-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OoJap0okZGKhj52g3qepg2tficvW2ORUKZHDK9P92C6Zd+PKE1IeBrtPHYv/YHtI rw498jJPQslWyjxkqgYkdw== 0000912057-01-505666.txt : 20010402 0000912057-01-505666.hdr.sgml : 20010402 ACCESSION NUMBER: 0000912057-01-505666 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICH CORP /DE/ CENTRAL INDEX KEY: 0000049588 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 436069928 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07697 FILM NUMBER: 1586211 BUSINESS ADDRESS: STREET 1: 9255 TOWNE CENTRE DRIVE STREET 2: SUITE 600 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 2149547111 MAIL ADDRESS: STREET 1: P.O. BOX 2699 STREET 2: SUITE 400 CITY: DALLAS STATE: TX ZIP: 75221 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHWESTERN LIFE CORP DATE OF NAME CHANGE: 19940808 FORMER COMPANY: FORMER CONFORMED NAME: ICH CORP DATE OF NAME CHANGE: 19930506 FORMER COMPANY: FORMER CONFORMED NAME: ICH CORP/CONSOL NAT/RTS/CFR/MOD AMER LIFE INS/SW LIFE INS/CF DATE OF NAME CHANGE: 19930505 10-K 1 a2043156z10-k.txt 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-7697 ------------------------ I.C.H. CORPORATION (Exact Name of Registrant as Specified in its Charter) DELAWARE 43-6069928 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 9255 TOWNE CENTRE DRIVE, 92121 SUITE 600, (Zip Code) SAN DIEGO, CA (Address of Principal Executive Offices)
------------------------ Registrant's telephone number, including area code: (858) 587-8533 Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the Registrant on March 26, 2001 was $12,033,508, based on the closing price of the Common Stock as provided by the American Stock Exchange on March 26, 2001. As of March 26, 2001, there were outstanding 2,820,386 shares of the Registrant's Common Stock, par value $0.01 per share. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL I.C.H. Corporation ("ICH", and together with its operating subsidiaries, the "Company"), a Delaware corporation, owns and operates quick-service restaurants under the Arby's name through wholly-owned subsidiaries. During 2000, the Company also owned and operated full-service family dining restaurants operating under the Lyon's name through a wholly-owned subsidiary. This subsidiary was sold January 13, 2001 (see below). The Company operates its Arby's restaurant units as a franchisee of, and pursuant to license agreements with Arby's, Inc., the franchisor of the Arby's brand. The Company's principal executive offices are located at 9255 Towne Centre Drive, San Diego, California 92121, and its telephone number is (858) 587-8533. On April 30, 1997, the Company acquired all of the outstanding capital stock of Sybra, Inc. ("Sybra"), the second largest franchisee of Arby's restaurants. The aggregate purchase price was approximately $39.8 million which included the repayment of $23.7 million of Sybra indebtedness and an additional $2 million of acquisition indebtedness due to the seller within two years. Concurrently with the Company's acquisition of Sybra, Sybra entered into a sale/leaseback transaction on 61 of its restaurant sites with U.S. Restaurant Properties, Inc. ("USRP"). As of December 31, 2000, Sybra owned and operated 214 Arby's restaurants located primarily in Michigan, Texas, Pennsylvania, New Jersey, Florida and Connecticut. On December 14, 1998, the Company acquired substantially all of the assets of the Lyon's restaurant chain, through a newly-formed wholly-owned subsidiary, Lyon's of California, Inc. ("Lyon's"). The aggregate purchase price was approximately $22.6 million, of which $16.5 million was financed by USRP (Finance) LLC. As of December 31, 2000, Lyon's owned and operated a chain of 72 full-service family dining restaurants located in northern California and Oregon. On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sales price for the transaction was $16.2 million, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of this assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payment on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6.2 million which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4.5 million. BUSINESS STRATEGY The Company's overall business strategy is to maximize the value of its Arby's restaurant operations, which can include the acquisition or construction of new Arby's restaurants, as well as improving the profitability, quality of operations and competitive position of its existing Arby's restaurants. The Company believes that certain of the markets in which it currently operates Arby's restaurants are underserved, and will thus provide opportunities for construction of new restaurants to further penetrate those existing markets, as well as markets in which the Company has been granted exclusive development rights by the franchisor. In addition, the Company believes that the size of the nationwide Arby's restaurant system will continue to present opportunities for selective growth through acquisitions. 1 Consistent with the Company's strategy of expanding its operations through the construction of new Arby's restaurants, Sybra opened a total of 18 new Arby's restaurants during 2000, exceeding the annual minimum opening requirement of 16 restaurants set out in its 10-year, 210-store development agreement (the "Development Agreement") with Arby's, Inc., the franchisor of the Arby's brand. The Development Agreement grants Sybra the exclusive right to build Arby's restaurants in certain areas, primarily in certain northeast markets in Pennsylvania, northern Virginia, Maryland and New Jersey, as well as the exclusive right to build Arby's restaurants in selected counties in and around the Detroit and Dallas/Fort Worth markets. Because Sybra exceeded the annual minimum store opening requirements under the Development Agreement for 1998, 1999 and 2000 by a total of 7 stores which can be counted towards future year's development obligations, Sybra is required to open 19 new units during 2001 to comply with the Development Agreement. The number of Arby's restaurants opened by Sybra in 2001 and beyond will vary depending upon, among other things, general economic conditions, the availability of financing and Sybra's ability to locate additional suitable restaurant sites which can be developed on a cost-effective basis. As a result, management currently cannot predict whether Sybra will meet its future annual requirements for new store openings under the Development Agreement. Consistent with the Company's strategy of expanding its operations through the acquisition of existing Arby's restaurants, Sybra acquired a total of 8 operating Arby's restaurants during 2000. As part of the Company's overall strategy of improving the quality of operations of its existing Arby's restaurants, the Company closely monitors factors affecting the overall profitability of its restaurant operations as well as the profitability of individual restaurants. The Company did not close any Arby's restaurants during 2000. RESTAURANT OPERATIONS The Company conducts its restaurant operations principally through its wholly-owned subsidiary, Sybra, Inc. SYBRA, INC. As of December 31, 2000, Sybra operated 214 Arby's restaurants as a franchisee of Arby's, Inc. Of these, 186 restaurants are free-standing units, with the remaining 28 restaurants located in shopping malls or as part of food courts within malls. MENU Each of Sybra's Arby's restaurants offers a diverse menu of food items including roast beef, chicken, turkey and ham sandwiches. Arby's restaurants are generally known for their roast beef sandwiches, which are made from thinly-sliced beef which is freshly-roasted at each restaurant. The Arby's menu also typically includes potato products, salads and soft drinks. In addition, the restaurants sell a variety of promotional products, normally on a limited-time basis. Some of Sybra's Arby's restaurants also serve breakfast, including eggs and breakfast meat selections. SITE SELECTION Site selection for new restaurants is made by Sybra's real estate and development department, subject to acceptance by the franchisor, Arby's, Inc. A typical market area will have a population base of at least 30,000 people within a three-mile radius. Within the potential market area, Sybra evaluates major retail and office concentrations and major traffic arteries to determine focal points. Site specific factors which Sybra considers include visibility, convenience of access, proximity to direct competition, access to utilities, local zoning regulations and various other factors. Sybra's current business strategy is 2 to locate new restaurants, whenever possible, on the grounds of or close to shopping centers and within markets where effective television marketing is either already in place, or can successfully be implemented in the near future. RESTAURANT LAYOUT AND OPERATIONS Sybra's Arby's restaurants (excluding mall and food court locations) typically range from 2,100 to 3,200 square feet, with a seating capacity of between 60 and 90 people and are typically open from 10 a.m. to 11 p.m., with some restaurants open for extended evening hours. Approximately 80% of Sybra's restaurants feature drive-thru windows. RAW MATERIALS As an Arby's franchisee, Sybra complies with recipe and ingredient specifications provided by the franchisor, and purchases all food and beverage inventories and restaurant supplies from independent vendors. Arby's, Inc. does not sell food or supplies to its franchisees. Sybra and all other Arby's franchisees are members of ARCOP, Inc. ("ARCOP"), a non-profit cooperative purchasing organization. ARCOP facilitates negotiation of national contracts for food and distribution, taking advantage of the large purchasing requirements of the member franchisees. Since Arby's franchisees are not required to purchase any food products or supplies from Arby's, Inc., ARCOP facilitates control over food supply costs and avoids franchisor conflicts of interest. Sybra purchases soft drink products from the Coca-Cola Company and its affiliates. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Subsequent Events"). In Sybra's Texas units, Dr. Pepper products are also purchased. Prior to February 2000, most food items and supplies purchased by Sybra were warehoused and distributed by AmeriServe, an independent distributor. In January, 2000, the Company began to shift the purchasing, warehousing and distribution of food items and supplies for its Arby's units from AmeriServe to Meadowbrook Meat Company ("MBM"). On January 31, 2000, and while AmeriServe was still purchasing, warehousing and distributing some food items and supplies for the Company's Arby's units, AmeriServe and several of its affiliates filed for chapter 11 protection. As a result of AmeriServe's chapter 11 filing, the Company experienced some shortages of certain food products and supplies at some of its Arby's units, although the Company was generally able to obtain those items from other sources at somewhat higher costs. Currently MBM is purchasing, warehousing and distributing to the Company's Arby's units substantially all of the food items and supplies previously furnished by AmeriServe, and the Company currently anticipates no material shortages of food items or other supplies necessary to the operation of its Arby's units. LYON'S OF CALIFORNIA, INC. On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sales price for the transaction was $16.2 million, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6.2 million which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4.5 million. 3 FRANCHISE AND DEVELOPMENT AGREEMENTS GENERAL Sybra operates all of its Arby's restaurants as a franchisee of Arby's, Inc. and is the second largest franchisee of Arby's restaurants. Sybra's relationship with Arby's, Inc. is governed by (1) the Development Agreement, which grants the Company exclusive franchise territories and (2) unit franchise agreements (collectively, "Franchise Agreements"), one of which is executed in connection with the opening of each new Arby's restaurant. These agreements provide Arby's, Inc. with significant rights regarding Sybra's business operations. Any acquisition by Sybra of an existing Arby's restaurant, or the development by Sybra of a new Arby's restaurant, requires the prior consent of Arby's, Inc. Sybra is prohibited from operating, managing or having a controlling interest or a fifteen percent (15%) or greater interest in any competing business offering roast beef sandwiches for sale to consumers and located within the Protected Area (as defined in the appropriate Franchise Agreement) for each individual Arby's restaurant it operates. Sybra's agreements with Arby's, Inc. also restrict the sale, assignment or transfer of any substantial portion of the assets of Sybra without the prior written consent of Arby's, Inc. However those agreements do not require approval of the assignment, transfer or pledge of all or any part of the assets of Sybra, excluding the Franchise Agreements, or all or any part of the stock of Sybra to banks or other lending institutions as collateral security for loans made directly to or for the benefit of Sybra. Should Sybra fail to comply with the Development Agreement, Arby's, Inc. could terminate the exclusive nature of Sybra's franchises in such covered territory, and Sybra could forfeit certain funds on deposit with the franchisor that would otherwise be applied towards Sybra's new unit licensing fees. In addition, certain events of default under a Franchise Agreement give Arby's, Inc. the right to terminate the franchise rights of the Sybra restaurant governed by such Franchise Agreement. A loss of development rights or, depending upon the aggregate number of restaurants affected, a loss of franchise rights, could have a material adverse effect on the Company. Sybra is also required to operate each of its Arby's restaurants in accordance with certain standards contained in the Arby's, Inc. Operations Manual (the "Operations Manual"). Arby's, Inc. periodically monitors the operations of Sybra's restaurants and notifies Sybra of any failure to comply with any of the Franchise Agreements, the Development Agreement or the Operations Manual. DEVELOPMENT AGREEMENT Effective as of November 1, 1997, and as amended May 12, 1998, Sybra and Arby's, Inc. entered into a Development Agreement covering nine counties in the Harrisburg-Lancaster-Lebanon-York, PA Dominant Marketing Area ("DMA"), two counties in the Detroit, MI DMA, 12 counties in the Philadelphia, PA DMA, three counties in the Dallas-Fort Worth, TX DMA, seven counties in the Washington, D.C.-Hagerstown, MD DMA, and nine counties in the New York, NY DMA, as well as portions of Baltimore County, MD and Burlington County, NJ. Under the terms of the Development Agreement, Sybra has been granted exclusive rights to develop and operate Arby's restaurants within the covered territories, and is required to develop new Arby's restaurants in accordance with schedules set out in the Development Agreement. Pursuant to the Development Agreement, Sybra is required to submit to Arby's, Inc. for its acceptance each proposed restaurant site and the plans for each new restaurant. Under the Development Agreement, Sybra is obligated to open a minimum of 26 restaurants in 2001, and 30 restaurants in each year beginning in 2002 through and including 2006. Under the Development Agreement, any new stores opened by Sybra in excess of the annual requirement for that year can be applied towards satisfying Sybra's development requirements in future 4 years. As a result, and because Sybra exceeded the minimum store opening requirements under the Development Agreement during each of 1998, 1999 and 2000, Sybra is currently required to open 19 new restaurants during 2001 to comply with the Development Agreement. UNIT FRANCHISE AGREEMENTS Sybra operates each of its Arby's restaurants under a Franchise Agreement with Arby's, Inc. Each Franchise Agreement provides the Company the right to operate an Arby's restaurant for a period of 20 years. The Franchise Agreements are renewable by the Company, subject to certain conditions, generally for 20 years (the financial terms of any renewal period may differ from those in effect during the initial term). Each Franchise Agreement gives Sybra the exclusive right to operate an Arby's restaurant in a particular geographic area, defined by either a radius restriction or specific boundaries. The Franchise Agreements also require Sybra to make royalty payments to Arby's, Inc. equal to a fixed or variable percentage of each restaurant's revenue. For restaurants opened pursuant to the Development Agreement, royalty payments are set at four percent of sales. Pursuant to the Franchise Agreements, Arby's, Inc. prescribes the designs, color schemes, signs and equipment to be utilized in each restaurant, and determines the menu items as well as the formulas and ingredients for the preparation of food and beverage products. Each new restaurant opened within an area covered by the Development Agreement will be governed by a Franchise Agreement, with an initial licensing fee of $25,000. Of that license fee, $10,000 will be deducted from funds already placed on deposit with Arby's, Inc. in accordance with the Development Agreement. GOVERNMENT REGULATIONS The restaurant business is subject to extensive federal, state and local government regulations relating to the development and operation of restaurants, including regulations relating to building, ingress and egress, zoning, employment issues, and the handling, preparation and sale of food and beverages. The Company is subject to federal and state environmental regulations, although such regulations have not historically had a material effect on the Company's operations. The Company is also subject to laws governing relationships with employees, such as minimum wage requirements, health insurance coverage requirements and laws regulating overtime working conditions and employee citizenship. Further increases in the minimum wage could have a material adverse effect on the Company. SEASONAL AND QUARTERLY RESULTS Restaurant sales are moderately seasonal and historically January, February and March generate the lowest sales volumes for the Company's restaurants. As a result, operating margins for the first quarter tend to be slightly lower than those for the remaining quarters due to lower sales providing a smaller spread to cover fixed costs. TRADEMARKS AND SERVICE MARKS The Franchise Agreements grant the Company the right to use certain registered trademarks and service marks of Arby's, Inc. The names "Arby's," "Arby's Restaurants" and "Arby's Roast Beef Restaurants" were adopted to identify and promote Arby's. The Company believes that these marks are of material importance to the operation of its Arby's restaurants. COMPETITION The restaurant business is highly competitive and is affected by changes in the public's eating habits and preferences, population trends and traffic patterns, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond the Company's control. Key 5 competitive factors in the industry are the quality and value of the food products offered, quality and speed of service, attractiveness of facilities, advertising, name brand awareness and image and restaurant location. A number of the Company's significant competitors are larger, more diversified and have substantially greater resources than the Company. The Company's operations, as with the restaurant industry generally, can be significantly affected by factors such as changes in local, regional or national economic conditions, changes in consumer tastes, severe weather and consumer concerns about nutritional quality of the various food products offered at the Company's restaurants. In addition, factors such as changes in food, labor and energy costs, the availability and cost of suitable restaurant sites and the availability of an adequate number of hourly-paid employees can also affect the restaurant industry. EMPLOYEES As of December 31, 2000, the Company had approximately 4,200 employees. Many of the Company's restaurant employees work part-time, and many are paid at wage levels related to the federal or applicable state minimum wage levels. The Company considers its employee relations to be generally good. None of the Company's employees are covered by a collective bargaining agreement. ITEM 2. PROPERTIES As of December 31, 2000, the Company operated 214 restaurants in the areas listed below. The Company's land and building leases are generally, although not always, for terms of 20 years with one or more five-year renewal options. Certain of the leases require the payment of additional rent equal to a percentage of annual sales in excess of specified amounts. The Company leases office space in San Diego, California and New York, New York for its corporate and executive offices and in Flint, Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its regional operations centers. The following table sets forth the locations of the restaurants operated by the Company (by state) as of December 31, 2000: Connecticut................................................. 8 Florida..................................................... 21 Maryland.................................................... 7 Michigan.................................................... 53 New Jersey.................................................. 14 Pennsylvania................................................ 38 Texas....................................................... 68 Virginia.................................................... 4 West Virginia............................................... 1 --- Total:...................................................... 214 ===
ITEM 3. LEGAL PROCEEDINGS A former Lyon's restaurant manager has filed a lawsuit on behalf of himself and others allegedly similarly situated, in Superior Court for Sacramento County, California seeking, among other things, overtime compensation. The action, entitled WILLIAM SHIELDS V. LYON'S RESTAURANTS, INC. ET AL., was originally filed on April 27, 2000 and seeks certification of a class of plaintiffs consisting of current and former Lyon's restaurant managers employed by Lyon's or by the former owner of the Lyon's chain. 6 The suit alleges that Lyon's required managers to spend more than 50% of their working time performing non-management tasks, thus entitling them to overtime compensation. The Company contends that Lyon's properly classifies its managers as salaried employees, who are thereby exempt from the payment of overtime compensation. The Company has thus far and will continue to defend this suit vigorously. While the ultimate legal and financial liability of the Company and/or its subsidiaries with respect to this action cannot be estimated with certainty at this time, it is possible that the outcome of this action could have a material financial impact on the Company. The Company has recorded, as a liability, a provision for its estimate of a probable amount of loss related to this suit. Management believes it is unlikely that the ultimate liability for this suit will materially exceed the recorded liability at December 31, 2000. The Company's subsidiaries are parties to other routine pending legal proceedings which are incidental to the operation of their restaurant businesses. In management's belief, none of these proceedings are likely to have a material adverse effect on the Company. The Company also maintains customary commercial, general liability, workers' compensation and directors and officers insurance policies. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE RREGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's common stock commenced trading on the American Stock Exchange on July 23, 1997 under the symbol "IH." The following table sets forth, for the periods indicated, the applicable range of the high and low sales prices for the Company's common stock on the American Stock Exchange.
2000 1999 ------------------- ------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- First Quarter............................................... 11 1/8 6 3/8 9 3/8 3 5/8 Second Quarter.............................................. 7 4 5/8 15 1/2 8 1/4 Third Quarter............................................... 5 3/4 4 1/2 14 7/8 11 5/8 Fourth Quarter.............................................. 5 1/16 4 1/16 13 1/8 8 7/16
NUMBER OF STOCKHOLDERS The information available indicates that as of March 26, 2001 there were approximately 3,153 holders of record of the Company's common stock. DIVIDENDS The Company has not paid any cash dividends on its common stock and does not intend to pay cash dividends on its common stock for the foreseeable future. The Company intends to retain future earnings to finance future development. 7 ITEM 6. SELECTED FINANCIAL INFORMATION SELECTED HISTORICAL FINANCIAL DATA Set forth below are selected historical financial data of the Company. The Company is the post-reorganization successor to ICH Corporation ("Old ICH") which emerged from chapter 11 effective February 19, 1997. Until the Company's acquisition of Sybra, Inc. on April 30, 1997, the Company had no significant business operations. Old ICH financial data is not presented as its assets, liabilities and operations were dissolved or sold as part of Old ICH's reorganization plan. For purposes of presentation, Sybra is considered to be a Predecessor of the Company. Accordingly, the selected historical financial data for the four months ended April 30, 1997 and as of and for the year ended December 31, 1996 were derived from the financial statements of the Predecessor. Due to required purchase accounting adjustments relating to the acquisition and certain corporate administrative expenses that are necessary to operate on a stand-alone basis, the consolidated financial and other data for the period subsequent to the acquisition (the "Successor Period") is not comparable to such data for the periods prior to the acquisition (the "Predecessor Period"). Pro forma net income (loss) was derived by retroactively adjusting the Predecessor Period as if the acquisition had occurred on January 1, 1996. As such, the effects of purchase accounting, including the impact of the different capital structure of the Predecessor, has been reflected in arriving at pro forma net income (loss) for the Predecessor Period. In addition, adjustments reflecting the costs of operating a stand-alone company have been retroactively included in arriving at pro forma net income (loss) for the Predecessor Period. Such costs include, but are not limited to, administrative services, tax compliance, treasury service, human resource administration and legal services. On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sale price for the transaction was $16.2 million, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6.2 million which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4.5 million. 8 STATEMENT OF EARNINGS DATA (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) The information contained in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and accompanying notes thereto included herein.
COMPANY PREDECESSOR COMPANY COMBINED PREDECESSOR ------------------------------ ----------- -------- -------- ----------- FOUR EIGHT YEAR YEAR YEAR MONTHS MONTHS YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED ENDED DEC. 31 DEC. 31, DEC. 31, APRIL 30, DEC. 31, DEC. 31, DEC. 31, 2000 1999 1998 1997 1997(A) 1997(A) 1996 -------- -------- -------- ----------- -------- -------- ----------- (000'S EXCEPT PER SHARE AMOUNTS) Revenues......................... $163,664 $145,010 $133,029 $37,916 $75,006 $112,922 $116,124 Costs and expenses: Restaurant costs and expenses..................... 133,322 117,129 108,076 32,006 61,503 93,509 93,867 General and administrative..... 11,755 11,417 8,887 2,212 5,087 7,299 6,179 Depreciation and amortization................. 5,810 4,495 4,885 2,006 3,398 5,404 5,972 Non-recurring and restructuring charges...................... 4,920 -- -- -- 1,497 1,497 -- Other.......................... -- -- 691 -- 977 977 1,200 -------- -------- -------- ------- ------- -------- -------- Operating income................. 7,857 11,969 10,490 1,692 2,544 4,236 8,906 Interest expense............... 8,471 6,150 5,901 638 3,661 4,299 2,346 -------- -------- -------- ------- ------- -------- -------- Income (loss) from continuing operations before taxes...... (614) 5,819 4,589 1,054 (1,117) (63) 6,560 Provision (benefit) for income taxes........................ 279 2,357 1,944 434 (253) 181 2,398 -------- -------- -------- ------- ------- -------- -------- Income (loss) from continuing operations................... (893) 3,462 2,645 620 (864) (244) 4,162 Income (loss) from discontinued operations................... (8,018) 1,632 271 -- -- -- -- Gain (loss) from sale of discontinued operations...... (4,510) -- 388 -- -- -- -- -------- -------- -------- ------- ------- -------- -------- Net Income (loss)................ $(13,421) $ 5,094 $ 3,304 $ 620 $ (864) $ (244) $ 4,162 ======== ======== ======== ======= ======= ======== ======== Income (loss) from continuing operations per share: Basic.......................... $ (.31) $ 1.24 $ 1.01 -- $ (.34) -- -- Diluted........................ $ (.31) $ 1.00 $ .91 -- $ (.34) -- -- Income (loss) from discontinued operations per share: Basic.......................... $ (2.80) $ .58 $ .10 -- -- -- -- Diluted........................ $ (2.80) $ .47 $ .09 -- -- -- -- Gain (loss) from sale of discontinued operations per share: Basic.......................... $ (1.58) -- $ .15 -- -- -- -- Diluted........................ $ (1.58) -- $ .13 -- -- -- -- Net income (loss) per share: Basic.......................... $ (4.69) $ 1.82 $ 1.26 -- $ (.34) -- -- Diluted........................ $ (4.69) $ 1.47 $ 1.14 -- $ (.34) -- -- Pro-forma net income (loss) (b)............................ N/A N/A N/A $ (791) $ (864) $ (1,655) $ 857
9
COMPANY PREDECESSOR COMPANY COMBINED PREDECESSOR ------------------------------ ----------- -------- -------- ----------- FOUR EIGHT YEAR YEAR YEAR MONTHS MONTHS YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED ENDED DEC. 31 DEC. 31, DEC. 31, APRIL 30, DEC. 31, DEC. 31, DEC. 31, 2000 1999 1998 1997 1997(A) 1997(A) 1996 -------- -------- -------- ----------- -------- -------- ----------- (000'S EXCEPT PER SHARE AMOUNTS) Other data: EBITDA from continuing operations (c)............... $ 13,667 $ 16,464 $ 15,375 $ 3,698 $ 5,942 $ 9,640 $ 14,878 EBITDA-Pro forma (c)........... N/A N/A N/A $ 2,212 $ 5,942 $ 8,154 $ 12,016 Balance sheet data: Working capital deficit........ $ (9,601) $ (3,555) $ (7,459) N/A $(5,006) N/A $ (8,455) Total assets................... $120,415 $132,656 $113,466 N/A $75,264 N/A $ 75,601 Total long-term obligations.... $ 85,327 $ 80,183 $ 65,677 N/A $47,417 N/A $ 24,728 Shareholders' equity........... $ 5,409 $ 19,320 $ 15,026 N/A $11,185 N/A $ 35,142
- -------------------------- NOTES: (a) Included in the results of operations for the eight months ending December 31, 1997 are sales and operating loss of $164 and $(188), respectively, of the Company for the period from February 19, 1997 to April 30, 1997. (b) Pro forma net income (loss) reflects (1) the effects of purchase accounting for Sybra as if the purchase was effective on January 1, 1996; (2) increased interest expense for the Predecessor Period as a result of a difference in capital structure; and (3) increased general and administrative expenses reflecting the costs of operating as a stand-alone public company; and has been tax effected using a combined federal and state income tax rate of 40%. (c) EBITDA on a pro forma basis gives effect to the adjustments discussed in Note (b) above. Management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Selected Historical Financial Data" and the financial statements of the Company and the accompanying notes thereto included elsewhere herein. Certain information discussed below may constitute forward-looking statements within the meaning of the federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from projected results. Among those risks, trends and uncertainties are the general economic climate, costs of food and labor, consumer demand, interest rate levels, the availability of financing and other risks associated with the acquisition, development and operation of new and existing restaurants. Unless otherwise indicated, all amounts are in thousands except share amounts. On April 30, 1997, the Company acquired all of the outstanding capital stock of Sybra, Inc., the second largest franchisee of Arby's restaurants. The aggregate purchase price was approximately $39.8 million which included the repayment of $23.7 million of Sybra indebtedness and an additional $2 million of acquisition indebtedness due to the seller. Concurrently with the Company's acquisition of Sybra, Sybra entered into a sale/leaseback transaction on 61 of its restaurant sites with U.S. Restaurant Properties, Inc. ("USRP"). As of December 31, 2000, Sybra owned and operated 214 Arby's restaurants located primarily in Michigan, Texas, Pennsylvania, New Jersey, Florida and Connecticut. On December 14, 1998, the Company acquired substantially all of the assets of the Lyon's restaurant chain, through a newly-formed wholly-owned subsidiary, Lyon's of California, Inc.. The aggregate purchase price was approximately $22.6 million, of which $16.5 million was financed by USRP (Finance) LLC. On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sale price for the transaction was $16.2 million, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6.2 million which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4.5 million. GENERAL The Company's revenues consist almost entirely of restaurant sales from Sybra, its principal operating subsidiary. Restaurant costs and expenses include all direct operating costs, including direct labor, occupancy costs, advertising expenses, royalty payments, expenditures for repairs and maintenance, and workers' compensation and casualty and general liability insurance costs. Advertising fees paid by the Company's Sybra subsidiary to the Arby's Franchise Association to develop and prepare advertising materials and to undertake marketing research are equal to 0.7% of restaurant sales. In addition, Sybra operates its restaurants pursuant to licenses which require Sybra to pay Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently an aggregate of approximately 3.2% of Sybra's restaurant sales). The royalty rate for new Arby's restaurants (currently 4.0%) will result in an increase in the aggregate royalty rate for Sybra as new Arby's restaurants are opened. 11 General and administrative expenses consist of corporate and regional office expenses, including executive and administrative compensation, office expenses, travel and professional fees. RESULTS OF OPERATIONS The following table sets forth, with respect to the Company and for the periods indicated, the percentage of total revenues represented by certain expense and income items. CONSOLIDATED COMPANY
YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31, 2000 DEC. 31, 1999 DEC. 31, 1998 ------------- ------------- ------------- Restaurant Sales......................................... 100.0 % 100.0% 100.0% Other Revenue............................................ .7 % .3% 1.3% ----- ----- ----- Revenues................................................. 100.7 % 100.3% 101.3% Expenses: Restaurant costs and expenses............................ 82.0 % 81.0% 82.3% General and administrative............................... 7.2 % 7.9% 6.8% Depreciation and amortization............................ 3.6 % 3.1% 3.7% Non-recurring/restructuring charges...................... 3.1 % -- -- Other.................................................... -- -- .5% ----- ----- ----- Operating income......................................... 4.8 % 8.3% 8.0% Interest expense......................................... 5.2 % 4.3% 4.5% ----- ----- ----- Income (loss) from continuing operations before income taxes.................................................. (.4)% 4.0% 3.5% Income taxes............................................. .2 % 1.6% 1.5% ----- ----- ----- Income (loss) from continuing operations................. (.6)% 2.4% 2.0% ===== ===== =====
The Company operates entirely in the food service industry with substantially all revenues resulting from the sale of menu products at its restaurants. At December 31, 2000, Sybra, the Company's principal operating subsidiary, owned and operated 214 Arby's restaurants. COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 RESTAURANT SALES--Restaurant sales for the year ended December 31, 2000 were $162.6 million, an increase of $18.0 million or 12.5% over the prior year comparable period. This increase is the result of sales from new store openings and store acquisitions, offset by a same store sales decrease of 1.7% and the disposition of 9 Arby's restaurants in the fourth quarter of 1999. RESTAURANT COSTS AND EXPENSES--Restaurant costs and expenses were $133.3 million, or 82.0% of sales for 2000, as compared to $117.1 million, or 81.0% of sales, for 1999, an increase of $16.2 million due to the sales increase explained above. As a percentage of sales, costs increased primarily as a result of lower same store sales volumes and moderate inflation in the cost of food, labor, utilities and other restaurant operating costs. GENERAL AND ADMINISTRATIVE--General and administrative costs and expenses were $11.8 million, or 7.2% of sales for 2000 as compared to $11.4 million, or 7.9% of sales, for 1999. The increase was primarily due to increases in regional staff levels to support the Company's newly opened Arby's units. As a percentage of sales, general and administrative costs decreased due to efficiencies created by the opening and purchasing of additional Arby's units. DEPRECIATION AND AMORTIZATION--Depreciation and amortization expense was $5.8 million, or 3.6% of sales in 2000, as compared to $4.5 million, or 3.1% of sales in 1999. This increase is due to additional depreciation expense associated with the Company's newly opened and acquired Arby's units. 12 INTEREST EXPENSE--Interest expense was $8.5 million, or 5.2% of sales in 2000, as compared to $6.2 million, or 4.3% of sales in 1999, an increase of $2.3 million primarily as a result of debt incurred in connection with new store openings and store acquisitions. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 RESTAURANT SALES--Restaurant sales for the year ended December 31, 1999 were $144.5 million, an increase of $13.2 million or 10.1% over the prior year comparable period. This increase is the result of a same store sales increase of 2.4% and sales from new store openings and store acquisitions, offset by the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and only 52 weeks of sales in 1999. Additionally, Sybra sold nine of its Arby's units early in the fourth quarter of 1999. RESTAURANT COSTS AND EXPENSES--Restaurant costs and expenses were $117.1 million, or 81.0% of sales, for 1999 as compared to $108.1 million, or 82.3% of sales, for 1998, an increase of $9.0 million due to the sales increase explained above. As a percentage of sales, costs decreased primarily as a result of increased efficiencies and a decrease in the cost of certain food and related products. GENERAL AND ADMINISTRATIVE--General and administrative costs and expenses were $11.4 million, or 7.9% of sales, for 1999 as compared to $8.9 million, or 6.8% of sales, for 1998. The increase was primarily due to the increase in regional staff levels to support the Company's newly opened Arby's units, including expanded real estate development. DEPRECIATION AND AMORTIZATION--Depreciation and amortization expense was $4.5 million, or 3.1% of sales in 1999, as compared to $4.9 million, or 3.7% of sales in 1998, a decrease as a percentage of sales as a result of changes in the depreciation schedule of Sybra's assets related to the Company's acquisition of Sybra. INTEREST EXPENSE--Interest expense was $6.2 million, or 4.3% of sales in 1999, as compared to $5.9 million, or 4.5% of sales in 1998, an increase of $250,000 primarily as a result of debt incurred in connection with new store openings and store acquisitions. CAPITAL EXPENDITURES Capital expenditures were $19.5 million, $17.0 million and $12.9 million in 2000, 1999 and 1998, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. The Company anticipates that store maintenance, store remodel and store renovation capital expenditures for 2001 will approximate $3.4 million. The level of capital expenditures for new store development and acquisitions will be dependent upon several factors, including the number of stores remodeled, constructed and/or acquired, the availability of appropriate financing as well as the capital structure of any such transactions. LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the original acquisition of Sybra, debt service on built and acquired Arby's units, operating lease requirements and the funding of capital expenditures primarily for new store openings. As of December 31, 2000, the Company had total long-term debt of $87.2 million, which included $25.9 million under a term facility with Atherton Capital Incorporated (the "Atherton Loan"), $15.3 million under three term loans with FINOVA Capital Corporation (the "FINOVA Loans"), a $7.0 million line of credit borrowing with FINOVA and certain other indebtedness totaling $39.0 million. The Atherton Loan has a weighted-average maturity of 12.5 years (of which approximately 8.7 years remain), bears interest at 10.63%, requires monthly payments of principal and interest, is collateralized by substantially all of the assets owned by Sybra at the time it was acquired by 13 the Company and imposes certain financial restrictions and covenants. The FINOVA Loans have original maturities of 10 to 15 years, interest rates ranging from 10.10% to 10.88%, require monthly payments of principal and interest and are collateralized by certain restaurant assets as defined in the respective loan agreements. The $7.0 million line of credit with FINOVA requires monthly payments of interest only equal to the prime rate plus 2.0% through June, 2003, at which time any unpaid balance can be paid or converted to a term loan. If converted, the term loan requires monthly payments of principal and interest through June, 2010. As previously noted, on January 13, 2001 the Company sold its Lyon's subsidiary. The sales price for that transaction was $16.2 million, which consisted principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. Should the Company be required to make payment on this assumed indebtedness, such payment could have a material adverse effect on the Company. The Company's primary source of liquidity during the year was the operation of the restaurants owned by Sybra, its principal operating subsidiary and debt and lease financing. In the future, the Company's liquidity and capital resources will primarily depend on the operations and cash flow of Sybra. Sybra, like most restaurant businesses, is able to operate with nominal or deficit working capital because all sales are for cash and inventory turnover is rapid. Renovation and/or remodeling of existing restaurants is either funded directly from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new restaurants is generally, although not always, financed by outside lenders. During 2000, the restaurant industry encountered generally tightening credit markets, including those markets which have historically financed new restaurant development. The condition of those credit markets could adversely affect the Company's ability to secure adequate financing on acceptable terms for new restaurant construction and/or acquisition, and could in turn impact the Company's ability to meet its obligations under the Development Agreement. The Company also incurred significant cash charges as a result of payments required to be made in connection with (1) the departure of the former CEO in June, 2000, and (2) the disposition of the Lyon's subsidiary in January, 2001. Despite these charges, and although no assurances can be given, the Company believes that cash generated from operations will be adequate to meet its needs for the foreseeable future. SUBSEQUENT EVENTS Effective January 2, 2001, Sybra entered into a 10-year beverage supply agreement with Coca-Cola North America Fountain, a division of the Coca-Cola company. The agreement provides that, with certain very limited exceptions, Coca-Cola will be the exclusive supplier of fountain beverages to Sybra's Arby's restaurants. On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sale price for the transaction was $16.2 million, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6.2 million which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4.5 million. 14 Effective February 13, 2001, Ronald W. Cegnar and Bruce M. Kallins were appointed to the Company's board of directors to fill vacancies created by the resignation of two outside directors in July, 2000. Mr. Cegnar has 24 years experience in the food-service industry and is currently a partner of CEO Partners, Inc., a restaurant industry consulting firm. Mr. Kallins is a CPA and president of Yakira Partners, L.P., a $40 million hedge fund. INFLATION Certain of the Company's operating costs are subject to inflationary pressures, of which the most significant are food, labor and utility costs. As of December 31, 2000, a significant percentage of the Company's employees were paid wages equal to or based on the federal or applicable state minimum hourly wage rate. An increase in the minimum wage and/or economic growth that would reduce unemployment or make more jobs available in higher paying industries would directly affect the Company's labor costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 23, 2001. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 23, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 23, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of stockholders to be held May 23, 2001. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements on page F-1.
PAGE -------- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
2. FINANCIAL STATEMENT SCHEDULES Schedules have been omitted either because the required information is shown in the consolidated financial statements or notes thereto or they are not applicable. 3. EXHIBITS The exhibits to this Report are listed on the accompanying Index to Exhibits and are incorporated herein by reference or are filed as part of this Annual Report on Form 10-K. (b) REPORTS ON FORM 8-K None. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. I.C.H. CORPORATION (Registrant)
NAME TITLE DATE ---- ----- ---- /s/ JOHN A. BICKS ------------------------------------------- Co-Chairman of the Board and March 30, 2001 John A. Bicks Chief Executive Officer /s/ ROBERT H. DRECHSLER ------------------------------------------- Co-Chairman of the Board and March 30, 2001 Robert H. Drechsler Chief Executive Officer /s/ GLEN V. FRETER ------------------------------------------- Senior Vice President and March 30, 2001 Glen V. Freter Chief Financial Officer /s/ RONALD W. CEGNAR ------------------------------------------- Director March 30, 2001 Ronald W. Cegnar /s/ BRUCE M. KALLINS ------------------------------------------- Director March 30, 2001 Bruce M. Kallins /s/ CARL D. ROBINSON ------------------------------------------- Director March 30, 2001 Carl D. Robinson /s/ RAYMOND L. STEELE ------------------------------------------- Director March 30, 2001 Raymond L. Steele
17 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE -------- I.C.H. CORPORATION AND SUBSIDIARIES: Report of Independent Accountants......................... F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999.................................................... F-3 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998........................ F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998............ F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998........................ F-6 Notes to Consolidated Financial Statements................ F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors I.C.H. Corporation In our opinion, the accompanying consolidated balance sheets of I.C.H. Corporation and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, of stockholders' equity and of cash flows for each of the three years in the period ended December 31, 2000 present fairly, in all material respects, the financial position of I.C.H. Corporation and Subsidiaries at December 31, 2000 and 1999, and results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Diego, California February 23, 2001 F-2 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 6,172 $ 15,085 Accounts receivable....................................... 158 735 Inventories............................................... 2,563 2,867 Deferred income taxes..................................... 3,413 1,029 Other current assets...................................... 1,797 2,769 -------- -------- Total current assets.............................. 14,103 22,485 Property and equipment, net................................. 57,710 54,461 Intangible assets, net...................................... 40,815 47,622 Deferred income taxes, net.................................. 2,577 70 Other assets................................................ 5,210 8,018 -------- -------- Total assets...................................... $120,415 $132,656 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 7,080 9,962 Accrued liabilities....................................... 8,032 11,539 Accrued loss from sale of discontinued operations......... 3,141 -- Current portion of long-term debt......................... 4,915 4,295 Current portion of capital lease obligations.............. 536 244 -------- -------- Total current liabilities......................... 23,704 26,040 Noncurrent liabilities: Long-term debt............................................ 82,258 78,009 Long-term capital lease obligations....................... 3,069 2,174 Other liabilities......................................... 5,975 7,113 -------- -------- Total liabilities................................. 115,006 113,336 -------- -------- Stockholders' equity: Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding............................. -- -- Common stock, $0.01 par value; 19,000,000 authorized; 2,811,636 outstanding (see note 8)...................... 28 28 Paid-in capital........................................... 12,290 12,662 Retained earnings (deficit)............................... (6,909) 6,630 -------- -------- Total stockholders' equity........................ 5,409 19,320 -------- -------- Total liabilities and stockholders' equity........ $120,415 $132,656 ======== ========
See Notes to Consolidated Financial Statements. F-3 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31: ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Revenue and other income: Restaurant sales....................................... $ 162,568 $ 144,541 $ 131,312 Other.................................................. 1,096 469 1,717 ---------- ---------- ---------- Total revenues........................................... 163,664 145,010 133,029 Costs and expenses: Restaurant costs and expenses.......................... 133,322 117,129 108,076 General and administrative............................. 11,755 11,417 8,887 Depreciation and amortization.......................... 5,810 4,495 4,885 Other.................................................. -- -- 691 Non-recurring/restructuring charges.................... 4,920 -- -- ---------- ---------- ---------- Operating income......................................... 7,857 11,969 10,490 Interest expense......................................... 8,471 6,150 5,901 ---------- ---------- ---------- Income (loss) from continuing operations before income taxes.................................................... (614) 5,819 4,589 Provision for income taxes............................... 279 2,357 1,944 ---------- ---------- ---------- Income (loss) from continuing operations................. (893) 3,462 2,645 Income (loss) from discontinued operations............... (8,018) 1,632 271 Gain (loss) from sale of discontinued operations......... (4,510) -- 388 ---------- ---------- ---------- Net income (loss)........................................ $ (13,421) $ 5,094 $ 3,304 ========== ========== ========== Income (loss) from continuing operations per share: Basic.................................................. $ (.31) $ 1.24 $ 1.01 Diluted................................................ $ (.31) $ 1.00 $ .91 Income (loss) from discontinued operations per share: Basic.................................................. $ (2.80) $ .58 $ .10 Diluted................................................ $ (2.80) $ .47 $ .09 Gain (loss) from sale of discontinued operations per share: Basic.................................................. $ (1.58) -- $ .15 Diluted................................................ $ (1.58) -- $ .13 Net income (loss) per share: Basic.................................................. $ (4.69) $ 1.82 $ 1.26 Diluted................................................ $ (4.69) $ 1.47 $ 1.14 Weighted-average common shares outstanding (see note 8): Basic.................................................. 2,861,000 2,799,000 2,620,000 Diluted................................................ 3,094,000 3,475,000 2,903,000
See Notes to Consolidated Financial Statements. F-4 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE AMOUNTS)
COMMON STOCK RETAINED TOTAL --------------------- PAID-IN EARNINGS STOCKHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) EQUITY ---------- -------- -------- --------- ------------- Balance at December 31, 1997.............. 2,549,281 $26 $12,026 $ (864) $ 11,188 Issuance of common stock upon exercise of options................................. 117,334 1 533 -- 534 Net income................................ -- -- -- 3,304 3,304 ---------- --- ------- -------- -------- Balance at December 31, 1998.............. 2,666,615 27 12,559 2,440 15,026 Issuance of common stock upon exercise of options and warrants.................... 314,901 3 868 -- 871 Repurchases of common stock............... (169,873) (2) (765) (904) (1,671) Net income................................ -- -- -- 5,094 5,094 ---------- --- ------- -------- -------- Balance at December 31, 1999.............. 2,811,643 28 12,662 6,630 19,320 Issuance of common stock upon exercise of options................................. 172,869 2 735 -- 737 Repurchases of common stock............... (172,876) (2) (1,107) (118) (1,227) Net loss.................................. -- -- -- (13,421) (13,421) ---------- --- ------- -------- -------- Balance at December 31, 2000.............. 2,811,636 $28 $12,290 $ (6,909) $ 5,409 ========== === ======= ======== ========
See Notes to Consolidated Financial Statements. F-5 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31: ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- (IN THOUSANDS EXCEPT SHARE AMOUNTS) Cash flows from operating activities: Income (loss) from continuing operations.................. $ (893) $ 3,462 $ 2,645 Adjustments to reconcile income (loss) from continuing operations to cash from operating activities: Depreciation and amortization........................... 5,810 4,495 4,885 Deferred income taxes................................... 920 1,822 302 Changes in current assets and liabilities: Accounts receivable..................................... 275 (28) (711) Inventories............................................. (575) 11 (560) Accounts payable and accrued expenses................... (595) (560) 5,193 Other, net.............................................. 255 774 (1,412) -------- -------- -------- Net cash provided by operating activities............. 5,197 9,976 10,342 -------- -------- -------- Cash flows from investing activities: Capital expenditures...................................... (19,475) (17,000) (12,869) Proceeds from disposition of property and equipment....... -- 740 758 Acquisition of Lyon's Restaurants......................... -- -- (23,233) Acquisition of restaurant properties...................... (4,859) (1,870) (5,642) Sale of subsidiary........................................ -- -- 2,955 Other, net................................................ (1,155) 37 397 -------- -------- -------- Net cash used by investing activities................. (25,489) (18,093) (37,634) -------- -------- -------- Cash flows from financing activities: Borrowings on credit agreement............................ 7,000 -- -- Proceeds from issuance of long-term debt and capital lease obligations, net of expenses............................ 21,327 24,839 25,182 Repayment of long-term debt and capital lease obligations............................................. (6,281) (9,366) (2,930) Repayment of debt to former owner of Sybra................ -- (2,000) -- Proceeds from sale of common stock, exercise of stock options................................................. 737 871 534 Repurchases of common stock............................... (1,227) (1,671) -- Other, net................................................ -- -- 5,174 -------- -------- -------- Net cash provided by financing activities............. 21,556 12,673 27,960 -------- -------- -------- Net cash provided (used) by discontinued operations......... (10,177) 1,294 4,149 -------- -------- -------- Net change in cash and cash equivalents..................... (8,913) 5,850 4,817 Cash and cash equivalents at beginning period............... 15,085 9,235 4,418 -------- -------- -------- Cash and cash equivalents at end of period.................. $ 6,172 $ 15,085 $ 9,235 ======== ======== ======== Supplemental non-cash disclosures: Cash paid for: Income taxes............................................ $ 1,007 $ 1,645 $ 1,841 Interest................................................ $ 8,471 $ 6,150 $ 5,901
See Notes to Consolidated Financial Statements. F-6 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BUSINESS AND PRESENTATION The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, Sybra, Inc. ("Sybra"). All significant intercompany accounts and transactions have been eliminated. On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sale price for the transaction was $16,200, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6,200 which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4,500. Lyon's sales for the years ended December 31, 2000, 1999 and 1998 (from the date of the Company's acquisition of Lyons, December 14, 1998) were $91,400, $99,900 and $7,000, respectively. SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR. The Company operates on a calendar year basis. Sybra, however, uses a 52/53 week fiscal year ending on the last Saturday of the year. Accordingly, the accompanying financial statements include Sybra's results for the periods ended December 30, 2000, January 1, 2000 and January 2, 1999. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Interest income on cash equivalents was $352, $319 and $50 for the years ended December 31, 2000, 1999 and 1998. FOOD AND SUPPLIES INVENTORIES. Food and supplies inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less accumulated depreciation and amortization. Normal repairs and maintenance costs are expensed as incurred. Depreciation is being recorded on a straight-line basis over the following estimated useful lives: Buildings................................................... 40 years Restaurant equipment........................................ 5-10 years
Buildings under capitalized leases and leasehold improvements are amortized on a straight-line basis over the lesser of the lease term or the estimated useful lives of the assets. INTANGIBLES. Franchise agreements with Arby's, Inc. require Sybra to pay a franchise fee for each new restaurant developed and DE MINIMIS renewal fees for franchises that have expired. Each franchise agreement provides Sybra the right to operate an Arby's restaurant for a period of 20 years and is renewable by Sybra, subject to certain conditions, for varying terms of up to 20 years. Franchise fees are capitalized and amortized using the straight-line method over 40 years. F-7 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Acquired royalty rights, representing the fair value of favorable royalty rates of acquired franchises, are capitalized and amortized on a straight-line basis over 20 years or the remaining life of the franchise agreement, whichever is less. Equity in operating leases, representing the estimated fair value of favorable base rental rates is amortized on a straight-line basis over 20 years or the remaining life of the lease, including option periods, whichever is less. Goodwill is amortized using the straight-line method over 40 years. At each balance sheet date, the Company evaluates the realizability of goodwill based upon expectations of operating income for the restaurants as a group. The Company believes that no material impairment of goodwill exists at December 31, 2000. INCOME TAXES. Deferred income taxes are computed using the liability method, which provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes (see Note 9). ADVERTISING EXPENSES. All advertising costs are expensed as incurred. Advertising expenses were approximately $10,000, $8,800 and $8,000 for the years ended December 31, 2000, 1999 and 1998. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and in the disclosure of contingent assets and liabilities. While actual results could differ from those estimates, management believes that actual results will not be materially different from amounts provided in the accompanying consolidated financial statements. RECLASSIFICATION. Certain amounts from prior periods have been reclassified to conform to the current year presentation. 2. OTHER CURRENT ASSETS Other current assets consist of the following as of December 31:
2000 1999 -------- -------- Prepaid rent................................................ $1,023 $1,518 Other prepaid expenses...................................... 774 1,251 ------ ------ Other current assets........................................ $1,797 $2,769 ====== ======
F-8 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 3. INTANGIBLES Intangible assets, net, consist of the following as of December 31:
2000 1999 -------- -------- Franchise rights.......................................... $ 5,894 $ 5,299 Other intangibles, excluding goodwill..................... 7,701 8,781 Goodwill.................................................. 32,184 37,458 ------- ------- Total................................................... 45,779 51,538 Less accumulated amortization............................. 4,964 3,916 ------- ------- Intangible assets, net.................................... $40,815 $47,622 ======= =======
4. PROPERTY AND EQUIPMENT Property and equipment, net, consist of the following as of December 31:
2000 1999 -------- -------- Land...................................................... $ 1,263 $ 1,340 Buildings................................................. 21,631 22,866 Leasehold improvements.................................... 12,403 11,452 Restaurant equipment...................................... 25,813 21,880 Construction in progress.................................. 8,358 5,468 ------- ------- Total................................................... 69,468 63,006 Less accumulated depreciation and amortization............ 11,758 8,545 ------- ------- Property and equipment, net............................... $57,710 $54,461 ======= =======
5. LEASES The Company leases substantially all of the land and buildings used in its restaurant operations under non-cancelable leases with remaining lease terms of one to twenty years. In many cases, the leases provide for one or more renewal options. The leases generally require the Company to pay property taxes, insurance, maintenance and other operating costs of the properties. Some also require contingent rent payments based on a percentage of restaurant sales. Base rent expense for operating leases for the years ended December 31, 2000, 1999 and 1998 was approximately $12,200, $10,500 and $9,500, respectively. Additional contingent rent payments were approximately $554, $550 and $463 for the same periods, respectively. F-9 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 5. LEASES (CONTINUED) The Company's future minimum rental commitments as of December 31, 2000 for all non-cancelable capital and operating leases are as follows:
FISCAL YEAR CAPITAL LEASES OPERATING LEASES - ----------- -------------- ---------------- 2001............................................ $ 978 $ 14,147 2002............................................ 978 13,892 2003............................................ 978 13,341 2004............................................ 973 12,372 2005............................................ 647 11,426 Thereafter...................................... 516 93,255 ------ -------- Total......................................... 5,070 $158,433 ======== Less amount representing interest............... 1,465 ------ Present value of future minimum lease payments...................................... $3,605 ======
6. ACCRUED LIABILITIES Accrued liabilities consist of the following as of December 31:
2000 1999 -------- -------- Employee related........................................... $2,254 $ 4,218 Property and other taxes................................... 2,156 3,022 Insurance related.......................................... 941 1,447 Other...................................................... 2,681 2,852 ------ ------- Total.................................................... $8,032 $11,539 ====== =======
F-10 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 7. LONG-TERM DEBT Long-term debt consists of the following as of December 31:
2000 1999 -------- -------- Term loan, 10.63%, payable monthly through 2012........... $25,904 $30,272 Term loan, 10.88%, payable monthly through 2010........... 8,002 8,500 Term loan, 10.53%, payable monthly through 2015........... 5,355 5,500 Term loan, 10.10%, payable monthly through 2015........... 4,373 -- Term loan, 12.75%, payable monthly through 2011........... -- 15,927 Other term loans, 8.5% to 10.93%, payable monthly through 2020.................................................... 33,325 18,891 Line of credit............................................ 7,000 -- Other..................................................... 3,214 3,214 ------- ------- 87,173 82,304 Less current portion...................................... 4,915 4,295 ------- ------- Total long-term debt.................................... $82,258 $78,009 ======= =======
The term loans are collateralized by leasehold mortgages and by substantially all of the restaurant equipment owned by Sybra. The proceeds of the term loans were used to fund the acquisition of Sybra and to build or acquire additional Arby's units. The loan agreements contain covenants which require, among other things, the maintenance of a minimum fixed charge coverage ratio, restrictions that limit the payment of dividends, and other provisions and restrictive covenants as set forth in the respective loan agreements. The Company has a $7,000 revolving credit agreement with a financial institution. That credit agreement requires monthly payments of interest only equal to the prime rate plus 2.0% through June, 2003, at which time any unpaid balance can be paid or converted to a term loan. If converted, the term loan requires monthly payments of principal and interest through June, 2010. At December 31, 2000, long-term debt had a fair value that approximates the carrying value. The aggregate maturities of long-term debt at December 31, 2000 are as follows:
FISCAL YEAR - ----------- 2001........................................................ $ 4,915 2002........................................................ 5,403 2003........................................................ 5,699 2004........................................................ 5,585 2005........................................................ 5,817 Thereafter.................................................. 59,754 ------- $87,173 =======
F-11 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 8. EQUITY AND EARNINGS PER COMMON SHARE Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share assumes the issuance of common stock for all potentially dilutive securities outstanding. The following table sets forth the computation of basic and diluted earnings per share from continuing operations.
YEAR ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Numerator: Income from continuing operations for computation of basic earnings per share and diluted earnings per share................................................ $ (893) $ 3,462 $ 2,645 ========== ========== ========== Denominator: Weighted-average shares for computation of basic earnings per share.......................... 2,861,000 2,799,000 2,620,000 Shares issuable upon exercise of dilutive stock options.............................................. 233,000 676,000 283,000 ---------- ---------- ---------- Weighted-average shares for computation of diluted earnings per share................................... 3,094,000 3,475,000 2,903,000 ========== ========== ========== Basic earnings per share............................... $ (.31) $ 1.24 $ 1.01 Diluted earnings per share............................. $ (.31) $ 1.00 $ .91
Basic net income per share is computed based on the weighted-average number of common shares outstanding during the year. Because of the net loss for the year ended December 31, 2000, basic and diluted loss per share are calculated based on the same weighted average number of shares outstanding. As of February 19, 1997, the Company declared a dividend of one right (collectively, the "Rights") for each share of the Company's common stock. Each Right represents the right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock (the "Junior Preferred Stock"). The Rights, as amended, have an exercise price of $20.00 per right and are exercisable until February 19, 2007. Ten thousand shares of the Company's authorized preferred stock have been designated as the Junior Preferred Stock and have been reserved for issuance upon the exercise of the Rights. The Rights are not exercisable until the occurrence of those "triggering events" detailed in the Rights Agreement by and between the Company and the Mid-America Bank of Louisville and Trust Company. Upon the occurrence of any of such triggering events, all holders of Rights (other than the holder that caused the triggering event to occur) will thereafter have the right to receive upon exercise that number of shares of the Company's common stock having a market value of two times the exercise price of the Right. The Junior Preferred Stock has voting rights equal to 1,000 votes per share and is entitled to receive dividends, on a cumulative basis, payable in cash, equal to 1,000 times the aggregate per share amount of all cash dividends or all non-cash dividends or other distributions declared on the Company's common stock. Upon liquidation, the Junior Preferred Stock is entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to the holders of shares of common stock plus any accrued and unpaid dividends. F-12 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 9. INCOME TAXES Total income tax provisions (benefits) are as follows and are related to:
FOR THE YEARS ENDED DECEMBER 31: ------------------------------ 2000 1999 1998 -------- -------- -------- Income from continuing operations.................. $ 279 $2,357 $1,944 Income (loss) from discontinued operations......... (4,061) 1,110 199 Gain (loss) from sale of discontinued operations... (2,277) -- (1,182) ------- ------ ------ $(6,059) $3,467 $ 961 ======= ====== ======
The provision (benefit) for income taxes on income from continuing operations consists of:
FOR THE YEARS ENDED DECEMBER 31: ------------------------------ 2000 1999 1998 -------- -------- -------- Current............................................ $ (641) $ 535 $1,642 Deferred........................................... 920 1,822 302 ------- ------ ------ $ 279 $2,357 $1,944 ======= ====== ======
Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ----------------------- 2000 1999 ---------- ---------- Property and equipment related...................... $ 3,115 $ 2,167 Losses related to discontinued operations deductible for tax purposes in 2001.......................... 5,463 -- Nondeductible reserves and other.................... 1,701 3,404 ------- ------- Deferred tax assets............................. 10,279 5,571 Deferred tax liabilities, principally nondeductible amortization of intangibles....................... (3,854) (4,235) Valuation allowance................................. (435) (237) ------- ------- Net deferred tax asset.......................... $ 5,990 $ 1,099 ======= ======= Presented in the balance sheet as: Current asset..................................... $ 3,413 $ 1,029 Noncurrent asset.................................. 2,577 70 ------- ------- $ 5,990 $ 1,099 ======= =======
Deferred tax assets at December 31, 2000 include the tax effect of approximately $16,000 of pre-tax losses recognized during 2000 in connection with the discontinuance of the Company's Lyon's restaurant operations (sold on January 13, 2001). These losses will be deductible on the Company's 2001 consolidated income tax return and, to the extent not utilized in 2001, will be available as a carryforward to reduce income taxes in future years. F-13 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 9. INCOME TAXES (CONTINUED) The valuation allowance at December 31, 2000 relates to a capital loss carryforward. Except for this item, management considers it more likely than not that the Company will realize the benefits of its deferred tax assets. A reconciliation of the Federal statutory income tax rate to the Company's effective tax rate follows:
FOR THE YEARS ENDED DECEMBER 31: ------------------------------ 2000 1999 1998 -------- -------- -------- Expected tax expense, at the federal statutory rate of 34%............................................. $(209) $1,978 $1,560 State income taxes, net.............................. 435 379 217 Other, net........................................... 53 -- 167 ----- ------ ------ $ 279 $2,357 $1,944 ===== ====== ======
10. STOCK OPTION PLANS The Company has two fixed option plans, the I.C.H. Corporation 1997 Employee Stock Option Plan, as amended (the "ESP"), and the I.C.H. Corporation 1997 Director Stock Option Plan (the "DSP"). Under the ESP, the Company may grant incentive stock options with specific vesting periods and non-qualifying options to eligible officers and employees for the purchase of up to an aggregate of 1,500,000 shares of common stock. Under the DSP, the Company may grant non-qualifying options to eligible directors for the purchase of up to an aggregate of 400,000 shares of common stock. Under both plans, the exercise price of each option is equal to the estimated fair value of the Company's stock on the date of grant. Stock options granted under both plans have 10-year terms and generally vest ratably over four years. F-14 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 10. STOCK OPTION PLANS (CONTINUED) A summary of the Company's stock option plans as of December 31, 2000 and the changes during the three years ended December 31, 2000 are presented as follows:
WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- Outstanding at December 31, 1997.................. 695,000 $3.10 Granted......................................... 510,000 3.87 Exercised....................................... (117,000) 2.17 Canceled........................................ (23,000) 3.57 ---------- ----- Outstanding at December 31, 1998.................. 1,065,000 3.56 Granted......................................... 430,000 9.13 Exercised....................................... (315,000) 3.07 Canceled........................................ (12,000) 3.67 ---------- ----- Outstanding at December 31, 1999.................. 1,168,000 5.68 Granted......................................... 97,000 6.34 Exercised....................................... (173,000) 4.21 Canceled........................................ (97,000) 5.38 ---------- ----- Outstanding at December 31, 2000.................. 995,000 $6.04 ========== ===== Exercisable at December 31, 2000.................. 417,000 $4.47 ========== =====
F-15 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 10. STOCK OPTION PLANS (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------- -------------------- WEIGHTED- AVERAGE REMAINING WEIGHTED- WEIGHTED- CONTRACTUAL AVERAGE AVERAGE LIFE IN EXERCISE EXERCISE RANGE OF EXERCISE PRICES SHARES YEARS PRICE SHARES PRICE - ------------------------ -------- ----------- --------- -------- --------- $2.17 to $3.09............... 146,000 6.48 $ 3.03 121,000 $ 3.03 $3.38 to $4.00............... 356,000 7.19 3.76 212,000 3.77 $4.38 to $5.00............... 75,000 7.76 4.88 29,000 4.84 $5.06 to $6.25............... 165,000 8.86 5.88 10,000 5.81 $7.25 to $8.50............... 46,000 7.60 7.53 12,000 7.73 $10.88 to $13.50............. 207,000 3.34 12.26 33,000 12.35 ------- ---- ------ ------- ------ $2.17 to $13.50.............. 995,000 6.63 $ 6.04 417,000 $ 4.47 ======= ==== ====== ======= ======
The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost is recognized for grants of stock options to employees with exercise prices at least equal to the fair value of the Company's common stock on the date of grant. Had compensation cost been determined in accordance with the provisions of SFAS No. 123, "Accounting for Stock Based Compensation," the income from continuing operations per share would have been changed to the pro forma amounts indicated below:
FOR THE YEARS ENDED DECEMBER 31: ------------------------------ 2000 1999 1998 -------- -------- -------- Income (loss) from continuing operations--as reported...... $ (893) $3,462 $2,645 ======= ====== ====== Income (loss) from continuing operations--pro forma........ $(1,265) $3,130 $2,508 ======= ====== ====== Basic per share -- as reported........................................... $ (.31) $ 1.24 $ 1.01 -- pro forma............................................. $ (.44) $ 1.12 $ .96 Diluted per share -- as reported........................................... $ (.31) $ 1.00 $ .91 -- pro forma............................................. $ (.44) $ .90 $ .86
The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions: a risk-free interest rate range of 5.69%-6.35%; volatility factor of the expected market price of the Company's common stock of 46.6%; expected lives of 2-5 years; and a dividend yield of 0%. The weighted average fair value of options granted was $2.76 in 2000 and $3.97 in 1999. F-16 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 11. BENEFIT PLANS The Company maintains a defined contribution 401(k) plan known as the ICH Corporation 401(k) Savings Plan (the "Retirement Plan"). The Retirement Plan permits eligible employees to defer a portion of their compensation (1% to 15%, up to certain maximum limitations established by law) through payroll deductions. The Company may, at its discretion, contribute to the Retirement Plan on behalf of participating employees based on a matching formula or other method. No matching contributions were made to the Retirement Plan for the years ending December 31, 2000, 1999 or 1998. 12. COMMITMENTS AND CONTINGENCIES DEVELOPMENT AGREEMENT WITH ARBY'S The Company is a party to a development agreement ("the Development Agreement") with Arby's, Inc., the franchisor of the Arby's brand. The Development Agreement contains certain requirements regarding the number of units to be opened by Sybra in the future. Should Sybra fail to comply with the required development schedule or with the operating requirements for restaurants within areas covered by the Development Agreement, Arby's could terminate the exclusive nature of Sybra's franchise in those areas and Sybra could forfeit certain prepaid fees. The Development Agreement also provides Arby's with certain rights regarding the Company's business operations and any transfer of significant portions of assets owned by Sybra. Commitments under the Development Agreement require payments aggregating $670 over the next three (3) years. LEGAL PROCEEDINGS A former Lyon's restaurant manager has filed a lawsuit on behalf of himself and others allegedly similarly situated, in Superior Court for Sacramento County, California seeking, among other things, overtime compensation. The action, entitled WILLIAM SHIELDS V. LYON'S RESTAURANTS, INC. ET AL., was originally filed on April 27, 2000 and seeks certification of a class of plaintiffs consisting of current and former Lyon's restaurant managers employed by Lyon's or by the former owner of the Lyon's chain. The suit alleges that Lyon's required managers to spend more than 50% of their working time performing non-management tasks, thus entitling them to overtime compensation. The Company contends that Lyon's properly classifies its managers as salaried employees, who are thereby exempt from the payment of overtime compensation. The Company has thus far and will continue to defend this suit vigorously. While the ultimate legal and financial liability of the Company and/or its subsidiaries with respect to this action cannot be estimated with certainty at this time, the Company has recorded, as a liability, a provision for its estimate of a probable amount of loss related to this suit. Management believes it unlikely that the ultimate liability for this suit will materially exceed the recorded liability at December 31, 2000. Various legal proceedings are pending against the Company, all of which involve routine litigation incidental to the Company's businesses. The consequences of these matters are not presently determinable but, in the opinion of the management of the Company after consulting with legal counsel, the ultimate liability is not expected to have a material effect on the results of operations, financial position, liquidity or capital resources of the Company. F-17 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) GUARANTEE OF FORMER SUBSIDIARY TERM DEBT As previously discussed, the Company sold its Lyon's subsidiary January 13, 2001. That transaction requires the Company to remain contingently liable on certain Lyon's term debt assumed by the purchaser. The principal balance of that term debt as of January 13, 2000 was approximately $13,120. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. Should the Company be required to make payment on this assumed indebtedness, such payment could have a material adverse affect on the Company. 13. NON-RECURRING AND RESTRUCTURING CHARGES During 2000, the Company recorded a $4,900 charge related to contractual obligations of the Company related to the departure of the former CEO of the Company. 14. RETIREE LIABILITY During 1998, the Company assumed the liabilities associated with a post-retirement healthcare and life insurance plan in return for a lump sum cash payment of approximately $4,900. Health benefits under such plan are insured and include major medical coverage with deductible and co-insurance providers, and in some cases such benefits are supplemental to Medicare benefits. The plan provides that current participants do not earn any future benefits and provides that certain of the participants pay for a portion of their coverage. The net present value of these future benefits at December 31, 2000 was approximately $4,500. The liability was calculated assuming a 7.75% discount rate and assuming that medical costs would initially increase at a rate of 10% per annum, declining over a period of 10 years to 5.75%. 15. QUARTERLY DATA (UNAUDITED) The results for each quarter (which have been restated to reflect the discontinued Lyon's subsidiary) include all adjustments which are, in the opinion of management, necessary for a fair F-18 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN 000'S EXCEPT SHARE AMOUNTS) 15. QUARTERLY DATA (UNAUDITED) (CONTINUED) presentation of the results of operations for the interim periods. Selected consolidated data for each quarter within 2000 and 1999 are as follows:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- YEAR ENDED DECEMBER 31, 2000: Restaurant sales......................... $37,921 $38,541 $40,997 $45,109 Income from continuing operations........ 548 (2,802) 346 1,015 Income from continuing operations per share: Basic.................................. $.19 $(.97) $.12 $.36 Diluted................................ $.17 $(.97) $.11 $.34 YEAR ENDED DECEMBER 31, 1999: Restaurant sales......................... $34,547 $35,712 $36,192 $38,090 Income from continuing operations........ 434 924 802 1,302 Income from continuing operations per share: Basic.................................. $.16 $.33 $.28 $.46 Diluted................................ $.13 $.26 $.23 $.38
F-19 INDEX TO EXHIBITS
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - --------------------- ----------- -------- 10.35 Amended and Restated Employment Agreement, dated as of June 29, 2000 between I.C.H. Corporation and John A. Bicks 10.36 Amended and Restated Employment Agreement, dated as of June 29, 2000 between I.C.H. Corporation and Robert H. Drechsler 10.37 Beverage Marketing Agreement, dated December 22, 2000 between Sybra, Inc. and Coca-Cola North America Fountain.
II-1 EX-10.35 2 a2043156zex-10_35.txt EXHIBIT 10.35 Exhibit 10.35 I.C.H. CORPORATION AMENDED AND RESTATED EMPLOYMENT AGREEMENT JOHN A. BICKS THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is effective as of the 29th day of June, 2000, by and between I.C.H. Corporation ("ICH"), a Delaware corporation with offices at 9255 Towne Centre Drive, Suite 600, San Diego, CA 92121, and its subsidiaries, Sybra, Inc., a Michigan corporation ("Sybra"), Lyon's of California, Inc., a California corporation ("Lyon's"), and Care Financial Corp., a Delaware corporation ("Care", and collectively, with ICH, Sybra and Lyons, the "Companies"), each with offices at c/o I.C.H. Corporation, 9255 Towne Centre Drive, Suite 600, San Diego, California 92121 and John A. Bicks, an individual residing at 1070 Park Avenue, New York, New York 10128 (the "Executive"). WHEREAS, Executive has served as Executive Vice President and General Counsel and in similar capacities for each of the other Companies pursuant to his prior employment agreement with ICH and the other Companies dated as of September 1, 1999 (the "Prior Agreement") and through such service, has acquired special and unique knowledge, abilities and expertise; and WHEREAS, ICH desires to employ Executive as its Co-Chief Executive Officer and to have Executive serve as Co-Chairman of the Board of Directors of ICH (the "ICH Board") and the other Companies desire to employ Executive in similar capacities and the Companies desire to employ Executive in such capacities with any future subsidiaries of the Companies and wish to be assured of his continued services on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to be employed by ICH as its Co-Chief Executive Officer and to serve as Co-Chairman of the ICH Board, and by the other Companies and any future subsidiaries of the Companies in similar capacities and to perform and to serve the Companies on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, agreements and covenants set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. (a) DUTIES. The Companies hereby agree to employ Executive, and Executive hereby accepts such employment as the Co-Chief Executive Officer of ICH and agrees to serve as Co-Chairman of the ICH Board and as Co-Chief Executive Officer and Co-Chairman of the Board of Directors of each of the other Companies. In his role as Co-Chief Executive Officer of ICH and the other Companies, Executive shall be responsible for duties of a supervisory or managerial nature as may be directed from time to time by the ICH Board and each other respective Board of Directors, provided, that such duties are reasonable and customary for an Co-Chief Executive Officer. Executive agrees that he shall, during the term of this Agreement, except during reasonable vacation periods, periods of illness and the like, devote substantially all his business time, attention and ability to his duties and responsibilities hereunder; PROVIDED, HOWEVER, that nothing contained herein shall be construed to prohibit or restrict Executive from (i) serving as a director of any corporation, with or without compensation therefor; (ii) serving in various capacities in community, civic, religious or charitable organizations or trade associations or leagues; or (iii) attending to personal business; PROVIDED, HOWEVER, that no such service or activity permitted in this Section 1(a) shall materially interfere with the performance by Executive of his duties hereunder. Executive shall report directly to the ICH Board and each other Board of Directors. (b) TERM. (i) Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (the "Employment Period") established under this Section 1(b). The initial Employment Period shall be for a term commencing on the date of this Agreement and ending on the third anniversary of the date of this Agreement; provided, however, that commencing on the first day after the date of this Agreement and on each day thereafter, the Employment Period shall be extended for one additional day so that a constant three (3) year Employment Period shall be in effect, unless (A) ICH (on its behalf and on behalf of the other Companies) or Executive elects not to extend the term of this Agreement by giving written notice to the other party in accordance with Sections 4(b) and 11 hereof, in which case, the term of this Agreement shall become fixed and shall end on the third anniversary of the date of such written notice ("Notice of Non-Renewal"), or (B) Executive's employment terminates hereunder. (ii) Notwithstanding anything contained herein to the contrary, (A) Executive's employment with the Companies may be terminated by ICH (on its behalf and on behalf of the other Companies) or Executive during the Employment Period, subject to the terms and conditions of this Agreement; and (B) nothing in this Agreement shall mandate or prohibit a continuation of Executive's employment following the expiration of the Employment Period upon such terms and conditions as the ICH Board and Executive may mutually agree. (iii) If Executive's employment with the Companies is terminated, for purposes of this Agreement, the term "Unexpired Employment Period" shall mean the period commencing on the date of such termination and ending on the last day of the Employment Period. -2- (c) LOCATION/TRAVEL. Executive shall work at ICH's offices in New York, New York. Executive shall not be required to relocate from the New York City area during the Employment Period. 2. COMPENSATION. Subject to the provisions of Section 7 hereof, the Companies shall each be responsible and have joint and several liability for all compensation and benefits owed to Executive under this Agreement. A reference to an ICH plan, program, obligation or commitment shall also be considered an obligation or commitment of each of the other Companies but shall not result in duplicate benefits being paid or provided to Executive. (a) SALARY. Executive shall receive an annual base salary of Three Hundred Thousand Dollars ($300,000). The annual base salary payable to Executive pursuant to this Section 2(a), which may be increased but not decreased by the ICH Board or the Compensation Committee of the ICH Board , shall be hereinafter referred to as the "Annual Base Salary" (it being understood that if and when such Annual Base Salary is increased, it may not be subsequently decreased below such new Annual Base Salary). (b) ANNUAL BONUS. (i) Executive shall be entitled to receive an annual cash bonus, hereinafter referred to as the "Annual Bonus," based upon the performance of ICH and Executive as determined by the ICH Board. The target Annual Bonus payable to Executive for each fiscal year shall be an amount equal to at least forty percent (40%) of Executive's Annual Base Salary for such year. (ii) Executive's Annual Bonus shall be paid to Executive no later than forty five (45) days following the end of the period for which the bonus is being paid. (c) REIMBURSEMENT OF BUSINESS EXPENSES. ICH shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him during the Employment Period, including, but not limited to, all reasonable travel and entertainment expenses. Executive may only obtain reimbursement under this Section 2(c) upon submission of such receipts and records as may be required under the reimbursement policies established by ICH. (d) ADDITIONAL BENEFITS; GENERAL RIGHTS. During the Employment Period, Executive shall be entitled to: (i) participate in all employee stock option, pension, savings, and other similar benefit plans of ICH and/or such other plans or programs of the other Companies as ICH may designate from time to time; -3- (ii) participate in all welfare plans established by ICH such as life insurance, medical, dental, disability, and business travel accident plans and programs and/or such other plan or programs of the other Companies as ICH may designate from time to time. In addition, ICH shall reimburse Executive for (i) any premium costs Executive may incur with respect to the health insurance plan currently maintained by ICH (and which may be maintained by ICH from time to time) in which Executive (and his spouse and children) participates and (ii) for all other medical and dental expenses not covered by any medical or dental plan in which Executive (and his spouse and children) participates, including, without limitation, deductibles and out of pocket expenses; (iii) reimbursement from ICH for any premium costs associated with the life insurance policy in the face amount of Two Million Dollars ($2,000,000) issued by Security Connecticut Life Insurance Company and currently owned by Executive; provided, that such reimbursement shall not exceed Seventy-Five Hundred Dollars ($7,500) per year; (iv) a minimum Four Hundred Dollars ($400) per month parking/transportation allowance; (v) four (4) weeks paid vacation per year; and (vi) any other benefits provided by ICH to its executive officers. (e) WITHHOLDING. ICH and/or the other Companies, as the case may be, shall deduct from all compensation paid to Executive under this Agreement, any Federal, State or city withholding taxes, social security contributions and any other amounts which may be required to be deducted or withheld by the Companies pursuant to Federal, State or city laws, rules or regulations. 3. OPTION GRANT. (a) (i) Executive has received options issued pursuant to ICH's 1997 Employee Stock Option Plan, as amended (the "Stock Option Plan") as follows:
- -------------------------------------------------------------------------------- HEREIN GRANT NUMBER OF EXERCISE VESTING REFERRED DATE SHARES PRICE/SHARE TO AS GRANTED ($) - -------------------------------------------------------------------------------- March 12, 60,000 3.4375 25% installments on March 1998 1998 12, 1998, January 1, 1999, Options January 1, 2000 and January 1, 2001 -4- ------------------------------------------------------------------ September 10,000 4.00 25% installments on 1, 1998 September 1, 1998, January 1, 1999, January 1, 2000 and January 1, 2001 - -------------------------------------------------------------------------------- February 10,000 5.625 25% installments on 1999 15, 1999 February 15, 1999, January Options 1, 2000, January 1, 2001 and January 1, 2002 ------------------------------------------------------------------ May 7, 35,000 12.25 25% installments on May 7, 1999 1999, January 1, 2000, January 1, 2001 and January 1, 2002 - -------------------------------------------------------------------------------- 50% on the grant date and 2000 June 29, 35,000 5.06 25% installments on January Options 2000 1, 2001 and January 1, 2002 - --------------------------------------------------------------------------------
The terms and conditions of each option grant set forth above are memorialized in written option grant agreements between ICH and Executive dated the dates thereof. Such 1998 Options, 1999 Options and 2000 Options plus any additional options granted to Executive in the future (collectively referred to herein as the "Options") shall expire on the tenth anniversary of each respective grant date. (ii) The Options were and are intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED, HOWEVER, that to the extent that any Options do not satisfy the requirements of Section 422(b) of the Code either at the time of grant or before or after exercise, including, without limitation, upon disposition of the underlying stock acquired by the exercise of Options prior to the requisite holding period, they shall be treated as non-qualified stock options. (b) In the event that Executive incurs taxable income as a result of any or all of his Options being treated as non-qualified options (I.E. Options have been exercised and the requirements of Section 422(b) of the Code have not been or are no longer met) (the "Taxable Event") as soon as practicable after a determination by ICH and Executive that the Options are non-qualified and a Taxable Event has occurred, ICH shall make an additional single sum cash payment to Executive in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the Taxable Event. Such payment shall only be made in the event Executive's employment with ICH has not terminated for Cause within the meaning of Section 4(a)(i) of this Agreement. (c) Notwithstanding any provisions in an Option grant agreement to the contrary, upon termination of his employment for any reason, Executive shall have the right to exercise his Options at any time through the tenth anniversary of the grant date of such Options. Executive understands that the effect of exercising any incentive stock options on a day that is more than ninety (90) days after the date of termination of -5- employment (or, in the case of a termination of employment on account of death or disability, on a day that is more than one (1) year after the date of such termination) shall be to cause such incentive stock options to be treated as non-qualified stock options. (d) In the event ICH issues additional shares of Common Stock and/or any class of stock convertible into Common Stock and/or any other security convertible into Common Stock (including, without limitation, options and warrants which may be granted to individuals or entities other than employees and directors but excluding (i) the exercise of any currently outstanding options or warrants, (ii) any future grants of options, but only to the extent such grants relate to shares of Common Stock currently authorized to be granted under the Stock Option Plan or the ICH 1997 Director Stock Option Plan (collectively, the "Option Plans") (I.E. any options that may be granted by virtue of an increase in the number of shares of Common Stock currently authorized under the Option Plans shall not be excluded) and (iii) the exercise of any of such options) at any time during the Employment Period and prior to Executive's termination of employment and in connection with a public or private equity offering or in connection with an acquisition (the "Issuance"), Executive shall be granted additional stock options and/or provided with a loan to purchase Common Stock, as determined by the ICH Board, in an amount equal to three and one-half percent (3.5%) of the number of shares issued pursuant to such Issuance. The foregoing notwithstanding, in the event ICH repurchases any shares of Common Stock, stock convertible into shares of Common Stock and/or any other security convertible into shares of Common Stock, the anti-dilution provisions set forth in this Section 3(d) shall not apply until an equal number of such shares of Common Stock, stock convertible into shares of Common Stock and/or other securities convertible into shares of Common Stock are first reissued by ICH. In addition, equitable adjustments shall be made to such anti-dilution provisions in the event ICH effectuates a stock split, reverse stock split, stock dividend or other recapitalization transaction. (e) To the extent any Options are not vested upon a "Change in Control" of ICH, such unvested Options shall become fully vested and immediately exercisable upon a "Change in Control" of ICH (whether or not such Change in Control is approved of by the Continuing Directors of ICH (as defined in the Rights Agreement between ICH and Mid-America Bank of Louisville and Trust Company dated as of February 19, 1997 and amended as of February 10, 1998)). A "Change in Control" of ICH shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the ICH Board or stockholders of ICH of a transaction that would result in the reorganization, merger, or consolidation of ICH with one or more other "Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), other than a transaction following which: -6- (A) at least seventy-one percent (71%) of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the outstanding equity ownership interests in ICH; and (B) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of ICH; (ii) the acquisition of all or substantially all of the assets of ICH; (iii) a complete liquidation or dissolution of ICH, or approval by the stockholders of ICH of a plan for such liquidation or dissolution; (iv) the occurrence of any event in the nature of an event described in this Section 3(e) if, immediately following such event, at least seventy-five percent (75%) of the members of the ICH Board do not belong to any of the following groups: (A) individuals who were members of the ICH Board on the date of this Agreement; or (B) individuals who first became members of the ICH Board after the date of this Agreement either: (I) upon election to serve as a member of the ICH Board by affirmative vote of three-quarters of the members of such ICH Board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of ICH to serve as a member of the ICH Board, but only if nominated for election by affirmative vote of three-quarters of the -7- members of the ICH Board, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the ICH Board. (v) in a single transaction or a series of related transactions, one or more other Persons, other than an employee benefit plan sponsored by ICH, becomes the "beneficial owner," as such term is used in Section 13 of the Exchange Act, of shares of Common Stock of ICH (including newly issued shares) which equal thirty percent (30%) or more of the issued and outstanding shares of Common Stock of ICH prior to such person or persons becoming such a "beneficial owner." (f) In the event of a conflict between the terms of any Option grant agreement or the Stock Option Plan and this Agreement, the terms of this Agreement shall control. 4. TERMINATION OF EMPLOYMENT; EVENTS OF TERMINATION. (a) Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (i) CAUSE. Executive's employment hereunder shall terminate for "Cause" ten days after the date ICH shall have given Executive notice of the termination of his employment for "Cause". For purposes of this Agreement, "Cause" shall mean (A) the commission by Executive of fraud, embezzlement or an act of serious, criminal moral turpitude against any of the Companies; (B) the commission of an act by Executive constituting material financial dishonesty against any of the Companies; or (C) Executive's gross neglect in carrying out his material duties and responsibilities under this Agreement which has a material adverse effect on any of the Companies and which is not cured within thirty (30) days subsequent to written notice from ICH to Executive of such breach. (ii) DEATH. Executive's employment hereunder shall terminate upon his death. -8- (iii) DISABILITY. Executive's employment hereunder shall terminate ten days after the date on which ICH shall have given Executive notice of the termination of his employment by reason of his physical or mental incapacity or disability on a permanent basis. For purposes of this Agreement, Executive shall be deemed to be physically or mentally incapacitated or disabled on a permanent basis if the ICH Board determines he is unable to perform his duties hereunder for a period exceeding six (6) months in any twelve (12) month period. (iv) GOOD REASON. Executive shall have the right to terminate his employment for "Good Reason." This Agreement shall terminate effective immediately on the date Executive shall have given the ICH Board notice of the termination of his employment with ICH for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean (A) any material and substantial breach of this Agreement by any of the Companies, (B) a diminution of Executive's responsibilities, loss of title or position in which Executive currently serves, failure to reelect Executive to the ICH Board or the Board of Directors of any of the other Companies or reappoint Executive Co-Chairman of the ICH Board or Co-Chairman of the Board of Directors of any of the other Companies, but not including the loss of responsibilities and title associated with any of the Companies other than ICH upon the sale of the stock or substantially all of the assets of such other Company, (C) a Change in Control occurs and Executive voluntarily quits at any time within the six (6) month period on or immediately following the Change in Control, (D) ICH issues a Notice of Non-Renewal to Executive, (E) a reduction in Executive's Annual Base Salary or a material reduction in other benefits (except for bonuses or similar discretionary payments) as in effect at the time in question, or any other failure by the Companies to comply with Sections 2 and 3, hereof, (F) the relocation of Executive's office outside the New York City area, or (G) this Agreement is not assumed by a successor to ICH. (v) WITHOUT CAUSE. ICH shall have the right to terminate Executive's employment hereunder without Cause subject to the terms and conditions of this Agreement. In such event, this Agreement shall terminate, effective immediately upon the date on which ICH shall have given Executive notice of the termination of his employment for reasons other than for Cause or due to Executive's Disability. -9- (vi) WITHOUT GOOD REASON. Executive shall have the right to terminate his employment hereunder without Good Reason subject to the terms and conditions of this Agreement. This Agreement shall terminate, effective immediately upon the date as of which Executive shall have given the ICH Board notice of the termination of his employment without Good Reason. (b) NOTICE OF TERMINATION. Any termination of Executive's employment by ICH or any such termination by Executive (other than on account of death) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event of the termination of Executive's employment on account of death, written Notice of Termination shall be deemed to have been provided on the date of death. 5. PAYMENTS UPON TERMINATION. (a) WITHOUT CAUSE, FOR GOOD REASON, DEATH OR DISABILITY. If Executive's employment is terminated by ICH without Cause (pursuant to Section 4(a)(v)), by Executive for Good Reason (pursuant to Section 4(a)(iv)), due to death of Executive (pursuant to Section 4(a)(ii)), or by ICH due to Executive's Disability (pursuant to Section 4(a)(iii)), Executive, or in the case of Executive's Death or Disability, Executive's legal representative estate or beneficiaries, as the case may be, shall be entitled to receive from ICH (i) a lump sum payment in an aggregate amount equal to three (3) times the sum of (A) then current Annual Base Salary and (B) the average of all bonuses, including, without limitation, Executive's Annual Bonus, earned by or paid to Executive during the two (2) immediately preceding full fiscal years of employment ending prior to the date of termination (the "Severance Payment"); (ii) any bonuses which have been earned but not been paid prior to such termination ("Prior Bonus Payment") and (iii) reimbursement of expenses incurred prior to date of termination (the "Expense Reimbursement"). The aforesaid amounts shall be payable in cash without discount for early payment, at the option of Executive, either in full immediately upon such termination or monthly over the Unexpired Employment Period (the "Payment Election"). In addition, (x) Executive's fringe benefits specified in Section 2 shall continue through the end of the Unexpired Employment Period, provided, however, that such benefits which may not continue pursuant to law, such as participation in a qualified pension plan, shall terminate on the date of termination and further provided, that Executive shall be entitled to COBRA continuation coverage and to continue the applicable life insurance policies thereafter, at his cost ("Fringe Benefit Continuation); and (y) all outstanding Options which are not vested as of the date of -10- termination, if any, shall upon such date of termination vest and become immediately exercisable in accordance with the terms of the Option grant agreements and this Agreement ("Vested Options"). In the event Executive terminates his employment within the six month period on or immediately following a Change in Control which constitutes a termination for Good Reason under this Agreement pursuant to Section 4(a)(iv)(C), Executive shall be entitled to receive from ICH an additional lump sum cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be in the same position as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH without Cause or due to Executive's Disability, or Executive terminates his employment with ICH for Good Reason, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(a), it being understood that Executive's acceptance of other employment shall not reduce ICH's or the other Companies' obligations hereunder. (b) TERMINATION WITH CAUSE OR VOLUNTARY QUIT. If ICH terminates Executive's employment for Cause (pursuant to Section 4(a)(i)) or in the event Executive voluntarily terminates his employment without Good Reason (pursuant to Section 4(a)(vi)) ("Voluntary Quit"), Executive shall be entitled to his Annual Base Salary through the date of the termination of such employment and Executive shall be entitled to any bonuses which have been earned but not paid prior to such termination. Executive shall not be entitled to any other bonuses. Executive's additional benefits specified in Section 2 shall terminate at the time of such termination. Additionally, Executive shall be entitled to all Options that have vested as of the date of such termination. All outstanding Options, if any, which have not vested as of date of such termination shall be forfeited, and if the termination is for Cause, no further payments pursuant to Section 3(b) shall be made to Executive. (c) TERMINATION BY ICH UPON CHANGE IN CONTROL. If ICH terminates Executive's employment for any reason in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall receive from ICH in one lump sum, payable on the consummation of the Change in Control an amount equal to the Severance Payment, the Prior Bonus Payment and the Expense Reimbursement. The aforesaid amount shall be payable in cash without discount for early payment on the consummation of such Change in Control. Executive shall be entitled to his Vested Options and Executive (and his spouse and children) shall be entitled to Fringe Benefit Continuation. In addition to the aforesaid cash payment, ICH shall pay Executive, on the consummation of the Change in Control, in one lump sum, a cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after -11- tax basis Executive shall be the same as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(c), it being understood that Executive's acceptance of other employment shall not reduce the Companies obligations hereunder. (d) VESTING TRUST. At Executive's option, the Companies shall establish a vesting trust into which the Companies shall, to the extent economically feasible, contribute and/or pledge assets to secure their severance obligations to Executive under this Agreement. 6. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of ICH, its successors and assigns. ICH shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent ICH would be required to perform if no such succession had taken place. (b) Executive agrees that this Agreement is personal to him and may not be assigned by him other than by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representative. 7. JOINT AND SEVERAL LIABILITY. (a) NO DUPLICATION OF PAYMENTS. The Companies shall be jointly and severally liable for any amounts payable to Executive under this Agreement. Any amounts payable to Executive shall be paid in the first instance by ICH, and to the extent not paid by ICH shall be paid by the other Companies. In no event shall any amount payable pursuant to this Agreement be paid by ICH and any other Company, or any two or more Companies and Executive shall not be entitled to receive duplicate benefits or payments under any of the provisions of this Agreement. (b) NEW SUBSIDIARIES. Any subsidiary of the Companies that is formed or acquired on or after the date hereof shall be required to become a signatory to this Agreement and shall become jointly and severally liable with the Companies for the obligations hereunder. (c) SALE OF SUBSIDIARIES. Upon the sale of the stock or substantially all of the assets of any subsidiary of the Companies, which is approved by the ICH Board, such subsidiary shall be automatically released from its obligations hereunder and shall -12- not be considered as having any continuing liability for the obligations hereunder, and Executive shall be released from his obligations to such subsidiary hereunder. 8. GOVERNING LAW. This Agreement shall be construed in accordance with, and its validity, interpretation, performance and enforcement shall be governed by, the laws of the State of New York without regard to conflicts of law principles thereof. Each of the parties hereto hereby (a) irrevocably and unconditionally submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York County, New York in any action or proceeding arising out of or relating to this Agreement, (b) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (c) irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process by certified mail to such party and its counsel at their respective addresses specified in Section 11 hereof. 9. ENTIRE AGREEMENT. (a) This instrument contains the entire understanding and agreement among the parties relating to the subject matter hereof, except as otherwise referred to herein, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. The parties recognize that the Prior Agreement has been amended and restated in its entirety by this Agreement and the terms of the Prior Agreement are of no further force and effect. (b) Neither this Agreement nor any provisions hereof may be waived or modified, except by an agreement in writing signed by the party(ies) against whom enforcement of any waiver or modification is sought. 10. PROVISIONS SEVERABLE. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, or to any extent, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 11. NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and delivered by courier or personal delivery, facsimile transmission (to be followed promptly by written confirmation mailed by certified mail as provided below) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: If to ICH or any of the other Companies: ICH Corporation 9255 Towne Centre Drive Suite 600 San Diego, California 92121 Attention: Board of Directors -13- Facsimile Number: (858) 638-2083 With a copy to: Christopher J. Sues, Esq. Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Facsimile Number: (212) 326-0806 If to Executive: John A. Bicks, Esq. 1070 Park Avenue New York, New York 10128 Facsimile Number: (212) 876-2908 If delivered personally, by courier or facsimile transmission (confirmed as aforesaid and provided written confirmation and receipt is obtained by the sender), the date on which a notice is delivered or transmitted shall be the date on which such delivery is made. Notices given by mail as aforesaid shall be effective and deemed received upon the date of actual receipt or upon the third business day subsequent to deposit in the U.S. mail, whichever is earlier. Either party hereto may change its or his address specified for notices herein by designating a new address by notice in accordance with this Section 11. 12. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. -14- IN WITNESS WHEREOF, the Companies and Executive have executed this Agreement as of the date first above written. EXECUTIVE ICH CORPORATION /s/ John A. Bicks /s/ Robert H. Drechsler - --------------------------- --------------------------- JOHN A. BICKS NAME: ROBERT H. DRECHSLER TITLE: CO-CHAIRMAN AND CEO SYBRA, INC. /s/ Robert H. Drechsler --------------------------- NAME: ROBERT H. DRECHSLER TITLE: CO-CHAIRMAN AND CEO LYON'S OF CALIFORNIA, INC. /s/ Robert H. Drechsler --------------------------- NAME: ROBERT H. DRECHSLER TITLE: CO-CHAIRMAN AND CEO CARE FINANCIAL CORP. /s/ Robert H. Drechsler --------------------------- NAME: ROBERT H. DRECHSLER TITLE: CO-CHAIRMAN AND CEO -15- EX-10.36 3 a2043156zex-10_36.txt EXHIBIT 10.36 EXHIBIT 10.36 I.C.H. CORPORATION AMENDED AND RESTATED EMPLOYMENT AGREEMENT ROBERT H. DRECHSLER THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is effective as of the 29th day of June, 2000, by and between I.C.H. Corporation ("ICH"), a Delaware corporation with offices at 9255 Towne Centre Drive, Suite 600, San Diego, CA 92121, and its subsidiaries, Sybra, Inc., a Michigan corporation ("Sybra"), Lyon's of California, Inc., a California corporation ("Lyons"), and Care Financial Corp., a Delaware corporation ("Care", and collectively, with ICH, Sybra and Lyons, the "Companies"), each with offices at c/o I.C.H. Corporation, 9255 Towne Centre Drive, Suite 600, San Diego, California 92121 and Robert H. Drechsler, an individual residing at 15 Deer Run, Rye Brook, New York 10573 (the "Executive"). WHEREAS, Executive has served as Executive Vice President - Acquisitions & Capital Markets and Corporate Counsel and in similar capacities for each of the other Companies pursuant to his prior employment agreement with ICH and the other Companies dated as of September 1, 1999 (the "Prior Agreement") and through such service, has acquired special and unique knowledge, abilities and expertise; and WHEREAS, ICH desires to employ Executive as its Co-Chief Executive Officer and to have Executive serve as Co-Chairman of the Board of Directors of ICH (the "ICH Board") and the other Companies desire to employ Executive in similar capacities and the Companies desire to employ Executive in such capacities with any future subsidiaries of the Companies and wish to be assured of his continued services on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to be employed by ICH as its Co-Chief Executive Officer and to serve as Co-Chairman of the ICH Board, and by the other Companies and any future subsidiaries of the Companies in similar capacities and to perform and to serve the Companies on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, agreements and covenants set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. (a) DUTIES. The Companies hereby agree to employ Executive, and Executive hereby accepts such employment as the Co-Chief Executive Officer of ICH and agrees to serve as Co-Chairman of the ICH Board and as Co-Chief Executive Officer and Co-Chairman of the Board of Directors of each of the other Companies. In his role as Co-Chief Executive Officer of ICH and the other Companies, Executive shall be responsible for duties of a supervisory or managerial nature as may be directed from time to time by the ICH Board and each other respective Board of Directors, provided, that such duties are reasonable and customary for an Co-Chief Executive Officer. Executive agrees that he shall, during the term of this Agreement, except during reasonable vacation periods, periods of illness and the like, devote substantially all his business time, attention and ability to his duties and responsibilities hereunder; PROVIDED, HOWEVER, that nothing contained herein shall be construed to prohibit or restrict Executive from (i) serving as a director of any corporation, with or without compensation therefor; (ii) serving in various capacities in community, civic, religious or charitable organizations or trade associations or leagues; or (iii) attending to personal business; PROVIDED, HOWEVER, that no such service or activity permitted in this Section 1(a) shall materially interfere with the performance by Executive of his duties hereunder. Executive shall report directly to the ICH Board and each other Board of Directors. (b) TERM. (i) Except as otherwise provided in this Agreement to the contrary, the terms and conditions of this Agreement shall be and remain in effect during the period of employment (the "Employment Period") established under this Section 1(b). The initial Employment Period shall be for a term commencing on the date of this Agreement and ending on the third anniversary of the date of this Agreement; provided, however, that commencing on the first day after the date of this Agreement and on each day thereafter, the Employment Period shall be extended for one additional day so that a constant three (3) year Employment Period shall be in effect, unless (A) ICH (on its behalf and on behalf of the other Companies) or Executive elects not to extend the term of this Agreement by giving written notice to the other party in accordance with Sections 4(b) and 11 hereof, in which case, the term of this Agreement shall become fixed and shall end on the third anniversary of the date of such written notice ("Notice of Non-Renewal"), or (B) Executive's employment terminates hereunder. (ii) Notwithstanding anything contained herein to the contrary, (A) Executive's employment with the Companies may be terminated by ICH (on its behalf and on behalf of the other Companies) or Executive during the Employment Period, subject to the terms and conditions of this Agreement; and (B) nothing in this Agreement shall mandate or prohibit a continuation of Executive's employment following the expiration of the Employment Period upon such terms and conditions as the ICH Board and Executive may mutually agree. (iii) If Executive's employment with the Companies is terminated, for purposes of this Agreement, the term "Unexpired Employment Period" shall mean the period commencing on the date of such termination and ending on the last day of the Employment Period. -2- (c) LOCATION/TRAVEL. Executive shall work at ICH's offices in New York, New York. Executive shall not be required to relocate from the New York City area during the Employment Period. 2. COMPENSATION. Subject to the provisions of Section 7 hereof, the Companies shall each be responsible and have joint and several liability for all compensation and benefits owed to Executive under this Agreement. A reference to an ICH plan, program, obligation or commitment shall also be considered an obligation or commitment of each of the other Companies but shall not result in duplicate benefits being paid or provided to Executive. (a) SALARY. Executive shall receive an annual base salary of Three Hundred Thousand Dollars ($300,000). The annual base salary payable to Executive pursuant to this Section 2(a), which may be increased but not decreased by the ICH Board or the Compensation Committee of the ICH Board, shall be hereinafter referred to as the "Annual Base Salary" (it being understood that if and when such Annual Base Salary is increased, it may not be subsequently decreased below such new Annual Base Salary). (b) ANNUAL BONUS. (i) Executive shall be entitled to receive an annual cash bonus, hereinafter referred to as the "Annual Bonus," based upon the performance of ICH and Executive as determined by the ICH Board. The target Annual Bonus payable to Executive for each fiscal year shall be an amount equal to at least forty percent (40%) of Executive's Annual Base Salary for such year. (ii) Executive's Annual Bonus shall be paid to Executive no later than forty five (45) days following the end of the period for which the bonus is being paid. (c) REIMBURSEMENT OF BUSINESS EXPENSES. ICH shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him during the Employment Period, including, but not limited to, all reasonable travel and entertainment expenses. Executive may only obtain reimbursement under this Section 2(c) upon submission of such receipts and records as may be required under the reimbursement policies established by ICH. (d) ADDITIONAL BENEFITS; GENERAL RIGHTS. During the Employment Period, Executive shall be entitled to: (i) participate in all employee stock option, pension, savings, and other similar benefit plans of ICH and/or such other plans or programs of the other Companies as ICH may designate from time to time; -3- (ii) participate in all welfare plans established by ICH such as life insurance, medical, dental, disability, and business travel accident plans and programs and/or such other plan or programs of the other Companies as ICH may designate from time to time. In addition, ICH shall reimburse Executive for (i) any premium costs Executive may incur with respect to the health insurance plan currently maintained by ICH (and which may be maintained by ICH from time to time) in which Executive (and his spouse and children) participates and (ii) for all other medical and dental expenses not covered by any medical or dental plan in which Executive (and his spouse and children) participates, including, without limitation, deductibles and out of pocket expenses; (iii) reimbursement from ICH for any premium costs associated with the life insurance policy in the face amount of Two Million Dollars ($2,000,000) issued by Security Connecticut Life Insurance Company and currently owned by Executive; provided, that such reimbursement shall not exceed Seventy-Five Hundred Dollars ($7,500) per year; (iv) a minimum Four Hundred Dollars ($400) per month parking/transportation allowance; (v) four (4) weeks paid vacation per year; and (vi) any other benefits provided by ICH to its executive officers. (e) ONE TIME CASH BONUS. ICH has paid to Executive on January 1, 2000 a one time cash bonus in an amount equal to $35,004.38 that enabled Executive to exercise 6,223 of the vested option shares granted to Executive on February 15, 1999. In addition to the aforesaid cash bonus payment, ICH shall pay Executive, on or prior to April 15th of the next following calendar year, a cash payment in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the payment of the aforesaid cash bonus. (f) WITHHOLDING. ICH and/or the other Companies, as the case may be, shall deduct from all compensation paid to Executive under this Agreement, any Federal, State or city withholding taxes, social security contributions and any other amounts which may be required to be deducted or withheld by the Companies pursuant to Federal, State or city laws, rules or regulations. 3. OPTION GRANT. (a) (i) Executive has received options issued pursuant to ICH's 1997 Employee Stock Option Plan, as amended (the "Stock Option Plan") as follows: -4-
------------------------------------------------------------------------------- HEREIN GRANT DATE NUMBER OF EXERCISE VESTING REFERRED SHARES PRICE/SHARE TO AS GRANTED ($) ------------------------------------------------------------------------------- 1999 February 60,000 5.625 10,000 shares on February Options 15, 1999 15, 1999, 20,000 shares on each of January 1, 2000 and January 1, 2001 and 10,000 on January 1, 2002 ------------------------------------------------------------------------------- May 7, 1999 35,000 12.25 25% installments on May 7, 1999, January 1, 2000, January 1, 2001 and January 1, 2002 ------------------------------------------------------------------------------- 2000 June 29, 35,000 5.06 50% on the grant date, Options 2000 25% installments on January 1, 2001 and January 1, 2002 -------------------------------------------------------------------------------
The terms and conditions of each option grant set forth above are memorialized in written option grant agreements between ICH and Executive dated the dates thereof. Such 1999 Options, 2000 Options plus any additional options granted to Executive in the future (collectively referred to herein as the "Options") shall expire on the tenth anniversary of each respective grant date. (ii) The Options were and are intended to qualify as incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED, HOWEVER, that to the extent that any Options do not satisfy the requirements of Section 422(b) of the Code either at the time of grant or before or after exercise, including, without limitation, upon disposition of the underlying stock acquired by the exercise of Options prior to the requisite holding period, they shall be treated as non-qualified stock options. (b) In the event that Executive incurs taxable income as a result of any or all of his Options being treated as non-qualified options (I.E. Options have been exercised and the requirements of Section 422(b) of the Code have not been or are no longer met) (the "Taxable Event") as soon as practicable after a determination by ICH and Executive that the Options are non-qualified and a Taxable Event has occurred, ICH shall make an additional single sum cash payment to Executive in an amount equal to thirty percent (30%) of Executive's taxable income resulting from the Taxable Event. Such payment shall only be made in the event Executive's employment with ICH has not terminated for Cause within the meaning of Section 4(a)(i) of this Agreement. (c) Notwithstanding any provisions in an Option grant agreement to the contrary, upon termination of his employment for any reason, Executive shall have the right to exercise his Options at any time through the tenth anniversary of the grant date of such Options. Executive understands that the effect of exercising any incentive stock options on a day that is more than ninety (90) days after the date of termination of -5- employment (or, in the case of a termination of employment on account of death or disability, on a day that is more than one (1) year after the date of such termination) shall be to cause such incentive stock options to be treated as non-qualified stock options. (d) In the event ICH issues additional shares of Common Stock and/or any class of stock convertible into Common Stock and/or any other security convertible into Common Stock (including, without limitation, options and warrants which may be granted to individuals or entities other than employees and directors but excluding (i) the exercise of any currently outstanding options or warrants, (ii) any future grants of options, but only to the extent such grants relate to shares of Common Stock currently authorized to be granted under the Stock Option Plan or the ICH 1997 Director Stock Option Plan (collectively, the "Option Plans") (I.E. any options that may be granted by virtue of an increase in the number of shares of Common Stock currently authorized under the Option Plans shall not be excluded) and (iii) the exercise of any of such options) at any time during the Employment Period and prior to Executive's termination of employment and in connection with a public or private equity offering or in connection with an acquisition (the "Issuance"), Executive shall be granted additional stock options and/or provided with a loan to purchase Common Stock, as determined by the ICH Board, in an amount equal to three and one-half percent (3.5%) of the number of shares issued pursuant to such Issuance. The foregoing notwithstanding, in the event ICH repurchases any shares of Common Stock, stock convertible into shares of Common Stock and/or any other security convertible into shares of Common Stock, the anti-dilution provisions set forth in this Section 3(d) shall not apply until an equal number of such shares of Common Stock, stock convertible into shares of Common Stock and/or other securities convertible into shares of Common Stock are first reissued by ICH. In addition, equitable adjustments shall be made to such anti-dilution provisions in the event ICH effectuates a stock split, reverse stock split, stock dividend or other recapitalization transaction. (e) To the extent any Options are not vested upon a "Change in Control" of ICH, such unvested Options shall become fully vested and immediately exercisable upon a "Change in Control" of ICH (whether or not such Change in Control is approved of by the Continuing Directors of ICH (as defined in the Rights Agreement between ICH and Mid-America Bank of Louisville and Trust Company dated as of February 19, 1997 and amended as of February 10, 1998)). A "Change in Control" of ICH shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the ICH Board or stockholders of ICH of a transaction that would result in the reorganization, merger, or consolidation of ICH with one or more other "Persons" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), other than a transaction following which: -6- (A) at least seventy-one percent (71%) of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the outstanding equity ownership interests in ICH; and (B) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by Persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least seventy-one percent (71%) of the securities entitled to vote generally in the election of directors of ICH; (ii) the acquisition of all or substantially all of the assets of ICH; (iii) a complete liquidation or dissolution of ICH, or approval by the stockholders of ICH of a plan for such liquidation or dissolution; (iv) the occurrence of any event in the nature of an event described in this Section 3(e) if, immediately following such event, at least seventy-five percent (75%) of the members of the ICH Board do not belong to any of the following groups: (A) individuals who were members of the ICH Board on the date of this Agreement; or (B) individuals who first became members of the ICH Board after the date of this Agreement either: (I) upon election to serve as a member of the ICH Board by affirmative vote of three-quarters of the members of such ICH Board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of ICH to serve as a member of the ICH Board, but only if nominated for election by affirmative vote of three-quarters of the -7- members of the ICH Board, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the ICH Board. (v) in a single transaction or a series of related transactions, one or more other Persons, other than an employee benefit plan sponsored by ICH, becomes the "beneficial owner," as such term is used in Section 13 of the Exchange Act, of shares of Common Stock of ICH (including newly issued shares) which equal thirty percent (30%) or more of the issued and outstanding shares of Common Stock of ICH prior to such person or persons becoming such a "beneficial owner." (f) In the event of a conflict between the terms of any Option grant agreement or the Stock Option Plan and this Agreement, the terms of this Agreement shall control. 4. TERMINATION OF EMPLOYMENT; EVENTS OF TERMINATION. (a) Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (i) CAUSE. Executive's employment hereunder shall terminate for "Cause" ten days after the date ICH shall have given Executive notice of the termination of his employment for "Cause". For purposes of this Agreement, "Cause" shall mean (A) the commission by Executive of fraud, embezzlement or an act of serious, criminal moral turpitude against any of the Companies; (B) the commission of an act by Executive constituting material financial dishonesty against any of the Companies; or (C) Executive's gross neglect in carrying out his material duties and responsibilities under this Agreement which has a material adverse effect on any of the Companies and which is not cured within thirty (30) days subsequent to written notice from ICH to Executive of such breach. (ii) DEATH. Executive's employment hereunder shall terminate upon his death. -8- (iii) DISABILITY. Executive's employment hereunder shall terminate ten days after the date on which ICH shall have given Executive notice of the termination of his employment by reason of his physical or mental incapacity or disability on a permanent basis. For purposes of this Agreement, Executive shall be deemed to be physically or mentally incapacitated or disabled on a permanent basis if the ICH Board determines he is unable to perform his duties hereunder for a period exceeding six (6) months in any twelve (12) month period. (iv) GOOD REASON. Executive shall have the right to terminate his employment for "Good Reason." This Agreement shall terminate effective immediately on the date Executive shall have given the ICH Board notice of the termination of his employment with ICH for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean (A) any material and substantial breach of this Agreement by any of the Companies, (B) a diminution of Executive's responsibilities, loss of title or position in which Executive currently serves, failure to reelect Executive to the ICH Board or the Board of Directors of any of the other Companies or reappoint Executive Co-Chairman of the ICH Board or Co-Chairman of the Board of Directors of any of the other Companies, but not including the loss of responsibilities and title associated with any of the Companies other than ICH upon the sale of the stock or substantially all of the assets of such other Company, (C) a Change in Control occurs and Executive voluntarily quits at any time within the six (6) month period on or immediately following the Change in Control, (D) ICH issues a Notice of Non-Renewal to Executive, (E) a reduction in Executive's Annual Base Salary or a material reduction in other benefits (except for bonuses or similar discretionary payments) as in effect at the time in question, or any other failure by the Companies to comply with Sections 2 and 3, hereof, (F) the relocation of Executive's office outside the New York City area, or (G) this Agreement is not assumed by a successor to ICH. (v) WITHOUT CAUSE. ICH shall have the right to terminate Executive's employment hereunder without Cause subject to the terms and conditions of this Agreement. In such event, this Agreement shall terminate, effective immediately upon the date on which ICH shall have given Executive notice of the termination of his employment for reasons other than for Cause or due to Executive's Disability. -9- (vi) WITHOUT GOOD REASON. Executive shall have the right to terminate his employment hereunder without Good Reason subject to the terms and conditions of this Agreement. This Agreement shall terminate, effective immediately upon the date as of which Executive shall have given the ICH Board notice of the termination of his employment without Good Reason. (b) NOTICE OF TERMINATION. Any termination of Executive's employment by ICH or any such termination by Executive (other than on account of death) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event of the termination of Executive's employment on account of death, written Notice of Termination shall be deemed to have been provided on the date of death. 5. PAYMENTS UPON TERMINATION. (a) WITHOUT CAUSE, FOR GOOD REASON, DEATH OR DISABILITY. If Executive's employment is terminated by ICH without Cause (pursuant to Section 4(a)(v)), by Executive for Good Reason (pursuant to Section 4(a)(iv)), due to death of Executive (pursuant to Section 4(a)(ii)), or by ICH due to Executive's Disability (pursuant to Section 4(a)(iii)), Executive, or in the case of Executive's Death or Disability, Executive's legal representative estate or beneficiaries, as the case may be, shall be entitled to receive from ICH (i) a lump sum payment in an aggregate amount equal to three (3) times the sum of (A) then current Annual Base Salary and (B) the average of all bonuses, including, without limitation, Executive's Annual Bonus, earned by or paid to Executive during the two (2) immediately preceding full fiscal years of employment ending prior to the date of termination (the "Severance Payment"); (ii) any bonuses which have been earned but not been paid prior to such termination ("Prior Bonus Payment") and (iii) reimbursement of expenses incurred prior to date of termination (the "Expense Reimbursement"). The aforesaid amounts shall be payable in cash without discount for early payment, at the option of Executive, either in full immediately upon such termination or monthly over the Unexpired Employment Period (the "Payment Election"). In addition, (x) Executive's fringe benefits specified in Section 2 shall continue through the end of the Unexpired Employment Period, provided, however, that such benefits which may not continue pursuant to law, such as participation in a qualified pension plan, shall terminate on the date of termination and further provided, that Executive shall be entitled to COBRA continuation coverage and to continue the applicable life insurance policies thereafter, at his cost ("Fringe Benefit Continuation); and (y) all outstanding Options which are not vested as of the date of termination, if any, shall upon such date of termination vest and become immediately -10- exercisable in accordance with the terms of the Option grant agreements and this Agreement ("Vested Options"). In the event Executive terminates his employment within the six month period on or immediately following a Change in Control which constitutes a termination for Good Reason under this Agreement pursuant to Section 4(a)(iv)(C), Executive shall be entitled to receive from ICH an additional lump sum cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after tax basis Executive shall be in the same position as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH without Cause or due to Executive's Disability, or Executive terminates his employment with ICH for Good Reason, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(a), it being understood that Executive's acceptance of other employment shall not reduce ICH's or the other Companies' obligations hereunder. (b) TERMINATION WITH CAUSE OR VOLUNTARY QUIT. If ICH terminates Executive's employment for Cause (pursuant to Section 4(a)(i)) or in the event Executive voluntarily terminates his employment without Good Reason (pursuant to Section 4(a)(vi)) ("Voluntary Quit"), Executive shall be entitled to his Annual Base Salary through the date of the termination of such employment and Executive shall be entitled to any bonuses which have been earned but not paid prior to such termination. Executive shall not be entitled to any other bonuses. Executive's additional benefits specified in Section 2 shall terminate at the time of such termination. Additionally, Executive shall be entitled to all Options that have vested as of the date of such termination. All outstanding Options, if any, which have not vested, as of the date of such termination shall be forfeited, and if the termination is for Cause, no further payments pursuant to Section 3(b) shall be made to Executive. (c) TERMINATION BY ICH UPON CHANGE IN CONTROL. If ICH terminates Executive's employment for any reason in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall receive from ICH in one lump sum, payable on the consummation of the Change in Control an amount equal to the Severance Payment, the Prior Bonus Payment and the Expense Reimbursement. The aforesaid amount shall be payable in cash without discount for early payment on the consummation of such Change in Control. Executive shall be entitled to his Vested Options and Executive (and his spouse and children) shall be entitled to Fringe Benefit Continuation. In addition to the aforesaid cash payment, ICH shall pay Executive, on the consummation of the Change in Control, in one lump sum, a cash payment in an amount sufficient to pay any excise taxes which may be imposed on Executive pursuant to Section 4999 of the Code (or any successor provisions) plus any excise or income tax liability on the gross up payment itself so that on a net after -11- tax basis Executive shall be the same as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. In the event Executive is terminated by ICH in connection with a Change in Control which is not approved by the Continuing Directors of ICH, Executive shall have no duty to mitigate the amount of the payment received pursuant to this Section 5(c), it being understood that Executive's acceptance of other employment shall not reduce the Companies obligations hereunder. (d) VESTING TRUST. At Executive's option, the Companies shall establish a vesting trust into which the Companies shall, to the extent economically feasible, contribute and/or pledge assets to secure their severance obligations to Executive under this Agreement. 6. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of ICH, its successors and assigns. ICH shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all its assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent ICH would be required to perform if no such succession had taken place. (b) Executive agrees that this Agreement is personal to him and may not be assigned by him other than by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representative. 7. JOINT AND SEVERAL LIABILITY. (a) NO DUPLICATION OF PAYMENTS. The Companies shall be jointly and severally liable for any amounts payable to Executive under this Agreement. Any amounts payable to Executive shall be paid in the first instance by ICH, and to the extent not paid by ICH shall be paid by the other Companies. In no event shall any amount payable pursuant to this Agreement be paid by ICH and any other Company, or any two or more Companies and Executive shall not be entitled to receive duplicate benefits or payments under any of the provisions of this Agreement. (b) NEW SUBSIDIARIES. Any subsidiary of the Companies that is formed or acquired on or after the date hereof shall be required to become a signatory to this Agreement and shall become jointly and severally liable with the Companies for the obligations hereunder. (c) SALE OF SUBSIDIARIES. Upon the sale of the stock or substantially all of the assets of any subsidiary of the Companies, which is approved by the ICH Board, such subsidiary shall be automatically released from its obligations hereunder and shall -12- not be considered as having any continuing liability for the obligations hereunder, and Executive shall be released from his obligations to such subsidiary hereunder. 8. GOVERNING LAW. This Agreement shall be construed in accordance with, and its validity, interpretation, performance and enforcement shall be governed by, the laws of the State of New York without regard to conflicts of law principles thereof. Each of the parties hereto hereby (a) irrevocably and unconditionally submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York County, New York in any action or proceeding arising out of or relating to this Agreement, (b) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (c) irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process by certified mail to such party and its counsel at their respective addresses specified in Section 11 hereof. 9. ENTIRE AGREEMENT. (a) This instrument contains the entire understanding and agreement among the parties relating to the subject matter hereof, except as otherwise referred to herein, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. The parties recognize that the Prior Agreement has been amended and restated in its entirety by this Agreement and the terms of the Prior Agreement are of no further force and effect. (b) Neither this Agreement nor any provisions hereof may be waived or modified, except by an agreement in writing signed by the party(ies) against whom enforcement of any waiver or modification is sought. 10. PROVISIONS SEVERABLE. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, or to any extent, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 11. NOTICES. Any notice required or permitted to be given under the provisions of this Agreement shall be in writing and delivered by courier or personal delivery, facsimile transmission (to be followed promptly by written confirmation mailed by certified mail as provided below) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: If to ICH or any of the other Companies: ICH Corporation 9255 Towne Centre Drive Suite 600 San Diego, California 92121 Attention: Board of Directors -13- Facsimile Number: (858) 638-2083 With a copy to: Christopher J. Sues, Esq. Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Facsimile Number: (212) 326-0806 If to Executive: Robert H. Drechsler, Esq. 15 Deer Run Rye Brook, New York 10573 Facsimile Number: (914) 937-9675 If delivered personally, by courier or facsimile transmission (confirmed as aforesaid and provided written confirmation and receipt is obtained by the sender), the date on which a notice is delivered or transmitted shall be the date on which such delivery is made. Notices given by mail as aforesaid shall be effective and deemed received upon the date of actual receipt or upon the third business day subsequent to deposit in the U.S. mail, whichever is earlier. Either party hereto may change its or his address specified for notices herein by designating a new address by notice in accordance with this Section 11. 12. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. -14- IN WITNESS WHEREOF, the Companies and Executive have executed this Agreement as of the date first above written. EXECUTIVE ICH CORPORATION /s/ Robert H. Drechsler /s/ John A. Bicks - ------------------------------- ------------------------------------ ROBERT H. DRECHSLER NAME: JOHN A. BICKS TITLE: CO-CHAIRMAN AND CEO SYBRA, INC. /s/ John A. Bicks ------------------------------------ NAME: JOHN A. BICKS TITLE: CO-CHAIRMAN AND CEO LYON'S OF CALIFORNIA, INC. /s/ John A. Bicks ------------------------------------ NAME: JOHN A. BICKS TITLE: CO-CHAIRMAN AND CEO CARE FINANCIAL CORP. /s/ John A. Bicks ------------------------------------ NAME: JOHN A. BICKS TITLE: CO-CHAIRMAN AND CEO -15- EX-10.37 4 a2043156zex-10_37.txt EXHIBIT 10.37 EXHIBIT 10.37 BEVERAGE MARKETING AGREEMENT SYBRA, INC. SCOPE OF MARKETING AGREEMENT The parties to the Marketing Agreement (the "Agreement") are SYBRA, Inc. ("SI") and Coca-Cola North America Fountain ("CCF"). The Agreement will apply to all Arby's outlets owned or operated by SI or any of its subsidiaries, including any Arby's outlets that are opened after the Agreement is signed. The Agreement will also apply to acquired Arby's outlets (including outlets owned or operated by an acquired business), unless those outlets are already governed by an agreement with CCF and that agreement is validly assigned to SI as part of the acquisition. However, nothing in this Agreement shall be construed to require SI to breach a pre-existing contract with another Fountain Beverage manufacturer or supplier that is binding on and enforceable against the acquired company or outlet. This Agreement does, however, obligate SI to serve CCF's Fountain Beverages in the acquired outlets in accordance with the Beverage Availability section of this Agreement upon the expiration of the pre-existing contract. The Agreement will not apply to any outlets outside the fifty United States. All outlets to which the Agreement applies are referred to as "Covered Outlets." When signed by the parties, this Agreement will supersede all prior agreements between the parties regarding the subject matter of this Agreement, including specifically the Term Sheet dated December 30, 1997. TERM The Agreement will go into effect as of January 1, 2001 and will continue for a period of ten (10) years or until the Covered Outlets have purchased the Volume Commitment of CCF's Fountain Syrups, whichever occurs last. When used in the Agreement, the term "Year" means each calendar year during the Term, beginning with the first day of the Term. BEVERAGE AVAILABILITY The term "Beverage" means all soft drinks and other non-alcoholic, non-dairy beverages, including waters, sports drinks, frozen beverages, juices, juice-containing drinks, punches, ades, bar mixers and iced teas, whether carbonated or non-carbonated. "Fountain Beverages" are those Beverages that are dispensed from post-mix, pre-mix or frozen beverage dispensers, bubblers, or similar equipment. Coffee or tea that is fresh-brewed on the premises is not considered a Fountain Beverage. The term "Fountain Syrup" means the post-mix syrup used to prepare Fountain Beverages, but does not include other forms of concentrate, BreakMate(R) syrup, or syrup for frozen Beverages that is purchased from a full service supplier of frozen Beverages to which CCF provides promotional funding. SI will serve in each Covered Outlet a core brand set of Fountain Beverages that consists of Coca-Cola(R) classic, diet Coke(R) and Sprite(R), and the remaining products will be jointly selected by SI and CCF. All Fountain Beverages served in the Covered Outlets will be CCF's brands. However, SI may serve Dr Pepper and/or Diet Dr Pepper on one valve per dispenser in the Covered Outlets located in Texas. SI agrees that if any Covered Outlet that is permitted to sell Dr Pepper is serving Diet Dr Pepper on a separate valve, SI will immediately either (i) remove Diet Dr Pepper from the outlet; or (ii) place Diet Dr Pepper on the same valve that dispenses Dr Pepper. SI further recognizes that the sale of competitive Beverages in bottles, cans, or other packaging would diminish the product availability rights given to CCF, and therefore also agrees not to serve competitive Beverages in bottles, cans or other packaging in the Covered Outlets. VOLUME COMMITMENT SI agrees that the Covered Outlets will purchase 8,147,100 gallons of CCF's Fountain Syrup during the Term. This Term Volume Commitment will be increased by CCF if SI acquires additional outlets to which the Agreement will apply. In such case, the Volume Commitment will be increased to reflect the projected volume of the additional Covered Outlets during the remainder of the Term. Projected annual volume is currently as follows: Year One: 579,800 Year Six: 821,600 Year Two: 626,600 Year Seven: 880,100 Year Three: 673,400 Year Eight: 949,000 Year Four: 720,200 Year Nine: 1,024,400 Year Five: 769,600 Year Ten: 1,102,400 MARKETING PROGRAM The following marketing programs will be provided to assist SI in maximizing the sale of Fountain Beverages in the Covered Outlets: MARKETING FUNDS. The amount of available funding is calculated at the rate set forth in Exhibit "A" hereto for each gallon of CCF's Fountain Syrup the Covered Outlets purchase. To qualify for funding, each Covered Outlet must comply with all the following performance criteria throughout the Term: 1. Develop and execute each Year a 52 week Fountain Beverage marketing calendar; and 2. Feature approved renditions of CCF's trademarks and logos on all indoor and drive-thru menuboards in all Covered Outlets, including a mutually agreed upon CCF Fountain Beverage translites on all menuboards; and 3. Display approved renditions of CCF's trademarks and logos on all dispensing valves of all Fountain Beverage dispensing equipment; and 4. Maintain a combo meal program featuring CCF's Fountain Beverages; and 5. Perform those additional Fountain Beverage marketing activities the parties mutually agree upon. STORE OPERATING FUND. Funding is earned at the rate set forth in Exhibit "A" hereto for each gallon of CCF's Fountain Syrups that the Covered Outlets purchase. To qualify for this fund SI must fulfill the following performance criteria: 1. Test and implement new CCF products that are mutually agreed upon in the Covered Outlets; and 2. Test and implement new, mutually agreed upon merchandising and promotions featuring CCF's Fountain Beverages in all Covered Outlets; and 3. Implement and maintain a CCF refreshment center as mutually agreed upon by the parties. BUSINESS DEVELOPMENT FUND. Funding is earned at the rate set forth in Exhibit "A" hereto for each gallon of CCF's Fountain Syrups that the Covered Outlets purchase. To qualify for this fund SI must fulfill the following performance criteria in each Covered Outlet: 1. Expand CCF's frozen Beverages to those Covered Outlets as appropriate based upon mutually agreed upon sales and volume criteria; and 2. Execute annually a minimum of two promotional programs featuring CCF's Fountain Beverages; and 3. Conduct a test of a 20 oz., 32 oz. and 44 oz. cup set; and 4. Perform those additional Fountain Beverage promotional activities that the parties mutually agree upon. QUALITY DRINK FUND. Funding is earned at the rate set forth in Exhibit "A" hereto for each gallon of CCF's Fountain Syrups that the Covered Outlets purchase. To qualify for this fund SI must implement a mutually agreeable quality assurance program to ensure that a high quality Fountain Beverage is dispensed in the Covered Outlets. The details of such a program will be mutually agreed upon by the parties, but will include, at a minimum, adherence to CCF's recommended specifications, including a water to syrup ratio of 4.75:1 for sugar and allied products, and a water to syrup ratio of 5.25:1 for diet products and Mr. PiBB, when dispensed, to allow for dilution caused by melting ice. In addition, SI must purchase for all Covered Outlets opened during the Term CCF-approved Fountain Beverage dispensers to ensure that CCF's quality standards are met. NATIONAL BEVERAGE COUNCIL FUNDS. Funding is earned at the rate set forth in Exhibit "A" hereto for each gallon of CCF's Fountain Syrups that the Covered Outlets purchase. Funding will be retained and managed by CCF to implement business-building initiatives as mutually agreed upon between CCF and the Arby's National Beverage Council, and invested in Fountain Beverage programs to be executed in the Covered Outlets. Payment terms of the Marketing Funds, Store Operating Funds, Business Development Funds and Quality Drink Funds are set forth in Exhibit "A" hereto. MR. PiBB MARKET TEST Beginning January 1, 2003, SI agrees to conduct with CCF a three to six month, five to ten outlet, test of Mr. PiBB, or another CCF spicy cherry product, in those Covered Outlets located in Texas currently serving Dr. Pepper. If the test is successful, based upon mutually agreed upon test criteria, SI agrees to replace Dr. Pepper with Mr. PiBB in all Covered Outlets that currently serve Dr. Pepper. SI agrees not to enter into any inconsistent agreement with Dr. Pepper during the duration of the test, or after the test if the test is successful. EQUIPMENT PROGRAM CCF will continue to provide for SI's use without charge during the Term the dispensing equipment used to dispense Nestea(R) Premium owned by CCF that is currently installed in the Covered Outlets. The equipment provided by CCF will at all times remain the property of CCF and is subject to the terms and conditions of CCF's standard lease agreement, but no lease payment will be charged. The standard lease terms are attached as Exhibit "B" and are a part of this Agreement, except as specifically changed by this Agreement. SI acknowledges that under the prior agreement between the parties, CCF withheld funding from SI to pay on SI's behalf the payments due under SI's Promissory Note with Coca-Cola Financial Corporation ("CCFC"), dated September 17, 1999 and used to finance the purchase of frozen Beverage dispensing equipment for the Covered Outlets. SI agrees that immediately upon signing this Agreement, it will become solely responsible for making timely payments to CCFC under the Promissory Note, and CCF will no longer have any obligation to pay these funds on SI's behalf through a deduction in funding earned under this Agreement. SI is responsible for purchasing all other dispensing equipment for all Covered Outlets, and agrees to purchase only equipment authorized by CCF. SI may elect to purchase equipment through CCF, subject to CCF's standard procedures. SI may also elect to lease additional equipment from CCF. All such equipment will be leased to SI at an annual lease rate calculated by multiplying the total installed cost of equipment by the then-current lease factor. The lease factor currently in effect for new equipment is .24. Should the standard lease factor change during the Term, any equipment installed after the change goes into effect will be subject to the new lease factor. Lease charges will be invoiced on a semi-annual basis. The lease of equipment is subject to the terms and conditions of CCF's standard lease agreement (Exhibit "B" hereto) except as specifically changed by this Agreement. SERVICE PROGRAM SI may use CCF's Service Network for service to its post-mix dispensing equipment and will be charged for labor (including travel time) and materials at CCF's cost. FAIR SHARE If service is provided to an outlet that serves a competitive Fountain Beverage, an annual Fair Share service charge of Twenty-Five Dollars ($25.00) per outlet will be incurred. Fair share charges will be invoiced annually. PRIOR AGREEMENT SEE EXHIBIT "C" HERETO. TERMINATION Once the Agreement is signed by both parties, it may be terminated before the scheduled expiration date only in the following circumstances: (i) Either party may terminate the Agreement if the other party fails to comply with a material term or condition of the Agreement and does not remedy the failure within ninety (90) days after receiving written notice (the "Cure Period"). Termination will be effective thirty (30) days after the end of the Cure Period. (ii) Either party may terminate the Agreement without cause after giving twelve months' prior written notice. (iii) CCF may terminate the Agreement if there is a transfer or closing of substantially all of the Covered Outlets or a transfer of a substantially all of the stock of SI. Upon expiration or termination, SI must return any dispensing equipment owned by CCF and, unless the Agreement is terminated by CCF without cause, SI will pay the following damages at the time of termination: o All unearned prepaid funding, including specifically a refund of all unearned, advanced Marketing Funds, Business Development Funds, Store Operating Funds and Quality Drink Funds. o The unamortized portion of the cost of installation, and the entire cost of remanufacturing and removal of all equipment owned by CCF. o Interest on the damages due to CCF at the rate of one percent per month, accrued from the date the unearned funds were paid or costs were incurred. This does not restrict the right of either party to pursue other remedies or damages if the other party breaches the terms of the Agreement. DISPUTE RESOLUTION Should there be a dispute between CCF and SI relating in any way to the Agreement or the breach of the Agreement, the parties agree that they will make a good faith effort to settle the dispute in an amicable manner. If the parties are unable to settle the dispute through direct discussions, they will attempt to settle the dispute by mediation administered by the American Arbitration Association (the "AAA"), and if that procedure is unsuccessful, the dispute will be resolved by binding arbitration administered by AAA in accordance with its Commercial Arbitration Rules. A judgment on the award of the arbitrator(s) may be entered in any court with jurisdiction. TRANSFER AND ASSIGNMENT SI agrees that it will sell neither the substantially all of the stock nor substantially all of the assets of SI without first obtaining CCF's written consent. CCF's consent will not be unreasonably withheld, provided that SI causes the acquiring party to assume this Agreement on terms acceptable to CCF, in CCF's reasonable discretion. If there is a transfer of substantially all of the Covered Outlets, or a transfer of substantially all of the stock of SI and CCF does not elect to terminate this Agreement under the "Termination" section above, SI will cause the acquiring, surviving or newly-created business to assume all of SI's obligations under this agreement with respect to the acquired Covered Outlets. If, within two (2) years of the effective date of this Agreement, SI sells or transfers (either in a single transaction or through a series of related transactions) more than fifty (50) Covered Outlets which were Covered Outlets as of the effective date of this Agreement, and if the acquiror of those Covered Outlets does not agree to assume all of SI's obligations under this agreement with respect to those Covered Outlets, then SI will repay to CCF within six (6) months of the closing date of such transaction or transactions, any unearned portion of the Total Advance attributable to those Covered Outlets, PROVIDED HOWEVER, that the provisions of this paragraph will not apply to any sale or transfer of Covered Outles by SI which is part of a larger transaction pursuant to which SI is acquiring a greater number of Covered Outlets than it is selling. The Agreement shall not otherwise be assignable without the express written consent of CCF. If SI transfers or closes any Covered Outlets, SI will pay CCF the unamortized portion of the cost of installation, and the entire cost of remanufacturing and removal of all equipment owned by CCF in such Covered Outlet installed less than 60 months prior to the transfer or closure, unless SI causes the new owner or operator at the location to assume the lease of the equipment on terms acceptable to CCF in its reasonable discretion. ICH GUARANTY This Agreement will not be deemed effective until ICH has signed the Performance Guaranty, a copy of which is attached hereto as Exhibit "D." TRADEMARKS Neither SI nor CCF shall make use of any of the other party's trademarks or logos without the prior written consent of that party, and all use of the other party's trademarks shall inure to the benefit of the trademark owner. ADDITIONAL TERMS AUTHORIZATION SI and CCF each represent and warrant that they have the unrestricted right to enter into this Agreement and to make the commitments contained in this Agreement. CONFIDENTIALITY Neither party shall disclose to any third party without the prior written consent of the other party, any information concerning this Agreement or the transactions contemplated hereby, except for disclosure to franchisees or to any employees, attorneys, accountants and consultants involved in assisting with the negotiation and closing of the contemplated transactions, or unless such disclosure is required by law. A party that makes a permitted disclosure must obtain assurances from the party to whom disclosure is made that such party will keep confidential the information disclosed. SI may also disclose the existence of this Agreement and the basic elements of this program to the extent required by the SEC and/or any other governmental authorities. SI agrees to work with CCF in preparing any such disclosure, and not to file any such disclosure without CCF's priorreview and comment. OFFSET Upon the occurrence of any default by SI under this Agreement, and during the continuation of any such default, CCF may apply any sums owed to SI in satisfaction of any of the indebtedness or obligations of SI under this Agreement, or any other agreement between CCF and SI. FORCE MAJEURE Either party is excused from performance under this Agreement if such nonperformance results from any acts of God, strikes, war, riots, acts of governmental authorities, shortage of raw materials or any other cause outside the reasonable control of the nonperforming party. WAIVER The failure of either party to seek redress for the breach of, or to insist upon the strict performance of any term, clause or provision of the Agreement, shall not constitute a waiver, unless the waiver is in writing and signed by the party waiving performance. Agreed to this 22nd day of Agreed to this 22nd day of December, 2000. December, 2000. COCA-COLA NORTH AMERICA FOUNTAIN, SYBRA, INC. A DIVISION OF THE COCA-COLA COMPANY BY: /s/ Eric McCarthey BY: /s/ Robert H. Drechsler --------------------------------- ------------------------------- ERIC MCCARTHEY ROBERT H. DRECHSLER VICE PRESIDENT, SALES AND MARKETING CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER BY: /s/ John A. Bicks --------------------------------- JOHN A. BICKS CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER -----END PRIVACY-ENHANCED MESSAGE-----