UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 1998
Commission File Number 1-13226
DENAMERICA CORP.
----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1861457
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7373 N. SCOTTSDALE ROAD
SUITE D-120, SCOTTSDALE AZ 85253 85253
- ---------------------------------------- ----------
(address of principal executive offices) (zip code)
(602) 483-7055
--------------
(registrant's telephone number, including area code)
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 |_|
The number of shares of the issuer's class of common stock as of the latest
practicable date, is as follows:
13,447,777 shares of Common Stock, $.10 par value, as of May 15, 1998.
- ----------------------------------------------------------------------
<PAGE>
DENAMERICA CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 1, 1998
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 1, 1997 and April 1, 1998 ........................ 3
Condensed Consolidated Statements of Operations -
13-Week Periods ended April 1, 1998 and
April 2, 1997 ............................................ 4
Condensed Consolidated Statements of Cash Flows -
13-Week Periods ended April 1, 1998 and April 2, 1997 .... 5
Notes to Condensed Consolidated Financial Statements ......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 7
PART II OTHER INFORMATION ................................................. 11
SIGNATURES ................................................... 12
2
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DENAMERICA CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars In thousands)
<TABLE>
<CAPTION>
December 31, April 1,
ASSETS 1997 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,267 $ 1,599
Receivables 3,192 2,087
Inventories 3,244 3,064
Other current assets 5,564 5,968
Assets held for sale 28,700 --
--------- ---------
Total current assets 41,967 12,718
PROPERTY AND EQUIPMENT, net 61,328 59,719
INTANGIBLE ASSETS, net 51,545 51,018
DEFERRED INCOME TAXES 5,312 5,312
OTHER ASSETS 10,112 9,925
--------- ---------
TOTAL $ 170,264 $ 138,692
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,511 $ 16,084
Accrued compensation 6,354 6,619
Accrued taxes 4,522 4,870
Other current liabilities 8,363 7,607
Current portion of long term debt 42,634 17,994
--------- ---------
Total current liabilities 78,384 53,174
LONG-TERM DEBT, LESS CURRENT PORTION 78,418 72,242
OTHER LONG TERM LIABILITIES 12,214 10,688
--------- ---------
Total liabilities 169,016 136,104
--------- ---------
SHAREHOLDERS' EQUITY
Common stock $.10 par value; authorized, 40,000,000 shares;
13,447,777 shares issued and outstanding 1,344 1,344
Additional paid-in capital 35,799 35,799
Accumulated deficit (35,895) (34,555)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 1,248 2,588
--------- ---------
TOTAL $ 170,264 $ 138,692
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements .
3
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DENAMERICA CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
13 Week Periods Ended
-----------------------
April 2, April 1,
1997 1998
RESTAURANT SALES $ 76,114 $ 72,880
-------- --------
RESTAURANT OPERATING EXPENSES:
Food and beverage cost 20,613 19,970
Payroll and payroll related costs 26,101 25,102
Depreciation and amortization 2,266 1,786
Other operating expenses 21,168 19,588
-------- --------
Total operating expenses 70,148 66,446
-------- --------
RESTAURANT OPERATING INCOME 5,966 6,434
ADMINISTRATIVE EXPENSES 3,744 3,056
-------- --------
OPERATING INCOME 2,222 3,378
INTEREST EXPENSE, net 3,203 3,426
-------- --------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (981) (48)
INCOME TAX BENEFIT (392) (17)
-------- --------
LOSS BEFORE EXTRAORDINARY ITEM (589) (31)
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT - net of
income taxes of $914 -- 1,371
-------- --------
NET INCOME (LOSS) ($ 589) $ 1,340
======== ========
Basic and diluted income (loss) per share
Before extraordinary item ($ .04) ($ .00)
======== ========
Net income (loss) ($ .04) $ .10
======== ========
Basic and diluted weighted average shares
outstanding
Basic 13,424 13,447
Diluted 13,424 13,447
4
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DENAMERICA CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
13 Week Periods Ended
April 2, April 1,
1997 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (589) $ 1,340
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,266 1,786
Amortization of deferred financing costs 125 247
Extraordinary item -- (1,371)
Deferred income taxes (392) (17)
Deferred rent 76 77
Other 20 (523)
Changes in operating assets and liabilities net of
dispositions:
Receivables 35 662
Inventories (206) 121
Other current assets 87 406
Accounts payable and accrued liabilities (6,012) (1,977)
-------- --------
Net cash provided by (used in)
operating activities (4,590) 751
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,478) (744)
Purchase of intangibles (1,185) (8)
Proceeds from the sale of assets 4,850 25,900
-------- --------
Net cash provided by investing
activities 2,187 25,148
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings, net 2,858 (900)
Principal reductions on long-term obligations (1,823) (24,667)
Other 49 --
-------- --------
Net cash provided by (used in) financing
activities 1,084 (25,567)
-------- --------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (1,319) 332
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,609 1,267
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,290 $ 1,599
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,154 $ 2,268
======== ========
Income taxes $ -- $ 7
======== ========
See accompanying notes to condensed consolidated financial statements.
5
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DENAMERICA CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
DenAmerica Corp. and Subsidiaries (the "Company") have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission Form 10-Q and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the Company's management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. However, these operating results are not
necessarily indicative of the results expected for the full year. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997. Certain
reclassifications have been made in the 1997 financial statements to conform to
the 1998 presentation.
The Company currently operates 207 family-oriented, full-service restaurants in
18 states, primarily in the southwestern, midwestern, western, and southeastern
United States. The Company owns and operates 104 Black-eyed Pea restaurants,
primarily in Texas, Georgia, Arizona, Oklahoma, Florida, and the Washington,
D.C. area, and franchises to third parties the rights to operate three
Black-eyed Pea restaurants in two states. The Company also owns and operates 102
Denny's restaurants, which represents approximately 6.4% of the Denny's system
and makes the Company the largest Denny's franchisee in terms of revenue and the
number of restaurants operated.
(2) Other Matters
In March 1998, the Company completed the sale of 63 Denny's and eight
non-branded restaurants, of which six were closed, to a Denny's franchisee for
gross proceeds $28,700. Net cash proceeds of $25,200 were used to (i) repay the
promissory note (the "BEP Note") payable to the seller of Black-eyed Pea U.S.A.,
Inc. ("BEP") at a $2,400 discount from its outstanding principal amount of
approximately $15,285; (ii) cancel outstanding warrants to acquire approximately
1,000,000 shares of Common Stock at an exercise price of $1.90 per share, which
were issued in connection with the BEP Note; (iii) permanently reduce the
Company's outstanding borrowings under the term loan of the Credit Facility to
$1,500; and (iv) repay certain equipment operating leases associated with the
restaurants sold in this transaction. The Company has included the $2,400
discount on the BEP note as an extraordinary item in the accompanying financial
statements.
In a separate transaction completed in March 1998, the Company also sold five
Denny's restaurants located in Wyoming to an unrelated party for cash of
$700,000 plus a note in the principal amount of $400,000. The Company utilized
the proceeds from this transaction to permanently reduce its outstanding
borrowings under the term loan portion of its Credit Facility. The Company has
recorded a gain of approximately $575,000 on this transaction, which is included
as an offset to other operating expenses.
(3) Subsequent Event
On May 1, 1998, the Company entered into a letter of intent to merge with Tech
Electro Industries, Inc. ("Tech Electro"). Under the terms of the letter of
intent, the Company's shareholders will receive $4.00 in
6
<PAGE>
cash and $.90 in newly issued preferred stock in Tech Electro for each share of
the Company's Common Stock that they own. The proposed merger is subject to
various contingencies including financing, negotiation and execution of
definitive agreements, shareholder approval, regulatory approvals, and other
matters.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company currently operates 104 Black-eyed Pea restaurants in 14 states and
franchises three Black-eyed Pea restaurants in two states. The Company operates
66 Black-eyed Pea restaurants in Texas and Oklahoma, which the Company considers
to be its core market for Black-eyed Pea restaurants. Through April 1, 1998,
comparable same-store sales decreased 3.0% for all of the Company's Black-eyed
Pea restaurants, while comparable same-store sales decreased 1.7% for Black-eyed
Pea restaurants in the core market. The guest check average at the Company's
Black-eyed Pea restaurants for the first quarter of 1998 was $7.90, and alcohol
and carry-out sales account for approximately 2.1% and 11.0% of sales,
respectively.
As of April 1, 1998, the Company operated 102 Denny's restaurants in 18 states.
Comparable store sales increased 1.0% as a result of an increase in the average
guest check to approximately $5.30 in March 1998.
COMPARISON OF RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the condensed consolidated statements of operations as a percentage of total
restaurant sales.
April 2, April 1,
1997 1998
---------- ----------
(13 weeks) (13 weeks)
Restaurant sales 100.0% 100.0%
Restaurant operating expenses:
Food and beverage cost 27.1 27.4
Payroll and payroll related costs 34.3 34.4
Depreciation and amortization 3.0 2.5
Other operating cost 27.8 26.9
----- -----
Total operating expenses 92.2 91.2
----- -----
Restaurant operating income 7.8 8.8
Administrative expenses 4.9 4.2
----- -----
Operating income 2.9 4.6
Interest expense 4.2 4.7
----- -----
Loss before income taxes and
extraordinary item (1.3) (.1)
Income tax (benefit) (.5) (.1)
----- -----
Loss before extraordinary item (.8) (.0)
Extraordinary item -- 1.9
----- -----
Net income (loss) (.8)% 1.9%
===== =====
7
<PAGE>
THIRTEEN-WEEK PERIOD ENDED APRIL 1, 1998 COMPARED WITH THIRTEEN-WEEK PERIOD
ENDED APRIL 2, 1997
Restaurant sales. Restaurant sales decreased $3.2 million, or 4.2%, to
$72.9 million for the thirteen-week period ended April 1, 1998 as compared with
restaurant sales of $76.1 million for the thirteen-week period ended April 2,
1997. This decrease was primarily attributable to the sale or closure of certain
underperforming restaurants during fiscal 1997. Restaurant sales attributable to
the Black-eyed Pea restaurants for the 1998 and 1997 period totaled 49% and 42%,
respectively.
Food and Beverage Cost. Food and beverage cost increased to 27.4% of
restaurant sales for the thirteen-week period ended April 1, 1998 as compared
with 27.1% of restaurant sales for the thirteen-week period ended April 2, 1997,
primarily as the result of higher food costs associated with the operation of
the Black-eyed Pea restaurants.
Payroll and Payroll Costs. Payroll and payroll related costs were 34.4%
of restaurant sales for the thirteen-week period ended April 1, 1998 as compared
with 34.3% of restaurant sales for the thirteen-week period ended April 2, 1997.
This increase was primarily attributable to the impact of minimum wage rate
increases.
Depreciation and Amortization. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets, pre-opening
costs, and other items was $1.8 million, or 2.5% of restaurant sales, for the
thirteen-week period ended April 1, 1998, as compared with $2.3 million, or 3.0%
of restaurant sales, for the thirteen-week period ended April 2, 1997. This
decrease is attributable to a decrease in the amortization of store opening
costs and the reduction of depreciation and amortization associated with the
restaurants sold in March 1998.
Other Restaurant Operating Costs. Other restaurant operating costs were
26.9% of restaurant sales for the thirteen-week period ended April 1, 1998 as
compared with 27.8% of restaurant sales for the thirteen-week period ended April
2, 1997. Included in the 1998 results is a gain of $575,000 relating to the sale
of restaurants. Excluding this gain, other restaurant operating costs, expressed
as a percentage of revenue, would have been 27.7%. This decrease was primarily
attributable to the restaurant operating costs associated with Black-eyed Pea
restaurants and an increase in comparable same-store sales in the Company's
Denny's restaurants.
Restaurant Operating Income. Restaurant operating income increased to
$6.4 million for the thirteen-week period ended April 1, 1998, as compared with
$6.0 million for the thirteen-week period ended April 2, 1997. This increase was
principally the result of the factors described above.
Administrative Expenses. Administrative expenses were $3.1 million, or
4.2% of restaurant sales, for the thirteen-week period ended April 1, 1998,
which is a decrease of $700,000 as compared with 4.9% of restaurant sales for
the thirteen-week period ended April 2, 1997. This decrease is attributable to
the sale of certain restaurants during 1997 and the division and restructuring
of administration functions between the Company's Black-eyed Pea and Denny's
restaurant concepts.
Interest Expense. Interest expense was $3.4 million, or 4.7% of
restaurant sales, for the thirteen-week period ended April 1, 1998 as compared
with $3.2 million, or 4.2% of restaurant sales, for the thirteen-week period
ended April 2, 1997. The increase is the result of the increase in outstanding
capital lease obligations.
8
<PAGE>
Income Tax Benefit. The Company recorded an income tax benefit of
approximately $17,000, or an effective rate of 35%, for the thirteen-week period
ended April 1, 1998 as compared with an income tax benefit of approximately
$392,000, or an effective rate of 40%, for the thirteen week period ended April
2, 1997.
Net Income (loss). The Company recorded net income of approximately
$1.3 million for the thirteen week period ended April 1, 1998 as compared with a
net loss of $589,000 for the thirteen-week period ended April 2, 1997, as a
result of the factors described above and the extraordinary gain associated with
the early extinguishment of debt.
Liquidity and Capital Resources
The Company, and the restaurant industry generally, receives substantially all
of its revenue in cash with a relatively small amount of receivables. Therefore,
like many other companies in the restaurant industry, the Company operates with
a working capital deficit. The Company's working capital deficit was $40.5
million at April 1, 1998 and $36.4 million at January 1, 1997. The Company
believes that its current working capital deficit is consistent with the working
capital position of restaurant operators of similar size. The Company
anticipates that it will continue to operate with a working capital deficit.
The Company historically has satisfied its capital requirements through credit
facilities and sale/leaseback financing. The Company requires capital
principally for the development of new restaurants and to fund the acquisition
and conversion of existing restaurants. Currently, the Company is in various
stages of development of nine Black-eyed Pea restaurants, which it expects to
open during 1998. The Company estimates that its costs to develop and open new
Black-eyed Pea restaurant, excluding real estate and building costs, will be
approximately $350,000 to $450,000 per restaurant. The Company believes that its
financing commitments will be adequate to meet its financing needs during the
remainder of 1998.
Net cash provided by (used in) operating activities increased from ($4.6
million) in the first thirteen weeks of 1997 to $.8 million in the first
thirteen weeks of 1998. This increase is attributable to improved restaurant
operations.
Net cash provided by investing activities increased from $2.2 million in the
first thirteen weeks of 1997 to $25.2 million in the first thirteen weeks of
1998. This change primarily is attributable to the sale of certain restaurants
in March 1998.
Net cash provided by (used in) financing activities decreased from $1.1 million
in the first thirteen weeks of 1997 to ($25.6 million) in the first thirteen
weeks of 1998. Cash (used in) financing activities arose primarily from the
principal reductions in long-term debt.
In March 1998, the Company completed the sale of 63 Denny's and eight
non-branded restaurants, of which six were closed, to a Denny's franchisee for
gross proceeds $28,700. Net cash proceeds of $25,200 were used to (i) repay the
promissory note (the "BEP Note") payable to the seller of Black-eyed Pea U.S.A.,
Inc. ("BEP") at a $2,400 discount from its outstanding principal amount of
approximately $15,285; (ii) cancel outstanding warrants to acquire approximately
1,000,000 shares of Common Stock at an exercise price of $1.90 per share, which
were issued in connection with the BEP Note; (iii) permanently reduce the
Company's outstanding borrowings under the term loan of the Credit Facility to
$1,500; and (iv) repay certain equipment operating leases associated with the
restaurants sold in this transaction. The Company has included the $2,400
discount on the BEP note as an extraordinary item in the accompanying financial
statements.
9
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In March 1998, the Company sold five Denny's restaurants for cash and notes
totaling $1.1 million, to an unrelated party. This transactions resulted in a
gain of $575,000, which has been included in the accompanying financial
statements as a reduction of other restaurant operating expenses. In addition,
over the past quarter, the Company has closed five Denny's restaurants that were
not achieving designated cash flow requirements. The Company intends to continue
to evaluate its existing restaurant portfolio and to close or sell restaurants
as appropriate. The Company was not in compliance with certain of its debt
covenants at April 1, 1998 and has reclassified its senior bank debt as current.
The Company has not received waivers, but is currently working with its Senior
Lenders and anticipates receiving them in shortly.
Seasonality
The Company's operating results fluctuate from quarter to quarter as a result of
the seasonal nature of the restaurant industry, the temporary closing of
existing restaurants for conversion, and other factors. The Company's restaurant
sales are generally greater in the second and third fiscal quarters (April
through September) than in the first and fourth fiscal quarters (October through
March). Occupancy and other operating costs, which remain relatively constant,
have a disproportionately negative effect on operating results during quarters
with lower restaurant sales. The Company's working capital requirements also
fluctuate seasonally, with its greatest needs occurring during its first and
fourth quarters.
Inflation
The Company does not believe that inflation has had a material effect on
operating results in past years. Although increases in labor, food or other
operating costs could adversely affect the Company's operations, the Company
generally has been able to modify its operating procedures or to increase prices
to offset increases in its operating costs.
Forward Looking Statements
This Report on Form 10-Q contains forward-looking statements, including
statements regarding the Company's business strategies, the Company's business,
and the industry in which the Company operates. These forward-looking statements
are based primarily on the Company's expectations and are subject to a number of
risks and uncertainties, some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking statements as a result
of numerous factors, including those set forth in Item 1 - "Special
Considerations" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.73A Amendment Agreement dated as of January 1, 1998, between DenAmerica
Corp. and William G. Cox, amending the Employment Agreement dated
December 8, 1995, between American Family Restaurants, Inc. and
William G. Cox.
10.92C Amendment and Limited Consent and Waiver dated as of March 25, 1998
among DenAmerica Corp., the Banks (as defined), and Banque Paribas,
as agent.
10.116 Asset Purchase Agreement dated January 27, 1998, among DenAmerica
Corp., Olajuwon Holdings, Inc., and Akinola Olajuwon (1).
10.117 First Amendment to Asset Purchase Agreement dated March 16, 1998
between DenAmerica Corp., Olajuwon Holdings, Inc., and Akinola
Olajuwon (1).
10.118 Promissory Note dated March 25, 1998, from Olajuwon Holdings, Inc.
to DenAmerica Corp. in the principal amount of $1,700,000 (1).
10.119 Negative Working Capital Note date March 25, 1998, from Olajuwon
Holdings, Inc. to DenAmerica Corp. in the principal amount of
$1,700,000 (1).
10.120 Executive Employment Agreement dated as of December 27, 1997,
between DenAmerica Corp. and Todd S. Brown.
27.1 Financial Data Schedule.
(1) Incorporated by reference to exhibits to the Registrant's Current
Report on Form 8-K as filed on April 9, 1998.
(b) Reports on Form 8-K
On April 9, 1998, the Company filed a Current Report on Form 8-K
dated March 25, 1998, reporting the sale of 63 Denny's restaurants
and eight non-branded restaurants.
11
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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.
DENAMERICA CORP.
Dated: May 15, 1998 By: /s/ Todd S. Brown
-------------------------------------
Todd S. Brown
Vice President, Chief Financial
Officer, and Treasurer
(Duly authorized officer of the
registrant, principal financial
and accounting officer)
12
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT ("Agreement") is made and entered
into as of January 1, 1998, by and between DENAMERICA CORP., a Georgia
corporation ("Employer"), and WILLIAM G. COX ("Employee").
RECITALS
A. Employee has been employed as Vice President and Chief
Operating Officer of Employer since March 29, 1996, pursuant to that certain
Executive Employment Agreement between Employer and Employee (the "Employment
Agreement"), a copy of which is attached as Exhibit A hereto.
B. Employee and Employer desire to enter into this written
Agreement in order to memorialize certain amendments to the Employment
Agreement, all as set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants set
forth in this Agreement, the parties hereto hereby agree as follows:
1. Extension of Employment Term; Amendments to Termination Provisions.
Section 3 of the Employment Agreement is hereby amended in its entirety to read
as follows:
3. Term of Employment.
(a) Employment Term. The term of Executive's employment
(the "Employment Period") hereunder shall continue
until December 31, 2000 and from year to year
thereafter, unless and until terminated by either
party giving written notice to the other not less
than 60 days prior to the end of the then-current
term.
(b) Termination Under Certain Circumstances.
Notwithstanding anything to the contrary herein
contained:
(i) Death. Executive's employment shall be
automatically terminated, without notice,
effective upon the date of Executive's
death;
(ii) Disability. If Executive shall fail, for a
period of more than 90 consecutive days, or
for 90 days within any 180 day period, to
perform any of Executive's duties under this
Agreement as the result of illness or other
incapacity, Employer may, at its option,
upon notice to Executive, terminate
Executive's employment effective on the date
of that notice;
(iii) Unilateral Decision by Executive. Executive
may, at his option, upon notice to Employer,
terminate Executive's employment effective
on the date of that notice;
(iv) Termination "For Cause". Employer may, at
its option, upon notice to Executive,
terminate Executive's employment "for cause"
effective on the date of such notice if
Executive engages in an act or acts
involving a crime, moral turpitude, fraud,
or dishonesty; or
<PAGE>
(v) Change in Control. In the event of a Change
of Control of Employer as defined in Section
3(d), below, Executive may, at his option,
upon notice to Employer within 30 days after
such Change in Control of Employer,
terminate Executive's employment effective
on the date of the notice.
(c) Result of Termination. In the event of the
termination of Executive's employment pursuant to
Section 3(b)(i), (ii), (iii), (iv) above, Executive
shall receive no further compensation under this
Agreement. In the event of termination of Executive's
employment pursuant to Section 3(b)(v), then (i)
Employer shall pay Executive in a lump sum on the
date of termination an amount equal to his fixed
salary for the longer of one year or the balance of
the then-current term of Executive's employment under
this Agreement as if such employment had not
terminated, and (ii) all of Executive's stock options
that are not vested and exercisable as of the date of
such termination shall immediately vest and become
exercisable in full.
(d) Change in Control. The term "Change in Control" of
Employer shall mean a change in control of a nature
that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934
as in effect on the date of this Agreement or, if
Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 that
serve similar purposes; provided that, without
limitation, such a Change in Control shall be deemed
to have occurred if and when:
(i) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) other than a current
director or officer of Employer becomes the
"beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934)
directly or indirectly of securities of
Employer representing 20% or more of the
combined voting power of Employer's
then-outstanding securities, except that
this provision shall not apply to any public
or private offering of Employer's common
stock;
(ii) during the period of this Agreement,
individuals who, at the beginning of such
period, constituted the Board of Directors
of Employer (the "Original Directors") cease
for any reason to constitute at least a
majority thereof, unless the election or
nomination for election of each new director
was approved (an "Approved Director") by the
unanimous vote of a Board of Directors
constituted entirely of Original Directors
and Approved Directors;
(iii) a tender offer or exchange offer is made
whereby the effect of such offer is to take
over and control Employer and such offer is
consummated for the ownership of securities
of Employer representing 20% or more of the
combined voting power of Employer's
then-outstanding voting securities;
(iv) Employer is merged, consolidated, or enters
into a reorganization transaction with
another person and as the result of such
merger, consolidation, or reorganization
less than 75% of the outstanding equity
securities of the surviving or resulting
person shall then be owned in the aggregate
by the former stockholders of Employer; or
2
<PAGE>
(v) Employer transfer substantially all of its
assets to another person or entity that is
not a wholly owned subsidiary of Employer.
Sales of Employer's Common Stock
beneficially owned or controlled by
Executive shall not be considered in
determining whether a Change in Control has
occurred.
2. Amendment to Covenant Not to Compete. Section 6(c) of the Employment
Agreement is hereby amended in its entirety to read as follows:
(c) Competing Business. During the Employment Period and
for a period of 12 months after the termination of
the Employment Period, regardless of who initiates
the termination and for any reason except for
termination resulting from a Change of Control,
Employee shall not, directly or indirectly, for
himself, or on behalf of, or in conjunction with, any
other person(s), company, partnership, corporation,
or governmental entity, in any manner whatsoever,
engage in business with any of the following
entities, or any of their affiliates of franchisees:
Shoney's, Bob Evans, Cracker Barrel, International
House of Pancakes, Perkin's Family Restaurants,
Village Inn, Frisch's Big Boy or Country Kitchen.
3. Miscellaneous.
(a) Effect on Employment Agreement. Except as amended
by the terms of this Agreement, the terms and conditions of the Employment
Agreement shall remain in full force and effect.
(b) Indulgences; Waivers. Neither any failure nor any
delay on the part of either party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be binding
unless executed in writing by the party making the waiver.
(c) Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement, shall be
governed by and construed in accordance with the laws of the State of Arizona,
notwithstanding any Arizona conflict of law rules to the contrary.
(d) Binding Nature of Agreement. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns; provided
that because the obligations of Employee hereunder involve the performance of
personal services, such obligations shall not be delegated by Employee. For
purposes of this Agreement, successors and assigns shall include, but not be
limited to, any individual, corporation, trust, partnership, or other entity
which acquires a majority of the stock or assets of Employer by sale, merger,
consolidation, liquidation, or other form of transfer. Employer will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of Employer
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that Employer would be required to perform it if no such
succession had taken place.
(e) Entire Agreement. This Agreement, together with
the Employment Agreement as amended hereby, contains the entire understanding
between the parties hereto with respect to the employment of Employee by
Employer, and supersedes all prior and contemporaneous agreements and
understandings, inducements and conditions, express or implied, oral or written.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
not be modified or amended other than by an agreement in writing.
3
<PAGE>
(f) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as the
signatories.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date of the first above written.
Employer: Employee:
DENAMERICA CORP., a Georgia
Corporation
By:
-------------------------------- ----------------------------------------
Name: William G. Cox
------------------------------
Its:
-------------------------------
4
AMENDMENT AND LIMITED WAIVER
----------------------------
This AMENDMENT AND LIMITED WAIVER (this "Amendment") is
entered into as of March 25, 1998 among DenAmerica Corp., a Georgia corporation
(the "Borrower"), the Banks (as hereinafter defined) and Banque Paribas, as
Agent.
RECITALS
--------
WHEREAS, Borrower, certain financial institutions (the
"Banks") and the Agent are party to that certain Amended and Restated Credit
Agreement dated as of July 3, 1996, as modified by that certain Limited Consent,
dated as of April 16, 1997, as further modified by that certain Limited Consent,
dated as of June 30, 1997, as further modified by that certain Limited Consent,
dated as of July 31, 1997, as further modified by that certain Limited Waiver,
dated as of August 21, 1997 and as further amended and modified by that certain
Amendment and Limited Consent and Waiver, dated as of September 30, 1997 (the
"September 1997 Amendment") (as amended or modified prior to the date hereof, as
amended and modified hereby and as further amended, supplemented or modified
hereafter from time to time, the "Credit Agreement"); and
WHEREAS, Borrower has requested that the Agent and the Banks
amend, and grant certain consents and waivers with respect to, certain
provisions of the Credit Agreement, all as more fully described herein; and
WHEREAS, the Agent and the Banks have agreed to grant such
consents and waivers upon the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions Used in this Amendment. Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings assigned thereto in the Credit Agreement.
<PAGE>
Section 2. Amendments to the Credit Agreement. Subject to the
terms and conditions set forth herein, the Credit Agreement is hereby amended as
follows:
(a) Amendments to Definitions. Section 1.1 of the
Credit Agreement is hereby amended by:
(i) deleting the defined terms "Olajuwon Associates,
L.L.C." and "Olajuwon Deferred Purchase Price" in their
entirety as they appear in such Section;
(ii) inserting the parenthetical "(together with all
schedules and exhibits to this Amended Credit Agreement)"
immediately after the words "this Amended Credit Agreement" as
they appear in the first line of the defined term "Loan
Documents" contained in such Section;
(iii) amending and restating the defined term "Term
Loan Maturity Date" in its entirety to read as follows: "Term
Loan Maturity Date" shall mean June 30, 1998."
(iv) adding to such Section, in proper alphabetical
order the following new defined terms:
"Asset Purchase Agreement" means that certain
Asset Purchase Agreement, dated as of January 27, 1998,
among Olajuwon Holdings, Inc., Akinola Olajuwon and the
Borrower, as amended by that certain First Amendment to
Asset Purchase Agreement, dated as of March 16, 1998,
in the form set forth in Schedule A attached hereto.
"CNL Equipment" means certain equipment owned
by the Borrower and located at the properties
identified on Schedule B hereto.
2
<PAGE>
"CNL Loan Agreement" means the collective
reference to (i) that certain Balloon Promissory Note,
dated as of October 1, 1997 in the principal amount of
$8,725,000 by Borrower in favor of CNL American
Properties Fund, Inc. ("CNL American"), set forth in
Schedule C attached hereto, (ii) that certain Balloon
Promissory Note, dated as of October 1, 1997 in the
principal amount of $4,500,000 by Borrower in favor of
CNL American, set forth in Schedule D attached hereto,
(iii) that certain Security Agreement, dated as of
October 1, 1997 between Borrower and CNL American, set
forth in Schedule E attached hereto, (iv) that certain
Security Agreement, dated as of October 1, 1997 between
Borrower and CNL American, set forth in Schedule F
attached hereto, (v) that certain Assignment of
Warranties, dated as of October 1, 1997 by Borrower in
favor of CNL American, set forth in Schedule G attached
hereto and (vi) that certain Assignment of Warranties,
dated as of October 1, 1997 by Borrower in favor of CNL
American, set forth in Schedule H attached hereto.
"Olajuwon Notes" means the collective
reference to (i) that certain promissory note in the
maximum principal amount of $1,800,000 in the form of
Schedule I attached hereto delivered by Olajuwon
Holdings, Inc. to Borrower and (ii) that certain
promissory note in the maximum principal amount of
$1,700,000 in the form of Schedule J attached hereto
delivered by Olajuwon Holdings, Inc. to Borrower, in
each case, as partial consideration for the Olajuwon
Sale.
"Olajuwon Sale" means the sale to Olajuwon
Holdings, Inc. of the Borrower's rights in, title to
and interest in the Olajuwon Stores, pursuant to the
terms and conditions set forth in
3
<PAGE>
the Asset Purchase Agreement and the Sublease
Agreement.
"Olajuwon Stores" means the 71 restaurants
described in Schedule K attached hereto.
"Sublease Agreement" means the collective
reference to (i) that certain Master Sublease
Agreement, dated as of March 25, 1998 between the
Borrower and Olajuwon Holdings, Inc., in the form set
forth in Schedule L hereto and (ii) that certain Lease
Assignment Agreement, dated as of March 25, 1998
between the Borrower and Olajuwon Holdings, Inc., in
the form set forth in Schedule M hereto.
"Wyoming Note" means that certain promissory
note in the maximum principal amount of $400,000, in
the form of Schedule N attached hereto.
"Wyoming Sale" means the sale to Cimarron
Management Company, Inc. of the Borrower's rights in,
title to and interest in the Wyoming Stores, pursuant
to the terms and conditions set forth in the Wyoming
Sale Agreement.
"Wyoming Sale Agreement" means the Asset
Purchase Agreement, dated as of September 26, 1997
among Cimarron Management Company, Inc., Valgene E.
Christensen, Joan J. Christensen and the Borrower, as
amended by the Amendment No. 1 to Asset Purchase
Agreement, dated as of March 11, 1998, in the form set
forth in Schedule O attached hereto.
"Wyoming Stores" means the 5 restaurants
described in Schedule P attached hereto.
4
<PAGE>
(b) Repayment of Term Loans. Section 2.1 of the
Credit Agreement is hereby amended by amending and restating the
Payment Dates and installment amounts, in their entirety, as they
appear in such Section to read as follows:
Payment Dates occurring Amount of Installment
- ----------------------- ---------------------
between the following dates
- ---------------------------
June 30, 1996 through $833,333
and including December
31, 1996
January 1, 1997 through $1,375,000
and including December
31, 1997
June 30, 1998 The remaining outstanding
principal balance of the
Term Loans
(c) Mandatory Prepayments. Section 2.13 of the Credit
Agreement is hereby amended by:
(i) amending and restating, in its entirety,
clause (iv) of subsection (a) thereof to read as
follows:
(iv) Notwithstanding anything to the contrary
contained in this Section 2.13(a), the Borrower shall
be required to apply the Net Sale Proceeds received in
connection with the Olajuwon Sale as follows: first,
to prepay the Term Loans, in the inverse order of
maturity, together with all accrued and unpaid
interest thereon to and including the date of such
prepayment, in an amount not to exceed $8,250,000,
second, to prepay the outstanding principal amount of
the Subordinated Promissory Note until such
Subordinated Promissory Note shall have repaid in
full, together with all accrued and unpaid interest
thereon and all other amounts outstanding there under,
provided, however, no such prepayment
5
<PAGE>
shall be made if the amount necessary to pay such
Subordinated Promissory Note in full exceeds
$13,350,000, third, to prepay the Term Loans, in
inverse order of maturity, until such Term Loans shall
have been repaid in full, together with all accrued
and unpaid interest thereon to and including the date
of prepayment and fourth, to prepay the Revolving
Loans until such Revolving Loans shall have been
repaid in full, together with all accrued and unpaid
interest thereon; and
(ii) adding the following new clause (v) to
subsection (a) thereof:
(v) Notwithstanding anything to the contrary
contained in this Section 2.13(a), the Borrower shall
be required to apply the Net Sale Proceeds received
in connection with the Wyoming Sale as follows: first,
to prepay the outstanding amount of principal on the
Term Loans, in the inverse order of maturity, in a
principal amount equal to $300,000 and second, to pay
certain accounts payable allocated to the Wyoming
Stores, in an aggregate amount not exceeding $400,000.
(iii) adding thereto a new subsection (h) to read as
follows:
(h) For each calendar year in which one or
more payments of principal or interest are received
by Borrower or any of its Subsidiaries on the Wyoming
Note or any of the Olajuwon Notes, Borrower shall
apply such amounts on the date such payments are
received as follows: first, to prepay the outstanding
amount of principal on the Term Loans pro rata, in the
inverse order of maturity, and second, to prepay the
Revolving Loans
6
<PAGE>
until such Revolving Loans shall have been repaid in
full, together with accrued and unpaid interest
thereon.
(d) Indebtedness. Section 7.2 of the Credit Agreement
is hereby amended by (i) deleting the word "and" as it appears at the
end of subsection (g) thereof, (ii) deleting the period as it appears
at the end of subsection (h) thereof, and replacing such period with a
semicolon and the word "and" and (iii) inserting a new subsection (i)
to read as follows:
(i) Indebtedness under the CNL Loan Agreement, less
the amount of any repayment, prepayment or redemption
of any such Indebtedness.
(e) Liens. Section 7.3 of the Credit Agreement is
hereby amended by (i) deleting the word "and" as it appears at the end
of subsection (h) thereof, (ii) deleting the period as it appears at
the end of subsection (i) thereof, and replacing such period with a
semicolon and the word "and" and (iii) inserting a new subsection (j)
to read as follows:
(j) Liens granted to CNL American under the CNL Loan
Agreement to secure the Borrower's obligations
thereunder and which are limited to the CNL
Equipment.
(f) Restrictions on Fundamental Changes. Section
7.4(b) of the Credit Agreement is hereby amended by deleting the
parenthetical "(other than the Olajuwon Associates, L.L.C.)" in its
entirety as it appears in subsection (iii) thereof.
(g) Asset Dispositions. Section 7.5 of the Credit
Agreement is hereby amended by deleting the words "Olajuwon Associates,
L.L.C." contained in subsection (i) thereof in their entirety, and
replacing such words with "Olajuwon Sale and the Wyoming Sale."
(h) Contingent Obligations. Section 7.6 of the Credit
Agreement is hereby amended by (i) deleting the word "and" as it
appears at the end of subsection (a) thereof, (ii) deleting the period
as it appears and the end of subsection (b) thereof and replacing it
with a semicolon and (iii) adding thereto the following new subsection
(c):
7
<PAGE>
(c) Contingent Obligations comprised of the
Borrower's continuing obligations under (i) the leases
described in the Sublease Agreement, (ii) Section 16(b) of the
Asset Purchase Agreement and (iii) Section 13.1 of the Wyoming
Sale Agreement.
(i) Investments. Section 7.8 of the Credit Agreement
is hereby amended by amending and restating subsection (k) thereof in
its entirety to read as follows:
(k) moneys owed to Borrower under the Wyoming Note
and each of the Olajuwon Notes.
Section 3. Release of Liens. (i) Subject to, and effective
upon, the consummation of the Wyoming Sale, the Agent, for itself and the Banks
and their respective successors and assigns, hereby releases and terminates all
Liens in the Wyoming Stores granted by Borrower or any Subsidiary of Borrower in
favor of the Agent pursuant to any Security Document.
(ii) Subject to, and effective upon, the consummation
of the Olajuwon Sale, the Agent, for itself and the Banks and their respective
successors and assigns, hereby releases and terminates all Liens in the Olajuwon
Stores granted by Borrower or any Subsidiary of Borrower in favor of the Agent
pursuant to any Security Document.
Section 4. Limited Waiver of Defaults or Events of Default.
Subject to the terms and conditions set forth herein, the Agent and the Banks,
as of the date hereof, hereby waive any Default or Event of Default that has
occurred as of the date hereof, solely as a result of any of the following:
(a) Financial Covenants. The failure of Borrower to
comply with the financial covenants set forth in Sections 7.1(a),
7.1(b), 7.1(c), 7.1(d) 7.1(e), 7.1(j) and 7.2(f) of the Credit
Agreement to and including December 31, 1997.
(b) Indebtedness and Liens. The failure of Borrower
to comply with the negative covenants set forth in Sections 7.2 and 7.3
of
8
<PAGE>
the Credit Agreement as a result of Borrower entering into the
transactions contemplated by the CNL Loan Agreement.
(c) Notice of Default or Litigation. The failure of
Borrower to give notice (prior to the date hereof) to the Agent,
pursuant to Section 6.1(g)(i) of the Credit Agreement, within one
Business Day after an Authorized Officer obtained knowledge of the
occurrence of a Default or Event of Default arising from (i) Borrower's
failure to comply with the covenants set forth in Sections 7.1(a),
7.1(b), 7.1(c), 7.1(d), 7.1(e), 7.1(j), 7.2(f)) of the Credit Agreement
through and including December 31, 1997 and (ii) Borrower's failure to
comply with the covenants set forth in Sections 7.2 and 7.3 with
respect to the transactions contemplated by the CNL Loan Agreement.
(d) Security Documents relating to September 1997
Amendment. The failure of Borrower to deliver to the Agent within 90
days of the closing date of the September 1997 Amendment, each of the
documents required to be delivered by Borrower pursuant to Section 3(o)
of the September 1997 Amendment; provided, however, that in the event
that Borrower shall fail to deliver all of such documents within 30
days from the date hereof, the Agent shall have the right to declare
such Default or Event of Default reinstated as of the date of the
September 1997 Amendment.
Section 5. Conditions to Effectiveness of this Amendment. The
effectiveness of this Amendment is subject to the satisfaction of the following
conditions precedent:
(a) Amendment. This Amendment shall have been duly
executed and delivered by each of the parties hereto.
(b) Proceeds. The Agent shall have received for the
benefit of the Banks, (i) coterminous, with the effectiveness of the
Wyoming Sale, cash proceeds from the Wyoming Sale in an aggregate
principal amount of at least $300,000, to be applied in accordance with
the terms and conditions of the Credit Agreement, as amended hereby and
(ii) coterminous, with the effectiveness of the Olajuwon Sale, cash
proceeds from the Olajuwon Sale in an aggregate principal amount of at
9
<PAGE>
least $8,250,000, to be applied in accordance with the terms and
conditions of the Credit Agreement, as amended hereby.
(c) Transaction Documents for Wyoming Sale and
Olajuwon Sale. The Agent shall have approved the form and substance of
(i) the Wyoming Sale Agreement and the Wyoming Note and (ii) the Asset
Purchase Agreement, the Sublease Agreement and each of the Olajuwon
Notes.
(d) Delivery of Notes. Borrower shall have executed
and delivered to the Agent the Wyoming Note and each of the Olajuwon
Notes, together with proper endorsements in a form acceptable to the
Agent.
(e) Officer's Certificate. The Agent shall have
received a certificate of an Authorized Officer of Borrower certifying
as to the matters set forth in Sections 6(a) and 6(b) of this
Amendment.
(f) CNL Transactions. By their signatures hereto, the
parties hereto agree and acknowledge that the consents granted by the
Agent and the Banks pursuant to the September 1997 Amendment with
respect to the CNL Equipment Financing (as defined in the September
1997 Amendment), and the sale by Borrower of certain of its personal
property to CNL Maryland (as defined in the September 1997 Amendment)
are no longer effective.
(g) Additional Matters. The Agent shall have received
such other certificates, opinions, documents and instruments relating
to the transactions contemplated hereby as may have been requested by
the Agent or any Bank, in each case, in form and substance satisfactory
to the Agent.
Section 6. Representations and Warranties. Borrower
represents, warrants and covenants to the Agent and the Banks that both before
and after giving effect to this Amendment:
(a) no Default or Event of Default (other than any
Default or Event of Default waived pursuant to the terms hereof) has
occurred and is continuing;
10
<PAGE>
(b) all of the representations and warranties
contained in the Credit Agreement and in the other Loan Documents
(other than those that expressly speak only as of a different date) are
true and correct;
(c) No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration
with, or exemption by, any Person, including, without limitation, any
governmental or public body or authority, or any subdivision thereof,
that has not been obtained, is required to authorize, or is required in
connection with (i) the execution and delivery by Borrower of this
Amendment and the performance by Borrower of its obligations hereunder
(except as set forth in item 1 of Annex 1 hereto), (ii) the execution
and delivery by Borrower of any of the documents relating to the
Wyoming Sale or the Olajuwon Sale and the performance by Borrower of it
obligations thereunder (except as set forth on Annex 1 hereto), or
(iii) the conveyance by Borrower of the assets to be conveyed in
connection with the Olajuwon Sale or the Wyoming Sale (except as set
forth on Annex 1 hereto); and
(d) No liabilities, direct or contingent, shall be
retained or assumed by Borrower in connection with or as a result of
the Olajuwon Sale or the Wyoming Sale, except (i) in the case of the
Olajuwon Sale, Borrower's continuing obligations under (A) the leases
described in the Sublease Agreement, (B) the Sublease Agreement, (C)
Sections 2.3, 8, 16(b) and 20 of the Asset Purchase Agreement, (D) the
Post-Closing Agreement, dated as of January 27, 1998 between Borrower
and Olajuwon Holdings, Inc., a copy of which is attached hereto as
Annex 3 and (E) the Intercreditor and Subordination Agreement, dated as
of March 25, 1998 among Borrower, Olajuwon Holdings, Inc., Akinola S.
Olajuwon and Global Alliance Finance Company, L.L.C., a copy of which
is attached hereto as Annex 4 and (ii) in the case of the Wyoming Sale,
Borrower's continuing obligations under Sections 13.1 and 13.3 of the
Wyoming Sale Agreement and under each of the lease agreements relating
to the Wyoming Stores.
Section 7. Limited Consent. Notwithstanding the terms and
conditions of Section 7.2 and 7.6 of the Credit Agreement, Borrower is hereby
permitted to enter into certain substitution and put agreements (collectively,
the "Put Agreements") in connection with the CNL Improvement Financing and the
CNL Fee Property Financing (as each such term is defined in the September
11
<PAGE>
1997 Amendment), pursuant to which Borrower is required to purchase certain real
and personal property described in such Put Agreements (collectively, the "Put
Properties") upon the occurrence of certain events described in such Put
Agreements, provided, that Borrower has the ability under the Put Agreements to
provide a comparable property in substitution of any Put Property and provided,
further, that the purchase price paid by Borrower for the Put Properties shall
not exceed $4,000,000 in the aggregate. By their signatures hereto, the parties
hereto agree and acknowledge that the consents granted by the Agent and the
Banks pursuant to the September 1997 Amendment with respect to Borrower entering
into a certain substitution and put agreement relating to the properties
described on Schedule 3(n) thereto are no longer effective.
Section 8. Miscellaneous.
(a) Effect; Ratification. The amendments, consents
and waivers set forth herein are effective solely for the purposes set
forth herein and shall be limited precisely as written, and shall not
be deemed to (i) be a consent to any amendment, consent or modification
of any other term or condition of the Credit Agreement or of any other
instru ment or agreement referred to therein; or (ii) prejudice any
right or remedy which the Agent or the Banks may now have or may have
in the future under or in connection with the Credit Agreement or any
other instrument or agreement referred to therein. Each reference in
the Credit Agreement to "this Amended Credit Agreement", "herein",
"hereof" and words of like import and each reference in the other Loan
Documents to the "Agreement" or the "Credit Agreement" shall mean the
Credit Agree ment as amended hereby. This Amendment shall be construed
in connection with and as part of the Credit Agreement and all terms,
conditions, representations, warranties, covenants and agreements set
forth in the Credit Agreement and each other instrument or agreement
referred to therein, except as herein amended or waived, are hereby
ratified and confirmed and shall remain in full force and effect.
(b) Loan Documents. This Amendment is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
12
<PAGE>
(c) Costs, Fees and Expenses. Borrower agrees to pay
all reasonable costs, fees and expenses (including the reasonable fees
and expenses of counsel to the Agent) incurred in connection with the
preparation, execution and delivery of this Amendment as required
pursuant to the Credit Agreement.
(d) Headings Descriptive. The headings of the several
Sections and Subsections of this Amendment are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision or term of this Amendment.
(e) Counterparts. This Amendment may be executed in
any number of counterparts, each such counterpart constituting an
original and all of which when taken together shall constitute one and
the same instrument.
(f) Severability. Any provision contained in this
Amendment that is held to be inoperative, unenforceable or invalid in
any jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions of
this Amendment in that jurisdiction or the operation, enforceability or
validity of such provision in any other jurisdiction.
(g) GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF ILLINOIS.
(h) WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN CONNECTION WITH THIS CONSENT OR ANY OTHER LOAN
DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective duly authorized officers as of the
date first written above.
DENAMERICA CORP.
By: /s/ Todd Brown
-----------------------------
Name: Todd Brown
Its: Vice President
BANQUE PARIBAS,
individually and as Agent
By: /s/ Steven M. Heinen
-----------------------------
Name: Steven M. Heinen
Its: Director
By: /s/ Brian F. Hewett
-----------------------------
Name: Brian F. Hewett
Its: Vice President
FIRST SOURCE FINANCIAL LLP
By First Source Financial, Inc.
Its Agent/Manager
By: /s/ James W. Wilson
-----------------------------
Name: James W. Wilson
Its: Senior Vice President
14
<PAGE>
LASALLE NATIONAL BANK
By: /s/ Stefano Robertson
-----------------------------
Name: Stefano Robertson
Its: Commercial Loan Officer
PILGRIM AMERICAN PRIME RATE
TRUST
By: Pilgrim America Investments, Inc.
As its Investment Manager
By: /s/ D. Norman
-----------------------------
Name: D. Norman
Its: S V P
KZH-SOLEIL CORPORATION
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Its: Authorized Agent
15
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") dated as of December
26, 1997 (the "Effective Date"), by and between DENAMERICA CORP., a Georgia
corporation ("Employer"), and TODD S. BROWN ("Executive").
WHEREAS, Employer currently employs Executive pursuant to an employment
agreement; and
WHEREAS, Employer desires to continue to employ Executive following the
expiration of that agreement, and Executive desires to accept such employment,
all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:
1. Employment; Duties. Employer hereby employs Executive, and Executive
hereby accepts such employment, as Senior Vice President, Treasurer, and Chief
Financial Officer of Employer and in such other executive capacities and for
such other executive duties and services as shall from time to time be mutually
agreed upon by Employer and Executive.
2. Full Time Occupation. Executive shall devote such of Executive's
business time, attention, and efforts to the performance of Executive's duties
under this Agreement as shall be reasonably necessary for the performance of
such duties, shall serve Employer faithfully and diligently, and shall not
engage in any other employment while employed by Employer.
3. Compensation and Other Benefits.
(a) Salary. Employer shall pay to Executive, as compensation
for the services rendered by Executive during Executive's employment under this
Agreement, a base salary to be paid in equal bi-weekly installments or in such
other periodic installments upon which Employer and Executive shall mutually
agree, as follows:
Year Ended Base Salary
---------- -----------
December 31, 1998 $160,000
December 31, 1999 $175,000
December 31, 2000 and thereafter $190,000
(b) Bonus. Executive shall be eligible to receive an annual
bonus in an amount to be determined by Employer's Board of Directors, in its
sole discretion.
(c) Other Benefits. In addition to base salary and any bonus
paid to Executive pursuant to Section 3(a) and 3(b), above, during the term of
Executive's employment hereunder, Employer shall provide Executive with the
following:
(i) Medical Benefits. Participation in such group
medical, accident, disability and dental plans, if any, as may be provided from
time to time by Employer to other similar level executive employees of Employer.
(ii) Life Insurance. Life insurance covering the life
of Executive in an amount comparable to that provided from time to time by
Employer to other similar level executive employees of Employer.
<PAGE>
(iii) Vacation. Four (4) weeks paid vacation during
each twelve (12) month period beginning January 1, 1998. Any vacation not used
in a calendar year may be carried forward into the next year; provided, however,
that no more than eight (8) weeks vacation may be taken in any one calendar
year. Executive shall not receive any compensation for unused vacation. Vacation
shall be taken at such times as determined by Executive and approved by the
Chief Executive Officer.
(d) Reimbursement. Without limiting the foregoing, Employer
shall reimburse Executive for all travel and entertainment expenses and other
ordinary and necessary business expenses incurred by Executive in connection
with the business of Employer and Executive's duties under this Agreement. The
term "business expenses" shall not include any item not at least partially
deductible by Employer for federal income tax purposes. To obtain reimbursement,
Executive shall submit to Employer receipts, bills,or sales slips for the
expenses incurred. Reimbursements shall be made by Employer monthly within 10
business days of presentation by Executive of evidence of the expenses incurred.
(e) Fringe Benefits. Executive shall be entitled to
participate in any other group insurance, pension, retirement, and other plans,
programs, and benefits approved by the Board of Directors and made available
from time to time to executive employees of Employer generally during the term
of Executive's employment hereunder. The foregoing shall not obligate Employer
to adopt or maintain any particular plan, program, or benefit.
(f) Automobile. Employer shall provide Executive with a luxury
automobile for use in connection with the business of Employer and Executive's
duties under this Agreement, along with appropriate comprehensive insurance
coverage including property, med pay, bodily injury, underinsured and uninsured
coverage. The automobile shall be of such make, model and year as is appropriate
for a person with Executive's responsibilities.
4. Term of Employment.
(a) Employment Term. The term of Executive's employment (the
"Employment Term") hereunder shall commence on the Effective Date of this
Agreement and shall continue until December 31, 2000 and from year to year
thereafter, unless and until terminated by either party giving written notice to
the other not less than 60 days prior to the end of the then-current term.
(b) Termination Under Certain Circumstances. Notwithstanding
anything to the contrary herein contained:
(i) Death. Executive's employment shall be
automatically terminated, without notice, effective upon the date of Executive's
death;
(ii) Disability. If Executive shall fail, for a
period of more than 90 consecutive days, or for 90 days within any 180 day
period, to perform any of Executive's duties under this Agreement as the result
of illness or other incapacity, Employer may, at its option, upon notice to
Executive, terminate Executive's employment effective on the date of that
notice;
(iii) Unilateral Decision of Employer. Employer may,
at its option, upon notice to Executive, terminate Executive's employment
effective on the date of that notice;
(iv) Unilateral Decision by Executive. Executive may,
at his option, upon notice to Employer, terminate Executive's employment
effective on the date of that notice;
(v) Termination "For Cause". Employer may, at its
option, upon notice to Executive, terminate Executive's employment "for cause"
effective on the date of such notice if Executive engages in an act or acts
involving a crime, moral turpitude, fraud, or dishonesty; or
2
<PAGE>
(vi) Change in Control. In the event of a Change of
Control of Employer as defined in Section 4(d), below, Executive may, at his
option, upon notice to Employer within 30 days after such Change in Control of
Employer, terminate Executive's employment effective on the date of the notice.
(c) Result of Termination. In the event of the termination of
Executive's employment pursuant to Section 4(b)(i), (ii), (iv) or (v) above,
Executive shall receive no further compensation under this Agreement. In the
event of the termination of Executive's employment pursuant to Section 4(b)(iii)
above, Executive shall continue to receive Executive's fixed cash compensation
for a period of 12 months following the date of such termination. In the event
of termination of Executive's employment pursuant to Section 4(b)(vi), then (i)
Employer shall pay Executive in a lump sum on the date of termination an amount
equal to his fixed salary for the longer of one year or the balance of the
then-current term of Executive's employment under this Agreement as if such
employment had not terminated, and (ii) all of Executive's stock options that
are not vested and exercisable as of the date of such termination shall
immediately vest and become exercisable in full.
(d) Change in Control. The term "Change in Control" of
Employer shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 as in effect on the date of this
Agreement or, if Item 6(e) is no longer in effect, any regulations issued by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 that serve similar purposes; provided that, without limitation, such a
Change in Control shall be deemed to have occurred if and when:
(i) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than a current
director or officer of Employer becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) directly or indirectly of
securities of Employer representing 20% or more of the combined voting power of
Employer's then-outstanding securities, except that this provision shall not
apply to any public or private offering of Employer's common stock;
(ii) during the period of this Agreement, individuals
who, at the beginning of such period, constituted the Board of Directors of
Employer (the "Original Directors") cease for any reason to constitute at least
a majority thereof, unless the election or nomination for election of each new
director was approved (an "Approved Director") by the unanimous vote of a Board
of Directors constituted entirely of Original Directors and Approved Directors;
(iii) a tender offer or exchange offer is made
whereby the effect of such offer is to take over and control Employer and such
offer is consummated for the ownership of securities of Employer representing
20% or more of the combined voting power of Employer's then-outstanding voting
securities;
(iv) Employer is merged, consolidated, or enters into
a reorganization transaction with another person and as the result of such
merger, consolidation, or reorganization less than 75% of the outstanding equity
securities of the surviving or resulting person shall then be owned in the
aggregate by the former stockholders of Employer; or
(v) Employer transfers substantially all of its
assets to another person or entity that is not a wholly owned subsidiary of
Employer. Sales of Employer's Common Stock beneficially owned or controlled by
Executive shall not be considered in determining whether a Change in Control has
occurred.
5. Competition and Confidential Information.
(a) Interests to be Protected. The parties acknowledge that
Executive will perform essential services for Employer during the term of
Executive's employment with Employer. Executive will be exposed to, have access
to, and be required to work with, a considerable amount of Confidential
Information (as defined below). The parties also expressly recognize and
acknowledge that the personnel of Employer have been trained by and are valuable
to Employer and that Employer will incur substantial expense in recruiting and
training personnel if
3
<PAGE>
Employer must hire new personnel or retrain existing personnel to fill
vacancies. The parties also expressly recognize that it could seriously impair
the goodwill and diminish the value of Employer's business should Executive
compete with Employer in any manner whatsoever. The parties acknowledge that
this covenant has an extended duration; however, they agree that this covenant
is reasonable, and it is necessary for the protection of Employer, its
stockholders, and employees. For these and other reasons, and the fact that
there are many other employment opportunities available to Executive if he
should terminate his employment, the parties are in full and complete agreement
that the following restrictive covenants are fair and reasonable and are entered
into freely, voluntarily, and knowingly. Furthermore, each party was given the
opportunity to consult with independent legal counsel before entering into this
Agreement.
(b) Non-Competition. During the term of Executive's employment
with Employer and for the period ending 12 months after the termination of
Executive's employment with Employer, regardless of the reason therefor except
for termination resulting from a Change in Control, Executive shall not (whether
directly or indirectly, as owner, principal, agent, stockholder, director,
officer, manager, employee, partner, participant, or in any other capacity)
engage or become financially interested in any competitive business conducted
within the Restricted Territory (as defined below). As used herein, the term
"competitive business" shall mean any business that owns, operates, or
franchises full-service family or casual dining establishments; and the term
"Restricted Territory" shall mean any area in which Employer conducts its
restaurant business during Executive's employment hereunder.
(c) Non-Solicitation of Employees. During the term of
Executive's employment and for a period of 12 months after the termination of
Executive's employment with Executive, regardless of the reason therefor,
Executive shall not directly or indirectly, for himself, or on behalf of, or in
conjunction with, any other person, company, partnership, corporation, or other
entity, seek to hire or hire any of Employer's personnel or employees for the
purpose of having such employee engage in services that are the same, similar,
or related to the services that such employee provided for Employer.
(d) Confidential Information. Executive shall maintain in
strict secrecy all confidential or trade secret information relating to the
business of Employer (the "Confidential Information") obtained by Executive in
the course of Executive's employment, and Executive shall not, unless first
authorized in writing by Employer, disclose to, or use for Executive's benefit
or for the benefit of any person, firm or entity at any time either during or
subsequent to the term of Executive's employment, any Confidential Information,
except as required in the performance of Executive's duties on behalf of
Employer. For purposes hereof, Confidential Information shall include without
limitation any financial information with respect to Employer's business; any
construction plans and drawings or other reproductions or materials of any kind;
any trade secrets, knowledge, or information with respect to products and
services provided, menu selection, site selection, the purchase or lease and use
of equipment, fixtures, furnishings, signs, inventory, ingredients, and other
products and materials required for or related to the development, operation, or
franchising of its restaurants; any operating procedures, techniques, or
know-how; any business methods or forms; any names, addresses, or data on
suppliers; and any business policies or other information relating to or dealing
with the financing, purchasing, sales, advertising, promotional, or distribution
policies or practices of Employer.
(e) Return of Books and Papers. Upon the termination of
Executive's employment with Employer for any reason, Executive shall deliver
promptly to Employer all cost, pricing, and other financial data; all samples or
demonstration models, catalogues, manuals, memoranda, drawings, formulae and
specifications, and operating procedures; all supplier information; all other
written or printed materials that are the property of Employer (and any copies
of them); and all other materials which may contain Confidential Information
relating to the business of Employer, which Executive may then have in his
possession whether prepared by Executive or not.
(f) Disclosure of Information. Executive shall disclose
promptly to Employer, or its nominee, any and all ideas, designs, processes and
improvements of any kind relating to the business of Employer, whether
4
<PAGE>
patentable or not, conceived or made by Executive, either alone or jointly with
others, during working hours or otherwise, during the entire period of
Executive's employment with Employer, or within six months thereafter.
(g) Equitable Relief. In the event a violation of any of the
restrictions contained in this Section is established, Employer shall be
entitled to preliminary and permanent injunctive relief as well as damages and
an equitable accounting of all earnings, profits, and other benefits arising
from such violation, which right shall be cumulative and in addition to any
other rights or remedies to which Employer may be entitled. In the event of a
violation of any provision of Sections 5(b), (c), or (f) of this Agreement, the
period for which those provisions would remain in effect shall be extended for a
period of time equal to that period beginning when such violation commenced and
ending when the activities constituting such violation shall have been finally
terminated in good faith.
(h) Restrictions Separable. If the scope of any provision of
this Section is found by a Court to be too broad to permit enforcement to its
full extent, then such provision shall be enforced to the maximum extent
permitted by law. The parties agree that the scope of any provision of this
Section may be modified by a judge in any proceeding to enforce this Agreement,
so that such provision can be enforced to the maximum extent permitted by law.
Each and every restriction set forth in this Section is independent and
severable from the others, and no such restriction shall be rendered
unenforceable by virtue of the fact that, for any reason, any other or others of
them may be unenforceable in whole or in part.
6. Miscellaneous.
(a) Notices. All notices, requests, demands, and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received (i) if personally
delivered, on the date of delivery, (ii) if by facsimile transmission, 24 hours
after transmitter's confirmation of the receipt of such transmission, (iii) if
mailed, three days after deposit in the United States mail, registered or
certified, return receipt requested, postage prepaid and addressed as provided
below, or (iv) if by a courier delivery service providing overnight or
"next-day" delivery, on the next business day after deposit with such service
addressed as follows:
(i) If to Employer:
DenAmerica Corp.
7373 N. Scottsdale Road
Suite C-240
Scottsdale, Arizona 85258
Attention: President
(ii) If to Executive:
Todd S. Brown
11435 N. St. Andrews Way
Scottsdale, Arizona 85254
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
(b) Indulgences; Waivers. Neither any failure nor any delay on
the part of either party to exercise any right, remedy, power, or privilege
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power, or privilege preclude any other or
further exercise of the same or of any other right, remedy, power, or privilege,
nor shall any waiver of any right, remedy, power, or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power, or
privilege with
5
<PAGE>
respect to any other occurrence. No waiver shall be binding unless executed in
writing by the party making the waiver.
(c) Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement, shall be governed
by and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-interest provisions to the
contrary.
(d) Binding Nature of Agreement, Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors, and assigns;
provided that because the obligations of Executive hereunder involve the
performance of personal services, such obligations shall not be delegated by
Executive. For purposes of this Agreement, successors and assigns shall include,
but not be limited to, any individual, corporation, trust, partnership, or other
entity that acquires a majority of the stock or assets of Employer by sale,
merger, consolidation, liquidation, or other form of transfer. Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform it if no such succession had taken place.
(e) Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
as against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as the signatories.
(f) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(g) Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements
and understandings, inducements and conditions, express or implied, oral or
written, except as herein contained. The express terms hereof control and
supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof. This Agreement may not be modified or amended other
than by an agreement in writing.
(h) Paragraph Headings. The paragraph headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DENAMERICA CORP.
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
Todd S. Brown
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit contains summary financial information extracted from the
Registrant's unaudited consolidated financial statements for the period ended
April 1, 1998 and is qualified in its entirety by reference to such financial
statements. This Exhibit shall not be deemed filed for purposes of Section 11 of
the Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of such Sections, nor shall it be
deemed a part of any other filing which incorporates this report by reference,
unless such other filing expressly incorporates this Exhibit by reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-01-1998
<EXCHANGE-RATE> 1
<CASH> 1,599
<SECURITIES> 0
<RECEIVABLES> 2,087
<ALLOWANCES> 0
<INVENTORY> 3,064
<CURRENT-ASSETS> 12,718
<PP&E> 61,505
<DEPRECIATION> 1,786
<TOTAL-ASSETS> 138,692
<CURRENT-LIABILITIES> 53,174
<BONDS> 72,242
0
0
<COMMON> 1,344
<OTHER-SE> 1,244
<TOTAL-LIABILITY-AND-EQUITY> 138,692
<SALES> 72,880
<TOTAL-REVENUES> 72,880
<CGS> 19,970
<TOTAL-COSTS> 66,446
<OTHER-EXPENSES> 3,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,426
<INCOME-PRETAX> (48)
<INCOME-TAX> (17)
<INCOME-CONTINUING> (31)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,371
<CHANGES> 0
<NET-INCOME> 1,340
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
