-----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, V+ZWbFalp7CBj6j7PGtjamkrkQgnHqW1My9ukuu6gRsFOpk7WALCq/LGqLkuToar Z6mKUAj0XUk1UI1kDBWnGw== 0000950146-98-001941.txt : 19981116 0000950146-98-001941.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950146-98-001941 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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-Q SEC ACT: SEC FILE NUMBER: 001-07697 FILM NUMBER: 98748337 BUSINESS ADDRESS: STREET 1: 9404 GENESEE AVE CITY: LA JOLLA STATE: CA ZIP: 92037 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-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934 For the quarter ended September 30, 1998 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 incorporation or organization) Identification No.) 9255 Towne Centre Drive, Suite 600, San Diego, California 92121 --------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (619) 587-8533 ------------------------------------------------------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes _X_ No___ Number of shares of common stock outstanding on September 30, 1998: 2,911,000*. ----------- *Assumes full conversion of all remaining outstanding shares of common stock and preferred stock of pre-reorganized I.C.H. Corporation. See Note 5 of Notes to consolidated financial statements. I.C.H. CORPORATION and SUBSIDIARIES Index Page Number ------ Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1997 and September 30, 1998 2 Consolidated Statements of Operations for the Three Months ended September 30, 1997 and for the Three Months ended September 30, 1998 3 Consolidated Statements of Operations for the Nine Months ended September 30, 1997 and for the Nine Months ended September 30, 1998 4 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1997 and for the Nine Months ended September 30, 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. Other Information 18 Signatures 20 Exhibit Index 21 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
As of As of Decmeber 31, September 30, 1997 1998 -------- ------- (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 4,418 $ 4,565 Accounts receivable 530 432 Inventories 1,372 1,588 Deferred income taxes 1,257 1,137 Other current assets 1,565 2,561 -------- ------- Total current assets 9,142 10,283 Property and equipment, net 24,696 25,579 Intangible assets, net 39,470 44,206 Other assets 1,956 3,296 -------- ------- Total assets $ 75,264 $83,364 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 2,741 $ 3,506 Accrued liabilities 8,745 10,223 Current portion of long-term debt 1,714 1,714 Current portion of capital lease obligations 948 948 -------- ------- Total current liabilities 14,148 16,391 Non-current liabilities: Long-term debt 44,718 49,112 Long-term capital lease obligations 2,699 2,563 Deferred income taxes - net 1,908 1,070 Other liabilities 606 1,329 -------- ------- Total liabilities 64,079 70,465 -------- ------- Stockholders' Equity: Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding Common stock, $0.01 par value; 9,000,000 authorized; 2,594,416 outstanding 24 26 Paid-in-capital 12,025 12,049 Retained earnings (deficit) (864) 824 -------- ------- Total stockholders' equity 11,185 12,899 -------- ------- Total liabilities and stockholders' equity $ 75,264 $83,364 ======== =======
The accompanying Notes are an integral part of the Consolidated Financial Statements 2 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (In thousands except share amounts)
For the three months ended September 30, ------------------------ 1997 1998 ---------- ---------- Revenue and other income: Restaurant sales $ 26,224 $ 33,190 Other 464 (16) ---------- ---------- Total Revenues 26,688 33,174 Cost and expenses: Restaurant costs and expenses 21,819 27,649 General and administrative 1,641 2,133 Depreciation and amortization 1,633 1,157 Other 316 -- Non-recurring/restructuring charges 414 -- ---------- ---------- Operating income 865 2,235 Interest expense 1,701 1,443 ---------- ---------- Income (loss) from continuing operations before income taxes (836) 792 Provision (benefit) for income taxes (344) 316 ---------- ---------- Income (loss) from continuing operations (492) 476 Gain from sale of discontinued operations -- 388 ---------- ---------- Net income (loss) $ (492) $ 864 ========== ========== Income (loss) from continuing operations per share: Basic $ (.18) $ .17 Diluted $ (.18) $ .15 Gain from discontinued operations per share: Basic Diluted $ -- $ .13 $ -- $ .12 Net income (loss) per share: Basic $ (.18) $ .30 Diluted $ (.18) $ .27 Weighted-average common shares Outstanding (see note) Basic 2,793,550 2,911,000 Diluted 2,793,550 3,148,000
The accompanying Notes are an integral part of the Consolidated Financial Statements. 3 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (In thousands except share amounts)
Predecessor Company Combined Company For the four For the five For the nine For the nine months ended months ended months ended Months ended April 30, 1997 September 30, 1997 September 30, 1997 September 30, 1998 -------------- ------------------ ------------------ ------------------ Revenue and other income: Restaurant sales $ 37,868 $ 44,757 $ 82,625 $92,376 Other 48 906 954 736 ----------- ----------- -------- ------- Total Revenues 37,916 45,663 83,579 93,112 Cost and expenses: Restaurant costs and expenses 32,006 37,190 69,196 76,408 General and administrative 2,212 2,722 4,934 5,989 Depreciation and amortization 2,006 2,830 4,836 3,755 Other -- 744 744 546 Non-recurring/restructuring charges -- 1,670 1,670 -- ----------- ----------- -------- ------- Operating income 1,692 507 2,199 6,414 Interest expense 638 2,752 3,390 4,248 ----------- ----------- -------- ------- Income (loss) from continuing operations before income taxes 1,054 (2,245) (1,191) 2,166 Provision (benefit) for income taxes 434 (859) (425) 866 ----------- ----------- -------- ------- Income (loss) from continuing operations 620 (1,386) (766) 1,300 Gain from sale of discontinued operations -- -- -- 388 ----------- ----------- -------- ------- Net Income (loss) $ 620 $ (1,386) $ (766) $ 1,688 =========== =========== ======== ======= Income (loss) from continuing operations per share: $ (.27) $ .45 Basic $ (.27) $ .42 Diluted Gain from discontinued operations per share: $ -- $ .14 Basic $ -- $ .13 Diluted Net income (loss) per share: Basic $ (.27) $ .59 Diluted $ (.27) $ .55 Weighted-average common shares outstanding (see note) Basic 2,793,550 2,881,000 Diluted 2,793,550 3,083,000
The accompanying Notes are an integral part of the Consolidated Financial Statements. 4 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (In Thousands)
Combined Company ------------ ------------ For the nine For the nine months ended months ended September 30, September 30, 1997 1998 ------------ ------------ Cash flows from operating activities: Net income (loss) $ (766) $ 1,688 Gain from sale of subsidiary -- (388) Adjustments to reconcile net income (loss) to cash from operating activities: Depreciation and amortization 4,836 3,856 Deferred income taxes 4,414 147 Changes in current assets and liabilities: Accounts receivable 948 30 Inventories 224 (216) Accounts payable and accrued expenses (2,594) 2,805 Other, net (210) (1,096) ------- ------- Net cash provided by operating activities 6,852 6,826 ------- ------- Cash flows from investing activities: Capital expenditures (3,449) (8,089) Proceeds from disposition of property and equipment 44,877 758 Investment in Sybra, Inc. net of $886 cash acquired (13,614) -- Acquisition of restaurant properties -- (5,970) Sale of subsidiary 5,000 2,955 Other, net -- (617) ------- ------- Net cash provided (used) by investing activities 32,814 (10,963) ------- ------- Cash flows from financing activities: Proceeds from issuance of long-term debt, net 33,984 6,195 Repayment of long-term debt and capital lease obligation (2,698) (1,937) Repayment of debt to former owner of Sybra, Inc (23,772) -- Distribution to former Parent (46,079) -- Other, net (456) 26 ------- ------- Net cash provided (used) by financing activities (39,021) 4,284 ------- ------- Net changes in cash and cash equivalents 645 147 Cash and cash equivalents at beginning of period 2,794 4,418 ------- ------- Cash and cash equivalents at end of period $ 3,439 $ 4,565 ======= =======
The accompanying Notes are an integral part of the Consolidated Financial Statements 5 I.C.H. CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share amounts) NOTE 1. BUSINESS Organization, Business and Summary of Significant Accounting Policies: Preparation of Interim Financial Statements The Consolidated Financial Statements of I.C.H. Corporation (the "Company") and Subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain amounts have been reclassified from previous presentations. These Consolidated Financial Statements include estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the amounts of revenues and expenses. Actual results could differ from those estimates. In the opinion of the Company, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All adjustments are of a normal recurring nature unless otherwise disclosed. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. The Company believes, however, that the disclosures made are adequate for a fair presentation of results of operations, financial position and cash flows. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company's latest annual report on Form 10-K. Organization I.C.H. Corporation is the post-reorganization successor to ICH Corporation ("Old ICH"). Old ICH, together with its subsidiaries, filed voluntary petitions for relief under Chapter 11 on October 10, 1995. The Company's plan of reorganization (the "Reorganization Plan") was confirmed February 7, 1997 and became effective on February 19, 1997 (the "Effective Date"). Until its acquisition of Sybra, Inc. (see Note 2), the Company had no significant business operations. As a result, revenues, operating loss and cash flows for the Company for the period from February 19, 1997 to April 30, 1997 have been reflected in the nine-month period ended September 30, 1997. On the Effective Date, all of the outstanding equity securities ("Old ICH Common Stock" and "Old ICH Preferred Stock", collectively the "Old ICH Stock") of Old ICH were canceled. The Company's Restated Certificate of Incorporation authorized the issuance of 9,000,000 shares of common stock and 1,000,000 shares of preferred stock. Holders of Old ICH Stock have two years from the Effective Date in which to exchange their canceled shares for the Company's common stock. Generally, holders of the canceled Old ICH shares are entitled to receive 0.0269 shares of the Company's common stock for each share of Old ICH Common Stock and 0.2 shares of the Company's common stock for each share of Old ICH Preferred Stock and, for a period of 40 days from the Effective Date, certain holders could elect to exchange canceled shares for a single de minimis cash payment. Business and Presentation The accompanying Consolidated Financial Statements labeled "Company" include the accounts of the Company and its wholly-owned subsidiaries, principally Sybra, Inc. ("Sybra"). All significant intercompany accounts and transactions have been eliminated. Sybra currently operates a chain of 177 fast food restaurants as a franchisee of Arby's, Inc. ("Arby's") clustered in five regions, primarily in Texas, Michigan, Pennsylvania, Florida and California. 6 I.C.H. CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share amounts) Sybra is considered to be a Predecessor of the Company and, accordingly, the historical financial statements of Sybra, prior to its acquisition by the Company on April 30, 1997, are presented with the accompanying financial statements of the Company. The acquisition of Sybra resulted in changes in the cost basis of Sybra's assets and liabilities, use of estimated lives for certain of the intangibles that are different from those used by the Predecessor and a different capital structure. These factors significantly affect the comparability of the Predecessor's financial information. 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 September 27, 1997 and September 26, 1998. 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. 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 require the Company to pay a franchise fee for each new restaurant developed and de minimis renewal fees for franchises that have expired. Each franchise agreement provides the Company the right to operate an Arby's restaurant for a period of 20 years and is renewable by the Company, 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. 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 base rental rates, less the actual rental obligation, 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 September 30, 1998. 7 I.C.H. CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share amounts) 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. Advertising Expenses. All advertising costs are expensed as incurred. 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. Earnings Per Share. In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires presentation of both basic and diluted earnings per share. Basic net income per share is computed based on the weighted-average number of common shares outstanding during the period (see Note 5). Net earnings per common share for the Predecessor is not presented as the per share results are not meaningful due to the changes resulting from the acquisition of Sybra (see Note 2). NOTE 2. ACQUISITION OF SYBRA On April 30, 1997, the Company acquired all of the common stock of Sybra for $15,614 including related expenses and net of cash acquired of $886. The Company incurred $2,000 in acquisition indebtedness to the seller and paid the remainder in cash. The acquisition was recorded under the purchase method of accounting and, accordingly, the results of operations of Sybra commencing May 1, 1997 are included in the accompanying financial statements of the Company. The purchase price was allocated to identifiable tangible and intangible assets and liabilities based on their estimated fair values, with the excess of the purchase price over the fair value of such net assets acquired reflected as goodwill, as follows: Current Assets $ 3,428 Franchise rights 3,865 Other intangibles, excluding goodwill 8,299 Goodwill 28,159 Tangible assets 20,342 Liabilities assumed (48,479) -------- Purchase price $ 15,614 ======== 8 I.C.H. CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share amounts) NOTE 3. OLD ICH TRANSACTIONS On April 25, 1997, the Company exercised its option pursuant to the Reorganization Plan, to sell all of the outstanding capital stock of Bankers Multiple Line Insurance Company ("BML"), a property and casualty insurer licensed in all fifty states, for its carrying value of $5,000. In March 1997, the Company received $2,790 in satisfaction of a receivable related to the Reorganization Plan. NOTE 4. LONG-TERM DEBT Long-term debt consists of the following as of:
December 31, 1997 September 30, 1998 ----------------- ------------------ Term loan, 10.63%, payable monthly through 2012 $33,984 $33,198 Loan, 14.40% 9,000 9,000 Acquisition indebtedness due in 1999 2,000 2,000 Other 1,448 6,628 ------- ------- 46,432 50,826 Less: current portion 1,714 1,714 ------- ------- Total $44,718 $49,112 ======= =======
Concurrently with the acquisition of Sybra, the Company entered into a loan agreement that provides, on an aggregate basis, a $35,000 fixed-rate term loan bearing interest at 10.63% with a weighted-average maturity of 12.5 years. The term loan is collateralized by substantially all of the restaurant equipment owned by Sybra. The proceeds of the term loan were used to fund the acquisition of Sybra and retire debt payable to Sybra's former parent assumed in the acquisition. The loan agreement contains 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 of September 30, 1998, the Company was in compliance with all such covenants. As an element of the sale/leaseback transactions completed immediately before Sybra's acquisition by the Company, Sybra received $9,000 as a loan. The loan element of the transaction carries an interest rate of approximately 14.40% and may be repaid at any time without penalty. If not repaid in full earlier than December 31, 1999, the loan amortizes over 20 years. The Company currently intends on refinancing this loan prior to fiscal 2000. 9 I.C.H. CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share amounts) At September 30, 1998, long-term debt had a fair value that approximates the carrying value. NOTE 5. EQUITY AND EARNINGS PER COMMON SHARE Given the stock conversion provisions of the Reorganization Plan, the Company has not determined and cannot currently determine the ultimate number of shares of common stock that will be issued upon completion of the stock conversion. However, based on the number of outstanding shares of Old ICH Stock on the Effective Date, and after considering nominal shareholders of record and shares which were exchanged for cash under the provisions of the Reorganization Plan, the Company estimates that a maximum of approximately 2,911,000 shares of the Company's common stock could be issued, although the amount could be lower if all shares are not exchanged prior to the end of the two-year period. Although conservative, the Company has used the maximum 2,911,000 shares in computing earnings per share. As of October 30, 1998, 2,594,416 shares of common stock were outstanding. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted computations include dilutive common share equivalents.
Three months Nine months ended ended September 30, September 30, 1998 1998 ------------- ------------- Income for computation of basic earnings per share and diluted earnings per share $ 864 $1,688 ====== ====== Weighted-average shares for computation of basic earnings per share 2,911 2,881 Incremental shares on assumed issuance and repurchase of stock options 237 202 ------ ------ Weighted-average shares for computation of diluted earnings per share 3,148 3,083 ====== ====== Basic earnings per share $ 0.30 $ 0.59 ====== ====== Diluted earnings per share $ 0.27 $ 0.55 ====== ======
10 I.C.H. CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share amounts) NOTE 6. PROFORMA CONDENSED STATEMENTS OF OPERATIONS DATA Unaudited proforma statements of operations data for the nine months ended September 30, 1997, before the $1.7 million charge taken during the period, reflect the Company's acquisition of Sybra using the purchase method of accounting as if the Sybra acquisition, which occurred on April 30, 1997, had occurred on January 1, 1997. As a result of the acquisition, the Company incurred acquisition debt of approximately $35 million and entered into sale/leaseback transactions on 61 of Sybra's restaurants which had been previously classified as owned, resulting in higher interest and rent expense.
Nine Months ended September 30, 1997 ------------------ Revenues $ 83,579 Costs and expenses: Restaurant costs and expenses 71,156 General and administrative 4,837 Depreciation and amortization 4,181 Other 744 -------- Operating income 2,661 Interest expense 4,447 -------- Loss before taxes (1,786) Income tax benefit (724) -------- Net Loss $ (1,062) ========
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. GENERAL The Company's revenues consist almost entirely of restaurant sales and revenues from its wholly-owned subsidiary, Sybra, Inc., which it acquired on April 30, 1997. Restaurant costs and expenses include all direct costs, including direct labor, occupancy costs, advertising expenses, royalty payments, expenditures for repairs and maintenance, and workers' compensation, casualty and general liability insurance costs. Advertising fees paid to AFA Service Corporation, a non-profit association of Arby's restaurant operators, to develop and prepare advertising materials and to undertake marketing research, are equal to 0.7% of restaurant sales. In addition, the Company operates its restaurants pursuant to licenses which require the Company to pay Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently an aggregate of approximately 2.9% of the Company's restaurant sales). The royalty rate for new restaurants (currently 4%) will result in an increase in the Company's aggregate royalty rate as new Arby's restaurants are opened. 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. For purposes of the discussion below, the historical results of operations for the combined nine month period ended September 30, 1997, are not indicative of the results that would actually have been obtained if the Company's acquisition of Sybra had occurred on January 1, 1997. The Predecessor historical combined nine month period ended September 30, 1997 does not give effect to, among other items, corporate expenses necessary to operate on a stand-alone basis. Such expenses include higher interest and rent expense, certain administrative services, tax compliance, treasury service, human resource administration and legal services. 12 The Predecessor unaudited proforma statement of operations data for the combined nine month period ended September 30, 1997 reflect the Company's acquisition of Sybra using the purchase method of accounting as if the acquisition, which occurred on April 30, 1997, had occurred on January 1, 1997. As a result of the acquisition, the Company incurred acquisition debt of approximately $35 million and entered into sale/leaseback transactions on 61 of Sybra's restaurants which had been previously classified as owned, resulting in higher interest and rent expense.
Three Months Ended September 30, ------------------------ 1997 1998 ----- ----- Revenues 100.0% 100.0% Expenses Restaurant costs & expenses 81.8 83.3 General & administrative 6.1 6.4 Depreciation & amortization 6.1 3.6 Other 1.2 -- Non occurring/restructuring charge 1.6 -- ----- ----- Operating income 3.2 6.7 Interest expense 6.3 4.3 ----- ----- Income (loss) from continuing operations before taxes (3.1) 2.4 Income tax (benefit) expense (1.3) 1.0 ----- ----- Income (loss) from continuing operations (1.8) 1.4 Gain from sale of discontinued operations -- 1.2 ----- ----- Net income (loss) (1.8)% 2.6% ===== =====
Comparison of the Quarter Ended September 30, 1998 and the Quarter Ended September 30, 1997. Revenues - Revenues were $33.2 million for the third quarter of FY 1998 as compared to $26.7 million for the same period of FY 1997, an increase of $6.5 million or 24.3% primarily as a result of two new store openings and eleven store acquisitions. Same store sales increased 10% for the period. Restaurant Costs & Expenses - Restaurant costs and expenses were $27.6 million, or 83.3% of sales, for the third quarter of FY 1998 as compared to $21.8 million, or 81.8% of sales for the same period of FY 1997, an increase of $5.8 million. As a percent of sales, costs increased as a result of higher labor costs due to increased store manager incentive bonuses from improved store performance. General and Administrative - General and administrative costs and expenses were $2.1 million, or 6.4% of sales, for the third quarter of FY 1998 as compared to $1.6 million, or 6.1% of sales for the same period of FY 1997, an increase of $492 as a result of costs and expenses associated with operating the Company as a stand alone public company, as explained above, and increased expenses associated with business development and real estate operations necessary to achieve new store development requirements. Depreciation and Amortization - Depreciation and amortization expense was $1.2 million, or 3.6% of sales in the third quarter of FY 1998 as compared to $1.6 million, or 6.1% of sales in the same period of FY 1997. 13 Interest Expense - Interest expense was $1.4 million in the third quarter of FY 1998 as compared to $1.7 million in the same period of FY 1997, a decrease of $258. The gain of $388 on the sale of a discontinued operation was related to the sale of Perry Park in July 1998 for approximately $3.1 million in cash. (See Capital Loss Carry Forward Section).
Combined Company -------- ------- Nine Months Ended Nine Months Ended September 30, 1997 September 30, 1998 ------------------ ------------------ (Historical) (Proforma) Revenues 100.0% 100.0% 100.0% Expenses Restaurant costs & expenses 82.8 85.1 82.1 General & administrative 5.9 5.8 6.4 Depreciation & amortization 5.8 5.0 4.0 Other 0.9 0.9 0.6 Nonrecurring/restructuring 2.0 -- -- ----- ----- ----- Operating income 2.6 3.2 6.9 Interest expense 4.0 5.3 4.6 ----- ----- ----- Income (loss) before income taxes (1.4) (2.1) 2.3 Provision (benefit) income expense (.5) (.8) .9 ----- ----- ----- Income (loss) from continuing operations (.9) (1.3) 1.4 Gain from sale of discontinued operations -- -- .4 ----- ----- ----- Net Income (loss) (.9)% (1.3)% 1.8% ===== ===== =====
14 Comparison of the Nine Months Ended September 30, 1998 and the Nine Months Ended September 30, 1997 on a Historical Basis Revenues - Revenues were $93.1 million for FY 1998 as compared to $83.6 million for the same period of FY 1997, an increase of $9.5 million primarily as a result of two new store openings and twenty-five store acquisitions and same store sales increasing 2.7 for the period. Restaurant Costs & Expenses - Restaurant costs and expenses were $76.4 million, or 82.1% of sales, for FY 1998 as compared to $69.2 million, or 82.8% of sales for the same period of FY 1997, an increase of $7.2 million. As a percent of sales, costs decreased as a result of improved food margins and decreased labor costs. General and Administrative - General and administrative costs and expenses were $6.0 million, or 6.4% of sales, for FY 1998 as compared to $4.9 million, or 5.9% of sales for the same period of FY 1997, an increase of $1.1 million as a result of costs and expenses associated with operating the Company as a stand alone public company, as explained above, and increased expenses associated with business development and real estate operations necessary to achieve new store development requirements. Depreciation and Amortization - Depreciation and amortization expense was $3.8 million, or 4.0% of sales in FY 1998 as compared to $4.8 million, or 5.8% of sales in the same period of FY 1997, a decrease of $1.1 million as a result of the impact of the sale/leaseback of 61 properties related to the Sybra acquisition which were classified as owned in prior years. Interest Expense - Interest expense was $4.2 million in FY 1998 as compared to $3.4 million in the same period of FY 1997, an increase of $858 as a result of debt incurred in connection with the Sybra acquisition. Net gain from the sale of a subsidiary of $388 was related to the sale of Perry Park in July 1998 for approximately $3.1 million in cash. (See Capital Loss Carry Forward section) Comparison of the Nine Months Ended September 30, 1998 and the Nine Months Ended September 30, 1997 on a Pro forma Basis Revenues - Revenues were $93.1 million for FY 1998 as compared to $83.6 million for the same period of FY 1997, an increase of $9.5 million primarily as a result of two new store openings and twenty-five store acquisitions and same store sales increasing 2.7% for the period. Restaurant Costs & Expenses - Restaurant costs and expenses were $76.4 million, or 82.1% of sales, for FY 1998 as compared to $71.2 million, or 85.1% of sales on a proforma basis for the same period of FY 1997, an increase of $5.3 million. As a percent of sales, costs decreased as a result of improved food margins and decreased labor costs. 15 General and Administrative - General and administrative costs and expenses were $6.0 million, or 6.4% of sales, for FY 1998 as compared to $4.9 million, or 5.9% of sales on a proforma basis for the same period of FY 1997, an increase of $1.2 million as a result of costs and expenses associated with operating the Company as a stand alone public company, as explained above, and increased expenses associated with business development and real estate operations necessary to achieve new store development requirements. Depreciation and Amortization - Depreciation and amortization expense was $3.8 million, or 4.0% of sales in FY 1998 as compared to $4.2 million, or 5.0% of sales on a proforma basis in the same period of FY 1997. Interest Expense - Interest expense was $4.2 million in FY 1998 as compared to $4.4 million on a proforma basis in the same period of FY 1997. IMPACT OF THE YEAR 2000 ISSUES Based on a recent assessment, the Company has determined that it will not have to modify or replace any of its software and that its computer systems will properly utilize dates beyond December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the Sybra acquisition and the funding of capital expenditures. As of September 30, 1998, the Company had outstanding indebtedness for borrowed money of $33.2 million under a term facility with Atherton Capital Incorporated. The term facility has a weighted-average maturity of 12.5 years and bears interest at 10.63%. The term facility requires monthly payments of principal and interest, is collatoralized by substantially all of the restaurant equipment owned by Sybra, and imposes certain financial restrictions and covenants. The Company's primary source of liquidity during the quarter ended September 30, 1998 was the operation of the restaurants owned by its operating subsidiaries, including Sybra. In the future, the Company's liquidity and capital resources will primarily depend on the operations of Sybra which, under the provisions of its loan agreement, would permit, under certain conditions, distributions and dividends to the Company. 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 stores is either funded directly by Sybra from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new stores is generally, although not always, financed by outside lenders. The Company believes that it will continue to be able to secure adequate financing on acceptable terms for new store construction and acquisitions and that cash generated from operations will be adequate to meet its needs for the foreseeable future, although no assurances can be given. On August 7, 1997, Sybra executed a loan commitment letter with Franchise Finance Corporation of America ("FFCA") to finance the construction of up to 12 new Arby's restaurants during the next two years. Under the terms of the commitment letter, FFCA has agreed to finance mortgage and equipment loans for up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1 million per location. The Company maintains, with a bank, a $150 letter of credit that automatically renews in November of each year. On April 15, 1998, Sybra, Inc. acquired one operating Arby's restaurant, as well as sites for the development of two additional Arby's restaurants, all located in Southern New Jersey, contiguous to Sybra's Eastern region. The total purchase price of the acquisition, which includes two leased properties and fee ownership of one property, was approximately $1.35 million, of which approximately $650 was financed through a sale/leaseback transaction. On May 1, 1998, Sybra, Inc. acquired four operating Arby's restaurants located in Michigan, within Sybra's Northern region. The total purchase price of the acquisition, which includes two leased properties and fee ownership of two properties, was approximately $4.8 million, of which approximately $3.9 million was financed through sale/leaseback transactions and leasehold mortgage and equipment financing. 16 On June 30, 1998, the Company acquired eleven operating Arby's restaurants, as well as one site for the development of an additional Arby's restaurant, all located within Sybra's Southwestern region. The total purchase price of the acquisition was approximately $4.1 million, of which approximately $3.9 million was financed through sale/leaseback transactions, equipment financing and the assumption of existing indebtedness. On July 8, 1998, the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, entered an order approving the settlement of the Company's claims against certain former officers, directors and advisors of Old ICH. Pursuant to the Reorganization Plan, these claims were retained as assets of the Company. Under the terms of the settlement agreement, the Company received $340 in cash as well as $271 in cash from the proceeds of the sale of 67,652 shares of its own common stock which were surrendered to the Company by the settling parties pursuant to the settlement agreement. In addition, under the settlement agreement, one of the settling parties has agreed to provide the Company with discounted financial advisory services worth up to $150,000. On July 31, 1998 the Company completed the sale of the Perry Park golf course and real estate development located in Owen County, in Kentucky to Par-Tee LLC, a Kentucky limited liability company, for $3.1 million in cash resulting in a gain of $388. The gain from discontinued operations of $388 included a gain from the recording of a tax deferred asset of $719. (See Capital Loss Carry Forward section) On September 8, 1998, Sybra executed a sale/leaseback financing commitment with CNL Fund Advisors, Inc. to finance up to $20 million of properties to be developed and operated by Sybra. The commitment letter expires on February 25, 2000. CAPITAL LOSS CARRY FORWARD On April 25, 1997, the Company sold its interest in the stock of Bankers Multiple Line Insurance Company which generated a significant tax loss (see Note 3 of Notes to Consolidated Financial Statements). Due to limitations pursuant to the Internal Revenue Code and Treasury regulations thereunder, no deferred tax asset has been recorded for the capital loss carry forward due to the uncertainty of its existence and realizability. The gain from the sale of a discontinued operation of $388 was related to the sale of Perry Park in July 1998 for approximately $3.1 million in cash. The gain from discontinued operations included a reduction in the valuation allowance previously recorded against a deferred tax asset specifically related to the difference in the book and tax basis of this asset. 17 CAPITAL EXPENDITURES The Company's capital expenditures were $8.1 million for the nine months ended September 30, 1998 which includes new store development as well as store maintenance, store remodel and store renovation capital expenditures. The Company anticipates that Sybra's store maintenance, store remodel and store renovation capital expenditures in 1998 (which excludes new store development capital expenditures) will approximate $2.5 million. The level of capital expenditures for new store development and acquisitions will be dependent upon several factors, including the number of stores constructed and/or acquired as well as the capital structure of any such transactions. ITEM 5. OTHER INFORMATION The Company has entered into an asset purchase agreement, dated as of August 14, 1998 and amended as of October 6, 1998, with Lyon's Restaurants, Inc. ("Lyon's") for the purchase of up to 77 full-service family dining restaurants, located primarily in northern California and doing business under the "Lyon's" name, for $22.6 million. The assets to be purchased include substantially all of Lyon's tangible and intangible assets, including the Lyon's trademark and certain related marks, as well as Lyon's leasehold interests, real estate improvements, restaurant equipment and related assets. Of the total $22.6 million purchase price, up to $16.5 million is to be financed by USRP (Finance), LLC through leasehold mortgage and equipment financing, while the balance of the purchase price will come from the Company's working capital. The Company currently anticipates that the proposed acquisition will occur in December 1998, although no assurances can be given. 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit No. Exhibit Title - ----------- ------------- 10.25 Asset Purchase Agreement, dated as of August 14, 1998, among Lyon's of California, Inc., I.C.H. Corporation and Lyon's Restaurants, Inc. 10.26 Amendment to Asset Purchase Agreement, dated as of October 6, 1998, among Lyon's of California, Inc., I.C.H. Corporation and Lyon's Restaurants, Inc. 27.1 Financial Data Schedule 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, I.C.H. Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: November 13, 1998 I.C.H. Corporation By: /s/ James R. Arabia ----------------------- James R. Arabia Chairman and Chief Executive Officer By: /s/ David A. Brainard ------------------------- David A. Brainard Chief Financial Officer 20 EXHIBIT INDEX Exhibit Number Exhibit Title - ------- ------------- 10.25 Asset Purchase Agreement, dated as of August 14, 1998, among Lyon's of California, Inc., I.C.H. Corporation and Lyon's Restaurants, Inc. 10.26 Amendment to Asset Purchase Agreement, dated as of October 6, 1998, among Lyon's of California, Inc., I.C.H. Corporation and Lyon's Restaurants, Inc. 27 Financial Data Schedule 21 EX-10.25 2 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "Agreement") is made and entered into as of this 14th day of August, 1998, by and between Lyon's of California, Inc., a California corporation, I.C.H. Corporation, a Delaware corporation and Lyon's Restaurants, Inc., a Delaware corporation ("Seller"). RECITALS A. Seller is engaged in the business of owning and operating of a chain of restaurants under the name "Lyon's Restaurants" (the "Business"). B. Seller wishes to sell substantially all the assets it uses in connection with the Business at the price and on the other terms and conditions specified in detail below. C. I.C.H. Corporation, through Lyon's of California, Inc., its wholly-owned subsidiary, wishes to so purchase and acquire such Assets from Seller. (I.C.H. Corporation and Lyon's of California, Inc. are hereafter referred to, collectively, as "Buyer" with the rights and obligations of each entity more fully set forth in Section 1.4). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Transfer of Assets. 1.1. Purchase and Sale of Assets. On the Closing Date, as hereinafter defined, in consideration of the covenants, representations and obligations of Buyer hereunder, and subject to the conditions hereinafter set forth, Seller shall sell, assign, transfer, convey, and deliver to Buyer, and Buyer shall purchase from Seller all of Seller's right, title, and interest in and to the assets (of every type and description, whether tangible or intangible, wherever located and whether or not identified or disclosed on Seller's books and records) and properties, goodwill, and business which are owned or leased and used by Seller in the operation of the Business (collectively, the "Property"), excluding, however, all of the Excluded Assets (as defined in Section 1.2 below). The Property shall consist of, among other things, the following: 1.1.1. Leases and Contracts. Seller's right, title, and interest, including security and other deposits thereunder (i) as lessee under those real property leases described on Exhibit A-1 to this Agreement (collectively, the "Real Property Leases"), (ii) as lessee under those equipment, personal property and intangible property leases, rental agreements, licenses, contracts, agreements and similar arrangements described on Exhibit A-2 to this Agreement (collectively, the "Other Leases"), (iii) as a party to those other contracts, leases, orders, purchase orders, licenses, contracts, agreements and similar arrangements described on Exhibit A-3 to this Agreement (collectively, the "Other Contracts" and together with the Other Leases, the "Other Leases and Contracts"), and (iv) under those SNDA's (as defined in Section 8.9) that are being assumed by Seller and assigned to Buyer or that are newly obtained by Seller as more fully discussed in Section 8.9. 1.1.2. Improvements. All improvements, and all appurtenances to such improvements, located on the real property (collectively, the "Real Property") occupied by Seller under the Real Property Leases, including, without limitation, buildings, outside storage areas, signage, and pylon signs, driveways, walkways and parking areas, but in all events only to the extent of Seller's interest in the same (collectively, the "Improvements"). 1.1.3. Personal Property. All of those items of equipment and tangible personal property owned by Seller and listed in Exhibit B to this Agreement and all other tangible personal property now or hereafter owned by Seller and used exclusively in connection with the Business, including, without limitation, all such furniture, vehicles, machinery, equipment, tools, spare parts, computers, fixtures and furnishings located at or on the Real Property (collectively, the "Personal Property"). As used in this Agreement, the Personal Property shall not include the Inventory. The Personal Property shall also expressly exclude any equipment or other tangible property held by Seller pursuant to a lease, rental agreement, contract, license or similar arrangement (a "Contract") where Buyer does not assume the underlying Contract relating to such personal property at the Closing. 1.1.4. Intangible Property. All intangible personal property owned or held by Seller and used exclusively in connection with the Business, but in all cases only to the extent of Seller's interest and only to the extent transferable, together with all books, records and like items pertaining to the Business, including, without limitation, the name "Lyon's Restaurants", the goodwill of the Business, trademarks, trade names, service marks, all plans and specifications for the Improvements, all appraisals, engineering, soils, pest control, and other reports relating to the Real Property, catalogues, customer lists and other data bases, correspondence with present 2 or prospective customers and suppliers, advertising materials, software programs, and telephone exchange numbers identified with the Business and all permits, licenses, authorizations, and approvals relating to the operation of the business (collectively, the "Intangible Property"). As used in this Agreement, Intangible Property shall in all events exclude any software or other item of intangible property held by Seller pursuant to a license or other Contract where Buyer does not assume the underlying Contract relating to such intangible personal property at the Closing. 1.1.5. Receivables. All instruments, receivables, accounts receivable and unbilled costs and fees and, subject to Section 1.2, all causes of action relating or pertaining to the foregoing (collectively, the "Receivables"). 1.1.6. Inventory. All supplies, goods, materials, work in process, inventory and stock in trade owned by Seller (collectively, the "Inventory"). 1.2. Excluded Assets. 1.2.1. Excluded Assets Generally. Notwithstanding anything to the contrary in this Agreement, the Property shall not include the following (the "Excluded Assets"): (i) those items excluded pursuant to the provisions of Section 1.1 above; (ii) all cash or cash equivalents; (iii) all preference or avoidance claims and actions of Seller, including, without limitation, any such claims and actions arising under Section 544, 545, 547, 548, 549, and 550 of the United States Bankruptcy Code; (iv) Seller's rights under this Agreement and all cash and non-cash consideration payable or deliverable to Seller pursuant to the terms and provisions hereof or any subsequent agreement between Seller and Buyer; (v) insurance proceeds, claims and causes of action with respect to or arising in connection with (A) any lease, contract, or agreement which is not assigned to Buyer at the Closing, or (B) any item of tangible or intangible property located on or about or used solely in connection with a location, the Real Property Lease for which is not acquired by Buyer at the Closing; (vi) any lease, contract, or agreement to which Seller is a party which is not listed or described on Exhibit A-1, Exhibit A-2, or Exhibit A-3 to this Agreement; (vii) the certificate of incorporation, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of Seller as a corporation; (viii) any Privileged Information (as defined in Section 1.2.2), (ix) any information about employees who do not accept offers of employment from Buyer, (x) any asset or obligation set forth in an Exclusion Notice (as defined in Section 1.2.3), and (xi) a promissory note and accompanying trust 3 deed received from sale of Seller's former Sparks, Nevada location and presently held by Seller's senior lenders. 1.2.2. Privileged Information. "Privileged Information" shall mean matters subject to the attorney-client privilege except for matters that relate to the Properties or the operation of the Business. For example, matters pertaining to deliberations of the board of directors, the bankruptcy case, the process of selling assets, and other corporate matters shall be considered Privileged Information, but matters pertaining to operation of the store locations, dealings with vendors, and day-to-day operating issues shall not be considered Privileged Information. 1.2.3. Exclusion Notices. Buyer shall have the right to deliver written notice to Seller from time to time, but no later than five (5) business days prior to the Closing Date, that Buyer does not desire to acquire title to certain assets of Seller or to assume certain Real Property Leases or any Other Leases or Contracts. Any such notice shall be considered an "Exclusion Notice." Delivery of an Exclusion Notice shall not affect the Purchase Price. 1.3. Instruments of Transfer. The sale, assignment, transfer, conveyance and delivery of the Property to Buyer shall be made by assignments, a bill of sale, and other instruments of assignment, transfer and conveyance provided for in Section 3 below and such other instruments as may reasonably be requested by Buyer and which do not increase in any material way the burdens imposed by this Agreement upon Seller. 1.4. Relationship Between I.C.H. Corporation and Lyon's of California, Inc.. It is the intent of Seller and Buyer that both I.C.H. Corporation and Lyon's of California, Inc. be fully responsible for all obligations of Buyer under this Agreement and that any breach of or default under this Agreement shall be the joint and several responsibility of I.C.H. Corporation and Lyon's of California, Inc. Seller acknowledges and agrees that the transfer of assets and assumption of liabilities on the Closing Date will be to and from Lyon's of California, Inc. only and that I.C.H. Corporation shall not take title to any assets from nor assume any liabilities of Seller on the Closing Date. Buyer shall be responsible for demonstrating to the Bankruptcy Court (as defined in Section 8.4.1) that Lyon's of California, Inc. is capable of providing adequate assurance of future performance within the meaning of 11 U.S.C ss. 365(f)(2). 1.5. Continued Use of Corporate Name. Buyer hereby consents to Seller's retention of the name "Lyon's Restaurants, Inc." as the corporate name of Seller and grants to Seller a non-exclusive license to use such name as its corporate name; provided, that if after the Closing Date, Seller intends to 4 engage in the operation of any business, Seller shall change its corporate name prior to doing so. 2. Consideration. 2.1. Purchase Price. (a) The cash consideration to be paid by Buyer to Seller for the Property (the "Purchase Price") shall be TwentyTwo Million Dollars ($22,000,000). (i) Concurrently with the mutual execution and delivery of this Agreement (the date of such mutual execution and delivery is sometimes referred to herein as the "Execution Date"), Buyer shall deposit into an escrow (the "Escrow") with an escrow agent or company (the "Escrow Holder") reasonably designated by Seller One Million Dollars ($1,000,000) (the "Deposit") in immediately available, good funds (funds delivered in this manner are referred to herein as "Good Funds"), pursuant to joint escrow instructions to be delivered to the Escrow Holder on or before the Execution Date. In turn, the Escrow Holder shall immediately deposit the Deposit into an interest-bearing account. The Deposit shall become nonrefundable upon the earlier of the entry of the (x) Sale Order (as defined in Section 8.4.2), or (y) termination of the transaction contemplated by this Agreement by reason of Buyer's default (a "Buyer Default Termination"). At the Closing, the Deposit (and any interest accrued thereon) shall be paid to Seller on account of the Purchase Price. In the event the Deposit becomes non-refundable by reason of a Buyer Default Termination, Escrow Holder shall immediately disburse the Deposit and all interest accrued thereon to Seller to be retained by Seller for its own account. If the transactions contemplated herein terminate by reason of (A) Seller's default, (B) the failure of a condition to Buyer's obligations, or (C) the consummation of a sale to a third party as described in Section 8.4. below, the Escrow Holder shall return to Buyer the Deposit (together with all interest thereon), but less Buyer's one-half share of the Escrow Holder's escrow fees and charges. (ii) On the Closing Date, Buyer shall pay and deliver, in Good Funds, the balance of the Purchase Price to Seller. 2.2. Assumed Liabilities. Buyer shall, effective as of the Closing Date, be assigned Seller's interest under the Real Property Leases and Other Leases and Contracts and shall assume all liabilities of Seller accruing under the Real Property Leases, under the Other Leases and Contracts on and after the Closing Date, and under any permits or licenses arising after the Closing Date; provided that Seller shall pay all cure amounts owing under any of the Real Property Leases and Other Leases and 5 Contracts as of the Closing which the Bankruptcy Court may order to be paid as a condition to Seller's assumption and assignment of any Real Property Lease or Other Lease or Contract. Other than the liabilities and obligations of Seller expressly assumed by Buyer hereunder, Buyer is not assuming and shall not be liable for any liabilities or obligations of Seller. 2.3. Instruments of Assumption. The assumption by Buyer of the assumed liabilities referred to in Section 2.2 shall be further evidenced by the Assignment of Leases and such other instruments as may reasonably be requested by Seller and which do not increase in any material way the burdens imposed by this Agreement upon Buyer. 2.4. Allocation of Purchase Price. The Purchase Price shall be allocated by Buyer in its sole discretion prior to Closing and Buyer shall notify Seller at least five (5) business days prior to Closing with respect to such allocation; provided that such allocation shall be made in a manner consistent with Section 1060 of the Internal Revenue Code of 1986, as amended. Each party agrees that it will not make any returns, filing, report, or other submission or take any position with or before any federal, state, or local tax agency or other authority which would conflict or be inconsistent with the allocation provided by Buyer pursuant to this Section 2.4. 3. Closing Transactions. 3.1. Closing. The Closing of the transactions provided for herein (the "Closing") shall take place at the offices of Murphy Sheneman Julian & Rogers, a professional corporation, 101 California Street, Suite 3900, San Francisco, California 94111 or, at Buyer's option, at the San Francisco office of Buyer's lender's title company. 3.2. Closing Date. The Closing shall be held on a date mutually convenient to Seller and Buyer not later than fifteen (15) days after entry of the Sale Order (as defined in Section 8.4.2) (the "Closing Date"); provided that Buyer may extend the fifteen (15) day period by another fifteen (15) days by giving written notice to Seller no later than the tenth (10th) day after entry of the Sale Order. In no event shall the Closing Date be later than December 31, 1998 (the "Outside Date"). In the event the conditions to Closing have not been satisfied or waived by the Outside Date, then any party who is not in default hereunder may terminate this Agreement. Alternatively, the parties may mutually agree to an extended Closing Date. Until this Agreement is either terminated or the parties have agreed upon an extended Closing Date, the parties shall diligently continue to work to satisfy all conditions to Closing and the transaction contemplated herein shall close as soon as such conditions are satisfied or waived. 6 3.3. Seller's Deliveries to Buyer at Closing. On the Closing Date, Seller shall make the following deliveries to Buyer: 3.3.1. An Assignment and Assumption of Leases and Other Contracts, duly executed by Seller, substantially in the form attached as Exhibit C to this Agreement, pursuant to which Seller assigns the Real Property Leases and Other Contracts (the "Assignment of Leases"). 3.3.2. A bill of sale, duly executed by Seller, substantially in the form attached as Exhibit D to this Agreement, pursuant to which Seller transfers the Personal Property and the Inventory to Buyer (the "Bill of Sale"). 3.3.3. An Assignment of Intangible Property, duly executed by Seller, in the form attached as Exhibit E to this Agreement, pursuant to which Seller assigns to Buyer its interest, if any, in and to the Intangible Property to Buyer (the "Assignment of Intangible Property"). 3.3.4. Any such other documents, funds or other things reasonably contemplated by this Agreement to be delivered by Seller to Buyer at the Closing. 3.4. Buyer's Deliveries to Seller at Closing. On the Closing Date, Buyer shall make or cause the following deliveries to Seller: 3.4.1. That portion of the Purchase Price to be delivered by Buyer directly to Seller at the Closing under Section 2.1 (and Buyer shall cause Escrow Holder to deliver the Deposit to Seller). 3.4.2. A counterpart of the Assignment of Leases, duly executed by Buyer. 3.4.3. A counterpart of the Assignment of Intangible Property, duly executed by Buyer. 3.4.4. Any such other documents, funds or other things reasonably contemplated by this Agreement to be delivered by Buyer to Seller at the Closing. 3.5. Prorations. Rent, current taxes, prepaid advertising and other items of expense (including, without limitation, any prepaid insurance under the Real Property Leases or Other Leases and Contracts, or any of them) and income relating to or attributable to the Business and/or the Real Property Leases or the Other Leases and Contracts shall be prorated between Seller and Buyer as of the Closing Date. All 7 obligations due in respect of periods prior to Closing shall be paid in full or otherwise be the responsibility of Seller and all obligations due in respect of periods after Closing shall be paid in full or otherwise be the responsibility of Buyer. Rent shall be prorated on the basis of a thirty (30) day month. 3.6. Sales, Use and Other Taxes. Any sales, purchases, transfer, stamp, documentary stamp, use or similar taxes under the laws of the states in which any portion of the Property is located, or any subdivision of any such state, which may be payable by reason of the sale of the Property under this Agreement or the transactions contemplated herein shall be borne and timely paid one-half by Buyer and one-half by Seller. 3.7. Possession. Right to possession of the Property shall transfer to Buyer on the Closing Date. Seller shall transfer and deliver to Buyer on the Closing Date such keys, lock and safe combinations and other similar items as Buyer shall require to obtain immediate and full occupation and control of the Property, and shall also make available to Buyer at their then existing locations the originals of all documents in Seller's possession that are required to be transferred to Buyer by this Agreement. 4. Conditions Precedent to Closing. 4.1. Conditions to Seller's Obligations. Seller's obligation to make the deliveries required of Seller at the Closing Date shall be subject to the satisfaction or waiver by Seller of each of the following conditions. 4.1.1. All of the representations and warranties of Buyer contained herein shall continue to be true and correct at the Closing in all material respects. 4.1.2. Buyer shall have executed and delivered to Seller the Assignment of Leases. 4.1.3. Buyer shall have delivered, or shall be prepared to deliver at the Closing, all cash and other documents required of Buyer to be delivered at the Closing. 4.1.4. Buyer shall have delivered to Seller appropriate evidence of all necessary corporate action by Buyer in connection with the transactions contemplated hereby, including, without limitation: (i) certified copies of resolutions duly adopted by Buyer's board of directors approving the transactions contemplated by this Agreement and authorizing the execution, delivery, and performance by Buyer of this Agreement; and (ii) a certificate as to the incumbency of officers of Buyer executing this Agreement and any instrument or 8 other document delivered in connection with the transactions contemplated by this Agreement. 4.1.5. Seller shall have determined that it will not incur any liability under the Worker Adjustment and Retraining Notification Act in connection with the consummation of this transaction. 4.1.6. All applicable waiting periods relating to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall have expired or been terminated and any proceedings that may have been filed or instituted thereunder shall have been satisfactorily concluded. 4.1.7. No action, suit or other proceedings brought by any governmental agency shall be pending before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain substantial damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction. 4.1.8. The Bankruptcy Court shall have entered the Sale Order, which shall not have been stayed as of the Closing Date. 4.2. Conditions to Buyer's Obligations. Buyer's obligation to make the deliveries required of Buyer at the Closing shall be subject to the satisfaction or waiver by Buyer of each of the following conditions: 4.2.1. Seller shall have substantially performed or tendered performance of each and every covenant on Seller's part to be performed which, by its terms, is capable of performance before the Closing. 4.2.2. All representations and warranties of Seller contained herein shall continue to be true and correct at the Closing in all material respects. 4.2.3. Seller shall have executed and be prepared to deliver to Buyer the Assignment of Leases. 4.2.4. Seller shall have delivered, or shall be prepared to deliver at the Closing, all other documents required of Seller to be delivered at the Closing. 4.2.5. All applicable waiting periods relating to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall have expired or been terminated and any proceedings that may have 9 been filed or instituted thereunder shall have been satisfactorily concluded. 4.2.6. No action, suit or other proceedings brought by any governmental agency shall be pending before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain substantial damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction. 4.2.7. The Bankruptcy Court shall have entered the Sale Order, which shall not have been stayed as of the Closing Date. 4.2.8. There shall not have occurred prior to the Closing Date a material adverse change in the financial condition or results of operations of the Business (exclusive of the effect of any locations where the real property lease is not being assumed by Buyer and exclusive of costs and expenses directly relating to Seller's filing of a bankruptcy case). 4.3. Termination. If any of the above conditions is neither satisfied nor waived on or before the date by which the condition is required to be satisfied, a party who is not then in default hereunder may terminate this Agreement by delivering to the other written notice of termination. Any waiver of a condition shall be effective only if such waiver is stated in writing and signed by the waiving party; provided, however, that the consent of a party to the Closing shall constitute a waiver by such party of any conditions to Closing not satisfied as of the Closing Date. 5. Seller's Representations and Warranties. Seller hereby makes the following representations and warranties to Buyer: 5.1. Validity of Agreement. Upon obtaining the Approval Order, this Agreement shall constitute the valid and binding obligation of Seller enforceable in accordance with its terms. 5.2. Organization, Standing and Power. Subject to the applicable provisions of bankruptcy law, Seller has all requisite corporate power and authority to own, lease and operate its properties, to carry on its business as now being conducted and, subject to Seller's obtaining the Approval Order, to execute, deliver and perform this Agreement and all writings relating hereto. 10 5.3. Authorization of Seller. Upon obtaining the Approval Order, the execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and the performance of, fulfillment of and compliance with the terms and conditions hereof by Seller do not and will not: (i) conflict with or result in a breach of the articles of incorporation or the by-laws of Seller; (ii) violate any statute, law, rule or regulation, or any order, writ, injunction or decree of any court or governmental authority; or (ii) violate or conflict with or constitute a default under any agreement, instrument or writing of any nature to which Seller is a party or by which Seller or its assets or properties may be bound. 5.4. Title to Property. To Seller's knowledge (which consists of matters actually known to Seller's senior management), Seller has good and marketable title to the Property; provided, however, Seller makes no representation whatsoever as to title to the Intangible Property or the transferability thereof. 5.5. Compliance With Law. The operations of Seller are in compliance with all applicable laws, regulations, permits, authorizations and other governmental orders including, without limitation, applicable safety (including OSHA), environmental (including wetlands), antipollution, building, zoning or health laws, ordinances and regulations, except where the failure to so comply would not be expected to have a material adverse effect on the financial condition or results of operations of the Business or the Property taken as a whole (a "Material Adverse Effect"). 5.6. No Subsidiaries. Seller does not have any subsidiaries. 5.7. Certificates of Occupancy. Seller has, and will deliver to Buyer at Closing, certificates of occupancy for each Lyon's Restaurant included as part of the Property, covering all Improvements located at such restaurants, except to the extent that the absence thereof would not be expected to have a Material Adverse Effect. 5.8. Licenses, Permits, Etc. Seller has, and will deliver to Buyer at Closing, all required licenses (including liquor licenses), permits and certificates required pursuant to municipal health codes or otherwise in order to lawfully operate each Lyon's Restaurant included as part of the Properties, except to the extent that the absence thereof would not be expected to have Material Adverse Effect. 5.9. Adequacy of Assets. Except for the Excluded Assets, the Properties include all of the properties, and assets, real, personal, and mixed, tangible and intangible, and all leases, contracts, and agreements (whether owned or to which 11 Seller is a party) which are presently used by Seller in the operation of its business. 6. Buyer's Warranties and Representations. In addition to the representations and warranties contained elsewhere in this Agreement, Buyer hereby makes the following representations and warranties to Seller: 6.1. Validity of Agreement. All action on the part of each Buyer necessary for the authorization, execution, delivery and performance of this Agreement by such Buyer, including, but not limited to, the performance of such Buyer's obligations hereunder, has been taken. This Agreement, when executed and delivered by such Buyer, shall constitute the valid and binding obligation of such Buyer enforceable in accordance with its terms. 6.2. Organization, Standing and Power. I.C.H. Corporation is a corporation duly organized and validly existing under the laws of the State of Delaware. Lyon's of California, Inc. is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each Buyer has all requisite corporate power and authority to own, lease and operate its properties, to carry on its business as now being conducted and to execute, deliver and perform this Agreement and all writings relating hereto. 6.3. Authorization of Buyer. The execution, delivery and performance of this Agreement and all writings relating hereto by each Buyer have been duly and validly authorized. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and the performance of, fulfillment of and compliance with the terms and conditions hereof by such Buyer do not and will not: (i) conflict with or result in a breach of the articles of incorporation or by-laws of such Buyer; (ii) violate any statute, law, rule or regulation, or any order, writ, injunction or decree of any court or governmental authority, or (iii) violate or conflict with or constitute a default under any agreement, instrument or writing of any nature to which such Buyer is a party or by which such Buyer or its assets or properties may be bound. 7. "AS IS" Transaction. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 5 ABOVE, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MATTER RELATING TO THE PROPERTY INCLUDING, WITHOUT LIMITATION, INCOME TO BE DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE PROPERTY, THE PHYSICAL CONDITION OF ANY PERSONAL PROPERTY COMPRISING A PART OF THE PROPERTY OR WHICH IS THE SUBJECT OF ANY OTHER LEASE OR CONTRACT TO BE ASSUMED BY BUYER AT THE CLOSING, THE ENVIRONMENTAL CONDITION OR OTHER MATTER RELATING TO THE PHYSICAL CONDITION 12 OF ANY REAL PROPERTY OR IMPROVEMENTS WHICH ARE THE SUBJECT OF ANY REAL PROPERTY LEASE TO BE ASSUMED BY BUYER AT THE CLOSING, THE ZONING OF ANY SUCH REAL PROPERTY OR IMPROVEMENTS, THE VALUE OF THE PROPERTY (OR ANY PORTION THEREOF), THE TRANSFERABILITY OF PROPERTY, THE TERMS, AMOUNT, VALIDITY OR ENFORCEABILITY OF ANY ASSUMED LIABILITIES, THE TITLE OF THE PROPERTY (OR ANY PORTION THEREOF, THE MERCHANTABILITY OR FITNESS OF THE PERSONAL PROPERTY OR ANY OTHER PORTION OF THE PROPERTY FOR ANY PARTICULAR PURPOSE, OR ANY OTHER MATTER OR THING RELATING TO THE PROPERTY OR ANY PORTION THEREOF). WITHOUT IN ANY WAY LIMITING THE FOREGOING, SELLER HEREBY DISCLAIMS ANY WARRANTY (EXPRESS OR IMPLIED) OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AS TO ANY PORTION OF THE PROPERTY. BUYER FURTHER ACKNOWLEDGES THAT BUYER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF THE PROPERTY AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE PROPERTY AS BUYER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE PROPERTY, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 5 WHICH BY THEIR SPECIFIC TERMS SURVIVE THE CLOSING, BUYER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. ACCORDINGLY, EXCEPT ONLY FOR SUCH SURVIVING REPRESENTATIONS, BUYER WILL ACCEPT THE PROPERTY AT THE CLOSING "AS IS," "WHERE IS," AND "WITH ALL FAULTS." 8. Conduct and Transaction Prior to Closing. 8.1. Access to Records and Properties of Seller. From and after the date of this Agreement until the Closing Date, Seller shall afford to Buyer's officers, independent public accountants, counsel, lenders, consultants, engineers, and other representatives, free and full access at all reasonable times to the Property, all records pertaining to the Property or the Business, and to the personnel of Seller (including officers, employees, and independent accountants but not including outside directors); provided that requests to visit the Property or to speak with employees shall be coordinated through senior management so as not unduly impose on the operation of the Business. Buyer, however, shall not be entitled to access to any materials containing (a) Privileged Information, or (b) communications or information about former employees. Buyer shall be entitled to receive communications and information with respect to current employees, but Buyer agrees to indemnify Seller and its officers, directors, employees, and agents, and hold Seller and such other parties harmless from all claims, demands, liabilities, and causes of action arising from Seller's disclosure to Buyer of information regarding current employees. Buyer expressly acknowledges that nothing in this Section 8.1 is intended to give rise to any contingency to Buyer's obligations to proceed with the transactions contemplated herein. 8.2. Operation of the Business Pending Closing. Unless Buyer otherwise consents, during the period prior to the Closing 13 Date, Seller shall operate the Business as currently operated and only in the ordinary course and, consistent with such operation, shall use commercially reasonable efforts to preserve intact its current business organization and its relationships with employees and persons having dealings with it. 8.3. Hart-Scott Rodino Cooperation. Buyer and Seller shall cooperate with each other (at their respective sole cost and expense) to comply with, and provide the information required by, the pre-merger notification and waiting period rules of the Hart-Scott-Rodino Anti-trust Improvements Act of 1976 (codified in Section 18(a) of Title 15, U.S. Code), in any Federal Trade Commission regulations, and in any provisions or regulations of or relating to the Clayton Act. In that connection, Buyer and Seller shall use diligent efforts to make their joint pre-merger notification filing with the Federal Trade Commission no later than thirty (30) days following the Execution Date (but not earlier than the Petition Date (as defined in Section 8.4.1)). 8.4. Bankruptcy Court Approvals. 8.4.1. Bankruptcy Filing. No later than September 9, 1998, Seller shall file a chapter 11 case (the "Bankruptcy Case") in the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court"). The date of such filing shall be the "Petition Date." 8.4.2. Motion to Bankruptcy Court for Approval of Sale and Sale Procedures. Promptly after the Petition Date, Seller will file with the Bankruptcy Court a motion (the "Motion") requesting entry of an order (the "Procedure Order") (the terms of which are more fully described below) approving procedures for sale of the Property to Buyer under 11 U.S.C. ss. 363 and an order (the "Sale Order") (the terms of which are more fully described below) confirming sale of the Property to Buyer under 11 U.S.C. ss. 363. The Motion shall request a hearing on entry of the Procedure Order approximately fifteen (15) days after the Petition Date and a hearing on entry of the Sale Order approximately thirty (30) days after entry of the Procedure Order. 8.4.3. Procedure Order. The Motion shall request that the Procedure Order include the following provisions: (i) that the Bankruptcy Court set a date for a hearing (the "Sale Hearing") at which overbids for the Property may be made and at which the sale of the Property to Buyer (or, if applicable, a successful overbidder) can be confirmed; (ii) that, in the event that Buyer is not approved by the Bankruptcy Court as the purchaser of the Property, and the Property (or any material portion thereof) is thereafter sold to any third party for consideration in excess of the Purchase Price and the other consideration provided for in this Agreement 14 notwithstanding Buyer's willingness and ability to consummate the transactions contemplated by this Agreement, Buyer will be entitled to receive from the Seller a fee (the "Break-Up Fee") equal to (a) One Million One Hundred Thousand Dollars ($1,100,000) (i.e., five (5) percent of the Purchase Price), plus (b) Buyer's documented out-of-pocket expenses (including but not limited to reasonable attorney's fees, loan commitment fees, and Hart-Scott-Rodino filing fees) associated with Buyer's efforts to negotiate, document, and pursue the consummation of the transaction set forth in this Agreement; (iii) that the Breakup Fee, if it becomes applicable, be paid to Buyer concurrently with the consummation of such third party sale; (iv) that third party offers to purchase the Property must (a) be in writing and, together with sufficient financial information to enable Seller to determine such third party's financial capacity, be submitted to Houlihan, Lokey, Howard & Zukin, Seller's investment bankers ("HLHZ") and to Seller, Buyer, and the agent for Seller's senior lending group, and its counsel, and to counsel for the official creditors committee not later than three (3) business days prior to the Sale Hearing, (b) be subject to no due diligence, financing, third party consent, or other contingencies (other than a Hart-Scott-Rodino Act filing), (c) include an agreement to deliver to Seller a non-refundable deposit of One Million Dollars ($1,000,000) by wire transfer within one (1) day of such third party's bid being accepted at the Sale Hearing, (d) if the offer contemplates continued operation of the Business for a period of time after Closing, be on substantially the same terms (other than purchase price and other than provisions that relate to periods prior to the date of the Sale Hearing) as this Agreement, (e) if the offer contemplates a cessation of the Business upon Closing, contain sufficient detail regarding such cessation to enable Seller to determine the extra costs that Seller will incur from such cessation, and (f) include an agreement that an order substantially similar to the Sale Order described in Section 8.4.5 of this Agreement is acceptable to such bidder; (v) that no prospective purchaser will be permitted to bid at the Sale Hearing unless such party has been deemed "financially qualified" by HLHZ, (vi) that, in order to be considered at the Sale Hearing, any initial bid for the Property by any third party must be not less than Twenty-Three Million Eight Hundred Thousand Dollars ($23,800,000), (vii) that subsequent bids for the Property following such an initial bid shall be in increments of Four Hundred Thousand Dollars ($400,000), and (vii) that, should overbidding take place at the Sale Hearing, Buyer shall have the right, but not the obligation, to participate in the overbidding (including through the use of the Secured Lender's Contingent Claim Assignment (as defined in Section 8.4.7)) and to be approved as the overbidder at that hearing. 8.4.4. Seller's Duties With Respect to Procedure Order; Consequences of Failure to Obtain Procedure Order. Following the filing of the Motion, Seller shall use 15 reasonable efforts to obtain entry of the Procedure Order containing the above provisions. If (a) the Bankruptcy Court refuses to approve the financial terms of the Breakup Fee, (b) the Bankruptcy Court refuses to enter a Procedure Order that is substantially similar to the one requested by Seller (other than the request for approval of use of the Secured Lender's Contingent Claim Assignment as discussed below), or (c) a Procedure Order is not entered on or before thirty-three (33) days after the Petition Date, then in any such case Buyer shall have the right, upon written notice delivered to the Seller, to terminate this transaction, in which case the transaction contemplated by this Agreement shall terminate and Buyer and Seller shall be relieved of any further obligation or liability hereunder. If the Bankruptcy Court enters a Procedure Order, such notice must be delivered to Seller within three (3) business days after receipt by buyer of the Procedure Order in order to be effective. If not delivered within such time period, Buyer will be deemed to have accepted the Procedure Order and neither the transaction nor this Agreement shall terminate. 8.4.5. Sale Order. The Motion shall request that the Sale Order include the following provisions: (i) that sale of the Property to Buyer on the terms and conditions set forth in this Agreement is approved and Seller is authorized to proceed with this transaction; (ii) a specific finding that Buyer is a good faith purchaser of the Property; (iii) that the sale of the Property to Buyer shall be free and clear of all liens, charges, and encumbrances; (iv) that Seller is authorized to assume and to assign to Buyer the Real Property Leases and the Other Leases and Contracts pursuant to Section 365 of the United States Bankruptcy Code, subject to Seller's obligation to pay any necessary cure amounts ordered by the Bankruptcy Court; (v) with respect to the Real Property Leases, the additional findings and/or provisions set forth in Exhibit F to this Agreement, and (vi) such other matters as Buyer shall reasonably request; provided that Seller's failure to obtain Bankruptcy Court approval of matters included in the Motion pursuant to this clause (vi) shall not be a breach of or default under this Agreement and the obtaining of such approval is not a condition to Buyer's obligations under this Agreement. 8.4.6. Seller's Duties With Respect to Sale Order; Consequences of Failure to Obtain Sale Order. Following the entry of the Procedure Order, Seller shall use reasonable efforts to obtain entry of the Sale Order containing the above provisions. If (a) the Bankruptcy Court refuses to enter a Sale Order providing for the assumption and assignment of at least ninety percent (90%) of the Real Property Leases listed on Exhibit A-1 (other than any Real Property Leases referred to in an Exclusion Notice), (b) the Bankruptcy Court refuses to enter a Sale Order providing for the assumption and assignment of Other 16 Contracts and Leases which, in the aggregate, would have if not assigned to Buyer a Material Adverse Effect, (c) the Bankruptcy Court refuses to enter a Sale Order that, except for the matters already referred to in this Section 8.4.6, the Special Landlord Provisions referred to in Section 8.4.9, and the items included in the Motion at the request of Buyer pursuant to clause (vi) of Section 8.4.5, is substantially similar to the one requested by Seller, or (d) a Sale Order is not entered on or before forty (40) days after entry of the Procedure Order, then in any such case Buyer shall have the right, upon written notice delivered to the Seller, to terminate this transaction, in which case the transaction contemplated by this Agreement shall terminate and Buyer and Seller shall be relieved of any further obligation or liability hereunder. If the Bankruptcy Court enters a Sale Order, such notice must be delivered to Seller within three (3) business days after receipt by Buyer of the Sale Order in order to be effective. If not delivered within such time period, Buyer will be deemed to have accepted the Sale Order and neither the transaction nor this Agreement shall terminate. 8.4.7. Secured Lenders' Contingent Claim Assignment. Seller acknowledges that Buyer and Seller's secured lenders (the "Secured Lenders") have informed Seller that they have reached an agreement in principal regarding such Secured Lenders using their best efforts to enable Buyer to credit bid a portion of the claim currently held by the Secured Lenders in connection with the sale of the Property to Buyer. Seller agrees that when the specific terms of such agreement have been finalized, Seller will seek approval of such credit bid as part of the Motion and will use reasonable efforts to obtain Bankruptcy Court Approval thereof and to have such approval included in the Procedure Order. Buyer acknowledges that Seller's obligation with respect thereto is to use reasonable efforts to obtain such approval. Seller's failure to do so shall not constitute a breach of or default under this Agreement nor excuse Buyer's continued performance of its obligations hereunder. 8.4.8. Adequate Assurance of Future Performance. Buyer acknowledges that 11 U.S.C. ss. 365(f)(2) requires, as a condition of assignment of an executory contract or unexpired lease, that the assignee provide adequate assurance of future performance. Buyer agrees that Buyer, rather than Seller, shall be responsible for satisfaction of this condition. 8.4.9. Special Landlord Provisions. Seller agrees to use reasonable commercial efforts to obtain the Bankruptcy Court's approval of the items in paragraphs 10 and 11 of Exhibit F to this Agreement (the "Special Landlord Provisions") as part of the Sale Order; provided that Seller's failure to obtain Bankruptcy Court approval of the Special 17 Landlord Provisions shall not be a breach of or default under this Agreement and the obtaining of such approval is not a condition to Buyer's obligations under this Agreement. 8.5. Estoppel Certificates. Promptly after Seller's chapter 11 filing, Seller shall send out for execution estoppel certificates in the form of Exhibit G to this Agreement (the "Estoppel Certificates") to each of its real property lessors and sublessors under the Real Property Leases. Seller agrees to use reasonable commercial efforts to obtain the execution of the Estoppel Certificates by such lessors and sublessors; provided that Seller's failure to obtain execution of Estoppel Certificates shall not be a breach of or default under this Agreement and the obtaining of such executed Estoppel Certificates is not a condition to Buyer's obligations under this Agreement. Seller agrees to periodically deliver to Buyer copies of executed Estoppel Certificates as they are received by Seller. 8.6. Notices of Certain Events. Buyer and Seller shall each promptly notify the other party of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication from any governmental entity in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened, relating to or involving or otherwise affecting the Business or Buyer's acquisition thereof or that relate to the consummation of the transactions contemplated by this Agreement; (iv) the occurrence, or failure to occur, of any condition, event or development that causes any representation or warranty contained in this Agreement to be untrue or inaccurate; or (v) any failure on the part of such party to comply with or perform in any material respect any agreement or covenant to be complied with or performed by it hereunder; provided that the delivery of any notice pursuant to this Section 8.8 shall not limit or otherwise affect the remedies available hereunder to Buyer or Seller. 8.7. Interim Financial Statement. Between the date hereof and the Closing Date, Seller shall promptly provide Buyer with copies of any and all regularly generated unaudited interim 18 financial statements of Seller and such other unaudited interim financial statements of Seller as Buyer may reasonably request. 8.8. Employee Matters. 8.8.1. Hiring Employees. As of the Closing Date, Buyer shall offer employment to all of Seller's employees, other than "Senior Management" (as defined in Section 8.8.3), employed by Seller on the Closing Date other than those persons identified in a confidential written schedule to be delivered by Buyer to Seller no later than five (5) days prior to the Closing Date. (Any employee of Seller who becomes employed by Buyer is hereafter referred to as a "Transferred Employee.") Buyer's offer of employment shall be on such terms and conditions as Buyer shall determine. Notwithstanding the foregoing, Buyer shall have no obligation to offer employment to any employee who, as of the Closing Date: (i) is not actively working for Seller; or (ii) is receiving or has a present right to receive benefits under Seller's short-term or long-term disability plans. 8.8.2. Employee Benefits. Buyer shall have no responsibility or liability for payment of any amounts due to or under any benefit plans maintained by Seller, or otherwise arising from events prior to the Closing Date in connection with obligations to employees. Buyer shall be responsible for employee benefits with respect to Transferred Employees only to the extent specifically provided in the plans maintained by Buyer that cover such Transferred Employees after the Closing Date. 8.8.3. Senior Management. Senior Management shall mean persons holding the following positions with Seller: Chief Executive Officer, V.P. Operations, V.P. Purchasing & Food Development, V.P. & Controller, V.P. Human Resources, V.P. Facilities, and General Counsel. Buyer and Seller acknowledge that Buyer and Senior Management have had no discussions prior to the Execution Date regarding whether any members of Senior Management will be offered positions by Buyer. Upon and after the Execution Date, Buyer shall be permitted to undertake such discussions at Buyer's sole discretion. Buyer shall be under no obligation to engage in any such discussions and the decision regarding whether and on what term to offer positions shall be in the sole discretion of Buyer. 8.9. Subordination, Nondisturbance, and Attornment Agreements. (a) Buyer shall notify Seller of any holders of superior mortgages on any of the real property currently leased to Seller from whom Buyer desires Seller to obtain a Subordination, Nondisturbance, and Attornment Agreement ("SNDA"). Upon Seller's receipt of such notice, but not earlier than the Petition Date, Seller shall send out for execution an SNDA which shall provide in substance that so long as the lease is in effect and Buyer is not in breach or default beyond applicable grace periods thereunder: (i) Buyer shall not be joined as a party 19 defendant in any foreclosure action or proceeding which may be instituted by or taken by the holder of such superior mortgage, and (ii) Buyer shall not be evicted from the leased property nor shall Buyer's leasehold estate under the lease be terminated or disturbed nor shall any of Buyer's rights under the lease be affected by reason of any default under such superior mortgage, any disaffirmance of such superior mortgage, or other termination of such superior mortgage. Seller agrees to use reasonable commercial efforts to obtain the execution of the SNDA's from such mortgage holders; provided that Seller's failure to obtain execution of SNDA's shall not be a breach of or default under this Agreement and the obtaining of such executed SNDA's is not a condition to Buyer's obligations under this Agreement. Seller agrees to periodically deliver to Buyer copies of executed SNDA's as they are received by Seller. (b) Seller shall request authority of the Bankruptcy Court to assume and assign to Buyer each currently executed SNDA to which Seller is a party. Seller agrees to use reasonable commercial efforts to obtain the Bankruptcy Court's consent to such assumption and assignment; provided that Seller's failure to obtain such consent shall not be a breach of or default under this Agreement and the obtaining of such consent is not a condition to Buyer's obligations under this Agreement. 8.10. Other Transactions. Seller agrees that prior to the Closing it will not, and will cause its directors, officers, representatives, and agents not to, solicit any proposals or offers for purchase of the Business (whether by sale of assets or stock, by merger, or otherwise). Buyer acknowledges that Seller, as a part of the chapter 11 sale process, may be requested to provide information regarding the Business to other interested parties and Buyer agrees that the provision of such information under such circumstances shall not constitute a breach of this Agreement, so long as Seller has not solicited such third party to purchase the Business following the date of this Agreement. 9. Miscellaneous. 9.1. Damage and Destruction; Condemnation. Seller shall notify Buyer immediately of the occurrence of any material damage to or destruction of the Property which occurs prior to the Closing Date, or the institution or maintenance of any condemnation or similar proceedings with respect to a restaurant location. In the event of any material damage to or destruction of the Property which is not fully covered by insurance, or in the event any such condemnation or other proceedings are instituted or maintained, Buyer, at its option, may either (i) terminate this Agreement, or (ii) consummate the purchase provided for by this Agreement. In all other events or in the event that Buyer elects to consummate the purchase pursuant to 20 (ii) above, all insurance or condemnation proceeds, including business interruption and rental loss proceeds, collected by Seller prior to the Closing Date, together with an amount equal to all deductible amounts under the insurance policies covering such damage or destruction and amounts not covered by insurance (which amounts shall be agreed upon in good faith by Seller and Buyer and approved by the Bankruptcy Court), shall be credited against the Purchase Price on Buyer's account, and all entitlement to all other insurance or condemnation proceeds arising out of such damage or destruction or proceedings and not collected prior to the Closing Date. 9.2. Attorneys' Fees. In the event that either party hereto brings an action or other proceeding to enforce or interpret the terms and provisions of this Agreement, the prevailing party in that action or proceeding shall be entitled to have and recover from the nonprevailing party all such fees, costs and expenses (including, without limitation, all court costs and reasonable attorneys' fees) as the prevailing party may suffer or incur in the pursuit or defense of such action or proceeding. 9.3. Reasonable Access to Records and Certain Personnel. So long as the Bankruptcy Case is pending, (i) Buyer shall permit Seller's counsel and other professionals employed in the Bankruptcy Case (the "Case Professionals") reasonable access to the financial and other books and records relating to the Property or the Business (whether in documentary or data form) for the purpose of the continuing administration of the Bankruptcy Case (including, without limitation, the pursuit of any avoidance, preference or similar action), which access shall include (a) the right of the Case Professionals to copy, at their expense, such documents and records as they may request in furtherance of the purposes described above, and (b) Buyer's copying and delivering to Case Professionals such documents or records as they may request, but only to the extent the Case Professionals furnish Buyer with reasonably detailed written descriptions of the materials to be so copied and offer to reimburse Buyer for the reasonable costs and expenses thereof, and (ii) Buyer shall provide Seller and Case Professionals (at no cost to Seller) with reasonable access to any members of senior management of Seller that might subsequently be employed by Buyer during regular business hours to assist Seller in the continuing administration of the Case, provided that such access does not unreasonably interfere with Buyer's business operations. 9.4. Notices. Unless otherwise provided herein, any notice, tender, or delivery to be given hereunder by either party to the other shall be in writing and may be effected by personal delivery, by delivery from a reputable overnight courier service, or by registered or certified mail, postage prepaid, return receipt requested, or by facsimile and shall be deemed 21 communicated as of the date of receipt. Notices shall be addressed as set forth below, but each party may change his address by written notice in accordance with this paragraph. To Seller: Lyon's Restaurants, Inc. 1165 Triton Drive Foster City, CA 94404-1285 Attn: Mr. John G. Ghuzzi, Pres./CEO Facsimile No. (650) 573-4207 With a copy to: Murphy Sheneman Julian & Rogers 101 California St., 39th Floor San Francisco, CA 94111 Attn: Randy Rogers, Esq. Facsimile No. (415) 421-7879 To Buyer: Lyon's of California, Inc. I.C.H. Corporation 9255 Town Centre Drive, Suite 600 San Diego, CA 92121 Attn: Mr. James R. Arabia, Pres. Facsimile No. (619) 535-1634 With a copy to: Pryor Cashman Sherman & Flynn 410 Park Avenue, 10th Floor New York, NY 10022 Attn: Robert H. Drechsler, Esq. Facsimile No. (212) 326-0806 9.5. Entire Agreement. This instrument and the documents to be executed pursuant hereto contain the entire agreement between the parties relating to the sale of the Property. Any oral representations or modifications concerning this Agreement or any such other document shall be of no force and effect excepting a subsequent modification in writing, signed by the party to be charged. 9.6. Modification. This Agreement may be modified, amended or supplemented only by a written instrument duly executed by all the parties hereto. 9.7. Closing Date. All actions to be taken on the Closing pursuant to this Agreement shall be deemed to have occurred simultaneously, and no act, document or transaction shall be deemed to have been taken, delivered or effected until all such actions, documents and transactions have been taken, delivered or effected. 9.8. Severability. Should any term, provision or paragraph of this Agreement be determined to be illegal or void or of no force and effect, the balance of the Agreement shall survive except that, if Buyer cannot acquire and Seller cannot 22 sell substantially all of the Property, either party may terminate this Agreement, and it shall be of no further force and effect. 9.9. Captions. All captions and headings contained in this Agreement are for convenience of reference only and shall not bc construed to limit or extend the terms or conditions of this Agreement. 9.10. Further Assurances. Each party hereto will execute, acknowledge and deliver any further assurance, documents and instruments reasonably requested by any other party hereto for the purpose of giving effect to the transactions contemplated herein or the intentions of the parties with respect thereto. 9.11. Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 9.12. Brokerage Obligations. Seller is represented by HLHZ as its exclusive sale agent with respect to the transactions contemplated herein pursuant to a written agreement between Seller and HLHZ and HLHZ's commission, fees and expenses are to be paid by Seller in accordance with the terms and provisions of such order. Seller and Buyer each represent and warrant to the other that, except for HLHZ, such party has incurred no liability to any real estate broker or agent with respect to the payment of any commission regarding the consummation of the transaction contemplated hereby. Except for any claims of HLHZ (which are to be handled and satisfied by Seller in accordance with the above referenced contract), it is agreed that if any claims for commissions, fees or other compensation, including, without limitation, brokerage fees, finder's fees, or commissions are ever asserted against Buyer or Seller in connection with this transaction, all such claims shall be handled and paid by the party whose actions form the basis of such claim and such party shall indemnify, defend (with counsel reasonably satisfactory to the party entitled to indemnification), protect and save and hold the other harmless from and against any and all such claims or demands asserted by any person, firm or corporation in connection with the transaction contemplated hereby. 9.13. Payment of Fees and Expenses. Except as provided in Section 9.2 above, each party to this Agreement shall be responsible for, and shall pay, all of its own fees and expenses, including those of its counsel, incurred in the negotiation, preparation and consummation of the Agreement and the transaction described herein. 23 9.14. Investigations and Survival. The respective representations, warranties, covenants and agreements of Seller and Buyer herein, or in any certificates or other documents delivered prior to or at the Closing, shall not be deemed waived or otherwise affected by any investigation made by any party hereto nor shall they be affected by the Closing. 9.15. Assignments. This Agreement shall not be assigned by either party hereto without the prior written consent of the other party hereto. 9.16. Binding Effect. Subject to the provisions of Section 9.15 above, this Agreement shall bind and inure to the benefit of the respective heirs, personal representatives, successors, and assigns of the parties hereto. 9.17. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of California. 9.18. Good Faith. All parties hereto agree to do all acts and execute all documents required to carry out the terms of this Agreement and to act in good faith with respect to the terms and conditions contained herein before and after Closing. 9.19. Construction. In the interpretation and construction of this Agreement, the parties acknowledge that the terms hereof reflect extensive negotiations between the parties and that this Agreement shall not be deemed, for the purpose of construction and interpretation, drafted by either party hereto. 9.20. Counterparts. This Agreement may be signed in counterparts. The parties further agree that this Agreement may be executed by the exchange of facsimile signature pages provided that by doing so the parties agree to undertake to provide original signatures as soon thereafter as reasonable in the circumstances. 9.21. Publicity. From the date hereof through the Closing Date, no public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior consent or the other parties, except as such release or announcement be required by law, in which case the party required to make the release or announcement shall allow the other parties reasonable time to comment on such release or announcement in advance of such issuance; provided that nothing in this Section 9.22 shall prevent Seller from filing any documents with the Bankruptcy Court concerning this Agreement or the Business nor prevent Seller or its representatives (including HLHZ) from providing such notices in connection with the Bankruptcy Case or of the sale procedures in Section 8.4 as Seller considers appropriate. 24 9.22. Bankruptcy Court Jurisdiction. BUYER AND SELLER AGREE THAT, FROM AND AFTER THE PETITION DATE AND SO LONG AS THE BANKRUPTCY CASE SHALL REMAIN PENDING, THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION OVER ALL DISPUTES AND OTHER MATTERS RELATING; TO (i) THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT OR ANY ANCILLARY DOCUMENT EXECUTED PURSUANT HERETO; AND/OR (ii) THE PROPERTY AND/OR ASSUMED LIABILITIES, AND BUYER EXPRESSLY CONSENTS TO AND AGREES NOT TO CONTEST SUCH EXCLUSIVE JURISDICTION. 9.23. Consent Regarding Clovis and Reno. Buyer hereby consents to Seller's exclusion of the following locations from the Real Property Leases listed on Exhibit A-1 to this Agreement: (a) Clovis, California, and (b) Reno, Nevada. IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase Agreement as of the day and year first above written. I.C.H. Corporation, a Delaware Corporation By: /s/ James R. Arabia ------------------------------------------ Name: James R. Arabia Its: Chairman and CEO Lyon's of California, Inc., a California Corporation By: /s/ James R. Arabia ------------------------------------------ Name: James R. Arabia Its: Chairman and CEO Lyon's Restaurants, Inc., a Delaware Corporation By:/s/ John G. Ghuzzi ------------------------------------------ Name: John G. Ghuzzi Its: President and Chief Executive Officer 25 EX-10.26 3 AMENDMENT TO ASSET PURCHASE AGREEMENT AMENDMENT TO ASSET PURCHASE AGREEMENT This Amendment to Asset Purchase Agreement (the "Amendment") is made and entered into as of this 6th day of October, 1998, by and between Lyon's of California, Inc., a California corporation, I.C.H. Corporation, a Delaware corporation (collectively, "Buyer") and Lyon's Restaurants, Inc., a Delaware corporation ("Seller"). RECITALS A. Seller and Buyer are parties to that certain Asset Purchase Agreement dated as of August 14, 1998 (the "Agreement") and desire to amend the Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Defined Terms. All terms used in this Amendment without being defined shall have the meaning ascribed to them in the Agreement. 2. Change in Purchase Price; Payment Through Promissory Note. The Purchase Price is hereby changed from Twenty-Two Million Dollars ($22,000,000) to Twenty-Two Million Six Hundred Thousand Dollars ($22,600,000). The increased amount of Six Hundred Thousand Dollars ($600,000) shall be in the form of a promissory note from Buyer to Seller that shall be due and payable on the earlier of (i) six (6) months after the Closing Date, or (ii) the effective date of Seller's chapter 11 plan. The amount due under the promissory note shall bear no interest prior to its due date, but shall bear interest at 8% if not paid when due. 3. Break Up Fee. The Break-Up Fee (formerly $1,100,000 plus expenses) shall be reduced by One Hundred Thousand Dollars ($100,000). 4. Minimum Overbid. The initial minimum overbid referred to in Section 8.4.3 of the Agreement is hereby changed from Twenty-Three Million Eight Hundred Thousand Dollars ($23,800,000) to Twenty-Four Million Four Hundred Thousand Dollars ($24,400,000). 5. No Other Changes. Except as specifically set forth in this Amendment, all of the terms and conditions of the Agreement remain in full force and effect and are not modified or in any way affected by this Amendment. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. I.C.H. CORPORATION, a Delaware Corporation By: /s/ James R. Arabia ----------------------------------------- Name: James R. Arabia Its: Chairman and CEO LYON'S OF CALIFORNIA, INC., a California Corporation By: /s/ James R. Arabia ----------------------------------------- Name: James R. Arabia Its: Chairman and CEO LYON'S RESTAURANTS, INC., a Delaware Corporation By: /s/ John G. Ghuzzi ----------------------------------------- Name: John G. Ghuzzi Its: President and Chief Executive Officer 2 EX-27 4 I.C.H. CORPORATION FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 0000049588 I.C.H. Corporation Financial Data Schedule $US 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 1 4,565 0 432 0 1,588 10,283 30,197 4,618 83,364 16,391 0 0 0 26 12,049 83,364 33,190 33,174 8,592 30,939 0 0 1,443 792 316 476 388 0 0 864 .17 .15
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