest in, the acquisition of a material equity
interest in, or substantial portion of the assets of, any such Person, including
by way of a merger, consolidation or other business combination involving such
Person, or any of its Subsidiaries; provided, however, that, as used in this
Agreement, the term "Acquisition Proposal" shall not apply to (i) any Permitted
Transaction or (ii) in the case of KKR, the primary issuance, in a single
transaction or series of related transactions, of equity securities that results
in gross proceeds to KKR of not more than $20 million.
"Adjusted KKR Shares" means the sum of (a) the aggregate number of KKR Common
-------------------
Shares outstanding immediately prior to the Effective Time on a fully diluted,
as converted basis (assuming the exercise or conversion of (i) all options and
warrants with an exercise price of less than $5.00, (ii) all other securities
convertible into or exchange able for KKR Common Shares, including without
limitation, the KKR Preferred Shares (assuming such Preferred Shares are
converted as provided for in Section 2.6(b) hereof) and (iii) all other rights
to purchase or receive KKR Common Shares and (b) the aggregate number of KKR
Common Shares that would be required to be issued, assuming KKR elected to issue
additional KKR Common Shares rather than pay cash, pursuant to Section 4.6 of
the Hamlet Purchase Agreement assuming that the Fair Market Value (as such term
is defined in the Hamlet Purchase Agreement) of a KKR Common Share on the
Valuation Date (as such term is defined in the Hamlet Purchase Agreement) is
calculated based on the average closing price of the KKR Common Shares on the
Nasdaq National Market for the ten trading days immediately preceding (but not
including) the Effective Date.
<PAGE>
"Affiliate" of any specified Person means any other Person, directly or
---------
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Agreement" means with respect to any Person, any bond, debenture,
--------------------
note or any other evidence of indebtedness, indenture, mortgage, deed of trust,
lease, contract, agreement, license or instrument to which such Person or any of
its Subsidiaries is a party or by which any of their respective properties or
assets is bound.
"Applicable Employment Law" means any Applicable Law governing or respecting
-------------------------
employment or the termination thereof, employment practices, terms and
conditions of employment, wages, hours of work, occupational safety and health,
immigration, family and medical leave, or discriminatory, wrongful or tortious
conduct in connection with the employment relationship.
"Applicable Law" means any law, statute, ordinance, judgment, injunction,
--------------
decree, writ, regulation, notice requirement, rule or order of any court or
Governmental Authority, and any other governmental restrictions or requirements,
including (without limitation) pursuant to any permit or license.
"Audit" means any audit, assessment of Taxes, other examination by any Tax
-----
Authority or proceeding or appeal of such proceeding relating to Taxes.
"Benefit Plan" means each bonus, deferred compensation, incentive compensation,
------------
stock purchase, stock option, employment, consulting, severance or termination
pay, hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension or retirement plan, program,
agreement or arrangement, and each other "employee benefit plan" (within the
meaning of Section 3(3) of ERISA), whether formal or informal, written or oral
and whether legally binding or not, that is sponsored, maintained or contributed
to or was sponsored, maintained or contributed to at any time by a Person, any
Subsidiary or any ERISA Affiliate of any Person or Subsidiary within the last
six years, for the benefit of any employee, former employee, consultant,
officer, or director of such Person, other than any Multiemployer Plan.
2
<PAGE>
"Certificate" means a certificate that immediately prior to the Effective Time
-----------
represented KKR Shares.
"Certificate of Merger" means the certificate of merger providing for the Merger
---------------------
in substantially the form attached as Exhibit 2.1 hereto.
"Charter Documents" means with respect to any Person, the articles or
-----------------
certificate of incorporation and by-laws, partnership agreement or other
organizational documents of such Person.
"Closing" shall have the meaning given in Section 2.1.
-------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
-----
amended.
"Code" means the Internal Revenue Code of 1986 and the regulations promulgated
----
thereunder, in each case as amended from time to time, and any successor
statute, law or regulations.
"Commission" means the Securities and Exchange Commission.
----------
"Common Merger Consideration" shall have the meaning given in Section 2.6.
---------------------------
"Credit Facility" means the Loan and Security Agreement by and among FRI and its
---------------
Subsidiaries, and Foothill Capital Corporation, dated as of January 10, 1997, as
amended, a copy of which has been provided to KKR.
"DGCL" means the Delaware General Corporation Law.
----
"Dissenting Shares" shall have the meaning given in Section 3.5.
-----------------
"Documents" means this Agreement and all other agreements or instruments
---------
attached as exhibits hereto.
"DOL" means the United States Department of Labor or any similar state agency.
---
"EEOC" means the United States Equal Employment Opportunity Commission or any
----
similar state agency.
3
<PAGE>
"Effective Time" means the date and time the Merger becomes effective in
--------------
accordance with the DGCL.
"Environmental Claim" means any claim, action, cause of action, investigation or
-------------------
notice (written or oral) by any Person alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of or resulting from (a) the
presence, or release into the environment, of any Materials of Environmental
Concern at any location, whether or not owned or operated by such Persons or any
of its Subsidiaries, or (b) any violation of any Environmental Law.
"Environmental Law" means any Applicable Law relating to pollution or the
-----------------
protection of human health or the environment or to emissions, discharges,
releases or threatened releases of any Materials of Environmental Concern into
the environment (including without limitation ambient air, surface water, ground
water, or land), or otherwise relating to the manufacture, processing,
distribution, generation, treatment, storage, disposal, transport or handling of
any Materials of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
-----
and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means with respect to any Person, any other Person that is a
---------------
member of such Person's controlled group, or under common control with such
Person, within the meaning of the Code, and includes any trade or business
whether or not incorporated, that together with such Person would be deemed a
"single employer" within the meaning of Section 4001 of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations promulgated by the Commission thereunder.
"Exchange Agent" means a bank or trust company that FRI shall designate, subject
--------------
to the prior approval of KKR, which approval shall not be unreasonably withheld,
for purposes of exchanging KKR Shares in accordance herewith.
"Expenses" means all reasonable out-of-pocket expenses and fees (including,
--------
without limitation, fees and expenses payable to Libra Investments, Inc. for
arranging or providing financial advice with respect to the Merger and all
reasonable fees and expenses of counsel, accountants, experts and consultants to
FRI) actually incurred by FRI or on its behalf in connection with the
consummation of the transactions contem-
4
<PAGE>
plated by this Agreement and the other Documents; provided, that the amount of
--------
such Expenses shall not exceed $2 million.
"Financial Statements" means (i) with respect to FRI, the financial statements,
--------------------
together with the notes thereto, contained in the FRI SEC Documents and (ii)
with respect to KKR, the financial statements, together with the notes thereto,
contained in the KKR SEC Documents.
"Form S-4" means the registration statement on Form S-4 to be filed with the
--------
Commission in connection with the issuance of FRI Shares in the Merger,
including any amendment or supplement thereto.
"FRI Dividend" means a number of FRI Shares such that, immediately following the
------------
FRI dividend, the ratio (rounded to two places) of (a) the number of Adjusted
KKR Shares to (b) the sum of (i) the number of Adjusted KKR Shares and (ii) the
aggregate number of FRI Shares outstanding on a fully diluted basis equals .33.
"FRI-MRD" means FRI-MRD Corporation, a Delaware corporation and a wholly owned
-------
subsidiary of FRI.
"FRI SEC Documents" means all forms, reports and documents filed by, or required
-----------------
under Applicable Law to be filed by, FRI or any of its Subsidiaries with the
Commission since December 31, 1996, including all exhibits thereto.
"FRI Shares" means shares of common stock, par value $.01 per share, of FRI.
----------
"FRI Subsidiaries" means the Subsidiaries of FRI, each of which is identified on
----------------
Schedule 4.1 hereof.
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
"Governmental Authority" means any Federal, state, local or foreign court or
----------------------
governmental, administrative or regulatory authority or agency.
"Hamlet Purchase Agreement" means that certain Asset Purchase Agreement by and
-------------------------
between Hamburger Hamlet Restaurants Inc., Hamburger Hamlets Inc., Hamburger
Hamlet of Sunset, Inc., Davilew Corporation, Valley Hamlet Corporation,
Hamburger Hamlet of Brentwood, Inc., Hamburger Hamlet of Pasadena, Inc.,
Hamburger Hamlet of
5
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Hollywood, Inc., Hamburger Hamlet of Sepulveda, Inc., Hamburger Hamlet of Palm
Springs, Inc., Hamburger Hamlet of Georgetown Square, Inc., 109 South Saint
Asaph Street, Inc., Hamburger Hamlet of Agoura Hills, Inc., Hamburger Hamlet of
Gaithersburg, Inc., Hamburger Hamlet of Crystal City, Inc., Hamburger Hamlet of
Valencia, Inc. and Koo Koo Roo, Inc., dated March 21, 1997.
"Hamlet Shares" means all of the issued and outstanding shares of capital stock
-------------
of The Hamlet Group, Inc., a California corporation.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
-------
amended.
"Intellectual Property" means with respect to any Person, all trademarks,
---------------------
service marks, trade names, fictitious business names, copyrights, patents,
patent applications, inventions, know-how and trade secrets, in each case owned,
used or licensed by, or required to permit the operation of, such Person or any
of its Subsidiaries.
"IRS" means the Internal Revenue Service.
---
"KKR Common Shares" means the shares of common stock, par value $.01 per share,
-----------------
of KKR.
"KKR Notes" means the $12 million aggregate principal amount of 13% Senior Notes
---------
due August 15, 2000, of KKR.
"KKR Preferred Shares" means the shares of Series A Convertible Preferred Stock,
--------------------
par value $.01 per share, and Series B Convertible Preferred Stock, par value
$.01 per share, of KKR.
"KKR SEC Documents" means all forms, reports and documents filed by, or required
-----------------
under Applicable Law to be filed by, KKR or any of the KKR Subsidiaries with the
Commission since December 31, 1996, including all exhibits thereto.
"KKR Proxy Statement" means the proxy statement of KKR relating to the annual or
-------------------
special meeting of stockholders of KKR at which such stockholders will be asked
to approve and adopt this Agreement and the Merger.
"KKR Shares" means the KKR Common Shares and the KKR Preferred Shares.
----------
6
<PAGE>
"KKR Subsidiaries" means the Subsidiaries of KKR, each of which is identified on
----------------
Schedule 5.1 hereof.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse claim,
----
or a security interest of any kind (including, without limitation, any
conditional sale or other title retention agreement or any lease in the nature
thereof).
"Material Adverse Change" means with respect to any Person, the occurrence of
-----------------------
any event or condition that has, or could reasonably be expected to have, a
Material Adverse Effect.
"Material Adverse Effect" means with respect to any Person, a material adverse
-----------------------
effect on (i) the financial position, results of operations, revenues, assets,
liabilities, or business of such Person and its Subsidiaries, taken as a whole,
(ii) the ability of such Person or any of its Affiliates to perform its material
obligations hereunder or under any other Document or (iii) the validity or
enforceability of this Agreement or any other Document; provided, that, in the
--------
case of KKR, a fluctuation or fluctuations in the trading price of the KKR
Common Shares occurring other than as a result of KKR's willful misconduct
cannot, in and of itself, constitute a Material Adverse Effect.
"Materials of Environmental Concern" shall mean any regulated quantity of
----------------------------------
asbestos in any form, urea formaldehyde, lead-based paint, PCBs, radon gas,
crude oil or any fraction thereof, all regulated forms of natural gas, petroleum
products or by-products, any regulated radioactive substance, any regulated
toxic, infectious, reactive, corrosive, ignitable or flammable chemical or
chemical compound and any other regulated hazardous substance, material or waste
(as defined in or for purposes of any Environmental Law), whether solid, liquid
or gas.
"Merger" means the merger of Merger-Sub with and into KKR.
------
"Merger Consideration" means the Common Merger Consideration and the Preferred
--------------------
Merger Consideration.
"Multiemployer Plan" means with respect to any Person, on any date, a
------------------
multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been made at any time during the six-year period ending on or
prior to such date, by such Person or any of its ERISA Affiliates and that is
covered by Title IV of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
----
7
<PAGE>
"NLRB" means the National Labor Relations Board or any similar state agency.
----
"OSHA" means the United States Occupational Safety and Health Administration or
----
any similar state agency.
"Permitted Liens" shall have the meaning given thereto in the Credit Facility.
---------------
"Permitted Transactions" shall mean the transactions contemplated by this
----------------------
Agreement including, without limitation, the declaration of the FRI Dividend
pursuant to Section 6.5, and in the case of KKR, any transaction between KKR or
any KKR Subsidiary, on the one hand, and any other Person, on the other,
providing for (a) the bona fide, arms length sale to such Person of (i) all of
the capital stock of, or substantially all of the assets of, Arrosto Coffee
Company, Inc. or Color Me Mine, Inc., or (ii) owned and operated stores of Color
Me Mine, Inc. or (b) payments to landlords in connection with obtaining consents
to the transactions contemplated hereby (and the amendment of leases to require
such payments), in each case substantially on the terms attached hereto as
Exhibit 1.1.
"Person" means any individual, partnership, corporation, limited liability
------
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Preferred Merger Consideration" shall have the meaning given in Section 2.6.
------------------------------
"Proceeding" means an action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a deposition).
"Securities Act" means the Securities Act of 1933, as amended, and the rules and
--------------
regulations promulgated by the Commission thereunder.
"Subsidiary" means with respect to any Person, (a) a corporation a majority of
----------
whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such Person, by a
subsidiary of such Person, or by such Person and one or more subsidiaries of
such Person, (b) a partnership in which such Person or a subsidiary of such
Person is a general partner of such partnership, or (c) any other Person (other
than a corporation) in which such Person, a subsidiary of such Person or such
Person and one or more subsidiaries of such Person, directly or indirectly, has
8
<PAGE>
(i) at least a majority ownership interest or (ii) the power to elect or direct
the election of the directors or other governing body of such Person.
"Surviving Corporation" shall have the meaning given in Section 2.1.
---------------------
"Taxes" means all Federal, state, local and foreign taxes, and other assessments
-----
of a similar nature (whether imposed directly or through withholding), including
any interest, additions to tax, or penalties applicable thereto.
"Tax Authority" means the Internal Revenue Service and any other domestic or
-------------
foreign governmental authority responsible for the administration of any Taxes.
"Tax Returns" means all Federal, state, local and foreign tax returns,
-----------
declarations, statements, reports, schedules, forms and information returns and
any amended Tax Return relating to Taxes.
"ULP" means an unfair labor practice as defined in the National Labor Relations
---
Act or other Applicable Law.
"WARN Act" means the Worker Adjustment and Retraining Notification Act of 1988,
--------
and any successor statute or law thereto.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
----------
hereof, and in accordance with the relevant provisions of the DGCL (i) Merger-
Sub shall be merged with and into KKR and (ii) the Certificate of Merger shall
be duly prepared, executed and filed by KKR, as the surviving corporation (the
"Surviving Corporation") in the Merger, as promptly as practicable following the
- ----------------------
satisfaction or waiver of the conditions set forth in Article IX hereof, but in
no event later than two business days thereafter, unless the parties hereto
shall otherwise agree. Following the Merger, the Surviving Corporation shall
continue under the name Koo Koo Roo, Inc. and the separate corporate existence
of Merger-Sub shall cease. Immediately prior to the filing of the Certificate
of Merger, a closing (the "Closing") shall take place at the offices of Skadden,
-------
Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles,
California, or such other place and at such time as the parties shall agree.
9
<PAGE>
SECTION 2.2 Effects of the Merger. The Merger shall have the effects
---------------------
set forth in Sections 259, 260 and 261 of the DGCL.
SECTION 2.3 Certificate of Incorporation and By-Laws. Subject to
----------------------------------------
Section 6.7, the Certificate of Incorporation and the By-laws of Merger-Sub, in
each case as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation and By-laws of the Surviving Corporation until
duly amended in accordance with applicable law.
SECTION 2.4 Directors. The persons identified on Schedule 2.4 shall
---------
be the initial directors of the Surviving Corporation and shall hold office
until their respective successors are duly elected and qualified in accordance
with the Certificate of Incorporation and By-laws of the Surviving
Corporation, or their earlier death, resignation or removal.
SECTION 2.5 Officers. The persons identified on Schedule 2.5 shall
--------
be the initial officers of the Surviving Corporation and shall serve as the
officers of the Surviving Corporation at the pleasure of the Board of Directors
of the Surviving Corporation.
SECTION 2.6 Conversion of Shares. At the Effective Time, by virtue
--------------------
of the Merger and without any action on the part of the holders thereof:
(a) Subject to Section 3.2, each issued KKR Common Share outstanding
at the Effective Time, other than (i) KKR Common Shares to be cancelled in
accordance with Section 2.6(c) hereof and (ii) Dissenting Shares, if any, shall
automatically be converted into and become the right to receive one FRI Share
(the "Common Merger Consideration").
---------------------------
(b) Subject to Section 3.2, each issued KKR Preferred Share
outstanding at the Effective Time, other than (i) KKR Preferred Shares to be
canceled in accordance with Section 2.6(c) hereof and (ii) Dissenting Shares, if
any, shall automatically be converted into the right to receive the number of
FRI Shares that the holder of such KKR Preferred Share would have been entitled
to receive pursuant to Section 2.6(a) had such holder converted such KKR
Preferred Share into KKR Common Shares immediately prior to the Effective Time
in accordance with the terms of the Certificate of Designation of KKR relating
to such KKR Preferred Share (the "Preferred Merger Consideration").
------------------------------
10
<PAGE>
(c) Each share of capital stock of KKR that is held in the treasury
of KKR and each share of capital stock of KKR held by FRI or any FRI Subsidiary
shall be canceled and retired and cease to exist and no consideration shall be
issued in exchange therefor.
(d) The issued and outstanding shares of capital stock of Merger-Sub
shall be converted into and become, in the aggregate, 1,000 fully paid and
nonassessable shares of common stock of the Surviving Corporation, which
thereafter will constitute all of the issued and outstanding capital stock of
the Surviving Corporation.
SECTION 2.7 Stock Plans.
-----------
(a) Prior to the Effective Time, the Board of Directors of KKR and the
Board of Directors of FRI (or, if appropriate, a committee thereof) shall adopt
appropriate resolutions and take all other actions necessary, including, without
limitation, amending the KKR Stock Plans (as defined below), to provide that
effective at the Effective Time, the KKR Stock Awards Plan, as amended, The Koo
Koo Roo, Inc. Directors' Stock Option Plan, as amended, the 1997 Stock Option
Plan for Restaurant Employees and Management and all other stock-based
compensatory arrangements identified on Schedule 2.7, if any (the "KKR Stock
---------
Plans"), and all outstanding, unexercised stock options (the "KKR Options")
- ----- -----------
heretofore granted pursuant to the KKR Stock Plans, shall be assumed by FRI and
upon the occurrence of the Effective Time, and without any action by the holder
thereof, such KKR Options shall be converted automatically into options (the
"Roll-over Options") to purchase FRI Shares, on the same terms and conditions as
- ------------------
were applicable under the KKR Stock Plans, in an amount and at an exercise price
as provided below:
(i) the number of FRI Shares to be the subject of the Roll-over Option
shall be equal to the number of KKR Common Shares remaining (as of
immediately prior to the Effective Time) subject to the original KKR
Option; and
(ii) the exercise price per FRI Share under the Roll-over Option shall
be equal to the exercise price per KKR Share under the original KKR Option.
The adjustment provided in this Section 2.7 with respect to any options which
are "incentive stock options" as defined in section 422 of the Code shall be and
is intended to be effected in a manner which is consistent with section 424(a)
of the Code. After the Effective Time, each Roll-over Option shall be
exercisable and shall, if not accelerated,
11
<PAGE>
vest upon the same terms and conditions as were applicable to the related KKR
Option immediately prior to the Effective Time (except that, (x) with regard to
such Roll-over Option, any references to KKR shall be deemed, as appropriate, to
include FRI and (y) the vesting of options outstanding under the plans
identified on Schedule 2.7 may be accelerated at the Effective Time).
(b) FRI shall take all corporate action necessary to reserve for
issuance a sufficient number of FRI Shares for delivery pursuant to the KKR
Stock Plans assumed in accordance with this Section 2.7. As soon as practicable
after the Effective Time, (i) FRI shall deliver to the participants in the KKR
Stock Plans appropriate notice setting forth such participants' rights pursuant
thereto including, without limitation, the undertakings made in this Section 2.7
and (ii) shall file and use commercially reasonable efforts to obtain the
effectiveness of a registration statement on Form S-8 (or appropriate successor
form) (the "Form S-8") with respect to the FRI Shares subject to Roll-over
--------
Options and maintain the current status of such registration statement and the
related prospectus(es) for so long as such assumed options remain outstanding.
(c) The Board of Directors of each of FRI and KKR shall, prior to the
Effective Time, as appropriate, take appropriate action to approve the deemed
cancellation of the KKR Options and the deemed grant of the Roll-over Options
for purposes of Section 16(b) of the Exchange Act.
SECTION 2.8 Warrants.
--------
(a) Prior to the Effective Time, the Board of Directors of KKR and the
Board of Directors of FRI (or, if appropriate, a committee thereof) shall adopt
appropriate resolutions and take all other actions necessary, including, without
limitation, amending any applicable warrant agreements, to provide that
effective at the Effective Time, all warrants to purchase KKR Common Shares
issued pursuant to the warrant agreements and arrangements set forth on Schedule
2.8 (the "KKR Warrants"), shall be assumed by FRI and upon the occurrence of the
------------
Effective Time, and without any action by the holder thereof, such KKR Warrants
shall be converted automatically into warrants (the "Roll-over Warrants") to
------------------
purchase FRI Shares, on the same terms and conditions as were applicable under
the KKR Warrants, in an amount and at an exercise price as provided below:
(i) the number of FRI Shares to be the subject of the Roll-over
Warrant shall be equal to the number of KKR Common Shares remaining (as of
12
<PAGE>
immediately prior to the Effective Time) subject to the original KKR
Warrant; and
(ii) the exercise price per FRI Share under the Roll-over Warrant
shall be equal to the exercise price per KKR Share under the original KKR
Warrant.
After the Effective Time, each Roll-over Warrant shall be exercisable and shall,
if not accelerated, vest upon the same terms and conditions (if any) as were
applicable to the related KKR Warrant immediately prior to the Effective Time
(except that, with regard to such Roll-over Warrant, any references to KKR shall
be deemed, as appropriate, to include FRI).
(b) FRI shall take all corporate action necessary to reserve for
issuance a sufficient number of FRI Shares for delivery pursuant to the KKR
Warrants assumed in accordance with this Section 2.8.
(c) The Board of Directors of each of FRI and KKR shall, prior to the
Effective Time, as appropriate, take appropriate action to approve the deemed
cancellation of the KKR Warrants and the deemed grant of the Roll-over Warrants
for purposes of Section 16(b) of the Exchange Act.
SECTION 2.9 Tax Treatment. It is intended that the Merger shall
-------------
constitute a tax-free reorganization within the meaning of Section 368(a) of the
Code.
ARTICLE III
EXCHANGE OF SHARES
SECTION 3.1 Surrender of Certificates.
-------------------------
(a) At the Effective Time, FRI shall provide to the Exchange Agent,
in trust for the benefit of the holders of KKR Shares for exchange in accordance
with this Article III, certificates representing the aggregate number of FRI
Shares issuable pursuant to Section 2.6 of this Agreement. As soon as
practicable after the Effective Time, FRI shall cause to be mailed, by first
class mail, to each holder of record of KKR Shares immediately prior to the
Effective Time, a form letter of transmittal for return to the Exchange Agent
and instructions for use in effecting the surrender of Certificates in exchange
for certificates representing FRI Shares and cash in lieu of fractional share
interests, if applicable. Upon surrender of a Certificate to the Exchange
13
<PAGE>
Agent, together with such letter of transmittal, duly completed and executed,
the holder of KKR Shares formerly represented by such Certificate shall be
entitled to receive and shall receive in exchange therefor the Merger
Consideration for each KKR Share formerly represented by such Certificate, and
the Certificate so surrendered shall be canceled.
(b) Until surrendered as contemplated by this Article III, from and
after the Effective Time, FRI shall be entitled to treat each Certificate which
has not been surrendered for exchange (other than Certificates represented by
Dissenting Shares, if any), as evidencing the ownership of the number of full
FRI Shares into which the KKR Shares represented by the Certificate shall have
been converted pursuant to Section 2.6, notwithstanding the failure to surrender
the Certificate. If a certificate representing FRI Shares is to be issued or a
cash payment in lieu of fractional share interests is to be made to a person
other than the one in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to such issuance or payment that
such Certificate so surrendered be properly endorsed (or accompanied by an
appropriate instrument of transfer) and accompanied by evidence reasonably
satisfactory to the Exchange Agent that any applicable stock transfer or other
taxes required by reason of payment to a person other than the registered holder
of such Certificate have been paid or provided for.
(c) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the registered holder of such
lost, stolen or destroyed Certificate in form and substance reasonably
acceptable to FRI and the Exchange Agent and, if requested by FRI, accompanied
by a bond in a reasonable amount satisfactory to FRI and the Exchange Agent, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and cash in lieu of fractional share
interests deliverable in respect thereof pursuant to this Agreement.
(d) FRI shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Certificates such amounts, if any, as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any applicable
provision of state, local or foreign law.
SECTION 3.2 No Dividends. Notwithstanding anything herein to the
------------
contrary, no dividends or other distributions declared or made after the
Effective Time with respect to FRI Shares with a record date after the Effective
Time shall be paid to the
14
<PAGE>
holder of FRI Shares represented by any unsurrendered Certificate until such
holder shall surrender such Certificate. Dividends or other distributions with a
record date after the Effective Time payable in respect of FRI Shares held by
the Exchange Agent, if any, shall be held in trust for the benefit of such
holders, without interest, until the time such Certificates are duly surrendered
in accordance with the terms hereof.
SECTION 3.3 Return to FRI. Any FRI Shares exchanged for Certificates
-------------
within twelve months after the Effective Time and any dividends and
distributions held by the Exchange Agent for payment or delivery to the holders
of unsurrendered Certificates and unclaimed at the end of such twelve-month
period shall be redelivered or repaid by the Exchange Agent to FRI (which
thereafter shall act as the Exchange Agent), after which time any holder of
Certificates who has not theretofore delivered or surrendered such Certificates
to the Exchange Agent, subject to Applicable Law, may thereafter surrender such
Certificates to FRI in exchange for the Merger Consideration and for payment of
any such dividends or distributions. Notwithstanding the foregoing, none of the
Exchange Agent, the Surviving Corporation or any other party hereto shall be
liable to a holder of KKR Shares for any Merger Consideration or dividends or
distributions properly delivered to a public official pursuant to applicable
escheat or similar laws.
SECTION 3.4 Dissenting Shares. If appraisal rights are available
-----------------
under the DGCL to holders of any KKR Shares in connection with the Merger, any
issued and outstanding KKR Shares entitled thereto that have not been voted for
approval of this Agreement and the transactions contemplated hereby and with
respect to which appraisal shall have been properly demanded in accordance with
Section 262 of the DGCL ("Dissenting Shares") shall not be converted into the
-----------------
right to receive the Merger Consideration and each holder thereof shall have
only such rights as are provided in Section 262 of the DGCL unless and until
such holder withdraws his demand for such appraisal in accordance with Section
262(e) of the DGCL or otherwise loses his right to such appraisal. If a holder
of Dissenting Shares shall properly withdraw his demand for appraisal or shall
otherwise lose his right to such appraisal, then, as of the Effective Time or
the occurrence of such event, whichever last occurs, such holder's Dissenting
Shares shall cease to be Dissenting Shares and shall be converted into and
represent the right to receive the Merger Consideration without interest
thereon. Prior to the Effective Time, KKR shall give FRI prompt notice of any
written demands for appraisal or withdrawals of demands for appraisal received
by KKR pursuant to Section 262 of the DGCL and, except with the prior written
consent of FRI, which may be given or withheld in its sole discretion, shall not
settle or offer to settle any such demands. Any payment in respect of
Dissenting Shares shall be made solely from the funds of KKR.
15
<PAGE>
SECTION 3.5 No Further Transfer. Following the Effective Time, there
-------------------
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of capital stock of KKR that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged for the Merger Consideration as provided in
this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FRI AND MERGER-SUB
FRI and Merger-Sub hereby represent and warrant to KKR as follows:
SECTION 4.1 Organization, Standing and Qualification.
----------------------------------------
(a) FRI and each of the FRI Subsidiaries (i) is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; (ii) has all requisite power and
authority to own or lease, and operate its properties and assets, and to carry
on its business as now conducted and as proposed to be conducted; (iii) is duly
qualified or licensed to do business as a foreign corporation or other legal
entity and is in good standing in all jurisdictions in which it owns or leases
property or in which the conduct of its business requires it to so qualify or be
licensed, where the failure to qualify could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect on FRI; and (iv) has
obtained all licenses, permits, franchises and other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business except for such failures to obtain that could not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect on FRI.
Each FRI Subsidiary along with its jurisdiction of organization is identified on
Schedule 4.1.
(b) Except as set forth on Schedule 4.1(b), none of FRI or any of the
FRI Subsidiaries owns, directly or indirectly, any of the capital stock or other
equity securities of any other Person other than (i) the FRI Subsidiaries and
(ii) less than 100 shares of capital stock of a publicly traded corporation
whose principal business includes the operation of restaurants. All of the
issued and outstanding shares of capital stock of the FRI Subsidiaries are duly
authorized, have been validly issued, fully paid and nonassessable, are free of
preemptive and similar rights, and, except as set forth on Schedule 4.1(b), are,
and as of the Closing will be, owned by FRI or a FRI Subsidiary
16
<PAGE>
free and clear of all Liens other than Permitted Liens and Liens granted in
connection with, and securing obligations under, the Credit Facility.
SECTION 4.2 Capitalization.
--------------
(a) As of the date hereof, the total authorized capital stock of FRI
consists of 1,500,000 shares of common stock, par value $.01 per share, 988,285
shares of which are issued and outstanding and 500,000 shares of preferred
stock, par value $.01 per share, none of which are issued and outstanding.
Immediately following the Effective Time, the authorized capital stock of FRI
will consist of not less than 300 million shares of common stock, par value $.01
per share, and not less than 50 million shares of preferred stock, with the
exact amount determined by the FRI Board of Directors.
(b) Each share of FRI capital stock that is issued and outstanding
(i) has been duly authorized and validly issued, and (ii) is fully paid and
nonassessable and free of preemptive and similar rights. Each of the FRI Shares
to be issued as Merger Consideration will, as of the Closing Date, (i) be duly
authorized and validly issued, and (ii) be fully paid and nonassessable and free
of preemptive and similar rights.
(c) Except as set forth in this Agreement or as set forth on Schedule
4.2(c), there are no outstanding (i) securities convertible into or exchangeable
for any capital stock of FRI or any FRI Subsidiary, (ii) options, warrants or
other rights to purchase or subscribe for capital stock of FRI or any FRI
Subsidiary or securities convertible into or exchangeable for capital stock of
FRI or any FRI Subsidiary, (iii) contracts, commitments, agreements,
understandings, arrangements, calls or claims of any kind relating to the
issuance of any capital stock of FRI or any FRI Subsidiary, any such convertible
or exchangeable securities or any such options, warrants or rights or (iv)
commitments or obligations to purchase or redeem any shares of capital stock of
any class or equity securities of FRI or any FRI Subsidiary, any such
convertible or exchangeable securities or any such options, warrants or other
rights.
(d) Schedule 4.2(d) sets forth and describes all indebtedness for
borrowed money (including capitalized lease obligations) of FRI and the FRI
Subsidiaries outstanding on the date hereof. Except as set forth on FRI's
Schedules to this Agreement or disclosed in the FRI SEC Documents, neither FRI
nor any of the FRI Subsidiaries has, or immediately following the Closing will
have, any material liabilities of any nature, absolute, accrued, contingent or
otherwise, other than liabilities incurred after the date hereof in a manner not
prohibited by Section 6.3 hereof.
17
<PAGE>
SECTION 4.3 Authorization of Agreement and Other Documents.
----------------------------------------------
(a) The execution and delivery of this Agreement and the other
Documents to which FRI or any FRI Subsidiary is a party, and the performance of
their respective obligations hereunder or thereunder and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized and no
other proceedings on the part of FRI, any of the FRI Subsidiaries or any of
their respective stockholders or Affiliates are necessary to authorize this
Agreement, the Merger or the other Documents. This Agreement is and, as of the
Effective Time, each of the Documents to which FRI or any of the FRI
Subsidiaries is a party will be, a valid and binding obligation of FRI or such
FRI Subsidiary, as the case may be, enforceable in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting enforcement of creditors' rights generally, and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
(b) FRI and each of the FRI Subsidiaries has full power and authority
to execute and deliver each of the Documents to which it is a party, and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
SECTION 4.4 No Violation.
------------
(a) Neither FRI nor any of the FRI Subsidiaries is (i) in violation
of its respective Charter Documents, or (ii) in default in the performance of
any obligation, agreement or condition contained in an Applicable Agreement,
which default could, singly or in the aggregate, be reasonably expected to have
a Material Adverse Effect on FRI.
(b) The execution and delivery of and the performance by FRI and each
FRI Subsidiary of its obligations under each Document to which it is a party,
will not (i) constitute a breach or violation under the Charter Documents of FRI
or any of the FRI Subsidiaries; (ii) conflict with, violate, constitute a breach
or violation of or a default (with the passage of time or otherwise) under,
require the consent of any Person under, give to others any rights of
termination, amendment, acceleration, redemption, repurchase or cancellation of,
or result in the imposition of a Lien on any of the properties or assets of FRI
or any of the FRI Subsidiaries or an acceleration of indebtedness pursuant to,
any Applicable Agreement; or (iii) constitute a violation of any Applicable Law,
except (A) in the case of clause (ii) above, consents that have already
18
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been obtained or consents identified on Schedule 4.4(b) that FRI will use
commercially reasonable efforts to obtain on or prior to the time required or
(B) in the case of clauses (ii) and (iii) above, such conflicts, breaches,
violations, defaults, terminations, amendments, accelerations, redemptions,
repurchases or creation of Liens which, singly or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on FRI.
(c) The businesses of FRI and each of the FRI Subsidiaries are not
being and FRI has not received, any notice from any authority or Person that
such businesses have been or are being, conducted in violation of any Applicable
Law, except for possible violations which either singly or in the aggregate have
not resulted and could not reasonably be expected in the future to result in a
Material Adverse Effect.
SECTION 4.5 Absence of Certain Changes. Except (i) as and to the
--------------------------
extent set forth on Schedule 4.5, (ii) as disclosed in the FRI SEC Documents
filed on or prior to the date hereof, (iii) for the transactions contemplated by
this Agreement or (iv) for Permitted Transactions, since December 28, 1997,
neither FRI nor any of the FRI Subsidiaries has:
(a) suffered any Material Adverse Change;
(b) paid, discharged or otherwise satisfied any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business,
consistent with past practice of liabilities and obligations (i) reflected or
reserved against in the Financial Statements or (ii) incurred after December 28,
1997, in the ordinary course of business, consistent with past practice;
(c) permitted or allowed any of its material property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any Liens,
except Permitted Liens;
(d) sold, transferred, or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business, consistent with past practice;
(e) granted (i) any increase in the compensation or benefits payable
or to become payable to any officer or director or general group of employees
(including any such increase pursuant to any bonus, pension, profit sharing or
other plan
19
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or commitment) or (ii) other than in the ordinary course of business and
consistent with past practice, any increase in the compensation or benefits
payable or to become payable to any employee;
(f) made any change in severance policy or practices;
(g) made any single expenditure capitalized in accordance with FRI's
current accounting policies or acquired any property or assets (other than new
materials and supplies) for a cost in excess of $100,000;
(h) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or other
securities of FRI or any of the FRI Subsidiaries;
(i) made any material change in any method of tax or financial
accounting or accounting practice or made or changed any material election for
Federal income tax purposes;
(j) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers, directors or greater than 5% stockholders or any Affiliate or
associate of any of its officers, directors or greater than 5% stockholders
except for (x) directors' fees, and compensation to officers at rates not
exceeding the rates of compensation paid during the fiscal year ended December
28, 1997 and (y) customary advances for travel and similar business expenses; or
(k) agreed, whether in writing or otherwise, to take any action
described in this Section.
SECTION 4.6 Insurance. FRI and the FRI Subsidiaries maintain, with
---------
reputable insurers, insurance in such amounts, including deductible
arrangements, and of such a character as is usually maintained by reasonably
prudent managers of companies engaged in the same or similar business. Except
as set forth in Schedule 4.6, all such policies are in full force and effect,
all premiums with respect thereto covering all periods up to and including the
Effective Time will have been paid, and no notice of cancellation or termination
has been received with respect to any such policy other than notices received
after the date of this Agreement, (copies of which FRI shall promptly
20
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deliver to KKR); provided, that FRI shall timely replace each such policy that
--------
has been cancelled or terminated. Except as set forth in Schedule 4.6, such
policies will not be materially affected by, or terminate or lapse by reason of,
the transactions contemplated by this Agreement and the other Documents. All of
such policies have been issued by reputable insurance companies actively engaged
in the insurance business.
SECTION 4.7 Financial Statements; Full Disclosure.
-------------------------------------
(a) The Financial Statements of FRI present fairly the financial
position of FRI and its consolidated Subsidiaries as of the dates thereof and
the results of their respective operations for the periods then ended. Except
as otherwise disclosed in the footnotes thereto, the audited Financial
Statements of FRI have been prepared in accordance with GAAP and with Regulation
S-X. Except as otherwise disclosed in the footnotes thereto, the unaudited
Financial Statements of FRI have been prepared in a manner consistent with the
audited Financial Statements of FRI and in accordance with GAAP for interim
financial information and with Regulation S-X and include all adjustments
(consisting of normal recurring accruals) that are necessary for a fair
presentation.
(b) FRI has timely filed all FRI SEC Documents, each of which
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act as of the dates so filed. None of the FRI
SEC Documents (as of their respective filing dates) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. None of
the FRI Subsidiaries is required to file any forms, reports or other documents
with the Commission.
(c) No representation or warranty by FRI or any of the FRI
Subsidiaries in any of the Documents, and no statement contained in any written
materials furnished by or on behalf of FRI or any of the FRI Subsidiaries to
KKR, contains or will contain any untrue statement of a material fact, or omits
or will omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made or will be
made, not misleading.
SECTION 4.8 Suppliers; Franchisees. Except as set forth on Schedule
----------------------
4.8, (a) to the best knowledge of FRI, there has not been any material adverse
change in the business relationship of FRI or any FRI Subsidiary with any of its
material suppliers; (b) there is no default by FRI, any of the FRI Subsidiaries
or, to the best knowledge of
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FRI, any other party under any agreement between FRI or any of the FRI
Subsidiaries and any of their respective franchisees; and (c) to the best
knowledge of FRI, there has not been an adverse change in the business
relationship of FRI or any of the FRI Subsidiaries with any of its franchisees
which in any such event could, singly or in the aggregate, be reasonably
expected to have a Material Adverse Effect on FRI.
SECTION 4.9 Intellectual Property. FRI and the FRI Subsidiaries own,
---------------------
or are licensed to use, all of their Intellectual Property necessary to carry on
its business as now conducted and as proposed to be conducted. There are no
Proceedings pending or, to the best knowledge of FRI, threatened concerning any
of such items of Intellectual Property and to the best knowledge of FRI there is
no basis for any such Proceeding. The use of such Intellectual Property does
not conflict with, infringe upon, or violate any proprietary or other rights of
any other Person, except such conflicts, infringements or violations that could
not singly or in the aggregate be reasonably expected to have a Material Adverse
Effect on FRI.
SECTION 4.10 Litigation. There is no Proceeding or series of related
----------
Proceedings against or affecting FRI or any of the FRI Subsidiaries or any of
their properties or assets pending, or to the best knowledge of FRI, threatened,
that could, singly or in the aggregate, be reasonably expected to have a
Material Adverse Effect on FRI. Neither FRI nor any of the FRI Subsidiaries is
subject to any judgment, injunction, decree, writ, interpretation or order of
any Governmental Authority that could, singly or in the aggregate, be reasonably
expected to have a Material Adverse Effect on FRI.
SECTION 4.11 Labor Matters.
-------------
(a) Except as set forth on Schedule 4.11:
(i) there is no labor strike, dispute, slowdown, work stoppage or
lockout pending or, to the best knowledge of FRI, threatened against or
affecting FRI or any FRI Subsidiary that, singly or in the aggregate, could be
reasonably expected to have a Material Adverse Effect on FRI and, during the
past five years, there has not been any such action;
(ii) no union claims to represent the employees of FRI or any FRI
Subsidiary;
(iii) neither FRI nor any FRI Subsidiary is a party to or bound by
any collective bargaining or similar agreement with any labor organization, or
work rules
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or practices agreed to with any labor organization or employee association
applicable to employees of FRI or any FRI Subsidiary;
(iv) neither the employees of FRI nor any FRI Subsidiary are
represented by any labor organization, and neither FRI nor any FRI Subsidiary
has any knowledge of any current union organizing activities among the employees
of FRI or any FRI Subsidiary, nor to their best knowledge does any question
concerning representation exist concerning such employees;
(v) there are no written personnel policies, rules or procedures
applicable to employees of FRI or any FRI Subsidiary;
(vi) FRI and the FRI Subsidiaries are not engaged in any ULP; and
there is no ULP charge or complaint against FRI or any FRI Subsidiary pending
or, to the best knowledge of FRI, threatened before the NLRB;
(vii) there is no grievance or arbitration proceeding arising out of
any collective bargaining agreement or other grievance procedure relating to FRI
or any FRI Subsidiary;
(viii) no charges with respect to or relating to FRI or any FRI
Subsidiary are pending before the EEOC; and there are no pending or, to the best
knowledge of FRI, threatened wage and hour claims filed against FRI or any of
the FRI Subsidiaries with any Governmental Authority;
(ix) to the knowledge of FRI and the FRI Subsidiaries, no Governmental
Authority responsible for the enforcement of Applicable Employment Laws intends
to conduct an investigation with respect to or relating to FRI or any of the FRI
Subsidiaries and no such investigation is in progress;
(x) there are no pending OSHA citations relating to FRI or any of the
FRI Subsidiaries and, to the best knowledge of FRI, OSHA has not threatened to
file any citation;
(xi) there is no pending investigation of, or complaint pending
against, FRI or any of the FRI Subsidiaries by the Office of Federal Contract
Compliance Programs or any similar state agency;
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(xii) there are no Proceedings pending or, to the best knowledge of
FRI, threatened against, and no Person has alleged breach of any express or
implied contract of employment or of any Applicable Employment Law by, FRI or
any FRI Subsidiary; and
(xiii) there are no employment contracts or severance agreements
with any employees of FRI or the FRI Subsidiaries.
(b) Since the enactment of the WARN Act, FRI and its Subsidiaries
have not effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of FRI or any FRI Subsidiary, or (ii)
a "mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of FRI or any FRI Subsidiary; nor has FRI or any FRI Subsidiary been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local law.
SECTION 4.12 Taxes. Except as otherwise disclosed in Schedule 4.12:
-----
(a) Each of FRI and the FRI Subsidiaries have timely filed (or have
had timely filed on their behalf) or will timely file or cause to be timely
filed, all Tax Returns required by applicable law to be filed by any of them
prior to or as of the Effective Time. All such Tax Returns and amendments
thereto are or will be true, complete and correct. The most recent financial
statements contained in the FRI SEC Documents provide an adequate accrual for
the payment of Taxes for the periods covered by such reports.
(b) Each of FRI and the FRI Subsidiaries have paid (or have had paid
on their behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Effective Time, an
adequate accrual on the books and records of FRI and the FRI Subsidiaries for
the payment of, all Taxes due with respect to any fiscal quarter ending prior to
or as of the Effective Time.
(c) No Audit by a Tax Authority is pending or, to the best knowledge
of FRI, threatened with respect to any Tax Returns filed by, or Taxes due from,
FRI or the FRI Subsidiaries. No deficiency or adjustment for any Taxes has been
threatened, proposed, asserted or assessed against FRI or the FRI Subsidiaries
other than those that could not be reasonably expected to have a Material
Adverse Effect. There are no liens for Taxes upon the assets of FRI or the FRI
Subsidiaries, except liens for current
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Taxes not yet due for which adequate reserves have been established in
accordance with GAAP.
(d) Neither FRI nor the FRI Subsidiaries has given or been requested
to give any waiver of statutes of limitations relating to the payment of Taxes
or have executed powers of attorney with respect to Tax matters, which will be
outstanding as of the Effective Time. Subsection (d) of Schedule 4.12 sets
forth all open tax years with respect to FRI and the FRI Subsidiaries.
(e) Neither FRI nor the FRI Subsidiaries is a party to, is bound by
any tax sharing, tax indemnity, cost sharing, or similar agreement or policy
relating to Taxes.
(f) Neither FRI nor the FRI Subsidiaries has entered into agreements
that would result in the disallowance of any tax deductions pursuant to section
280G of the Code.
SECTION 4.13 Employee Benefit Plans; ERISA.
-----------------------------
(a) Schedule 4.13 sets forth a true and complete list of the Benefit
Plans of FRI and the FRI Subsidiaries.
(b) FRI has made available to KKR, with respect to all Benefit Plans
of FRI and the FRI Subsidiaries, true, complete and correct copies of the
following: all plan documents and the most recent summary plan descriptions and
any subsequent summaries of material modifications or other material employee
communications discussing any employee benefit provided thereunder; forms 5500
as filed with the IRS for the most recent three plan years; all trust agreements
with respect to the Benefit Plans of FRI and the FRI Subsidiaries; copies of any
contracts with service providers and insurers providing benefits for
participants or liability insurance or bonding for the sponsors, administrators
or trustees of any Benefit Plan of FRI and the FRI Subsidiaries; the two most
recent annual audits and accountings of plan assets for all funded plans; the
most recent IRS determination letter for all plans qualified under Code section
401(a); all handbooks, manuals, and similar documents governing material
employment policies, practices and procedures and each Form S-8 and each
prospectus related thereto filed or used in the past three years.
(c) With respect to each Benefit Plan of FRI and the FRI
Subsidiaries: (i) each Benefit Plan has been administered in compliance in all
material respects, with its terms including, but not limited to, any provisions
relating to contributions thereunder, and is in compliance in all material
respects with the applicable
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provisions of ERISA, the Code and all other Applicable Laws (including, without
limitation, provisions relating to funding, filing, termination, reporting,
disclosure and continuation coverage obligations pursuant to Title V of COBRA);
(ii) no Benefit Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) has been the subject of a "reportable event" (as defined
in Section 4043 of ERISA) and to the knowledge of FRI, there have been no
"prohibited transactions" (as described in section 4975 of the Code or in Part 4
of Subtitle B of Title I of ERISA) with respect to any Benefit Plan of FRI and
the FRI Subsidiaries; (iii) there are no Proceedings (other than routine claims
for benefits) pending or to the knowledge of FRI threatened with respect to any
Benefit Plan, the assets of any trust thereunder, or the Benefit Plan sponsor or
the Benefit Plan administrator with respect to the design or operation of any
Benefit Plan; (iv) each Benefit Plan which is intended to be "qualified" within
the meaning of section 401(a) of the Code is so qualified, and any trust created
pursuant to any such Benefit Plan is exempt from federal income tax under
section 501(a) of the Code and the IRS has issued each such Benefit Plan a
favorable determination letter which to FRI's knowledge is currently applicable;
(v) FRI is not aware of any circumstance or event which would jeopardize the
tax-qualified status of any such Benefit Plan or the tax-exempt status of any
related trust, or would cause the imposition of any material liability, penalty
or tax under ERISA or the Code with respect to any Benefit Plan; (vi) no
unsatisfied liabilities to participants, the IRS, DOL, the PBGC or to any other
Person have been incurred as a result of the termination of any Benefit Plan;
and (vii) there has been no event with respect to a Benefit Plan which would
require disclosure under Sections 4062(c), 4063(a) or 4041(e) of ERISA.
(d) Neither FRI nor the FRI Subsidiaries maintains or is obligated to
contribute to or has ever maintained or been obligated to contribute to a
Multiemployer Plan or any "multiple employer plan" (within the meaning of
section 413(c) of the Code).
(e) All reports and information required to be filed with the DOL,
IRS and PBGC and with plan participants and their beneficiaries with respect to
each Benefit Plan of FRI and the FRI Subsidiaries have been filed.
(f) Except as set forth on Schedule 4.13(f) and except to the extent
required by COBRA and any similar state law, neither FRI nor the FRI
Subsidiaries maintain any retiree life and/or retiree health insurance plans
which provide for continuing benefits or coverage for any employee or any
beneficiary of an employee after such employee's termination of employment.
(g) Except as set forth on Schedule 4.13(g), the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination
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with another event, (viii) entitle any employee of FRI or any FRI Subsidiary to
severance pay, unemployment compensation or any other payment, (ix) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such employee, or (x) result in any liability under Title IV of ERISA.
(h) Except as contemplated herein, FRI and its Subsidiaries have no
commitment or obligation to (i) create or incur material liability with respect
to or cause to exist any other employee benefit plan, program or arrangement,
(ii) enter into any material contract or agreement to provide compensation or
benefits to any individual or (iii) modify or terminate any Benefit Plan, other
than with respect to a modification or termination required by ERISA or the
Code.
SECTION 4.14 Change in Control. Except as set forth on Schedule 4.14,
-----------------
neither FRI nor any of the FRI subsidiaries is a party to any Applicable
Agreement set forth on Schedules 4.11 or referred to in Section 4.19(a) that
contains a "change of control," "potential change in control" or similar
provision that is triggered by the transactions contemplated hereby. Except as
set forth on Schedule 4.14 or as otherwise contemplated by this Agreement, the
consummation of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from FRI or the FRI
Subsidiaries to any Person.
SECTION 4.15 Governmental Consents. Except as set forth on Schedule
---------------------
4.15, no consent, approval or authorization of, or filing, registration or
qualification with, any Governmental Authority is required in connection with,
or as a condition to, the execution, delivery or performance of this Agreement
or any of the other Documents by FRI and the FRI Subsidiaries except (i)
filings, registrations or qualifications, if any, required to be made or
obtained on or before the Effective Time under (A) the Securities Act, (B) the
Exchange Act, (C) state securities or state corporation laws, (D) the HSR Act or
(E) any Applicable Law governing the sale of alcoholic beverages, each of which
FRI shall use commercially reasonable efforts to make or obtain on or before the
Effective Time and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
singly or in the aggregate, be reasonably expected to have a Material Adverse
Effect on FRI.
SECTION 4.16 Title to Properties. FRI and each of the FRI Subsidiaries
-------------------
(a) has legal and valid title to all the real properties and other assets
(tangible, intangible or mixed) it reflects in its Financial Statements as
owned, free and clear of all Liens, except for Permitted Liens and Liens set
forth on Schedule 4.16 and (b) enjoys peaceful and undisturbed possession under
all leases to which it is a party as lessee. All of the leases to which FRI or
any FRI Subsidiary is a party are legal, valid and binding and in
27
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full force and effect, and, except as set forth on Schedule 4.16, no default by
FRI, any FRI Subsidiary or, to the best knowledge of FRI, any other party
thereto has occurred or is continuing thereunder. No property or asset, the
value of which is reflected in the balance sheets included in the Financial
Statements of FRI, is held under any lease or under any conditional sale or
other title retention agreement. Except for such assets, plants and facilities
as are immaterial in the aggregate to the business of FRI and the FRI
Subsidiaries taken as a whole, all tangible assets, plants and facilities of
each of FRI and the FRI Subsidiaries are in good condition and repair and are
adequate for the uses to which they are being put.
SECTION 4.17 Environmental Matters.
---------------------
(a) To the best knowledge of FRI, each of FRI and the FRI
Subsidiaries is in substantial compliance with the provisions of all
Environmental Laws, which compliance includes, but is not limited to, the
possession by FRI or the FRI Subsidiaries, as appropriate, of all licenses,
permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof, where
the failure to comply with their terms and conditions could, singly or in the
aggregate, have a Material Adverse Effect on FRI. Except where the failure to
comply could not, singly or in the aggregate, have a Material Adverse Effect on
FRI, neither FRI nor any of the FRI Subsidiaries has received any communication
(written or oral), whether from a Governmental Authority, citizens group,
employee or otherwise, that alleges that FRI or any of the FRI Subsidiaries is
not in compliance with the provisions of all Environmental Laws, and there are
no currently existing circumstances known to FRI that, if not corrected, could
prevent such compliance in the future.
(b) There is no Environmental Claim pending or, to the best knowledge
of FRI, threatened against FRI or any of the FRI Subsidiaries or against any
Person whose liability for any Environmental Claim FRI or any of the FRI
Subsidiaries has retained or assumed either contractually or by operation of law
and, to the best knowledge of FRI, there is no basis for any such claim that
could, singly or in the aggregate, have a Material Adverse Effect on FRI.
(c) Without in any way limiting the generality of the foregoing, to
the best knowledge of FRI, (a) there are no Materials of Environmental Concern
present in any soil or groundwater at any property owned or operated by FRI or
any FRI Subsidiaries, (b) there are no underground storage tanks present at any
such property, and (c) no polychlorinated biphenyls (PCBs) or PCB-containing
items are used or stored at any such property.
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(d) True, complete and correct copies of the written reports, and all
parts thereof, of all environmental audits or assessments which have been
conducted at any property owned or operated by FRI or any FRI Subsidiary (within
the past five (5) years) have been made available to KKR.
SECTION 4.18 Books and Records. The books of account, minute books,
-----------------
stock record books, and other records of FRI and the FRI Subsidiaries, all of
which have been made available to KKR, are complete and correct and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Exchange Act (regardless of whether or not FRI and the
FRI Subsidiaries are subject to that Section), including the maintenance of an
adequate system of internal controls. The minute books of FRI and the FRI
Subsidiaries contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the Boards of Directors, and
committees of the Boards of Directors of FRI and the FRI Subsidiaries, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books.
SECTION 4.19 Contracts; No Defaults.
----------------------
(a) Except as set forth in Schedule 4.19(a), each Applicable
Agreement material to FRI and the FRI Subsidiaries, taken as a whole, is in full
force and effect and is valid and enforceable in accordance with its terms.
(b) Except as set forth in Schedule 4.19(b):
(i) each of FRI and the FRI Subsidiaries and, to the knowledge of FRI,
each other party thereto, is in compliance in all material respects with all
applicable terms and requirements of each Applicable Agreement referred to in
Section 4.19(a); and
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any of FRI and the FRI Subsidiaries or other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Agreement referred to in Section 4.19(a).
SECTION 4.20 Form S-4; KKR Proxy Statement. None of the information
-----------------------------
supplied by FRI or any FRI Subsidiary for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time filed with the Commission, any
time it is amended or supplemented and at the time it becomes effective under
the Securities Act,
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contain any untrue statement of a material fact or omit to state any material
fact required to be stated herein or necessary to make the statements therein
not misleading, and (ii) the KKR Proxy Statement will, at the date it is first
mailed to the KKR stockholders and at the time of the meeting of KKR's
stockholders held to vote on approval of this Agreement and the Merger, contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations of the
Commission thereunder, except that no representation is made by FRI with respect
to statements made or incorporated by reference therein based on information
supplied by KKR or any KKR Subsidiary for inclusion or incorporation by
reference in the Form S-4.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF KKR
KKR hereby represents and warrants to FRI and Merger-Sub as follows:
SECTION 5.1 Organization, Standing and Qualification.
----------------------------------------
(a) Except as set forth on Schedule 5.1 (which exceptions could not,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect on KKR), KKR and each of the KKR Subsidiaries (i) is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; (ii) has all requisite power and
authority to own or lease, and operate its properties and assets, and to carry
on its business as now conducted and as proposed to be conducted; (iii) is duly
qualified or licensed to do business as a foreign corporation or other legal
entity and is in good standing in all jurisdictions in which it owns or leases
property or in which the conduct of its business requires it to so qualify or be
licensed, where the failure to qualify could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect on KKR; and (iv) has
obtained all licenses, permits, franchises and other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business except for such failures to obtain that could not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect on KKR.
Each KKR Subsidiary, along with its jurisdiction of organization, is identified
on Schedule 5.1.
(b) Except as set forth on Schedule 5.1(b), none of KKR or the KKR
Subsidiaries owns, directly or indirectly, any of the capital stock or other
equity securities of any other Person other than (i) the KKR Subsidiaries and
(ii) less than 100
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shares of capital stock of a publicly traded corporation whose principal
business includes the operation of restaurants. All of the issued and
outstanding shares of capital stock of the KKR Subsidiaries are duly authorized,
have been validly issued, fully paid and nonassessable, are free of preemptive
and similar rights, and except as set forth on Schedule 5.1(b) hereof are, and
as of the Closing will be, owned by KKR or a KKR Subsidiary free and clear of
all Liens, except for Permitted Liens and Liens granted in connection with and
securing obligations under the Bridge Loan Facility.
SECTION 5.2 Capitalization.
--------------
(a) As of the close of business on June 8, 1998, the total authorized
capital stock of KKR consists of 75,000,000 shares of common stock, $.01 par
value per share, 49,998,824 shares of which are issued and outstanding as of the
date hereof and 5,000,000 shares of preferred stock, par value $.01 per share,
no shares of Series A Convertible Preferred Stock of which are issued and
outstanding as of the date hereof and 20,048 shares of Series B Convertible
Preferred Stock of which are issued and outstanding as of the date hereof.
(b) Each share of KKR capital stock that is issued and outstanding
(i) has been duly authorized and validly issued and (ii) is fully paid and
nonassessable and free of preemptive and similar rights.
(c) Except for this Agreement or as set forth on Schedule 5.2(c),
there are no outstanding (i) securities convertible into or exchangeable for any
capital stock of KKR or any KKR Subsidiary, (ii) options, warrants or other
rights to purchase or subscribe for capital stock of KKR or any KKR Subsidiary
or securities convertible into or exchangeable for capital stock of KKR or any
KKR Subsidiary, (iii) contracts, commitments, agreements, understandings,
arrangements, calls or claims of any kind relating to the issuance of any
capital stock of KKR or any KKR Subsidiary, any such convertible or exchangeable
securities or any such options, warrants or rights or (iv) commitments or
obligations to purchase or redeem any shares of capital stock of any class of
equity securities of KKR or any such convertible or exchangeable securities or
any such options, warrants or other rights.
(d) Schedule 5.2(d) sets forth and describes all indebtedness for
borrowed money (including capitalized lease obligations) of KKR and each of the
KKR Subsidiaries outstanding on the date hereof. Except as set forth on KKR's
Schedules to this Agreement or disclosed in the KKR SEC Documents, neither KKR
nor any of the KKR Subsidiaries has, or immediately following the Closing will
have, any material liabilities of any nature, absolute, accrued, contingent or
otherwise, other than liabilities incurred after the date hereof in a manner not
prohibited by Section 7.3 hereof.
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SECTION 5.3 Authorization of Agreement and Other Documents.
----------------------------------------------
(a) The execution and delivery of this Agreement and the other
Documents to which KKR or any KKR Subsidiary is a party, and the performance of
their respective obligations hereunder or thereunder and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized and no
other proceedings on the part of KKR, any of the KKR Subsidiaries or any of
their respective stockholders or Affiliates are necessary to authorize this
Agreement, the Merger or the other Documents, except for the approval of this
Agreement and the Merger by the KKR stockholders as required by the DGCL. This
Agreement is and, as of the Effective Time, each of the Documents to which KKR
or any of the KKR Subsidiaries is a party will be, a valid and binding
obligation of KKR or such KKR Subsidiary, as the case may be, enforceable in
accordance with its terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting enforcement of creditors' rights
generally, and by general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity).
(b) KKR and each of the KKR Subsidiaries has full power and authority
to execute and deliver each of the Documents to which it is a party, and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
(c) KKR has received an opinion from Sutro & Co. Incorporated to the
effect that the financial terms of the Merger are fair to KKR's stockholders.
SECTION 5.4 No Violation.
------------
(a) Neither KKR nor any of the KKR Subsidiaries is (i) in violation
of its respective Charter Documents, or (ii) in default in the performance of
any obligation, agreement or condition contained in an Applicable Agreement,
which default could, singly or in the aggregate, be reasonably expected to have
a Material Adverse Effect on KKR.
(b) The execution and delivery of and the performance by KKR and each
KKR Subsidiary of its obligations under each Document to which it is a party,
will not (i) constitute a breach or violation under the Charter Documents of KKR
or any of the KKR Subsidiaries; (ii) conflict with, violate, constitute a breach
or violation of or a default (with the passage of time or otherwise) under,
require the consent of any Person under, give to others any rights of
termination, amendment, acceleration, redemption, repurchase or cancellation of,
or result in the imposition of a Lien on any of the
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properties or assets of KKR or any of the KKR Subsidiaries or an acceleration of
indebtedness pursuant to, any Applicable Agreement; or (iii) constitute a
violation of any Applicable Law, except (A) in the case of clause (ii) above,
consents that have already been obtained or consents identified on Schedule
5.4(b) that KKR will use commercially reasonable efforts to obtain on or prior
to the time required or (B) in the case of clauses (ii) and (iii) above, such
conflicts, breaches, violations, defaults, terminations, amendments,
accelerations, redemptions, repurchases or creation of Liens which, singly or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on KKR.
(c) The businesses of KKR and each of the KKR Subsidiaries are not
being, and KKR has not received any notice from any authority or Person that
such businesses have been or are being, conducted in violation of any Applicable
Law, except for possible violations which either singly or in the aggregate have
not resulted and could not reasonably be expected to in the future result in a
Material Adverse Effect.
SECTION 5.5 Absence of Certain Changes. Except (i) as and to the
--------------------------
extent set forth on Schedule 5.5, (ii) as disclosed in the KKR SEC Documents
filed on or prior to the date hereof, (iii) for the transactions contemplated by
this Agreement or (iv) for Permitted Transactions, since December 31, 1997,
neither KKR nor any of the KKR Subsidiaries has:
(a) suffered any Material Adverse Change;
(b) paid, discharged or otherwise satisfied any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business,
consistent with past practice of liabilities and obligations (i) reflected or
reserved against in the Financial Statements or (ii) incurred after December 31,
1997, in the ordinary course of business, consistent with past practice;
(c) permitted or allowed any of its material property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any Liens,
except Permitted Liens;
(d) sold, transferred, or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business, consistent with past practice;
(e) granted (i) any increase in the compensation or benefits
payable or to become payable to any officer or director or general group of
employees
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(including any such increase pursuant to any bonus, pension, profit sharing or
other plan or commitment) or (ii) other than in the ordinary course of business
and consistent with past practice, any increase in the compensation or benefits
payable or to become payable to any employee;
(f) made any change in severance policy or practices;
(g) made any single expenditure capitalized in accordance with KKR's
current accounting policies or acquired any property or assets (other than new
materials and supplies) for a cost in excess of $50,000, in the aggregate;
(h) except for regularly scheduled dividends paid in cash on the KKR
Preferred Stock, declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or other
securities of KKR or any of the KKR Subsidiaries;
(i) made any material change in any method of tax or financial
accounting or accounting practice or made or changed any material election for
Federal income tax purposes;
(j) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers, directors or greater than 5% stockholders or any Affiliate or
associate of any of its officers, directors or greater than 5% stockholders
except for (x) directors' fees, and compensation to officers at rates not
exceeding the rates of compensation paid during the fiscal year ended December
31, 1997 and (y) customary advances for travel and similar business expenses; or
(k) agreed, whether in writing or otherwise, to take any action
described in this Section.
SECTION 5.6 Insurance. KKR and the KKR Subsidiaries maintain, with
---------
reputable insurers, insurance in such amounts, including deductible
arrangements, and of such a character as is usually maintained by reasonably
prudent managers of companies engaged in the same or similar business. Schedule
5.6 contains an accurate and complete description of all material policies of
fire, liability, workmen's compensation and other forms of insurance owned or
held by KKR or any of the KKR Subsidiaries. Except as set forth in Schedule 5.6,
all such policies are in full force and effect, all premiums with respect
thereto covering all periods up to and including the Effective
34
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Time will have been paid, and no notice of cancellation or termination has been
received with respect to any such policy other than notices received after the
date of this Agreement (copies of which KKR shall promptly deliver to FRI);
provided, that KKR shall timely replace each such policy that has been cancelled
or terminated. Except as set forth in Schedule 5.6, such policies will remain in
full force and effect through the respective dates set forth in Schedule 5.6
without the payment of additional premiums; and will not be materially affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement and the other Documents. All of such policies have been issued by
reputable insurance companies actively engaged in the insurance business.
SECTION 5.7 Financial Statements; Full Disclosure.
-------------------------------------
(a) The Financial Statements of KKR present fairly the financial
position of KKR and its consolidated Subsidiaries as of the dates thereof and
the results of their respective operations for the periods then ended. Except
as otherwise disclosed in the footnotes thereto, the audited Financial
Statements of KKR have been prepared in accordance with GAAP and with Regulation
S-X. Except as otherwise disclosed in the footnotes thereto, the unaudited
Financial Statements of KKR have been prepared in a manner consistent with the
audited Financial Statements of KKR and in accordance with GAAP for interim
financial information and with Regulation S-X and include all adjustments
(consisting of normal recurring accruals) that are necessary for a fair
presentation.
(b) KKR has timely filed all KKR SEC Documents, each of which
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act as of the dates so filed. None of the KKR
SEC Documents (as of their respective filing dates) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. None of
the KKR Subsidiaries is required to file any forms, reports or other documents
with the Commission.
(c) No representation or warranty by KKR or any of the KKR
Subsidiaries in any of the Documents, and no statement contained in any written
materials furnished by or on behalf of KKR or its Subsidiaries to contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made or will be made, not
misleading.
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SECTION 5.8 Suppliers; Franchisees. Except as set forth on Schedule
----------------------
5.8, (a) to the best knowledge of KKR, there has not been any material adverse
change in the business relationship of KKR or any KKR Subsidiary with any of its
material suppliers; (b) there is no default by KKR, any of the KKR Subsidiaries
or, to the best knowledge of KKR, any other party under any agreement between
KKR or any of the KKR Subsidiaries and any of their respective franchisees; and
(c) to the best knowledge of KKR, there has not been an adverse change in the
business relationship of KKR or any of the KKR Subsidiaries with any of its
franchisees which in any such event could, singly or in the aggregate, be
reasonably expected to have a Material Adverse Effect on KKR.
SECTION 5.9 Intellectual Property. KKR and the KKR Subsidiaries own,
---------------------
or are licensed to use, all of their Intellectual Property necessary to carry on
its business as now conducted and as proposed to be conducted. There are no
Proceedings pending or, to the best knowledge of KKR, threatened concerning any
of such items of Intellectual Property and to the best knowledge of KKR there is
no basis for any such Proceeding. The use of such of Intellectual Property does
not conflict with, infringe upon, or violate any proprietary or other rights of
any other Person except such conflicts, infringements or violations that could
not singly or in the aggregate be reasonably expected to have a Material Adverse
Effect on KKR.
SECTION 5.10 Litigation. There is no Proceeding or series of related
----------
Proceedings against or affecting KKR or any of the KKR Subsidiaries or any of
their properties or assets, pending, or to the best knowledge of KKR,
threatened, that could, singly or in the aggregate, be reasonably expected to
have a Material Adverse Effect on KKR. Neither KKR nor any of the KKR
Subsidiaries is subject to any judgment, injunction, decree, writ,
interpretation or order of any Governmental Authority that could, singly or in
the aggregate, be reasonably expected to have a Material Adverse Effect on KKR.
SECTION 5.11 Labor Matters.
-------------
(a) Except as set forth on Schedule 5.11:
(i) there is no labor strike, dispute, slowdown, work stoppage or
lockout pending or, to the best knowledge of KKR, threatened against or
affecting KKR or any KKR Subsidiary that, singly or in the aggregate, could be
reasonably expected to have a Material Adverse Effect on KKR and, during the
past five years, there has not been any such action;
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(ii) no union claims to represent the employees of KKR or any KKR
Subsidiary;
(iii) neither KKR nor any KKR Subsidiary is a party to or bound by any
collective bargaining or similar agreement with any labor organization, or work
rules or practices agreed to with any labor organization or employee association
applicable to employees of KKR or any KKR Subsidiary;
(iv) none of the employees of KKR or any KKR Subsidiary are
represented by any labor organization, and neither KKR nor any KKR Subsidiary
has any knowledge of any current union organizing activities among the employees
of KKR or any KKR Subsidiary, nor to their best knowledge does any question
concerning representation exist concerning such employees;
(v) there are no written personnel policies, rules or procedures
applicable to employees of KKR or any KKR Subsidiary;
(vi) KKR and the KKR Subsidiaries are not engaged in any ULP; and
there is no ULP charge or complaint against KKR or any KKR Subsidiary pending
or, to the best knowledge of KKR, threatened before the NLRB;
(vii) there is no grievance or arbitration proceeding arising out of
any collective bargaining agreement or other grievance procedure relating to KKR
or any KKR Subsidiary;
(viii) no charges with respect to or relating to KKR or any KKR
Subsidiary are pending before the EEOC; and there are no pending or, to the best
knowledge of KKR, threatened wage and hour claims filed against KKR or any of
the KKR Subsidiaries with any Governmental Authority;
(ix) to the knowledge of KKR and the KKR Subsidiaries, no Governmental
Authority responsible for the enforcement of Applicable Employment Laws intends
to conduct an investigation with respect to or relating to KKR or any of the KKR
Subsidiaries and no such investigation is in progress;
(x) there are no pending OSHA citations relating to KKR or any of the
KKR Subsidiaries and, to the best knowledge of KKR, OSHA has not threatened to
file any citation;
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(xi) there is no pending investigation of, or complaint pending
against, KKR or any of the KKR Subsidiaries by the Office of Federal Contract
Compliance Programs or any similar state agency;
(xii) there are no Proceedings pending or, to the best knowledge of
KKR, threatened against, and no Person has alleged breach of any express or
implied contract of employment or of any Applicable Employment Law by, KKR or
any KKR Subsidiary; and
(xiii) there are no employment contracts or severance agreements
with any employees of KKR or the KKR Subsidiaries.
(b) Since the enactment of the WARN Act, KKR and the KKR Subsidiaries
have not effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of KKR or any KKR Subsidiary, or (ii)
a "mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of KKR or any KKR Subsidiary; nor has KKR or any KKR Subsidiary been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local law.
SECTION 5.12 Taxes. Except as otherwise disclosed in Schedule 5.12:
-----
(a) Each of KKR and the KKR Subsidiaries have timely filed (or have
had timely filed on their behalf) or will timely file or cause to be timely
filed, all Tax Returns required by applicable law to be filed by any of them
prior to or as of the Effective Time. All such Tax Returns and amendments
thereto are or will be true, complete and correct. The most recent financial
statements contained in the KKR SEC Documents provide an adequate accrual for
the payment of Taxes for the periods covered by such reports.
(b) Each of KKR and the KKR Subsidiaries have paid (or have had paid
on their behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Effective Time, an
adequate accrual on the books and records of KKR and the KKR Subsidiaries for
the payment of, all Taxes due with respect to any fiscal quarter ending prior to
or as of, the Effective Time.
(c) No Audit by a Tax Authority is pending or, to the best knowledge
of KKR, threatened with respect to any Tax Returns filed by, or Taxes due from,
KKR or the KKR Subsidiaries. No deficiency or adjustment for any Taxes has
38
<PAGE>
been threatened, proposed, asserted or assessed against KKR or the KKR
Subsidiaries other than those that could not reasonably be expected to have a
Material Adverse Effect. There are no liens for Taxes upon the assets of KKR or
the KKR Subsidiaries, except liens for current Taxes not yet due for which
adequate reserves have been established in accordance with GAAP.
(d) Neither KKR nor the KKR Subsidiaries has given or been requested
to give any waiver of statutes of limitations relating to the payment of Taxes
or have executed powers of attorney with respect to Tax matters, which will be
outstanding as of the Effective Time. Subsection (d) of Schedule 5.12 sets
forth all open tax years with respect to KKR and the KKR Subsidiaries.
(e) Neither KKR nor the KKR Subsidiaries is a party to, is bound by
any tax sharing, tax indemnity, cost sharing, or similar agreement or policy
relating to Taxes.
(f) Neither KKR nor the KKR Subsidiaries has entered into agreements
that would result in the disallowance of any tax deductions pursuant to section
280G of the Code.
SECTION 5.13 Employee Benefit Plans; ERISA.
-----------------------------
(a) Schedule 5.13 sets forth a true and complete list of the
Benefit Plans of KKR and the KKR Subsidiaries.
(b) KKR has delivered to FRI, with respect to all Benefit Plans of
KKR and the KKR Subsidiaries, true, complete and correct copies of the
following: all plan documents and the most recent summary plan descriptions and
any subsequent summaries of material modifications or other material employee
communications discussing any employee benefit provided thereunder; forms 5500
as filed with the IRS for the most recent three plan years; all trust agreements
with respect to the Benefit Plans of KKR and the KKR Subsidiaries; copies of any
contracts with service providers and insurers providing benefits for
participants or liability insurance or bonding for the sponsors, administrators
or trustees of any Benefit Plan of KKR and the KKR Subsidiaries; the two most
recent annual audits and accountings of plan assets for all funded plans; the
most recent IRS determination letter for all plans qualified under Code section
401(a); all handbooks, manuals, and similar documents governing material
employment policies, practices and procedures and each Form S-8 and each
prospectus related thereto filed or used in the past three years.
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(c) With respect to each Benefit Plan of KKR and the KKR
Subsidiaries: (i) each Benefit Plan has been administered in compliance in all
material respects, with its terms including, but not limited to, any provisions
relating to contributions thereunder, and is in compliance in all material
respects with the applicable provisions of ERISA, the Code and all other
Applicable Laws (including, without limitation, provisions relating to funding,
filing, termination, reporting, disclosure and continuation coverage obligations
pursuant to Title V of COBRA); (ii) no Benefit Plan which is an "employee
pension benefit plan" (as defined in Section 3(2) of ERISA) has been the subject
of a "reportable event" (as defined in Section 4043 of ERISA) and to the
knowledge of KKR, there have been no "prohibited transactions" (as described in
section 4975 of the Code or in Part 4 of Subtitle B of Title I of ERISA) with
respect to any Benefit Plan of KKR and the KKR Subsidiaries; (iii) there are no
Proceedings (other than routine claims for benefits) pending or to the knowledge
of KKR threatened with respect to any Benefit Plan, the assets of any trust
thereunder, or the Benefit Plan sponsor or the Benefit Plan administrator with
respect to the design or operation of any Benefit Plan; (iv) each Benefit Plan
which is intended to be "qualified" within the meaning of section 401(a) of the
Code is so qualified, and any trust created pursuant to any such Benefit Plan is
exempt from federal income tax under section 501(a) of the Code and the IRS has
issued each such Benefit Plan a favorable determination letter which to KKR's
knowledge is currently applicable; (v) KKR is not aware of any circumstance or
event which would jeopardize the tax-qualified status of any such Benefit Plan
or the tax-exempt status of any related trust, or would cause the imposition of
any material liability, penalty or tax under ERISA or the Code with respect to
any Benefit Plan; (vi) no unsatisfied liabilities to participants, the IRS, DOL,
the PBGC or to any other Person have been incurred as a result of the
termination of any Benefit Plan; and (vii) there has been no event with respect
to a Benefit Plan which would require disclosure under Sections 4062(c), 4063(a)
or 4041(e) of ERISA.
(d) Neither KKR nor the KKR Subsidiaries maintains or is obligated to
contribute to or has ever maintained or been obligated to contribute to a
Multiemployer Plan or any "multiple employer plan" (within the meaning of
section 413(c) of the Code).
(e) All reports and information required to be filed with the DOL,
IRS and PBGC and with plan participants and their beneficiaries with respect to
each Benefit Plan of KKR and the KKR Subsidiaries have been filed.
(f) Except as set forth on Schedule 5.13(f) and except to the extent
required by COBRA and any similar state law, neither KKR nor the KKR
Subsidiaries maintain any retiree life and/or retiree health insurance plans
which provide for
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continuing benefits or coverage for any employee or any beneficiary of an
employee after such employee's termination of employment.
(g) Except as set forth on Schedule 5.13(g), the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, (viii) entitle any employee of KKR or any KKR
Subsidiary to severance pay, unemployment compensation or any other payment,
(ix) accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee, or (x) result in any liability under
Title IV of ERISA.
(h) Except as set forth on Schedule 5.13(h), no amounts payable under
the Benefit Plans of KKR will fail to be deductible for federal income tax
purposes by virtue of section 280G of the Code.
(i) Except as set forth on Schedule 5.13(i), no Benefit Plan of KKR
and the KKR Subsidiaries distributes, invests in or holds as plan assets or
otherwise, any equity securities of KKR or any Affiliate.
(j) Except as contemplated herein, KKR and the KKR Subsidiaries have
no commitment or obligation to (i) create or incur material liability with
respect to or cause to exist any other employee benefit plan, program or
arrangement, (ii) enter into any material contract or agreement to provide
compensation or benefits to any individual or (iii) modify or terminate any
Benefit Plan, other than with respect to a modification or termination required
by ERISA or the Code.
SECTION 5.14 Change in Control. Except as set forth on Schedule 5.14,
-----------------
neither KKR nor any of the KKR subsidiaries is a party to any Applicable
Agreement which is set forth on Schedules 5.11 or 5.19 that contains a "change
in control," "potential change in control" or similar provision that is
triggered by the transactions contemplated hereby. Except as set forth on
Schedule 5.14 or as otherwise contemplated by this Agreement, the consummation
of the transactions contemplated by this Agreement will not (either alone or
upon the occurrence of any additional acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from KKR or the KKR
Subsidiaries to any Person.
SECTION 5.15 Governmental Consents. Except as set forth on Schedule
---------------------
5.15, no consent, approval or authorization of, or filing, registration or
qualification with, any Governmental Authority is required in connection with,
or as a condition to, the execution, delivery or performance of this Agreement
or any of the other Documents by KKR and the KKR Subsidiaries except (i)
filings, registrations or qualifications, if any, required to be made or
obtained on or before the Effective Time
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under (A) the Securities Act, (B) the Exchange Act, (C) state securities or
state corporation laws, (D) the HSR Act or (E) any Applicable Law governing the
sale of alcoholic beverages, each of which KKR shall use commercially reasonable
efforts to make or obtain on or before the Effective Time and (ii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, singly or in the aggregate, be reasonably
expected to have a Material Adverse Effect on KKR.
SECTION 5.16 Title to Properties. Each of KKR and each KKR Subsidiary
-------------------
(a) has legal and valid title to all the real properties and other assets
(tangible, intangible or mixed) it reflects in its Financial Statements as
owned, free and clear of all Liens, except for Permitted Liens and Liens set
forth on Schedule 5.16 and (b) enjoys peaceful and undisturbed possession under
all leases to which it is a party as lessee. All of the leases to which KKR or
any KKR Subsidiary is a party are legal, valid and binding and in full force and
effect, and, except as set forth on Schedule 5.16, no default by KKR, any KKR
Subsidiary or, to the best knowledge of KKR, any other party thereto has
occurred or is continuing thereunder. No property or asset, the value of which
is reflected in the balance sheets included in the Financial Statements of KKR,
is held under any lease or under any conditional sale or other title retention
agreement. Except for such assets, plants and facilities as are immaterial in
the aggregate to the business of KKR and the KKR Subsidiaries taken as a whole,
all tangible assets, plants and facilities of each of KKR and the KKR
Subsidiaries are in good condition and repair and are adequate for the uses to
which they are being put.
SECTION 5.17 Environmental Matters.
---------------------
(a) To the best knowledge of KKR, each of KKR and the KKR
Subsidiaries is in substantial compliance with the provisions of all
Environmental Laws, which compliance includes, but is not limited to, the
possession by KKR or the KKR Subsidiaries, as appropriate, of all licenses,
permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof where
the failure to comply with their terms and conditions could, singly or in the
aggregate, have a Material Adverse Effect on KKR. Except where the failure to
comply would not, singly or in the aggregate, have a Material Adverse Effect on
KKR, neither KKR nor any of the KKR Subsidiaries has received any communication
(written or oral), whether from a Governmental Authority, citizens group,
employee or otherwise, that alleges that KKR or any of the KKR Subsidiaries is
not in such compliance with the provisions of all Environmental Laws, and there
are no currently existing circumstances known to KKR that, if not corrected,
could prevent such compliance in the future.
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(b) There is no Environmental Claim pending or, to the best knowledge
of KKR, threatened against KKR or any of the KKR Subsidiaries or against any
Person whose liability for any Environmental Claim KKR or any of the KKR
Subsidiaries has retained or assumed either contractually or by operation of law
and, to the best knowledge of KKR, there is no basis for any such claim that
could, singly or in the aggregate, have a Material Adverse Effect on KKR.
(c) Without in any way limiting the generality of the foregoing, to
the best knowledge of KKR, (a) there are no Material Environmental Concerns
present in any soil or groundwater at any property owned or operated by KKR or
any KKR Subsidiaries, (b) there are no underground storage tanks present at any
such real property owned by KKR or any KKR Subsidiary, and (c) no
polychlorinated biphenyls (PCBs) or PCB-containing items are used or stored at
any such property.
(d) True, complete and correct copies of the written reports, and all
parts thereof, of all environmental audits or assessments which have been
conducted at any property owned or operated by KKR or any KKR Subsidiary (within
the past five (5) years) have been made available to FRI.
SECTION 5.18 Books and Records. The books of account, minute books,
-----------------
stock record books, and other records of KKR and KKR Subsidiaries, all of which
have been made available to FRI, are complete and correct and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Exchange Act (regardless of whether or not KKR and the
KKR subsidiaries are subject to that Section), including the maintenance of an
adequate system of internal controls. The minute books of KKR and the KKR
Subsidiaries contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the Boards of Directors, and
committees of the Boards of Directors of KKR and the KKR Subsidiaries, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of KKR and the KKR subsidiaries.
SECTION 5.19 Contracts; No Defaults.
----------------------
(a) Schedule 5.19 contains a complete and accurate list, and KKR and
the KKR Subsidiaries shall at FRI's request deliver to FRI or make available for
FRI's review true and complete copies, of:
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(i) each Applicable Agreement that involves performance of services
or delivery of goods or materials by or to one or more of KKR and the KKR
Subsidiaries of an amount or value in excess of $150,000.
(ii) each Applicable Agreement that was not entered into in the
ordinary course of business and that involves expenditures or receipts of one or
more KKR and the KKR Subsidiaries in excess of $75,000.
(iii) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Agreement affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $50,000 and with terms of less than one year);
(iv) each licensing agreement or other Applicable Agreement with
respect to Intellectual Property;
(v) each collective bargaining agreement and other Applicable
Agreement to or with any labor union or other employee representative of a group
of employees;
(vi) each joint venture, partnership, and other Applicable Agreement
involving a sharing of profits, losses, costs, or liabilities by any of KKR and
the KKR Subsidiaries with any other Person;
(vii) each Applicable Agreement containing covenants that in any way
purport to restrict the business activity of KKR or any of the KKR Subsidiaries
or any Affiliate of KKR or any of the KKR Subsidiaries, (other than directors or
officers of KKR) or limit the freedom of KKR or any of the KKR Subsidiaries or
any Affiliate of KKR or any of the KKR Subsidiaries (other than directors or
officers of KKR) to engage in any line of business or to compete with any
Person;
(viii) each power of attorney that is currently effective and
outstanding, other than powers of attorneys normally executed in connection with
the KKR SEC Documents;
(ix) each Applicable Agreement for capital expenditures in
excess of $50,000;
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(x) each other Applicable Agreement material to KKR and the KKR
Subsidiaries, taken as a whole, which has not otherwise been set forth on
Schedules 5.1 through 5.20; and
(xi) each enforceable amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
(b) Except as set forth in Schedule 5.19(b), each Applicable
Agreement referred to in Section 5.19(a) is in full force and effect and is
valid and enforceable in accordance with its terms.
(c) Except as set forth in Schedule 5.19(c):
(i) each of KKR and the KKR Subsidiaries and, to the knowledge of KKR,
each other party thereto is in compliance in all material respects with all
applicable terms and requirements of each Applicable Agreement referred to in
Section 5.19(a); and
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any of KKR and the KKR Subsidiaries or other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Agreement referred to in Section 5.19(a).
SECTION 5.20 Form S-4; Proxy Statement. None of the information
-------------------------
supplied by KKR or any KKR Subsidiary for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time such Form is filed with the
Commission, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the KKR Proxy
Statement will, at the date it is first mailed to the KKR stockholders and at
the time of the meeting of KKR's stockholders held to vote on approval of this
Agreement and the Merger, contain any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The KKR Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, except that no representation is made
by KKR with respect to statements made or incorporated by reference therein
based on information supplied by
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FRI or any FRI Subsidiary for inclusion or incorporation by reference in the KKR
Proxy Statement.
ARTICLE VI
COVENANTS OF FRI
SECTION 6.1 Sale of the Hamlet Shares to FRI-MRD. Concurrently with
------------------------------------
the execution of this Agreement, FRI shall cause FRI-MRD to execute and deliver
to KKR a purchase and sale agreement substantially in the form of Exhibit 6.1
relating to the sale of the Hamlet Shares to FRI-MRD.
SECTION 6.2 Loan to KKR. Concurrently with the execution of this
-----------
Agreement, FRI-MRD, The Hamlet Group, Inc. and the Guarantors named therein
shall execute and deliver to KKR on behalf of The Hamlet Group, Inc. a term loan
agreement substantially in the form of Exhibit 6.2 (the "Bridge Loan Agreement")
---------------------
and, subject to the conditions thereto, FRI shall cause FRI-MRD to advance to
The Hamlet Group, Inc. $3.0 million thereunder in cash.
SECTION 6.3 Conduct of Business Pending Merger. Except for Permitted
----------------------------------
Transactions, as otherwise specifically provided in this Agreement or in the
other Documents or as otherwise consented to in writing by KKR, which consent
shall not be unreasonably withheld, from the date of this Agreement to the
Effective Time, FRI will, and will cause each of the FRI Subsidiaries to,
conduct its operations only in the ordinary and usual course of business and
consistent with past practices and will, and will cause each of the FRI
Subsidiaries to, preserve intact its present business organization, take
commercially reasonable efforts to keep available the services of its present
officers, employees and consultants and preserve its present relationships with
licensors, licensees, customers, suppliers, employees, labor organizations and
others with whom they have a significant business relationship.
Without limiting the generality of the foregoing, and except for
Permitted Transactions, as otherwise specifically provided in this Agreement or
in the other Documents or as set forth in Schedule 6.3, FRI will not, and will
not permit any FRI Subsidiary to, indirectly, from the date of this Agreement to
the Effective Time, without the prior written consent of KKR, which shall not be
unreasonably withheld:
(a) adopt any amendment to or otherwise change the Charter
Documents of FRI or Merger-Sub;
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(b) authorize for issuance, sale, pledge, disposition or encumbrance,
or issue, sell, pledge, dispose of or encumber (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase,
convertible securities or otherwise), any capital stock of any class or any
other securities of, or any other ownership interest in, FRI or any FRI
Subsidiary, (other than the FRI Shares to be issued in the Merger), or amend any
of the terms of any such securities or agreements outstanding on the date
hereof;
(c) reclassify, combine, split or subdivide any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, securities or property or any combination thereof) in respect of any class
or series of its capital stock;
(d) redeem, purchase or otherwise acquire, or propose or offer to
redeem, purchase or otherwise acquire, any outstanding FRI Shares or other
securities of FRI or any of the FRI Subsidiaries;
(e) organize any new Subsidiary (other than Merger-Sub), acquire any
capital stock or equity securities of any Person or acquire any equity or
ownership interest (financial or otherwise) in any business, other than de
minimus investments in public corporations whose principal business includes the
operation of restaurants;
(f) (i) incur, assume or prepay any material liability, including,
without limitation, any indebtedness for borrowed money except in the ordinary
course of business and consistent with past practice, and in no event in excess
of $50,000, (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for obligations of any
third party, (iii) make any loans, advances or capital contributions to, or
investments in, any third party, (iv) mortgage or pledge any of its material
properties or assets, tangible or intangible, or create any material Lien
thereupon other than Permitted Liens, or (v) authorize any capital expenditures
not in FRI's capital budget on the date hereof which, individually or in the
aggregate, are in excess of $1,000,000;
(g) license or otherwise transfer, dispose of, permit to lapse or
otherwise fail to preserve any Intellectual Property of FRI or any FRI
Subsidiary, or dispose of or disclose to any person any trade secret, formula,
process or know-how not theretofore a matter of public knowledge, except where
such disposal or disclosure would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on FRI;
47
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(h) enter into any material agreement, contract, commitment or
transaction other than in the ordinary course of business, consistent with past
practices;
(i) cancel any debts or waive, release or relinquish any material
contract rights or other rights of substantial value other than in the ordinary
course of business, consistent with past practices;
(j) authorize, recommend, propose or enter into or announce an
intention to authorize, recommend, propose or enter into an agreement in
principle or a definitive agreement with respect to any merger, consolidation,
liquidation, dissolution, or business combination, any acquisition of a material
amount of property or assets or securities, or any disposition of a material
amount of property or assets or securities, except as contemplated by this
Agreement;
(k) make any material change with respect to accounting policies or
procedures in effect as of December 28, 1997 except as may be required by
generally accepted accounting principles;
(l) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business, consistent with past practices, of liabilities reflected or reserved
against in the FRI Financial Statements or incurred in the ordinary course of
business consistent with past practices since the date hereof;
(m) effectuate (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment of FRI or any FRI Subsidiary, or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment of FRI or
any FRI Subsidiary, without complying fully with any and all notice obligations
(and/or pay and benefits in lieu of notice) under the WARN Act or any similar
obligation under applicable state or local law requiring notice (and/or pay and
benefits in lieu of notice) to employees in the event of a plant closing or
layoff. For purposes of the WARN Act and this Agreement, the Effective Time is
and shall be the same as the "effective date" within the meaning of the WARN
Act;
(n) commit or agree (in writing or otherwise) to take any of the
foregoing actions or any action that would make any representation or warranty
in this Agreement untrue or incorrect in any material respect, including as of
the date hereof and as of the Effective Time, as if made as of such time;
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(o) take any action with the knowledge that such action would
prevent the Merger from qualifying as a reorganization within the meaning of
sections 368(a) of the Code; or
(p) amend any Tax return, settle any Audit or make any election with
respect to Taxes which would materially adversely affect the Tax liability of
FRI or any FRI Subsidiary.
SECTION 6.4 No Solicitation. FRI will not, and will cause the FRI
---------------
Subsidiaries and each of their respective, officers, directors, employees,
agents and controlled Affiliates not to, directly or indirectly initiate,
solicit, engage in discussions or negotiations concerning, or provide any
information to any Person (other than KKR and its Representatives) relating to
any Acquisition Proposal. FRI will immediately cease and cause to be terminated
any existing activities, discussions and negotiations with respect to any
Acquisition Proposal. FRI shall immediately notify KKR if, subsequent to the
date hereof, any such negotiations, provision of information or data or
discussions are entered into or made or any such inquiries are received in
respect thereof, and shall provide details with respect thereto, including the
identity of any other party and the price and terms of any Acquisition Proposal.
SECTION 6.5 Amendment of Certificate and Bylaws; Recapitalization.
-----------------------------------------------------
Prior to the Effective Time FRI shall (a) amend and restate its Certificate of
Incorporation and Bylaws substantially in the forms set forth in Exhibit 6.5A1
and Exhibit 6.5A2, respectively, (b) issue to the holder of each FRI Share the
FRI Dividend and (c) duly adopt a further amendment to such Amended and Restated
Certificate of Incorporation, substantially in the form set forth in Exhibit
6.5B, renaming FRI as Koo Koo Roo Enterprises, Inc., such amendment to be filed
with the Delaware Secretary of State and effective substantially contemporaneous
with the occurrence of the Effective Time.
SECTION 6.6 Nasdaq National Market Quotation. FRI shall use
--------------------------------
commercially reasonable efforts to (a) cause the FRI Shares to be designated by
the NASD as a national market system security in the manner contemplated by
Section 262(b)(2) of the DGCL no later than the effective date of the Merger and
(b) maintain such quotation on the Nasdaq National Market (or any successor
system) or list the FRI Shares on the New York Stock Exchange or the American
Stock Exchange for a period of five years from the Effective Time unless in the
good faith determination of the Board of Directors of FRI, the maintenance of
such quotation or listing is not in the best interests of the stockholders of
FRI.
SECTION 6.7 Indemnification and Insurance.
-----------------------------
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(a) After the consummation of the Merger, the Surviving Corporation
shall remain responsible for the officers' and directors' right to
indemnification and exculpation provided for in the Charter Documents of KKR as
in effect on the date hereof, with respect to acts and omissions occurring prior
to the Effective Time including, without limitation, the transactions
contemplated by this Agreement.
(b) For six years after the Effective Time, FRI shall maintain, or
cause the Surviving Corporation to maintain, officers' and directors' liability
insurance covering the persons who are presently covered by KKR's officers' and
directors' liability insurance policies (copies of which have heretofore been
delivered to FRI), with respect to actions and omissions occurring or alleged to
have occurred prior to the Effective Time, on terms that are not materially less
favorable than the terms of such current insurance in effect on the date hereof;
provided, however, that FRI and the Surviving Corporation shall not be obligated
to make annual premium payments for such insurance to the extent such premiums
exceed $225,050 (175% of the annual premiums paid as of the date hereof by KKR
for such insurance (the "Maximum Amount")). If the amount of the annual
--------------
premiums necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, FRI and the Surviving Corporation shall maintain the most
advantageous policies of directors and officers liability insurance obtainable
for an annual premium equal to the Maximum Amount.
(c) From and after the occurrence of the Effective Time, (i) FRI and
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify, defend and hold harmless each present and former
director and officer of KKR (collectively, the "Indemnified Parties") against
-------------------
any costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any pending, threatened or completed claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission occurring
prior to the Effective Time (including, without limitation, any claim, action,
suit, proceeding or investigation arising out of or pertaining to the
transactions contemplated by this Agreement); (ii) in the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), FRI and the Surviving Corporation shall advance
expenses to each such Indemnified Party, including the payment of the reasonable
fees and expenses of counsel selected by such Indemnified Party, which counsel
shall be reasonably satisfactory to the Surviving Corporation promptly after
statements therefor are received, provided that (1) FRI and the Surviving
Corporation may require such Indemnified Party to undertake to repay such amount
if it is ultimately determined in a judicial proceeding that is final and
unappealable that such Indemnified Party is not entitled to be indemnified by
FRI and the Surviving Corporation in accordance with Section 145 of the DGCL,
(2) in any single action or series of related
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actions, FRI and the Surviving Corporation shall only be obligated to pay for
the fees and expenses of one such counsel (together with appropriate local
counsel) for all of the Indemnified Parties unless such counsel would have a
conflict of interest in such representation under applicable rules of
professional conduct, (3) FRI and the Surviving Corporation will cooperate fully
in the defense of any such matter and (4) if it is ultimately determined in a
judicial proceeding that is final and unappealable that FRI and the Surviving
Corporation wrongly denied their obligation to indemnify the Indemnified Parties
pursuant to this Section 6.7(c), the losses to be indemnified shall include the
Indemnified Parties' reasonable attorneys' fees in seeking indemnification.
Neither FRI nor the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld).
(d) The provisions of this Section 6.7 are intended to be in addition
to the rights otherwise available to the directors and officers of KKR by law,
charter, statute, bylaw or agreement, shall survive the closing of the
transactions contemplated hereby, are intended to benefit each of the
Indemnified Parties (each of whom shall be entitled to enforce this Section
against the Surviving Corporation) and shall be binding on all successors and
assigns of FRI and the Surviving Corporation.
(e) In the event FRI, the Surviving Corporation or any of their
respective successors or assigns (i) consolidate with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of FRI or the
Surviving Corporation assume the obligations set forth in this Section 6.7.
SECTION 6.8 Employee Benefits; Severance.
----------------------------
(a) For purposes of determining eligibility to participate,
entitlement to benefits and in all other respects where length of service is
relevant under any of Benefit Plans of FRI and the FRI Subsidiaries, following
the Effective Time, FRI shall cause the Benefit Plans of FRI and the FRI
Subsidiaries (including vesting, other than vesting under any defined
contribution or defined Benefit Plan of FRI and the FRI Subsidiaries), to credit
an applicable employee for such employee's service with KKR and any of the KKR
Subsidiaries to the same extent such service was credited under the applicable
Benefit Plans of KKR and the KKR Subsidiaries immediately prior to the Effective
Time.
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(b) At the Effective Time, FRI shall assume and honor, or cause the
Surviving Corporation to honor, in accordance with their terms the employment
contracts, severance agreements and severance pay policies identified in
Schedule 6.8.
(c) FRI and KKR agree that each may enter into retention and
transition bonus arrangements with its employees after the date hereof and prior
to the Effective Time, with the terms and amounts of such payments to be
determined and agreed to jointly by the Chief Executive Officers of FRI and KKR.
SECTION 6.9 Filing of Form S-8. FRI shall file the Form S-8 with the
------------------
Commission as soon as practicable after the Effective Time and request and use
its commercially reasonable efforts to obtain immediate effectiveness thereof.
ARTICLE VII
COVENANTS OF KKR
KKR covenants and agrees as follows:
SECTION 7.1 Sale of the Hamlet Shares to FRI-MRD. Concurrently with
-------------------------------------
the execution of this Agreement, KKR shall execute and deliver to FRI-MRD a
purchase and sale agreement substantially in the form of Exhibit 6.1 relating to
the sale of Hamlet Shares to FRI-MRD.
SECTION 7.2 Loan to KKR. Concurrently with the execution of this
-----------
Agreement, KKR shall, and shall cause each of its Subsidiaries that is a party
thereto, to execute and deliver to FRI-MRD the Bridge Loan Agreement.
SECTION 7.3 Conduct of Business Pending Merger. Except for Permitted
----------------------------------
Transactions, as otherwise specifically provided in this Agreement or in the
other Documents or as otherwise consented to in writing by FRI, which consent
shall not be unreasonably withheld, from the date of this Agreement to the
Effective Time, KKR will, and will cause each of the KKR Subsidiaries to,
conduct its operations only in the ordinary and usual course of business and
consistent with past practices and will, and will cause each of the KKR
Subsidiaries to, preserve intact its present business organization, take
commercially reasonable efforts to keep available the services of its present
officers, employees and consultants and preserve its present relationships with
licensors, licensees, customers, suppliers, employees, labor organizations and
others with whom they have a significant business relationship.
52
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Without limiting the generality of the foregoing, and except for
Permitted Transactions, as otherwise specifically provided in this Agreement or
in the other Documents, or as set forth on Schedule 7.3, KKR will not, and will
not permit any KKR Subsidiary to, directly or indirectly, from the date of this
Agreement to the Effective Time, without the prior written consent of FRI, which
shall not be unreasonably withheld:
(a) adopt any amendment to or otherwise change the Charter
Documents of KKR or any KKR Subsidiary;
(b) authorize for issuance, sale, pledge, disposition or encum
brance, or issue, sell, pledge, dispose of or encumber (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase, convertible securities or otherwise), any capital stock of any class
or any other securities of, or any other ownership interest in, KKR or any KKR
Subsidiary (except for (1) the issuance of KKR Common Shares (i) upon the
exercise of options and warrants outstanding on the date hereof, (ii) upon
conversion or exchange of the KKR Preferred Shares outstanding on the date
hereof or issuable upon the exercise of warrants outstanding as of the date
hereof, or (iii) the issuance of KKR Common Shares in payment of accrued and
unpaid dividends on the KKR Preferred Shares in accordance with the terms
thereof and (2) as contemplated by Sections 7.1 and 7.2 hereof), or amend any of
the terms of any such securities or agreements outstanding on the date hereof;
(c) reclassify, combine, split or subdivide any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, securities or property or any combination thereof) in respect of any class
or series of its capital stock (other than regularly scheduled dividends on the
KKR Preferred Shares paid in cash in accordance with the terms thereof);
(d) redeem, purchase or otherwise acquire, or propose or offer to
redeem, purchase or otherwise acquire, any outstanding KKR Shares or other
securities of KKR or the KKR Subsidiaries;
(e) organize any new Subsidiary, acquire any capital stock or equity
securities of any Person or acquire any equity or ownership interest (financial
or otherwise) in any business;
(f) (i) incur, assume or prepay any material liability, including,
without limitation, any indebtedness for borrowed money except in the ordinary
course of business and consistent with past practice, and in no event in excess
of $50,000, (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly,
53
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contingently or otherwise) for obligations of any third party, (iii) make any
loans, advances or capital contributions to, or investments in, any third party,
(iv) mortgage or pledge any of its material properties or assets, tangible or
intangible, or create any material Lien thereupon other than Permitted Liens, or
(v) authorize any capital expenditures not in KKR's capital budget on the date
hereof which, individually or in the aggregate, are in excess of $50,000;
(g) license or otherwise transfer, dispose of, permit to lapse or
otherwise fail to preserve any Intellectual Property of KKR or any KKR
Subsidiary, or dispose of or disclose to any person any trade secret, formula,
process or know-how not theretofore a matter of public knowledge, except where
such disposal or disclosure would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on KKR.
(h) enter into or amend any material agreement, contract, lease,
commitment or transaction other than in the ordinary course of business,
consistent with past practices;
(i) cancel any debts or waive, release or relinquish any material
contract rights or other rights of substantial value other than in the ordinary
course of business, consistent with past practices;
(j) except in accordance with Sections 7.1, 7.4 and 10.1(e),
authorize, recommend, propose or enter into or announce an intention to
authorize, recommend, propose or enter into an agreement in principle or a
definitive agreement with respect to any merger, consolidation, liquidation,
acquisition of a material amount of property or assets or securities, or any
disposition of a material amount of property or assets or securities;
(k) make any material change with respect to accounting policies or
procedures in effect as of December 31, 1997 except as may be required by
generally accepted accounting principles;
(l) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business, consistent with past practices, of liabilities reflected or reserved
against in the Financial Statements of KKR or incurred in the ordinary course of
business, consistent with past practices since the date hereof;
54
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(m) effectuate (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment of KKR or any KKR Subsidiary, or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment of KKR or
any KKR Subsidiary, without complying fully with any and all notice obligations
(and/or pay and benefits in lieu of notice) under the WARN Act or any similar
obligation under applicable state or local law requiring notice (and/or pay and
benefits in lieu of notice) to employees in the event of a plant closing or
layoff. For purposes of the WARN Act and this Agreement, the Effective Time is
and shall be the same as the "effective date" within the meaning of the WARN
Act;
(n) commit or agree (in writing or otherwise) to take any of the
foregoing actions or any action that would make any representation or warranty
in this Agreement untrue or incorrect in any material respect, including as of
the date hereof and as of the Effective Time, as if made as of such time;
(o) take any action with knowledge that such action would prevent
the Merger from qualifying as a reorganization within the meaning of sections
368(a) of the Code; or
(p) amend any Tax Return, settle any Audit or make any election with
respect to Taxes which would materially adversely affect the Tax liability of
KKR or any KKR Subsidiary.
SECTION 7.4 No Solicitation.
---------------
KKR will not, and will cause the KKR Subsidiaries and each of their
respective Affiliates, officers, directors, employees and agents (collectively
"Representatives") not to, directly or indirectly initiate, solicit or, except
- ----------------
to the extent the Board of Directors of KKR determines in good faith, after
consultation with its outside counsel, that such action is required for the
Board of Directors of KKR to comply with its duties under Applicable Law, engage
in discussions or negotiations concerning, or provide any information to any
Person (other than FRI and its Representatives) relating to any Acquisition
Proposal. KKR will immediately cease and cause to be terminated any existing
activities, discussions and negotiations with any Persons conducted heretofore
with respect to any Acquisition Proposal. KKR shall notify FRI immediately if
KKR, any of the KKR Subsidiaries or any of their respective Representatives
receives any unsolicited proposal concerning an Acquisition Proposal, the
identity of the Person making any such proposal and all of the terms and
conditions thereof, and shall keep FRI promptly advised of all developments
relating thereto. The provisions of this Section 7.4 shall not apply to the
Permitted Transactions.
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SECTION 7.5 KKR Stockholder Approval. KKR, acting through its Board
------------------------
of Directors, shall in accordance with its Charter Documents and all Applicable
Laws cause a meeting of its stockholders to be duly called and held as soon as
reasonably practicable for purposes of voting on the approval and adoption of
this Agreement and the Merger. The exact time period from the date of mailing
of the KKR Proxy Statement to the date of the meeting shall be determined by the
Board of Directors of KKR, in consultation with FRI, it being understood that
such period shall be designed to allow an adequate period for all KKR
stockholders to receive such material and vote by proxy, provided that such time
period shall in no event exceed 40 calendar days without the prior consent of
FRI. The Board of Directors of KKR shall, subject to their fiduciary duties,
recommend approval and adoption of this Agreement and the Merger by KKR's
stockholders. In connection with such meeting, KKR (a) will, together with FRI
in respect of the offering of the FRI Shares pursuant to the Form S-4, use their
respective commercially reasonable efforts to file and have cleared by the
Commission and will thereafter mail to its stockholders as promptly as
practicable the KKR Proxy Statement and all other proxy materials for such
meeting and (b) will, subject to the foregoing, use commercially reasonable
efforts to obtain the necessary approvals by its stockholders of this Agreement
and the transactions contemplated hereby in accordance with the DGCL.
SECTION 7.6 Affiliates. Prior to the execution of this Agreement KKR
----------
shall deliver to FRI a letter identifying all persons who, in KKR's reasonable
judgment, may be deemed, as of the date of this Agreement, "affiliates" of KKR
for purposes of Rule 145 under the Securities Act. KKR shall use commercially
reasonable efforts to cause each person named in such letter to deliver a
written agreement substantially in the form attached hereto as Exhibit 7.6.
SECTION 7.7 Employee Benefit Matters. KKR and the KKR Subsidiaries
------------------------
shall terminate each Benefit Plan of KKR and the KKR Subsidiaries which is a
"defined contribution plan" or "defined benefit plan," as such terms are defined
in Sections 3(34) and 3(35) of ERISA, respectively, effective prior to the
Effective Time, and shall appoint FRI as plan administrator under each such plan
for the sole purpose of completing the termination thereof, filing all
appropriate documents with government agencies and distributing participant
accounts in accordance with the applicable provisions of each such terminated
Benefit Plan. FRI shall offer participation in each Benefit Plan of FRI and the
FRI Subsidiaries which is a defined contribution plan or defined benefit plan to
participants in such terminated Benefit Plans of KKR and the KKR Subsidiaries as
soon as practicable after the Effective Time, and shall permit such participants
to elect direct rollovers of their accounts in such terminated Benefit Plans to
such FRI Benefit Plans.
ARTICLE VIII
56
<PAGE>
MUTUAL COVENANTS
SECTION 8.1 Access to Information.
---------------------
(a) So long as this Agreement has not been terminated, upon
reasonable notice and subject to restrictions contained in confidentiality
agreements with third parties to which such party is subject (from which such
party shall use commercially reasonable efforts to be released), each of KKR and
FRI shall (and shall cause each of their respective Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of the
other, reasonable access, during normal business hours during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, each of KKR and FRI shall (and shall cause each
of their respective Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request.
(b) Each party shall keep such information confidential in accordance
with, and shall otherwise abide by, the terms of the Confidentiality,
Noncircumvention and Nondisclosure Agreement, dated as of January 20, 1998, as
if such party is the Confidant thereunder.
SECTION 8.2 Preparation of Form S-4 and the KKR Proxy Statement.
---------------------------------------------------
Promptly following the date of this Agreement, FRI shall prepare and file with
the SEC the Form S-4, in which the KKR Proxy Statement will be included as a
prospectus. Each of FRI and KKR shall use commercially reasonable efforts to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. FRI shall also take any action (other than
qualifying to do business or subjecting itself to taxation or service of process
in any jurisdiction in which it is not now so qualified or subject) reasonably
required to be taken under any applicable state securities law in connection
with the issuance of the FRI Shares in the Merger, and KKR shall furnish all
information concerning KKR and the holders of the KKR Common Shares and rights
to acquire KKR Common Shares pursuant to the KKR Stock Plans, warrants or other
arrangements as may be reasonably required in connection with any such action.
Each of FRI and KKR shall furnish all information concerning itself to the other
as may be reasonably requested in connection with any such action and the
preparation, filing and distribution of the Form S-4 and the preparation, filing
and distribution of the KKR Proxy Statement. FRI, Merger-Sub and KKR each agree
to correct any information provided by it for use in the Form S-4 or the KKR
Proxy Statement which shall have become false or misleading.
57
<PAGE>
SECTION 8.3 Reasonable Efforts. Subject to the terms and conditions
------------------
of this Agreement, each of the parties hereto agrees to use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable consistent with
Applicable Law to assure that all conditions to Closing set forth in Article IX
of this Agreement are satisfied as expeditiously as possible including, without
limitation, (i) the prompt preparation and filing with the Commission of the
Form S-4, (ii) the preparation and filing of all applicable forms under the HSR
Act, (iii) supplying certification to Latham & Watkins for the purpose of
satisfying the condition set forth in Section 9.3(g) and (iv) the preparation
and filing of all other forms, registrations and notices required to be filed to
consummate the transactions contemplated hereby and the taking of such actions
as are necessary to obtain any requisite approvals, consents, orders,
exemptions, waivers by any public or private third party. Each party shall
promptly consult with the other with respect to, provide any necessary
information with respect to and provide the other (or its counsel) copies of,
all filings made by such party with any Governmental Authority in connection
with this Agreement and the transactions contemplated hereby.
SECTION 8.4 Brokers or Finders. Each of KKR and FRI represents, as
------------------
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any brokers' or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement,
except (a) fees and expenses to F.M. Roberts & Co. Inc. and to Sutro & Co.
Incorporated, which fees and expenses will be paid by KKR in accordance with
KKR's agreements as in place on the date hereof with such firms (copies of which
have been delivered by KKR to FRI prior to the date of this Agreement), and (b)
fees and expenses to Libra Investments, Inc., which fees and expenses will be
paid by FRI in accordance with FRI's agreement as in place on the date hereof
with such firm. Each of KKR and FRI agrees to indemnify, defend and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other fees, commissions or expenses asserted by any person
on the basis of any act or statement alleged to have been made by or on behalf
of such party.
SECTION 8.5 Notification of Certain Matters. Between the date of
-------------------------------
this Agreement and the Effective Time, KKR shall give prompt written notice to
FRI and FRI shall give prompt written notice to KKR, of the occurrence (or non-
occurrence) of any event of which any executive officer or director of KKR or
FRI, respectively, has knowledge, the occurrence (or non-occurrence) of which
would be likely to cause any representation or warranty contained in this
Agreement or any other Document to be untrue or inaccurate in any material
respect and of any material failure of either party to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder and shall use commercially reasonable efforts to cure any such
58
<PAGE>
defect; provided, however, that delivery of any notice pursuant to this Section
8.4 shall not limit or otherwise affect the remedies available to either party
hereunder.
SECTION 8.6 Further Information. As soon as practicable after such
-------------------
information becomes available, and in any event not later than thirty (30) days
after the end of each fiscal month, KKR shall provide to FRI and FRI shall
provide to KKR an unaudited consolidated balance sheet as of the end of such
month and the related consolidated statements of results of operations and
statements of cash flows for such period provided that such internal financial
statements shall be supplied in a form and manner consistent with previously
supplied statements.
SECTION 8.7 Fees and Expenses.
-----------------
(a) Except as set forth in clauses (b) and (c) below or Section 11.8,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
the exclusive obligation of, and shall be paid by, the party incurring such
expenses.
(b) If (i) this Agreement is terminated pursuant to Section 10.1(e)
and at the time of such termination neither FRI nor Merger-Sub is in material
breach of this Agreement or (ii) following the making by any Person (the
"referrent Person") of an Acquisition Proposal with respect to KKR, which
- -----------------
Acquisition Proposal is publicly disclosed and not withdrawn, this Agreement is
terminated pursuant to Section 10.1(d), at the time of termination neither FRI
nor Merger-Sub is in material breach of this Agreement and KKR or any of its
Affiliates enters into an agreement setting forth any substantive terms of, or
consummates, any Acquisition Proposal with respect to KKR with the referrent
Person or any of its Affiliates within six months of the date of such
termination, then KKR shall pay to FRI, by wire transfer of immediately
available funds, a fee of $6.0 million (the "Fee") (x) in the case of clause (i)
---
above, within three business days of delivery of written notice of such
termination or (y) in the case of clause (ii) above, concurrently with
consummation by such referrent Person or any of its Affiliates of any
Acquisition Proposal with respect to KKR. KKR shall in no event be obligated to
pay more than one such Fee with respect to all such occurrences and such
termination. The parties hereto acknowledge that an agreement relating solely to
the treatment of confidential information shall not be deemed to relate to the
substantive terms of an Acquisition Proposal.
(c) If (i) this Agreement is terminated (A) pursuant to Section
10.1(b) (unless at the time of termination any of the conditions contained in
Sections 9.3(a) through (h) remain unsatisfied or FRI has failed to obtain the
consents identified on Schedule 4.4(b)) or (B) pursuant to Section 10.1(d) and
(ii) at the time of either such
59
<PAGE>
termination neither FRI nor Merger-Sub is in breach in any material respect of
this Agreement and KKR or any of its Affiliates enters into an agreement setting
forth any substantive terms of, or consummates, any Acquisition Proposal with
respect to KKR within six months of the date of such termination, concurrently
with consummation of such Acquisition Proposal, KKR shall pay to FRI, by wire
transfer of immediately available funds, an amount equal to all of the Expenses
incurred by FRI; provided, that no Expenses shall be payable pursuant to this
--------
clause (c) if KKR has paid the Fee pursuant to clause (b).
SECTION 8.8 Accountants' Letters.
--------------------
(a) FRI shall use commercially reasonable efforts to cause to be
delivered to KKR a "comfort" letter of KPMG Peat Marwick LLP, its independent
accountants, dated a date within two business days before the date on which the
Form S-4 shall become effective, addressed to KKR, in form and substance
reasonably satisfactory to KKR and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with FRI's efforts to obtain
such letter, if requested by KPMG Peat Marwick LLP, KKR shall deliver to such
accounting firm a representation letter complying with SAS 72.
(b) KKR shall use commercially reasonable efforts to cause to be
delivered to FRI a "comfort" letter of BDO Seidman LLP, its independent
accountants, dated a date within two business days before the date on which the
Form S-4 shall become effective, addressed to FRI, in form and substance
reasonably satisfactory to FRI and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with KKR's efforts to obtain
such letter, if requested by BDO Seidman LLP, FRI shall deliver to such
accounting firm a representation letter complying with SAS 72.
SECTION 8.9 Public Announcements. FRI and KKR shall consult with
--------------------
each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not, and shall cause each of
their Representatives not to, issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
any listing agreement with its securities exchange. Contemporaneous with the
execution and delivery of this Agreement, FRI and KKR shall cause to be released
a joint press release in the form attached hereto as Exhibit 8.8.
60
<PAGE>
ARTICLE IX
CONDITIONS
SECTION 9.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) The applicable waiting period with respect to the Merger under
the HSR Act shall have expired or been terminated.
(b) The Form S-4 and any required post-effective amendment (if any)
shall have become effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order.
(c) No statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or Governmental Authority of competent jurisdiction which
prohibits the consummation of the Merger and shall be in effect.
(d) This Agreement shall have been approved and adopted by the
affirmative vote of the required percentage(s) of each of the outstanding KKR
Shares, in each case, in accordance with the DGCL.
(e) Each party hereto shall have obtained all consents, approvals,
authorizations and permits required from third parties and any Governmental
Authority necessary for the consummation of the transactions contemplated by
this Agreement, except for those consents, approvals, authorizations and permits
which the failure to obtain would not reasonably be expected to result in a
Material Adverse Effect on FRI or KKR, as the case may be; provided that the
failure to obtain required consents in connection with (i) any of KKR's
restaurant leases set forth on Schedule 9.1(e) or three or more of KKR's other
restaurant leases (in each case unless waived by FRI) or (ii) fourteen or more
of FRI's restaurant leases (unless waived by KKR), shall be deemed to constitute
a Material Adverse Effect.
(f) KKR shall have received from Sutro & Co. Incorporated a bring-
down opinion dated within two business days of the date of the KKR Proxy
Statement confirming the opinion referred to in Section 5.3(c).
61
<PAGE>
SECTION 9.2 Conditions of Obligations of FRI. The obligation of FRI
--------------------------------
to effect the Merger are further subject to the satisfaction at or prior to the
Effective Time of the following conditions, unless waived by FRI:
(a) The representations and warranties of KKR set forth in this
Agreement shall be true and correct in all material respects (except for
representations and warranties that contemplate a Material Adverse Effect or
Material Adverse Change, which shall be true and correct as written) as of the
date of this Agreement and (except to the extent such representations speak as
of an earlier date) as of the Effective Time as though made on and as of the
Effective Time, except for changes contemplated by this Agreement.
(b) KKR shall have performed and complied, in all material respects,
with all obligations and covenants required to be performed or complied with by
it under this Agreement at or prior to the Effective Time.
(c) FRI shall have received from KKR an officer's certificate
substantially in the form of Exhibit 9.2(c) attached hereto.
(d) FRI shall have received from Latham & Watkins or other counsel to
KKR acceptable to FRI, an opinion substantially in the form of Exhibit 9.2(d)
attached hereto.
(e) From the date of this Agreement through the Effective Time,
KKR shall not have suffered a Material Adverse Change.
(f) Holders of no more than seven and one-half percent (7.5%) of KKR
Shares outstanding at the Effective Time shall have properly demanded and not
rescinded appraisal pursuant to Section 262 of the DGCL.
(g) The sale of Hamlet Shares to FRI-MRD shall have been completed,
and such shares shall be owned by FRI-MRD free and clear of any and all Liens
imposed by any action or inaction of KKR or any KKR Subsidiary.
(h) The KKR Notes shall have been repaid in full.
(i) The aggregate liquidation preference of the outstanding shares of
Series B Convertible Preferred Stock shall not exceed $100,000, and the only
rights the holders of such outstanding shares of Series B Convertible Preferred
Stock shall have upon consummation of the Merger shall be of those set forth in
Sections 2.6 and 3.4 hereof.
62
<PAGE>
SECTION 9.3 Conditions of Obligations of KKR. The obligation of KKR
--------------------------------
to effect the Merger is further subject to the satisfaction at or prior to the
Effective Time of the following conditions, unless waived by KKR:
(a) The representations and warranties of FRI set forth in this
Agreement shall be true and correct in all material respects (except for
representations and warranties that contemplate a Material Adverse Effect or
Material Adverse Change, which shall be true and correct as written) already
specified as of the date of this Agreement and (except to the extent such
representations speak as of an earlier date) as of the Effective Time as though
made on and as of the Effective Time, except for changes contemplated by this
Agreement.
(b) FRI shall have performed and complied, in all material respects,
with all obligations and covenants required to be performed or complied with by
it under this Agreement at or prior to the Effective Time.
(c) The Board of Directors of FRI shall have been reconstituted as of
the Effective Time to consist of those individuals set forth in Exhibit 9.3(c)
attached hereto.
(d) KKR shall have received from FRI an officer's certificate
substantially in the form of Exhibit 9.3(d) attached hereto.
(e) KKR shall have received from Skadden, Arps, Slate, Meagher & Flom
LLP, or other counsel to FRI acceptable to KKR, an opinion substantially in the
form of Exhibit 9.2(e) attached hereto.
(f) From the date of this Agreement through the Effective Time,
FRI shall not have suffered a Material Adverse Change.
(g) At or prior to the time the KKR Proxy Statement is mailed to the
KKR stockholders, KKR shall have received an opinion from Latham & Watkins,
based on customary representations of FRI, Merger-Sub and KKR, substantially to
the effect that (i) the Merger will constitute a reorganization within the
meaning of section 368(a) of the Code. In the event that Latham & Watkins is
unable to deliver such opinion or subsequently withdraws or modifies its opinion
as contemplated by the last sentence of this paragraph, FRI may, at its sole and
absolute discretion, propose an alternative structure to the Merger which KKR
will be required to use commercially reasonable efforts to implement; provided,
--------
that (i) KKR shall have received an opinion from Latham & Watkins, based on
customary representations of FRI, Merger-Sub and KKR, substantially to the
effect that the alternative structure will constitute a reorganiza-
63
<PAGE>
tion within the meaning of section 368(a) of the Code, (ii) FRI proposes such
alternate structure within 15 business days of receiving notice from KKR that
Latham & Watkins is unable to give such opinion and (iii) such alternative
structure does not adversely affect the Merger Consideration to be received by
the KKR stockholders or any other material economic term of this Agreement.
Further, the opinion of Latham & Watkins delivered pursuant to this section
shall not have been withdrawn or modified in any material respect as a result of
a change in Applicable Law or a change in the underlying facts.
(h) The FRI Shares shall be approved for quotation on the Nasdaq
National Market.
(i) The sale of Hamlet Shares to FRI-MRD shall have been completed
resulting in the receipt by KKR of cash in an amount not less than $20 million.
ARTICLE X
TERMINATION AND AMENDMENT
SECTION 10.1 Termination. This Agreement may be terminated at any
-----------
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the stockholders of KKR:
(a) by mutual written consent of KKR and FRI;
(b) by either KKR or FRI, if the Merger shall not have been
consummated before December 18, 1998 unless the failure to consummate the Merger
by such date shall be due to the action or failure to act of the party seeking
to terminate);
(c) by either KKR or FRI, if any permanent injunction or other order
of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable;
(d) by either FRI or KKR if, at the meeting of KKR stockholders
called to act on this Agreement (including any adjournment or postponement
thereof), the requisite vote of the KKR stockholders shall not have been
obtained; or
(e) by either KKR or FRI, if KKR's Board of Directors shall have
withdrawn or modified or changed (including by amendment to the KKR Proxy
64
<PAGE>
Statement) in a manner adverse to FRI or Merger-Sub its approval or
recommendation of this Agreement or the Merger.
SECTION 10.2 Effect of Termination. In the event of the termination
---------------------
and abandonment of this Agreement pursuant to Section 10.1 hereof, this
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party hereto or its affiliates, directors, officers or
stockholders, other than the provisions of this Article X and Sections 8.1(b) ,
8.7, 11.1, 11.4, 11.5, 11.6, 11.7, 11.8 and 11.11. Notwithstanding the
foregoing, nothing contained in this Section shall relieve any party from
liability for any material breach of any covenant, representation or warranty
contained herein.
SECTION 10.3 Amendment. This Agreement may be amended by the parties
---------
hereto at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of KKR and FRI but, after any
such approvals, no amendment shall be made that by law requires further
approvals by such stockholders without such further approvals. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
SECTION 10.4 Extension; Waiver. At any time prior to the Effective
-----------------
Time, the parties hereto may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or conditions
contained herein by the other parties hereto. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Notices. All notices and other communications hereunder
-------
shall be in writing, and shall be deemed given upon receipt if delivered
personally, sent by facsimile transmission (receipt of which is confirmed) or by
certified or registered mail, return receipt requested, or by a nationally
recognized private overnight courier to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
65
<PAGE>
(a) if to KKR, to:
Koo Koo Roo, Inc.
11075 Santa Monica Boulevard, Suite 225
Los Angeles, CA 90025
Attention: A. William Allen, III,
Chief Executive Officer and
Ronald D. Garber, Esq.,
General Counsel
Facsimile No.: (310) 479-4221
with copies to:
Latham and Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Anthony J. Richmond
Facsimile No.: (213) 891-8763
and
(b) if to FRI, to:
Family Restaurants, Inc.
18831 Von Karman Avenue, 3/rd/ Floor
Irvine, CA 92612
Attention: Todd E. Doyle, Vice President and General
Counsel
Facsimile No.: (949) 757-8076
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Michael Woronoff
Facsimile No.: (213) 687-5600
SECTION 11.2 Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
66
<PAGE>
SECTION 11.3 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
SECTION 11.4 Entire Agreement; Assignment. This Agreement, along with
----------------------------
the schedules, exhibits and other documents referred to herein, (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof (other than the Non-disclosure Agreement, any provisions of such latter
agreement which are inconsistent with the transactions contemplated by this
Agreement being superseded by the provisions hereof) and (b) may not be assigned
by operation of law or otherwise without the prior written consent of the other
parties which may be given or withheld in their sole discretion. Subject to the
preceding sentence, this Agreement shall be binding on, inure to the benefit of,
and be enforceable by the parties hereto and their respective successors and
assigns.
SECTION 11.5 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Delaware without regard to
any applicable principles of conflicts of law.
SECTION 11.6 Specific Performance. The parties hereto agree that if
--------------------
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
SECTION 11.7 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and, except for the
provisions of Section 6.7 which are intended to be for the benefit of the
persons referred to therein and their beneficiaries, and may be enforced by such
persons as intended third-party beneficiaries, nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 11.8 Attorneys' Fees. In any suit or action brought by any
---------------
party hereto to enforce this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees and costs incurred by the prevailing party in
connection therewith, including costs and expenses associated with any and all
appeals.
67
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SECTION 11.9 Survival of Representations and Warranties. None of the
------------------------------------------
representations and warranties made in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive beyond the Effective Time and
each shall be deemed to have terminated at and as of the Effective Time. This
Section 11.9 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 11.10 Obligation of FRI. Whenever this Agreement requires
-----------------
Merger-Sub to take any action, such requirement will be deemed to include an
undertaking by FRI to cause Merger-Sub to take such action.
SECTION 11.11 Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or unenforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
68
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
KOO KOO ROO, INC.
By: /s/ A. William Allen, III
-------------------------------
Name: A. William Allen, III
Title: Chief Executive Officer
FAMILY RESTAURANTS, INC
By: /s/ R. T. Trebing, Jr.
-------------------------------
Name: R. T. Trebing, Jr.
------------------------
Title: EVP/CFO
-----------------------
FRI-SUB, INC.
By: /s/ R. T. Trebing, Jr.
-------------------------------
Name: R. T. Trebing, Jr.
-------------------------
Title: President
-----------------------
69
<PAGE>
EXHIBIT 10.1
________________________________________________________________________________
STOCK PURCHASE AGREEMENT
by and between
FRI-MRD CORPORATION
and
KOO KOO ROO, INC.
Dated as of June 9, 1998
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS......................................................... 1
SECTION 1.1 Definitions......................................... 1
-----------
ARTICLE II
PURCHASE AND SALE OF HAMLET SHARES.................................. 1
SECTION 2.1 Purchase and Sale................................... 1
-----------------
SECTION 2.2 Purchase Price...................................... 2
--------------
ARTICLE III
THE CLOSING......................................................... 2
SECTION 3.1 Closing Date........................................ 2
------------
SECTION 3.2 Transactions To Be Effected at the Closing.......... 2
------------------------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FRI-MRD........................... 2
SECTION 4.1 Incorporation of Representations and Warranties..... 3
------------------------------------------------
SECTION 4.2 Purchase For Investment............................. 3
-----------------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF KKR............................... 3
SECTION 5.1 Incorporation of Representation and Warranties...... 3
-----------------------------------------------
SECTION 5.2 Capitalization...................................... 4
---------------
ARTICLE VI
COVENANTS OF FRI-MRD................................................ 4
SECTION 6.1 Merger Agreement.................................... 4
----------------
SECTION 6.2 Reasonable Efforts.................................. 4
------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
COVENANTS OF KKR.................................................... 4
SECTION 7.1 Merger Agreement.................................... 4
-----------------
SECTION 7.2 Reasonable Efforts.................................. 4
------------------
ARTICLE VIII
CONDITIONS......................................................... 5
SECTION 8.1 Conditions to Each Party's Obligation to
-----------------------------------------
Effect the Acquisition............................ 5
----------------------
SECTION 8.2 Conditions of Obligations of FRI-MRD................ 5
------------------------------------
SECTION 8.3 Conditions of Obligations of KKR.................... 6
--------------------------------
ARTICLE IX
TERMINATION AND AMENDMENT........................................... 6
SECTION 9.1 Termination......................................... 6
-----------
SECTION 9.2 Effect of Termination............................... 6
---------------------
SECTION 9.3 Amendment........................................... 6
---------
SECTION 9.4 Extension; Waiver................................... 7
-----------------
ARTICLE X
MISCELLANEOUS....................................................... 7
SECTION 10.1 Notices............................................ 7
-------
SECTION 10.2 Descriptive Headings............................... 7
--------------------
SECTION 10.3 Counterparts....................................... 7
------------
SECTION 10.4 Entire Agreement; Assignment....................... 7
----------------------------
SECTION 10.5 Governing Law...................................... 7
-------------
SECTION 10.6 Specific Performance............................... 7
--------------------
SECTION 10.7 Publicity.......................................... 8
---------
SECTION 10.8 Parties in Interest................................ 8
-------------------
SECTION 10.9 Attorneys' Fees.................................... 8
---------------
SECTION 10.10 Survival of Representations and Warranties........ 8
------------------------------------------
SECTION 10.11 Closing of Merger Agreement....................... 8
---------------------------
</TABLE>
ii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 9, 1998, by
and between, FRI-MRD CORPORATION ("FRI-MRD"), a Delaware corporation, and direct
wholly owned subsidiary of Family Restaurants, Inc., a Delaware corporation
("FRI"), and Koo Koo Roo, Inc., a Delaware corporation ("KKR").
WHEREAS, KKR owns all of the outstanding shares of capital stock (the
"Hamlet Shares") of The Hamlet Group, Inc., a California corporation ("Hamlet"
or the "Company");
WHEREAS, KKR desires to sell to FRI-MRD, and FRI-MRD desires to purchase
from KKR, all of the Hamlet Shares, upon the terms and subject to the conditions
set forth herein.
This Agreement is made pursuant to the Agreement and Plan of Merger dated
as of the date hereof (the "Merger Agreement"), between FRI and FRI-Sub, Inc.,
a Delaware corporation and indirect wholly owned subsidiary of FRI, and KKR.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. Capitalized terms used herein without
-----------
definition shall have the respective meaning given to such terms in the Merger
Agreement.
ARTICLE II
PURCHASE AND SALE OF HAMLET SHARES
SECTION 2.1 Purchase and Sale. Upon the terms and subject to the
-----------------
conditions set forth herein, KKR agrees to sell, assign, transfer, convey and
deliver to FRI-MRD, and FRI-MRD agrees to purchase and accept from KKR, on the
Closing Date (as defined below), all of KKR's rights, title and interest in and
to the Hamlet Shares (the "Acquisition").
<PAGE>
SECTION 2.2 Purchase Price. In consideration for the purchase by
--------------
FRI-MRD of the Hamlet Shares, FRI-MRD shall pay to KKR on the Closing Date $22.2
million (the "Purchase Price") in cash, payable by wire transfer of immediately
available funds to such account or accounts of KKR as it shall designate in
writing at least one business day prior to the Closing Date.
ARTICLE III
THE CLOSING
SECTION 3.1 Closing Date. The consummation of the Acquisition (the
------------
"Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 300 South Grand Avenue, Los Angeles, California 90071, or such other
place as the parties shall mutually agree, at 10:00 a.m. (local time) on the
date on which the conditions set forth in Article VIII (other than those
conditions to be satisfied or waived on the Closing Date) shall be satisfied or
waived, or such other date as the parties shall mutually agree upon (the date of
the Closing being herein referred to as the "Closing Date").
SECTION 3.2 Transactions To Be Effected at the Closing. At the
------------------------------------------
Closing:
(a) KKR shall deliver to FRI-MRD (i) certificates representing
the Hamlet Shares, duly endorsed by KKR in such name or names as directed by
FRI-MRD not later than two business days prior to the Closing Date, (ii) the
stock books, stock ledgers, minute books and corporate seals of the Company and
(iii) such other documents as provided in Article VIII hereof; and
(b) FRI-MRD shall deliver to KKR (i) payment of the Purchase
Price as provided in Section 2.2 and (ii) such other documents as provided in
Article VIII hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FRI-MRD
FRI-MRD hereby represents and warrants as to KKR follows:
2
<PAGE>
SECTION 4.1 Incorporation of Representations and Warranties. The
-----------------------------------------------
representations and warranties set forth in Article IV of the Merger Agreement
relating to FRI-MRD and its subsidiaries are hereby incorporated by reference as
though fully set forth herein.
SECTION 4.2 Purchase For Investment. FRI-MRD is acquiring the Hamlet
-----------------------
Shares for investment (for its own account or for accounts over which it
exercises investment control), and not with a view to, or for offer or sale in
connection with, any distribution thereof that would be in violation of the
Securities Act, or any applicable state securities law, without prejudice,
however, to FRI-MRD's right at all times to sell or otherwise dispose of all or
any part of said Hamlet Shares pursuant to an effective registration statement
under the Securities Act and applicable state securities laws, or under an
exemption from such registration available under the Securities Act and other
applicable state securities laws. FRI-MRD (i) is knowledgeable, sophisticated
and experienced in business and financial matters and fully understands the
limitations on transfer described above; and (ii) is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF KKR
KKR hereby represents and warrants to FRI-MRD as follows:
SECTION 5.1 Incorporation of Representation and Warranties. The
----------------------------------------------
representations and warranties set forth in Article V of the Merger Agreement
relating to Hamlet and its subsidiaries are hereby incorporated by reference as
though fully set forth herein.
SECTION 5.2 Capitalization.
--------------
(a) The total authorized capital stock of Hamlet consists of
100,000 shares of common stock, no par value per share, 1,000 shares of which
are issued and outstanding as of the date hereof.
(b) Each Hamlet Share that is issued and outstanding (i) has been
duly authorized and validly issued, (ii) is fully paid and nonassessable and
free of preemptive and similar rights, and (iii) immediately prior to the
Closing Date will be free
3
<PAGE>
and clear of all Liens and restrictions on voting and transfer other than
restrictions on transfer imposed by Federal and state securities laws. Upon
consummation of the Acquisition, FRI-MRD will acquire valid title to the Hamlet
Shares, free and clear of all Liens and restrictions on voting and transfer
other than restrictions on transfer imposed by Federal and state securities
laws.
ARTICLE VI
COVENANTS OF FRI-MRD
SECTION 6.1 Merger Agreement. The covenants relating to actions and
----------------
restrictions on actions by FRI-MRD and its subsidiaries set forth in Article VI
and Article VIII of the Merger Agreement are hereby incorporated by reference
herein as though fully set forth herein.
SECTION 6.2 Reasonable Efforts. Subject to the terms and conditions
------------------
of this Agreement, FRI-MRD agrees to use commercially reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to assure that all conditions to Closing
set forth in Article VIII of this Agreement are satisfied as expeditiously as
possible. FRI-MRD shall promptly consult with KKR with respect to, provide any
necessary information with respect to and provide KKR (or its counsel) copies
of, all filings made by it with any Governmental Authority in connection with
this Agreement and the transactions contemplated hereby.
ARTICLE VII
COVENANTS OF KKR
KKR covenants and agrees as follows:
SECTION 7.1 Merger Agreement. The covenants relating to actions and
-----------------
restrictions on actions by Hamlet and its subsidiaries set forth in Article VII
and Article VIII of the Merger Agreement are hereby incorporated by reference
herein as though fully set forth herein.
SECTION 7.2 Reasonable Efforts. Subject to the terms and conditions
------------------
of this Agreement, KKR agrees to use commercially reasonable efforts to take, or
cause
4
<PAGE>
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to assure that all conditions to Closing set forth in
Article VIII of this Agreement are satisfied as expeditiously as possible. KKR
shall promptly consult with FRI-MRD with respect to, provide any necessary
information with respect to and provide FRI-MRD (or its counsel) copies of, all
filings made by it with any Governmental Authority in connection with this
Agreement and the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Acquisition. The respective obligations of each party to effect the Acquisition
- -----------
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) The applicable waiting period with respect to the Acquisition
under the HSR Act shall have expired or been terminated.
(b) Each party hereto shall have obtained all consents,
approvals, authorizations and permits required from third parties and any
Governmental Authority necessary for the consummation of the transactions
contemplated by this Agreement.
(c) The conditions set forth in Section 9.1 of the Merger
Agreement shall have been satisfied in all material respects.
SECTION 8.2 Conditions of Obligations of FRI-MRD. The obligation of
------------------------------------
FRI-MRD to effect the Acquisition are further subject to the satisfaction at or
prior to the Closing Date of the following conditions, unless waived by FRI-MRD:
(a) The representations and warranties of KKR set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date, as if made as of such time.
(b) KKR shall have performed and complied, in all material
respects, with all obligations and covenants required to be performed or
complied with by it under this Agreement at or prior to the Closing Date.
5
<PAGE>
(c) The conditions set forth in Section 9.2 of the Merger
Agreement shall have been satisfied in all material respects.
SECTION 8.3 Conditions of Obligations of KKR. The obligation of KKR
--------------------------------
to effect the Acquisition is further subject to the satisfaction at or prior to
the Closing Date of the following conditions, unless waived by KKR:
(a) The representations and warranties of FRI-MRD set forth in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date, as if made as of such time.
(b) FRI-MRD shall have performed and complied, in all material
respects, with all obligations and covenants required to be performed or
complied with by it under this Agreement at or prior to the Closing Date.
(c) The conditions set forth in Section 9.3 of the Merger
Agreement shall have been satisfied in all material respects.
ARTICLE IX
TERMINATION AND AMENDMENT
SECTION 9.1 Termination. This Agreement shall terminate, without any
-----------
action on the part of KKR or FRI-MRD, only upon the termination of the Merger
Agreement in accordance with the terms thereof.
SECTION 9.2 Effect of Termination. In the event of the termination
---------------------
and abandonment of this Agreement pursuant to Section 9.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability hereunder
on the part of any party hereto or its affiliates, directors, officers or
stockholders.
SECTION 9.3 Amendment. This Agreement may be amended by the parties
---------
hereto at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of KKR and FRI but, after any
such approvals, no amendment shall be made that by law requires further
approvals by such stockholders without such further approvals. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
6
<PAGE>
SECTION 9.4 Extension; Waiver. At any time prior to the Closing
-----------------
Date, the parties hereto may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or conditions
contained herein by the other parties hereto. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of each party hereto.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Notices. All notices and other communications hereunder
-------
shall be given in accordance with provisions of the Merger Agreement.
SECTION 10.2 Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 10.3 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
SECTION 10.4 Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise.
SECTION 10.5 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Delaware without regard to
any applicable principles of conflicts of law.
SECTION 10.6 Specific Performance. The parties hereto agree that if
--------------------
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the
7
<PAGE>
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
SECTION 10.7 Publicity. Except as permitted in the Merger Agreement,
---------
neither KKR nor FRI-MRD shall, or shall permit any of its subsidiaries to, issue
or cause the publication of any press release or other public announcement with
respect to the transactions contemplated by this Agreement without prior
approval of the other party (which approval shall not be unreasonably withheld).
SECTION 10.8 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 10.9 Attorneys' Fees. In any suit or action brought by any
---------------
party hereto to enforce this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees and costs incurred by the prevailing party in
connection therewith.
SECTION 10.10 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties made in this Agreement shall not survive beyond
the Closing Date and shall be deemed to have terminated at and as of the Closing
Date.
SECTION 10.11 Closing of Merger. If the Effective Time has not
-----------------
occurred within twenty-four (24) hours of the Closing, KKR shall upon request of
FRI-MRD immediately pay to FRI-MRD by wire transfer of immediately available
funds to such account or accounts as FRI-MRD may designate, the Purchase Price
it received pursuant to Section 3.2, in cash, and in exchange therefor FRI-MRD
shall immediately sell, assign, transfer, convey and deliver to KKR, all of FRI-
MRD's rights, title and interest in and to the Hamlet Shares by delivering to
KKR the certificates representing the Hamlet Shares it received pursuant to
Section 3.2, duly endorsed by FRI-MRD in such name or names as directed by KKR
as well as any stock books, stock ledgers, minute books and corporate seals of
the Company it received pursuant to Section 3.2). The foregoing right to
terminate and rescind the transaction contemplated hereby must be exercised
within two business days of payment of the Purchase Price.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
KOO KOO ROO, INC.
By: /s/ A. William Allen III
---------------------------
Name: A. William Allen III
Title: C.E.O.
FRI-MRD CORPORATION
By: /s/ R.T. Trebing, Jr.
---------------------------
Name: R.T. Trebing, Jr.
Title: President
9
<PAGE>
EXHIBIT 10.2
================================================================================
$3,000,000
BRIDGE LOAN AGREEMENT
dated as of
June 9, 1998
among
THE HAMLET GROUP, INC.
as Borrower
KOO KOO ROO, INC.,
H.H.K. OF VIRGINIA, INC.
and
H.H. OF MARYLAND, INC.,
as Guarantors
and
FRI-MRD CORPORATION,
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions
-----------
Section 1.1 Defined Terms................................................... 1
Section 1.2 Terms Generally................................................. 11
Section 1.3 Accounting Terms; GAAP.......................................... 12
ARTICLE II
The Bridge Loan
---------------
Section 2.1 Bridge Loan..................................................... 12
Section 2.2 Funding of Borrowings........................................... 12
Section 2.3 Notes........................................................... 12
Section 2.4 Repayment of Loan on Maturity Date; Mandatory Prepayment........ 13
Section 2.5 Optional Prepayment of Loan..................................... 13
Section 2.6 Interest........................................................ 13
Section 2.7 Taxes........................................................... 14
Section 2.8 Payments Generally; Pro Rata Treatment; Sharing of Set-offs..... 14
ARTICLE III
Guarantee
---------
Section 3.1 The Guarantee................................................... 15
Section 3.2 Obligations Unconditional....................................... 15
Section 3.3 Reinstatement................................................... 16
Section 3.4 Subrogation..................................................... 17
Section 3.5 Remedies........................................................ 17
Section 3.6 Continuing Guarantee............................................ 17
Section 3.7 General Limitation on Guarantee Obligations..................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV
Representations and Warranties
------------------------------
Section 4.1 Borrower's Representations and Warranties..................... 18
Section 4.2 Lender's Representations and Warranties....................... 19
ARTICLE V
Conditions.................................... 20
----------
ARTICLE VI
Affirmative Covenants
---------------------
Section 6.1 Financial Statements and Other Information.................... 21
Section 6.2 Notices of Material Events.................................... 22
Section 6.3 Existence; Conduct of Business................................ 23
Section 6.4 Payment of Obligations........................................ 23
Section 6.5 Maintenance of Properties; Insurance.......................... 23
Section 6.6 Books and Records; Inspection Rights.......................... 23
Section 6.7 Compliance with Laws.......................................... 23
Section 6.8 Use of Proceeds............................................... 24
Section 6.9 Further Assurances............................................ 24
Section 6.10 Conduct of Business........................................... 24
ARTICLE VII
Negative Covenants
------------------
Section 7.1 Debt.......................................................... 24
Section 7.2 Liens......................................................... 25
Section 7.3 Fundamental Changes........................................... 25
Section 7.4 Investments, Loans, Advances, Suretyship Liabilities and
Acquisitions.................................................. 26
Section 7.5 Hedging Agreements............................................ 26
Section 7.6 Restricted Payments........................................... 26
Section 7.7 Transactions with Affiliates.................................. 26
Section 7.8 Restrictive Agreements........................................ 26
ARTICLE VIII
Events of Default............................... 27
-----------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IX
Miscellaneous
-------------
Section 9.1 Notices....................................................... 29
Section 9.2 Waivers; Amendments........................................... 31
Section 9.3 Expenses; Indemnity; Damage Waiver............................ 31
Section 9.4 Successors and Assigns........................................ 31
Section 9.5 Survival...................................................... 32
Section 9.6 Counterparts; Integration; Effectiveness...................... 32
Section 9.7 Marshalling; Recapture........................................ 32
Section 9.8 Severability.................................................. 33
Section 9.9 Right of Setoff............................................... 33
Section 9.10 Governing Law; Jurisdiction; Consent to Service of Process.... 33
Section 9.11 Headings...................................................... 34
SCHEDULES AND EXHIBITS
Schedule 6.1 Additional Information
Schedule 7.1 Debt
Schedule 7.2 Liens
Schedule 7.4 Investments
Schedule 7.8 Restrictive Agreements
Exhibit A Bridge Note
Exhibit B Opinion of Latham & Watkins, Counsel to the Borrower
Exhibit C Pledge Agreement
Exhibit D Security Agreement
Exhibit E Assignment of Leases
</TABLE>
iii
<PAGE>
BRIDGE LOAN AGREEMENT dated as of June 9, 1998, among THE HAMLET
GROUP, INC., as Borrower, H.H.K. OF VIRGINIA, INC., H.H. OF MARYLAND, INC. and
KOO KOO ROO, INC., as Guarantors, and FRI-MRD CORPORATION, as Lender.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Defined Terms. As used in this Agreement, the following
-------------
terms have the meanings specified below:
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agreement" means this Bridge Loan Agreement, as amended from time to
---------
time.
"Assignment of Leases" means that certain Assignment of Leases, dated
--------------------
as of the date hereof, executed by the Borrower and the Subsidiary Guarantors in
favor of Lender, in substantially the form of Exhibit E.
"Bankruptcy Code" means Title 11 of the United States Code entitled
---------------
Bankruptcy, as now or hereafter in effect.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means The Hamlet Group, Inc., a California corporation.
--------
"Bridge Note" has the meaning assigned to such term in Section 2.3(a).
-----------
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in Los Angeles, California are authorized or
required by law to remain closed.
<PAGE>
BRIDGE LOAN AGREEMENT
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
-----------------
or indirectly, beneficially or of record, by any Person or group (within the
meaning of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder as in effect
on the date hereof), of shares representing more than 25% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
KKR (other than Lender or any Affiliate of Lender); (b) occupation of a majority
of the seats (other than vacant seats) on the board of directors of KKR by
Persons who were neither (i) nominated by the board of directors of KKR nor (ii)
appointed by directors so nominated; or (c) the failure by KKR to beneficially
own 100% of the outstanding capital stock of the Borrower and each Subsidiary
Guarantor.
"Closing Date" means the date on which the Loan is advanced hereunder.
------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" means the collateral identified in the Security Agreement
----------
and the Pledge Agreement.
"Compliance Certificate" means a certificate signed by a Responsible
----------------------
Officer of the Borrower certifying as to the matters set forth in subsection (c)
of Article V.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise;
provided that beneficial ownership of 10% or more of the voting stock or equity
interests of a Person will be deemed to be Control of such Person. "Controlling"
-----------
and "Controlled" have meanings correlative thereto.
----------
"Debt" of any Person means, without duplication, (a) all obligations
----
of such Person for borrowed money, whether or not evidenced by bonds,
debentures, notes or similar instruments, (b) all Capital Lease Obligations of
such Person, (c) all obligations of such Person to pay the deferred purchase
price of property or services (other than current accounts payable in the
ordinary course of business), (d) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such
2
<PAGE>
BRIDGE LOAN AGREEMENT
Person (it being understood that if such Person has not assumed or otherwise
become personally liable for any such indebtedness, the amount of the Debt of
such Person in connection therewith shall be limited to the lesser of the face
amount of such indebtedness or the fair market value of all property of such
Person securing such indebtedness), (e) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit (whether or
not drawn) and banker's acceptances issued for the account of such Person, (f)
all Suretyship Liabilities of such Person, (g) all other obligations of such
Person upon which interest charges are customarily paid (other than accounts
payable in the ordinary course of business which are not more than 90 days past
due), (h) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person and (i) all
Debt (as defined above) of any partnership in which such Person is a general
partner (except to the extent such Debt is not recourse to such Person).
"Debt for Borrowed Money" of any Person means all Debt of such Person
-----------------------
described in (without duplication) clauses (a), (b), (c), (d), (g) and, to the
extent constituting a Suretyship Liability in respect of Debt for Borrowed Money
of another Person, (f), of the definition of Debt.
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Default Rate" has the meaning assigned such term in Section 2.6(b).
------------
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
"Environmental Laws" means all laws, statutes, ordinances, judgments,
------------------
injunctions, decrees, writs, regulations, notice requirements, rules or orders
of any court or Governmental Authority relating to pollution or the protection
of human health or the environment or to emissions, discharges, releases or
threatened releases of any Hazardous Materials into the environment (including
without limitation ambient air, surface water, ground water, or land), or
otherwise relating to the manufacture, processing, distribution, generation,
treatment, storage, disposal, transport or handling of any Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means with respect to any Person, any other Person
---------------
that is a member of such Person's controlled group, or under common control with
such Person, within the meaning of the Code, and includes any trade or business
whether or not incorporated, that
3
<PAGE>
BRIDGE LOAN AGREEMENT
together with such Person would be deemed a "single employer" within the meaning
of Section 4001 of ERISA.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Event of Default" has the meaning assigned to such term in Article
----------------
VIII.
"Exchange Act" has the meaning assigned to such term in Section
------------
6.1(a).
"Financial Officer" means the chief financial officer, principal
-----------------
accounting officer, treasurer or controller of the Borrower.
"FRI-Sub" means FRI-Sub, Inc., a Delaware corporation and an indirect
-------
subsidiary of Lender, and its successors and assigns.
"GAAP" means generally accepted accounting principles in the United
----
States of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guaranteed Obligations" has the meaning assigned to such term in
----------------------
Section 3.1 hereof.
4
<PAGE>
BRIDGE LOAN AGREEMENT
"Guarantors" means, collectively, KKR and the Subsidiary Guarantors
----------
and each of their respective successors and assigns.
"Hazardous Materials" means any regulated quantity of asbestos in any
-------------------
form, urea formaldehyde, lead-based paint, PCBs, radon gas, crude oil or any
fraction thereof, all regulated forms of natural gas, petroleum products or by-
products, any regulated radioactive substance, any regulated toxic, infectious,
reactive, corrosive, ignitable or flammable chemical or chemical compound and
any other regulated hazardous substance, material or waste (as defined in or for
purposes of any Environmental Law), whether solid, liquid or gas.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Initial Period" means the period from the Closing Date until the
--------------
later of the Maturity Date and the date all Obligations are paid in full;
provided, that if the Maturity Date is extended pursuant to clause (a) or (b) of
the definition thereof, Initial Period shall mean the period from the Closing
Date until the date the Merger Agreement is terminated.
"Interest Payment Date" means the last day of each March, June,
---------------------
September and December.
"KKR" means Koo Koo Roo, Inc., a Delaware corporation.
---
"Lender" means FRI-MRD Corporation, a Delaware corporation and its
------
permitted successors and assigns hereunder.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
Capital Lease Obligation having substantially the same economic effect as any of
the foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Bridge Note and the
--------------
Security Documents.
"Loan" has the meaning assigned to such term in Section 2.1(a).
----
"Margin Stock" shall have the meaning provided such term in Regulation
------------
U of the Federal Reserve Board.
5
<PAGE>
BRIDGE LOAN AGREEMENT
"Material Adverse Change" means, with respect to any Person, the
-----------------------
occurrence of any event or condition that has, or could reasonably be expected
to have, a Material Adverse Effect.
"Material Adverse Effect" means, with respect to any Person, a
-----------------------
material adverse effect on (i) the financial position, results of operations,
revenues, assets, liabilities, or business of such Person and its Subsidiaries,
taken as a whole, (ii) the ability of such Person or any of its Affiliates to
perform its material obligations hereunder or under any other Loan Document or
(iii) the validity or enforceability of this Agreement or any other Loan
Document; provided, that, in the case of KKR, a fluctuation or fluctuations in
--------
the trading price of the KKR Common Shares occurring other than as a result of
KKR's willful misconduct cannot, in and of itself, constitute a Material
Adverse Effect.
"Maturity Date" means the Effective Time (as defined in the Merger
-------------
Agreement); provided, that (a) (x) if the Merger Agreement is terminated due to
a material breach by Lender of any of its representations, warranties or
covenants contained therein, Maturity Date shall mean the earlier of (i) June 9,
2000 and (ii) the date on which KKR enters into an agreement that includes any
substantive terms with respect to an Acquisition Proposal (as defined in the
Merger Agreement) with any other Person (other than an agreement relating solely
to the treatment of confidential information), and (y) if the Merger Agreement
is terminated pursuant to Section 10.1(b) of the Merger Agreement and any of the
consents set forth on Schedule 4.4 to the Merger Agreement have not been
obtained, Maturity Date shall mean June 9, 2000, (b) if the Merger Agreement is
terminated pursuant to Section 10.1(d) of the Merger Agreement, Maturity Date
shall mean June 9, 1999, (c) if the Merger Agreement is terminated pursuant to
Section 10.1(e) of the Merger Agreement, Maturity Date shall mean thirty (30)
days after the date on which the Merger Agreement is terminated, and (d) if the
Merger Agreement is terminated for any other reason, Maturity Date shall mean
sixty (60) days after the date on which the Merger Agreement is terminated.
"Merger" means the merger of FRI-Sub with and into KKR, as
------
contemplated by the Merger Agreement.
"Merger Agreement" means that certain Agreement and Plan of Merger,
----------------
dated as of the date hereof, among Lender, FRI-Sub and KKR, as the same may be
amended from time to time.
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means with respect to any Person, on any date, a
------------------
multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have
6
<PAGE>
BRIDGE LOAN AGREEMENT
been made at any time during the six-year period ending on or prior to such
date, by such Person or any of its ERISA Affiliates and that is covered by Title
IV of ERISA.
"Obligations" means all obligations, liabilities and indebtedness of
-----------
every nature of the Borrower from time to time owing to Lender under or in
connection with any Loan Documents, excluding, however, Obligations owing to
Lender under the Merger Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Permitted Affiliate Transactions" means (i) advances of payroll
--------------------------------
payments and expenses to employees in the ordinary course of business, (ii) the
provision of administrative or management services by KKR or any of its officers
to any of its Subsidiaries in the ordinary course of business, (iii) any
employment agreement entered into by KKR or any of its Subsidiaries in the
ordinary course of business and (iv) Permitted Transfers.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 6.4;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 6.4;
(c) pledges and deposits made in the ordinary course of business
in compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; provided that the aggregate amount of deposits at any time permitted
under this clause (d) shall not exceed $50,000;
(e) customary rights of landlords under the leases; and
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the
7
<PAGE>
BRIDGE LOAN AGREEMENT
affected property or interfere with the ordinary conduct of business of KKR, the
Borrower or any Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Debt for Borrowed Money.
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of acquisition,
the two highest credit ratings obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances
and time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under the
laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and entered
into with a financial institution satisfying the criteria described in clause
(c) above; and
(e) intercompany notes payable by KKR issued in connection with
Permitted Transfers.
"Permitted Transfers" means transfers of cash between KKR and the
-------------------
Borrower for cash management purposes, whether by intercompany note, capital
contribution or dividend; provided that the net aggregate amount of cash
transferred to KKR by the Borrower during any period shall not exceed the
Borrower's current operating earnings during such period.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
8
<PAGE>
BRIDGE LOAN AGREEMENT
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is, or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be, an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" means that certain Pledge Agreement, dated as of
----------------
the date hereof, in substantially the form of Exhibit C executed by the Borrower
in favor of Lender.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by Bank of America National Trust and Savings Association as
its prime rate in effect at its principal office in Los Angeles (the Prime Rate
not being intended to be the lowest rate of interest charged by Bank of America
National Trust and Savings Association in connection with extensions of credit
to debtors); each change in the Prime Rate shall be effective on the date such
change is publicly announced as effective.
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Responsible Officer" means any of the following directors or officers
-------------------
of the Borrower: the Chairman or Vice Chairman of the Board of Directors, the
Chairman or Vice Chairman of the Executive Committee of the Board of Directors,
the President, any Senior Vice President or Executive Vice President, the Chief
Financial Officer, the Chief Operating Officers, the Chief Accounting Officer,
the Vice President/Treasurer or any Assistant Treasurer responsible for
compliance with this Agreement.
"Restricted Payment" means, with respect to any Person, any dividend
------------------
or other distribution (whether in cash, securities or other property, but
excluding any payment made solely in non-redeemable common stock of such Person)
with respect to any shares of any class of capital stock of such Person or any
subsidiary of such Person, or any payment (whether in cash, securities or other
property, but excluding any payment made solely in non-redeemable common stock
of such Person), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such shares of capital stock of such Person or any subsidiary of such
Person or any option, warrant or other right to acquire any such shares of
capital stock of such Person or any subsidiary of such Person.
"Security Agreement" means that certain Security Agreement, dated as
------------------
of the date hereof, executed by the Borrower and the Subsidiary Guarantors in
favor of Lender, in substantially the form of Exhibit D.
9
<PAGE>
BRIDGE LOAN AGREEMENT
"Security Documents" means (i) the Security Agreement, (ii) the Pledge
------------------
Agreement, (iii) the Assignment of Leases, and (iv) the Trademark Security
Agreement, if any, executed by the Borrower and the Subsidiary Guarantors in
favor of Lender, substantially in the form of Exhibit I to the Security
Agreement.
"Significant Subsidiary" means (a) any "significant subsidiary" within
----------------------
the meaning provided in Article 1, Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission and (b) any other subsidiary that is
material to the applicable Person's condition (financial or otherwise), results
of operations, revenues, assets, liabilities, prospects or business.
"Solvent" as to any Person, as of any date, means (i) the sum of the
-------
assets of such Person, at present fair salable value, will exceed its
liabilities, including contingent liabilities as they become absolute and
matured, (ii) such Person has, in its reasonable judgment, sufficient capital
with which to conduct its business as presently conducted and (iii) such Person
has not incurred debts, and does not intend to incur debts, beyond its ability
to pay such debts as they mature. For purposes of this definition, "debt" means
any liability on a claim, and "claim" means (x) a right to payment, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, legal, equitable, secured or unsecured, or (y) a right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured. With respect to any contingent liabilities, such liabilities
shall be computed at the amount which, in light of all the facts and
circumstances existing at the time, represents the amount which can reasonably
be expected to become an actual or matured liability.
"S&P" means Standard & Poor's Corporation.
---
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which are required to be consolidated with those of
the parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as,
with respect to any Person, any Person of which such Person and/or its
subsidiaries own, directly or indirectly, such number of outstanding shares (or
similar equity interest) as have more than 50% of the ordinary voting power for,
in the case of a corporation, the election of directors or, in all other cases,
the management of such Person.
"Subsidiary" means any subsidiary of KKR other than Color Me Mine,
----------
Inc., Arrosto Coffee Company and their respective subsidiaries.
10
<PAGE>
BRIDGE LOAN AGREEMENT
"Subsidiary Guarantors" means H.H.K. of Virginia, Inc., a Virginia
---------------------
corporation, and H.H. of Maryland, Inc., a Maryland corporation.
"Suretyship Liability" means any agreement, undertaking or other
--------------------
contractual arrangement by which any Person guarantees, endorses or otherwise
becomes or is contingently liable upon (by direct or indirect agreement,
contingent or otherwise, to provide funds for payment, to supply funds to or
otherwise to invest in a debtor, or otherwise to assure a creditor against loss)
any Debt of any other Person (other than by endorsements of instruments in the
course of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person. The amount of any Person's
obligation under any Suretyship Liability shall (subject to any limitation set
forth therein) be deemed to be the principal amount of the indebtedness,
obligation or other liability guaranteed thereby.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Transactions" means the execution, delivery and performance by the
------------
Borrower and the Guarantors of this Agreement and the other Loan Documents, the
borrowing of the Loan and the use of the proceeds thereof.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
Section 1.2 Terms Generally. The definitions of terms herein shall
---------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
11
<PAGE>
BRIDGE LOAN AGREEMENT
Section 1.3 Accounting Terms; GAAP. Except as otherwise expressly
----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided that
--------
for purposes of determining compliance with any covenant set forth in Article
VII, such terms shall be construed in accordance with GAAP as in effect on the
date of this Agreement applied on a basis consistent with the application used
in preparing the Borrower's audited financial statements referred to in Section
6.1.
ARTICLE II
The Bridge Loan
---------------
Section 2.1 Bridge Loan. (a) Subject to the terms and conditions
-----------
set forth herein, Lender agrees to make a term loan (the "Loan") to the Borrower
----
on the Closing Date, which Loan shall not exceed $3,000,000 in aggregate
principal amount at any time outstanding.
(b) All or any portion of the Loan may be voluntarily prepaid
pursuant to Section 2.5. The Loan shall mature on and be payable in full on the
Maturity Date, without further action on the part of the Lender.
Section 2.2 Funding of Borrowings. Subject to the terms hereof,
---------------------
Lender shall make the Loan by wire transfer of immediately available funds by
2:00 p.m., Los Angeles time, on the Closing Date to the account of the Borrower
set forth below:
Union Bank of California
ABA # 121000496
LA Headquarters Office
Account # 2100692328
ref: The Hamlet Group, Inc. - concentration
Section 2.3 Notes. (a) The Loan shall be evidenced by a non-
-----
negotiable promissory note in the form of Exhibit A (the "Bridge Note"). The
-----------
Bridge Note shall be dated the Closing Date and mature on the Maturity Date.
(b) Lender is hereby authorized, at its option, either (i) to
endorse on the schedule attached to the Bridge Note (or on a continuation of
such schedule attached to such Bridge Note and made a part thereof) an
appropriate notation evidencing the date and amount of the Loan evidenced
thereby and the date and amount of each principal and interest payment in
respect thereof, or (ii) to record such Loan and such payments in its books and
records.
12
<PAGE>
BRIDGE LOAN AGREEMENT
Such schedule or such books and records, as the case may be, shall constitute
prima facie evidence of the accuracy of the information contained therein;
provided that any errors with respect to such schedule, books or records shall
not affect the Borrower's obligations to repay amounts owing hereunder.
Section 2.4 Repayment of Loan on Maturity Date; Mandatory Prepayment.
--------------------------------------------------------
(a) Subject to paragraphs (b) and (c) of this Section 2.4, the Borrower hereby
unconditionally promises to pay to Lender the then unpaid principal amount of
the Loan, all accrued and unpaid interest thereon, and all other Obligations on
the Maturity Date.
(b) If the Maturity Date is determined pursuant to clause (d) of
the definition thereof, the Borrower hereby unconditionally promises to pay to
Lender $1.0 million principal amount of the Loan and all accrued and unpaid
interest thereon on the thirtieth day after the date on which the Merger
Agreement is terminated.
(c) If the Maturity Date is determined pursuant to clause (a)(y)
of the definition thereof, the principal amount of the Loan shall be reduced by
$2.0 million on the date on which the Merger Agreement is terminated (with the
reduction constituting a forgiveness of such principal). Interest shall accrue
on such reduced principal amount from and after the date on which the Merger
Agreement is terminated until the Maturity Date.
Section 2.5 Optional Prepayment of Loan. (a) The Borrower shall
---------------------------
have the right at any time and from time to time to prepay, without penalty, the
Loan in whole or in part, subject to prior notice in accordance with paragraph
(b) of this Section.
(b) The Borrower shall notify Lender in writing of any
prepayment hereunder not later than 12:00 p.m. (noon), Los Angeles time, one
Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
the Loan or portion thereof to be prepaid. Each partial prepayment of principal
of the Loan shall be in an amount of at least $300,000 or an integral multiple
of $50,000 in excess thereof. Prepayments shall be accompanied by accrued
interest on the principal amount prepaid.
Section 2.6 Interest. (a) The Loan shall bear interest at an annual
--------
rate of interest equal to the Prime Rate; provided, however, that if the
-------- -------
Maturity Date is extended pursuant to clauses (b) or (c) of the definition
thereof, the Loan shall, from and after the date on which the Merger Agreement
is terminated, bear interest at an annual rate of interest equal to the Prime
Rate plus 3%.
----
(b) Notwithstanding the foregoing, if any principal of or
interest on the Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due,
13
<PAGE>
BRIDGE LOAN AGREEMENT
whether at stated maturity, upon acceleration or otherwise, such overdue amount
shall bear interest, after as well as before judgment, at a rate per annum equal
to 1.5% plus the rate otherwise applicable to the Loan as provided in the
preceding paragraph of this Section (the "Default Rate").
------------
(c) Accrued interest on the Loan shall be payable in arrears on
each Interest Payment Date for the Loan and upon termination of this Agreement;
provided that (i) interest accrued pursuant to paragraph (b) of this Section
- --------
shall be payable on demand and (ii) in the event of any repayment or prepayment
of the Loan, accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment.
(d) All interest hereunder shall be computed on the basis of a
year of 360 days of twelve 30-day months, provided, however, that in the case of
a payment on any day other than an Interest Payment Date, interest shall be
payable for the actual number of days elapsed since the last Interest Payment
Date (including the first day but excluding the last day).
Section 2.7 Taxes. Any and all payments by or on account of any
-----
Obligation of the Borrower or the Guarantors hereunder shall be made free and
clear of and without deduction for any Taxes (other than taxes based on the net
income of Lender). Lender confirms that it is a United States Person for
federal income tax purposes.
Section 2.8 Payments Generally. (a) The Borrower shall make each
------------------
payment required to be made by it hereunder (whether of principal, interest,
fees, or of amounts payable under Section 2.9, or otherwise) prior to 12:00
noon, Los Angeles time, on the date when due, by wire transfer, in immediately
available funds, without set-off or counterclaim. Any amounts received after
such time on any date may, in the discretion of Lender, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the account of Lender
specified below or to such other account designated by Lender in a written
notice to the Borrower not later than two Business Days prior to the date such
amount is due:
Bank of America
Concord, California
ABA # 121000358
Account Name: FRI-MRD Corporation
Account # 12359-00417
Attention: Laurie Warner
Account Administration, No. 5693
14
<PAGE>
BRIDGE LOAN AGREEMENT
(b) If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
ARTICLE III
Guarantee
---------
Section 3.1 The Guarantee. Each Guarantor hereby jointly and
-------------
severally guarantees to Lender (a) the prompt payment in full when due (whether
at stated maturity, by acceleration or otherwise) of the principal and interest
payable on the Loan, (b) the payment of all other Obligations (including,
without limitation, indemnities, fees and interest thereon and all Obligations
which, but for the automatic stay under Section 362(a) of the Bankruptcy Code
and the operation of Sections 502(b) and 506(b) of the Bankruptcy Code would
become due, and all interest accruing on the Obligations after the filing of a
petition by or against the Borrower or any of its subsidiaries under the
Bankruptcy Code, in accordance with and at the rate (including the Default Rate)
specified in this Agreement whether or not the claim for such interest is
allowed as a claim after such filing in any proceeding under the Bankruptcy
Code) of the Borrower now existing or hereafter incurred under, arising out of,
or in connection with any of the Loan Documents, (c) the due performance and
compliance by the Borrower with all of the terms, conditions and agreements
contained in any of the Loan Documents, (d) the payment of all sums advanced by
Lender under or pursuant hereto, with interest thereon from the due date
thereof, until paid, at the applicable rate specified in Section 2.6 and (e) all
renewals, extensions, amendments and changes of, or substitutions or
replacements for, all or any part of the foregoing (all such principal,
interest, obligations, indebtedness, performance, compliance and payments,
collectively, the "Guaranteed Obligations"). Each Guarantor hereby jointly and
----------------------
severally further agrees that if the Borrower shall fail to pay in full when due
(after giving effect to any cure periods) (whether at stated maturity, by
acceleration or otherwise) any of the Guaranteed Obligations, such Guarantor
will promptly pay the same, without any demand or notice whatsoever. Each
Guarantor's guarantee provided herein is a guarantee of payment and not of
collection.
Section 3.2 Obligations Unconditional. The joint and several
-------------------------
obligations of the Guarantors under Section 3.1 are absolute and unconditional,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of the Borrower under this Agreement or any other agreement
or instrument referred to herein or therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law and subject
to Section 3.7 hereof, irrespective of any other circumstance whatsoever that
might otherwise
15
<PAGE>
BRIDGE LOAN AGREEMENT
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section that the joint and several obligations of
the Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Without limiting the generality of the foregoing, it is agreed
that the occurrence of any one or more of the following shall not alter or
impair the liability of any Guarantor hereunder, which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of this
Agreement or any other agreement or instrument referred to herein shall be done
or omitted;
(c) any invalidity, irregularity or unenforceability of all or
part of the Guaranteed Obligations or of any security therefor;
(d) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement or any
other agreement or instrument referred to herein shall be waived or any other
guarantee of any of the Guaranteed Obligations or any security therefor shall be
released or exchanged in whole or in part or otherwise dealt with;
(e) any lien or security interest granted to, or in favor of,
Lender as security for any of the Guaranteed Obligations shall fail to be
perfected or shall be released;
(f) the bankruptcy or insolvency of the Borrower; or
(g) any of the Guaranteed Obligations or any security therefor
shall be settled, compromised or released.
Each Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that Lender
exhaust any right, power or remedy or proceed against the Borrower under this
Agreement or any other agreement or instrument referred to herein, or against
any other Person under any other guarantee of, or security for, any of the
Guaranteed Obligations.
Section 3.3 Reinstatement. If claim is ever made upon Lender for
-------------
repayment or recovery of any amount or amounts received in payment or on account
of any of the Guaranteed Obligations and Lender repays all or part of said
amount by reason of (a) any
16
<PAGE>
BRIDGE LOAN AGREEMENT
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property or (b) any settlement or
compromise of any such claim effected by Lender with any such claimant
(including the Borrower), then and in such event each Guarantor jointly and
severally agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon it, notwithstanding any revocation hereof or the
cancellation of this Agreement or other instrument evidencing any liability of
the Borrower, and each Guarantor shall be and remain jointly and severally
liable to Lender hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by Lender.
Section 3.4 Subrogation. Each Guarantor hereby agrees that until the
-----------
Maturity Date and the payment and satisfaction in full of all Guaranteed
Obligations, it shall not exercise any right or remedy arising by reason of any
performance by it of their guarantee in Section 3.1, whether by subrogation or
otherwise, against the Borrower or any other guarantor of any of the Guaranteed
Obligations or any security for any of the Guaranteed Obligations.
Section 3.5 Remedies. Each Guarantor agrees that, as between it and
--------
Lender, the obligations of the Borrower under this Agreement may be declared to
be forthwith due and payable as provided in Article VIII (and shall be deemed to
have become automatically due and payable as provided in Article VIII) for
purposes of Section 3.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrower and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Borrower) shall forthwith become due and payable by such Guarantor for purposes
of Section 3.1.
Section 3.6 Continuing Guarantee. The guarantee in this Article is a
--------------------
continuing guarantee and shall apply to all Guaranteed Obligations whenever
arising.
Section 3.7 General Limitation on Guarantee Obligations. Each
-------------------------------------------
Guarantor confirms that it is the intention of all parties to this Agreement
that neither the guarantee by such Guarantor nor any liability or payment by it
hereunder shall (i) render such Guarantor "insolvent," or (ii) constitute a
fraudulent transfer or conveyance, or (iii) constitute a transaction at an
undervalue or preference, or (iv) give rise to any similar or analogous event,
thing or circumstance, in each case, for purposes of the Bankruptcy Code, the
Uniform Fraudulent Conveyances Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, Lender and
each Subsidiary Guarantor hereby irrevocably agree that the Guaranteed
Obligations shall be limited to the maximum amount as will, after giving effect
to all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other guarantor in respect of the Guaranteed Obligations, result in the
Guaranteed
17
<PAGE>
BRIDGE LOAN AGREEMENT
Obligations of such Subsidiary Guarantor hereunder neither rendering such
Subsidiary Guarantor "insolvent" nor constituting such fraudulent transfer or
conveyance, such transaction at an undervalue or preference or such other event,
thing or circumstance, in each case, under any such law.
ARTICLE IV
Representations and Warranties
------------------------------
Section 4.1 Borrower's Representations and Warranties. Each of the
-----------------------------------------
Borrower and the Guarantors jointly and severally represent and warrant to
Lender that:
(a) Authorization; Enforceability. Each of the Borrower and
-----------------------------
each of the Guarantors has all requisite power and authority to enter into each
of the Loan Documents such Person is party to and to consummate the
Transactions. The use of proceeds of the Loan will be within the Borrower's
corporate powers and will have been duly authorized as of the time of such use.
Each of the Loan Documents has been duly authorized, executed and delivered by
the Borrower and each Guarantor and constitutes a legal, valid and binding
obligation of the Borrower and each Guarantor, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law. The Borrower has no equity interest in any Person other
than the Subsidiary Guarantors.
(b) Financial Condition. KKR has heretofore made available to
-------------------
Lender consolidated balance sheets and statements of operations, stockholders
equity and cash flows for KKR and its Subsidiaries, as of and for the fiscal
year ended December 31, 1997, reported on by BDO Seidman LLP, independent public
accountants of KKR, and the condensed consolidated balance sheet and statements
of operations and cash flows for KKR and its Subsidiaries, as of and for the
fiscal quarter and the portion of the fiscal year ended March 31, 1998, as filed
in KKR's Forms 10-K and 10-Q with the Securities and Exchange Commission. Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of KKR and its Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the limited condensed footnotes in the case of the
condensed statements for the fiscal quarter ended March 31, 1998.
(c) Solvency. On the Closing Date and after giving effect to
--------
the Transactions, each of the Borrower and each of the Guarantors will be
Solvent.
18
<PAGE>
BRIDGE LOAN AGREEMENT
(d) Use of Proceeds; Margin Regulations. All proceeds of the
-----------------------------------
Loan will be used by the Borrower only in accordance with the provisions of
Section 6.8. No part of the proceeds of the Loan will be used by the Borrower to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock. Neither the making of the Loan nor
the use of the proceeds thereof will violate or be inconsistent with the
provisions of Regulations T, U or X of the Federal Reserve Board.
(e) Security Interests. (i) The provisions of the Security
------------------
Agreement are effective to create in favor of the Lender a legal, valid and
enforceable security interest in all right, title and interest of the Borrower
in the Collateral described therein, and the Security Agreement, upon the filing
of Form UCC-1 financing statements or the appropriate equivalent, creates a
fully perfected first lien on, and security interest in, all right, title and
interest in all of the Collateral described therein, subject to no Liens other
than Permitted Liens. The Borrower and the Subsidiary Guarantors have good and
indefeasible title to all Collateral described in the Security Agreement free
and clear of all Liens.
(ii) The security interests created in favor of Lender under the
Pledge Agreement constitute first priority perfected security interests in the
Collateral described in the Pledge Agreement, subject to no security interests
of any other Person. No filings or recordings are required in order to perfect
(or maintain the perfection or priority of) the security interests created in
the Collateral described in the Pledge Agreement and the proceeds thereof.
(f) Additional Representations and Warranties. As of the date
-----------------------------------------
hereof, the representations and warranties contained in the Merger Agreement are
true and correct in all material respects and are incorporated herein by
reference with the same force and effect as though herein set forth in full
(regardless of any termination of the Merger Agreement).
Section 4.2 Lender's Representations and Warranties. Lender
---------------------------------------
represents and warrants to the Borrower and the Guarantors that (a) it has all
requisite power and authority to enter into each of the Loan Documents to which
it is a party and to consummate the Transactions contemplated hereby and
thereby; (b) each of the Loan Documents to which it is a party has been duly
authorized, executed and delivered by Lender and constitutes a legal, valid and
binding obligation of Lender, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law and
(c) the execution and performance by Lender of each of the Loan Documents to
which it is a party will not constitute a breach or a violation under the
charter or bylaws of Lender or constitute a violation of any Applicable Law (as
defined in the Merger Agreement).
19
<PAGE>
BRIDGE LOAN AGREEMENT
ARTICLE V
Conditions
----------
The obligations of Lender to make the Loan hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 9.2):
(a) Lender shall have received from each party hereto and thereto a
counterpart of the Merger Agreement and each of the Loan Documents signed on
behalf of such party.
(b) Lender shall have received a favorable written opinion (addressed
to Lender and dated the Closing Date) of Latham & Watkins, counsel for the
Borrower, substantially in the form of Exhibit B. The Borrower hereby requests
such counsel to deliver such opinion.
(c) Lender shall have received such documents and certificates as
Lender or its counsel may reasonably request relating to the organization,
existence and good standing of the Borrower and each Guarantor, the
authorization of the Transactions and any other legal matters relating to the
Borrower, each Guarantor, the Loan Documents or the Transactions, all in form
and substance reasonably satisfactory to Lender and its counsel.
(d) Lender shall have received a certificate from the Borrower and
each Guarantor, dated the Closing Date and executed on behalf of the Borrower by
the President, a Vice President or a Financial Officer of the Borrower and each
Guarantor, respectively, confirming compliance with the conditions set forth in
paragraphs (h), (i) and (j) of this Article V.
(e) Lender shall have received acknowledgment copies (or other
evidence of filing) of each filed UCC-1 financing statement signed by the
Borrower as debtor naming Lender as secured party. Such UCC-1 financing
statements shall have been filed in each jurisdiction as may be necessary or, in
the reasonable opinion of Lender, desirable to perfect the security interests
created by the Security Agreement.
(f) Lender shall have received the original stock certificates
evidencing the stock pledged pursuant to the Pledge Agreement, together with
undated stock powers duly executed in blank in connection therewith.
(g) The Closing Date shall occur on or prior to June 30, 1998.
20
<PAGE>
BRIDGE LOAN AGREEMENT
(h) The representations and warranties of the Borrower and the
Guarantors set forth in Article IV shall be true and correct on and as of the
date of the Loan (other than those, if any, which by their terms specifically
relate only to a different date).
(i) At the time of and immediately after giving effect to the Loan,
no Default or Event of Default shall have occurred and be continuing.
(j) From March 31, 1998 through the date of the Loan, neither the
Borrower nor any Guarantor shall have suffered a Material Adverse Change.
The Loan shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (h), (i)
and (j) of this Article V.
ARTICLE VI
Affirmative Covenants
---------------------
Until the Maturity Date and the principal of and interest on the Loan
and all other Obligations payable hereunder shall have been paid in full, the
Borrower and each Guarantor jointly and severally covenant and agree with Lender
that:
Section 6.1 Financial Statements and Other Information. KKR will
------------------------------------------
furnish to Lender:
(a) within 90 days after the end of each fiscal year, its
audited consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
all reported on by independent public accountants of recognized national
standing (without a "going concern" or like qualification or exception and
without any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of KKR and
its consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
provided, however, that for as long as KKR is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the obligation of KKR to deliver the reports referenced in this Section
6.1(a) shall be satisfied by the timely filing by Edgar of its Form 10-K with
respect to such fiscal year;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its condensed consolidated balance sheet
and related statements of operations, stockholders' equity and cash flows as of
the end of and for such fiscal quarter and
21
<PAGE>
BRIDGE LOAN AGREEMENT
the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material
respects the financial condition and results of operations of KKR and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP,
subject to normal year-end audit adjustments and the absence of footnotes;
provided, however, that for as long as KKR is subject to the reporting
requirements of the Exchange Act, the obligation of KKR to deliver the reports
referenced in this Section 6.1(b) shall be satisfied by the timely filing by
Edgar of its Form 10-Q with respect to such fiscal quarter;
(c) concurrently with any delivery of financial statements under
clause (a) above, a Compliance Certificate (i) certifying as to whether a
Default or Event of Default has occurred and, if a Default or Event of Default
has occurred, specifying the details thereof and any action taken or proposed to
be taken with respect thereto and (ii) stating whether any change in GAAP or in
the application thereof has occurred since December 31, 1997 and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials filed by
KKR or any Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by KKR to
its shareholders generally, as the case may be; provided, however, that the
obligation of KKR or any such Subsidiary to deliver the reports, proxy
statements and materials referenced in this Section 6.1(d) shall be satisfied by
the filing by Edgar of such materials with the Securities and Exchange
Commission or the dissemination of such materials by Business Wire; and
(e) as promptly as practicable, such other information set forth
on Schedule 6.1.
Section 6.2 Notices of Material Events. The Borrower will furnish to
---------------------------
Lender prompt written notice of the following:
(a) the occurrence of any Default or Event of Default upon
actual knowledge of a Responsible Officer of the Borrower;
(b) the filing or commencement of any action, suit or proceeding
by or before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, would
reasonably be expected to result in a Material Adverse Effect; and
22
<PAGE>
BRIDGE LOAN AGREEMENT
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, would reasonably be expected to
result in material liability of KKR or any Subsidiary.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
Section 6.3 Existence; Conduct of Business. The Borrower and each
------------------------------
Guarantor will, and will cause each of the Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges and franchises
material to the conduct of the business of the Borrower and its subsidiaries,
taken as a whole.
Section 6.4 Payment of Obligations. The Borrower and each Guarantor
----------------------
will, and will cause each of the Subsidiaries to, pay its obligations, including
Tax liabilities before the same shall become delinquent or in default, except
where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) KKR has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
Section 6.5 Maintenance of Properties; Insurance. The Borrower and
------------------------------------
each Guarantor will, and will cause each of the Subsidiaries to, (a) keep and
maintain all property material to the conduct of its business in good working
order and condition in all material respects, ordinary wear and tear excepted,
and (b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks (and having such deductibles
and self-insurance) as are customarily maintained by companies engaged in the
same or similar businesses operating in the same or similar locations.
Section 6.6 Books and Records; Inspection Rights. The Borrower and
------------------------------------
each Guarantor will, and will cause each of the Subsidiaries to, keep proper
books of record and account in which full, true and correct entries in
accordance with GAAP are made of all dealings and transactions in relation to
its business and activities.
Section 6.7 Compliance with Laws. The Borrower and each Guarantor
--------------------
will, and will cause each of the Subsidiaries to, comply in all material
respects with all laws, rules, regulations and orders of any Governmental
Authority applicable to it or its property, including without limitation ERISA
and all Environmental Laws.
23
<PAGE>
BRIDGE LOAN AGREEMENT
Section 6.8 Use of Proceeds. The proceeds of the Loan will be used
---------------
only for general corporate purposes. No part of the proceeds of any Loan will
be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations U and X.
Section 6.9 Further Assurances. The Borrower and each Guarantor
------------------
will, and will cause each of the Subsidiaries to, cooperate with Lender and
shall execute and pay for the filing of all such further instruments and
documents, including UCC financing statements and other security documents, as
Lender shall reasonably deem appropriate in order to effectuate the grant of the
Liens and security interests to Lender contemplated by the Loan Documents.
Section 6.10 Conduct of Business. During the Initial Period, the
-------------------
Borrower and each Guarantor will, and will cause each of the Subsidiaries to,
comply in all material respects with the covenants set forth in Section 7.3 of
the Merger Agreement, which covenants are incorporated herein by reference with
the same force and effect as though herein set forth in full; provided, however,
that a violation of such Section 7.3 after the termination of the Merger
Agreement for the purpose of completing a financing, the proceeds of which are
used to repay the Borrower's Obligations hereunder, shall not violate this
Section 6.10.
ARTICLE VII
Negative Covenants
------------------
Until the Maturity Date and the principal of and interest on each Loan
and all other Obligations payable hereunder shall have been paid in full, the
Borrower and each Guarantor jointly and severally covenant and agree with Lender
that:
Section 7.1 Debt. The Borrower and the Subsidiary Guarantors will
----
not create, incur, assume or permit to exist any Debt, except:
(a) Debt owed to the Borrower or any Subsidiary Guarantor;
(b) Debt owed to KKR in connection with Permitted Transfers;
(c) Debt existing on the date hereof, which is identified in
Schedule 7.1;
(d) Debt secured by Permitted Encumbrances;
(e) Capital Lease Obligations not to exceed $50,000 in the
aggregate at any time outstanding; and
24
<PAGE>
BRIDGE LOAN AGREEMENT
(f) other Debt not to exceed $50,000 in the aggregate at any
time outstanding.
Section 7.2 Liens. The Borrower and the Subsidiary Guarantors will
-----
not, and will not permit any of the Subsidiaries to, create, incur, assume or
permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, except:
(a) Permitted Encumbrances; and
(b) any Lien on any property or asset of any Subsidiary
Guarantor existing on the date hereof (including Liens created pursuant to the
Security Agreement) and set forth in Schedule 7.2; provided that (i) such Lien
--------
shall not apply to any other property or asset of any Subsidiary and (ii) such
Lien shall secure only those obligations which it secures on the date hereof.
Section 7.3 Fundamental Changes. The Borrower and the Guarantors
-------------------
will not:
(a) merge into or consolidate with any other Person, or permit
any other Person to merge into or consolidate with it, or sell, transfer, lease
or otherwise dispose of (in one transaction or in a series of transactions) all
or any substantial part of its assets, or all or substantially all of the stock
of any of its subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be
continuing (i) any Subsidiary Guarantor may merge into any other Subsidiary
Guarantor in a transaction in which the surviving entity is a Subsidiary
Guarantor, (ii) any Subsidiary Guarantor may sell, transfer, lease or otherwise
dispose of its assets to the Borrower or to any other Subsidiary Guarantor,
(iii) any Subsidiary Guarantor may liquidate or dissolve if the Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the Borrower and is not materially disadvantageous to Lender, (iv)
this covenant shall not prohibit KKR from taking any of the foregoing actions if
(1) the successor corporation is KKR or a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (2) the successor corporation expressly assumes the Obligations of KKR
hereunder and (3) the successor corporation shall have consolidated net worth,
immediately after such transaction equal to or greater than the consolidated net
worth of KKR immediately preceding such transaction, and (v) the provisions of
this clause (a) shall not apply to the transactions contemplated by the Merger
Agreement; or
(b) engage in any business other than restaurant businesses and
related ancillary businesses of the type conducted by the Borrower and the
Guarantors on the date of execution of this Agreement.
25
<PAGE>
BRIDGE LOAN AGREEMENT
Section 7.4 Investments, Loans, Advances, Suretyship Liabilities and
--------------------------------------------------------
Acquisitions. The Borrower and the Subsidiary Guarantors will not purchase,
- ------------
hold or acquire (including pursuant to any merger) any capital stock, evidences
of indebtedness or other securities (including any option, warrant or other
right to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, incur Suretyship Liabilities in respect of any obligations of, or
make or permit to exist any investment or any other interest in, any other
Person, or purchase or otherwise acquire (in one transaction or a series of
transactions) any assets of any other Person constituting a business unit,
except:
(a) Permitted Investments;
(b) investments by the Borrower or any Subsidiary Guarantor in
any Subsidiary Guarantor; and
(c) investments existing on the date hereof and identified in
Schedule 7.4.
Section 7.5 Hedging Agreements. The Borrower and the Subsidiary
------------------
Guarantors will not enter into any Hedging Agreement.
Section 7.6 Restricted Payments. (a) The Borrower and the Subsidiary
-------------------
Guarantors will not declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except that, so long as no Default or Event
of Default has occurred and is continuing, (i) any Subsidiary Guarantor may
declare and pay Restricted Payments to the Borrower and (ii) the Borrower may
make Permitted Transfers to KKR.
(b) KKR will, and will cause each of the Subsidiaries to, comply
with Section 7.5 of the Securities Purchase Agreement, dated as of August 12,
1997 (the "Securities Purchase Agreement"), as in effect on the date hereof, by
and between KKR and B III Capital Partners, L.P., regardless of whether such
Securities Purchase Agreement is in effect or is subsequently amended or
modified.
Section 7.7 Transactions with Affiliates. The Borrower and the
----------------------------
Subsidiary Guarantors will not sell, lease or otherwise transfer any property or
assets to, or purchase, lease or otherwise acquire any property or assets from,
or otherwise engage in any other transactions with, any of their Affiliates,
except (a) transactions between or among the Borrower and the Subsidiary
Guarantors not involving any other Affiliate and (b) Permitted Affiliate
Transactions.
Section 7.8 Restrictive Agreements. The Borrower and the Subsidiary
----------------------
Guarantors will not, directly or indirectly, enter into, incur or permit to
exist any agreement
26
<PAGE>
BRIDGE LOAN AGREEMENT
or other arrangement that prohibits, restricts or imposes any condition upon the
ability of any Subsidiary Guarantor to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay loans or advances
to the Borrower or any other Subsidiary Guarantor; provided that the foregoing
--------
shall not apply to (i) restrictions and conditions imposed by law or by this
Agreement and (ii) restrictions and conditions existing on the date hereof and
identified on Schedule 7.8 (but shall apply to any extension or renewal of, or
any amendment or modification expanding the scope of, any such restriction or
condition).
ARTICLE VIII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise; or
(b) the Borrower shall fail to pay any interest on any Loan or
any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of ten (10)
Business Days; or
(c) any Guarantor shall fail to pay any amount owing pursuant to
Article III hereof when due or shall disavow or disaffirm any of its obligations
under Article III hereof;
(d) any representation or warranty made by or on behalf of the
Borrower or any Guarantor in or in connection with any Loan Document or any
amendment or modification hereof or thereof or waiver hereunder or thereunder,
or in any report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification hereof or thereof or waiver hereunder or thereunder, shall prove to
have been incorrect in any material respect when made or deemed made; or
(e) the Borrower or any Guarantor shall fail to observe or
perform any covenant, condition or agreement contained in Sections 6.3 or 6.8 or
in Article VII; or
(f) the Borrower or any Guarantor shall fail to observe or
perform any covenant, condition or agreement contained in this Agreement (other
than those specified
27
<PAGE>
BRIDGE LOAN AGREEMENT
in clauses (a), (b), (d) or (e) of this Article), and such failure shall
continue unremedied for a period of 30 days; or
(g) KKR or any Subsidiary shall default in any obligation
(payment or otherwise) that results in any Debt of $1,500,000 or more in the
aggregate becoming due prior to its scheduled maturity or that results in the
holder or holders of any Debt of $1,500,000 or more in the aggregate or any
trustee or agent on its or their behalf causing any such Debt to become due, or
requiring the prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity; or
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization or
other relief in respect of the Borrower, any Guarantor or any Significant
Subsidiary of KKR or their respective debts, or of a substantial part of their
respective assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower, any Guarantor or any Significant Subsidiary of KKR or for a
substantial part of their respective assets, and, in any such case, such
proceeding or petition shall continue undismissed for 90 days or an order or
decree approving or ordering any of the foregoing shall be entered; or
(i) the Borrower, any Guarantor or any Significant Subsidiary of
KKR shall (i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of this
Article, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower, any
Guarantor or any Significant Subsidiary of KKR or for a substantial part of
their respective assets, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the purpose
and intent of effecting any of the foregoing; or
(j) the Borrower, any Guarantor, or any Significant Subsidiary
of KKR shall become unable, admit in writing or fail generally to pay its debts
as they become due; or
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $1,500,000 shall be rendered against KKR, any
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 90 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of KKR or any Subsidiary to enforce any such judgment; or
28
<PAGE>
BRIDGE LOAN AGREEMENT
(l) an ERISA Event shall have occurred that, in the opinion of
Lender, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of KKR and its Subsidiaries
in an aggregate amount exceeding $1,500,000; or
(m) a Change in Control shall occur; or
(n) any of the Security Documents shall for any reason cease to
be in full force and effect (other than in accordance with its terms), or shall
cease to give Lender the Liens, rights, powers and privileges purported to be
created thereby including, without limitation, a perfected first priority
security interest in, and Lien on, all of the Collateral in accordance with the
terms thereof;
then, and in every such event (other than an event described in clause (h) or
(i) of this Article), and at any time thereafter during the continuance of such
event, Lender may, by notice to the Borrower, take any or all of the following
actions, at the same or different times: (i) terminate its obligation to make
the Loan and (ii) declare the Loan then outstanding to be due and payable in
whole or in part (in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon (a) the
principal of the Loan so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower and (b) Lender shall have no further obligations hereunder; and in
case of any event described in clause (h) or (i) of this Article, (a) Lender's
obligation to make the Loan shall automatically terminate and the principal of
the Loan then outstanding, together with accrued interest thereon, and all fees
and other obligations of the Borrower accrued hereunder, shall automatically
become due and payable, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower and (b) Lender shall
have no further obligations hereunder.
ARTICLE XI
Miscellaneous
-------------
Section 9.1 Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by facsimile, as follows:
(a) if to the Borrower or any Guarantor, to it at:
29
<PAGE>
BRIDGE LOAN AGREEMENT
c/o Koo Koo Roo, Inc.
11075 Santa Monica Boulevard, Suite 225
Los Angeles, California 90025
Attention: A. William Allen, III, Chief Executive Officer and
Ronald D. Garber, Esquire, General Counsel
Facsimile No.: (310) 479-4221
with copies to:
Latham & Watkins
633 West 5th Street, Suite 4000
Los Angeles, California 90071
Attention: Anthony J. Richmond
J. Scott Hodgkins
Facsimile No.: (213) 891-8763
(b) if to Lender, to it at:
FRI-MRD Corporation
18831 Von Karman Avenue, 3/rd/ Floor
Irvine, California 92612
Attention: Todd E. Doyle, Secretary and Robert T. Trebing, Jr.,
President
Facsimile No.: (949) 757-8076
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Michael Woronoff
Facsimile No.: (213) 687-5600
Any party hereto may change its address or facsimile number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been at the time
delivered by hand, if personally delivered; the date receipt is acknowledged, if
mailed by registered or certified mail; when answered back, if telecopied; and
the next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery. It is understood and agreed that
the delivery of copies of notices to counsel as set forth above is for courtesy
purposes only and any failure to
30
<PAGE>
BRIDGE LOAN AGREEMENT
deliver such copy shall not constitute failure with respect to any obligation to
provide notices hereunder.
Section 9.2 Waivers; Amendments. Neither this Agreement nor any
-------------------
terms hereof may be changed, waived, discharged, or terminated, nor any
Collateral released, unless such change, waiver, discharge, termination or
release is in writing signed by Lender. No failure or delay by Lender in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of Lender hereunder are cumulative and
are not exclusive of any rights or remedies that Lender would otherwise have. A
waiver of any provision of this Agreement or consent to any departure by the
Borrower or any Guarantor therefrom shall be effective only in the specific
instance and for the specific purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan shall not be construed as a
waiver of any Default or Event of Default regardless of whether Lender may have
had notice or knowledge of such Default or Event of Default at the time.
Section 9.3 Expenses. The Borrower shall pay (i) all reasonable out-
--------
of-pocket expenses incurred by Lender and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for Lender, in connection
with any amendments, modifications or waivers of the provisions hereof (but not
origination) and (ii) all out-of-pocket expenses reasonably incurred by Lender,
including the fees, charges and disbursements of any counsel for Lender, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loan made hereunder, including all such out-of-pocket expenses
reasonably incurred during any workout, restructuring or negotiations in
respect of such Loan.
Section 9.4 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that neither the
Borrower nor any Guarantor may assign, encumber or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of Lender (and
any attempted assignment or transfer by the Borrower or any Guarantor without
such consent shall be null and void). Lender may not, without the consent of
the Borrower (which may be withheld in its sole discretion), assign or otherwise
transfer any of its rights and obligations to any other Person other than a
wholly-owned Subsidiary of Lender or Family Restaurants, Inc.; provided,
--------
however, that the foregoing restriction shall not prohibit the pledge of the
- -------
Bridge Note or any rights, duties or obligations in connection therewith, as
collateral security in a bona fide loan transaction. The Borrower shall,
promptly following a request therefor by Lender, exercise such additional or
replacement Bridge Notes as may be requested in connection with any such
permitted assignment or transfer. Nothing in
31
<PAGE>
BRIDGE LOAN AGREEMENT
this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, any Related
Party of Lender) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
Section 9.5 Survival. All covenants, agreements, representations and
--------
warranties made by the Borrower and the Guarantors herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by Lender and shall
survive the execution and delivery of this Agreement and the making of any Loan,
regardless of any investigation made by Lender or on its behalf and
notwithstanding that Lender may have had notice or knowledge of any Default or
Event of Default or incorrect representation or warranty at the time any credit
is extended hereunder, and shall continue in full force and effect through the
Maturity Date as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid. The provisions of Sections 2.9 and 9.3 shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loan or the termination of this Agreement or any
provision hereof.
Section 9.6 Counterparts; Integration; Effectiveness. This Agreement
----------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and the other
Loan Documents constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.
Delivery of an executed counterpart of a signature page of this Agreement by
facsimile shall be as effective as delivery of a manually executed counterpart
of this Agreement.
Section 9.7 Marshalling; Recapture. Lender shall not be under any
----------------------
obligation to marshall any assets in favor of the Borrower or any of the
Guarantors or any other party or against or in payment of any or all of the
obligations, liabilities and indebtedness of every nature of the Borrower or any
of the Guarantors from time to time owing to Lender under or in connection with
this Agreement or the other Loan Documents. To the extent Lender receives any
payment by or on behalf of the Borrower or any of the Guarantors, which payment
or any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to such Borrower or Guarantors
or its estate, trustee, receiver, custodian or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment or repayment, the obligation or part thereof which has
been paid, reduced or satisfied by the amount so repaid shall be reinstated by
the amount so repaid and shall be included within the liabilities of the
32
<PAGE>
BRIDGE LOAN AGREEMENT
Borrower and the Guarantors to Lender as of the date such initial payment,
reduction or satisfaction occurred.
Section 9.8 Severability. Any provision of this Agreement held to be
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
Section 9.9 Right of Setoff. If a Default or Event of Default shall
---------------
have occurred and be continuing, Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by Lender or such Affiliate to or for the credit or the account of the
Borrower or any Guarantor against any and all of the obligations of the Borrower
or any Guarantor now or hereafter existing under this Agreement held by Lender,
irrespective of whether or not Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff) which Lender may have.
Section 9.10 Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process.
- -------
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this
Agreement and any action for enforcement of any judgment in respect thereof may
be brought in the courts of the State of California or of the United States of
America for the Central District of California, and, by execution and delivery
of this Agreement, each of the Borrower and the Guarantors hereby accepts for
itself and in respect of its property, generally and unconditionally, the non-
exclusive jurisdiction of the aforesaid courts and any appellate courts from any
thereof. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that Lender may otherwise have
to bring any action or proceeding relating to this Agreement against the
Borrower, any Guarantor or their properties in the courts of any jurisdiction.
33
<PAGE>
BRIDGE LOAN AGREEMENT
(c) Each of the Borrower and each Guarantor hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and effectively
do so, any objection which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Agreement
in any court referred to in paragraph (b) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(d) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.1. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
Section 9.11 Headings. Article and Section headings and the Table of
--------
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
[Remainder of page intentionally left blank]
34
<PAGE>
BRIDGE LOAN AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
THE HAMLET GROUP, INC.,
as Borrower
By: /s/ A. William Allen III
--------------------------
Name: A. William Allen III
Title: C.E.O.
KOO KOO ROO, INC.,
as Guarantor
By: /s/ A. William Allen III
----------------------------
Name: A. William Allen III
Title: C.E.O.
H.H.K. OF VIRGINIA, INC.,
as Subsidiary Guarantor
By: /s/ Ronald D. Garber
----------------------------
Name: Ronald D. Garber
Title: Corporate Secretary
H.H. OF MARYLAND, INC.,
as Subsidiary Guarantor
By: /s/ Ronald D. Garber
----------------------------
Name: Ronald D. Garber
Title: Corporate Secretary
S-1
<PAGE>
FRI-MRD CORPORATION,
as Lender
By: /s/ R.T. Trebing, Jr.
----------------------------
Name: R.T. Trebing, Jr.
Title: President
S-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE PRESENTATION OF THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1997 HAVE BEEN RESTATED AS A RESULT OF THE DISCONTINUED OPERATIONS OF COLOR
ME MINE.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> JUN-30-1997 JUN-30-1998
<CASH> 0 5,175,055
<SECURITIES> 0 2,340,221
<RECEIVABLES> 0 515,859
<ALLOWANCES> 0 0
<INVENTORY> 0 581,822
<CURRENT-ASSETS> 0 9,785,186
<PP&E> 0 37,943,104
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 57,665,239
<CURRENT-LIABILITIES> 0 15,669,518
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0 0
0 169
<COMMON> 0 524,850
<OTHER-SE> 0 27,762,678
<TOTAL-LIABILITY-AND-EQUITY> 0 57,665,239
<SALES> 27,172,728 45,066,386
<TOTAL-REVENUES> 27,172,728 45,066,386
<CGS> 19,199,077 30,562,076
<TOTAL-COSTS> 32,023,476 59,907,325
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,850,748) (14,840,939)
<DISCONTINUED> (1,541,009) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (1,276,952)
<NET-INCOME> (6,391,757) (16,117,891)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
