-----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, DT8r1EKFXpnJtKx04V2MmQk+Ox/QniguCZG2pfqF2J5rmNeCAy3VnjoCGPCqh1Xd suw0Km+t/J3WJOY4a2rYUg== 0000840826-96-000025.txt : 19961016 0000840826-96-000025.hdr.sgml : 19961016 ACCESSION NUMBER: 0000840826-96-000025 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19961015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAKA INTERNATIONAL INC CENTRAL INDEX KEY: 0000840826 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 043024178 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17229 FILM NUMBER: 96643695 BUSINESS ADDRESS: STREET 1: ONE CORPORATE PL STREET 2: 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 BUSINESS PHONE: 5087749115 MAIL ADDRESS: STREET 1: ONE CORPORATE PLACE 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Check One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] --- For The Fiscal Year Ended June 29, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___ to ___ Commission File Number: 0-17229 DAKA INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 04-3024178 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One Corporate Place, 55 Ferncroft Road, Danvers, MA 01923 (Address of principal executive offices) (Zip Code) 508-774-9115 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of the Common Stock of the registrant as quoted on the National Association of Securities Dealers Automated Quotation System on September 26, 1996 was $97,927,141 (for purposes of calculating this amount only, directors, officers and beneficial owners of 10% or more of the Common Stock of the registrant may be deemed affiliates). Number of shares of Common Stock, $.01 par value, outstanding at September 26, 1996: 11,129,059. DOCUMENTS INCORPORATED BY REFERENCE The sections of the Company's definitive Proxy Statement, listed below, which have been or will be filed by the Company with the Securities and Exchange Commission, are incorporated in this Annual Report by reference and shall be deemed to be a part hereof: The Company's definitive Proxy Statement mailed in connection with its Annual Meeting of Stockholders to be held on December 4, 1996 pursuant to regulation 14A, which involves the election of directors. Cross Reference Sheet between Items of Registrant's Proxy Statement and Form 10-K FORM 10-K Item No. Item in Form 10-K Item in Proxy Statement PART III 10 Directors and Executive Election of Directors and Officers of the Registrant Directors and Committees in the Company's Proxy Statement relating to its Annual Meeting of Stockholders to be held on December 4, 1996. 11 Executive Compensation Executive Compensation in the Company's Proxy Statement relating to its Annual Meeting of Stockholders to be held on December 4, 1996. 12 Security Ownership of Certain Principal Stockholders in the Beneficial Owners and Management Company's Proxy Statement relating to its Annual Meeting of Stockholders to be held on December 4, 1996. Copies of all documents incorporated by reference other than exhibits to such documents will be provided without charge to each person who receives a copy of this Annual Report upon written request addressed to Stockholder Relations, DAKA International, Inc., One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923. FORM 10-K INDEX PART I Item 1 Business Item 2 Properties Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters Item 6 Selected Financial Data Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION ENTITLED "CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS" OF THIS FORM 10-K. PART I Item 1. Business. Overview DAKA International, Inc. (the "Company"), formed in 1988 in connection with the merger of Daka, Inc. ("Daka") and Fuddruckers, Inc. ("Fuddruckers"), is a diversified foodservice and restaurant company operating in the contract foodservice management industry and in the restaurant industry. Daka provides restaurant-style contract foodservice management at a variety of schools and colleges, corporate offices, factories, healthcare facilities, museums and government offices. Fuddruckers owns, operates and franchises Fuddruckers restaurants, which specialize in moderately-priced, casual dining for families and adults. In fiscal 1994, the Company acquired a 57% voting interest in Americana Dining Corporation ("ADC"), a newly formed company which acquired two restaurants operated under the name "Champps Sports Cafe," pursuant to a license from Champps Entertainment, Inc. ("Champps"). Champps owns, licenses and franchises Champps Americana restaurants, which specialize in providing an energetic, upper-scale, casual theme dining experience to a broad customer base, including business professionals, families and adults. In fiscal 1996, the Company acquired Champps and the remaining 43% voting interest in ADC. In fiscal 1996, Daka also acquired The Great Bagel and Coffee Company ("Great Bagel and Coffee"). Great Bagel and Coffee owns, operates and franchises its concept, featuring a full line of fresh-baked bagels and distinctive cream cheeses, gourmet coffees, and sandwiches in a cafe setting. Great Bagel and Coffee's operating results are included within the Company's reported foodservice financial information. The Champps and Great Bagel and Coffee transactions have each been accounted for as pooling-of-interests and, accordingly, the Company has restated its consolidated financial statements to include the accounts of Champps and Great Bagel and Coffee. Founded in 1973, Daka is one of the 10 largest contract foodservice management companies in the United States. Operating under the name "Daka Restaurants," Daka seeks to provide a retail restaurant atmosphere for its guests by operating, among other things, a variety of branded concepts such as Taco Bell, Burger King, Pizza Hut and Dunkin Donuts pursuant to licensing arrangements, as well as its own signature concepts within its foodservice operations. At the end of fiscal 1993, the Company announced Daka's aggressive three-year growth plan to double the size of its existing foodservice business by the end of fiscal 1996. At the beginning of fiscal 1994, Daka acquired the majority of the assets and foodservice contracts comprising Service America Corporation's educational foodservice business. The acquired business provides contract foodservice to a variety of colleges and universities, and to public and private elementary and secondary schools, many of which are located in geographic areas where Daka had a significant presence. In February 1995, Daka, through a newly formed 80% owned limited partnership, Daka Restaurants, L.P., acquired certain educational foodservice and corporate dining contracts from ServiceMaster Management Services L.P. The acquired contracts expanded Daka's geographic presence into the western United States and strengthened its existing presence in the Midwest. As a result of these two acquisitions, Daka achieved its three-year growth objective in just nineteen months. Daka believes that, as a result of current and anticipated cost containment policies, more public and private educational and healthcare facilities will seek to manage their foodservice costs by replacing self-operated foodservice operations with contract foodservice management. Daka intends to pursue these expanding markets through its internal sales force and by considering the acquisition of other contract foodservice management companies. Fuddruckers restaurants, with an average check of $6.15 and a "Kids Eat Free" program after 4 PM on Monday through Thursday, are designed to appeal to both families and adults seeking value in a casual dining atmosphere. The menu prominently features Fuddruckers' signature hamburgers, which are cooked to order and served on buns baked daily "from scratch" at each restaurant. The Fuddruckers restaurant decor features an open grill area, a glassed-in butcher shop and meat display case, an open bakery and a colorful display island of fresh produce and a variety of condiments, sauces and melted cheeses from which guests may garnish their own meals. In fiscal 1996, the Company acquired a 16.7% equity interest in La Salsa Holding Co. ("La Salsa Holding"), the franchisor and operator of La Salsa Mexican restaurants, and entered into a license agreement with La Salsa Holding to utilize the "La Salsa Fresh Mexican Grill" concept within Fuddruckers restaurants. The La Salsa concept complements Fuddruckers' existing menu by featuring fresh, healthy, authentic Mexican foods. Fuddruckers opened its first restaurant in 1980 in San Antonio, Texas and as of July 1, 1995, has expanded its operations to include 121 Fuddruckers-owned and 76 franchised restaurants located throughout the United States and in Canada, Mexico, the Middle East and Australia. In fiscal 1996, Fuddruckers opened 26 Fuddruckers-owned restaurants, 13 franchised restaurants and introduced "La Salsa Fresh Mexican Grill" in 10 Fuddruckers restaurants in the Los Angeles, San Antonio, Chicago, and Milwaukee markets. In fiscal 1997, Fuddruckers plans to open 7 domestic Fuddruckers-owned, up to 10 domestic franchised restaurants, with continued development and expansion in foreign countries. The Champps Americana concept is based upon providing the best possible food, value and service to customers. The restaurant's diverse menu has over 120 items including burgers, pastas, salads, sandwiches, ribs, pizzas, seafood, chicken and a variety of other dishes all served in generous portions and prepared from scratch using high quality ingredients. Customer service is based on a team approach so that each patron is continually attended to, and employees go through extensive on-going training to ensure consistent service. The goal of Champps is to promote an entertaining and energetic atmosphere. In the typical Champps restaurant, customers are provided a choice of seating in the main dining area, at the diner-type counter, in the bar areas, or, in some locations, outside on the patio. Champps restaurants generally have multiple levels and open sight lines so that all areas, including the bar and kitchen, are visible and allow customers to feel a part of all the varied activities in the restaurant. These activities include watching sporting events on multiple television screens, listening to music that is selected by a disc jockey based upon the time of day or season, watching the cooks prepare meals, playing arcade games in the discreetly located game room, or visiting the Champps gift shop. In addition, the bar provides a staging area for on-going promotional events that add to the restaurant's excitement. The Champps restaurant concept has been developed and refined since the first Champps restaurant was opened in St. Paul, Minnesota in 1984. As of June 29, 1996, operations have been expanded to include 10 Champps-owned and 10 franchised restaurants located throughout the United States. Six Champps-owned restaurants were opened in fiscal 1996 with plans to open 9 domestic Champps-owned restaurants in fiscal 1997. One Champps-owned restaurant was sold in fiscal 1996. See Note 13 to the Notes to Consolidated Financial Statements for financial information related to Daka, Fuddruckers and Champps. Daka Restaurants Operations Daka, one of the 10 largest contract foodservice management companies in the United States, provides personalized, high-quality, restaurant-style contract foodservice management and vending operations at approximately 710 locations. The following is a breakdown of Daka's managed volume, as defined below, for the year ended June 29, 1996, from the various industry segments in which it operates: colleges and universities - 49%; business and industry - 25%; public and private elementary and secondary schools - 20%; museums - 4%; and healthcare & other - 2%. Approximately 96% of fiscal 1996 managed volume was derived from manual foodservice operations and approximately 4% from vending operations. Foodservice contracts are typically exclusive, range in duration from one to ten years and can usually be terminated by either party upon 30 to 90 days notice. Daka conducts its operations on the basis of two types of contracts with its clients. The first type is a management fee contract pursuant to which a client reimburses Daka for all costs incurred in providing foodservice as well as a negotiated fee for overseeing and administering its foodservice operation. Management fee contracts are prevalent where companies subsidize food service as a benefit provided to employees and in elementary and secondary schools. The second type of contract is a profit and loss contract whereby Daka assumes the risk of profit or loss from the foodservice operation. Daka seeks to enter into profit and loss contracts whenever appropriate because it believes it can achieve a greater level of profitability as a result of the flexibility it has in establishing menu mix and pricing in such contracts. While Daka manages the total sales volume attributable to both contract types, generally accepted accounting principles require that Daka recognize sales and expenses from profit and loss contracts, but only the management fee amount derived from management fee contracts. Consequently, Daka does not recognize sales and expenses with respect to management fee contracts. As a result, Daka's managed volume, which represents both sales made pursuant to profit and loss contracts and sales to guests of foodservice clients pursuant to management fee contracts for any given year, is considerably greater than the revenues it recognizes for such year. Daka seeks to differentiate itself from its competition by offering its clients a number of foodservice alternatives that include specific plans to meet each client's needs and budget. Emphasis is placed on nutritious, high-quality food; trained, professional personnel; and innovative foodservice programs served in a retail restaurant atmosphere. To help create a retail restaurant atmosphere for its foodservice guests, Daka has developed 250 to 500 square foot "signature restaurants," each with its own unique name, identity and menu, serving high-quality, made-to-order specialty foods. Designed to use existing common area seating, such as a cafeteria or food court, the "signature restaurants" are portable, modular and capable of being installed in most foodservice locations. Daka believes that the development of its "signature restaurants" is an innovative approach to serving guests in the foodservice industry. In addition, Daka offers its clients a variety of branded concepts, such as Taco Bell, Pizza Hut, Dunkin Donuts and Burger King, which Daka operates pursuant to licensing arrangements. Daka's educational foodservice business, which represents 69% of Daka's total managed volume, is comprised of two distinct segments: colleges and universities and elementary and secondary schools. Foodservice operations at colleges and universities, which comprise 49% of Daka's managed volume, generally consist of multiple operating locations at any one campus, each of which is a self-contained foodservice unit such as a dining hall, cafeteria or snack bar. Revenues from foodservice operations at colleges and universities are derived from prepaid student board plans, concessions at sporting events, rathskellers and from cash sales to students, school administrators, faculty and off-campus groups. In addition, Daka provides catering services to all departments of the college or university as well as to private organizations using campus facilities. Foodservice operations at colleges and universities are typically operated pursuant to profit and loss contracts. Foodservice operations at elementary and secondary schools, which represent 20% of Daka's managed volume, are typically operated pursuant to management fee contracts since such foodservice operations are subsidized under Federal and State School Lunch Programs, and generally consist of multiple operating locations within a school district. Historically, foodservice operations at corporate offices and factories, which currently represent 25% of Daka's managed volume, were operated pursuant to management fee contracts and were subsidized by companies as part of the benefits provided to their employees. However, with the trend to contain costs in recent years, many companies have elected to convert their subsidized foodservice operations from management fee to profit and loss contracts, whereby Daka is given greater control over pricing and menu options in exchange for assuming the risks and rewards inherent in profit and loss contracts. Daka also provides full service dietary management to hospitals, continuing care communities and other healthcare facilities, which currently comprises less than 2% of Daka's managed volume. Foodservice in this segment is typically provided through a team of professionals, the composition of which varies depending on the size of the operation, the type of healthcare facility and the special dietary needs of the patients. In addition to providing meals for patients, employees of the facility are also typically provided daily meals. Daka's ability to increase its prices to cover its cost increases is an important factor in maintaining satisfactory profit levels. Daka's ability to increase prices is materially affected by competitive factors, resistance from guests, and resistance from clients, whose prior approval is required in many instances. Vending operations, which comprise approximately 4% of Daka's managed volume, generally involve 24-hour delivery of sandwiches, hot and cold beverages, desserts, and snacks through coin-operated machines installed at private and public locations. Vending operations are either route operations or supplements to manual foodservice operations. Vending machines are used to augment the foodservice operations either at sites remote from the central cafeteria or to service clients' guests during off-peak periods such as second or third shift operations. The vending machines located at client locations that do not have foodservice operations are usually serviced by route drivers from a central commissary. Vending contracts generally provide for payment to the client of a commission based on machine revenues, although certain clients forego the commission and subsidize the foodservice operation in order to maintain special services and lower selling prices as an employee benefit. Daka also includes the operations of Great Bagel and Coffee which owns and operates 3 company stores in the Phoenix area, including one Great Bagel Cafe restaurant. In addition, there are approximately 15 existing franchised units open in Arizona, and up to 100 additional franchised units are expected to be opened in fiscal 1997 and fiscal 1998 in 11 western states. Among its present franchisees, Great Bagel and Coffee has an exclusive arrangement with Texaco Refining and Marketing, Inc. to open both company-owned and franchised in-store bagel bakeries. The Great Bagel and Coffee concept features an entire line of fresh-baked bagels and distinctive cream cheeses, together with gourmet coffees and a sandwich menu. Its newest concept, the Great Bagel Cafe, features gourmet pizzas, beer and wine in a cafe setting, in addition to its standard menu of bagels and sandwiches. The current standard franchise agreement provides for the payment of a refundable franchise fee of between $9,500 and $14,500 per store and ongoing royalties of 6% of gross sales of each store. Management The foodservice operations of Daka are currently divided into five geographic regions, each of which is supervised by a Regional Vice President reporting to the President of Foodservice Operations. The five regions are divided into districts supervised by District Managers reporting to their respective Regional Vice President. Each District Manager oversees an average of 14 General Managers or Chef Managers, with some overseeing as few as one and others as many as 21 locations, depending on the size and complexity of the operations. The General Managers or Chef Managers are responsible for the day-to-day operations of their locations. The marketing, human resources, and training functions are decentralized, reporting to the President of Foodservice Operations. Marketing Daka has created a marketing catalogue that gives General Managers the opportunity to customize their promotional programs. Topics include special sections on celebrated foods, city celebrations, international food festivals, and classic events. As part of its "Be Our Guest" program, Daka has redesigned its uniforms, upgraded the quality of the china, silverware and glassware, installed signage and serving systems and created a new logo featuring the brand name "Daka Restaurants." Growth Strategy Daka intends to increase its market share by adding new clients that previously were either self-operated or serviced by another contract foodservice provider. Industry sources estimate that the educational and healthcare foodservice segments remain substantially self-operated and that only the business and industry foodservice segment has achieved a high level of contract foodservice penetration. Daka believes that, as a result of current and anticipated cost containment policies, many public and private educational institutions and healthcare facilities will seek to manage their foodservice costs by replacing their own self-operated foodservice operations with contract foodservice management. Approximately 69% of Daka's managed volume is concentrated in educational institutions, a traditionally self-operated market. The Company believes that its experience is a competitive advantage in obtaining additional educational institutions as contract foodservice clients. The healthcare market is expanding rapidly, although it is not yet a substantial portion of Daka's business. Daka's experience in converting self-operated foodservice operations for educational institutions to contract foodservice should enable it to participate competitively in the healthcare market. The Company believes it has made sufficient recent investment in Daka's corporate infrastructure and operational systems to support significant future growth in existing and new markets. Great Bagel and Coffee will focus growth efforts through new and existing franchised units. Fuddruckers Operations Fuddruckers restaurants, with an average check of $6.15 and a "Kids Eat Free" program after 4 PM on Monday through Thursday, are designed to appeal to both families and adults seeking value in a casual dining atmosphere. The restaurants offer a distinctive atmosphere created by an open grill area, a glassed-in butcher shop, a display case featuring choice steaks and hamburgers that have been freshly-cut or ground and an open bakery for hamburger buns, brownies and cookies. Each restaurant offers a substantially similar menu that prominently features Fuddruckers' signature hamburger in one-third pound and one-half pound sizes. Hamburgers are made from fresh beef, cut and ground daily at each restaurant and served on buns baked daily "from scratch" at each restaurant. The hamburgers are available with optional specialty toppings from the grill. While the menu is focused on Fuddruckers' signature hamburger, which accounts for approximately 65% of sales, it also includes fresh-cut, ribeye steak sandwiches, various grilled chicken breast sandwiches, hot dogs, a variety of tossed and specially prepared salads and soups, fish sandwiches, french fries, onion rings, soft drinks, hand-dipped milkshakes, and bakery items. Beer and wine are served and, generally, account for approximately 3% of restaurant sales. The restaurants permit guests to participate in the preparation of their meals by allowing them to garnish their own entrees from a bountiful array of fresh lettuce, tomatoes, onions, pickles, relish and a variety of condiments, sauces and melted cheeses at the "fixin's bar." Guests generally place their own orders and serve themselves, thereby minimizing waiting time. Each restaurant contains a principal dining area from which guests may observe the preparation of their meals, and in some restaurants an additional dining area with a patio motif. Decor of the principal dining area of a Fuddruckers restaurant generally includes neon beverage signs, wood tables and chairs and, in some instances, original shipping containers from certain foods sold by the restaurant. The open grill area enables guests to view the preparation of their meals, all of which are cooked to order. The additional dining area has colorful yellow awnings and patio-style tables and chairs and, in some restaurants, a wall of doors which may be opened, weather permitting. The typical Fuddruckers restaurant is located in a suburban area in a free-standing building or in a shopping center. The area within a five-mile radius of the restaurant is usually zoned for retail, office and residential uses. Fuddruckers' guests have an average household income of approximately $50,000. Fuddruckers' restaurants typically range in size from 6,000 to 8,000 square feet with 200 to 300 seats and parking for between 100 and 200 vehicles. Restaurants built in fiscal 1996 and those planned for fiscal 1997 are typically between 4,800 and 6,000 square feet with 160 to 220 seats. The restaurants are open seven days a week, generally from 11:00 a.m. to 11:00 p.m., for lunch, dinner and late night meals. Certain restaurants are open earlier to accommodate the sale of freshly-baked goods. Restaurants are designed to enable guests to complete their visit within a convenient 40-minute period, which attracts the business person on a limited luncheon schedule. This contributes to Fuddruckers' higher percentage of lunch (45%) versus dinner (55%) sales than the industry average for casual dining restaurants. All restaurants are operated in accordance with strict standards and specifications for the quality of ingredients, preparation of food, maintenance of premises and associates conduct, as set forth in Fuddruckers' policy and procedures manuals. At each restaurant, Fuddruckers emphasizes uniform standards for product quality, portion control, courteous service and cleanliness. Fuddruckers establishes specifications and approves purchasing arrangements for basic menu ingredients and supplies for all its restaurants in order to obtain favorable prices and ensure consistent levels of quality and freshness. Food products in Fuddruckers-owned and franchised restaurants are regularly and systematically tested for quality and compliance with Fuddruckers' standards. Fuddruckers emphasizes simplicity in its operations. Its restaurants generally have a total staff of one General Manager, two or three Assistant Managers, and 25 to 45 other associates, including full-time and part-time associates working in overlapping shifts. Since Fuddruckers generally utilizes a self-service concept, it typically does not employ waiters or waitresses. During fiscal 1996, Fuddruckers complemented its existing menu by introducing "La Salsa Fresh Mexican Grill" in 10 Fuddruckers restaurants in the Los Angeles,San Antonio, Chicago and Milwaukee markets. The La Salsa concept features fresh, healthy, authentic Mexican foods prepared in a stand-alone "outlet" inside the restaurant. Under the terms of a 10-year license agreement with La Salsa Holding,Fuddruckers will pay a franchise fee, royalty payments equal to 5% of gross sales, certain training costs and marketing fund fees for each outlet opened. Ten outlets were opened in fiscal 1996. Management Fuddruckers restaurant operations are currently divided into two regions, each supervised by a Senior Vice President of Operations. The two regions are divided into a total of thirteen districts, supervised by a Director of Operations. On average, each Director of Operations supervises nine restaurants and reports to a Senior Vice President of Operations. Marketing Fuddruckers uses television, radio and print media to promote its various themes in markets with a high concentration of Fuddruckers-owned restaurants. These themes emphasize Fuddruckers' unique name and fresh baked buns which are unique characteristics and help differentiate Fuddruckers from other restaurant concepts. Marketing research conducted by Fuddruckers indicates a strong consumer desire for fresh, high-quality food. Fuddruckers restaurants which feature fresh produce available at the "fixin's bar," fresh beef ground daily and fresh buns baked daily, address these consumer desires. One of Fuddruckers' most successful marketing programs is the "Kids Eat Free" program. This program is designed to increase guest traffic during traditionally slow days by allowing a child under 12 to eat free Monday through Thursday when an accompanying adult purchases a meal. Since implementing this promotion in 1990, Fuddruckers has experienced increased guest traffic while significantly increasing the number of kids meals served, and still improving its operating margins. Fuddruckers has developed local store marketing manuals to assist its managers and franchisees in the development of a marketing and public relations strategy for their geographic area. Workshops, seminars and marketing manuals are made available to all franchisees. In addition, Fuddruckers allows its franchisees to use its various television, radio and print advertising materials in the franchisees' markets for a nominal fee intended to cover Fuddruckers' cost. Site Selection Fuddruckers uses its own personnel to analyze markets and sites for new restaurants, obtain the required zoning and other permits, negotiate the leasing or real estate purchase and oversee all aspects of the construction process. Fuddruckers believes that location is a key factor in a restaurant's ability to operate a profitable lunch and dinner business and considers several demographic factors in selecting sites, including the average income of the neighboring residential population, the proximity of retail, office and entertainment facilities, traffic patterns and the visibility of the location. The average total cost to construct a typical Fuddruckers restaurant, where Fuddruckers purchases real estate, depending upon its location, is approximately $1.45 million, which includes $255,000 for furniture, fixtures and equipment, $480,000 for building and improvements, and $665,000 for land and site work, and $50,000 related to pre-opening costs of the restaurant. In 1995 Fuddruckers arranged for sale-leaseback financing whereby Fuddruckers acquires real estate, constructs a new restaurant and then sells and leases back the property. This has enabled Fuddruckers to open new restaurants, on sites where a leasing arrangement was not available, with a minimal capital investment. During fiscal 1996, Fuddruckers opened 14 new restaurants pursuant to such sale-leaseback arrangement. The average total cost to construct a new Fuddruckers restaurant where Fuddruckers enters into a leasing arrangement is approximately $785,000 which is comprised of $255,000 for furniture, fixtures and equipment, $480,000 for leasehold improvements, and $50,000 related to pre-opening costs associated with the restaurant. Fuddruckers typically receives a contribution of between $300,000 and $400,000 toward the construction and renovation costs from landlords and believes that its growth enhances its ability to obtain attractive leasing terms. Despite this favorable condition, there remains considerable competition among restaurant businesses for desirable sites. Future development of Fuddruckers restaurants will be accomplished through the sale of franchises and the development of Fuddruckers-owned restaurants. The development of additional restaurants is contingent upon locating satisfactory sites, financing, negotiating satisfactory leases or, alternatively, leasing and converting existing restaurant sites into Fuddruckers restaurants. It is also dependent upon securing appropriate governmental permits and obtaining beer and wine licenses. Franchising Fuddruckers offers franchises in markets where it deems expansion to be advantageous to the development of the Fuddruckers' concept and system of restaurants. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area, usually a four-mile radius surrounding the franchised restaurant. Fuddruckers has a close relationship with its franchisees and seeks to identify potential franchisees with the capability and financial resources to operate multiple restaurants. Of the 37 Fuddruckers franchisees, 15 operate multiple restaurants, and 22 have operated Fuddruckers restaurants for more than 5 years. Franchisees bear all direct costs involved in the development, construction and operation of their restaurants. In exchange for a franchise fee, Fuddruckers provides its franchisees assistance in the following areas: site selection, prototypical architectural plans, interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers "opening team" at the time a franchised restaurant opens, and operations and accounting guidelines set forth in various policies and procedures manuals. All franchisees are required to operate their restaurants in accordance with Fuddruckers' standards and specifications, including controls over menu items, food quality and preparation. Fuddruckers requires the successful completion of its training program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly by Fuddruckers for compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced, on-site inspections and standards evaluation reports. Fuddruckers has license agreements for the development of restaurants in Asia, Australia, the Middle East, and Europe with various entities or individuals having substantial financial resources. It is anticipated that these licensees will open up to nine restaurants pursuant to such agreements during the next twelve months. The current standard franchise agreement provides for the payment to Fuddruckers of a non-refundable franchise fee of between $25,000 and $50,000 per restaurant and ongoing royalties of 5% of gross sales of each restaurant. Certain multi-unit franchisees have entered into royalty buy-down agreements with Fuddruckers, which reduce royalty payments required under the respective franchise agreements. The royalty buy-down agreements generally provide for a one-time payment to Fuddruckers covering a period of twelve to fourteen months, and an amendment of the underlying franchise agreement to reduce the royalty to 3% of gross sales. Once a franchisee executes a buy-down agreement, the royalty on any subsequent franchise agreement will be reduced to 3%. As of June 29, 1996, royalty buy-down agreements have been executed with 7 multi-unit franchisees. Fuddruckers Locations - Company Owned The following table sets forth the locations of restaurants owned and operated by Fuddruckers as of June 29, 1996: Domestic - Total 118 Domestic (Cont'd) Domestic (Cont'd) IOWA UTAH ALABAMA Waterloo Layton Birmingham KENTUCKY Orem ARIZONA Florence Salt Lake City Flagstaff MARYLAND VIRGINIA Glendale Annapolis Alexandria Mesa (2) Baltimore Annandale Phoenix Gaithersburg Chesapeake (2) Scottsdale Pikesville Colonial Heights Tempe Rockville Fairfax Tucson MASSACHUSETTS Falls Church CALIFORNIA Boston Fredericksburg Burbank North Andover Herndon Chula Vista Saugus Midlothian La Mesa MICHIGAN Newport News Lake Forest Kentwood Richmond Lakewood MINNESOTA Vienna Mira Mesa Bloomington Virginia Beach Pasadena Brooklyn Center Woodbridge Torrance Burnsville WISCONSIN COLORADO Coon Rapids Brookfield Aurora (2) Eden Prairie Lakewood Maple Grove Littleton Roseville GEORGIA St. Louis Park International - Total 3 Alpharetta MISSOURI CANADA Athens Columbia Calgary Atlanta (2) Maryland Heights Edmonton Duluth St. Louis (2) Regina Kennesaw OHIO Marietta Cincinnati (2) Norcross Columbus (3) Peachtree City Forest Park Snellville Hilliard Tucker Mason ILLINOIS Norwood Addison TEXAS Aurora Austin (2) Calumet City Clearlake Downers Grove N Dallas Downers Grove S Houston (11) Highland Park Irving Matteson Kingwood Orland Park Plano Palatine San Antonio (4) Schaumburg (2) Woodlands INDIANA Merrillville Fuddruckers Restaurants - Franchised Locations The following table sets forth the locations of restaurants operated by Fuddruckers franchisees as of June 29, 1996: Domestic - Total 69 Domestic (Cont'd) International - Total 7 NORTH DAKOTA CALIFORNIA Fargo AUSTRALIA Buena Park OHIO Brisbane Citrus Heights Akron Sydney Concord Canton BAHRAIN FLORIDA Cleveland Manama Altamonte Springs South Euclid CANADA Clearwater OREGON Saskatoon Coconut Grove Lake Oswego KUWAIT Coral Springs Portland Kuwait City Ft. Lauderdale PENNSYLVANIA SAUDI ARABIA Miami (2) Greensburg Al Khobar Plantation Hamarville Jeddah Tallahassee Philadelphia Tampa Fairless Hill KANSAS SOUTH CAROLINA Overland Park Columbia MARYLAND Greenville (2) Owings Mills Hilton Head MICHIGAN Myrtle Beach Flint North Myrtle Beach Novi Spartanburg Sterling Heights SOUTH DAKOTA MISSOURI Rapids City Independence Sioux Falls MONTANA TENNESSEE Billings Kingsport Missoula Nashville NEBRASKA TEXAS Omaha College Station NEW JERSEY Laredo New Brunswick Lubbock Paramus McAllen Parsippany Midland Tom's River San Antonio (2) Turnersville Temple Union Waco Voorhees PUERTO RICO Wayne Caugus NEW YORK Amherst Howard Beach Westbury NORTH CAROLINA Asheville Charlotte Matthews Wilmington Champps Operations The Champps Americana concept is based upon providing the best possible food, value and service to its customers. Although food and service are the most important parts of the Champps Americana concept, an atmosphere that is entertaining and energetic, yet comfortable, is also critical. The food offerings at Champps' restaurants combine a wide selection of appetizers, soups, salads, innovative sandwiches, pizza, burgers, and entrees including chicken, beef, fish, pasta and desserts. Selections reflect a variety of ethnic and regional cuisines and traditional favorites. Because Champps' menu is not tied to any particular type of food, Champps can introduce and eliminate items based on current consumer trends without altering its theme. Portion sizes are generous and each dish is attractively presented. Champps believes that these qualities give customers a sense of value. Entree prices currently range from $4.50 to $14.25. Champps emphasizes freshness and quality in its food preparation. Fresh sauces, dressings, batters and mixes are prepared daily on the premises, generally from original ingredients with fresh produce. Champps invests substantial time in training and testing kitchen employees to maintain consistent food preparation. Strict food standards at Champps-owned restaurants have also been established to maintain quality. The customer's experience is enhanced by the attitude and attention of restaurant personnel. Accordingly, Champps emphasizes prompt greeting of arrivals, frequent visits to customer tables to monitor customer satisfaction and service, and friendly treatment of its customers. Service is based upon a team concept so that customers are made to feel that any employee can help them, and they are never left unattended. Success of the Champps restaurants depends upon employee adherence to these standards. To maintain these standards, Champps seeks to hire and train personnel who will work in accordance with Champps' philosophy and frequently rewards individual and restaurant achievement through several recognition programs intended to build and maintain employee morale. All of the service personnel at each Champps restaurant meet with the managers at two daily pre-shift motivational meetings. Restaurant promotions, specials and quality control are all discussed and explained during these meetings. Also, employee enthusiasm is raised so that the employees can help increase the energy level and excitement of the restaurant. Champps-owned, franchised and licensed restaurants are designed and decorated in a casual theme, although they differ somewhat from each other. Existing Champps restaurants range in size from 7,000 to 12,000 square feet while the new Champps restaurant prototype is approximately 8,700 square feet. Champps' standard restaurant features a bar, open kitchen and dining on multiple levels including a diner-type counter. Customers can also dine at the bar or outside on the patio, where available. The spacious design facilitates efficient service, encourages customer participation in entertainment and promotional events and allows customers to view the kitchen, dining area, and bar. Strategically placed television screens stimulate customer perception of activity and contribute to the total entertainment experience and excitement of the restaurant. An important part of the Champps Americana dining experience is the entertainment. Patrons may watch one of several sporting events that are being broadcast, or listen to a variety of music played by the disc jockey, which music is changed for the time of day and season of the year. The exposed kitchen offers customers the opportunity to observe the cooks, and in certain locations a discretely located game room is provided for arcade games. The entertainment aspects of the Champps restaurants are designed to encourage repeat visits, increase the length of a customer's stay and attract customers outside of normal peak hours. In addition, a variety of creative promotions and activities are conducted such as "Family Bingo," "Spring Time Big Bike Give-Away," and Karaoke. These promotions and activities allow for customer participation and are continually changing. Change of the ambiance is also experienced in each restaurant when the restaurants are decorated for the holidays and when the dress of the restaurant staff is changed for the seasons. The different looks and activities of the restaurant provide customers a different feel each time they visit, thus encouraging repeat business. Champps sells merchandise such as T-shirts, hats and sweatshirts bearing the Champps Americana name. Although not currently a significant source of revenue, the sale of its merchandise is believed to be an effective means of promoting the Champps name. Champps restaurants are generally open from 11:00 a.m. to 1:00 a.m. seven days a week serving lunch, dinner and late night appetizers. Closing times of Champps restaurants will vary based upon state laws concerning operating hours. Sunday brunch is served beginning at 10:00 a.m. Each Champps restaurant maintains standardized food preparation and service manuals which are designed to enhance consistency of operations among the restaurants. Although Champps restaurants differ in some respects, Champps attempts to have each Champps-owned and franchised restaurant operate under uniform standards and specifications. Management The management staff of a Champps restaurant is divided into three areas, the General Manager, Front-of-House Managers and Back-of-House Managers. The General Manager has responsibility for the entire restaurant. Front-of-House management consists of an associate manager, two floor managers and a bar manager. Back-of-House management consists of a kitchen manager, two to three assistant kitchen managers and a daily specials chef. All General Managers report directly to the Chief Operating Officer. Managers are compensated based on salary plus monthly bonus. The bonus is determined by means of monthly restaurant sales and profit goals. Marketing Champps has achieved its historical success while expending minimal amounts on advertising and marketing. Champps restaurants have relied on location and customer word-of-mouth. However, Champps-owned restaurants expend a different amount of resources on in-restaurant marketing and promotions. Site Selection Champps uses its own personnel to analyze markets and sites for new restaurants, obtain the required zoning and other permits, negotiate the leasing or real estate purchase and oversee all aspects of the construction process. Champps believes that location is a key factor in a restaurant's ability to operate a profitable lunch and dinner business and considers several demographic factors in selecting sites, including the average income of the neighboring residential population, the proximity of retail, office and entertainment facilities, traffic patterns and the visibility of the location. The average total cost to construct a typical Champps restaurant, where Champps purchases real estate, depending upon its location, is approximately $4.5 million, which includes approximately $900,000 for furniture, fixtures and equipment, $2.0 million for building and improvements, $1,200,000 for land and site work, and $400,000 related to pre-opening costs of the restaurant. In fiscal 1996, Champps arranged for sale-leaseback financing whereby Champps would acquire real estate, construct a new restaurant and then sell and lease back the property. This has enabled Champps to open new restaurants on sites where a leasing arrangement was not available, with a minimal capital investment. Champps has not yet sold a restaurant pursuant to such sale-leaseback arrangement. The average total cost to construct a new Champps restaurant where Champps enters into a leasing arrangement is approximately $3.3 million which is comprised of approximately $900,000 for furniture, fixtures and equipment, $2.0 million for leasehold improvements, and $400,000 related to pre-opening costs of the restaurant. Future development of Champps restaurants will be accomplished primarily through the development of Champps-owned restaurants. The development of additional restaurants is contingent upon locating satisfactory sites, financing, negotiating satisfactory leases or, alternatively, leasing and converting existing restaurant sites into Champps restaurants. It is also dependent upon securing appropriate governmental permits and obtaining liquor licenses. Franchising Champps offers franchises in markets where it deems expansion to be advantageous to the development of the Champps concept and a system of restaurants. Franchise agreements grant franchisees an exclusive territorial license to operate a single restaurant within a specified area. Currently, there are no franchisees operating multiple restaurants. A typical franchisee pays an initial fee of $75,000 per restaurant, of which a part may be associated with a development fee, a continuing royalty fee of 3-1/4% of gross sales, and a regional and/or national advertising fee of 1/2% of gross sales at such time as Champps establishes a regional/national advertising program. Among the services and materials that Champps provides to franchisees are site selection assistance, assistance in design development, an operating manual that includes quality control and service procedures, training, on-site pre-opening supervision and consultation relating to the operation of the franchised restaurants. Champps grants both single and multi-restaurant development rights depending upon market factors and franchisee capabilities. With respect to multi-restaurant agreements, the franchisee's continuing right to obtain franchises is contingent upon the franchisee's continuing compliance with the restaurant development schedule. All franchisees are required to operate their restaurants in accordance with Champps' standards and specifications, including controls over menu selection and food quality and preparation. Champps approves all restaurant site selections and applies the same criteria used for its own restaurant sites. Champps requires all new franchisees to provide at least annual financial statements reviewed by an independent certified public accountant and conducts its own audit of the franchisee's books and records. Periodic on-site inspections are conducted to assure compliance with Champps standards and to assist franchisees with operational issues. Franchisees bear all direct costs involved in the development, construction and operation of their restaurants. Restaurant Locations The following table sets forth the locations of restaurants operated by Champps and its franchisees as of June 29, 1996: Owned Restaurant Locations Franchised Restaurant Locations Domestic - Total 10 Domestic - Total 10 CALIFORNIA MINNESOTA Irvine Burnsville INDIANA Maple Grove Indianapolis Maplewood OHIO Minneapolis Columbus New Brighton Lyndhurst St. Paul MINNESOTA NEBRASKA Minnetonka Omaha Richfield NORTH CAROLINA NEW JERSEY Charlotte Edison SOUTH DAKOTA Marlton Sioux Falls TEXAS WISCONSIN Addison Greenfield VIRGINIA Reston Expansion Strategy The Company's long-term objective is to expand the Champps Americana restaurant concept nationally by opening additional Champps-owned and operated restaurants. Champps does not anticipate significant expansion through new franchise agreements, but expects that new franchise locations will open pursuant to existing franchise development and licensing agreements. Development of Champps-owned restaurants will be concentrated in selected markets with population density levels sufficient to support the restaurants. Champps believes its concept can be adapted to a variety of locations, both in terms of market demographics and configuration of the restaurant. The locations of Champps restaurants are very important. Potential sites are reviewed for a variety of factors, including trading-area demographics, such as target population density and household income levels; an evaluation of site characteristics, including visibility, accessibility, traffic volume and available parking; proximity to activity centers, such as shopping malls and offices; and an analysis of potential competition. Centralized Functions The Company provides Daka, Fuddruckers and Champps with centralized purchasing, accounting and management information services. Purchasing The Company capitalizes on the combination of its foodservice and restaurant businesses through a centralized and coordinated purchasing program and food distribution network. On December 1, 1992, the Company entered into a five-year agreement with Kraft Foodservice, Inc. ("Kraft") pursuant to which Kraft will distribute approximately 80% of food and food-related purchases of Daka, Fuddruckers and Champps. The agreement with Kraft is cancelable by either party upon 90 days notice. Fuddruckers and Champps franchisees also have the option of purchasing from Kraft. The Company believes that this agreement is unique in the foodservice industry because it provides for a sharing between Kraft and the Company of the savings that may be obtainable through purchasing from selected vendors. In addition, under the agreement, Kraft is furnishing to the Company "Kraft-Link," Kraft's on-line product-ordering software which is installed in major Daka locations and all Fuddruckers-owned and Champps-owned restaurants. The Company's purchasing programs have enabled Fuddruckers to maintain the same menu prices for its signature hamburgers since December 1990, further enhancing the Company's philosophy of providing high-quality products at moderate prices. The Company also acts as a restaurant equipment dealer, enabling it to take advantage of dealer pricing, manufacturer discounts and rebates. The Company has not experienced any difficulty in obtaining an adequate supply of quality food products at acceptable prices from its suppliers. Accounting and Management Information Systems The Company provides Daka, Fuddruckers and Champps with centralized financial and management controls through the use of an automated data processing system and prescribed reporting procedures. The Company continues to upgrade its computer hardware and financial software and has recently implemented a new point of sale system for its Fuddruckers restaurants. The foodservice locations and restaurants forward weekly sales reports, vendor invoices, payroll information and other operating information to the Company's corporate headquarters. The Company utilizes this data to centrally monitor sales, product, labor and other costs and to prepare periodic financial and management reports. The Company believes that its centralized accounting, payroll, cash management, and information systems improve its ability to control and manage its operations efficiently. Competition In the contract foodservice segment, Daka competes with large national and multi-national companies as well as local and regional competitors. Some of the major national and international companies include ARAMARK, Canteen Corporation, Sodexho, Gardner Merchant, Compass, Marriott Corporation and Service America. The contract foodservice management business is highly competitive. Daka believes that competition is based on pricing, quality of service and reputation. Additionally, the ability of the foodservice contractor to make significant capital investments in the client's operation is a key factor in the competition for large new contracts. The restaurant industry is highly competitive. Fuddruckers and Champps compete with other national and international restaurant chains as well as local and regional operations. Competition within the industry is based principally on the quality, variety and price of food products served. Site location, quality of service and attractiveness of facilities are also important factors for a successful restaurant. The restaurant industry is affected by general economic conditions, changing tastes, population, traffic patterns and spending habits of guests. Fuddruckers believes that their competitive position is enhanced by providing guests with moderately-priced quality food in a comfortable atmosphere. The Company believes that the businesses of Daka, Fuddruckers and Champps share important characteristics in their desire to provide guests with discernible value and the highest quality of customer service and dining atmosphere. While the restaurant industry has experienced intense competition for many years, contract foodservice providers can no longer rely upon the luxury of "captive customers," such as employees of corporate foodservice clients or students, who spend a majority of their time in the same facility in which a foodservice operation is conducted. Today, guests who do not find menu offerings acceptable will simply eat elsewhere. This places contract foodservice providers in direct competition with local restaurants and fast food outlets for each guest's food dollar. In addition, factors such as service, cleanliness and atmosphere are as important in a guest's dining decision as menu and food quality. In response to this trend, the Company launched an internal program called "Be Our Guest" in its Daka operations. This program's goal is to emphasize Fuddruckers' guest focus and to effect a transition in the Daka organization to a similar guest-driven orientation, rather than a traditional "back-of-the-house" foodservice mentality. The Company has provided training, education and motivational programs for its associates to focus on providing quality service and to sustain a sensitivity to guest needs. The Company believes that by operating in a professional, restaurant-style manner where each of its associates place the guest first, Daka, Fuddruckers, and Champps can win guest loyalty. Government Regulation The Company is subject to various federal, state and local laws affecting its business. Its operations are subject to various health, sanitation and safety standards, federal and state labor laws, zoning restrictions, and state and local licensing. Federal and state environmental regulations have not had a material effect on the Company's operations to date. Fuddruckers and Champps are also subject to federal and state laws regulating franchise operations and sales. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises, or impose substantive standards on the relationship between franchisor and franchisee. Fuddruckers and Champps restaurants are subject to state and local licensing and regulation with respect to selling and serving alcoholic beverages. The sale of alcoholic beverages accounted for approximately 3% of Fuddruckers' and 35% of Champps' total restaurants sales during fiscal 1996. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location could adversely affect Fuddruckers', Champps' or a franchisee's operation in that location and could impair Fuddruckers', Champps' or such franchisee's ability to obtain licenses elsewhere. Typically licenses must be renewed annually and may be revoked or suspended for cause. Fuddruckers and Champps restaurants are subject to "dram shop" statutes in certain states. These statutes generally give a person injured by an intoxicated person the right to recover damages from the establishment that has wrongfully served alcoholic beverages to the intoxicated person. Fuddruckers and Champps each carry liquor liability coverage in the amount of $1 million. However, a judgment against Fuddruckers or Champps under a "dram shop" statute in excess of Fuddruckers' or Champps' liability coverage, or any inability to continue to obtain such insurance coverage at reasonable costs, could have a material adverse effect on the Company, Fuddruckers or Champps. Research and Development The Company is engaged in research activities relating to the development or improvement of new and existing products or services. Daka, Fuddruckers, and Champps together with their franchisees, utilize test kitchen facilities to develop recipes, test food products and equipment and set nutritional and quality standards. Fuddruckers, Champps, and their franchisees test additional menu items in various markets on an on-going basis. These tests are coordinated through the corporate headquarters. Furthermore, the Company employs a professional support staff to establish, maintain and enforce high standards of sanitation and safety in all phases of food preparation and service. The cost of research and development currently is not material to the Company's cost of operations. Service Marks Daka has registered certain trademarks and service marks with the United States Patent and Trademark Office and with certain states, including "Daka" and "Daka Restaurants." In addition, the Company is in the process of registering certain trademarks with respect to its signature concepts including, among others, French Quarter Coffee Company. Fuddruckers has registered various service marks with the United States Patent and Trademark Office, including the trade names "Fuddruckers" and "Daiquiritas" and the "Fuddruckers - World's Greatest Hamburgers" logo. Champps owns the names and marks "Champ's", "Champps", "Champps American Sports Cafe" and "Champps Entertainment" (collectively, the "Marks") in connection with providing bar and restaurant services, and in connection with the sale of related food products. Pursuant to a Master Agreement dated February 1, 1994, whereby Champps acquired certain "Champ's" and "Champps" service marks, trademarks and trade names from Champs Restaurants, Inc. ("CRI"), Champs pays CRI an annual fee equal to the lesser of approximately $260,000 or one-quarter percent (1/4%) of the gross sales of Champps restaurants, but in no event less than $40,000. The maximum fee payable by Champps is increased annually by the lesser of the increase in the Consumer Price Index or 4%. All of the service marks, trade names and trademarks are of significant importance to the business of Fuddruckers and Champps. Fuddruckers and Champps have also registered various service marks in several foreign countries. The Company and its subsidiaries intend to protect their service marks through registration with appropriate governmental authorities. Seasonality As a result of the strong presence in the school and college sector, the contract foodservice and vending operations of Daka are subject to seasonal patterns. Revenues tend to be lower in June, July, August, December and January when school enrollment is reduced. Adding to the seasonal decline is a reduction in guests at corporate clients, whose employees take vacations during the summer. Fuddruckers and Champps sales are historically higher in the spring and summer-time months, due primarily to dining habits of its guests and eating out trends of the general public. Corporate Offices and Associates DAKA International, Inc. is incorporated under the laws of the State of Delaware and employs approximately 120 associates on a full-time basis, four of whom are executive officers. Daka, Inc. is incorporated under the laws of the Commonwealth of Massachusetts and employs approximately 13,675 associates on a full-time and part-time basis. Less than 10% of Daka's associates are represented for collective bargaining purposes by unions. No single union contract covers a significant number of any one associate group. Fuddruckers is incorporated under the laws of the State of Texas and employs approximately 9,900 associates on a full-time and part-time basis. Champps Entertainment, Inc. is incorporated under the laws of the State of Minnesota and employs approximately 1,500 associates on a full-time and part-time basis, two of whom are executive officers of the Company. Substantially all restaurant associates, other than restaurant management, are compensated on an hourly basis. None of Champps' associates are covered by a collective bargaining agreement. The Company considers its relations with its associates to be good. DAKA International, Inc., Daka, Fuddruckers and ADC maintain their principal executive offices at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923. The telephone number for the Company is (508) 774-9115. Champps Entertainment, Inc. maintains its principal executive offices at 153 East Lake Street, Wayzata, Minnesota, 55391. The telephone number for Champps is (602) 449-4841. Item 2. Properties. As of June 29, 1996, the Company leased approximately 40,000 square feet of office space at its corporate headquarters in Danvers, Massachusetts, at an average annual rental of $610,000 through November 30, 2001. Fuddruckers owns the land and related improvements at 11 of the 121 Fuddruckers-owned restaurants with the balance of the restaurants operated pursuant to long-term leases. The location and general character of the properties of the Company are described in Item 1 of this Report. Champps leases approximately 4,000 square feet for its corporate office, located in Wayzata, Minnesota, pursuant to a five-year lease at an average annual rental of $70,800. Champps also leases approximately 1,200 square feet adjacent to the Minnetonka restaurant, pursuant to a lease expiring in 2000. This space is used by Champps' management and support staff. Item 3. Legal Proceedings. The Company and/or its subsidiaries are parties to various lawsuits. However, in the opinion of management and legal counsel, none of these legal proceedings would result in final judgments which would have a material adverse effect on the Company's financial position, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted by the Company to a vote of Stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year for which this report is filed. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. The Common Stock of the Company is traded over-the-counter and is quoted on the Nasdaq Stock Market National Market under the symbol "DKAI." The following table sets forth the high and low bid prices of the Company's Common Stock during each quarter of the fiscal years ended June 29, 1996 and July 1, 1995. 1996 1995 High Low High Low 1st Fiscal Quarter $ 33.75 $ 23.00 $ 15.50 $ 13.50 2nd Fiscal Quarter 33.63 22.75 16.25 12.88 3rd Fiscal Quarter 27.50 19.88 18.00 14.50 4th Fiscal Quarter 33.00 22.75 23.88 17.00 The Company has never paid cash dividends on shares of its Common Stock and does not expect to pay dividends in the foreseeable future. The Company intends to retain all of its available funds for the operation and expansion of its business. In addition, the terms of the Company's line-of-credit agreement prohibit the payment of dividends on the Company's Common Stock. As of September 26, 1996, the approximate number of record holders of the Company's Common Stock was 3,751. Item 6. Selected Financial Data. In fiscal 1996, the Company merged with Champps Entertainment, Inc. ("Champps") whereupon Champps became a wholly-owned subsidiary of DAKA. In 1996, DAKA also merged with The Great Bagel and Coffee Company ("Great Bagel and Coffee") whereupon Great Bagel and Coffee became a wholly-owned subsidiary of DAKA. Both transactions have been accounted for as pooling-of-interests, and accordingly the Company's consolidated financial statements have each been restated to include the accounts of Champps and Great Bagel and Coffee (collectively the "1996 Poolings-of-Interests"). The following selected financial information for 1996, 1995 and 1994 (except for 1994 Balance Sheet Data) has been derived from the audited consolidated financial statements of the Company included elsewhere in this Report. The selected 1994 Balance Sheet Data and the selected financial information for 1993 and 1992 have been derived from: (i) the audited consolidated financial statements of DAKA; (ii) the audited financial statements of Champps Entertainment, Inc.; (iii) the unaudited consolidated financial statements of The Great Bagel and Coffee Company as of and for the fiscal years ended July 2, 1994, June 26, 1993, and June 27, 1992. Such unaudited consolidated financial statements of the Great Bagel and Coffee Company, in the opinion of management,contain all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the financial position and results of operations for these periods. The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and the notes thereto included elsewhere in this Report.
June 29, July 1, July 2, June 26, June 27, 1996 1995 1994 1993 1992 (In thousands, except per share data) Statements of Operations Data: Total revenues ..................................$ 404,824 $ 334,837 $ 257,146 $ 189,201 $ 171,175 Income from continuing operations before income taxes and minority interests ....... ................ 203 14,892 11,382 7,558 5,774 Income from continuing operations ............... 905 9,583 7,586 5,145 4,333 Gain on extinguishment of debt, net ............. -- -- -- 462 -- Net income ...................................... 905 9,583 7,586 5,607 4,333 Income available for common stockholders ........................... 905 9,183 6,786 5,607 4,333 Earnings per share: Primary: Income from continuing operations .............. 0.09 1.35 0.94 1.01 0.85 Income available for common stockholders ........................... 0.09 1.35 0.94 1.10 0.85 Fully diluted: Income from continuing operations .............. 0.09 0.96 0.83 0.69 0.71 Income available for common stockholders ........................... 0.09 0.96 0.83 0.75 0.71 Weighted average number of shares: Primary ........................................ 9,971 6,791 6,082 5,101 5,089 Fully diluted .................................. 10,535 11,228 10,728 7,989 6,085 Balance Sheet Data: Total assets ....................................$ 231,557 $ 180,853 $ 128,979 $ 90,711 $ 76,976 Long-term debt .................................. 99,862 71,029 48,535 32,636 28,738 Stockholders' equity ............................ 82,867 59,054 41,172 26,422 15,934
Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition Certain Factors Affecting Future Operating Results This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors which may cause such a difference include among the following: the impact of increased competition in the bidding process for foodservice contracts against competitors with significant financial resources and market share; the exercise by foodservice clients of their right to terminate contracts which typically provide for termination upon 30 to 60 days notice; the impact of increasing competition in the casual and upscale casual dining segment of the restaurant industry; changes in general economic conditions which impact consumer spending for restaurant occasions; adverse weather conditions, competition among restaurant companies for attractive sites and unforeseen events which increase the cost to develop and/or delay the development and opening of new restaurants; increases in the cost of product, labor, and other resources necessary to operate both the restaurants and the foodservice facilities; unforeseen difficulties in integrating acquired businesses; the amount and rate of growth of general and administrative expenses associated with building a strengthened corporate infrastructure to support operations; the availability and terms of financing for the Company and any changes to that financing; the revaluation of any of the Company's assets (and related expenses); and the amount of, and any changes to, tax rates. RESULTS OF OPERATIONS Summary In February 1996, CEI Acquisition Corp., a wholly-owned subsidiary of DAKA, merged with Champps Entertainment, Inc. ("Champps") whereupon Champps became a wholly-owned subsidiary of DAKA. In April, DAKA also merged with The Great Bagel and Coffee Company ("Great Bagel and Coffee") whereupon Great Bagel and Coffee became a wholly-owned subsidiary of DAKA. Both transactions have been accounted for as poolings-of-interests, and accordingly, the consolidated financial statements and Management's Discussion and Analysis have been restated to include the accounts of Champps and Great Bagel and Coffee. The Company recorded significantly lower earnings in 1996 as income before income taxes and minority interests decreased 99% to $0.2 million as compared to $14.9 million in 1995 and $11.4 million in 1994. Earnings in 1996 were impacted by non-recurring charges relating to merger costs and the adoption of a new accounting standard, along with poor operating performance in the Fuddruckers' segment and increased corporate selling, general and administrative expenses. Income after income taxes and minority interests decreased 91% to $0.9 million in 1996 as compared to $9.6 million in 1995 and $7.6 million in 1994 while fully diluted earnings per share decreased to $0.09 in 1996, a decrease of 91% as compared to $0.96 in 1995 which was 16% higher than the $0.83 earned on a fully diluted basis in 1994. The 91% decrease in fully diluted earnings per share during 1996 results from lower earnings offset,in part, by a 6% decrease in the weighted average number of outstanding shares. The 16% increase in fully diluted earnings per share during 1995 as compared to 1994 came despite a 5% increase in the weighted average number of outstanding shares as a result of the Common Stock and 7% Convertible Subordinated Notes (the "Notes") sold in March 1993. The Company adopted early the provisions of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of", which resulted in a third quarter noncash pretax charge of approximately $5.7 million. The provision includes charges for impairments to the carrying value of certain restaurant and foodservice contract assets, reacquired franchise rights, investments and certain other assets. In addition, consolidated operating results includes a non-tax deductible charge of $2.9 million relating to the mergers with Champps and Great Bagel and Coffee. Included in these costs are legal, investment banking and professional fees associated with the transactions, and costs associated with combining the operations of previously separate companies and instituting certain operating efficiencies. At June 29, 1996, the Company was not in compliance with its debt service coverage, minimum tangible net worth and fixed charge coverage covenants. On October 15, 1996, the Company obtained a waiver of noncompliance related to such covenants from its lender, and renegotiated certain terms and conditions of its existing credit facility. The Company expects operating results for the first quarter of fiscal 1997 to be substantially below the first quarter results for fiscal 1996, and will most likely result in a net loss due, in part, to Fuddruckers' operating performance which continues to be below expectations for the first two months of the new fiscal year. Foodservice The following table sets forth, for the periods presented, certain financial information of the Company's foodservice business. For further financial information relating to the Company's foodservice business, see Note 13 to Notes to Consolidated Financial Statements.
1996 1995 1994 ---- ---- ---- Managed volume: Management fee contracts ................................................ $109,564 $107,959 $113,905 Profit and loss contracts ............................................... 218,361 193,154 150,839 ------- ------- ------- Total managed volume .................................................. $327,925 $301,113 $264,744 ======== ======== ======== Sales from profit and loss contracts ..................................... 100.0% 100.0% 100.0% Operating expenses: Labor costs ............................................................. (34.1) (33.91) (34.4) Product costs ........................................................... (36.0) (36.2) (35.3) Other operating expenses ................................................ (15.2) (15.8) (15.4) Depreciation and amortization ........................................... (2.6) (2.4) (2.2) Impairment charges and merger costs ..................................... (1.5) -- -- ---- ---- ---- Income from profit and loss contracts .................................... 10.6% 11.7% 12.7% ==== ==== ==== Income from profit and loss contracts .................................... $ 22,841 $ 22,619 $ 19,154 Management and other fees ................................................ 6,148 5,715 6,132 ----- ----- ----- Income from foodservice operations ...................................... $ 28,989 $ 28,334 $ 25,286 ======== ======== ========
Daka conducts its operations on the basis of two types of foodservice contracts with its clients. The first type is a management fee contract pursuant to which a client pays Daka a negotiated fee for overseeing and administering its foodservice operations and reimburses Daka for all costs incurred in providing such service. Management fee contracts are prevalent where companies subsidize foodservice as part of the benefits provided to employees and in elementary and secondary schools. The second type of contract is a profit and loss contract whereby Daka assumes the risk of profit or loss from the foodservice operations. Daka seeks to enter into profit and loss contracts whenever parctical, believing it can achieve a greater level of profitability as a result of the flexibility it has in establishing menu mix and pricing in such contracts. Managed volume in the foodservice segment increased $26.8 million or 9% to $327.9 million in 1996 as compared to $301.1 million in 1995. The increase in managed volume results from the full year impact of managed volume generated by the educational and corporate foodservice contracts acquired from ServiceMaster Management Services L.P. ("SMMSLP") on February 8, 1995, a 2% increase in same location sales, offset, in part, by lost contracts. During1996, Daka retained approximately 89% of its contracts, which is slightly lower than its historical norm of 92%. Managed volume in 1995 increased $36.4 million or 14% to $301.1 million, as compared to managed volume of $264.7 million in 1994. The increase in managed volume in 1995 as compared to 1994 was due to a combination of increased volume of existing food operations offset, in part, by one less week of operations in 1995 compared to 1994. Income from foodservice operations, excluding impairment charges and merger costs, increased 15% to $32.5 million in 1996 as compared to $28.3 million in 1995, which was 12% higher than the $25.3 million in 1994. During 1996, a number of marginally profitable or unprofitable contracts expired and, accordingly, became subject to a competitive bidding process. Throughout this process, Daka rebid unprofitable or marginally profitable contracts on terms that should provide an acceptable profit. Certain of these contracts were retained, and as anticipated, certain other contracts were not retained. Despite the loss of these contracts, income from profit and loss contracts in Daka's base business, excluding the educational and corporate foodservice contracts acquired in 1995 from SMMSLP and excluding 1996 impairment charges and merger costs, improved during 1996 compared to 1995. Operating margins in the base foodservice business remained consistent from year to year while the acquired contracts performed as expected. The lower operating margins associated with the educational foodservice contracts acquired is typical of the educational foodservice industry and consistent with the operating margins in Daka's existing educational foodservice business. Lower labor costs in 1995 reflect the impact of the Company's ongoing safety program which resulted in lower workers' compensation costs. Depreciation and amortization in 1996, 1995 and 1994 as a percentage of sales from profit and loss contracts increased primarily due to the amortization of the costs assigned to the acquired contracts. Fuddruckers The following table sets forth, for the periods presented, certain financial information for Fuddruckers. For further financial information related to Fuddruckers, see Note 13 to Notes to Consolidated Financial Statements.
1996 1995 1994 ---- ---- ---- Restaurant sales ..................................... $131,592 $110,703 $ 87,030 ======= ======== ======== Sales from Fuddruckers-owned restaurants ............. 100.0% 100.0% 100.0% Operating expenses: Labor costs .......................................... (29.0) (28.8) (28.8) Product costs ........................................ (28.2) (27.8) (27.8) Other operating expenses ............................. (27.0) (25.7) (25.7) Depreciation and amortization ........................ (6.1) (4.8) (4.6) Impairment charges ................................... (1.9) -- -- ------- ------- ------- Income from restaurant operations .................... 7.8% 12.9% 13.1% ======= ======= ======= Income from restaurant operations .................... $ 10,324 $ 14,252 $ 11,400 Franchising income ................................... 6,575 5,372 4,318 ------- ------- ------- Income from restaurant and franchising operations .... $ 16,899 $ 19,624 $ 15,718 ======= ======= ======= Number of restaurants (end of period): Fuddruckers-owned ................................... 121 98 75 Franchised .......................................... 76 70 75 ------- ------- ------- Total restaurants .................................. 197 168 150 ======= ======= =======
Total revenues from restaurant and franchising operations in 1996 increased $22.1 million or 19% to $138.2 million whereas revenues from restaurant and franchising operations in 1995 increased $24.8 million or 27% to $116.1 million, as compared to total revenues of $91.3 million in 1994. Sales in Fuddruckers-owned restaurants increased $20.9 million or 19% to $131.6 million in 1996 as compared to $110.7 million in 1995. This increase is due to $3.3 million of incremental sales for a full year from five restaurants acquired from franchisees during 1995 and $30.3 million of sales at restaurants during their first year of operation, including 26 new restaurants opened in 1996 offset, in part, by a 4.9% decrease in comparable restaurant sales and a $4.4 million decrease in sales due to the closing and/or sale of three restaurants. Comparable restaurant sales decreased primarily as a result of inclement weather in many Fuddruckers major markets throughout the third quarter. Sales at Fuddruckers-owned restaurants increased $23.7 million or 27% to $110.7 million in 1995 as compared to $87.0 million in 1994. This increase is due to a combination of $12.7 million of sales at 17 restaurants acquired from franchisees during the second half of 1994 and in 1995, $14.6 million of sales at restaurants during their first year of operation, including 22 new restaurants opened in 1995 and a 0.8% increase in comparable restaurant sales offset, in part, by a $1.5 million decrease in sales resulting from the closing and/or sale of five restaurants and the effect of 52 weeks of sales in 1995 whereas 1994 had 53 weeks. Franchise income increased $1.2 million in 1996 as compared to 1995, primarily due to revenue generated from continued sales of multi-unit development agreements in both the United States and internationally. The remaining increase represents additional royalty income relating to 13 new franchised restaurants opened offset, in part, by the closing of 7 franchised restaurants during 1996. In 1995, franchise income increased $1.1 million compared to 1994 due to revenues generated from the sale of multi-unit development agreements in both the United States and internationally, offset by the reduction of royalty income associated with the acquisition of 5 franchised restaurants in 1995. Income from restaurant operations, excluding impairment charges, decreased $1.5 million or 10% to $12.8 million in 1996 compared to $14.3 million in 1995 while margins as a percentage of sales decreased from 12.9% in 1995 to 9.7% in 1996 exclusive of impairment charges of 1.9%. Higher costs as a percentage of sales in all cost components reflect the large numbers of new restaurants, lower than anticipated sales levels and start-up costs associated with new concepts. Operating margins decreased by 3.2% in 1996 principally due to weather-related expenses. Income from restaurant operations, increased $2.9 million or 25% to $14.3 million in 1995 as compared to $11.4 million in 1994. The improvement in operating margins can be attributed to lower operating expenses associated with the acquired Atlanta restaurants, strong operating results at the new restaurants opened, the closing of marginally profitable restaurants, and improved product costs through national purchasing programs. Depreciation and amortization in 1996 increased significantly as a percentage of sales compared to 1995 and 1994 due primarily to increased pre-opening costs associated with new restaurants, pre-opening costs related to the "La Salsa Fresh Mexican Grill" concept in 10 restaurants, and continued installation of new point of sale equipment. Champps The following table sets forth certain financial information for Champps restaurants. For further information related to Champps, see Note 13 to Notes to the Consolidated Financial Statements.
1996 1995 1994 ---- ---- ---- Restaurant sales ..................................... $ 41,593 $ 19,257 $ 8,273 ======== ======== ======== Sales from Champps restaurants ....................... 100.0% 100.0% 100.0% Operating expenses: Labor costs .......................................... (33.2) (31.0) (31.4) Product costs ........................................ (28.8) (29.0) (28.0) Other operating expenses ............................. (22.6) (20.5) (20.2) Depreciation and amortization ........................ (8.7) (5.5) (3.4) Impairment charges and merger costs .................. (6.3) -- -- -------- -------- -------- Income from restaurant operations .................... 0.4% 14.0% 17.0% ======== ======== ======== Income from restaurant operations .................... $ 150 $ 2,689 $ 1,409 Franchising income ................................... 555 636 554 -------- -------- -------- Income from restaurant and franchising operations .... $ 705 $ 3,325 $ 1,963 ======== ======== ======== Number of restaurants (end of period) Champps-owned ........................................ 10 5 3 Franchised ........................................... 10 10 8 -------- -------- -------- Total restaurants .................................... 20 15 11 ======== ======== ========
Total revenues from restaurants and franchising operations in 1996 increased $22.3 million or 112% to $42.1 million whereas revenues from restaurant and franchising operations in 1995 increased $11.1 million or 126% to $19.9 million, as compared to total revenues of $8.8 million in 1994. Franchise income has remained relatively consistent in 1996, 1995 and 1994. Sales in Champps-owned restaurants increased $22.3 million or 116% to $41.6 million in 1996 as compared to $19.3 million in 1995 primarily due to the opening of 6 new restaurants, offset by the sale of one restaurant in the last quarter of 1996. Sales at Champps-owned restaurants increased $11.0 million or 133% to $19.3 million in 1995 as compared to $8.3 million in 1994, due to the opening of two new restaurants. Income from restaurant operations, before impairment charges and merger costs, increased 4% to $2.8 million in 1996 as compared to $2.7 million in 1995. This increase is due to a combination of increased revenues derived from new restaurant openings offset by increased labor, overhead, depreciation and amortization expenses associated with these restaurant openings. In addition, one restaurant was sold in the last quarter of 1996. Income from restaurant operations increased 93% to $2.7 million in 1995 as compared to $1.4 million in 1994 primarily due to revenues derived from new restaurant openings. Selling, General and Administrative Expenses Selling, general and administrative expenses including depreciation and amortization related to corporate assets amounted to $40.8 million, $32.9 million and $29.0 million in 1996, 1995 and 1994, respectively. Selling, general and administrative expenses as a percentage of total managed volume of $501 million, $431 million and $360 million in 1996, 1995 and 1994, respectively, which includes foodservice managed volume, restaurant sales at Fuddruckers-owned and Champps-owned restaurants, aggregated 8.1%, 7.6% and 8.1%, respectively. The $7.9 million increase in selling, general and administrative expenses in 1996, compared to 1995 was primarily due to additional corporate staff hired to support Champps' aggressive expansion plans, ongoing investment in information systems and divisional infrastructures, pursuit of nontraditional foodservice venues and expenses related to the negotiations and due diligence associated with a proposed joint venture and a foodservice acquisition. The $3.9 million increase in selling, general and administrative expenses in 1995, compared to 1994, was primarily due to overhead related to acquired foodservice contracts, increased Fuddruckers' and Champps' marketing expenses and higher Champps' overhead costs. Interest Expense Interest expense amounted to $5.9 million, $4.3 million and $2.9 million in 1996, 1995 and 1994, respectively. In 1996 and 1995, interest expense increased $1.6 million and $1.4 million or 37% and 48%, respectively, due to increased borrowings under the Company's line-of-credit used to finance acquisitions, capital expenditures for new Fuddruckers and Champps restaurants, and capital expenditures at client facilities. Interest expense associated with the higher level of debt in 1996 and 1995 was offset, in part, by a combination of lower interest rates and lower interest costs associated with the Convertible Subordinated Notes. Approximately $8.2 million of Convertible Subordinated Notes were converted in the second half of 1995 while the remaining $20.5 million outstanding Convertible Subordinated Notes were converted in the first three quarters of 1996. Income Taxes The Company files consolidated income tax returns for federal income tax purposes. As of June 29, 1996 the Company had net operating loss carryforwards of approximately $9.3 million. The carryforwards expire at various dates through 2011 and a portion of such carryforwards can only be applied against the taxable income of Fuddruckers and a portion against the earnings of the Company's 63% owned subsidiary, Atlantic Restaurant Ventures, Inc. The Company's effective tax rate on income was 12.5%, 35.7%, and 32.8% in 1996, 1995 and 1994, respectively. In 1996, the Company recorded a net tax benefit of $1.6 million related to changes in management's estimate of the valuation allowance associated with its net operating loss carryforwards. Approximately $1.0 million of this benefit was offset by the impact of non-deductible merger costs. In 1995 and 1994, the targeted jobs credit was a significant factor in lowering the Company's effective tax rate. Earnings Per Share Primary earnings per share in 1996 decreased 93% due primarily to significantly lower earnings and a 47% increase in the weighted average number of outstanding shares resulting from additional shares issued in connection with the conversion of Preferred Stock and Notes. Primary earnings per share in 1995 increased 21% as compared to 1994 due principally to increased earnings and lower Preferred Stock dividends despite additional shares issued in connection with the conversion of outstanding Notes. Fully diluted earnings per share in 1996 decreased 91% due to significantly lower earnings offset, in part, by a decrease in the weighted average number of outstanding shares principally related to the anti-dilutive effect of shares issued upon conversion of the Notes. Fully diluted earnings per share in 1995 increased 16% due to increased earnings, offset partially by an increase in the weighted average number of outstanding shares principally due to the granting of employee stock options. Lower fully diluted earnings per share, as compared to primary earnings per share, is due to the inclusion, in the computation of fully diluted earnings per share, the weighted average number of shares issuable upon conversion of the Preferred Stock and Notes. As such, there is no impact on fully diluted earnings per share upon conversion of Notes or Preferred Stock. Shares issuable upon conversion of the Notes or Preferred Stock are not included in the computation of primary earnings per share since such securities were not considered common stock equivalents at the time of issuance. Seasonality As a result of the Company's strong presence in the educational foodservice segment, the contract foodservice and vending operations of Daka are subject to seasonal patterns. Revenues tend to be lower in June, July, August, December and January when school enrollment is reduced. The seasonal decline is further accentuated by corporate clients, whose employees take vacations during the summer. Fuddruckers' and Champps' sales have historically been higher in March, June, July and August, and lower in January, February, September and October, due primarily to dining habits of its guests and eating out trends of the general public. Accounting Pronouncement Not Yet Adopted In October 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 - "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. Under the provisions of SFAS 123, effective for the fiscal year beginning June 30, 1996, the Company may either adopt the new fair value-based accounting method or continue the intrinsic value-based method for employee stock-based compensation and provide pro forma disclosures of net income and earnings per share as if the accounting provisions of SFAS 123 had been adopted. The Company plans to adopt only the disclosure requirements of SFAS 123. The Company generally does not grant options to outsiders, accordingly, the adoption of SFAS 123 is not expected to have a material effect on the Company's consolidated net earnings or cash flows. FINANCIAL CONDITION AND LIQUIDITY Working capital amounted to $28.6 million at June 29, 1996, an increase of $16.0 million, as compared to working capital of $12.6 million at July 1, 1995. Cash and cash equivalents at June 29, 1996 aggregated $11.7 million, an increase of $1.2 million as compared to cash and cash equivalents of $10.5 million at July 1, 1995. During June 1996, the Company amended its revolving line-of-credit agreement principally to increase the Company's borrowing capacity from $100 million to $150 million and extend the maturity date to June 30, 1999 (the "June Agreement"). At June 29, 1996, the Company was not in compliance with the debt service coverage, minimum tangible net worth and fixed charge coverage covenants contained in the June Agreement. On October 15, 1996, the Company obtained a waiver of noncompliance related to such covenants from its lenders and renegotiated certain terms and conditions of the June Agreement (the "October Agreement"), including (i) decreasing the Company's borrowing limit from $150 million to $125 million; (ii) changing the maturity date to October 1, 1997; (iii) increasing the interest rate on borrowings; (iv) restricting capital expenditures during the remaining term of the October Agreement; and (v) the addition of financial covenants which are restrictive to the Company's business activities (see Note 5 to the Consolidated Financial Statements). At June 29, 1996, the Company had available borrowing capacity of approximately $22 million under the October Agreement. The Company expects to incur approximately $450,000 of expenses associated with obtaining and negotiating the October Agreement. In 1996, the Company also obtained $40 million of sale-leaseback financing for the contruction of up to 10 new Champps restaurants. At June 29, 1996, the entire $40 million sale-leaseback financing was available for use. Any unused commitment expires in December 1997. In 1995, the Company obtained $25 million of sale-leaseback financing for the construction of up to 20 new Fuddruckers restaurants. At June 29, 1996, approximately $11.8 million of the sale-leaseback financing was available for use. The Company does not expect to use the entire commitment provided under the sale-leaseback facilities. Cash use for capital expenditures aggregated $65.6 million during 1996 and included leaseholds and equipment for the 26 new Fuddruckers and 6 new Champps restaurants opened in 1996, leaseholds and equipment for Fuddruckers and Champps restaurants currently under construction and scheduled to open during the first half of fiscal 1997, upgrades at existing at Fuddruckers and Champps restaurants, continued upgrading of data processing systems, and improvements made to facilities of foodservice clients. The Company has kept its restaurants and foodservice locations in good condition and does not believe that significant capital expenditures will be required in the near future to maintain these properties. During 1996, approximately $20.5 million of Notes were converted into Common Stock. All Notes have been converted as of June 29,1996. The Company plans to open 7 new Fuddruckers and 9 new Champps restaurants in 1997, continue to the extent permitted by the October Agreement to make improvements at facilities of its foodservice clients and invest in improved data processing systems pursuant to the terms and conditions of its new credit agreement. Management believes that cash flows from operations, existing cash, sale-leaseback financing and available borrowings under its line-of-credit will provide sufficient liquidity to pay its liabilities in the normal course of business, fund capital expenditures and service debt requirements for the foreseeable future. Subsequent to June 29, 1996, SMMSLP exercised its Put right pursuant to the provisions of the Put/Call Agreement entered into by SMMSLP and the Company on February 8, 1995 (see Notes 3 and 10 to the Consolidated Financial Statements). Accordingly, the Company is required to pay SMMSLP, for its 19.99% limited partnership interest in DRLP, a purchase price equal to $2.6 million plus SMMSLP's portion of any net undistributed earnings of DRLP. Item 8. Financial Statements and Supplementary Data. The information required under this Item 8 is set forth on pages F-1 through F-24 of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Directors of the Registrant There is incorporated in this Item 10 by reference that portion of the Company's definitive Proxy Statement relating to its Annual Meeting to be held on December 4, 1996, appearing therein under the captions "Election of Directors" and "Directors and Committees." Executive Officers of the Registrant Certain information is set forth below concerning the executive officers of the Company, each of whom has been elected to serve until the regular meeting of the Board of Directors and until his successor is duly elected and qualified. The executive officers of the Company are as follows: Name Age Position William H. Baumhauer 48 Chairman of the Board and Chief Executive Officer Allen R. Maxwell 57 Director, President and Chief Operating Officer Earl T. Benson 49 Executive Vice President, Chief Financial Officer and Treasurer Charles W. Redepenning, Jr 40 Senior Vice President, General Counsel and Secretary William H. Baumhauer has served as Chairman of the Board and Chief Executive Officer of the Company since November 1990 and as a Director since September 1988. He served in the capacity of President and Chief Operating Officer of the Company from September 1988 to November 1990. Mr. Baumhauer also serves Fuddruckers as Chairman of the Board and President since 1985 and previously in other executive officer capacities since joining Fuddruckers in 1983. Allen R. Maxwell has served as President and Chief Operating Officer of the Company since November 1990 and as a Director and President of Daka, Inc. since September 1988. He served as the Executive Vice President of the Company from September 1988 to November 1990. Previously he served as the Executive Vice President of Administration of Daka, Inc. and in other executive capacities since the formation of Daka, Inc. in 1973. Earl T. Benson has served as Executive Vice President and Chief Financial Officer and Treasurer of the Company since April 1996. From June, 1988 to April, 1996 he served as Senior Vice President and Chief Financial Officer of Ross Stores, Inc., a national off-price apparel retailer. He also served as Controller and Treasurer upon joining Ross Stores, Inc. in 1984. Charles W. Redepenning, Jr. has served as Senior Vice President of the Company since January 1991 and as General Counsel and Secretary of the Company since November 1988. He also served as Vice President, General Counsel and Secretary of Fuddruckers in July 1987. Item 11. Executive Compensation. There are incorporated in this Item 11 by reference those portions of the Company's definitive Proxy Statement relating to its Annual Meeting to be held on December 4, 1996, appearing therein under the caption "Executive Compensation." Item 12. Security Ownership of Certain Beneficial Owners and Management. There is incorporated in this Item 12 by reference that portion of the Company's definitive Proxy Statement relating to its Annual Meeting to be held on December 4, 1996, appearing therein under the caption "Principle Stockholders." Item 13. Certain Relationships And Related Transactions. There are no items that are required to be disclosed pursuant to this item. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. The following are being filed as part of this Annual Report on Form 10-K. A. Financial Statements: Independent Auditors' Report Consolidated Balance Sheets - June 29, 1996 and July 1, 1995. Consolidated Statements of Income - Years ended June 29, 1996, July 1, 1995 and July 2, 1994. Consolidated Statements of Cash Flows - Years ended June 29, 1996, July 1, 1995, and July 2, 1994. Consolidated Statements of Stockholders' Equity - Years ended June 29, 1996, July 1, 1995, and July 2, 1994. Notes to Consolidated Financial Statements - Years ended June 29, 1996, July 1, 1995, and July 2, 1994. B. Financial Statement Schedules: There are no Financial Statement Schedules required to be filed. Information required by Article 12 of Regulation S-X with respect to Valuation and Qualifying Accounts has been included in the Notes to the Consolidated Financial Statements. C. Exhibits: 2.1 Agreement and Plan of Merger among Champps Entertainment, Inc. ("Champps"), DAKA International, Inc. ("DAKA" or the "Company") and CEI Acquisition Corp., dated as of October 10, 1995, incorporated herein by reference to the Company's Registration Statement on Form S-4 (File No. 33-65425) ("1996 DAKA Form S-4"). 2.2 Series D Convertible Preferred Stock and Warrant Purchase Agreement, dated as of January 12, 1996, by and among La Salsa Holding Co. and Casual Dining Ventures, Inc. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Series D Convertible Preferred Stock and Warrant Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementally a copy of any omitted Schedule to the Commission upon request. 2.3 Stock Purchase Agreement, dated as of March 18, 1996, by and among Casual Dining Ventures, Inc., the Company, Champps Development Group, Inc., Steven J. Wagenheim, Arthur E. Pew, III, PDS Financial Corporation, Douglas B. Tenpas and certain other stockholders of Americana Dining Corp. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementally a copy of any omitted Schedule to the Commission upon request. 2.4 Asset Purchase Agreement, dated March 18, 1996, between Americana Dining Corp., as Seller, and New Brighton Ventures, Inc., as Buyer. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Asset Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementally a copy of any omitted Schedule to the Commission upon request. 2.5 Stock Purchase Agreement, dated as of March 29, 1996, by and among the Company, The Great Bagel and Coffee Franchising Corp., GBC Credit Company, Gemini Production Facility, Inc., The Great Bagel and Coffee Company, Mark C. Gordon, Brian H. Loeb, Jason R. Olivier, Michael F. Zerbib, Nicholas D. Zerbib, and Thierry E. Zerbib. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementally a copy of any omitted Schedule to the Commission upon request. 2.6 Stock Purchase Agreement, dated as of March 31, 1996, by and among Casual Dining Ventures, Inc., the Company and Edgebrook, Inc. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementally a copy of any omitted Schedule to the Commission upon request. 3.1 Certificate of Incorporation of the Company. 3.2 By-laws of the Company, incorporated herein by reference to the Company's Registration Statement on Form S-4 (File No. 33-24819) (the "1988 DAKA Form S-4") 4.1 Certificate of Designation, Preferences and Rights of Preferred Stock by Resolution of the Board of Directors Providing for the Issue of 100,000 Shares of Preferred Stock Designated the Series A Preferred Stock, incorporated herein by reference to the Company's Registration Statement on Form S-2 (No. 33-57554) (the "DAKA Form S-2"). 4.2 Specimen Certificate for DAKA Common Stock, incorporated herein by reference to the 1988 DAKA Form S-4. 10.1 Employment Agreement dated January 1, 1992 between DAKA and William H. Baumhauer, incorporated herein by reference to the DAKA Form S-2. 10.2 Employment Agreement dated January 1, 1992 between DAKA and Allen R. Maxwell, incorporated herein by reference to the DAKA Form S-2. 10.3 Employment Agreement dated October 10, 1995 by and among DAKA, Dean P. Vlahos and Champps, incorporated herein by reference to the Company's Current Report on Form 8-K, dated October 13, 1995. 10.4 Amended and Restated Trust Agreement dated as of October 1, 1984 and the Second through Seventh Amendments thereto most recently dated September 15, 1990, relating to the Daka Thrift Plan, incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990. 10.5 Incentive Stock Option Plan of DAKA, incorporated herein by reference to the 1988 DAKA Form S-4. 10.6 Non-Qualified Stock Option Plan of DAKA, incorporated herein by reference to the 1988 DAKA Form S-4. 10.7 Senior Executive Stock Option Plan of DAKA, incorporated herein by reference to the DAKA Form S-2. 10.8 Primary Distribution Agreement effective December 1, 1992 between the Registrant and Kraft Foodservice, Inc., incorporated herein by reference to the DAKA Form S-2. 10.9 Preferred Stock Purchase Agreement dated as of October 23, 1991 and amended by Amendment No. 1 dated as of December 19, 1991, among the Registrant, First Capital Corporation of Chicago and Cross Creek Partners I, incorporated herein by reference to the Company's Current Report on Form 8-K dated January 17, 1992. 10.10Registration Agreement dated January 17, 1992, among the Registrant, First Capital Corporation of Chicago and Cross Creek Partners I, incorporated herein by reference to the DAKA Form S-2. 10.11Amended and Restated Credit Agreement dated April 29, 1994 between the Registrant and the Chase Manhattan Bank, N.A., as agent, and related notes and security agreements incorporated herein by reference to the DAKA Form S-2. 10.12Americana Dining Corp. Stock Purchase Agreement (formerly Champps Development Corporation) dated March 3, 1994, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 2, 1994. 10.13Financing Commitment from Casual Dining Ventures, Inc., a wholly owned subsidiary of the Company, to Americana Dining Corp. (formerly Champps Development Corporation), incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 2, 1994. 10.14First Amendment Agreement dated as of December 30, 1994 among the Company and the Chase Manhattan Bank, N.A., incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994. 10.15Business Transfer Agreement by and between Daka Restaurants, L.P. as Transferee and ServiceMaster Management Services L.P. as Transferor as of February 8, 1995, incorporated herein by reference to the Company's Current Report on Form 8-K dated February 23, 1995. 10.16Limited Partnership Agreement of Daka Restaurants, L.P. as of February 8, 1995, incorporated herein by reference to the Company's Current Report on Form 8-K dated February 23, 1995. 10.17Put and Call Agreement by and between the Company and ServiceMaster Management Services L.P. as of February 8, 1995, incorporated herein by reference to the Company's Current Report on Form 8-K dated February 23, 1995. 10.18Second Amendment Agreement dated as of March 21, 1995 among the Company and the Chase Manhattan Bank, N.A., incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended April 1, 1995. 10.19Asset Purchase Agreement between Discus Corporation and certain of its subsidiaries as sellers and Fuddruckers, Inc. as buyer dated April 15, 1994, incorporated herein by reference to Company's Annual Report on Form 10-K for the fiscal year ended July 2, 1994. 10.20Third Amended and Restated Registration Rights Agreement, dated as of January 12, 1996, by and among La Salsa Holding Co., FMA High Yield Income L.P., WSIS Flexible Income Partners L.P., WSIS High Income L.P., Howdy S. Kabrins, La Salsa, Inc., Crown Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for the Crown Trust, Theodore H. Ashford, Noro-Moseley Partners II, L.P., Seidler Salsa, L.P., Bankers Trust Company as Master Trustee for Hughes Aircraft Retirement Plans, Charles A. Lynch, Sienna Limited Partnership I, Sienna Limited Partnership II, Sienna Holdings, Inc., as Nominee, InterWest Partners IV, Donald Benjamin, Vicki Tanner, Ronald D. Weinstock, Inc., Frank Holdraker, and Casual Dining Ventures, Inc. 10.21Fourth Amended and Restated Restricted Stock Agreement, dated as of January 12, 1996, by and among La Salsa Holding Co., Howdy S. Kabrins, La Salsa, Inc., InterWest Partners IV, Sienna Holding, Inc., Sienna Limited Partnership I, Charles A. Lynch, Theodore H. Ashford, Crown Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for The Crown Trust, Noro-Moseley Partners II, L.P., Seidler Salsa, L.P., Bankers Trust Company, as Master Trustee, for Hughes Aircraft Retirement Plans, FMA High Yield Income L.P., WSIS Flexible Income Partners L.P., WSIS High Yield Income L.P., Sienna Limited Partnership II, Donald Benjamin, Vicki Tanner, Ronald D. Weinstock, Inc., Frank Holdraker, and Casual Dining Ventures, Inc. 10.22LaSalsa Holding Co. Warrant to Purchase Shares of Series D Convertible Preferred Stock, dated as of January 12, 1996, issued to Casual Dining Ventures, Inc. by La Salsa Holding Co. 10.23Second Amended and Restated Credit Agreement, dated as of June 25, 1996, by and among the Company, Fuddruckers, Inc., Daka, Inc., Casual Dining Ventures, Inc., Atlantic Restaurant Ventures, Inc., Daka Restaurants, L.P., French Quarter Coffee Company, Americana Dining Corp., Champps Entertainment of Edison, Inc., Champps Entertainment of Texas, Inc., Champps Entertainment of Wayzata, Inc., Champps Entertainment, Inc., Specialty Concepts, Inc., The Chase Manhattan Bank, N.A., Fleet National Bank, Mellon Bank, N.A. and The First National Bank of Boston. 10.24Severance, Non-Competition and Confidentiality Agreement, dated as of March 18, 1996, between Steven J. Wagenheim and Americana Dining Corp. 10.25LaSalsa License Agreement, dated as of February 14, 1996, by and between La Salsa Franchise, Inc. and La Salsa Holding Co. 11.1 Statement regarding computation of earnings per share for the Company. 21.1 Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP 24.1 Powers of Attorney. D. Reports on Form 8-K On March 6, 1996, the Company filed a Current Report on Form 8-K. The Company reported in Item 2 of the Form 8-K, the acquisition by subsidiary merger of Champps Entertainment, Inc. ("Champps") and included, pursuant to Item 7 of the Form 8-K, audited consolidated financial statements of Champps and unaudited pro forma condensed consolidated financial statements of the Company and Champps. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAKA INTERNATIONAL, INC. (Registrant) By: /s/Earl T. Benson ---------------------- Earl T. Benson Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Principal Accounting Officer) Date: October 15, 1996 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the date indicated. Signature Title /s/William H. Baumhauer Chairman of the Board and - ----------------------- Chief Executive Officer (Principal William H. Baumhauer Executive Officer) Allen R. Maxwell* Director, President and Chief Operating Officer E. L. Cox* Director Dean P. Vlahos* Director Joseph W. O'Donnell* Director Erline Belton* Director Alan D. Schwartz* Director /s/Earl T. Benson Executive Vice President, - ------------------------ Chief Financial Officer Earl T. Benson and Treasurer (Principal Financial and Principal Accounting Officer) *By: /s/William H. Baumhauer Date: October 15, 1996 - ---------------------------- William H. Baumhauer Attorney-In-Fact INDEPENDENT AUDITORS' REPORT DAKA International, Inc.: We have audited the accompanying consolidated balance sheets of DAKA International, Inc. and its subsidiaries as of June 29, 1996 and July 1, 1995 and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended June 29, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of the Company with Champps Entertainment, Inc. and the merger of the Company with The Great Bagel and Coffee Company which have each been accounted for as a pooling-of-interests as described in Note 2 to the consolidated financial statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of DAKA International, Inc. and its subsidiaries as of June 29, 1996 and July 1, 1995 and the results of their operations and their cash flows for each of the three years in the period ended June 29, 1996, in conformity with generally accepted accounting principles. Deloitte & Touche LLP /s/Deloitte & Touche LLP Boston, Massachusetts September 6, 1996 (except for Note 5 as to which the date is October 15, 1996) DAKA INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
June 29, July 1, 1996 1995 ASSETS: Current assets: Cash and cash equivalents ......................... $ 11,708 $ 10,538 Accounts receivable, net .......................... 36,699 30,039 Inventories ....................................... 10,119 9,460 Prepaid expenses and other current assets ......... 5,265 2,240 ----- ----- Total current assets ............................. 63,791 52,277 ------ ------ Property and equipment: Land .............................................. $ 10,587 $ 8,751 Buildings and leasehold improvements .............. 96,219 79,521 Equipment ......................................... 56,347 36,231 ------ ------ 163,153 124,503 Accumulated depreciation and amortization ......... (38,590) (30,207) ------ ------ Property and equipment, net ...................... 124,563 94,296 ------- ------ Investments in, and advances to, affiliates ........ 5,000 511 Other assets, net .................................. 32,717 31,442 Deferred tax assets ................................ 5,486 2,327 ----- ----- $231,557 $180,853 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable .................................. $ 17,772 20,407 Accrued expenses .................................. 15,110 18,203 Current portion of long-term debt ................. 1,507 851 Deferred tax liabilities .......................... 787 236 ------ ------ Total current liabilities ........................ 35,176 39,697 ------ ------ Long-term debt ..................................... 98,355 70,178 Other long-term liabilities ........................ 12,978 8,912 Minority interests ................................. 2,181 3,012 Commitments and contingencies (Note 10) Stockholders' equity: Preferred Stock, $.01 par value; $100 liquidation preference; 1,000,000 shares authorized; 11,912 and 100,000 shares issued and outstanding at June 29, 1996 and July 1, 1995, respectively .............. -- 1 Common Stock, $.01 par value; 30,000,000 shares authorized; 11,120,900 and 6,995,429 issued and outstanding at June 29, 1996 and July 1, 1995, respectively ................... 111 70 Capital in excess of par value .................... 71,907 49,039 Retained earnings ................................. 10,849 9,944 ------ ------ Total stockholders' equity ...................... 82,867 59,054 ------ ------ $231,557 $180,853 ======== ========
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994 (In thousands, except per share amounts)
1996 1995 1994 ---- ---- ---- Revenues: Sales ....................................... $ 391,546 $ 323,114 $ 246,142 Management and other fees.................... 13,278 11,723 11,004 --------- --------- --------- Total....................................... 404,824 334,837 257,146 --------- --------- ---------- Costs and expenses: Cost of sales and operating expenses ......... 332,406 272,716 206,475 Selling, general and administrative expenses .................................... 39,570 32,054 28,264 Depreciation and amortization ................ 18,492 11,690 8,473 Impairment charges ........................... 5,711 -- -- Merger costs ................................. 2,900 -- -- Interest expense ............................. 5,894 4,344 2,883 Interest income .............................. (352) (859) (331) --------- --------- --------- Total....................................... 404,621 319,945 245,764 Income before income taxes and minority interests ....................... 203 14,892 11,382 Income tax expense ............................ 129 5,317 3,697 Minority interests ............................ (831) (8) 99 --------- --------- --------- Net income .................................... 905 9,583 7,586 Preferred Stock dividends ..................... -- 400 800 --------- --------- --------- Income available for common stockholders ...... $ 905 $ 9,183 $ 6,786 ========= ========= ========= Earnings per share: Primary: Income available for common stockholders ..... $ 0.09 $ 1.35 $ 0.94 Fully diluted: Income available for common stockholders ..... $ 0.09 $ 0.96 $ 0.83
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994 (In thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income .................................................................. $ 905 $ 9,583 $ 7,586 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................. 18,492 11,690 8,473 Impairment charges ....................................................... 5,711 -- -- Deferred income taxes ..................................................... (2,608) (1,954) 358 Minority interests ........................................................ (831) (8) 99 Change in assets and liabilities, net of acquisitions: Accounts receivable ....................................................... (5,724) 4,046 (9,412) Inventories ............................................................... (679) (161) (632) Other assets .............................................................. (10,786) (5,037) 1,060 Accounts payable and accrued expenses ..................................... (5,476) 1,165 2,244 Other long-term liabilities ............................................... 4,066 5,697 968 -------- -------- -------- Net cash provided by operating activities ............................... 3,090 25,021 10,744 -------- -------- -------- Cash flows from investing activities: Purchase of property and equipment .......................................... (64,512) (41,085) (15,233) Proceeds from sale of property and equipment ................................ 434 1,227 477 Investment in, and advances to affiliates ................................... (5,000) (120) (79) Cash paid for acquisitions, net of cash acquired of $0, $175 and $163, respectively ......................................... -- (11,954) (19,259) -------- -------- -------- Net cash used in investing activities .................................... (69,078) (51,932) (34,094) -------- -------- -------- Cash flows from financing activities: Borrowing under line-of-credit agreement .................................... 47,000 30,300 15,669 Repayments of long-term debt and deferred purchase price .................... (1,354) (12,077) (2,575) Proceeds from sale-leaseback facility ....................................... 18,651 5,742 -- Cash proceeds from common stock issuances ................................... -- -- 8,788 Sale of Preferred Stock by subsidiary ....................................... -- -- 1,103 Payment of Preferred Stock dividends ........................................ -- (400) (800) Payment of cash dividends ................................................... -- -- (738) Proceeds from exercise of stock options ..................................... 2,100 801 247 Proceeds from exercise of warrants .......................................... 781 -- -- -------- -------- -------- Net cash provided by financing activities ................................. 67,178 24,366 21,694 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ........................ 1,170 (2,545) (1,656) Cash and cash equivalents, beginning of year ................................ 10,538 13,083 14,739 -------- -------- -------- Cash and cash equivalents, end of year ...................................... $ 11,708 $ 10,538 $ 13,083 ======== ======== ========
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994 (Dollars in thousands, except share data)
Preferred Stock Common Stock Capital Total Outstanding Par Outstanding Par In Excess Retained Stockholders' Shares Value Shares Value of Par Earnings Equity Balance, June 26, 1993 (restated) 100,000 $ 1 3,730,395 $ 37 $30,443 $ (3,977) $ 26,504 Effect of Mergers - - 1,678,000 17 878 (976) (81) ------- --- ---------- ---- ------- -------- -------- Balance, June 26, 1993 (as reported) 100,000 1 5,408,395 54 31,321 (4,953) 26,423 Employee stock options exercised - - 43,108 - 173 - 173 Exercise of warrants - - - - 74 - 74 Sale of Common Stock - - 822,236 8 8,780 - 8,788 Common Stock dividends - - - - - (1,072) (1,072) Preferred Stock dividends - - - - - (800) (800) Net income - - - - - 7,586 7,586 ------- --- ---------- ---- ------- -------- -------- Balance, July 2, 1994 100,000 1 6,273,739 62 40,348 761 41,172 Employee stock options exercised - - 37,360 - 339 - 339 Exercise of warrants - - - 1 459 - 460 Shares issued upon conversion of certain Convertible Subordinated Notes, net - - 684,330 7 7,893 - 7,900 Preferred Stock dividends - - - - - (400) (400) Net income - - - - - 9,583 9,583 ------- --- ---------- ---- ------- ------- ------- Balance, July 1, 1995 100,000 1 6,995,429 70 49,039 9,944 59,054 Employee stock options exercised - - 201,920 2 2,098 - 2,100 Exercise of warrants - - - 1 780 - 781 Tax benefits on exercise of stock options - - - - 156 - 156 Shares issued upon conversion of certain Convertible Subordinated Notes, net - - 1,711,482 17 19,834 - 19,851 Shares issued upon conversion of certain Preferred Stock (88,088) (1) 1,957,521 19 - - 18 Shares issued upon repurchase of ADC stock - - 254,548 2 - - 2 Net income - - - - - 905 905 ------- --- ---------- ---- ------- ------- ------- Balance, June 29, 1996 11,912 $ - 11,120,900 $111 $71,907 $10,489 $82,867 ======= === ========== ==== ======= ======= =======
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended June 29, 1996, July 1, 1995 and July 2, 1994 (Dollars in thousands, except per share amounts) 1. Summary of Significant Accounting Policies Basis of Presentation and Business The accompanying consolidated financial statements include the accounts of DAKA International, Inc. and its majority-controlled subsidiaries ("DAKA" or the "Company") including Daka, Inc. ("Daka"), Fuddruckers, Inc. ("Fuddruckers"), Champps Entertainment, Inc. ("CEI" or "Champps"), The Great Bagel and Coffee Company ("Great Bagel and Coffee") and Americana Dining Corp. ("ADC"). The accompanying consolidated financial statements have also been restated to reflect the business combinations accounted for as poolings-of-interest more fully described in Note 2. Significant intercompany balances and transactions have been eliminated in consolidation. The Company is a diversified restaurant company serving customers through a variety of channels. The Company's Fuddruckers and Champps subsidiaries serve customers in casual and upscale restaurant settings, respectively, throughout the United States and in Canada, Mexico, Australia, Europe, and the Middle East. The Company's subsidiary, Great Bagel and Coffee serves coffee, bagels and sandwich items in a cafe setting in western locations of the United States. Restaurant operations are conducted through company-owned and franchised stores. The Company's subsidiary, Daka, is a leading contract foodservice management corporation within the United States. Fiscal Year The Company's fiscal year ends on the Saturday closest to June 30th. For purposes of these notes to the consolidated financial statements, the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 are referred to as 1996, 1995 and 1994, respectively. Fiscal 1996, 1995 and 1994 contain 52, 52 and 53 weeks, respectively. Significant Estimates In the process of preparing its consolidated financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. The primary estimates underlying the Company's financial statements include allowances for potential bad debts on accounts and notes receivable, the useful lives of its assets and recoverability such as property and intangibles, fair values of financial instruments, the realizable value of its tax assets and accruals for health insurance and other matters. Management bases its estimates on certain assumptions, which they believe are reasonable in the circumstances, and while actual results could differ from those estimates, management does not believe that any change in those assumptions in the near term would have a material effect on the Company's consolidated financial position or the results of operation. Concentration of Credit Risk The Company extends credit to its foodservice clients and Fuddruckers' franchisees. The Company's foodservice clients are comprised primarily of schools and colleges, corporate offices, factories, health care facilities and governmental offices located in the United States. The Company has an allowance for uncollectible accounts receivable of $465, $1,268 and $928 at June 29, 1996, July 1, 1995 and July 2, 1994, respectively. The Company recorded bad debt (credits) expense of $(177), $638 and $617 in 1996, 1995 and 1994, respectively, and had write-offs, net of recoveries associated with uncollectible accounts receivable, of $626, $298 and $180 in 1996, 1995 and 1994, respectively. Inventories Inventories consist of food and supplies and are stated at the lower of cost, determined using the first-in, first-out method, or market value. Inventories also include the initial cost of smallwares with replacements charged to expense when purchased. The components of inventories are as follows: 1996 1995 Food and liquor $ 4,990 $ 5,042 Smallwares 3,410 2,906 Supplies 1,719 1,512 ------- ------- $10,119 $ 9,460 ======= ======= Property and Equipment Property and equipment is stated at cost and includes an allocation of the purchase price for assets acquired in connection with the purchase of certain restaurant and foodservice businesses and the cost associated with improvements made at facilities of its foodservice clients. The allocation of the purchase price is generally based upon independent appraisals of the assets acquired. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements, which include improvements made at client facilities, and assets capitalized pursuant to capital lease obligations are amortized over the shorter of the lease term, contract term or the estimated useful life. Useful lives range from 20 to 30 years for buildings and leasehold improvements and three to ten years for equipment. Interest costs incurred during the construction of new, or the expansion and major remodeling of existing restaurants or foodservice facilities are capitalized as a component of the cost of the property. During 1996 and 1995, $725 and $362 of interest costs were capitalized, respectively. There were no interest costs capitalized during 1994. Deferred Financing Costs Costs associated with the sale of the 7% Convertible Subordinated Notes (the "Notes") (see Note 5), as well as costs incurred to obtain new financing, are included in other assets and are amortized over the lives of the related debt instruments which range from three to ten years. A pro rata portion of the net unamortized costs associated with the sale of the Notes is charged against capital in excess of par value as such Notes are converted into Common Stock. Accrued Insurance Costs The Company is self insured for workers' compensation, general liability and various other risks up to specified limits. In addition, the Company is self-insured up to certain limits for risks associated with the healthcare plan provided for its employees. Expenses associated with the workers' compensation and general liability programs are accrued based upon actuarial studies which determine the estimated amount required to cover incurred incidents. Other Long-Term Liabilities Other long-term liabilities are comprised of deferred royalty buydown payments, the liability under the long-term incentive compensation plan, deferred rent liabilities and management's estimate of the non-current portion of the liability related to the Company's workers' compensation and general liability self-insurance program. Deferred Rent Assets and Liabilities Deferred rent assets, included in other assets, represent the difference between the cost and the net proceeds received related to property sold pursuant to sale-leaseback agreements and are amortized on a straight-line basis over the initial term of the lease. For leases which contain rent escalations, the Company records the total rent payable during the lease term on a straight-line basis over the term of the lease. In addition, lease incentive payments received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction of rent expense. Interest Rate Exchange Agreements The Company has only limited involvement with derivative financial investments and does not use such instruments for trading purposes. Derivative financial instruments are used only to manage well-defined interest rate risks. The Company has entered into interest rate exchange agreements (swaps), as a means of managing interest rate risk related to borrowings under the Company's revolving line-of-credit and capital lease facilities. Periodic cash payments either received or paid pursuant to interest rate swap agreements are accrued on a settlement basis and amortized as an adjustment to interest expense over the term of the agreement. Revenue Recognition In addition to recording sales, franchise and royalty fees from its restaurant operations, the Company records revenues from foodservice operations for sales made pursuant to profit and loss contracts (contracts where the Company assumes the risk of loss), and management fees derived from management fee contracts as earned. Sales and related costs of sales made to guests of foodservice clients pursuant to management fee contracts are not reflected in the Company's consolidated statements of income. Franchising and Royalty Income Franchise fees for new franchises are recognized as revenue when substantially all commitments and obligations have been fulfilled, which is generally upon commencement of operations by the franchisee. The Company also enters into development agreements granting franchisees the exclusive right to develop and operate Fuddruckers restaurants in certain territories in exchange for a development fee. Amounts received in connection with such development agreements are recognized as franchise fee revenues when received since the Company is not required to provide any future services and such fees are non-refundable. Franchisees entering into development agreements are also required to execute franchise agreements and pay the standard franchise fee which is sufficient to cover the Company's contractual obligations to the franchisee. To the extent that the Company provides services beyond its contractual obligation, the Company charges the franchisee a fee for such additional services. During 1996, 1995 and 1994, the Company recognized revenues of $3,417, $2,303 and $1,281, respectively, from development and franchise fees. Royalty revenues from franchised restaurants are recognized as revenues when earned in accordance with the respective franchise agreement. Advance payments received in connection with royalty buydown agreements are deferred and recognized at the reduced royalty rate during the royalty buydown period specified in the agreements. The remaining balance of the advance payments is recognized on a straight-line basis over the remaining term of the agreement. During 1996, 1995 and 1994, the Company recognized revenues of $4,289, $3,729 and $3,598, respectively, from royalties. Preopening Expenses Direct incremental preopening costs associated with the opening of new, or the expansion and major remodeling of existing restaurants or foodservice facilities are capitalized and amortized over twelve months. Unamortized preopening costs included in other assets amounted to $3,310 and $1,782 in 1996 and 1995, respectively. Income Taxes The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the carrying value for financial reporting purposes and the tax basis of assets and liabilities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 - "Accounting for Income Taxes". Deferred tax assets and liabilities are recorded using the enacted tax rates expected to apply to taxable income in the years in which such differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities, resulting from a change in tax rates, is recognized as a component of income tax expense in the period that such change occurs. Targeted jobs tax credits and foreign tax credits are treated as a reduction of income tax expense in the year such credits are utilized. Cash Flow Information For purposes of the consolidated statements of cash flows, the Company considers all highly liquid, short-term investments with original maturities of three months or less when purchased to be cash equivalents. Cash payments for interest aggregated $5,119, $4,963 and $2,628 in 1996, 1995 and 1994, respectively. Cash payments for income taxes aggregated $6,025, $5,767, and $4,022 in 1996, 1995 and 1994, respectively. Capital lease obligations of $3,718, $2,326 and $1,674 were incurred when the Company entered into leases for new restaurant and office equipment in 1996, 1995 and 1994, respectively. Significant other non-cash investing and financing transactions are as follows: 1996 The Company issued 254,548 shares of DAKA Common Stock in exchange for each outstanding share of ADC common stock (see Note 3). The Company sold a restaurant with a book value of $1,306, in exchange for a $1,280 promissory note (see Note 3). The Company issued common stock upon the conversion of $20,538 of Notes, increasing Stockholders' Equity by $19,851, net of related unamortized deferred debt issue costs (see Note 5). The Company issued common stock upon the conversion of 88,088 shares, or $8,809, of Preferred Stock. 1995 The Company sold three Fuddruckers restaurants, with an aggregate book value of $1,944, in exchange for various note receivables (see Note 3). The Company issued Common Stock upon the conversion of $8,212 of Notes, increasing Stockholders' Equity by $7,900, net of related unamortized referred debt issue costs. 1994 The Company acquired a Fuddruckers restaurant in exchange for the forgiveness of a $1,005 promissory note. The Company forgave approximately $334 of a $1,072 promissory note from former CEI shareholders. Earnings Per Share Primary earnings per share are computed using the weighted average number of common and common equivalent shares (dilutive options and warrants) outstanding. In addition to the inclusion of common and common equivalent shares, the calculation of fully diluted earnings per share includes the shares issuable upon conversion of the Preferred Stock which amounted to approximately 264,700 and 2,222,200 shares in 1996 and 1995, respectively, and the shares issuable upon conversion of the Notes which amounted to approximately 1,711,500 in 1995. All Notes were converted by the third quarter of 1996 (see Note 6). Fully diluted earnings per share assumes that the Preferred Stock and Notes were converted into Common Stock as of the beginning of the fiscal year unless they are anti-dilutive and reflect the elimination of interest expense related to the Notes, net of the related income tax effect, and the elimination of dividends related to the Preferred Stock. The shares issuable pursuant to the contingent warrant held by the holders of the Preferred Stock are not included in the calculation of fully diluted earnings per share since the issuance of such shares is contingent upon the redemption of the Preferred Stock by the Company. During 1996 a portion of the Preferred Stock and the balance of the Notes were converted into Common Stock by the holders of such securities. Had these conversions taken place at the beginning of 1996, primary earnings per share for 1996 would have been $0.08. The weighted average number of shares used in the computation of per share amounts for 1996, 1995 and 1994 are as follows: 1996 1995 1994 ---- ---- ---- Primary .......... 9,970,748 6,790,534 6,081,750 Fully diluted .... 10,534,929 11,228,339 10,728,068 Impairment of Long-Lived Assets In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121 - "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires the Company to evaluate the carrying value of long-lived assets including equipment and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Under SFAS No. 121, an assessment is made to determine if the sum of the expected future undiscounted cash flows from the use of the assets and eventual disposition is less than the carrying value. If the sum of the expected undiscounted cash flows is less than the carrying value, an impairment loss is recognized by measuring the excess of carrying value over fair value (generally estimated by projected future discounted cash flows from the applicable operation or independent appraisal). In the third quarter of 1996, the Company adopted the provisions of SFAS No. 121 which resulted in a noncash pretax charge of approximately $5,711. The provision includes charges for impairments to the carrying value of certain restaurant and foodservice contract assets, reacquired franchise rights, investments and certain other assets. Accounting Pronouncements Not Yet Adopted In October 1995, the FASB issued SFAS No. 123 - "Accounting for Stock- Based Compensation". SFAS No. 123 establishes accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. Under the provisions of No. SFAS 123, effective for the fiscal year beginning June 30, 1996, the Company may either adopt the new fair value-based accounting method or continue the intrinsic value-based method for employee stock-based compensation and provide pro forma disclosures of net income and earnings per share as if the accounting provisions of SFAS No. 123 had been adopted. The Company plans to adopt only the disclosure requirements of SFAS No. 123. The Company generally does not grant options to outsiders, accordingly, the adoption of SFAS 123 is not expected to have a material effect on the Company's consolidated net earnings or cash flows. 2. Merger with Champps Entertainment, Inc. and The Great Bagel and Coffee Company On February 21, 1996, CEI Acquisition Corp., a wholly-owned subsidiary of DAKA, merged with and into Champps whereupon Champps became a wholly-owned subsidiary of DAKA pursuant to an Agreement and Plan of Merger dated October 10, 1995 (the "Merger Agreement"). Under the terms of the Merger Agreement, the Champps common-stock holders exchanged their holdings in Champps' common stock for 2,181,722 shares of DAKA common stock valued at approximately $49,634 on the merger date. On April 3, 1996, the Company merged with The Great Bagel and Coffee Company ("Great Bagel and Coffee") whereby the Company exchanged 339,236 shares of DAKA common stock valued at approximately $8,566 for all outstanding shares of Great Bagel and Coffee common stock (collectively the "Mergers" and the "Merged Companies"). The Mergers have each been accounted for as poolings-of-interests and, accordingly, the consolidated financial statements have been restated to include the accounts of Champps and Great Bagel and Coffee for all periods presented. In connection with the Mergers, in 1996 the Company recorded a charge for merger costs of $2,900. Included in these costs are legal, investment banking and professional fees associated with the transaction, costs associated with combining the operations of previously separate companies and instituting certain operational efficiencies. The following presents the operations of the previously separate companies prior to the consummation of the Mergers:
1996 1995 1994 ---- ---- ---- Revenues: DAKA ....................$ 388,320 (4) $ 320,605 (1) $ 249,795 (1) CEI ..................... 14,253 (2) 12,470 6,849 Great Bagel and Coffee .. 2,251 (3) 1,762 502 --------- --------- --------- $ 404,824 $ 334,837 $ 257,146 ========= ========= ========= Net income (loss): DAKA ....................$ 811 (4) $ 9,116 (1) $ 6,902 (1) CEI ..................... (109)(2) 209 620 Great Bagel and Coffee .. 203 (3) 258 64 --------- --------- --------- $ 905 $ 9,583 $ 7,586 ========= ========= =========
(1) As previously reported (2) For the six-month period ended December 31, 1995 (3) For the nine months ended March 31, 1996 (4) Includes the results of operations of CEI and Great Bagel and Coffee subsequent to December 31, 1995 and March 31, 1996, respectively. Transactions between DAKA and the Merged Companies prior to the Mergers were not significant. The Company has not recorded an adjustment to conform the accounting policies of the Merged companies to DAKA's, as such policies were generally comparable. 3. Acquisition and Disposition Transactions Business transactions accounted for using the purchase method of accounting, present the results of operations and cash flows of the acquired business from the date of acquisition in the Company's consolidated financial statements. The following presents the business acquisitions accounted for as purchases and dispositions occurring during the three-year period ended June 29, 1996: 1994 Transactions On March 29, 1994, the Company acquired a 50% ownership interest in ADC, a newly formed Company which then acquired two Champps restaurants located in Minnesota for a purchase price of $2,800 plus 100,000 shares of ADC Common Stock. In addition, the Company invested $2,800 in ADC in the form of Preferred Stock. The terms of the Preferred Stock provided for an 8% dividend, payable quarterly, mandatory redemption in March 1997 and allowed the Company to convert the Preferred Stock into Common Stock at any time at an initial conversion price of $6 per share. In addition, the Preferred Stock has voting privileges as if converted to Common Stock, giving the Company 57% voting control of ADC; accordingly, ADC has been included in the Company's consolidated financial statement (see 1996 Transactions). On June 7, 1994, Fuddruckers acquired the assets, operations and certain working capital items of nine Fuddruckers restaurants located in Minnesota, Nebraska and Missouri from a franchisee. The purchase price of $6,273 was paid in cash at the closing. Also, during fiscal 1994, in a series of transactions, Fuddruckers and a majority-owned subsidiary acquired three Fuddruckers restaurants and the remaining 50% interest in two restaurants from its joint venture partners. The total purchase price for these five restaurants was $2,382 and consisted of a combination of cash and offsets of notes receivable from the sellers. 1995 Transactions On December 15, 1994, Daka acquired certain assets and foodservice contracts from Rowe, Inc. for a purchase price of $1,378 substantially all of which was paid in cash. On February 1, 1995, Fuddruckers acquired the assets, operations and certain working capital items of a Fuddruckers restaurant in Texas from a franchisee for a purchase price of $623 which was paid in cash. On June 23, 1995, Fuddruckers acquired the assets of four Fuddruckers restaurants located in Canada from a franchisee for a purchase price of $961 and the issuance of a 19% interest in the acquired restaurants to the former franchisee. The purchase price for the four restaurants in Canada consisted of offsets to amounts receivable from the franchisee. On February 8, 1995, Daka acquired an 80.01% general partnership interest in a newly formed limited partnership, Daka Restaurants, L.P. ("DRLP"), in exchange for cash of $10,085. Simultaneously, DRLP acquired substantially all of the assets and foodservice contracts comprising the educational and corporate foodservice business of ServiceMaster Management Services L.P. ("SMMSLP") for a purchase price of approximately $21,117, $10,250 for the foodservice contracts and fixed assets and $10,867 for the working capital assets. The purchase price was comprised of a cash payment of $10,085, the assumption of $806 of liabilities, a deferred payment of $10,226 due on August 8, 1995, and the issuance of a 19.99% limited partnership interest in DRLP to SMMSLP. The deferred payment was paid by DRLP on June 13, 1995 at a discount of $94. In addition, the Company and SMMSLP entered into a Put/Call Agreement related to SMMSLP's limited partnership interest in DRLP which was exercised by SMMSLP subsequent to June 29, 1996 (see Note 10). Also during 1995, the Company sold, at book value which approximated fair market value, three Fuddruckers restaurants located in the Kansas City and Omaha markets for a purchase price of $1,300 substantially all of which is payable in the form of notes receivable collateralized by all of the assets of the restaurants sold. 1996 Transactions On March 31, 1996, the Company entered into separate Stock Purchase Agreements (the "Stock Agreements") with two stockholders of ADC (the "Selling Stockholders") to acquire the 43% voting interest in ADC not held by the Company. Pursuant to the terms of the Stock Agreements, the Company issued 254,548 shares of DAKA common stock valued at $6,427 in exchange for the outstanding shares of ADC common stock. Based upon an independent valuation, the fair market value of the 43% voting interest acquired approximated the consideration given by the Company. On March 31, 1996, the Company sold one of the restaurants to a Selling Stockholder of ADC in exchange for a $1,280 promissory note collateralized by the assets of the restaurant. Interest accrues at the rate of 8.5% per annum and is payable in monthly installments. The note matures on March 31, 2003, at which time the outstanding balance, $1,180, will be due. Based on an independent valuation obtained by the Company, the book value of the restaurant assets sold approximated their fair market value at March 31, 1996. The following pro forma results of operations assume that the 1996 purchase transactions described above occurred at the beginning of 1996, 1995 and 1994. In addition to combining the historical results of operations, the pro forma amounts shown include adjustments for the estimated effect of depreciation, amortization and interest expense associated with such transactions. The pro forma information below does not purport to be indicative of the results of operations that would have actually been achieved if the transactions described above had actually been consummated as of the beginning of 1996, 1995 and 1994. In addition, the pro forma information below does not purport to be indicative of the results of operations which may be achieved in the future.
(Unaudited) 1996 1995 1994 ---- ---- ---- Revenues ..................................... $ 404,824 $382,727 $ 366,706 Net income ................................... $ 692 $ 10,231 $ 8,450 Net income available for common stockholders ......................... $ 692 $ 9,831 $ 7,650 Earnings per share: Primary ...................................... $ 0.07 $ 1.40 $ 1.21 Fully diluted ................................ $ 0.06 $ 0.99 $ 0.89
4. Investments In January 1996, the Company acquired a 16.7% equity interest in the form of convertible redeemable preferred stock (the "Preferred Stock") in La Salsa Holding Co. ("La Salsa"), a franchisor and operator of La Salsa Mexican restaurants for approximately $5,000. Each share of Preferred Stock may be converted into La Salsa's Class D Common Stock at $1.50 per share and is redeemable at face value in installments beginning on March 3, 2000. In addition, the Company received warrants to acquire, within 18 months, shares of convertible redeemable preferred stock representing an additional 13.3% equity interest for approximately $7,100. In addition, the Company entered into a 10-year license agreement with La Salsa to operate La Salsa outlets within certain existing Fuddruckers restaurants whereby the Company will pay a franchise fee, royalty payments equal to 5% of La Salsa gross sales, certain training costs and marketing fund fees for each outlet opened. The Company's investment in La Salsa is accounted for under the cost method of accounting. On March 24, 1994, the Company acquired a 49% interest in Innovative Dining Management, Inc. ("IDM"), a newly formed contract foodservice management company, in exchange for $10 in cash. The Company invested $70 in 1994, an additional $70 in 1995 in the form of Preferred Stock and advanced $50 to IDM in exchange for a long-term note collateralized by all of the assets of IDM. In addition, on December 31, 1994, Daka sold one of its educational foodservice contracts and related assets to IDM at book value in exchange for a note receivable of $329. In the third quarter of 1996, the Company wrote off its investment in and note receivable from IDM in connection with the initial adoption of SFAS 121 (see Note 1). 5. Long-Term Debt The components of long-term debt are as follows:
1996 1995 ---- ---- Borrowings under revolving line-of-credit $ 92,969 $ 45,969 Convertible Subordinated Notes -- 20,538 Notes payable 747 546 Capital lease obligations 6,146 3,976 (see Note 10) ------- ------- 99,862 71,029 Less current portion (1,507) (851) ------- ------- $ 98,355 $ 70,178 ======== ========
During 1996, the Company amended its revolving line-of-credit agreements (the "Amended" and the "June Agreement", collectively the "1996 Agreements") principally to increase the Company's borrowing limit from $75,000 to $150,000, extend the maturity date to June 30, 1999 and amend certain loan covenants. The terms of the 1996 Agreements provided the Company with the option of borrowing on a variable basis at either the bank's base rate, defined as the higher of the Federal Funds Rate plus .25% or the bank's prime rate, (8.25% at June 29, 1996) or on a fixed basis at LIBOR, plus a margin of between .5% and 1.75% (6.56% at June 29, 1996) subject to prospective adjustment if the Company achieved pre-defined levels of debt to consolidated earnings before interest and income taxes. At June 29, 1996, approximately $89,000 of outstanding borrowings had fixed rates expiring through the first quarter of 1997. The Company is charged a commitment fee of .25% per annum on the unused portion of the line-of-credit. The agreement is collateralized by all of the assets of the Company and its wholly-owned subsidiaries and contains various covenants which, among other things, require a minimum level of interest coverage, tangible assets and tangible net worth. The terms of the agreement prohibit the payment of dividends with respect to the Company's Common Stock. Borrowing capacity under the revolving line-of-credit is reduced by any outstanding letters of credit issued by the Company. At June 29, 1996, the Company was not in compliance with its debt service coverage, minimum tangible net worth and fixed charge coverage covenants. On October 15, 1996, the Company obtained a waiver of noncompliance related to such covenants from its lenders. The Company also renegotiated certain terms and conditions of the 1996 Agreements (the "October Agreement"), decreasing the Company's borrowing limit from $150 million to $125 million (reduced by $20 million on June 30, 1997), changing the maturity date to October 1, 1997, restricting restaurant expansion and capital expenditures, and amending certain loan covenants. Borrowing rates were increased to a 3% margin and a 1.75% margin on fixed basis and variable basis borrowings, respectively, and the commitment fee increased to .50% per annum on the unused portion. Costs associated with obtaining and negotiating the Company's October Agreement are expected to approximate $450. At June 29, 1996, the Company has available borrowings under the October Agreement of approximately $22 million. In December 1995, the Company entered into an interest rate swap agreement whereby $3,500 of notional principal amount under a certain financing facility will bear interest at 6.57%. The interest rate swap agreement is effective July 1, 1996 and expires September 1, 2000. The Company also entered into an interest rate swap agreement in August 1995 whereby, effective September 21, 1995, $30,000 of notional principal amount under the Company's revolving line-of-credit agreement will bear interest at 5.96% plus a margin determined in accordance with the terms of the line-of-credit agreement, which effectively sets the interest rate at 7.5%. The swap agreement expires on September 22, 1997. The Company recorded additional interest expense during 1996 totaling approximately $62, pursuant to the swap agreement rate. During 1993, the Company sold $28,750 of 7% Convertible Subordinated Notes ("Notes"). The Notes were scheduled to mature on March 15, 2003 and required semi-annual payments of interest on March 15 and September 15 and were convertible into Common Stock at the option of the Holder, at any time prior to maturity or redemption, at a conversion price of $12 per share, subject to adjustment in certain instances. The Company was permitted to redeem the Notes, in whole or in part, at any time after March 26, 1996. During 1996, $20,484 of Notes were converted into Common Stock by the Holders of such Notes. In connection with the conversion, the Company increased Stockholders' Equity by $19,851, net of related unamortized deferred debt issue costs. Subsequent to the conversion, the Company redeemed the remaining outstanding Notes. The conversion and redemption had no effect on fully diluted earnings per share since the shares issuable per conversion of the Notes were included in the calculation of fully diluted earnings per share. Notes payable include several notes bearing interest ranging from 6% to 11%, require monthly or quarterly payments of principal and interest and mature at various times ranging from July 1996 to July 2002. Maturities of long-term debt, including capital lease obligations, are as follows: 1997 .................. $ 1,507 1998 .................. 94,474 1999 .................. 1,565 2000 .................. 1,300 2001 .................. 991 Thereafter ............ 25 ------- $99,862 ======= 6. Convertible Preferred Stock In January 1992, the Company sold, for $10,000 in cash, 100,000 shares of Series A Convertible Preferred Stock ("Preferred Stock"), which may be redeemed, in whole or in part, at any time at the Company's option. The Preferred Stock is convertible at any time into a number of shares of Common Stock to be determined by multiplying the number of shares of Preferred Stock to be converted by $100 and dividing the result by a specified conversion price. The initial conversion price of $4.50 per share would result in the issuance upon conversion of 2,222,222 shares of Common Stock. The terms of the Preferred Stock require that the Company pay dividends semi-annually at the rate of 8% per annum, provided however, that no such dividends will be payable if for at least 30 trading days during the previous six-month period the per share price of the Common Stock attains certain minimum levels. The minimum levels were not attained during each of the three six-month periods ended December 30, 1994 resulting in the payment of $800 and $400 in dividends for fiscal 1994 and fiscal 1995, respectively. The minimum levels were attained in periods subsequent to December 31, 1994 and accordingly, no dividends were required to be paid.. During the six-month period June 29, 1996, the 30 day minimum per share price of the Common Stock was $20.00, and increases at the rate of approximately 10% every six months thereafter until June 30, 2000. In addition, initial Holders of the Preferred Stock were issued contingent warrants to purchase 2,222,222 shares of Common Stock at $4.50 per share. The contingent warrants expire on January 30, 2002 and may be exercised in whole or in part only upon redemption of the Preferred Stock by the Company. During 1996, Holders of 88,088 shares of the Preferred Stock converted such shares into 1,957,521 shares of Common Stock resulting in the expiration of 1,957,521 contingent warrants. The conversion had no effect upon fully diluted earnings per share as these shares were included in the calculation of fully diluted earnings per share. The Holders of the Preferred Stock were entitled to elect two directors of the Company, so long as more than 50% of the Preferred Stock originally issued remained outstanding, and one director so long as 25% of the Preferred Stock originally issued remained outstanding. In addition, the Holders of the Preferred Stock were entitled to vote on all matters submitted to the Company's Stockholders for a vote. Each share of Preferred Stock is entitled to one vote for each share of Common Stock issuable upon conversion of the Preferred Stock at the time the vote is taken. Upon any liquidation of the Company, the Holders of Preferred Stock are entitled to be paid an amount equal to $100 per share plus accrued and unpaid dividends before any payment to the Holders of Common Stock. Additionally, any sale or issuance of Common Stock by the Company or its Stockholders which results in another person owning more than 50% of the Common Stock is an event of default which reduces the conversion price then in effect by 50%. The terms of the Preferred Stock Certificate of Designation require the Company to comply with certain conditions. In the event of the Company's failure to pay dividends, redeem the Preferred Stock when required, achieve a specified market price for the Common Stock during 1997-1999, voluntary bankruptcy or insolvency, the Certificate of Designation provides for a reduction in the conversion price of the Preferred Stock of up to 40%, an additional 2% added to the annual dividend rate, and in the event of voluntary bankruptcy, immediate redemption and the right to elect an additional director who would be entitled to cast a number of votes equal to the sum of the number of votes entitled to be cast by all other directors plus one, depending on the nature of the event of noncompliance. 7. Other Assets The components of other assets are as follows: 1996 1995 ---- ---- Goodwill ....................... $ 23,698 $ 23,548 Other .......................... 17,791 13,056 -------- -------- 41,489 36,604 Less accumulated amortization .. (8,772) (5,162) -------- -------- $ 32,717 $ 31,442 ======== ======== 8. Accrued Expenses The components of accrued expenses are as follows: 1996 1995 ---- ---- Salaries, wages and related taxes ... $ 6,596 $ 6,195 Taxes ............................... 2,394 2,787 Insurance ........................... 2,111 3,096 Other ............................... 4,009 6,125 ------- ------- $15,110 $18,203 ======= ======= 9. Income Taxes In 1994, the Company changed its method of accounting for income taxes by adopting SFAS No. 109 - "Accounting for Income Taxes". Prior to 1994, the Company accounted for income taxes pursuant to SFAS No. 96, "Accounting for Income Taxes". The Company elected to record the effect of adopting SFAS No. 109 in 1994's consolidated financial statements rather than by restating prior years' consolidated financial statements. The adoption of SFAS No. 109 had no material impact on net income and earnings per share. Income tax expense is comprised of the following: 1996 1995 1994 ---- ---- ---- Income before extraordinary gain: Currently payable: Federal ................................. $ 2,025 $ 5,403 $ 2,312 State ................................... 712 1,868 1,027 ------- ------- ------- 2,737 7,271 3,339 ------- ------- ------- Deferred income tax (benefit) expense ... (2,608) (1,954) 358 ------- ------- ------- Income tax expense ...................... $ 129 $ 5,317 $ 3,697 ======= ======= ======= Deferred tax assets and liabilities are comprised of the following: Asset (Liability) 1996 1995 Current: Inventories $ (368) $ (284) Accrued expenses 528 566 Prepaid expenses (1,429) (1,091) Net operating loss carryforwards 327 342 Other 155 231 ------- ------- (787) (236) ------- ------- Noncurrent: Net operating loss carryforwards 2,820 2,760 Impairment charges 1,766 -- Depreciation and amortization (272) 263 Deferred income 194 255 Accrued expenses 2,205 1,909 Less valuation allowance (1,227) (2,860) ------- ------- 5,486 2,327 ------- ------- $ 4,699 $ 2,091 ======= ======= The following is a reconciliation of income taxes at the federal statutory rate to the Company's income tax expense: 1996 1995 1994 ---- ---- ---- Income taxes computed at statutory federal income tax rates $ 352 $ 5,215 $ 3,949 Non-deductible merger costs 986 -- -- Non-deductible goodwill amortization 406 -- -- State income taxes, net of federal tax benefit 318 949 773 Net operating loss carryforwards -- -- (408) Reduction of valuation allowance (1,633) (171) (320) Income tax credits -- (414) (723) Other, net 300 (262) 426 ------- ------- ------- Income tax expense $ 129 $ 5,317 $ 3,697 ------- ------- ------- Effective tax rate 12.5% 35.7% 32.8% ======= ======= ======= As of June 29, 1996, the Company had federal net operating loss carryforwards of approximately $9,250 expiring at various dates through 2011. Approximately $6,500 of the losses are related to Fuddruckers and $2,750 are related to Fuddruckers' 63% owned subsidiary, Atlantic Restaurant Ventures, Inc. ("ARVI"). Fuddruckers' net operating loss carryforwards are limited in use to $922 annually and can only be used to offset taxable income of Fuddruckers. ARVI's net operating loss carryforwards can only be used to offset taxable income of ARVI, of which $1,550 of the $2,750, is limited in use to $129 annually. In 1995 and 1994, the Company provided a valuation allowance for the tax benefit of Fuddruckers' and ARVI's net operating loss carryforwards not expected to be utilized in the succeeding year based on historical operating results and other available evidence. In 1996, as a result of changes to the realization estimate of Fuddruckers' net operating loss carryforwards, the Company reversed the valuation allowance relating to Fuddruckers' net operating loss carryforwards and reported an income tax benefit of $1,935. This tax benefit was offset, in part, by a $302 increase in the valuation allowance related to ARVI. During 1995,the valuation allowance was reduced by $342 relating to the net operating losses expected to be utilized by Fuddruckers in 1996. This decrease in the valuation allowance was offset, in part, by a $171 increase resulting from net operating loss incurred by ARVI in 1995. 10. Commitments and Contingencies Leases The Company has entered into lease agreements for certain restaurant facilities and office space. The fixed terms of the leases range up to 20 years and, in general, contain multiple renewal options for various periods ranging from 5 to 25 years. Certain leases contain provisions which require additional payments based on sales performance and the payment of common area maintenance charges and real estate taxes. In addition, the Company's foodservice contracts, which may be canceled by either party upon 30 to 90 days notice provide for the payment of various forms of rent. Finally, the Company also leases certain restaurant and computer equipment under operating leases which expire at various dates through June, 2001. In October 1995, Fuddruckers obtained a commitment for a $25,000 sale-leaseback financing facility from Franchise Finance Corporation of America ("FFCA"). Pursuant to the terms of the facility, Fuddruckers will sell and lease back from FFCA up to 20 Fuddruckers restaurants to be constructed, in which Fuddruckers has an ownership interest in the real estate and will pay a commitment fee of 1.5% of the sale price of each property sold to FFCA. The sale price is limited to the lesser of 80% of the fair market value of the property or $1,250. The unused commitment, if any, expires on October 31, 1996. The leases provide for a fixed minimum rent plus additional rent based on a percentage of sales and provide for an initial lease term of 20 years with two 5-year renewal options exercisable at the option of Fuddruckers. The terms and conditions of the sale-leaseback are such that they do not meet the criteria for treatment as capital leases under SFAS No. 13 - "Accounting For Leases. As of June 29, 1996, 11 Fuddruckers restaurants have been sold to FFCA and approximately $11.8 million of the commitment was available for use. The Company is currently negotiating future financing commitments with FFCA. In December 1995, CEI obtained a commitment for a $40,000 development and sale-leaseback financing facility from AEI Fund Management, Inc. ("AEI"). Pursuant to the terms of the agreement, CEI will sell and lease back from AEI Champps restaurants to be constructed, in which CEI has an ownership interest in the real estate and will pay a commitment fee of 1% of the sale price of each property sold to AEI. The purchase price will be equal to the total project cost of the property, as defined in the agreement, not to exceed its appraised value (the "Purchase Price"). The unused commitment, if any, expires on December 6, 1997. The leases, to be guaranteed by DAKA, provide for a fixed minimum rent based on a percentage of the respective property's Purchase Price, subject to subsequent CPI-based increases. The leases also provide for an initial term of 20 years with two 5-year renewal options exercisable at the option of CEI. The terms and conditions of the sale-leaseback are such that they do not meet the criteria for treatment as capital leases under SFAS No. 13. As of June 29, 1996 no Champps restaurants have been sold to AEI. In December 1995, the Company obtained a $3,500 capital lease facility from Chase Equipment Leasing, Inc. ("Chase"). The lease provides for fifty-one consecutive monthly rental payments, based on the total of all progress payments made by Chase, commencing on or before July 1, 1996. Interest accrues at the LIBOR rate plus 1%. As of June 29, 1996, there were no borrowings under this facility. In January, 1996, CEI obtained a $5,000 capital lease facility from a third party lender to fund the cost of certain restaurant, audio/visual and point of sale equipment related to new restaurant construction. The lease facility has a five-year term and an implicit interest rate of 10.2%. As of June 29, 1996, approximately $4,000 of the lease facility commitment was available for use. Total rent expense including payments made pursuant to foodservice contracts in 1996, 1995 and 1994 amounted to $27,240, $22,058 and $17,696, respectively. Total contingent rentals included in rent expense amounted to $4,889, $3,165 and $1,262, respectively. Included in property and equipment in 1996, 1995 and 1994 are $6,213, $4,841 and $1,413, respectively, of equipment held pursuant to capital lease arrangements. The related accumulated amortization was $1,413, $770 and $555, respectively. Capital lease additions for equipment totaled $3,718, $2,326 and $1,674, in 1996, 1995 and 1994, respectively. Future minimum lease payments pursuant to leases with noncancelable lease terms in excess of one year during each of the next five years and thereafter are as follows: Years Operating Capital Ending Leases Leases 1997 ............................................. $ 16,965 $ 1,743 1998 ............................................. 16,703 1,661 1999 ............................................. 15,876 1,651 2000 ............................................. 15,085 1,279 2001 ............................................. 14,825 633 Thereafter ....................................... 101,482 63 -------- -------- Total future minimum lease payments .............. $180,936 7,030 ======== ======== Less amount representing interest ................ (884) -------- Present value of future minimum lease payments ... $ 6,146 ======== Put/Call Agreements On October 22, 1993, Fuddruckers entered into an agreement with a partnership affiliated with the president of a majority-owned subsidiary of Fuddruckers pursuant to which the partnership has agreed to purchase substantially all shares of common stock of the subsidiary not currently owned by Fuddruckers. The partnership also invested $1,100 in shares of the subsidiary's preferred stock. Additionally, Fuddruckers and the partnership entered into a Put/Call Agreement whereby Fuddruckers has an option to purchase and the partnership has the right to require Fuddruckers to purchase all the common and preferred stock of the subsidiary owned by the partnership for a purchase price of $5,400 plus a premium based on the subsidiary's future financial performance. The put/call option is exercisable by either Fuddruckers or the partnership between March 15, 1999 and February 15, 2000. On the date of the Put/Call Agreement the fair market value of the subsidiary's common stock plus the redemption value of the preferred stock was greater than the present value of the put/call price of $5,400 based upon an independent valuation of the common stock obtained by the Company from an investment banking firm. Similarly, at June 29, 1996, based upon an independent valuation, the value of the common and preferred stock was in excess of the present value of the put/call price. In connection with the acquisition by DRLP, the Company and SMMSLP entered into a Put/Call Agreement whereby SMMSLP is permitted to require the Company to purchase its limited partnership interest in DRLP anytime during the ten-year term of the partnership for a purchase price equal to $2,600 plus SMMSLP's portion of any net undistributed earnings of DRLP. In addition, the Company is permitted to require SMMSLP to sell its limited partnership interest to the Company at any time after February 8, 2000 for a purchase price of 120% of the sum of (i) $2,600 and (ii) SMMSLP's portion of any net undistributed earnings of DRLP. On July 13, 1996, SMMSLP exercised its Put right pursuant to the provisions of the Put/Call Agreement. Purchase Commitments In July 1995, the Company entered into a five year Exclusive Coffee Manufacturing Agreement (the "Coffee Agreement") with a third party supplier of ground and whole bean coffees, including flavored and gourmet coffee products. Purchase prices to be paid by the Company are based on commodity market exchange prices. At June 29, 1996, the Company's commitment under the Coffee Agreement is approximately $11,883. Litigation In certain circumstances, where management and legal counsel believe that a loss has been incurred, the Company has recorded an estimate of such loss. The Company is also engaged in various other legal actions arising in the ordinary course of business which, in the judgment of management based upon consultation with legal counsel, the Company has adequate legal defenses or insurance coverage with respect to these actions or believes that the ultimate outcome will not have a material adverse affect on the Company's consolidated financial position, results of operations or cash flows. 11. Stock Options and Employee Benefit Plans Stock Options The Company has an Incentive Stock Option Plan, a Non-Qualified Stock Option Plan and two senior executive stock option plans (the "Plans"). The Plans provide for the granting of options to purchase an aggregate of 1,250,000 shares of Common Stock. As of June 29, 1996, there were 71,530 shares reserved for issuance under the Plans. Under the Plans, options may be granted for a term of up to ten years to eligible employees at an exercise price equal to the fair market value of the Common Stock on the date of the grant. At June 29, 1996, 539,146 options to purchase shares of Common Stock under the Plans were exercisable. The activity related to all stock options issued under the Plans referred to above is summarized as follows: Number of Exercise Price Shares Per Share ------ --------- Outstanding, June 26, 1993 299,985 $ 2.50 - 11.75 Options granted 268,378 9.88 Options exercised (43,108) 2.50 - 11.75 Options canceled (6,125) 2.50 - 11.75 -------- Outstanding, July 2, 1994 519,130 2.50 - 11.75 ======== Options granted 154,905 12.88 - 17.37 Options exercised (37,360) 2.50 - 12.88 Options canceled (22,020) 2.50 - 11.75 -------- Outstanding, July 1, 1995 614,655 2.50 - 17.37 ======== Options granted 530,635 11.05 - 35.94 Options exercised (201,920) 2.50 - 28.63 Options canceled (53,180) 2.50 - 28.63 -------- Outstanding, June 29, 1996 890,190 2.50 - 35.94 ======== Employee Benefit Plans The Company sponsors a 401(k) retirement plan for the benefit of its nonunion Associates. The Plan enables Associates to contribute up to 15% of their annual compensation. The Company makes discretionary contributions to the Plan. The Company contributed $305, $375 and $0 to the Plan in 1996, 1995 and 1994, respectively. Effective July 3, 1994, the Company implemented a long-term incentive compensation plan for its Chief Executive Officer whereby a portion of the increase in the market value of the Company's Common Stock over predefined amounts, is payable in either cash or stock at the option of the Company. Amounts payable under the plan vest on June 30, 1997. At June 29, 1996, $1,221 had been accrued representing a pro rata portion of the amount expected to be payable under the plan based on the market value of the Company's Common Stock on June 29, 1996. During 1995, the Company's Board of Directors and stockholders approved the Equity Incentive Plan for its senior management whereby stock options will be issued at not less than fair market value and will vest three years from the grant date. The Company granted approximately 300,000 options under this plan in 1996. There were no options granted under this plan during 1995. 12. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. The following methods and assumptions were used to estimate the fair value of the Company's financial instruments for which it was practicable to estimate that value: Current Assets and Liabilities - The carrying amount of cash, trade receivables, trade accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. Notes Receivable - The carrying value of notes receivable approximates fair value and were estimated based on discounted cash flows expected to be received using interest rates at which similar loans are made to borrowers with similar credit ratings, or if the loan is collateral dependent, management's estimate of the fair value of the collateral. Long-term Debt - The fair values of each of the Company's long-term debt instruments approximates the carrying values since the interest rates are generally floating or fixed for a period of short duration and are based on prevailing market rates. Interest Rate Swaps - The fair value of interest rate swaps is the amount at which they could be settled based on estimates obtained from dealers. The amount required to settle outstanding interest rate swaps at June 29, 1996 and July 1, 1995 was approximately $60 and $4, respectively. 13. Segment Information Income from foodservice, restaurant and franchising operations have been determined applying the accounting policies in Note 1. Revenue and costs as shown below are directly related to each business and do not include an allocation of corporate expenses, non-operating income, interest expense and income taxes. There are no sales among the Company's three businesses. The table below presents certain financial information for the Company's contract foodservice, Fuddruckers and Champps businesses, for 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Total Revenues: Sales from profit and loss contracts ........................... $ 218,361 $ 193,154 $ 150,839 Management and other fees ...................................... 6,148 5,715 6,132 Restaurant sales - Fuddruckers ................................. 131,592 110,703 87,030 Franchising income - Fuddruckers ............................... 6,575 5,372 4,318 Restaurant sales - Champps ..................................... 41,593 19,257 8,273 Franchising income - Champps ................................... 555 636 554 --------- --------- --------- Total revenues ............................................... $ 404,824 $ 334,837 $ 257,146 ========= ========= ========= Foodservice: Sales from profit and loss contracts ........................... $ 218,361 $ 193,154 $ 150,839 Operating expenses: Labor costs ................................................... 74,554 65,481 51,814 Product costs ................................................. 78,666 69,964 53,199 Other operating expenses ...................................... 33,137 30,581 23,274 Depreciation and amortization ................................. 5,665 4,509 3,398 Impairment charges ............................................ 3,198 -- -- Merger costs .................................................. 300 -- -- --------- --------- --------- Income from profit and loss contracts .......................... 22,841 22,619 19,154 Management and other fees ...................................... 6,148 5,715 6,132 --------- --------- --------- Income from foodservice operations ............................. 28,989 28,334 25,286 --------- --------- --------- Fuddruckers: Sales from restaurant operations ............................... 131,592 110,703 87,030 Operating expenses: Labor costs ................................................... 38,137 31,889 25,034 Product costs ................................................. 37,146 30,785 24,209 Other operating expenses ...................................... 35,582 28,504 22,358 Depreciation and amortization ................................. 7,953 5,273 4,029 Impairment charges ............................................ 2,450 -- -- --------- --------- --------- Income from restaurant operations .............................. 10,324 14,252 11,400 Franchising income ............................................. 6,575 5,372 4,318 --------- --------- --------- Income from restaurant and franchising operations .............. 16,899 19,624 15,718 --------- --------- ---------
1996 1994 1995 ---- ---- ---- Champps: Sales from restaurant operations ............................. 41,593 19,257 8,273 Operating expenses: Labor costs ................................................. 13,797 5,971 2,600 Product costs ............................................... 11,981 5,590 2,318 Other operating expenses .................................... 9,406 3,951 1,669 Depreciation and amortization ............................... 3,596 1,056 277 Impairment charges .......................................... 63 -- -- Merger costs ................................................ 2,600 -- -- -------- -------- -------- Income from restaurant operations ............................ 150 2,689 1,409 Franchising income ........................................... 555 636 554 -------- -------- -------- Income from restaurant and franchising operations ............ 705 3,325 1,963 -------- -------- -------- Income from operations before selling, general and administrative expenses .......................... 46,593 51,283 42,967 Selling, general and administrative expenses (1) ............. 40,848 32,906 29,033 -------- -------- -------- Operating income ............................................. 5,745 18,377 13,934 Interest expense ............................................. 5,874 4,344 2,883 Interest income .............................................. (352) (859) (331) Income before income taxes and minority interests ............ 203 14,892 11,382 Income tax expense ........................................... 129 5,317 3,697 Minority interests ........................................... (831) (8) 99 -------- -------- -------- Net income ................................................... $ 905 $ 9,583 $ 7,586 ======== ======== ========
(1) Selling, general and administrative expenses include depreciation expense on corporate assets of $1,278, $852 and $769 in 1996, 1995 and 1994, respectively. Corporate assets include cash and cash equivalents, computer equipment and deferred income taxes. The following table presents certain balance sheet information for the Company's foodservice, Fuddruckers and Champps subsidiaries: 1996 1995 1994 ---- ---- ---- Foodservice: Total assets $ 80,844 $ 74,703 $ 49,376 Capital expenditures 7,530 6,684 6,263 Fuddruckers: Total assets 104,177 83,834 62,178 Capital expenditures 41,231 29,011 8,941 Champps: Total assets 27,387 15,729 13,183 Capital expenditures 13,771 5,309 671 Corporate: Total assets 19,149 6,587 4,242 Capital expenditures 5,698 2,407 1,032 15. Quarterly Results (Unaudited) The following unaudited quarterly financial data should be read in conjunction with the audited consolidated financial statements, related notes and Management's Discussion and Analysis of Results of Operations and Financial Condition:
First Second Third Fourth Quarter Quarter Quarter Quarter Total 1996: Revenues ................................... $ 93,514 $ 108,191 $ 103,214 $ 99,905 $ 404,824 Gross profit ............................... 14,323 17,177 4,389 10,704 46,593 Income (loss) before income taxes and minoritt interests..................... 3,662 5,996 (7,621) (1,834) 203 Net income (loss) .......................... 2,255 3,816 (5,528) 362 905 Net income: Primary .................................. 0.27 0.38 (0.56) 0.03 0.09 Fully diluted ............................ 0.22 0.35 (0.56) 0.03 0.09 1995: Revenues ................................... $ 67,102 $ 81,007 $ 90,145 $ 96,583 $ 334,837 Gross profit ............................... 10,814 13,070 13,089 14,310 51,283 Income before income taxes ................. 2,631 4,231 3,735 4,295 14,892 Net income ................................. 1,697 2,796 2,384 2,706 9,583 Net income: Primary .................................. 0.26 0.37 0.35 0.38 1.35 Fully diluted ............................ 0.18 0.28 0.24 0.26 0.96
Certain amounts related to the third quarter of 1996 have been reclassified to reflect further analysis performed by the Company to the amount provided as of March 30, 1996, related to the adoption of SFAS No. 121 and the write-down of reacquired franchise rights, investments and other assets. Such reclassifications have the effect of reducing the amounts reported as "impairment and other charges" as of March 30, 1996 by approximately $2,250 and increasing the amount reported as "cost of sales and operating expenses" by approximately $2,250. The reclassifications had no effect on the reported gross profit, income before income taxes and minority interests, net income or primary and fully diluted earnings per share for the quarter ended March 30, 1996. EX-11.1 2 Exhibit 11 DAKA INTERNATIONAL, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
Years Ended ----------------- June 29, July 1, July 2, 1996 1995 1994 ---- ---- ---- Primary: Net income 905 9,583 7,586 Net income available to common stockholders 905 9,183 6,786 ------ ------ ------ Weighted average number of shares outstanding 9,624 6,530 5,909 Weighted average number of options outstanding 347 260 173 ------ ------ ------ 9,971 6,790 6,082 ====== ====== ====== Primary earnings per share: Net income available to common stockholders 0.09 1.35 1.12 ====== ====== ====== Fully Diluted: Net income available to common stockholders 905 9,183 6,786 Add back dividend on Preferred Stock -- 400 800 Add back interest expense on Convertible Notes, after tax effect -- 1,147 1,324 ------ ------ ------ 905 10,730 8,910 ------ ------ ------ Weighted average number of shares outstanding 9,924 6,973 5,909 Weighted average number of options outstanding 347 321 201 Shares issuable upon conversion of Preferred Stock 264 2,222 2,222 Shares issuable upon conversion of Notes -- 1,712 2,396 ------ ------ ------ 10,535 11,228 10,728 ====== ====== ====== Fully diluted earnings per share: Net income 0.09 0.96 0.83 ====== ====== ======
EX-2.2 3 SERIES D CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT LA SALSA HOLDING CO., a Delaware corporation January 12, 1996 TABLE OF CONTENTS Exhibit A Amended and Restated Certificate of Incorporation Exhibit B Form of Series D Convertible Preferred Stock Warrant Exhibit C Fourth Amended and Restated Restricted Stock Agreement Exhibit D Fourth Amended and Restated Registration Rights Agreement Exhibit E Opinion of Brobeck, Phleger & Harrison Schedule 1.1 Schedule of Investors Schedule 2 Schedule of Exceptions Schedule 2.4(c) Schedule of Shareholders Schedule 2.13 Patents and Trademarks SERIES D CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT THIS SERIES D CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT is made as of the 12th day of January, 1996, by and among La Salsa Holding Co., a Delaware corporation (the "Company"), and each of the Investors listed on Schedule 1.1 hereto (each of which is herein referred as an "Investor"). THE PARTIES HEREBY AGREE AS FOLLOWS: Purchase and Sale of Stock and Warrants Sale and Issuance of Stock The Company has adopted and filed with the Secretary of State of Delaware the Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate"). Subject to the terms and conditions of this Agreement, each Investor agrees, severally, to purchase at the Closing and the Company agrees to sell and issue to each Investor at the Closing, that number of shares of the Company's Series D Convertible Preferred Stock set forth opposite each Investor's name on Schedule 1.1 hereto for the purchase price set forth thereon. Sale and Issuance of Warrants Subject to the terms and conditions of this Agreement, each Investor agrees, severally, to purchase at the Closing and the Company agrees to sell and issue to each Investor at the Closing, a warrant, in the form attached hereto as Exhibit B (a "Warrant"), to purchase that number of shares of the Company's Series D Convertible Preferred Stock set forth opposite such Investor's name on Schedule 1.1 hereto (the "Warrant Shares") at an exercise price of $1.50 per share for the purchase price set forth opposite such Investor's name on Schedule 1.1 hereto. Closing The purchase and sale of the Series D Convertible Preferred Stock and the Warrants shall take place at the offices of Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, by mail or facsimile transmission, or by deposit in and release from escrow of this Agreement and the consideration, instruments and documents contemplated hereby, on the date hereof or at such other time and place and in such other manner as the Company and each of the Investors mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to each Investor certificates representing the Series D Convertible Preferred Stock which such Investor is purchasing andan executed Warrant representing the warrant such Investor is purchasing against payment of the purchase price therefor by check, wire transfer, cancellation of indebtedness, or any combination thereof. In the event that payment by an Investor is made, in whole or in part, by cancellation of indebtedness, then such Investor shall surrender to the Company for cancellation at the Closing any evidence of such indebtedness or shall execute an instrument of cancellation in form and substance acceptable to the Company. Representations and Warranties of the Company Except as otherwise set forth in the applicable section of Schedule 2 hereto, the Company hereby represents and warrants to each Investor that: Organization, Good Standing and Qualification The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. La Salsa Franchise, Inc. ("Franchise") is a wholly owned subsidiary of the Company duly organized, validly existing and in good standing under the laws of the State of California (Franchise hereinafter shall be referred to as the "Subsidiary"). Each of the Company and the Subsidiary is qualified to do business as a foreign corporation in every other jurisdiction in which the failure to so qualify would have a material adverse effect on the business of the Company or the Subsidiary. Each of the Company and the Subsidiary has the requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted. The Company has previously delivered to the Investors true and accurate copies of the Company's and the Subsidiary's respective Restated Certificate (or Articles) of Incorporation, as amended, and Bylaws, as presently in effect. Corporate Power The Company has all requisite legal and corporate power and authority to enter into this Agreement and to sell the shares of Series D Convertible Preferred Stock pursuant to Section 1, and to carry out and perform its other obligations under the terms of this Agreement. Subsidiaries and Affiliates Except for the Subsidiary, the Company does not own or control, directly or indirectly, any other interest or investment in any corporation, partnership, association or other form of business entity. Capitalization The authorized capital of the Company consists of: Class A Common Stock. 33,300,000 shares of $.001 par value Class A Common Stock, of which 135,666 shares are issued and outstanding as of the Closing. Class B Common Stock. 1,000,000 shares of $.001 par value Class B Common Stock (collectively with the Class A Common Stock, the "Common Stock"), none of which are issued and outstanding as of the Closing. Preferred Stock. 29,300,000 shares of $.01 par value Preferred Stock (the "Preferred Stock"), of which 10,200,000 have been designated Series A Convertible Preferred Stock, 10,100,000 of which are issued and outstanding as of the Closing, 4,800,000 have been designated Series B Convertible Preferred Stock, 4,633,333 of which are issued and outstanding as of the Closing, 1,500,000 have been designated Series C Convertible Preferred Stock, 1,333,333 of which are issued and outstanding as of the Closing, and 12,800,000 have been designated Series D Convertible Preferred Stock, 3,137,092 of which are issued and outstanding as of the Closing. The rights, privileges and preferences of all of the Series A, B, C and D Convertible Preferred Stock are as stated in the Restated Certificate. All such issued and outstanding shares referred to in Sections 2.4(a), 2.4(b) and 2.4(c) above are duly authorized and validly issued, are fully paid and nonassessable, are owned beneficially and of record by the shareholders and in the amounts set forth in Schedule 2.4(c)(1) ("Schedule of Shareholders") attached hereto, and have been offered, issued, sold and delivered by the Company in compliance with applicable federal and state securities laws. Except for (i) the warrant dated February 20, 1993, initially to purchase 100,000 shares of Common Stock issued to Foothill Capital Corporation (the "Foothill Warrant"), (ii) the option to purchase 41,000 shares of Common Stock issued to Dick Campbell, (iii) the option to purchase 20,000 shares of Common Stock issued to Victoria Tanner ,(iv) currently outstanding options to purchase 2,455,737 shares of Common Stock granted to employees pursuant to the Stock Option Plan for Executive and Key Employees of La Salsa Holding Co. (the "Option Plan"), (v) the conversion privileges of the Series A, B, C and D Convertible Preferred Stock and (vi) the rights provided in Section 8 of that certain Fourth Amended and Restated Restricted Stock Agreement of even date herewith, by and among the Company and certain of its stockholders, the form of which is attached hereto as Exhibit C (the "Restricted Stock Agreement"), there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. In addition to the aforementioned options, the Company has reserved an additional 276,417 shares of its Common Stock for purchase upon exercise of options to be granted in the future under the Option Plan. Authorization All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Warrants, that certain Third Amended and Restated Registration Rights Agreement of even date herewith, by and among the Company and certain of its stockholders, the form of which is attached hereto as Exhibit D (the "Rights Agreement"), and the Restricted Stock Agreement, the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Series D Convertible Preferred Stock being sold hereunder, the Warrant Shares issuable upon exercise of the Warrants and theCommon Stock issuable upon conversion of the Series D Convertible Preferred Stock being sold hereunder and the Warrant Shares has been taken or will be taken prior to the Closing. This Agreement, the Warrants and the Rights Agreement, when executed and delivered by the Company, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (iii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws. Valid Issuance of Stock The Series D Convertible Preferred Stock being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, and the Warrant Shares, upon exercise of the Warrants in accordance with the terms thereof for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable, shall be free of any liens, claims, encumbrances or other rights of third parties (collectively "Liens") other than those set forth herein, in the Warrants or in the Restricted Stock Agreement, and will have been issued free and clear of any preemptive rights, rights of first refusal or redemption rights of any person. The Common Stock issuable upon conversion of such stock and the Warrant Shares has been duly and validly reserved, and neither it nor the issuance thereof is subject to any preemptive rights or rights of first refusal or redemption rights, and, upon issuance, it will be validly issued, fully paid and nonassessable. Compliance with Laws and Other Instruments The business and operations of each of the Company and Subsidiary have been and are being conducted in all material respects in accordance with all applicable federal, state and local statutes, rules, regulations, ordinances, and orders of any governmental authority, including without limitation, all federal and state statutes and regulations applicable to franchises and all immigration laws or regulations, including the Immigration Reform and Control Act of 1986, as amended and the regulations promulgated thereunder. Further, neither the Company nor the Subsidiary is presently charged with or, to the Company's knowledge, under governmental investigation with respect to, any actual or alleged violation of any of the foregoing and is not presently the subject of any pending or threatened adverse proceeding by any regulatory authority having jurisdiction over its business, properties or operations. The execution, delivery and performance by the Company of this Agreement, the Warrants, the Rights Agreement and the Restricted Stock Agreement: will not require from the Board of Directors or stockholders of the Company any consent or approval except as have been obtained; will not require any authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality of government other than as provided by applicable securities laws; will not cause the Company or Subsidiary to violate or contravene (i) any provision of law presently in effect, (ii) any rule or regulation presently in effect of any agency or government, domestic or foreign, (iii) any order, writ, judgment, injunction, decree, determination or awa presently in effect or (iv) any provision of the respective Restated Certificate or Articles of Incorporation or Bylaws of the Company or the Subsidiary; will not violate or be in conflict with, result in a material breach of or constitute (with or without notice or lapse of time or both) a default under, any material indenture, loan or credit agreement, note agreement, deed of trust, mortgage, security agreement or other material agreement, lease, instrument, commitment or arrangement to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary or any of its material properties, assets or rights is bound or affected (including, without limitation, any stockholders agreement or registration rights agreement in effect prior to the date hereof); will not result in the creation or imposition of any Lien; and will not result in the termination of any license, certificate, permit, franchise or right held by the Company or the Subsidiary. No Brokers or Finders No person or other entity ("Person") has, or as a result of the transactions contemplated herein will have, any right or valid claim against the Company, or the Subsidiary or, to the Company's knowledge, any Investor for any commission, fee or other compensation as a finder or broker, or in any similar capacity. Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. Financial Statements The Company has delivered to each Investor (a) the Company's consolidated unaudited balance sheet (the "Balance Sheet") as of October 31, 1995 (the "Balance Sheet Date") and the unaudited statements of income for the ten-monthperiod then ended and (b) the Company's audited balance sheet and profit and loss statement as of December 31, 1994, together with the related opinion of Deloitte and Touche LLP, independent certified public accountants. These financial statements present fairly the financial condition of the Company and the Subsidiary at the Balance Sheet Date and other dates therein specified and the results of their operations for the periods therein specified, and have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior accounting periods. Changes Except as disclosed on Schedule 2 hereto, since the Balance Sheet Date, neither the Company nor the Subsidiary has: discharged or satisfied any material Liens other than those securing current liabilities in the ordinary course of business consistent with past practice; paid any material obligation or liability other than current liabilities in the usual and ordinary course of business; mortgaged, pledged, or subjected to or suffered any Liens on any of its material assets, tangible or intangible; sold, transferred or leased any of its material assets except in the usual and ordinary course of business; cancelled or compromised any material debt or claim, or waived or released any material right; suffered any material physical damage, destruction or loss (whether or not covered by insurance); entered into any material transaction other than in the usual and ordinary course of business except for this Agreement; encountered any labor difficulties or labor union organizing activities; declared or paid any dividends on or made any other distributions with respect to, or purchased or redeemed, any of its outstanding capital stock; made any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates theretofore adopted; made any loans to its employees, officers, or directors in excess of $1,000 other than travel advances made in the ordinary course of business; made any extraordinary increases in the compensation of any of its employees, officers, or directors; suffered or caused any other event or condition of any character that has materially and adversely affected its business or prospects; or entered into any agreement, or otherwise obligated itself, to do any of the foregoing. Material Agreements of the Company Except as disclosed on Schedule 2 hereto, neither the Company nor the Subsidiary is a party to any written or oral: agreement with any labor union; agreement for the purchase of material fixed assets or for the purchase of materials, supplies or equipment in excess of normal operating requirements; agreement for the employment of any officer, individual employee or other Person on a full-time basis or any agreement with any Person for consulting services, in each case not terminable at will; bonus, pension, profit sharing, retirement, stock purchase, stock option, deferred compensation, medical, hospitalization or life insurance or similar plan, contract or understanding with respect to any or all of the employees of the Company or the Subsidiary or any other Person; material indenture, loan or credit agreement, note agreement, deed of trust, mortgage, security agreement, promissory note or other agreement or instrument relating to or evidencing indebtedness for borrowed money or subjecting any material asset or property of the Company or the Subsidiary to any Liens or evidencing any material indebtedness; guaranty of any material indebtedness; any agreement to which any stockholder, officer or director of the Company or Subsidiary, or any "affiliate" or "associate" of such persons (as such terms are defined in the rules and regulations promulgated under the federal Securities Act of 1933, as amended (the "Act")) is presen a party which pertains to the furnishing of services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity; lease or agreement other than as described in (g) under which the Company or the Subsidiary is lessee of or holds or operates any property, real or personal, owned by any other Person under which payments to such Person exceed $10,000 per annum; lease or agreement under which the Company is lessor or permits any Person to hold or operate any material property, real or personal, owned or controlled by the Company; agreement obligating the Company or the Subsidiary to pay any royalty or similar charge for the use or exploitation of any tangible or intangible property; covenant not to compete or other restriction on the Company's ability to conduct its business as presently conducted; or agreement other than those described in paragraphs (a)-(k) above that (i) are not cancelable on 30-day notice and (ii) require future expenditures of the Company or its Subsidiary in excess of $100,000 per annum or pursuant to which the Company or such Subsidiary will receive in exc of $200,000 per annum. Tax Returns and Audits All required federal, state and local tax returns of the Company have been prepared and duly and timely filed, and all material federal, state and local taxes required to be paid with respect to the periods covered by such returns have been paid, or the Company has made provision for the payment of the same. There are no outstanding agreements by the Company for the extension of time for the assessment of any tax. The Company is not, and has not been, delinquent in the payment of any material tax, assessment or governmental charge. The Company does not currently have any material tax deficiency proposed or assessed against it, has no knowledge of any proposed liability for any tax to be imposed upon the Company's or the Subsidiary's properties or assets for which there is not adequate reserve in the financial statements referenced in Section 2.9, and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. To the Company's best knowledge, none of the Company's federal income tax returns nor any state income or franchise tax returns has ever been audited by governmental authorities. Patents, Trademarks and Other Intangible Assets The Company and/or the Subsidiary (i) own or have the right to use all patents, trademarks, trade dress, service marks, trade names, copyrights or licenses and rights (collectively herein "Proprietary Rights") which are listed as described, together with any applicable registration numbers and dates, on Schedule 2.13, and which are all of the Proprietary Rights used in or necessary for the conduct of their respective businesses as now conducted, or proposed to be conducted without infringing upon or otherwise acting adverselyto the right or claimed right of any Person under or with respect to any of the Proprietary Rights and (ii) are not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright or other intangible asset, with respect to the use thereof or in connection with the conduct of their businesses. The Company and the Subsidiary own and have the unrestricted right to use all trade secrets, including know-how, inventions, designs, processes, computer programs and technical data and information (collectively herein "intellectual property") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by them, free and clear of any right, lien, or claim of others, including without limitation former employers of its employees; provided however, that the possibility exists that other Persons, completely independently of the Company, the Subsidiary or their respective employees or agents, could have developed intellectual property similar or identical to those of the Company and the Subsidiary. Employment Benefit Plans--ERISA Neither the Company nor the Subsidiary maintains or makes contributions to any pension, profit sharing or other employee pension benefit plan within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Neither the Company nor the Subsidiary has any material liability with respect to any such plan (including, without limitation, any unfunded past service or other liability or any accumulated funding deficiency) or any material liability to the Pension Benefit Guaranty Corporation or under Title IV of ERISA, with respect to a multi-employer pension benefit plan, nor would the Company or the Subsidiary have any such liability if any such plan were terminated or if the Company or such Subsidiary withdrew, in whole or in part, from any multi-employer plan. Title to Property and Encumbrances With only such exceptions as are immaterial individually and in the aggregate, each of the Company and the Subsidiary has good and marketable title to all its properties and assets, including without limitation the properties and assets used in the conduct of its business, except for properties disposed of in the ordinary course of business since the Balance Sheet Date and except for properties held under valid and subsisting leases that are in full force and effect and that are not in default, subject to no Lien, except those reflected on the Balance Sheet or the notes thereto and except for liens for taxes not yet due and other immaterial liens arising in the ordinary course of business and not in connection with borrowed money. Condition of Properties With only such exceptions as are immaterial individually and in the aggregate, all facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by each of the Subsidiary and the Company are in good operating condition and repair and are adequate and sufficient for the Company's and each Subsidiary's business. Insurance Coverage There is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility, insuring the Company and the Subsidiary's respective properties and businesses against such losses and risks, and in such amounts, as are customary in the case of corporations of established reputation engaged in the same or similar business and similarly situated. Neither the Company nor the Subsidiary has been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will be unable to renew its or their existing insurance coverage upon terms at least as favorable as those presently in effect, other than possible increases in premiums that do not result from any act or omission of the Company or such Subsidiary. Litigation Except as disclosed on Schedule 2 hereto, there is no legal action, suit, arbitration or other legal, administrative or other governmental investigation, inquiry or proceeding (whether federal, state, local or foreign) pending or threatened against or affecting the Company, the Subsidiary or their respective properties, assets or businesses. To the best knowledge of the Company, none of the pending proceedings or threatened actions listed on Schedule 2 hereto might result, either in any case or in the aggregate, in any material adverse change in the business or financial condition of the Company and the Subsidiary taken as a whole or any of their properties or assets or in any material impairment of the right or ability of the Company and the Subsidiary to carry on their business as now conducted or as proposed to be conducted, or in any material liability on the part of the Company or the Subsidiary, and none that challenges the validity of this Agreement, the Warrants or any action taken or to be taken in connection herewith. The foregoing includes, without limiting its generality, actions pending or, to the actual knowledge of the Company, threatened (or any threat thereof) involving the prior employment of any of the Company's or the Subsidiary's employees, or their use in connection with the Company's or such Subsidiary's business of any information or techniques allegedly proprietary to any of their former employers. Neither the Company nor the Subsidiary is in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality (whether federal, state, local or foreign). Licenses With only such exceptions as are immaterial individually and in the aggregate, the Company and its Subsidiary possess from the appropriate agency, commission, board and governmental body and authority, whether state, local or federal, all licenses, permits, authorizations, approvals, franchises and rights that are necessary for the Company and its Subsidiary to engage in the business currently conducted and proposed to be conducted by them; and all such certificates, licenses, permits, authorizations and rights have been lawfully and validly issued, are in full force and effect, will not be revoked, cancelled, withdrawn, terminated or suspended and have a term of perpetual existence. Employee Compliance With Prior Agreements To the best knowledge of the Company, no employee of the Company or the Subsidiary is in violation of any terms of any employment contract, patent or trade secret disclosure agreement or any other contract oragreement relating to the right of any such employee to be employed by the Company or such Subsidiary because of the nature of the business conducted or to be conducted by the Company or such Subsidiary. The Company is unaware of any proposed, threatened or actual union organization activity affecting the current or prospective operations of the Company or the Subsidiary. Suppliers Neither the Company nor the Subsidiary has received any notice, and the Company does not otherwise know, that any supplier of the respective businesses of the Company and the Subsidiary has taken or indicated an intent to take any steps that could result in a material increase in costs, or a material restriction of material adverse effect on the ability to acquire any item material to the conduct of their businesses or the operation of any of the assets or properties necessary for the conduct of such businesses. Disclosure; Business Plan No representation or warranty by the Company in this Agreement or in any written statement or certificate furnished to the Investors, or any of them, in connection with the transactions contemplated by this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements made not misleading in light of the circumstances under which they were made. The Company has delivered to Investors the La Salsa 1995 Operating Plan, ("The Plan"). The Plan was prepared in good faith by the Company, on the basis of reasonable assumptions and investigations, to describe the Company's and the Subsidiary's plans, objectives and projected growth. Registration Rights Except as provided in the Foothill Warrant and in the Rights Agreement, the Company is not obligated to register (through either demand registration or piggyback registration) any of its presently outstanding securities or any of its securities that may hereafter be issued pursuant to any existing agreement. Use of Proceeds The proceeds from the sale of the Series D Convertible Preferred Stock shall be used for new restaurant capital expenditures, equipment and leasehold financing, general working capital purposes and in the operation of the Company's business. Registration Rights Agreement To the Company's best knowledge, the Rights Agreement will constitute a valid and legally binding obligation of each of the parties thereto, enforceable in accordance with its terms, except (i) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (ii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws. Representations and Warranties of the Investors Each Investor, severally but not jointly, hereby represents and warrants that: Authorization This Agreement, when executed and delivered by such Investor, will constitute its valid and legally binding obligation, enforceable in accordance with its terms. Purchase Entirely for Own Account This Agreement is made with such Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series D Convertible Preferred Stock and Warrant to be received by such Investor (the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. Such Investor represents that it has full power and authority to enter into this Agreement. Disclosure of Information Such Investor has made investigations that it considers necessary or appropriate in deciding whether to purchase the Securities. Each Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. Investment Experience Such Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. Such Investor also represents it is an "accredited investor" as that term is defined in Regulation D under the Act and that, except as disclosed in writing to the Company, it was not organized for the purpose of acquiring the Securities. Restricted Securities It understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Investor represents that it is familiar with Rule 144 promulgated under the Act ("Rule 144"), as presently in effect, and understands the resale limitations imposed thereby and by the Act. Further Limitations on Disposition Without in any way limiting the representations set forth above, each Investor further agrees not to make any disposition of allor any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of Sections 6 and 7 of this Agreement and: There is then in effect a Registration Statement as defined under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a reasonably detailed statement of the circumstances surrounding the proposed disposition and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. Legends It is understood that the certificates evidencing the Securities may bear one or all of the following legends: "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged, or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel reasonably satisfactory to the Company that such registration is not required. Copies of the agreements which cover the purchase of these securities, which restrict their transfer and voting and which contain certain provisions binding on any holder of these securities may be obtained by written request made by the holder of record of this certificate to the Secretary of the Company at its principal executive offices." "The transfer of the shares of stock represented by this certificate is restricted under the terms of a Fourth Amended and Restated Restricted Stock Agreement dated January 12, 1996, a copy of which is on file at the office of the Company." Any legend required by the laws of the State of California and any applicable Blue Sky laws of various states and jurisdictions. Conditions to Investors' Obligations at Closing The obligations of each Investor under subsection 1.1 (b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: Representations and Warranties The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made upon and as of such Closing. Performance The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. Compliance Certificate The Investors shall have received a certificate executed by the President of the Company, dated the Closing Date, certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. Third Amended and Restated Registration Rights Agreement The Company, each Investor, and the holders of a majority of "Registrable Securities," as such term is defined in the Rights Agreement, shall have entered into the Rights Agreement. Fourth Amended and Restated Restricted Stock Agreement The Company, each Investor, the holders of at least two-thirds (2/3) of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, taken together as a single class, and the holders of at least two-thirds of the outstanding shares of Series D Convertible Preferred Stock shall have entered into the Restricted Stock Agreement. Opinion of Company Counsel Each Investor shall have received from Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated as of the Closing, in the form attached hereto as Exhibit E. Stockholder Approval The stockholders of La Salsa Holding Co. shall have approved the Restated Certificate. Due Diligence Review The Investors shall have completed to their sole satisfaction their due diligence review of the Company and its operations, business, assets and financial condition. Warrants The Company and the Investors shall have executed the Warrants. Conditions to the Company's Obligations at Closing The obligations of the Company to each Investor under this Agreement are subject to the fulfillment by that Investor on or before the Closing of each of the following conditions: Representations and Warranties The representations and warranties of the Investors contained in Section 3 shall be true upon and as of the Closing with the same effect as though such representations and warranties had been made upon and as of the Closing. Payment of Purchase Price Each Investor shall have delivered the purchase price for the Shares as specified in Section 1.1(b) and the Warrants as specified in Section 1.2. Third Amended and Restated Registration Rights Agreement The Company, each Investor, and the holders of a majority of "Registrable Securities," as such term is defined in the Rights Agreement, shall have entered into the Rights Agreement. Fourth Amended and Restated Restricted Stock Agreement The Company, each Investor, the holders of at least two-thirds (2/3) of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, taken together as a single class, and the holders of at least two-thirds of the outstanding shares of Series D Convertible Preferred Stock shall have entered into the Restricted Stock Agreement. Qualifications The consent or approval of all relevant Blue Sky authorities shall have been obtained with respect to the offer and sale to the Investors of the Securities or such offer and sale shall be exempt from such consent or approval as evidenced in form reasonably satisfactory to the Company. Warrants The Company and the Investors shall have executed the Warrants. Drag-Along Rights In the event that the holders of (i) a majority of the Company's voting capital stock and (ii) a majority of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, voting as a sin class ((i) and (ii) together, the "Selling Holders"), determine to accept an offer from any person (other than a Selling Holder or any Affiliate thereof) to purchase all of the Company's Common Stock on a fully converted basis, then each Investor, to the extent required by the purchaser, shall sell, and shall cause any Affiliate of it to sell, all shares of Common Stock and other securities convertible into Common Stock (the "Drag-Along Stock") held by it or such Affiliate pursuant to such offer to purchase (the "Drag-Along Sale"). All holders of Drag-Along Stock shall (x) receive the same consideration per share of Drag-Along Stock, shall be subject to the same terms and conditions of sale and shall otherwise be treated equally or, where appropriate, pro rata based upon the number of shares of Drag-Along Stock, as the case may be, held by each holder and (y) execute such documents and take such actions as may be reasonably required by the selling group representative (the "Selling Holders Representative," which initially shall be Sienna Holdings, Inc. until the Investors are notified of the name and address of a successor Selling Holders Representative). Any such sale by any Investor shall be on the same terms and conditions as the proposed Drag-Along Sale by the Selling Holders; provided, however, that each selling stockholder shall contribute pro rata based upon the number of shares being sold by each, a percentage of the total sa proceeds as agreed upon by the holders of a majority of the shares being sold, to an escrow fund to be established by the Selling Holders Representative to serve as the exclusive source of indemnification obligations (other than representations as to unencumbered ownership of and ability to transfer the shares being sold of any other seller in the Drag-Along Sale, which shall be the sole responsibility of each selling stockholder) to the purchaser in the Drag-Along Sale. The Selling Holders participating in a Drag-Along Sale (or the Selling Holders Representative on behalf of such Selling Holders) shall promptly provide each Investor with written notice (the "Sale Notice") not more than 60 nor less than 30 days prior to the date of the Drag-Along Sa (the "Sale Date"). Each Sale Notice shall set forth: (i) the name and address of each proposed transferee or purchaser of shares of Drag-Along Stock in the Drag-Along Sale; (ii) the form of consideration to be paid for such shares and the terms and conditions of payment offered by each proposed transferee or purchaser; (iii) confirmation that the proposed purchaser or transferee has been informed of the "Drag-Along Rights" provided for herein and has agreed to purchase shares of Drag-Along Stock in accordance with the terms hereof; and (iv) the Sale Date. The provisions of this Section 6 shall apply regardless of the form of consideration received in the Drag-Along Sale. Any non-cash consideration proposed for the Drag-Along Stock shall be limited to debt instruments and/or freely tradeable property, and each Investor shall accept i pro rata share of such non-cash consideration for the Drag-Along Stock based on its proportional ownership of shares of Drag-Along Stock. "Affiliate" of a specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person and, in the case of a person who is an individual, shall include (i) members of such specified person's immediate family (as defined in instruction 2 of Item 404(a) of Regulation S-K promulgated by the Securities and Exchange Commission) and (ii) trusts whose trustee and beneficiaries include only such specified persons or members of such person's immediate family as determined in accordance with the foregoing clause (i). For the purposes of this definition, "control, when used with respect to any person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. The provisions of this Section 6 shall terminate upon the closing of a firm commitment underwritten public offering of the Common Stock pursuant to a registration statement declared effective under the Act. Covenants of the Company The Company hereby covenants and agrees with the Investors as follows: Basic Information and Access As soon as practicable after the end of each fiscal quarter and each fiscal year, and in any event within forty-five (45) days after each fiscal quarter and within one hundred five (105) days after each fiscal year, the Company shall furnish to each Investor, so long as each Investo holds shares of Series D Convertible Preferred Stock, and subject to Section 7.3 hereof, consolidated balance sheets of the Company and its Subsidiary as of the end of each fiscal quarter and fiscal year, and consolidated statements of income and cash flow of the Company and its Subsidiary for such fiscal quarter and fiscal year, respectively, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal quarter or fiscal year, all in reasonable detail and, in the case of such quarterly reports, certified by the Company's chief financial officer and accompanied by a brief narrative description on the Company's business activities during said quarter, and, in the case of such annual reports, certified by independent public accountants of recognized national standing. The Company shall permit each Investor so long as such Investor holds shares of Series D Convertible Preferred Stock, and subject to Section 7.3 hereof, (i) to visit and inspect at such Investor(s) expense any of the properties of the Company or any of its Subsidiary and to discuss and their affairs, finances and accounts with its and their officers, all upon reasonable notice to the Company and/or its Subsidiary, at such reasonable times and as often as may be reasonably requested; (ii) to be represented at the Company's expense at all meetings of the Board of Directors of the Company by one person or, if the Investors (excluding Sienna and InterWest) are not represented by a director of the Company, two persons, in either case to be designated by a majority of the Investors (excluding Sienna and InterWest), with respect to which reasonable notice shall be provided to each Investor; and (iii) to discuss the affairs, finances and accounts of the Company with its officers and consult with and advise the officers of the Company as to the management of the Company at all reasonable times and as often as reasonably requested, provided that the Investors shall maintain the confidentiality of any proprietary information of the Company thereby obtained and provided further that the Investors shall conduct all such inspections in a manner that is not disruptive to the employees or operations of the Company. Additional Information In addition, the Company shall deliver to each Investor, so long as such Investor holds shares of Series D Convertible Preferred Stock: as soon as practicable after the end of each fiscal month, and in any event within thirty (30) days thereafter, consolidated balance sheets of the Company and its Subsidiary, if any, as at the end of such month, and a consolidated statement of income of theCompany and its Subsidiary if any, for each month and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied, with such statements certified as having been prepared in accordance with generally accepted accounting principles consistently applied, by the chief financial officer of the Company, and accompanied by a brief narrative description of the Company's business activities during said month; and no later than thirty (30) days prior to the end of any fiscal year, a business plan and budget for the Company for the succeeding fiscal year (commencing with the Company's 1995 fiscal year), containing information, data and other materials typically included in a business plan and budget of a Company similar in size and nature to the Company, inclusive without limitation, in respect of the budget, budget date for each month of such fiscal year. Suspension of Certain Covenants The covenants set forth in Sections 7.1 and 7.2 shall terminate and be of no further force or effect with respect to all Investors after the effective date of a registration statement filed by the Company under the federal Securities Act of 1933, as amended, covering the underwritten offer and sale of Common Stock to the public and having aggregate net proceeds to the Company of not less than ten million dollars ($10,000,000). Negative Covenants In addition to any restrictions contained in the Restated Certificate, without the prior written consent of the holders of a majority of the then outstanding shares of Series B, Series C and Series D Convertible Preferred Stock, the Company shall not: except as provided in the Restated Certificate or pursuant to the Option Plan, redeem any shares of any class of its capital stock or cause or permit any Employee Stock Ownership Plan as defined in 4975(e)(7) of the Internal Revenue Code of 1986, as amended, or other employee stock ownership plan to purchase shares of any class of its capital stock; assume, guarantee, endorse or otherwise become directly or contingently liable for any obligation or indebtedness other than such liabilities as presently exist or are incurred in the ordinary course of business, including the acquisition and/or development of Company restaurants; sell, assign, lease or otherwise dispose of any of its assets, including its receivables and any of the stock of any Subsidiary, other than in the ordinary course of business, including the acquisition, disposition and/or development of Company restaurants; make any loan or advance to any employee of the Company or any Subsidiary thereof except (i) the payment of salaries (which, in the case of officers, shall be approved in advance by the Company's Board of Directors), (ii) advances for reasonable travel expenses in connection with th Company's business, and (iii) the acceptance of promissory notes approved in advance by the Board of Directors given for the purchase of the Company's capital stock if otherwise permitted by this Section 7.4; and own, or permit any Subsidiary of the Company to own, any stock or other securities of any corporation, partnership, association or other form of business entity except the securities of a wholly-owned Subsidiary of the Company or such Subsidiary. Additional Covenants In addition, the Company shall, or shall cause each of its Subsidiary, as applicable, to: promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company or any Subsidiary; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto; and provided, further, that the Company shall pay all such taxes, assessments, charges or levies forthwith upon the commencement or proceedings to foreclose any lien that may have attached as security therefor; promptly pay or cause to be paid when due, or in conformance with customary trade terms, all other indebtedness incident to the operations of the Company and its Subsidiary; keep its properties and those of its Subsidiary in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; comply, and cause its Subsidiary to comply, with the provisions of all leases to which any of them is a party or under which any of them occupies property; keep its assets and those of its Subsidiary that are of an insurable character insured by reputable insurers against loss or damage by fire and explosion in amounts customary for companies in similar businesses similarly situated; and maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated; keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis; duly observe and conform to, and cause its Subsidiary to so observe and conform to, in all material respects, all valid requirements of governmental authorities relating to the conduct of their businesses or to their property or assets; and maintain in full force and effect its corporate existence and rights and use its best efforts to maintain in full force and effect all licenses and other rights to use patents, processes, licenses, trademarks, service marks, trade names or copyrights owned or possessed by it or any Subsidiary and necessary to the conduct of its business. Additional Sales of Series D Convertible Preferred Stock Following the Closing, the Company shall not issue any additional shares of Series D Convertible Preferred Stock. Indemnification Indemnification of the Investors The Company hereby agrees to indemnify and hold harmless the Investors against any and all losses, liabilities, damages, demands, claims, suits, actions, judgments, causes of action, assessments, costs, and expenses, including, without limitation, interest, penalties, attorneys' fees, any and all expenses incurred in investigating, preparing, and defending against any litigation, commenced or threatened, and any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation (collectively, "Investor Damages"), asserted against, resulting from, imposed upon, or incurred or suffered by any of the Investors directly or indirectly, as a result of or arising from any inaccuracy in or breach or nonfulfillment of any of the representations, warranties, covenants, or agreements made by the Company in this Agreement or any facts or circumstances constituting such an inaccuracy, breach, or nonfulfillment (all of which, shall be referred to as "Identifiable Claims"). Procedure For Indemnification with Respect to Identifiable Claims In the event that an Investor asserts the existence of a claim giving rise to Investor Damages, it shall give written notice to the Company. Such written notice shall state that it is being given pursuant to this Section 8.2, specify the nature and amount of the claim asserted and indicate the date on which such assertion shall be deemed accepted and the amount of the claim deemed a valid claim (such date to be established in accordance with the next sentence). If the Company, within 30 days after the mailing of notice by such Investor, shall not give written notice to such Investor announcing its intent to contest such assertion of such Investor, such assertion shall be deemed accepted and the amount of claim shall be deemed a valid claim. In the event, however, that the Company contests the assertion of a claim by giving such writtennotice to such Investor within said period, then the parties shall act in good faith to reach agreement regarding such claim. Miscellaneous Survival of Warranties The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. Successors and Assigns Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Series D Convertible Preferred Stock sold hereunder or any Common Stock issued upon conversion of the Series D Convertible Preferred Stock). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Governing Law This Agreement shall be governed by and construed under the laws of the State of California (without regard to the application of choice of law rules), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party hereto, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. Disclosure of Information The parties agree to maintain the confidentiality of the terms and conditions of this Agreement prior to Closing, except to the extent required by law. No party shall disseminate (except to the parties to this Agreement) any press release or announcement concerning the transactions contemplated by this Agreement or the parties hereto prior to Closing, without the prior written consent of all parties. Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Titles and Subtitles The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Notices Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. A copy of any notices sent to the Company shall be sent to: Sienna Holdings, One Market, Steuart Street Tower, Suite 2550, San Francisco, California 94105 Attn: Daniel L. Skaff; InterWest Partners, 3000 Sand Hill Road, Building 3, Suite 255, Menlo Park, CA 94025, Attn: Mr. Wallace R. Hawley; Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303, Attn: Gari L. Cheever, Esq.; and Noro-Moseley Partners, 9 North Parkway Square, 4200 Northside Parkway, Atlanta, GA 30327, Attn: Jack R. Kelly, Jr. All notices and communications shall be deemed to have been received: (i) in the case of personal delivery, on the date of such delivery; (ii) in the case of telex or facsimile transmission, on the date on which the sender receives confirmation by telex or facsimile transmission that such notice was received by the addressee, provided that a copy of such transmission is additionally sent by mail as set forth in (iv) below; (iii) in the case of overnight air courier, on the second business day following the day sent, with receipt confirmed by the courier; and (iv) in the case of mailing by first class certified or registered mail, postage prepaid, return receipt requested, on the fifth business day following such mailing. Attorney's Fees; Expenses If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Warrants, the Rights Agreement, the Restricted Stock Agreement or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled. Amendments and Waivers Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the shares of Common Stock issued or issuable pursuant to conversion of the Series D Convertible Preferred Stock issued pursuant to this Agreement. Any amendment or waiver effected in accordance with this section shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company. Severability If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its term. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE COMPANY: LA SALSA HOLDING CO., a Delaware corporation By: /s/ Charles L. Boppell ------------------------------- Charles L. Boppell President and Chief Executive Officer Address: 11601 Santa Monica Blvd. Los Angeles, CA 90025 THE INVESTORS: CASUAL DINING VENTURES, INC. By: /s/ Charles W. Redepenning, Jr. ------------------------------------ Name: Charles W. Redepenning, Jr. Title: Senior Vice President Address: One Corporate Place 55 Ferncroft Road Danvers, MA 01923 SCHEDULE 1.1 Schedule of Investors
Number of Shares Purchase Price of Series D of Series D Number of Purchase Aggregate Convertible Convertible Warrant Price of Purchase Name Preferred Stock Preferred Stock Shares Warrant Price Casual Dining Ventures, Inc. ................... 4,166,667 $5,000,000.40 4,729,470 $4,729.47 $5,004,729.87
SCHEDULE 2.4(c) SCHEDULE OF SHAREHOLDERS Common Stock Name Shares Charles L. Boppell ........................................ 13,333 James Crooks .............................................. 4,000 Antonio De La Rosa ........................................ 12,000 Robert G. Gammel .......................................... 6,000 Frank J. Holdraker ........................................ 6,000 Moon Fong Mathewson ....................................... 9,125 Edward T. Peabody ......................................... 30,000 Catherine Sabatini ........................................ 5,000 Thomas V. Saiza ........................................... 13,500 Larry Sarokin ............................................. 12,000 Steve Sather .............................................. 10,000 Steven R. Selcer .......................................... 6,000 Sheryl Weingart ........................................... 2,708 Ronald D. Weinstock Inc. .................................. 6,000 ------- Total ..................................................... 135,666 ======= Series A Convertible Preferred Stock Name Shares Theodore H. Ashford ........................................ 3,320 Donald Benjamin ............................................ 9,000 Crown Associates III, L.P. ................................. 33,204 Crown-Glynn Associates, L.P. ............................... 15,938 U.S. Trust Company of New York, ............................ 17,266 as Trustee for the Crown Trust Bankers Trust Company, ..................................... 99,613 as Master Trustee for Hughes Aircraft Retirement Plan InterWest Partners IV .............................. 3,182,190 Frank Holdraker ............................................ 4,500 Sienna Holdings, Inc., ..................................... 3,218,462 as Trustee for La Salsa, Inc. ............................. Howdy S. Kabrins ........................................... 64,000 Charles Lynch .............................................. 82,000 Noro-Moseley Partners II, L.P. ............................. 99,613 Seidler Salsa, L.P. ........................................ 33,204 Sienna Holdings, Inc. as Nominee ........................... 41,000 Sienna Limited Partnership I ............................... 3,182,190 Vicki Tanner ............................................... 10,000 Ronald D. Weinstock Inc. ................................... 4,500 ---------- Total ...................................................... 10,100,000 ========== Series B Convertible Preferred Stock Name Shares Theodore H. Ashford ......................................... 33,333 Crown Associates III, L.P. .................................. 333,333 Crown-Glynn Associates, L.P. ................................ 160,000 U.S. Trust Company of New York, ............................. 173,334 as Trustee for the Crown Trust Bankers Trust Company, ...................................... 1,000,000 as Master Trustee for Hughes Aircraft Retirement Plan InterWest Partners IV ............................... 800,000 Noro-Moseley Partners II, L.P. .............................. 1,000,000 Seidler Salsa, L.P. ......................................... 333,333 Sienna Limited Partnership I ................................ 800,000 --------- Total ....................................................... 4,633,333 ========= Series C Convertible Preferred Stock Name Shares Theodore H. Ashford ......................................... 4,309 Crown Associates III, L.P. .................................. 86,187 Noro-Moseley Partners II, L.P. .............................. 129,280 Seidler Salsa, L.P. ......................................... 43,093 Bankers Trust Company, ...................................... 129,280 as Master Trustee for Hughes Aircraft Retirement Plans Sienna Limited Partnership I ................................ 468,182 Sienna Holdings, Inc. ....................................... 4,820 InterWest Partners IV ....................................... 468,182 --------- Total ....................................................... 1,333,333 ========= Series D Convertible Preferred Stock Name Shares FMA High Yield Income L.P. ................................. 749,067 WSIS Flexible Income Partners L.P. ......................... 112,360 WSIS High Income L.P. ...................................... 337,080 Sienna Limited Partnership II .............................. 1,498,134 InterWest Partners IV ...................................... 337,080 Bankers Trust Company as ................................... 50,839 Master Trustee for Hughes Aircraft Retirement Plans Noro-Moseley Partners II, L.P. ............................. 50,839 Theodore H. Ashford ........................................ 1,693 --------- Total ...................................................... 3,137,092 =========
SCHEDULE 2.13 REGISTERED TRADEMARKS Mark Goods Reg. No. Dec. Use and/or Renewal *DESIGN OF MAN & KNIFE Aerated water 1,522,842 1-31-89 1-31-2009 *LA SALSA Aerated water 1,517,380 12-20-88 12-20-2008 LA SALSA (California) Restaurant services 7826 3-21-79 3-21-99 *LA SALSA Restaurant services 1,257,963 11-15-83 11-15-2003 *LA SALSA & DESIGN OF MAN WITH KNIFE Restaurant services 1,331,404 4-16-85 4-16-2005 *THE TRADITION CONTINUES Restaurant services 1,352,247 7-30-85 7-30-2005 *LA SALSA (Script) Restaurant services 1,417,032 11-11-86 11-11-2006 *DESIGN OF MAN WEARING SOMBRERO Restaurant services 1,645,652 5-21-91 5-21-97 5-21-2001 *THE ORIGINAL GOURMET BURRITO Burritos for consumption on or off the premises 1,652,067 7-23-91 7-23-97 7-23-2001 *THE BOX Restaurant services, namely, the sale of goods for off-site consumption 1,678,143 3-3-92 3-3-98 3-3-2002 WE DO NOT OWN A CAN OPENER!! Restaurant services 1,733,866 11-17-92 11-17-98 11-17-2002 QUE HUEVOS THE MEXICAN POWER BREAKFAST Restaurant services 1,735,499 11-24-92 11-24-98 11-24-2002 AN AUTHENTIC INVITATION Restaurant services 1,743,734 12-29-92 12-29-98 12-29-2002 *ENJOY THE PASSION Restaurant services 1,784,616 7-27-93 7-27-99 7-27-2003
PENDING APPLICATIONS Mark Goods Reg. No. Date *LA SALSA - FRESH MEXICAN GRILL Restaurant services 424,105 8-11-93 *FRESH MEXICAN GRILL Restaurant services 586,109 10-17-94 *LA SALSA - THE ORIGINAL TAQUERIA Restaurant services Awaiting Information LA SALSA (Stick Logo) Restaurant services 645,397 3-13-95 LA SALSA (Red and Green Design) Restaurant services 704,220 7-21-95 CALIFORNIAN "VEGGIE" Burrito for consumption on or off the premises 714,379 8-11-95 ALWAYS FRESH...ALWAYS FUN! Restaurant services 023,474 11-24-95
* designates registration assigned to or in the name of La Salsa Holding Co. TRADEMARK COUNTRY LIST REGISTRATIONS
Mark Country Goods No. & Date Renewable LA SALSA Canada Paper and party items, namely, menus, posters, paper decorations, hats, cups; restaurant services; namely, take-out food services and bar and lounge services 399,493 6-26-92 6-26-2007 LA SALSA Japan Tea, coffee, cocoa, soft drinks, fruit juices, ice, in Japanese Class 29 2,276,702 10-31-90 7-31-2000 LA SALSA Japan Paper napkins, other napkins, cups, other tableware, other goods belonging to this class (Japanese Class 19) 2,269,547 9-21-90 6-21-2000
TRADEMARK COUNTRY LIST REGISTRATIONS
Mark Country Goods Filing Info. LA SALSA Australia Restaurant services 656396 3-23-95 LA SALSA Japan Restaurant services 35034/1996 4-7-95 LA SALSA Mexico Restaurant services 158658 1-15-93 LA SALSA Puerto Rico Restaurant services Awaiting filing information
SCHEDULE 2 Schedule of Exceptions EXHIBIT A Amended and Restated Certificate of Incorporation EXHIBIT B Form of Series D Convertible Preferred Stock Warrant EXHIBIT C Fourth Amended and Restated Restricted Stock Agreement EXHIBIT D Third Amended and Restated Registration Rights Agreement EX-2.3 4 STOCK PURCHASE AGREEMENT By and Among Casual Dining Ventures, Inc. and DAKA International, Inc. and Champps Development Group, Inc., Steven J. Wagenheim, Arthur E. Pew, III, PDS Financial Corporation, Douglas B. Tenpas and Certain Other Stockholders of Americana Dining Corp. named on Exhibit A Dated as of March 18, 1996 TABLE OF CONTENTS ARTICLE VI. TERMINATION OF AGREEMENT Section 6.01. Termination Section 6.02. Effect of Termination Section 6.03. Right to Proceed ARTICLE VII. SURVIVAL; INDEMNIFICATION Section 7.01 Survival of Representations, Warranties, Etc. Section 7.02. Indemnification by the Sellers Section 7.03. Limitations on Indemnification by Stockholders Section 7.04. Indemnification by the Company Section 7.05 No Limitation of Rights Section 7.06. Notice; Defense of Claims ARTICLE VIII. REGISTRATION RIGHTS Section 8.01. Definitions Section 8.02 Resale Registration Section 8.03 Registration Procedures Section 8.04 Registration Expenses Section 8.05 Indemnification and Contribution Section 8.06 Restrictions on Sale Section 8.07 Transfer of Registration Rights ARTICLE IX. MISCELLANEOUS Section 9.01. Law Governing Section 9.02. Notices Section 9.03. Prior Agreements Superseded Section 9.04. Assignability Section 9.05. Fees and Expenses Section 9.06. Publicity and Disclosures Section 9.07. Captions and Gender Section 9.08. Execution in Counterparts Section 9.09. Certain Remedies; Severability Section 9.10. Amendments; Waivers Section 9.11. Exhibits and Schedules Exhibit A - Certain Stockholders of Americana Dining Corp. Exhibit 5.01(b) - Form of Corporate Opinion of Sellers' Counsel Exhibit 5.02(b)(i) - Form of Opinion of Company's Counsel Exhibit 5.02(d) - Forms of DAKA, ADC and Edgebrook, Inc. Releases STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is made as of this 18th day of March, 1996, by and among DAKA International, Inc., a Delaware corporation ("DAKA"), Casual Dining Ventures, Inc., a Delaware corporation and a wholly-owned subsidiary of DAKA ("CDVI"), Champps Development Group, Inc., a Minnesota corporation ("CDG"), Steven J. Wagenheim, the sole stockholder of CDG ("Wagenheim"), Arthur E. Pew, III ("Pew"), PDS Financial Corporation ("PDSFC"), Douglas B. Tenpas (for himself or for the benefit of his former spouse, who is also a signatory to this Agreement) ("Tenpas") and such of the other stockholders of Americana Dining Corp., a Delaware corporation ("ADC"), named on Exhibit A attached hereto who may after the date hereof and prior to the Closing (as defined herein) become parties to this Agreement by executing and delivering a counterpart of this Agreement (each an "Other Selling Stockholder" and collectively the "Other Selling Stockholders"). CDG, Wagenheim, Pew, PDSFC, Tenpas and the Other Selling Stockholders are referred to herein individually as a "Seller" and collectively as the "Sellers". DAKA and CDVI are referred to herein collectively as the "Company". W I T N E S S E T H WHEREAS, CDG is the record and beneficial owner of 434,000 shares of common stock, par value $.01 per share, of ADC ("ADC Common Stock") and Wagenheim is the President of ADC; and WHEREAS, Pew is the record and beneficial owner of 140,000 shares of ADC Common Stock; and WHEREAS, PDSFC is the record and beneficial owner of 20,000 shares of ADC Common Stock; and WHEREAS, Tenpas is the record and beneficial owner of 50,000 shares of ADC Common Stock; and WHEREAS, the Other Selling Stockholders listed on Exhibit A hereto are the record and beneficial owners of his, her or its shares of ADC Common Stock; and WHEREAS, all shares of ADC Common Stock owned beneficially and of record by all Sellers are hereinafter referred to collectively as the "Shares;" and WHEREAS, CDVI is the record and beneficial owner of 1,400,000 shares of ADC Common Stock and of 466,667 shares of preferred stock, par value $.01 per share, of ADC and DAKA is the record and beneficial owner of all issued and outstanding shares of capital stock of CDVI; and WHEREAS, Sellers desire to transfer to CDVI all of the Shares in exchange for shares of the common stock, par value $.01 per share, of DAKA (the "DAKA Common Stock") to be issued by DAKA to CDVI and immediately transferred by CDVI to Sellers and CDVI desires to acquire from Sellers all of the Shares in exchange for such shares of DAKA Common Stock in an arrangement qualifying as a reorganization under the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), whereby, after giving effect to such transactions, CDVI will own beneficially and of record in excess of 80% of the issued and outstanding shares of ADC Common Stock, on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I. PURCHASE AND SALE OF SHARES Section 1.01. Plan; Purchase and Sale of the Shares CDVI and Sellers hereby adopt a plan of reorganization pursuant to the provisions of Section 368(a)(1)(B) of the Code. The terms and conditions governing this plan of reorganization are hereinafter set forth. Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants herein set forth, CDVI hereby agrees to purchase from the Sellers, and the Sellers hereby agree to sell and deliver to CDVI, at the Closing (as hereinafter defined in Section 1.05 hereof), the Shares free and clear of any and all liens, claims, options, charges, encumbrances or rights of any nature ("Claims"). Section 1.02. Consideration Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants set forth herein, and in consideration of the sale and delivery by the Sellers of the Shares, CDVI hereby agrees to issue to the Sellers .18182 of one share of DAKA Common Stock, for each Share of ADC Common Stock sold and delivered to CDVI, subject to possible adjustment, as provided in Section 1.03 hereof. No fractional shares will be issued by CDVI to the Sellers. Instead, the total number of shares of DAKA Common Stock to be issued to each Seller (regardless of whether such Seller's Shares are represented by a single or multiple certificates) will be rounded up or down to the nearest number of whole shares of DAKA Common Stock (or in the case of .5, to the next higher whole number). Reference is made to the representations and warranties of the Sellers set forth in Section 2.04 hereof, including, without limitation, the acknowledgment and understanding that (a) the DAKA Common Stock to be issued to the Sellers hereunder has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws, (b) the DAKA Common Stock to be issued to the Sellers hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) it is subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to DAKA an opinion of counsel satisfactory to DAKA that such registration is not required,and (c) DAKA will place a restrictive legend to the foregoing effect on the certificate(s) representing the DAKA Common Stock to be issued to the Sellers hereunder. Section 1.03. Adjustments to Consideration In the event that (a) on the Closing Date (as such term is hereinafter defined), the Closing Price (as such term is hereinafter defined) of a share of DAKA Common Stock is less than $21.00 per share and (b) Sellers owning a majority of the Shares elect to terminate this Agreement pursuant to Section 6.01(e) hereof, then CDVI will have the right to rescind such termination by adjusting the consideration for the Shares as follows, in which case the Sellers will be obligated to proceed with the sale and delivery of the Shares: in consideration for each Share of ADC Common Stock to be sold by each of the Sellers, CDVI will deliver a fraction of one share of DAKA Common Stock (determined to the nearest one-tenth of one-thousandth of a share) calculated by multiplying (i) .18182 by (ii) the quotient of (x) $21.00 divided by (y) the Closing Price. For purposes of this Agreement, the term "Closing Price" shall mean the average per share closing sale price of DAKA Common Stock as reported on the Nasdaq National Market over the twenty (20) trading days immediately preceding the second trading day prior to the Closing Date. Notwithstanding the foregoing, if between the date of this Agreement and the Closing Date the outstanding shares of DAKA Common Stock or ADC Common Stock are changed into a different number of shares or a different class or series, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the consideration described above shall be correspondingly and proportionately adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. Section 1.04. General Releases (a) Each Seller, by executing and delivering this Agreement, and in consideration of the covenants and agreements of the Company contained herein and other good and valuable consideration hereby: (i) releases and discharges ADC, DAKA, and their respective subsidiaries, each of the present and former stockholders, directors, officers, employees and agents of ADC, DAKA, and their respective subsidiaries, affiliates of any of the foregoing and their respective successors and assigns (each a "Released Party") of and from any and all commitments, indebtedness, suits, demands, claims, obligations and liabilities, contingent or otherwise, of every kind and nature, including claims and causes of action both at law and in equity, which such Seller and/or his or her or its successors, heirs, executors, administrators or assigns ever had, now has or, to the extent arising from or in connection with any act, omission or state of facts taken or existing on or prior to the date hereof and the Closing Date, may have after the date hereof against any Released Party, whether asserted, unasserted, absolute, contingent, known or unknown, other than claims or causes of action arising under or pursuant to this Agreement, and each document executed in connection herewith, including, without limitation, rights to indemnification under Article VII of this Agreement; and (ii) waives any rights such Seller may have under that certain Shareholders Agreement dated as of March 28, 1994, by and among ADC and the stockholders of ADC (the "Shareholders Agreement"), including, without limitation, any rights of first refusal and any rights of pro rata participation. (b) The foregoing release shall be fully effective and unconditional upon execution and delivery of this Agreement and shall not be affected by termination of this Agreement other than (i) termination by the Company in breach of the provisions of Section 6.01 hereof or (ii) termination by the Sellers pursuant to Section 6.01(d) hereof. (c) Notwithstanding the foregoing general releases, no Seller who is employed by ADC shall be deemed to have waived or released any claim against ADC for wages or benefits due from ADC that are due and payable on or prior to the Closing Date. Section 1.05. Closing The sale and delivery and the purchase and acceptance of the Shares (the "Closing") shall take place at the offices of the Company on the day on which all of the conditions to Closing set forth in Article V (other than conditions to be satisfied at the Closing which shall be satisfied or waived as of the Closing) have been satisfied or waived in accordance with the terms hereof, such day being referred to herein as the Closing Date. Section 1.06. Deliveries at Closing At the Closing, (a) DAKA shall issue to CDVI the number of shares of DAKA Common Stock to be delivered by CDVI to the Sellers hereunder in consideration of the Shares and CDVI shall execute in favor of and deliver to DAKA a promissory note in an original principal amount equal to the product of (x) the Closing Price on the Closing Date by (y) such number of shares of DAKA Common Stock; (b) each Seller shall deliver a certificate or certificates representing all Shares owned beneficially and of record by such Seller, together with stock powers (or the equivalent) duly executed in blank and such other documents as may be required to transfer to CDVI good and valid title to such Shares free and clear of all Claims, (c) CDVI shall deliver to each Seller a certificate or certificates representing the appropriate number of shares of DAKA Common Stock bearing the legend provided in Section 2.04(d) hereof issued in the name of such Seller and (d) each Seller shall resign any office such Seller holds as a director and/or officer of ADC effective as of the Closing Date. All transfer, excise or similar taxes arising out of the sale or delivery of the Shares to CDVI shall be paid by the Sellers. Section 1.07. Actions Subsequent to Closing The Sellers and the Company after the Closing, and without further consideration, shall from time to time execute and deliver or cause to be executed and delivered such further instruments of transfer, assignments, consents or documents as may be reasonably necessary or appropriate to carry out the intent and purposes hereof. ARTICLE II. REPRESENTATION AND WARRANTIES OF THE SELLERS Section 2.01. Making of Representations and Warranties As a material inducement to the Company to enter into this Agreement and to consummate the transactions contemplated hereby, each of CDG, Wagenheim, Pew, PDSFC, Tenpas and the Other Selling Stockholders, severally as to himself, herself or itself only and not jointly, hereby make to the Company the representations and warranties contained in this Article II. Section 2.02. Ownership of Capital Stock; Related Rights (a) Each Seller owns beneficially and of record all of the Shares set forth or referred to in the preamble hereof, as applicable. Upon delivery to CDVI at the Closing of the certificates representing the Shares duly endorsed in blank for transfer or with stock powers attached duly executed in blank, against delivery of the consideration therefor described in Article I hereof, good and valid title to the Shares shall be transferred to CDVI, free and clear of any and all Claims. (b) Except for the Shareholders Agreement, no Seller has any outstanding subscriptions, options, warrants, commitments, agreements, arrangements or commitments of any kind for or relating to the issuance, or sale of, or outstanding securities convertible into or exchangeable for, any shares of capital stock of any class or other equity interests of ADC; (b) no Seller has any preemptive right, right of first refusal or similar right to acquire the Shares or any other shares of capital stock of ADC in connection with the transactions contemplated by this Agreement or otherwise; (c) there are no restrictions on the transfer of the Shares, other than those imposed by relevant state and federal securities or insurance laws; (d) ADC has no obligation to purchase, redeem or otherwise acquire any of the Shares or to pay any dividend or make any other distribution in respect thereto; and (e) there are no voting trusts or proxies relating to any of the Shares. Section 2.03. Authority of Sellers (a) Each Seller has full authority, power and (if an individual) capacity to enter into this Agreement and each agreement, document and instrument to be executed and delivered by or on behalf of such Seller pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. This Agreement and each agreement, document and instrument to be executed and delivered by such Seller or pursuant to or as contemplated by this Agreement constitute, or when executed and delivered by such Seller will constitute, valid and binding obligations of such Seller enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws applicable to creditors' rights and remedies and to the exercise of judicial discretion in accordance with general principles of equity. (b) The execution, delivery and performance by each Seller of this Agreement and each such agreement, document and instrument: (i) if such Seller is a corporation, partnership or other legal entity, do not and will not violate any provision of the charter or by-laws or governing partnership agreement or other organizational document, if any, of such Seller; (ii) do not and will not violate any laws, rules or regulations of the United States or any state or other jurisdiction applicable to such Seller, or require such Seller to obtain any approval, consent or waiver of, or to make any filing with, any person (governmental or otherwise) that has not been obtained or made; and (iii)do not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which such Seller is a party or by which the property of such Seller is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on the Shares or any other asset or property of such Seller. Section 2.04. Investment Representations (a) Each Seller is acquiring the shares of DAKA Common Stock to be issued to such Seller hereunder in exchange for such Seller's Shares for such Seller's own account for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, in violation of the Securities Act or any rule or regulation thereunder, as amended from time to time. (b) No Seller (i) is directly or indirectly controlled by, or acting on behalf of any person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, required to register as such under such Act or (ii) was formed solely for the purpose of acquiring the DAKA Common Stock to be issued to the Sellers hereunder. (c) Each Seller (i) has carefully reviewed the disclosure information provided by the Company; (ii) has requested and received such other information, as it has deemed relevant, regarding the Company for purposes of evaluating its acquisition of the DAKA Common Stock to be issued to the Sellers hereunder; (iii) is aware of the risks associated with an investment in the DAKA Common Stock; and (iv) has not received any form of general solicitation or advertising in connection with his or her or its decision to acquire the DAKA Common Stock to be issued to the Sellers hereunder. No Seller has relied in any way on any information with respect to the DAKA Common Stock or the Companygenerally other than the representations of the Company contained herein or materials furnished by the Company in writing in connection herewith. (d) Each Seller acknowledges and understands that (i) the DAKA Common Stock to be issued to the Sellers hereunder has not been registered under the Securities Act, or any state securities laws; (ii) the DAKA Common Stock to be issued to the Sellers hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) it is subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to DAKA an opinion of counsel satisfactory to DAKA that such registration is not required; and (iii) DAKA will place a restrictive legend on the certificate(s) representing the DAKA Common Stock to be issued to the Sellers hereunder, containing the following language: "The shares represented by this Certificate were issued without registration under the Securities Act of 1933, as amended (the "Act") and without registration under applicable state securities laws, in reliance upon exemptions contained in the Act and such laws. No transfer of these shares or any interest therein may be made except pursuant to effective registration statements under said laws unless this Corporation has received an opinion of counsel satisfactory to it that such transfer or disposition does not require registration under said laws and, for any sales under Rule 144 of the Act, such evidence as it shall request for compliance with that rule." (e) Each Seller (i) is able to bear the economic risks of the acquisition of shares of DAKA Common Stock hereunder and has adequate means of providing for current needs and possible contingencies; (ii) either alone or with his or her or its advisors has had the opportunity to ask questions and receive answers concerning the Company and the terms and conditions of the acquisition of DAKA Common Stock in exchange for the Shares, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith which the Company possesses or can acquire without unreasonable effort or expense; and (iii) together with his or her or its advisors, if any, has such knowledge and experience in financial and business matters that such Seller is capable of evaluating the merits and risks of this acquisition of DAKA Common Stock in exchange for the Shares, and of making an informed investment decision, and has relied solely upon the advice of his or her or its own counsel, accountant and other advisors, with regard to the legal, investment, tax and other considerations regarding such acquisition. Section 2.05. General Release Representations. With respect to the general release of the Released Parties, as defined in Section 1.04 hereof, by the Sellers (a) none of the Sellers has assigned any claim or possible claim against any Released Party, (b) each Seller fully intends to release all claims against the Released Parties including, without limitation, known, unknownand contingent claims (other than those specifically reserved in Section 1.04 hereof), and (iii) each Seller has consulted with counsel with respect to the general release set forth in Section 1.04 hereof and has been fully apprised of the consequences thereof. Section 2.06. Information Supplied to the Company To the best of Sellers' knowledge, neither this Agreement, nor any certificate furnished pursuant to or in connection with this Agreement by or on behalf of any Seller contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in the light of the circumstances under which they were made. To the best knowledge of Wagenheim, there is no material fact directly relating to the business, operations or condition of ADC (other than facts which relate to general economic trends or conditions) that currently is having or, to the best knowledge of Wagenheim, in the future is reasonably likely to (so far as may now be reasonably foreseen based upon material facts of which Wagenheim is now aware) have a material adverse effect on the properties, business, condition (financial or otherwise) or prospects of ADC. Section 2.07. Investment Banking; Brokerage There are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees of lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of any Seller. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Section 3.01. Making of Representations and Warranties As a material inducement to the Sellers to enter into this Agreement and to consummate the transactions contemplated hereby, the Company hereby makes to them the representations and warranties contained in this Article III. Section 3.02. Organization and Corporate Power. Each of DAKA and CDVI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full corporate power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted and to enter into this Agreement and each agreement, document and instrument to be executed and delivered by it pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. Section 3.03. Authority The execution, delivery and performance of this Agreement and each agreement, document and instrument to be executed and delivered by the Company pursuant to this Agreement have been duly authorized by all necessary corporate action of the Company, and no other corporate action on the part of the Company is required in connection therewith. This Agreement and each such agreement, document and instrument constitutes, or when executed and delivered by the Company will constitute, valid and binding obligations of the Company enforceable in accordance with their respective terms. The execution, deliveryand performance by the Company of this Agreement and each such agreement, document and instrument: (a) do not and will not violate any provisions of the certificate of incorporation or by-laws of DAKA or CDVI; (b) do not and will not result in any violation by the Company of any laws, rules or regulations of the United States or any state or other jurisdiction applicable to the Company or any of its affiliates, or require the Company or any of its affiliates to obtain any approval, consent or waiver of, or to make any filing of any notice with, any person (governmental or otherwise) that has not been obtained or made; and (c) do not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other agreement, contract, instrument, mortgage, lien, order, writ, judgment, injunction, decree, determination or arbitration award to which the Company is a party or by which the property of the Company is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any property or asset owned by the Company except for such occurrence that would not have a material adverse effect on the properties, business, condition (financial or otherwise), or prospects of the Company. Section 3.04. Investment Banking; Brokerage There are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees of lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of ADC or the Company. Section 3.05. DAKA Common Stock The DAKA Common Stock to be issued hereunder in exchange for the Shares shall, when issued in accordance with this Agreement, be validly issued, fully paid and non-assessable. Section 3.06. Investment Representation All Shares of ADC Common Stock being acquired by CDVI under the terms of this Agreement are being acquired by CDVI for investment for its own account without a view to, and not for sale in connection with, any distribution of the ADC Common Stock. ARTICLE IV. COVENANTS. Section 4.01. Sale of Shares; Acquisition Proposals Unless and until this Agreement is terminated in accordance with its terms for any reason, no Seller shall directly or indirectly exchange, deliver, assign, pledge, encumber or otherwise transfer or dispose of any Shares (including options in respect thereof) owned beneficially and of record by such Seller, norshall any Seller directly or indirectly grant any right of any kind to acquire, dispose of, vote or otherwise control in any manner any Shares. Unless and until this Agreement is terminated in accordance with its terms, neither any Seller nor any director, officer, employee or agent of any Seller shall, directly or indirectly, (a) take any action to solicit, initiate submission of or encourage proposals or offers from any person relating to any acquisition or purchase of all or any portion of the Shares or all or (other than in the ordinary course of business consistent with past practice) any portion of any assets of, or any equity interest in, such Seller or ADC, any merger or business combination with such Seller or ADC, or any other acquisition, transaction or financing or joint venture involving such Seller or ADC (an "Acquisition Proposal"), (b) participate in any negotiations regarding an Acquisition Proposal with any person other than the Company and its affiliates and representatives, (c) furnish any information with respect to or afford access to the properties, books or records of such Seller or ADC to any person who may consider making or has made an offer with respect to an Acquisition Proposal other than the Company and its affiliates and representatives, or (d) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any person other than the Company and its affiliates and representatives to do or seek any of the foregoing. The Sellers shall promptly notify the Company upon receipt of any offer or indication that any person is considering making an offer with respect to an Acquisition Proposal or any request for information relative to ADC, and will keep the Company fully informed of the status and details of any such offer, indication or request. Section 4.02. Consents and Approvals (a) The Sellers will use their best efforts to cause all conditions to the obligations of the parties hereunder to be satisfied and to obtain or cause to be obtained prior to the Closing Date all necessary consents and approvals to the performance of the obligations of the Sellers under this Agreement. The Sellers will cooperate in all respects with the Company with a view toward obtaining timely satisfaction of the conditions to the Closing set forth herein. (b) The Company will use its best efforts to cause all conditions to the obligations of the parties hereunder to be satisfied and to obtain or cause to be obtained prior to the Closing Date all necessary consents and approvals to the performance of the obligations of the Company under this Agreement. The Company will cooperate in all respects with the Sellers with a view toward obtaining timely satisfaction of the conditions to the Closing set forth herein. Section 4.03. Breach of Representations and Warranties Promptly upon any Seller becoming aware of any breach, or the impending or threatened occurrence of any event which would cause or constitute a breach, or would have caused or constituted a breach had such event occurred or been known prior to the date hereof, of any of the representations and warranties of the Sellers contained in or referred to in this Agreement and made as of the date hereof, the Sellers shall give detailed written notice thereof to the Company and shall use their best efforts to prevent or promptly remedy the same. Section 4.04. Confidentiality In the course of the Sellers' involvement with ADC as stockholders or employees or otherwise, the Sellers have had, and may from time to time after the date hereof have, access to confidential records, data, customer lists, trade secrets and similar confidential information owned or used by ADC in the course of its business (the "Confidential Information"). Accordingly, each Seller agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose Confidential Information to any person, and (c) not to use, directly or indirectly, any of the Confidential Information for any competitive or commercial purpose; provided, however, that the limitations set forth above shall not apply to any Confidential Information which (i) is then generally known to the public other than by reason of a breach of this Section 4.04; or (ii) is disclosed in accordance with an order of a court of competent jurisdiction or applicable law. Upon request by the Company, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters in a Seller's possession or control shall be returned to the Company or ADC. Section 4.05. Non-Hire of ADC Employees Until March 1, 1997, none of the Sellers shall hire or attempt to hire any officer or other employee of ADC or encourage any officer or other employee to terminate his or her relationship with ADC; provided, however, that Wagenheim or any affiliate of Wagenheim shall be permitted to employ (i) all staff currently employed in the operation by ADC of the Champps Americana restaurant located at 2397 Palmer Drive, New Brighton, Minnesota 53112 ("New Brighton Employees") and (ii) Mitchel J. Wachman after the later of (A) June 30, 1996 or (B) such date on which Wagenheim ceases to be an employee of ADC. Section 4.06. Non-Hire of New Brighton Employees None of DAKA, ADC or any of their affiliates shall hire or attempt to hire any New Brighton Employee or encourage any New Brighton Employee to terminate his or her relationship with Wagenheim or any affiliate of Wagenheim. Section 4.07. ADC Indemnification By-Laws. For a period of five years following the Closing, the Company shall cause ADC not to amend its charter or by-laws as in existence on the date hereof so as to adversely affect the right of Wagenhein and Pew as directors of ADC to indemnification thereunder. ARTICLE V. CONDITIONS Section 5.01. Conditions to the Obligations of the Company The obligation of the Company to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing, of the following additional conditions precedent: (a) Representations; Warranties; Covenants. Each of the representations and warranties of the Sellers made pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of the Closing Date; the Sellers shall, on or before the Closing Date, have performed andsatisfied all of their covenants and agreements set forth herein, which by the terms hereof, are to be performed and satisfied on or before the Closing Date; and the Sellers shall have delivered to the Company certificates executed as of the Closing Date certifying to the foregoing effect. (b) Opinion of Counsel and Other Documents. On the Closing Date, the Company shall have received (i) opinions of counsel for the Sellers dated as of the Closing Date and addressed to the Company, substantially in the form attached as Exhibit 5.01(b) hereto, and (ii) such other certificates and documents with respect to the Sellers as counsel for the Company shall have reasonably requested at least two (2) business days prior to the Closing Date. (c) No Actions or Proceedings. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened by or on behalf of any Seller or which seeks to enjoin, restrain or prohibit, or might result in money damages to any party hereto in respect of, this Agreement or the complete consummation of the transactions contemplated by this Agreement, or which otherwise would in the reasonable judgment of the Company make it inadvisable to consummate such transactions. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party which enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions contemplated by this Agreement. (d) Company Approvals and Consents. The Company shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities required to be made by it in connection with the execution and delivery of this Agreement and the performance by it of the transactions contemplated hereby; the Company shall have received all required authorizations, waivers, consents and permits to permit the consummation of the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to the Company, from all third parties. (e) Deliveries. The Sellers shall have delivered or entered into the documents and instruments contemplated by this Agreement, in each case, in form and substance satisfactory to the Company and its counsel. (f) ADC Approvals and Consents. ADC shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities, if any, required to be made in connection with the execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the continued operation of the business of ADC subsequent to the Closing Date, and ADC shall have received all required authorizations, waivers, consents and permits to permit the consummation of the transactions contemplated by this Agreement, in the form and substance reasonably satisfactory to the Company, with any conditions or limitations contained therein or imposed thereby subject to the approval of the Company, from all third parties, including, without limitation, applicablegovernmental authorities, regulatory agencies, lessors, lenders and contract parties, required in connection with transactions contemplated by this Agreement or by ADC's permits, leases, licenses and franchises, to avoid a breach, default, termination, acceleration or modification of any agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award as a result of the execution or performance of this Agreement, or otherwise in connection with the execution and performance of this Agreement. (g) Material Adverse Changes. There shall not have been since the date of this Agreement, any change or series of changes that, in the reasonable business judgment of the Company, acting in good faith, have or could reasonably be anticipated to have a material adverse effect on the properties, business, condition (financial or otherwise) or prospects of ADC. (h) Proceedings Satisfactory to the Company. All proceedings to be taken by the Sellers in connection with the consummation of the Closing and the other transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transaction contemplated hereby reasonably requested by the Company will be reasonably satisfactory in the form and substance to the Company and its counsel. (i) Minimum Number of Shares of ADC Common Stock to be Transferred. On or before the Closing Date, a sufficient number of Other Selling Stockholders shall have become parties to this Agreement such that (i) at the Closing, CDVI will acquire at least 840,001 shares of ADC Common Stock and (ii) immediately after the Closing, CDVI will own beneficially and of record at least 2,240,001 shares of ADC Common Stock, representing 80% or more of the issued and outstanding shares of ADC Common Stock. (j) The transactions contemplated by that certain Asset Purchase Agreement (the "APA") between ADC and New Brighton Ventures, Inc. dated as of March 18, 1996 shall have closed in accordance with the terms of the APA and the documents and other instruments attached to or referred to in the APA shall have been executed and delivered. Section 5.02. Conditions to the Obligations of the Sellers The obligations of the Sellers to consummate the transactions contemplated by this Agreement are subject to the fulfillment of, prior to or at the Closing, the following additional conditions precedent: (a) Representations; Warranties; Covenants. Each of the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of the Closing Date; the Company shall, on or before the Closing Date, have performed and satisfied all of its covenants and agreements set forth herein which by the terms hereof are to be performed and satisfied by the Company on or before the Closing Date; and the Company shall have delivered to the Sellers a certificate as of the Closing Date certifying to the foregoing effect. (b) Opinion of Counsel and Other Documents. On the Closing Date (i) the Sellers shall have received an opinion of counsel for the Company, dated as of the Closing Date and addressed to the Sellers, substantially in the form attached as Exhibit 5.02(b)(i) hereto, (ii) Wagenheim and Pew shall have received a tax opinion from Briggs and Morgan Professional Association substantially to the effect that the acquisition by CDVI of the ADC Common Stock held by CDG and Pew solely in exchange for DAKA Common Stock will constitute a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Code and no taxable gain or loss will be recognized to CDG and Pew upon the exchange of their ADC Common Stock solely for DAKA Common Stock, and (iii) such other certificates and documents as counsel to the Sellers shall have reasonably requested from the Company at least five (5) business days prior to the Closing Date. (c) No Actions or Proceedings. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened which seeks to enjoin, restrain or prohibit, or might result in damages in respect of, this Agreement or the complete consummation of the transactions as contemplated by this Agreement. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party which enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions as contemplated by this Agreement. (d) General Releases. Each of DAKA, ADC and Edgebrook, Inc., a Minnesota corporation and a stockholder of ADC, shall have executed and delivered to each of CDG, Wagenheim, and Pew a general release substantially in the form of Exhibit 5.02(d) attached hereto. (e) Minimum Number of Shares of ADC Common Stock to be Transferred. On or before the Closing Date, a sufficient number of Other Selling Stockholders shall have become parties to this Agreement such that (i) at the Closing, CDVI will acquire at least 840,001 shares of ADC Common Stock and (ii) immediately after the Closing, CDVI will own beneficially and of record at least 2,240,001 shares of ADC Common Stock, representing 80% or more of the issued and outstanding shares of ADC Common Stock. (f) The transactions contemplated by the APA shall have closed in accordance with the terms of the APA and the documents and other instruments attached to or referred to in the APA shall have been executed and delivered. (g) The Acknowledgment Agreement by and among DAKA, ADC and Arthur E. Pew, III shall have been executed and delivered to Pew by DAKA and ADC on or before the Closing. ARTICLE VI. TERMINATION OF AGREEMENT Section 6.01. Termination This Agreement may be terminated any time prior to the Closing Date as follows: (a) With the mutual consent of CDVI and the Sellers owning a majority of the Shares. (b) By either CDVI or the Sellers owning a majority of the Shares, if the Closing has not occurred on or before June 1, 1996; provided, however, that if the only reason why the Closing has not occurred is that the condition set forth in Section 5.01(f) has not been satisfied, then such date shall be automatically extended until August 31, 1996. (c) By CDVI, if there has been a material misrepresentation or breach of warranty on the part of any Seller in the representations and warranties contained herein or a material breach of covenants on the part of any Seller and the same has not been cured within 10 days after notice thereof. In the event of any termination pursuant to this Section 6.01(c), written notice setting forth the reasons therefor shall forthwith be given by CDVI to the Sellers. (d) By Sellers owning a majority of the Shares, if there has been a material misrepresentation or breach of warranty on the part of the Company in the representations and warranties contained herein or a material breach of covenants on the part of the Company and the same has not been cured within 10 days after notice thereof. In the event of any termination pursuant to this Section 6.01(d), written notice setting forth the reasons therefor shall forthwith be given by the Sellers to the Company. (e) By Sellers owning a majority of the Shares, if the Closing Price (as defined in Section 1.02 hereof) of the DAKA Common Stock is less than $21.00; provided, however, that such termination shall be deemed rescinded and not effective if CDVI elects to adjust the consideration for the Shares as provided in Section 1.03. Notwithstanding anything herein to the contrary, the right to terminate this Agreement under Section 6.01 shall not be available to any party to the extent the failure of such party, respectively, to fulfill any of its obligations under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date (as a result, for example, of an action or failure to act causing a failure of a condition precedent). Section 6.02. Effect of Termination All obligations of the parties hereunder shall cease upon any termination pursuant to Section 6.01; provided, however, that (i) the provisions of this Article VI shall survive any termination of this Agreement; (ii) the Sellers' general release set forth in Section 1.04 hereof shall be and remain fully effective and unconditional regardless of such termination, except in the event of termination by the Sellers pursuant to Section 6.01(d); (iii) nothing herein shall relieve any party from any liability for amaterial error or omission in any of its representations or warranties contained herein or a material failure to comply with any of its covenants, conditions or agreements contained herein; and (iv) any party may proceed as further set forth in Section 6.03 below. Section 6.03. Right to Proceed Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Section 5.01 hereof have not been satisfied, the Company shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder, and if any of the conditions specified in Section 5.02 hereof have not been satisfied, the Sellers, by a decision of the Sellers owning a majority of the Shares, shall have the right to proceed with the transactions contemplated hereby without waiving any of their rights hereunder. ARTICLE VII. SURVIVAL; INDEMNIFICATION Section 7.01. Survival of Representations, Warranties, Etc All representations, warranties, agreements, covenants and obligations herein or in any schedule or certificate delivered by any party incident to the transactions contemplated hereby are material and may be relied upon by the party receiving the same and shall survive the Closing regardless of any investigation by or knowledge of such party and shall not merge into the performance of any obligation by any party hereto. Section 7.02. Indemnification by the Sellers (a) CDG, Wagenheim, Pew, PDSFC and Tenpas, on behalf of themselves and their respective successors, executors, administrators, estates, heirs and permitted assigns, jointly and severally, and (b) the other Selling Stockholders, on behalf of themselves and their respective successors, executors, administrators, estates, heirs and permitted assigns, severally and not jointly, agree subsequent to the Closing Date to indemnify and hold harmless the Company, ADC, their respective affiliates and their respective shareholders, officers, directors, employees and agents (individually, a "Company Indemnified Party" and collectively, the "Company Indemnified Parties") from and against and in respect of all losses, liabilities, obligations, damages, deficiencies, actions, suits, proceedings, demands, assessments, orders, judgments, fines, penalties, costs and expenses (including the reasonable fees, disbursements and expenses of attorneys, accountants and consultants) of any kind or nature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing) sustained, suffered or incurred by or made against a party entitled to indemnification (a "Loss" or "Losses"), as such losses are incurred, arising out of, based upon or in connection with: (i) conditions, circumstances or occurrences which constitute or result in any breach of any representation or warranty made by any Seller in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thingcovered by any such representations or warranties (collectively, "Representation and Warranty Claims"); (ii) any breach of any covenant or agreement made by any Seller in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such covenant or agreement; (iii)any fees and expenses of the Sellers (including without limitation legal fees and accounting fees) relating to the execution, delivery and performance of this Agreement paid, assumed or otherwise borne by ADC. Section 7.03. Limitations on Indemnification by Stockholders (a) Subject to the exceptions set forth in Section 7.03(b), with respect to any particular indemnification claim asserted by the Company Indemnified Parties under Section 7.02, the particular Seller who has breached a representation or warranty or covenant as to himself or herself or itself shall be primarily liable with respect to such claim for the full amount of such claim and the non-breaching Sellers (subject to the further limitation that the liability of the Other Selling Stockholders shall be several and not joint) shall be liable with respect to such claim only to the extent that the full amount of such indemnification claim is not recoverable by the Company Indemnified Parties from the breaching Seller. (b) Dollar-for-Dollar Claims. Notwithstanding anything herein to the contrary, recovery by Company Indemnified Parties on account of indemnification claims made pursuant to Section 7.02 hereof shall not be subject to any limitation, whether pursuant to this Section 7.03 or otherwise, and they shall be entitled to dollar-for-dollar recovery, in seeking indemnification from any Seller with respect to (i) Losses arising from fraud or an intentional misrepresentation on the part of any Seller; (ii) Losses arising from intentional breach of a covenant by any Seller; (iii) Losses involving a breach by a Seller of the representations and warranties contained in Sections 2.02 and 2.03 Section 7.04. Indemnification by the Company The Company agrees to indemnify and hold harmless the Sellers from and against and in respect of all Losses sustained, suffered or incurred by or made against any of them arising out of, based upon or in connection with (a) conditions, circumstances or occurrences which constitute or result in any breach of any representation or warranty made by the Company in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such representations and (b) any breach of any covenant or agreement made by the Company in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceedingasserted or instituted arising out of any matter or thing covered by any such covenant or agreement. Section 7.05. No Limitation of Rights Notwithstanding anything herein to the contrary, the limitations set forth in this Article VII shall apply only with respect to post-Closing indemnification obligations and shall in no way limit any rights the Company or Sellers may have in law or equity in the event the Closing does not occur. Section 7.06. Notice; Defense of Claims Promptly after receipt by an indemnified party of notice of any claim, liability or expense to which the indemnification obligations hereunder would apply, the indemnified party shall give notice thereof in writing to the indemnifying party, but the omission to so notify the indemnifying party promptly will not relieve the indemnifying party from any liability except to the extent that the indemnifying party shall have been prejudiced as a result of the failure or delay in giving such notice. Such notice shall state the information then available regarding the amount and nature of such claim, liability or expense and shall specify the provision or provisions of this Agreement under which the liability or obligation is asserted. If within 20 days after receiving such notice the indemnifying party gives written notice to the indemnified party stating that (i) it would be liable under the provisions hereof for indemnity in the amount of such claim if such claim were successful, (ii) that it shall be fully responsible (with no reservation of any rights) for all liabilities relating to such claim, liability or expense and that it will provide full indemnification (whether or not otherwise required hereunder) to the indemnified party with respect to such claim, liability or expense and (iii) that it disputes and intends to defend against such claim, liability or expense at its own cost and expense, then counsel for the defense shall be selected by the indemnifying party (subject to the consent of the indemnified party which consent shall not be unreasonably withheld) and the indemnified party shall not be required to make any payment with respect to such claim, liability or expense as long as the indemnifying party is conducting a good faith and diligent defense at its own expense; provided, however, that the assumption of defense of any such matters by the indemnifying party shall relate solely to the claim, liability or expense that is subject or potentially subject to indemnification, and provided further that prior to such assumption of defense the indemnifying party shall enter into an agreement with the indemnified party in form and substance satisfactory to the indemnified party pursuant to which the indemnifying party unconditionally guarantees the payment and performance of any liability or obligation which may arise out of or in any way relating to such claim, liability or expense or the facts giving rise thereto. The indemnifying party shall have the right, with the consent of the indemnified party, which consent shall not be unreasonably withheld, to settle all indemnifiable matters related to claims by third parties which are susceptible to being settled provided its obligation to indemnify the indemnifying party therefor will be fully satisfied. The indemnifying party shall keep the indemnified party apprised of the status of the claim, liability or expense and any resulting suit, proceeding or enforcement action, shall furnish the indemnified party with all documents and information that the indemnified party shall reasonably request and shall consult with the indemnified party prior to acting on major matters, including settlement discussions. Notwithstanding anything herein stated to the contrary, the indemnified party shall at all times have the right to fullyparticipate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party, undertake the defense of (with counsel selected by the indemnified party), and shall have the right to compromise or settle (exercising reasonable business judgment), such claim, liability or expense. If such claim, liability or expense is one that by its nature cannot be defended solely by the indemnifying party, then the indemnified party shall make available all information and assistance that the indemnifying party may reasonably request and shall cooperate with the indemnifying party in such defense. ARTICLE VIII. REGISTRATION RIGHTS Section 8.01. Definitions As used in this Article VIII, the following terms shall have the following meanings: "Advice" has the meaning set forth in Section 8.03. "Affiliate" means, with respect to any specified person, any other person who, directly or indirectly, controls, is controlled by, or is under common control with such specified person. "Commission" means the Securities and Exchange Commission. "Controlling Persons" has the meaning set forth in Section 8.05(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Holder" means (i) any Seller and (ii) each person (other than DAKA and its Affiliates) to whom any Seller transfers Securities as provided in Section 8.07 hereof, if the person to whom such Securities are transferred acquires such Securities as Registrable Securities. "Lock-up Period" has the meaning set forth in Section 8.06. "Lock-up Request" has the meaning set forth in Section 8.06. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and by all other amendments and supplements to the prospectus, including post-effective amendments, and in each case including all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Registrable Securities" means the Securities; provided, however, that any Securities shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities become eligible for sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (iii) such Securities cease to be outstanding. "Registration Statement" means any registration statement of DAKA that covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Securities" means the shares of DAKA Common Stock issued to the Sellers pursuant to this Agreement so long as they are owned beneficially and of record by a Holder. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Suspension Notice" has the meaning set forth in Section 8.03. "Suspension Period" has the meaning set forth in Section 8.03. Section 8.02. Resale Registration (a) Filing; Effectiveness. If on any one (1) occasion after October 1, 1996, one or more Holders holding an aggregate of at least 9,000 Registrable Securities shall notify DAKA in writing that they intend to offer or cause to be offered for public resale all or any portion of their Registrable Securities, DAKA will notify all of the Holders of Registrable Securities of its receipt of such notification and upon the written request of any such Holder delivered to DAKA within 15 days after receipt from DAKA of such notification, DAKA shall use reasonable efforts to prepare and file a registration statement on Form S-3 (the "Resale Registration Statement") under the Securities Act covering the resale by such Holders of their Registrable Securities pursuant to Rule 415 under the Securities Act from time to time in transactions not involving any underwritten public offering and use reasonable efforts (i) tocause such Resale Registration Statement to be declared effective by the Commission for such Registrable Securities as soon as practicable thereafter and (ii) to keep the Resale Registration Statement continuously effective until the earliest of (x) the date on which such Holders no longer hold any Registrable Securities registered under the Resale Registration Statement or (y) the second anniversary of the Closing Date; provided, however, that (A) upon the request of one or more Holders holding an aggregate of at least 9,000 Registrable Securities received prior to October 1, 1996, DAKA will proceed promptly and in good faith to prepare the Resale Registration Statement, even if DAKA is not required to file it with the Commission until October 1, 1996, so as to avoid a delay past October 1, 1996 in making such filing and (B) if DAKA prior to October 1, 1996 files any registration statement with the Commission under the Securities Act (other than on Form S-4 or a similar form relating to business combinations or exchanges or Form S-8 or a similar form relating to any employee benefit plan), then DAKA shall give the Holders notice thereof and the Holders may demand registration pursuant to this Section 8.02 immediately after such filing. DAKA shall not be required to cause a registration statement requested pursuant to this Section 8.02 to become effective prior to 90 days following the effective date of a registration statement initiated by DAKA if any managing underwriter named in such registration statement has advised DAKA in writing that the registration or sale of additional securities by stockholders of DAKA within such 90-day period would have a material adverse effect on the likelihood of success of such underwritten offering; provided, however, that DAKA shall use its best efforts to achieve such effectiveness promptly following such 90-day period if the request pursuant to this Section 8.02 has been made prior to the expiration of such 90-day period. DAKA may postpone the filing of any Registration Statement required hereunder for a reasonable period of time, not to exceed 60 days, if DAKA has been advised by outside legal counsel that such filing would require the disclosure of a material transaction or other matter and DAKA determines reasonably and in good faith that such disclosure would have a material adverse effect on DAKA; provided, however, that DAKA shall (A) use reasonable efforts to disclose such material transaction or other matter as soon as in its good faith judgment it is prudent to do so and (B) may so postpone such filing only if all other persons who are named as selling securityholders under then effective registration statements filed by DAKA with the Commission and all directors of DAKA are advised of the fact that a material transaction or other matter is not being disclosed during the length of such postponement and of the consequences of such nondisclosure under the Securities Act and the Exchange Act. (b) Effective Registration. A registration will not be deemed to have been effected as a Resale Registration unless the Resale Registration Statement with respect thereto has been declared effective by the Commission; provided, however, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Resale Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Resale Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Resale Registration Statement may legally resume. Section 8.03. Registration Procedures In connection with the obligations of DAKA to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, DAKA shall use reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof, and in connection therewith: (a) DAKA shall prepare and file with the Commission a Registration Statement on Form S-3 or other similar form under the Securities Act which permits secondary sales of securities in a "shelf registration," and use reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; (b) DAKA shall promptly prepare and file with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders set forth in such Registration Statement or supplement to the Prospectus; (c) DAKA shall promptly furnish to any Holder such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder; (d) DAKA shall, on or prior to the date on which a Registration Statement is declared effective, use reasonable efforts to register or qualify the Registrable Securities covered by such Registration Statement under such other securities or "blue sky" laws of such states of the United States as any Holder requests; provided, however, that DAKA shall not be required (i) to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 8.03(d) or (ii) to file any general consent to service of process; (e) DAKA shall promptly notify each Holder, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending thequalification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As soon as practicable following expiration of the Suspension Period (as defined below), DAKA shall prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In the case of a Resale Registration Statement, each Holder, upon receipt of any notice (a "Suspension Notice") from DAKA of the happening of any event of the kind described in Section 8.03(e)(v), shall forthwith discontinue disposition of the Registrable Securities pursuant to the Resale Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 8.03(e) or until it is advised in writing (the "Advice") by DAKA that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by DAKA, such Holder will, or will request any broker-dealer acting as such Holder's agent or as an underwriter to, deliver to DAKA (at DAKA's expense) all copies, other than permanent file copies then in such Holder's or broker-dealer's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; provided, however, that in no event shall the period from the date on which any Holder receives a Suspension Notice to the date on which any Holder receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 8.03(e) (the "Suspension Period") exceed 60 days; and provided further that such Suspension Notice shall not be effective unless DAKA has contemporaneously given an analogous notice to all other persons named as selling securityholders in then effective registration statements filed by DAKA with the Commission and to DAKA's directors. In the event that DAKA shall give any Suspension Notice, the time periods for which a Resale Registration Statement is required to be kept effective pursuant to Section 8.02 hereof shall be extended by the number of days during the Suspension Period. Section 8.04. Registration Expenses DAKA shall bear all expenses incurred in connection with the registration of the Registrable Shares pursuant to Section 8.02 of this Agreement. Such expenses shall include, without limitation, all printing, legal and accounting expenses incurred by DAKA and all registration and filing fees imposed by the Commission, any state securities commission or the NASDAQ National Market. The Holders shall be responsible for any brokerage or underwriting commissions and taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registrable Securities and for any legal, accounting and other expenses incurred by them. Section 8.05. Indemnification and Contribution (a) Indemnification by DAKA. DAKA agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder, its partners, officers, directors, trustees, stockholders, employees and agents, and each person who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under common control with, or is controlled by, such Holder, together with the partners, officers, directors, trustees, stockholders, employees and agents of such controlling person (collectively, the "Controlling Persons"), from and against all losses, claims, damages, liabilities and expenses (including without limitation reasonable legal fees and expenses incurred by any Holder or any such Controlling Person documented in writing) (collectively, the "Damages") to which such Holder, its partners, officers, directors, trustees, stockholders, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, or caused by any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if DAKA shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such Damages arise out of or are based upon any such untrue statement or omission based upon information relating to such Holder furnished in writing to DAKA by such Holder specifically for use therein; provided, however, that DAKA shall not be liable to any Holder under this Section 8.05(a) to the extent that any such Damages were caused by the fact that such Holder sold Securities to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, and only if, (i) DAKA has previously furnished copies of such amended or supplemented Prospectus to such Holder and (ii) such Damages were caused by any untrue statement or omission or alleged untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. (b) Indemnification by the Holders. Each Holder agrees, severally and not jointly, to indemnify and hold harmless DAKA, its stockholders, directors, officers and each person, if any, who controls DAKA within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from DAKA to such Holder, but only with reference to information relating to such Holder furnished in writing to DAKA by such selling Holder specifically for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); provided, however, that such selling Holder shall not be obligated to provide such indemnity to the extent that such Damages result from the failure of DAKA to promptly amendor take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information provided by such selling Holder to DAKA expressly for such purpose. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Contribution. To the extent that the indemnification provided for in paragraph (a) or (b) of this Section 8.05 is unavailable to an indemnified party or insufficient in respect of any Damages, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of DAKA on the one hand and the Holders on the other hand in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of DAKA on the one hand and of the Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by DAKA or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If indemnification is available under paragraph (a) or (b) of this Section 8.05, the indemnifying parties shall indemnify each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 8.05(c). DAKA and each Holder agrees that it would not be just or equitable if contribution pursuant to this Section 8.05(c) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. Section 8.06. Restrictions on Sale In the event of an underwritten public offering for the account of DAKA, upon the written request (the "Lock-up Request") of the managing underwriter (or underwriters) of such offering, each Holder agrees not to effect any public sale or distribution of any securities similar to those being registered in such offering (other than pursuant to such offering), including, without limitation, through sales of Securities pursuant to a Resale Registration Statement, during the 14 days prior to, and during the 90-day period beginning on the effective date of the Registration Statement relating to such offering (the "Lock-up Period"); provided, however, that the Holders shall not be required to comply with such Lock-up Request unless DAKA simultaneously demands analogous restrictions on sale and uses all reasonable efforts to obtain from all other persons who are contractually bound with DAKA to comply with such Lock-up Requests and from DAKA's directors. In the event of the delivery of a Lock-up Request, the time periods for which a Resale Registration Statement is required to be kept effective pursuant to Section 8.02 hereof shall be extended by the number of days during the Lock-up Period. Section 8.07 Transfer of Registration Rights The registration rights of the Sellers and any Holders under this Article VIII may be transferred to any transferee of Registrable Securities that acquires at least 1,000 shares of Registrable Securities (appropriately adjusted for stock splits, stock dividends and the like). Each such transferee shall be deemed to be a "Holder" for purposes of this Article VIII. ARTICLE IX. MISCELLANEOUS Section 9.01. Law Governing This Agreement shall be construed under and governed by the internal laws, and not the law of conflicts, of the State of Minnesota. Section 9.02. Notices Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered or sent by facsimile transmission (promptly followed by hard copy confirmation), upon receipt, or if sent by registered or certified mail upon the sooner of the expiration of three days after deposit in United States post office facilities properly addressed with postage prepaid or acknowledgment of receipt, as follows: To the Company: One Corporate Place 55 Ferncroft Road Danvers, MA 01923 Attn: Charles W. Redepenning, Jr. Senior Vice President and General Counsel with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109-2881 Attn: Ettore Santucci, P.C. To Wagenheim c/o Steven J. Wagenheim and the Other 2397 Palmer Drive Selling Stockholders: New Brighton, MN 53112 with a copy to: Briggs and Morgan 2400 IDS Center Minneapolis, MN 55402 Attn: Avron L. Gordon, Esquire To Pew: Arthur E. Pew, III 2515 Manitou Island White Bear Lake, MN 55110 To PDSFC: PDS Financial Corporation 6442 City West Parkway, Suite 300 Minneapolis, MN 55344 Attn: David R. Mylrea Chief Operating Officer To Tenpas: Douglas B. Tenpas 4653 Ewing Avenue South Minneapolis, MN 55410 or to such other address of which any party may notify the other parties as provided above. Section 9.03. Prior Agreements Superseded. This Agreement supersedes all prior understandings and agreements among the parties relating to the subject matter hereof. Section 9.04. Assignability This Agreement shall be assignable by the Company (a) prior to the Closing to a subsidiary of the Company although no such assignment shall relieve the Company of any liabilities or obligations under this Agreement and (b) after the Closing, to any person. This Agreement shall not otherwise be assignable by the Company without the prior written consent of Sellers owning a majority of the Shares or (except as otherwise permitted by Section 8.07 hereof) by any Seller without prior written consent of the Company. This Agreement shall be binding upon and enforceable by, and shall inure to the benefit of, the parties hereto and their respective successors, heirs, executors, administrators and permitted assigns, and no others. Notwithstanding the foregoing, nothing in this Agreement is intended to give any person not named herein the benefit of any legal or equitable right, remedy or claim under this Agreement, except as expressly provided herein. Section 9.05. Fees and Expenses Each of the parties to this Agreement shall pay his or her or its own expenses and costs associated with the negotiation, execution and delivery of this Agreement and any agreement or instrument contemplated hereby and the consummation of the transactions contemplated hereby, including all fees and expenses of counsel, accountants and financial advisors or other professionals acting on behalf of such party. Section 9.06. Publicity and Disclosures None of the parties hereto nor any of their respective stockholders, affiliates, officers, directors or employees shall issue or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the Company and Sellers owning a majority of the Shares, except to the extent disclosure is required by any applicable law or regulation or by any court or authorized administrative or governmental agency. Section 9.07. Captions and Gender The captions in this Agreement are for convenience only and shall not affect the construction or interpretation of any term or provision hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter pronoun, as the context may require. Section 9.08. Execution in Counterparts For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. Section 9.09. Certain Remedies; Severability It is specifically understood and agreed that any breach of this Agreement by any of the parties will result in irreparable injury to the aggrieved party, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy for such breach and that, in addition to any other remedy it may have, such aggrieved party shall be entitled to enforce the specific performance of this Agreement by the breaching party and to seek both temporary and permanent injunctive relief, without the necessity of proving actual damages, but without limitation of their rights to recover such damages. In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement. Section 9.10. Amendments; Waivers This Agreement may not be amended or modified except by a writing duly and validly executed by the Company and Sellers owning a majority of the Shares. Any party hereto may waive any covenant or condition intended for its benefit in its discretion, but delay on the part of any party in exercising any right, power or privilege hereunder shall not operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party arising out of or otherwise in respect of any inaccuracy in or breach of any representation or warranty, or any failure to perform or comply with any covenant or agreement, contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy, breach or failure is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy, breach or failure. Section 9.11. Exhibits and Schedules The Exhibits and Schedules to this Agreement are a part of this Agreement as if set forth in full herein. Any reference to this Agreement or any provision hereof shall be deemed to include a reference to the Schedules and Exhibits hereto. IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed as of the date set forth above. CASUAL DINING VENTURES, INC. By: /s/ Charles W. Redepenning, Jr. ---------------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President and General Counsel DAKA INTERNATIONAL, INC. By: /s/ Charles W. Redepenning, Jr --------------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President and General Counsel CHAMPPS DEVELOPMENT GROUP, INC. By: /s/ Steven J. Wagenheim -------------------------------- Steven J. Wagenheim President /s/ Steven J. Wagenheim ----------------------- Steven J. Wagenheim /s/ Arthur E. Pew, III ---------------------- Arthur E. Pew, III PDS FINANCIAL CORPORATION By: /s/ David R. Mylrea ---------------------------- David R. Mylrea Chief Operating Officer TENPAS By: /s/ Douglas B. Tenpas ------------------------------ Douglas B. Tenpas /s/ Kathleen R. Tenpas ---------------------- Kathleen R. Tenpas OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 19 , 1996 /s/ Robert Tinsley ------------------ ---------------------------------------------- Name: Robert Tinsley OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 19 , 1996 /s/ Donald Johansen ------------------ ----------------------------------------------- Name: Donald Johansen OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 19 , 1996 /s/ Sterling Brazier - ------------------------------------------------------------------------------- Name: Sterling Brazier OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 21 , 1996 /s/ Timothy Cary ------------------ -------------------------------------------- Name: Timothy Cary OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 19 , 1996 /s/ Anthony F. Kroeten ------------------ ------------------------------------------------ Name: Anthony F. Kroeten OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 20 , 1996 /s/ Debra Kroph Mastin --------------- --------------------------------------------------- Name: Debra Kroph Mastin OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 22 , 1996 /s/ Court Hawley ------------------ ------------------------------------------------ Name: Court Hawley OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 21 , 1996 /s/ Eric LaClair ----------------- ------------------------------------------------- Name: Eric LaClair OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 19 , 1996 /s/ Sally Touve - ------------------------------------------------------------------------------- Name: Sally Touve OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 18 , 1996 /s/ Mitchel Wachman ------------------ ------------------------=----------------------- Name: Mitchel Wachman OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 19 , 1996 /s/ Edmund Fadel - ------------------------------------------------------------------------------- Name: Edmund Fadel OTHER SELLING STOCKHOLDER'S SIGNATURE PAGE The undersigned hereby agrees to become a party to and be bound by that certain Stock Purchase Agreement dated as of March 18, 1996 by and among Casual Dining Ventures, Inc., DAKA International, Inc. and certain stockholders of Americana Dining Corp., a Minnesota corporation. Date: March 18 , 1996 /s/ David W. Walker ----------------- ---------------=--------------------------------- Name: David W. Walker EXHIBIT A CERTAIN STOCKHOLDERS OF AMERICANA DINING CORP. Robert Tinsley Donald Johansen Sterling Brazier Timothy Cary Anthony Kroeten Debra Kropf Mastin Court Hawley Eric LaClair Sally Touve Mitchel I. Wachman Edmund F. Fadel David Walker EX-2.4 5 ASSET PURCHASE AGREEMENT BETWEEN AMERICANA DINING CORP., AS SELLER AND NEW BRIGHTON VENTURES, INC., AS BUYER DATED: March ___, 1996 TABLE OF CONTENTS Exhibits: Exhibit A: Sublease Agreement Exhibit B: Sub-License Agreement Exhibit C: Promissory Note Exhibit D: Security Agreement Exhibit E: Assignment of Contracts, Licenses, Permits, Agreements, Warranties and Approvals Exhibit F: Stock Pledge Agreement Exhibit G: Limited Guaranty Exhibit H: Opinion of Seller Counsel Exhibit I: Lessor Consent and Certificate Exhibit J: Opinion of Buyer's Counsel Exhibit K: Interim Management Agreement Schedules: Schedule I: Assumed Contracts Schedule II: List of Furniture, Fixtures and Equipment Schedule III: Permitted Encumbrances ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "Agreement") is made and entered into as of the ___ day of March, 1996, by and between: (a) Americana Dining Corp., a Delaware corporation (the "Seller"). (b) New Brighton Ventures, Inc., a Minnesota corporation (the "Buyer"). RECITALS WHEREAS, Seller presently operates a restaurant and on-sale beverage business (collectively, the "Restaurant") located at 2397 Palmer Drive, New Brighton, Minnesota 55112 (the "Location"). WHEREAS, Seller owns furniture, fixtures, equipment and leasehold improvements, goodwill and other general intangibles at the Location. Buyer desires to purchase and have assigned and transferred to it such assets. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, it is hereby agreed by and between the parties as follows: ARTICLE CERTAIN DEFINITIONS Section 1 Definitions For purposes of this Agreement, the following terms shall have the meanings set forth below: "Assumed Obligations" means: All obligations accruing from and after the Date of Closing (as hereafter defined) under the Sublease and under the other leases, contracts, purchase agreements, permits, licenses and other obligations described on Schedule I attached hereto and other similar or replacement agreements entered into by Seller in the ordinary course of business of operating the Restaurant in accordance with past practice between the date hereof and the Date of Closing, including, without limitation, all base rent, common area charges, operating expenses and other similar costs, expenses, obligations and liabilities accruing under such agreements from and after the Date of Closing. All Taxes (as defined below) incurred by or on behalf of Buyer from and after the Date of Closing in connection with the operation of the Restaurant from and after the Date of Closing. The fees and expenses payable by Buyer under Section 14.8 below. To the extent not included above, any and all debts, liabilities and obligations which arise, result from, or relate in any way to the operation of the Restaurant by Buyer following the Date of Closing, including all amounts due any employees employed in connection with the operation of business conducted on the Location from and after the Date of Closing, including, without limitation, all salaries, wages and other amounts due such employees and all employee payroll deductions such as FICA, state and federal withholding taxes, unemployment compensation taxes, union or other required payments or deductions and all vacation or sick leave benefits or pay (but only to the extent that such amounts relate to services performed by such employees at the Location or such other location as previously designated by Mr. Wagenheim from and after the Date of Closing). "Main Lease" means the following: (a) Lease Agreement dated as of October 17, 1990 between Daniel W. Engelsma, Bruce W. Engelsma and Philip F. Boelter, as Trustees of the Lloyd Engelsma 1984 Family Trust, underIrrevocable Trust Agreement dated June 20, 1984, as Lessor (the "Main Lessor") and Renard Ventures, II, Ltd., as Tenant. (b) Amendment to Lease Agreement dated as of January 7, 1991. (c) Amendment to Lease Agreement dated as of February 26, 1991. (d) Assignment of Lease, Acceptance or Assignment and Consent to Assignment between Renard Ventures, II, Ltd. and Champps Entertainment, Inc. (e) Amendment No. 3 to Lease Agreement executed as of February 12, 1992 by the Sub-Lessor and the Main Lessor. "Sublease" means the Sublease Agreement to be executed between Buyer and Seller as of the Date of Closing in substantially the form of Exhibit A attached hereto. "Taxes" means all federal, state, local, foreign, and other taxes, including, without limitation, income taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes, employment and payroll-related taxes, withholding taxes, stamps taxes, transfer taxes and windfall profit taxes, whether or not measured in whole or in part by net income,and all deficiencies, or other additions, including interest, fines and penalties ARTICLE SALE AND PURCHASE OF ASSETS Section 2 Property to be Sold Seller, in consideration of the covenants and agreements of Buyer hereinafter set forth, does hereby agree to sell, transfer, assign and convey unto Buyer, its successors and assigns, the business and goodwill of the Restaurant and the tangible operating assets located at the Location and used in the operation of the Restaurant (collectively, the "Assets") (exclusive, however, of the assets described in Section 2.3 below), including, but not limited to the following: The furniture fixtures and equipment described on Schedule II attached hereto and all furniture, fixtures, equipment, furnishings, maintenance equipment and leasehold improvements, all trade fixtures, furnishings, machinery and equipment, cooking utensils, glassware, dishes, silverware, and supplies and other personal property located on or about the Location or used by Seller in the operation of the Restaurant at the Location. Customer lists, vendor lists, operating paper goods and business forms, rights to telephone numbers and directory listings and goodwill associated with the Restaurant. The Seller's interest, if any, in the service and maintenance contracts, real estate and equipment leases, permits and licenses and other contracts, permits and licenses pertaining to the operation of the Restaurant at the Location and described on Schedule I hereto. Section 2 "AS-IS" PURCHASE IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT BUYER HAS FULLY EXAMINED THE ASSETS AND HAS RELIED ON ITS OWN DISCRETION AND JUDGMENT WITH REGARD TO THE TRANSACTIONS CONTEMPLATED HEREUNDER. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE ASSETS HAVE BEEN SOLD ON AN "AS IS" AND "WHERE IS" BASIS, WITH NO REPRESENTATIONS OR WARRANTIES OF SELLER OF ANY KIND, TYPE OR NATURE, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY REGARDING THE VALUE, PAST, PRESENT OR FUTURE INCOME, COMPLIANCE WITH SPECIFICATIONS, SIZE, LOCATION, AGE, USE, MERCHANTABILITY, DESIGN, QUALITY, DESCRIPTION, DURABILITY, OPERATION OR CONDITIONS OF THE ASSETS, WHETHER VISIBLE OR NOT. Section 2 Excluded Assets Buyer and Seller expressly understand and agree that Seller has not agreed to sell, assign, transfer or convey (a) Seller's corporate minute book, stock books,accounts receivable and other rights to payment, bonds and savings certificates and bank accounts, (b) all trade names, trademarks, service marks, symbols, logos, copyrights and other proprietary materials or trade rights used by Seller in the operation of the Restaurant and all registrations, applications and licenses for any of the foregoing, it being understood that Buyer and Seller will, on the Date of Closing, enter into a Sub-License Agreement in substantially the form attached hereto as Exhibit B (the "Sub-License Agreement") whereby Buyer will obtain certain rights to use the foregoing in the operation of the Restaurant under the terms and conditions set forth in the Sub-License Agreement, and (c) all cash and cash equivalents except as otherwise provided in Article IV hereof. Section 2 Assets to be Transferred Free and Clear The Assets to be transferred by Seller to Buyer shall be transferred free and clear of all liabilities, obligations, security interests, and encumbrances, except for the security interests and encumbrances of Seller ("Permitted Encumbrances") set forth on Schedule III attached hereto. Section 2 Assumption of Liabilities Buyer, in consideration of the covenants and agreements of Seller hereinafterset forth, does hereby agree to assume and perform the Assumed Obligations. ARTICLE PURCHASE PRICE Section 3 Purchase Price and Payment Buyer, in consideration of the covenants and agreements of Seller, hereby agrees to pay to Seller as and for the purchase price for the Assets (exclusive of the price of inventory and cash-on-hand as provided in Article IV hereof) the sum of ONE MILLION THREE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($1,350,000) (the "Purchase Price"): (a) The sum of $70,000 shall be due and payable in cash or certified funds on the Date of Closing. (b) The balance of the Purchase Price (to wit: $1,280,000) shall be payable in the form of a promissory note (the "Note") to be executed and delivered as of the Date of Closing in substantially the form of Exhibit C attached hereto. Payment and performance of Note shall be secured by the following documents to be executed as of the Date of Closing: @Style #7@ (i) Security Agreement (the "Security Agreement") to be executed by the Buyer in substantially the form of Exhibit D attached hereto. @Style #7@ (ii) Assignment of Contracts, Licenses, Permits, Agreements, Warranties and Approvals (the "Assignment of Contracts") to be executed by the Buyer in the form of Exhibit E attached hereto. (iii) Stock Pledge Agreement (the "Stock Pledge Agreement") to be executed by Steven J. Wagenheim, and other stockholders of Buyer in the form of Exhibit F attached hereto. @Style #7@ (iv) Limited Guaranty (the "Limited Guaranty") be executed by Steven J. Wagenheim in the form of Exhibit G attached hereto. Section 3 Allocation of Purchase Price Buyer and Seller shall attempt in good faith to reach an agreement on or before the Date of Closing with regard to the allocation of the Purchase Price between the Assets to be acquired hereunder. The Purchase Price shall be allocated among the Assets in accordance with the agreement of the parties. Seller and Buyer shall prepare their federal, state, local and foreign tax returns in a manner which is consistent with allocation to be prepared in accordance with this Agreement, and, to the extent applicable, shall comply with, andfurnish information required by, Section 1060 of the Tax Code of 1986 and the treasury regulations thereunder. ARTICLE INVENTORY AND CASH-ON-HAND Buyer shall purchase on the Date of Closing, and Seller shall sell, all of Seller's inventory of non-obsolete food, miscellaneous saleable products and beverages (the "Inventory") located within the Location based on an inventory taken the night prior to the Date of Closing by representatives of Buyer and Seller. Such inventory of assets and supplies shall be in writing and shall describe the quantity of each item constituting a part of the Inventory. The Inventory shall be valued at the Seller's invoice prices, except that unusable or obsolete supply shall be written to zero value. The price of the Inventory, as determined in accordance with this Article IV, shall be accepted by the parties on the Date of Closing and shall be paid by Buyer, in cash, within fifteen (15) days from the Date of Closing. In addition to the foregoing, the Buyer shall tender cash to Seller on the Date of Closing in an amount equal to the Restaurant's cash-on-hand (consisting of so-called "change funds" at the Location) and such cash-on-hand shall be transferred to Buyer as of the Date of Closing. ARTICLE PRORATION The following items relating to the Assets will be prorated between Buyer and Seller as of the Closing Date: Pre-paid lease and service contracts and other items assumed by Buyer (except that there shall be no proration of prepaid fees under any management contract). Water and other utility charges, assignable deposits, rent and all other common area maintenance charges due under the Main Lease. Prepaid liquor and food license fees and other fees and other charges for licenses and permits assigned by Seller to Buyer (but only to the extent that such licenses and permits are assignable by Seller to Buyer under applicable law). Vacation pay and employee wages. All other items customarily prorated and adjusted in connection with the sale of property of the type contemplated by this Agreement. All prorations required under this Article V shall be allocated so that items relating to time periods prior to the Closing Date will be allocated to Seller and items relating to timeperiods beginning on or after the Closing Date will be allocated to Buyer (but only to the extent that such assets are part of the Assets acquired by Buyer hereunder and such liabilities are part of the Assumed Obligations assumed by Buyer). Seller shall provide Buyer with its written estimate of the amount payable by Buyer or Seller, as the case may be, under this Article V within ten (10) days of the Date of Closing. Buyer and Seller shall negotiate in good faith to resolve any disagreements concerning the adjustments contemplated under this Article V prior to the Date of Closing. In the event that the parties are unable to resolve any such disagreement within fifteen (15) days following delivery to Buyer of Seller's estimate, then, in such event, the parties shall submit the dispute to a mutually accepted independent accountant (the "Reviewing Accountant") to resolve such disagreement. Any determination by the Reviewing Accountant shall be completed by no later than ninety (90) days following the submission of the matter and shall be final, binding and conclusive with respect to the matters in dispute, absent fraud or manifest error. The fees of the Reviewing Accountant shall be proportioned equally between Buyer and Seller. The net amount of the prorations required hereunder shall be settled and paid in cash on or before the later of (a) June 1, 1996or (b) if prior to June 1, 1996 these matters are submitted to the Reviewing Accountant, within five days following receipt of the report of the Reviewing Accountant. If any terms prorated as of the Date of Closing are based on estimates (including, without limitation, percentage rents and common area charges under the Main Lease) such proration shall be adjusted at such time as the final adjustments of such payments are made and any amounts due Seller or Buyer, as the case may be, on account thereof shall be paid in cash within ten (10) days following such adjustment. ARTICLE CLOSING Section 6 Date of Closing The date of closing ("Date of Closing" or "Closing Date") shall occur at 9:00 a.m. on April 1, 1996. The closing shall take place at the offices of Briggs and Morgan, 2400 IDS Center, Minneapolis, Minnesota, or at such other place as the parties may agree. Buyer shall assume possession of the Restaurant and Assets at the Location as of midnight on March 31, 1996. Section 6 Deliveries of Seller At the closing, Seller shall deliver the following documents to Buyer: Such bills of sale, assumptions of obligations, assignments and other instruments of transfer, in form and substance reasonably satisfactory to Buyer, as shall be sufficient to transfer to Buyer all of Seller's right, title and interest in and to the Assets and all Assumed Obligations. Certified resolutions of Seller's Board of Directors to evidence Seller's authority to execute, deliver and perform this Agreement and the documents required to consummate the transactions contemplated by this Agreement. An opinion of counsel for Seller in substantially the form attached hereto as Exhibit H. An executed Sublease, together with an executed consent and estoppel certificate from the Main Lessor in substantially the form of Exhibit I attached hereto. An executed Sub-License, substantially in the form of Exhibit B, together with the consent thereto of Champps Entertainment, Inc. in form and substance reasonably acceptable to Buyer. The instruments of transfer to be delivered under this Section 6.2 shall (i) be in the form and will contain the warranties, covenants and other provisions which are usual and customary for transferring the type of property involved under the laws of thejurisdiction applicable to such transfer (provided, however, that such warranties and covenants shall not expand or be otherwise inconsistent with any of the representations, covenants or warranties of this Agreement), (ii) be in form and substance reasonably satisfactory to Buyer and its counsel, and (iii) effectively vest in Buyer good and marketable title to all the Assets free and clear of all liens, restrictions and encumbrances other than the Permitted Encumbrances. Section 6 Deliveries of Buyer At the closing, the Buyer (or Mr. Wagenheim, as appropriate) shall deliver to Seller the following: The Note, Security Agreement, Assignment of Contracts (together with one or more completed UCC-1 financing statements suitable for filing with the Minnesota Secretary of State and such local filing offices as Seller may determine). The Sublease. The Limited Guaranty and Stock Pledge Agreement (together with original certificates representing all issued and outstanding capital stock of Buyer with stock powers executed in blank). Certified resolutions of Buyer's Board of Directors and sole shareholder to evidence Buyer's authority to execute,delivery and perform this Agreement, the Note, Security Agreement and Assignment of Contracts and the other documents required to consummate the transactions contemplated by this Agreement. An opinion of counsel for Buyer in substantially the form of Exhibit J attached hereto. Insurance certificate showing that Buyer has in effect insurance in compliance with the Note and Security Agreement and naming the Seller as loss payee on casualty policies and as an additional insured party on liability policies. Such other documents, certificates and instruments as may be reasonably requested by Seller in connection with the transactions contemplated hereby. Section 6 Collection of Accounts Receivable From and after the Date of Closing, Buyer shall use reasonable commercial efforts in accordance with usual and customary business procedures to collect for the account of Seller the balance due under all credit card sales and other accounts receivable generated by Seller in connection with the operation of the Restaurant prior to the Date of Closing; provided, however, that Buyer shall not be obligated to Seller in any way for the collection of the accountsreceivables other than for the actual accounting to Seller of the money actually received for the account of Seller subsequent to the Closing Date and for a period of sixty (60) days thereafter. All amounts collected by the Buyer for the account of Seller under this Section 6.4 shall be immediately remitted to Seller. It is understood and agreed that Buyer shall not be required to institute litigation or other collection actions with respect to any of Seller's account debtors. ARTICLE CONDUCT OF BUSINESS Section 7 Conduct of Business up to Closing Date During the period between the date hereof and the Closing Date, Seller agrees that it will continue to operate the Restaurant diligently and only in the ordinary course of business. Seller will not take any action which will cause any material change in the operations of the Restaurant or in the properties utilized in its operations, other than changes in the ordinary course of business. Seller agrees to: Use its best efforts to preserve intact for Buyer the Restaurant's business and employees and the favor of the customers, suppliers and others having relations with the Restaurant in connection with the operation thereof. Refrain from making any sale or disposition of any asset or property to be acquired by the Buyer hereunder other than in the ordinary course of business, from purchasing any capital asset relating to the Restaurant costing more than $25,000 and from mortgaging, pledging, subjecting to a lien or otherwise encumbering any of the properties or assets to be acquired by Buyer hereunder. Refrain from making any change in the compensation payable or to become payable to any of the employees of the Restaurant. Promptly notify Buyer of any breach or default by Seller under the terms of this Agreement. Section 7 Authorization from Others Prior to the Closing Date, Seller will use its best efforts, but without cost to Seller, to obtain, the consent of the Lessor to the Sublease contemplated under sub-paragraph (d) of Section 6.2 above and all other authorizations, consents and permits of others required to permit the consummation by Seller of the transactions contemplated by this Agreement. Section 7 Consummation of Agreement Seller shall use its best efforts, but without cost to Seller, to perform and fulfill all conditions and obligations on its part to be performedand fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be fully carried out. Section 7 Non-Competition Seller agrees that, so long as the Sub-License remains in effect in accordance with its terms, Seller will not, without the express written consent of Buyer, within seven (7) miles from the Location, directly or indirectly, engage or participate in the ownership, operation, licensing, franchising (whether as owner, part-owner, shareholder, partner or otherwise) of restaurants that Buyer is able to show are substantially similar in trade dress and concept to "Champps Americana" restaurants, as such trade dress and concept is incorporated as of the Date of Closing in the Restaurant, except for any such restaurants that are currently in operation; provided, however, that Seller may make passive investments in a competitive enterprise, the shares of which are publicly traded, if such investment constitutes less than one percent (1%) of the equity of such enterprise. Without implied limitation, the foregoing covenant shall include: (i) until March 1, 1997 not hiring for or on behalf of Seller or any of its affiliates any officer or employee of Buyer; and (ii) not soliciting for hire by Seller or any of its affiliates any officer or employee of Buyer or any ofits affiliates and not encouraging for or on behalf of Seller or any of its affiliates any officer, employee, licensee, franchisee, supplier or other service provider to terminate his or her relationship with Buyer or any of its affiliates. Section 7 Employees Except as may be otherwise agreed by the parties as a result of good faith negotiation, Seller shall use its best efforts, but without cost to Seller, to insure that all existing employees of the Restaurant employed at the Location will, if required by Buyer on or prior to the Date of Closing, remain as employees following the Date of Closing contemplated herein. It is anticipated and agreed that such existing employees of Seller will become employees of the Buyer as of the Date of Closing. Buyer shall offer employment to all employees of the Restaurant employed at the Location except those listed on the schedule set forth in clause (b) below and all such employees who accept Buyer's offer of employment shall become employees of Buyer as of the Date of Closing. The parties acknowledge and agree that Buyer shall not acquire any rights or interests of Seller in, or assume or have any obligations or liabilities of Seller under, any employee benefit plans of Seller with the exception of vacationsaccrued but not taken as of the Date of Closing. Under no circumstances, however, shall the Buyer be obligated to retain any of Seller's existing employees following the Date of Closing. Not later than March 15, 1996, Buyer shall provide Seller with a schedule of the employees, if any, that will not be offered employment by the Buyer following the Date of Closing. If required by the Buyer prior to closing, Seller shall be free in its sole discretion to either re-assign or terminate the employment of the employees identified by Buyer on such schedule. Seller warrants that it will not, without the prior written consent of Buyer, enter into any contract of employment (except for the employment of hourly employees in the ordinary course of business) with respect to any employees of the Restaurant. Notwithstanding the foregoing, Buyer acknowledges that Seller has not provided the existing employees of the Restaurant with a notice of employment loss under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. ss.2101, et. seq., on the basis of the understanding and agreement of the parties that the transaction contemplated hereunder willnot result in an "employment loss" within the meaning of such statute. Section 7 Removal of Assets Seller shall not remove from the Location any of the physical Assets to be purchased hereunder (except for items replaced in the ordinary course of business with items of equivalent value). Section 7 Access Seller shall permit the Buyer, and its agents or employees, to have access to the Restaurant during ordinary business hours for the purpose of observing the operation of the Restaurant and reviewing the books and records of the Restaurant, all at the sole cost and expense of Buyer. Under no circumstances shall Buyer participate in the management of the Restaurant prior to closing and under no circumstances shall the Buyer have any liability for any disputes or damages arising from such management. Section 7 Termination of Management Agreements Seller shall, on or before the Date of Closing, and as a condition of closing: Terminate all existing management contracts or agreements with respect to the Restaurant. Except for the Permitted Encumbrances, obtain a release or termination of any liens or encumbrances on any ofthe Assets to be acquired under this Agreement, including, without limitation, the release or termination of that certain UCC-1 financing statement executed by Seller in favor of DAKA International Inc. ("DAKA") as ---- filed with the Minnesota Secretary of State on March 30, 1994 as File Number 1661931. Obtain the consent of the current mortgagee under that certain Combination Mortgage, Security Agreement and Fixture Filing executed by Seller in favor of DAKA on or about March 28, 1994. Subject to all applicable provisions of Article I hereof, pay and discharge as the same become due, all of Seller's trade obligations and liabilities required to be paid on or prior to the Closing Date with respect to Seller's ownership and operation of the Restaurant, including, but not limited to: All amounts due vendors or other persons providing goods, supplies or services to the Restaurant. All utilities, including sewer, water, gas, electric and other services. All amounts due any lessor under any lease for the Restaurant as of the Closing Date and as of any possession date of the Restaurant as basic rent, commonarea expense, percentage rent or other payment or charge required to be made by the lessee or sublessee thereunder, it being understood between Seller and Buyer that there shall be a pro rata and per diem adjustment between Seller and Buyer of said liabilities under such lease. All amounts due Seller's employees, including salaries, wages and other emoluments due such employees as of the Closing Date, also including employee payroll deductions such as FICA, state and federal withholding taxes, unemployment compensation taxes, union or other required payments or deductions, accrued employees' vacation pay or sick leave benefits. ARTICLE ASSUMPTION OF LIABILITIES Buyer shall assume on the Date of Closing all obligations, duties and liabilities arising under or with respect to any of the Assumed Obligations. Seller and Buyer acknowledge and agree that Buyer has not agreed to assume any of Seller's liabilities and obligations except for the Assumed Obligations. The assumption of the AssumedObligations by Buyer hereunder shall not enlarge any rights of third parties under contracts or arrangements with Buyer or Seller and nothing herein shall prevent any party from contesting in good faith with any third party any of said liabilities. Except as expressly provided herein, Buyer does not and shall not assume any liabilities or obligations of the Seller or any other person, corporation, partnership, or entity, incurred as a consequence of the ownership of the Assets or as a consequence of the operation of the Restaurant or as a consequence of this Agreement or the sale, assignment and transfer contemplated hereunder. Without limiting the generality of the foregoing, it is understood and agreed that Buyer shall not assume and shall not pay any of the following liabilities: Liabilities incurred by Seller in connection with this Agreement and the transactions provided for herein (including, without limitation, counsel and accountant's fees, and expenses pertaining to the performance by Seller of its obligations hereunder). Except as provided in Section 14.8 below, Taxes of Seller (whether relating to periods before or after the Date of Closing), including any liability for Taxes arising out of any transferee liability. Liabilities of Seller with respect to any options, warrants, agreements or convertible or other rights to acquire any shares of its capital stock of any class. Liabilities in connection with or relating to all actions, suits, claims, proceedings, demands, assessments and judgments, costs, losses, liabilities, damages, deficiencies and expenses (whether or not arising out of third-party claims), including, without limitation, interest, penalties, reasonable attorneys' and accountants' fees and all amounts paid in investigation, defense or settlement of any of the foregoing. ARTICLE CONDITIONS Section 9 Conditions to Obligations of Seller Unless waived by Seller in writing, the obligations of Seller to sell the Assets are subject to the satisfaction on or prior to the Closing Date of each of the following conditions: Buyer shall have delivered to Seller the documents and items identified in Section 6.3 hereof. Buyer shall have complied in all material respects with the covenants, agreements and conditions of Buyer contained herein to be performed at or prior to the closing. The transactions contemplated under the Stock Purchase Agreement (the "SPA") executed between DAKA and certain shareholders of Seller as of March ___, 1996 shall have closed in accordance with the terms of the SPA and the documents and other instruments attached to or referred to in the SPA shall have been executed and delivered. The representations and warranties of Buyer contained herein shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date and all actions, proceedings, instruments and documents required to carry out this Agreement and the transactions contemplated hereby and all related legal matters contemplated by this Agreement shall have been approved by counsel for Seller, and such counsel shall have received on behalf of Seller such other certificates, opinions, and documents in form satisfactory to counsel for Seller, as Seller may reasonably require from Buyer to evidence compliance with the terms and conditions hereof as of the closing and the correctness as of the closing of the representations and warranties of Buyer. Seller shall also have received all required authorizations, waivers, consents and permits to permit the transactions contemplatedby this Agreement, in form and substance reasonably satisfactory to Seller, from all third parties, including without limitation applicable governmental authorities, regulatory agencies, Seller's lessors, lenders and contract parties, required in connection with the transfer of Assets or Seller's contracts, permits, leases, licenses and franchises, to avoid a breach, default, termination, accelerations or modification of any agreement, contract, instruments, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award binding on Seller or otherwise applicable to the Restaurant as a result of, or in connection with, the execution and performance of this Agreement or as a result of any action taken by any party holding a mortgage, lien or other encumbrance on the Location. Seller shall diligently and in good faith undertake to obtain the approvals, licenses and other matters referred to in subsection (e) of this Section 9.1. Buyer shall reasonably cooperate with the Seller in the performance by the Seller of its obligations hereunder. Section 9 Conditions to Obligations of Buyer Unless waived by Buyer in writing, the obligations of Buyer to purchase the Assets are subject to the satisfaction on or prior to the Closing Date of each of the following conditions: Seller shall have delivered to Buyer the documents and items identified in Section 6.2 hereof. Seller shall have complied in all material respects with the covenants, agreements and conditions of Seller contained herein to be performed at or prior to the closing. The transactions contemplated under the SPA shall have closed in accordance with the terms of the Merger Agreement and the documents and other instruments attached to or referred to in the SPA shall have been executed and delivered. The representations and warranties of Seller contained herein shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date and all actions, proceedings, instruments and documents required to carry out this Agreement and the transactions contemplated hereby and all related legal matters contemplated by this Agreement shall have been approved by counsel for Buyer, and such counselshall have received on behalf of Buyer such other certificates, opinions, and documents in form satisfactory to counsel for Buyer, as Buyer may reasonably require from Seller to evidence compliance with the terms and conditions hereof as of the closing and the correctness as of the closing of the representations and warranties of Seller. Except as provided in Section 9.3 below, Buyer shall have received (i) all health, restaurant, food, liquor and other governmental licenses, permits and approvals necessary or appropriate, in the reasonable judgment of the Buyer, to the continued operation and management of the Restaurant, and (ii) all required authorizations, waivers, consents and permits to permit the continuation of the business of the Restaurant and the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to Buyer, from all third parties, including, without limitations, applicable governmental authorities, regulatory agencies, Seller's lessors, lenders, the holders of any mortgages or other liens on the Location and contract parties, required in connection with the transfer of Assets or Seller's contracts, permits, leases, licenses and franchises, to avoid a breach, default, termination, accelerations or modification of anyagreement, contract, instruments, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award binding on Seller or otherwise applicable to the Restaurant as a result of, or in connection with, the execution and performance of this Agreement or as a result of any action taken by any party holding a mortgage, lien or other encumbrance on the Location. Buyer shall diligently and in good faith undertake to obtain the approvals, licenses and other matters referred to in subsection (e) of this Section 9.2. Seller shall reasonably cooperate with the Buyer in the performance by the Buyer of its obligations hereunder. Section 9 Liquor License. This transaction shall be submitted to the appropriate licensing authorities of the City of New Brighton, Minnesota (the "City"), and any other governmental authority responsible for the issuance of first-class on-sale food and liquor licenses and Buyer and Seller shall each use their best efforts and utmost good faith and use all diligence to secure such licenses. Pending issuance of the food and liquor license referred to in this Section 9.3, the Buyer shall operate the Restaurant under authority of Seller's existinglicenses under the terms of an interim management agreement (the "Interim Management Agreement") in substantially the form of Exhibit K attached hereto. Notwithstanding anything to the contrary contained in Interim Management Agreement, Seller shall not be obligated to provide Buyer with overhead, corporate, accounting, legal and other similar services following the Date of Closing. In the event that either party is notified that the City will not permit the parties to continue operation of the Restaurant on the terms of the Interim Management Agreement, or in the event that Seller's existing food and beverage license shall become subject to any proceeding for the revocation of such license, or in the event that the existing license should not be renewed for reasons outside of Buyer's control, then, in any such event: The instruments of transfer referred to in Section 6.2 shall be returned to Seller and Buyer shall execute and deliver to Seller (or cause to be executed and delivered) all documents and instruments necessary to revest Seller with good and marketable title to the Assets (subject to the Permitted Encumbrances and suchother liens and encumbrances incurred by or on behalf of Seller). Seller shall return to Buyer all payments made by Buyer hereunder or under the Note, together with interest on such amount from the date of payment by Buyer to Seller, until repaid by Seller, at an annual rate of six (6) percent, less the actual net profit recovered by Buyer for the operation of the Restaurant and payable to Buyer under the Interim Management Agreement for the period beginning on the Date of Closing and ending on the date of retransfer contemplated under this Section 9.3. If, despite the best efforts of each party to obtain a liquor license, appropriate food and liquor licenses are terminated or not issued to Buyer until within one year following the Closing Date or upon formal notification of denial of such licenses by the City, whichever first will occur, and in the further event of a dispute or controversy with regard to the payments to be made or received in accordance with Section 9.3(a) above, then, in any such event, such a dispute or controversy shall be submitted to a final, binding and conclusive arbitration pursuant to Minn. Stat. ss. 572.08 et. seq. to be conducted in accordance with the rulesand procedures of the American Arbitration Association ("AAA"). Three independent arbitrators, one to be approved each of the parties and third by the two so chosen shall be selected, either based on mutual agreement or from the panel submitted by the AAA. The panel shall have authority, within its discretion to award, as part of its decision such additional amounts for actual damages, expenses, costs and attorney fees if it finds bad faith as to one of the parties. Additional, the panel may award interest at the annual rate of six percent (6%) from the date determined by the panel until such payments are paid. The decision of the arbitrators shall be final and binding, and for the purpose of entering any award, the decision may be reduced to a judgment of any court of appropriate jurisdiction. Notwithstanding the foregoing, Buyer or Seller or both shall be entitled to seek injunctive action against the City to enjoin the non-renewal or termination of the liquor license as a result of the transaction contemplated herein. If such injunction is granted, Section 9.3(a) shall not be implemented until final adjudication is exhausted. Notwithstanding anything to the contrary contained herein, or in any instrument of transfer delivered hereunder,the Buyer shall not acquire a pecuniary interest in the Restaurant prior to the issuance of the new licenses referred to in Section 9.3(a) in violation of any applicable state or local law or ordinance. ARTICLE TERMINATION OF AGREEMENT Section 10 Termination This Agreement and the transactions contemplated hereby may be terminated at any time prior to the Closing Date: By mutual written consent of Seller and Buyer. By either Buyer or by Seller if the closing shall not have occurred prior to the close of business on May 15, 1996, provided, however, that the party seeking to terminate this Agreement pursuant to this Section 10.1(b) may do so only if the failure to close shall not have resulted from the failure of such party to comply with any of the terms of this Agreement or from the inaccuracy of any representation or warranty of such party. ARTICLE SELLER REPRESENTATIONS As an integral part of this Agreement, and in order to induce Buyer to enter into this Agreement and purchase the Assets, Seller hereby covenants, represents and warrants to Buyer: Section 11 Execution and Delivery; Effect of Agreement Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full corporate power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is currently conducted or proposed to be conducted. Section 11 Authority of Seller Seller has full right, authority and power to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance by Seller of this Agreement and each such other agreement, documents and instrument have been duly authorized by all necessary action of Seller and no other action on the part of Seller is required in connection therewith. This Agreement and each agreement, document and instrument executed and delivered by Seller pursuant to this Agreement constitutes, or when executed and delivered will constitute, valid and binding obligations of Seller enforceable in accordance with their terms. The execution, delivery and performance by Seller of this Agreement and each such agreement, document and instrument: Does not and will not violate any provision of the Articles of Incorporation or by-laws of Seller. Does not and will not violate any laws of the United States, or any state or other jurisdiction applicable to Seller or require Seller to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained or made (except that certain governmental consents and authorizations are required in connection with the operation of a bar and restaurant business at the Location). Except for those consents required under the Main Lease, except for those liens or charges to be discharged at closing, does not and will not result in a breach of, constitute a default under, accelerate anyobligation under, or give rise to a right of termination of any indenture or loan or credit agreement or other permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Seller is a party or by which the property of Seller is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the Assets. Section 11 Conduct of Business To the knowledge of Seller: Except as disclosed on Schedule III attached hereto, Buyer will acquire at closing title to the Assets free from, and not subject to, any lien, mortgage, restriction, encumbrance or other charge of any kind. Seller is currently in possession of the Location pursuant to the Main Lease; Seller has not defaulted in the payment of performance of any obligation of Seller under the Main Lease. There are no collective bargaining agreements in effect with any of Seller's employees. Seller has and will pay all its trade payables and other obligations relating to the Restaurant which are due or required to be paid on or prior to the Date of Closing through the Date of Closing. Seller has prepared and filed with the appropriate United States, State and local governmental agencies, all tax returns required to be filed and has paid all taxes payable or which have become due pursuant to any assessments, deficiency notice, 30-day letter, or similar notice received by Seller, if any. Except as disclosed on Schedule III attached hereto, there is no claim, action, suit, proceeding, arbitration, investigation or inquiry pending before any Federal, probate, municipal, or other court, or any governmental administrative or self-regulatory body or agency, or any private arbitration tribunal, or to the Seller's knowledge threatened against, or relating to affecting Seller by reason of the Restaurant or the transactions contemplated by this Agreement. Seller has not: Except for the Permitted Encumbrances, mortgaged, pledged or subjected to lien or any other encumbrance any of the Assets. Sold, transferred, or leased any of the Assets, except for the sale of inventory in the ordinary course of business. As used herein, the terms "Seller's knowledge," "knowledge of Seller," or words of similar effect shall mean the actual personal knowledge of the employees of DAKA, without attribution for the knowledge of Mr. Wagenheim, Edmund Fadel or any employees of Seller who report directly to Messrs. Wagenheim or Fadel. ARTICLE REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller that: Section 12 Execution and Delivery; Effect of Agreement Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota with full corporate power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is currently conducted or proposed to be conducted. Section 12 Authority of Buyer Buyer has full right, authority and power to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Buyer pursuant tothis Agreement, including but not limited to the Note, Security Agreement, Assignment of Contracts and Sublease, and to carry out the transactions contemplated hereby. The execution, delivery and performance by Buyer of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary action of Buyer and no other action on the part of Buyer is required in connection therewith. This Agreement and each agreement, document and instrument executed and delivered by Buyer pursuant to this Agreement constitutes, or when executed and delivered will constitute, valid and binding obligations of Buyer enforceable in accordance with their terms. The execution, delivery and performance by Buyer of this Agreement and each such agreement, document and instrument: Does not and will not violate any provision of the Articles of Incorporation or Bylaws of Buyer. Does not and will not violate any laws of the United States, or any state or other jurisdiction applicable to Buyer or require Buyer to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that hasnot been obtained or made (except that certain governmental consents and authorizations are required in connection with the operation of a bar and restaurant business at the Location). As of the Date of Closing, the Stock Pledge Agreement and Limited Guaranty will represent legal, valid and binding obligations of Mr. Wagenheim and such instruments shall be enforceable against Mr. Wagenheim in accordance with their respective terms. Section 12 Consents No consent, approval or authorization of, or exemption by, or filing with, any governmental or regulatory authority or any other third party is required to be obtained by Buyer in connection with the execution, delivery or performance by Buyer of this Agreement, the Note, the Security Agreement, the Assignment of Contracts, the Stock Pledge Agreement or the Limited Guaranty, or the taking by Buyer of any other action contemplated hereby. Section 12 Title to Assets As of the Date of Closing, Buyer shall own the Assets free and clear of all liens and encumbrances, except for the Permitted Encumbrances and such other liens and encumbrances as may have been created by Seller prior to the Date of Closing. Section 12 Availability of Funds Buyer will have available at the closing sufficient funds to enable it to consummate the transactions contemplated by this Agreement. Section 12 Solvency The present fair saleable value of the assets of the Buyer will, immediately following the Date of Closing, exceed the amount that will be required to be paid on or in respect of its debts and other liabilities (including contingent liabilities) as they mature. The assets of the Buyer do not, and immediately following the Date of Closing will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. The Buyer does not intend to, or believe that it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by the Buyer and the amounts to be payable on or in respect of its obligations). Section 12 Litigation There is no litigation pending or, to Buyer's knowledge, threatened by or against or affecting Buyer, which seeks to enjoin, challenge the validity of this Agreement or obtain damages or other relief in respect of the consummation of the transaction contemplated hereby. Section 12 Representation by Counsel Buyer has been represented by legal counsel in connection with the transactioncontemplated in this Agreement and has relied upon such independent counsel with respect to all legal and tax consequence of the transaction contemplated herein. Section 12 Sophisticated Investor Buyer is a knowledgeable and sophisticated investor in assets of the type to be conveyed under this Agreement. Section 12 No Brokers Neither Buyer nor any of its affiliates has employed any broker, finder or agent in connection with the transactions contemplated by this Agreement, and neither Buyer not any of its affiliates has otherwise become obligated for any broker's, finder's, agent's or similar fee with respect to the transactions contemplated by this Agreement. ARTICLE SURVIVAL AND INDEMNIFICATION Section 13 Survival of Warranties All representations, warranties, agreements, covenants and obligations herein or in any schedule, exhibit, certificate or financial statement delivered by any party to the other party incident to the transactions contemplated hereby are material, shall be deemed to have been relied upon by the other party and shall survive the closing regardless of any investigation and shall not merge in the performance of any obligation by either party hereto; provided, however, that suchrepresentations, warranties, agreements, covenants and obligations shall expire on the same dates as and to the extent that the rights to indemnification with respect thereto under this Article XIII shall expire. Section 13 Indemnification by Seller Seller shall indemnify and hold Buyer and its respective subsidiaries and affiliates and persons servings as shareholders, officers, directors, partners or employees thereof (individually a "Buyer Indemnified Party" and collectively the "Buyer Indemnified Parties") harmless from and against any damages, liabilities, losses, taxes, fines, penalties, costs, and expenses (including, without limitation, reasonable fees of counsel) of any kind or nature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing pursuant to this Article XIII) (hereafter, "Losses") which may be sustained or suffered by any of them arising out or based upon any of the following matters: Fraud, intentional misrepresentation or a deliberate or wilful breach by Seller of any of their representations, warranties or covenants under this Agreement or in any certificate, schedule or exhibit delivered pursuant hereto. Any other breach of any representations, warranty or covenant of Seller under this Agreement or in any certificate, schedule or exhibit delivered pursuant hereto, or by reason of any claim, action or proceeding asserted or instituted growing out of any matter or thing constituting a breach of such representations, warranties or covenants. Any liability of Seller for Taxes owed by it payable for any period prior to the Date of Closing. Any and all claims, debts, liabilities and obligations of any type kind or nature which arose, result from or relate in any way to the operation of the Restaurant prior the Date of Closing, but only to the extent that such obligations do not constitute Assumed Obligations. The claim of any broker, finder or other agent employed by or on behalf of Seller. Any and all employment practices, decisions, actions or proceedings undertaken by Seller prior to the Date of Closing in connection with the operation of the Restaurant. Section 13 Limitations on Indemnification by Seller Notwithstanding the foregoing, the right of Buyer Indemnified Parties to indemnification under Section 13.1 shall be subject to the following provisions: No indemnification shall be payable pursuant to Section 13.2(b) above to any Buyer Indemnified Party, until Losses for which the Buyer may be indemnified hereunder exceed $35,000, whereupon the full amount of such Losses in excess of $20,000 shall be recovered in accordance with the terms hereof; provided, however, that under no circumstances shall the aggregate amount recovered or payable pursuant to Section 13.2(b) to any and all of the Buyer Indemnified Parties exceed the sum payable under Section 3.1 hereof. No indemnification shall be payable to a Buyer Indemnified Party with respect to claims asserted pursuant to Section 13.2(b) (exclusive of claims for indemnification for Taxes or tax related matters) after expiration of eighteen (18) months from the Date of Closing (the "Indemnification Cut-Off Date"). Section 13 Indemnification by Buyer Buyer agrees to indemnify and hold Seller and its respective, affiliates and persons serving as officers, directors or employees thereof and Mr. Pew (individually, a "Seller Indemnified Party" and collectively the "Seller Indemnified Parties") harmless from and against any damages, liabilities, losses and expenses (including, without limitation, reasonable fees of counsel) of any kind ornature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing pursuant to this Article XIII) (hereafter, "Losses") which may be sustained or suffered by any of them arising out of or based upon any of the following matters: A breach of any representations, warranty or covenants made by Buyer in this Agreement or in any certificate delivered by Buyer hereunder, or by reason of any claims, action or proceeding asserted or instituted growing out of any matter or thing constituting such a breach. Any and all failures of the Buyer to pay or to perform and discharge any of the Assumed Obligations. Any and all claims, debts, liabilities and obligations of any type kind or nature which arose, result from or relate in any way to the operation of the Restaurant after the Date of Closing. Any and all employment practices, decisions, actions or proceedings undertaken by Buyer following the Date of Closing in connection with the operation of the Restaurant. Section 13 Limitation on Indemnification by Buyer Notwithstanding the foregoing, the right of Seller Indemnified Partiesto Indemnification under Section 13.4 shall be subject to the following provisions: No indemnification shall be payable pursuant to Section 13.3(a) above to any Seller Indemnified Party, until Losses for which the Seller may be indemnified hereunder exceed $35,000, whereupon the full amount of such Losses in excess of $20,000 shall be recovered in accordance with the terms hereof. No indemnification shall be payable to Seller or Mr. Pew with respect to claims asserted pursuant to Section 13.3 above after the Indemnification Cut-Off Date. Section 13 Notice; Defense of Claims Promptly after receipt by an indemnified party of notice of any claim, liability or expense to which the indemnification obligations hereunder would apply, the indemnified party shall give notice thereof in writing to the indemnifying party, but the omission to so notify the indemnifying party promptly will not relieve the indemnifying party from any liability except to the extent that the indemnifying party shall have been prejudiced as a result of the failure or delay in giving such notice. Such notice shall state the information then available regarding the amount and nature of such claim, liability or expense and shall specify the provision or provisions of thisAgreement under which the liability or obligation is asserted. If within 20 days after receiving such notice the indemnifying party gives written notice to the indemnified party stating that it disputes and intends to defend against such claim, liability or expense at its own cost and expense, then counsel for the defense shall be selected by the indemnifying party (subject to the consent of the indemnified party which consent shall not be unreasonably withheld) and the indemnified party shall make no payment on such claim, liability or expense as long as the indemnifying party in conducting a good faith and diligent defense. Notwithstanding anything herein stated, the indemnified party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representations of both parties by the same counsel would be inappropriate under applicable standard of professional conduct, the expense of separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party,undertake the defense of such claim, liability or expense (with counsel selected by the indemnified party), and shall have the right to compromise or settle the same (exercising reasonable business judgment). If such claim, liability or expense is one that by its nature cannot be defended solely by the indemnify party, then the indemnified party shall make available all information and assistance that the indemnify party may reasonably request and shall cooperate with the indemnify party in such defense. Section 13 Calculation of Losses In calculating the amount of any Losses under this Agreement, the parties shall take into account, and reduce the Losses by an amount equal to (i) the net amount of any allowable present tax benefit, as a result of the circumstance giving rise to the Losses, (ii) the present value of any future tax benefit, as a result of the circumstance giving rise to the Losses, and (iii) the amount of any claim or recover available under any insurance policies or against any third parties. For purposes of determining the net amount of any present tax benefit, the marginal combined federal, state and local income tax rate of Buyer and Seller shall be deemed to be forty percent (40%) and payments shall be made on such basis. Subject to the provisions of Sections 13.3 and 13.4, Losses for which a person isrequired to indemnify another person hereunder shall be calculated on a dollar for dollar basis. ARTICLE MISCELLANEOUS Section 14 Entire Agreement This Agreement has been executed in conjunction with execution of the SPA and the closing contemplated hereunder shall be subject to the closing contemplated under the SPA. This Agreement (including the Exhibits and Schedules attached hereto) constitutes the entire understanding of the parties with respect to the matters provided for herein and supersedes any previous agreements and understanding between the parties with respect to the subject matter hereof. Matters disclosed by Seller to Buyer pursuant to any Section of this Agreement shall be deemed to be disclosed with respect to all sections of this Agreement. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto. Section 14 Successors and Assigns The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. This Agreement may not be assigned, in whole or inpart, by any party without the prior written consent of the other party hereto. Notwithstanding the foregoing, no assignment of this Agreement or any of the rights or obligations hereof shall release the assignor of his or its obligations under this Agreement and, upon any such assignment, the representations, warranties, covenants and agreements contained in this Agreement, plus any other representations, warranties, covenants and agreements reasonably required as a result of such assignment, shall be deemed to have been made by the assignee as well as by the assignor. Section 14 Risk of Loss Until this transaction is consummated the entire risk of loss with respect to the Assets and business of Seller shall be borne by Seller which shall, in all events, keep the Assets fully insured against loss, damage or destruction. From and after the closing of this transaction, risk of loss shall be borne by Buyer. In the event that prior to the Closing Date the Assets, or any portion thereof, are materially destroyed or damaged by fire or other casualty or loss, or the premises or buildings in which the Restaurant are located are so damaged or destroyed, Seller shall promptly notify Buyer in writing, and Buyer shall have ten (10) days after receipt of suchnotice to elect to (i) cancel and terminate this Agreement, or (ii) consummate the purchase contemplated hereby. In the event of such damage or destruction as described in Section 14.3(b) above, and Buyer elects to consummate the transaction contemplated hereby, Seller shall assign to Buyer all of Seller's rights under, and interest in, all of Seller's insurance policies and contracts and all other rights of Seller to seek indemnification for such loss or damage, all amounts recovered thereunder or thereby by Buyer to remain the sole property of Buyer. If Buyer does not rebuild, replace or restore assets which have been damaged or destroyed, or is prevented from doing so by law or under the terms of any lease applicable to the premises where such damage or destruction occurred, then all such amounts recovered, other than amounts recovered for lost profits or business interruption shall be paid to Seller and to be credited to the payment required under Section 6.2 of this Agreement. In the event of the damage or destruction referred to in Section 14.3(b) of this Agreement, and Buyer shall not elect to consummate the transactions contemplated by this Agreement, then upon termination and cancellation of thisAgreement, Seller shall refund to Buyer, together with interest thereon, the earnest money, if any, paid by Buyer to Seller under this Agreement. Section 14 Counterparts This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. Section 14 No Construction Against Author This Agreement shall not be construed more strictly against one party than against the other by virtue of the fact that it may have been drafted or prepared by counsel for one of the parties, it being recognized that Buyer and Seller have each contributed substantially and materially to the preparation of this Agreement. Section 14 Headings The headings of the Articles and Sections of this Agreement are included for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. Section 14 Modifications and Waivers Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to orshall constitute a waiver of any other provisions hereof (whether or not similar). Section 14 Fees and Expenses Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement, and, except as expressly provided herein, no expenses of Seller relating in any way to the purchase and sale of the Assets hereunder and the transactions contemplated hereby, including, without limitation legal, accounting or other professional expenses of Seller, shall be charged or paid by Buyer or included in any of the Assumed Obligations. Buyer will pay all costs incurred, whether at or subsequent to the Date of Closing, in connection with any sales, use, excise, real property and transfer taxes and charges applicable to such transfer, all recording charges and title company fees and premiums applicable to the recordation of deeds and mortgages and other instruments of transfer and the issuance of the title insurance contemplated hereunder, and all costs of obtaining or transferring permits, registrations, applications and other tangible and intangible properties. Buyer will pay all premiums, charges and costs ofobtaining and providing surveys, appraisals, UCC and title searches for the benefit of Buyer with respect to the Assets. Notwithstanding anything to the contrary contained herein, the prevailing party in any litigation commenced hereunder shall be entitled to such parties fees and expenses, including reasonable attorneys fees and disbursements. Section 14 Publicity and Disclosures No press releases or public disclosure, either written or oral, of the transactions contemplated by this Agreement, shall be made by a party to this Agreement without the prior written consent of Buyer and Seller. Section 14 Notices Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, addressed as follows: If to Seller: c/o DAKA International, Inc. 1 Corporate Place 55 Ferncroft Road Danvers, Massachusetts 01923-4001 Attention: Charles W. Redepenning With copy to: Goodwin, Proctor & Hoar, LLP Exchange Place Boston, Massachusetts 02109 Attention: Ettore A. Santucci If to Buyer: 2397 Palmer Drive New Brighton, MN 53112 Attn: Stephen J. Wagenheim With copy to: Briggs and Morgan 2200 First National Bank Building St. Paul, Minnesota 55101 Attention: Richard D. Anderson or at such other address for a party as shall be specified by like notice. Any notice which is delivered personally in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party (or its agent for notices hereunder). Any notice which is addressed and mailed in the manner herein provided shall be conclusively presumed to have been duly given to the party to which it is addressed at the close of business, local time of the recipient, on the third day after the day it is so placed in the mail. Section 14 Governing Law This Agreement shall be construed in accordance with and governed by the laws of the State of Minnesota applicable to agreements made and to be performed insuch jurisdiction and without giving effect to the principles of conflicts of law of such jurisdiction. Section 14 Further Assurances At any time or from time to time after the Closing Date, either party shall, at the request of the other party, and at such other party's expense, execute and deliver any further instruments or documents and take all such further action as such party reasonably may request in order to consummate and make effective the transactions contemplated by this Agreement. Section 14 Severability If any provision hereof shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality, voiding or unenforceability of any such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. Section 14 Survival Except as set forth in Article XIII above, the representations, warranties, covenants and agreements set forth in this Agreement or in any writing delivered by Buyer or Seller hereunder shall survive the closing contemplated hereunder. Section 14 Legal Representation The parties acknowledge that the law firm of Briggs and Morgan has exclusively represented the Buyer in connection with the negotiation and execution of thisAgreement and that Seller has retained separate legal representation to review this Agreement. Seller has relied on its own independent legal review and analysis and the advice of its independent legal counsel in connection with the negotiation and execution of this Agreement and not upon the advice of counsel of Briggs and Morgan. The parties further acknowledge that Briggs and Morgan has performed certain services for Seller in connection with the organization and incorporation of Seller and that Briggs and Morgan may, if requested by Buyer, perform certain services for Buyer following the Date of Closing. The parties hereby waive any claim of conflict of interest in connection with the representation referred to in this Section 14.15 and agree that Briggs and Morgan shall not be disqualified by reason of its representation of Buyer from representation of Buyer in connection with any dispute or controversy arising out of this Agreement or out of any of the documents referred to herein. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered on the day and year first above written. NEW BRIGHTON VENTURES, INC., a Minnesota corporation BY: /s/ Steven J. Wagenheim --------------------------- Its: President AMERICANA DINING CORPORATION, a Delaware corporation By: /s/ Charles W. Redepenning, Jr. ----------------------------------- Its: Sr. Vice President EX-2.5 6 The Great Bagel and Coffee Company STOCK PURCHASE AGREEMENT Dated as of March 29, 1996 TABLE OF CONTENTS ARTICLE I. PURCHASE AND SALE OF SHARES 1.01. Plan; Purchase and Sale of the Shares 1.02. Consideration 1.03. Closing 1.04. Deliveries at Closing 1.05. Actions Subsequent to Closing ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE GB&C ENTITIES AND THE STOCKHOLDERS 2.01. Organization and Corporate Power 2.02. Capitalization 2.03. Authority of each GB&C Entity and each Stockholder 2.04. Ownership of Capital Stock; Related Rights 2.05. Investment Representations 2.06. Real and Personal Property 2.07. Financial Statements 2.08. Taxes 2.09. Collectibility of Accounts Receivable 2.10. Inventories 2.11. Absence of Certain Developments 2.12. Intellectual Property 2.13. Contracts 2.14. Litigation 2.15. Insurance 2.16. Warranty or Other Claims 2.17. Finder's Fee 2.18. Transactions with Interested Persons 2.19. Permits; Compliance with Laws 2.20. Environmental Compliance 2.21. Disclosure 2.22. Employees; Labor Matters 2.23. Customers, Distributors and Suppliers 2.24. Banking Relations 2.25. Powers of Attorney 2.26. Corporate Records;Copies of Documents 2.27. Employee Benefit Programs 2.28. List of Directors and Officers 2.29. Non-Foreign Status 2.30. Transfer of Shares 2.31. Attributes Regarding Pooling Accounting 2.32. Definition of the GB&C Entities' Knowledge i 2.33. Stockholder Personal Guaranties ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.01. Organization 3.02. Certificate of Incorporation and By-Laws 3.03. Capitalization 3.04. Authority Relative to this Agreement 3.05. Consents and Approvals; No Violations 3.06. SEC Reports 3.07. Absence of Certain Changes 3.08. Brokers 3.09. DAKA Common Stock 3.10. Definition of the Company's Knowledge 3.11. Disclosure 3.12. No Investment Company 3.13. Tax Representations ARTICLE IV COVENANTS OF THE GB&C ENTITIES AND THE STOCKHOLDERS 4.01. Conduct of Respective Businesses of the GB&C Entities Pending the Transactions Contemplated Hereby 4.02. Sale of Shares; Acquisition Proposals 4.03. Breach of Representations and Warranties 4.04. Confidentiality 4.05. Further Action; Reasonable Best Efforts 4.06. Access 4.07. Financial Information 4.08. General Release 4.09. Affiliates of the GB&C Entities ARTICLE V. COVENANTS OF THE COMPANY 5.01. Consents and Approvals 5.02. Confidentiality ARTICLE VI. CONDITIONS 6.01. Conditions to the Obligations of the Company 6.02. Conditions to the Obligations of the Stockholders ARTICLE VII. TERMINATION OF AGREEMENT 7.01. Termination 7.02. Effect of Termination 7.03. Right to Proceed ii ARTICLE VIII. SURVIVAL; INDEMNIFICATION 8.01. Survival of Representations, Warranties, Etc 8.02. Indemnification by the Stockholders 8.03. Limitations on Indemnification by Stockholders 8.04. Indemnification by the Company 8.05. Limitations on Indemnification by the Company 8.06. Notice; Defense of Claims 8.07. Indemnification by the GB&C Entities ARTICLE IX. REGISTRATION RIGHTS 9.01. Definitions 9.02. Resale Registration 9.03. Registration Procedures 9.04. Registration Expenses 9.05. Indemnification and Contribution 9.06. Restrictions on Sale 9.07. Transfer of Registration Rights ARTICLE X. NON-COMPETITION AGREEMENT 10.01. Non-Competition Agreement ARTICLE XI. MISCELLANEOUS 11.01. Fees and Expenses 11.02. Accounting Matters and Tax Returns 11.03. Governing Law 11.04. Notices 11.05. Entire Agreement 11.06. Assignability 11.07. Captions and Gender 11.08. Execution in Counterparts 11.09. Amendments; Waivers 11.10. Publicity and Disclosures 11.11. Specific Performance 11.12. Severability iii STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is made as of this ___ day of March, 1996, by and among DAKA International, Inc., a Delaware corporation (the "Company" or "DAKA"), The Great Bagel and Coffee Franchising Corp., a Delaware corporation ("GB&C1"), GBC Credit Company, a Nevada corporation ("GB&C2"), Gemini Production Facility, Inc. an Arizona corporation ("GB&C3"), The Great Bagel and Coffee Company, an Arizona corporation ("GB&C4"), Mark C. Gordon, Brian H. Loeb, Jason R. Olivier, Michael F. Zerbib, Nicholas D. Zerbib, and Thierry E. Zerbib. GB&C1, GB&C2, GB&C3 and GB&C4 are referred to herein individually as a "GB&C Entity" and collectively as the "GB&C Entities." Mark C. Gordon, Brian H. Loeb, Jason R. Olivier, Michael F. Zerbib, Nicholas D. Zerbib and Thierry E. Zerbib are referred to herein individually as a "Stockholder" and collectively as the "Stockholders." W I T N E S S E T H WHEREAS, Mark C. Gordon is the record and beneficial owner of 0.98 of a share of the common stock, no par value per share, of GB&C1, 0.98 of a share of the common stock, no par value per share, of GB&C2, 0.98 of a share of the common stock, no par value per share, of GB&C3, and 1.96 shares of the common stock, no par value per share, of GB&C4; and WHEREAS, Brian H. Loeb is the record and beneficial owner of 12.005 shares of the common stock, no par value per share, of GB&C1, 12.005 shares of the common stock, no par value per share, of GB&C2, 12.005 shares of the common stock, no par value per share, of GB&C3, and 24.01 shares of the common stock, no par value per share, of GB&C4; and WHEREAS, Jason R. Olivier is the record and beneficial owner of 51 shares of the common stock, no par value per share, of GB&C1, 51 shares of the common stock, no par value per share, of GB&C2, 51 shares of the common stock, no par value per share, of GB&C3, and 102 shares of the common stock, no par value per share, of GB&C4; and WHEREAS, Michael F. Zerbib is the record and beneficial owner of 12.005 shares of the common stock, no par value per share, of GB&C1, 12.005 shares of the common stock, no par value per share, of GB&C2, 12.005 shares of the common stock, no par value per share, of GB&C3, and 24.01 shares of the common stock, no par value per share, of GB&C4; and WHEREAS, Nicholas D. Zerbib is the record and beneficial owner of 12.005 shares of the common stock, no par value per share, of GB&C1, 12.005 shares of the common stock, no par value per share, of GB&C2, 12.005 shares of the common stock, no par value per share, of GB&C3, and 24.01 shares of the common stock, no par value per share, of GB&C4; and WHEREAS, Thierry E. Zerbib is the record and beneficial owner of 12.005 shares of the common stock, no par value per share, of GB&C1, 12.005 shares of the common stock, no par value per share, of GB&C2, 12.005 shares of the common stock, no par value per share, of GB&C3, and 24.01 shares of the common stock, no par value per share, of GB&C4; and WHEREAS, the Stockholders collectively own all of the issued and outstanding capital stock of all of the GB&C Entities (the "Shares"); and WHEREAS, the Stockholders desire to transfer to DAKA all of the Shares in exchange for shares of the common stock, par value $.01 per share, of DAKA (the "DAKA Common Stock") to be issued to the Stockholders by DAKA and DAKA desires to acquire from the Stockholders all of the Shares in exchange for such shares of DAKA Common Stock in an arrangement (i) that will qualify as a reorganization under the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) that will be accounted for as a pooling of interests, whereby, after giving effect to such transactions, DAKA will own beneficially and of record the Shares, on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I. PURCHASE AND SALE OF SHARES. 1.01. Plan; Purchase and Sale of the Shares. The Company and the Stockholders hereby adopt plans of reorganization pursuant to the provisions of Section 368(a)(1)(B) with respect to each of the GB&C Entities. The terms and conditions governing these plans of reorganization are hereinafter set forth. Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants herein set forth, the Company hereby agrees to purchase from the Stockholders, and the Stockholders hereby agree to sell and deliver to the Company, at the Closing (as hereinafter defined in Section 1.03 hereof), the Shares free and clear of any and all liens, claims, options, charges, encumbrances or rights of any nature ("Claims"). 1.02. Consideration. Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants set forth herein, and in consideration of the sale and delivery by the Stockholders of the Shares, the Company hereby agrees to issue to the Stockholders for the Shares an aggregate number of shares of DAKA Common Stock calculated by dividing (i) $7,871,736, by (ii) the Closing Price, with each Stockholder receiving the percentage of shares of DAKA Common Stock set forth next to such Stockholder's name on Schedule 1.02 attached hereto. For purposes of this Agreement, the term "Closing Price" shall mean the average per share closing sale price of DAKA Common Stock as reported on the Nasdaq National Market over the thirty (30) trading days immediately preceding the third trading day prior to the Closing Date. No fractional shares will be issued by the Company to the Stockholders. Instead, the total number of shares of DAKA Common Stock to be issued to each Stockholder (regardless of whether such Stockholder's Shares are represented by a single or multiple certificates) will be rounded up or down to the nearest number of whole shares of DAKA Common Stock (or in the case of .5, to the next higher whole number). Reference is made to the representations and warranties of the Stockholders set forth in Section 2.05 hereof, including, without limitation, the acknowledgment and understanding that (a) the DAKA Common Stock to be issued to the Stockholders hereunder has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws, (b) the DAKA Common Stock to be issued to the Stockholders hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless such transfer or disposition does not require registration under said laws, and (c) the Company will place a restrictive legend to the foregoing effect on the certificate(s) representing the DAKA Common Stock to be issued to the Stockholders hereunder. At the written request of the Stockholders furnished not later than 30 days following the Closing Date, the Company shall allocate the aggregate number of shares of DAKA Common Stock among each of the GB&C Entities, based on the relative fair market values of each of the GB&C Entities (as determined by the Stockholders (it being acknowledged that the Company has not participated in the determination of such relative value)), and issue replacement certificates to each of the Stockholders; it being the intent of each Stockholder, if written request is made therefor, to receive the consideration set forth in this Section 1.02 based on the relative value of each of the GB&C Entities. 1.03. Closing. The sale and delivery and the purchase and acceptance of the Shares (the "Closing") shall take place at the offices of the Company not later than five days after the day on which all of the conditions to Closing set forth in Article VI (other than conditions to be satisfied at the Closing which shall be satisfied or waived as of the Closing) have been satisfied or waived in accordance with the terms hereof, such day being referred to herein as the Closing Date. Notwithstanding anything in Section 7.01 to the contrary, in the event all conditions to Closing have been satisfied or waived on or prior to the applicable termination date specified therein, then neither party shall be entitled to exercise its right of termination as contemplated therein by reason of the fact that this Section 1.03 contemplates that the Closing shall occur five days after satisfaction or waiver of all such conditions, such provision being included for the convenience of the parties and their counsel in connection with the Closing. 1.04. Deliveries at Closing. At the Closing, (a) each Stockholder shall deliver a certificate or certificates representing all Shares owned beneficially and of record by such Stockholder, together with stock powers (or the equivalent) duly executed in blank and such other documents as may be required to transfer to the Company good and valid title to such Shares free and clear of all Claims, (b) DAKA shall deliver to each Stockholder a certificate or certificates representing the appropriate number of shares of DAKA Common Stock bearing the legend provided in Section 2.05(d) hereof issued in the name of such Stockholder, (c) each Stockholder shall deliver the instruments provided by Sections 4.08 and 4.09 hereof and(d) each Stockholder shall resign any office such Stockholder holds as a director and/or officer of any GB&C Entity effective as of the Closing Date. All transfer, excise or similar taxes arising out of the sale or delivery of the Shares to the Company shall be paid by the Stockholders. 1.05. Actions Subsequent to Closing. The Stockholders and the Company after the Closing, and without further consideration, shall from time to time execute and deliver or cause to be executed and delivered such further instruments of transfer, assignments, consents or documents as may be reasonably necessary or appropriate to carry out the intent and purposes hereof. ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE GB&C ENTITIES AND THE STOCKHOLDERS In order to induce the Company to enter into this Agreement, the Stockholders, jointly and severally, make to the Company the representations and warranties contained in this Article II, except that the representations and warranties in Sections 2.03(b) and 2.04 are made severally by each Stockholder as to himself. 2.01. Organization and Corporate Power. (a) GB&C1 is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required. GB&C has all required corporate power and authority to own its property, to carry on its business as presently conducted or contemplated, to enter into and perform this Agreement and generally to carry out the transactions contemplated hereby. The copies of the Certificate of Incorporation and By-laws of GB&C1, as amended to date, which have been furnished to counsel for the Company by GB&C1, are correct and complete at the date hereof. GB&C1 is not in violation of any term of its Certificate of Incorporation or By-laws, or in violation of any term of any material agreement, instrument, judgment, decree, order, or, except as reflected in schedules furnished to the Company hereunder as of the date hereof, any statute, rule or government regulation applicable to GB&C1. (b) GB&C2 is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and is qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required. GB&C2 has all required corporate power and authority to own its property, to carry on its business as presently conducted or contemplated, to enter into and perform this Agreement and generally to carry out the transactions contemplated hereby. The copies of the Certificate of Incorporation and By-laws of GB&C2, as amended to date, which have been furnished to counsel for the Company by GB&C2, are correct and complete at the date hereof. GB&C2 is not in violation of any term of its Certificate of Incorporation or By-Laws, or in violation of any term of any material agreement, instrument, judgment, decree, order, or, except as reflected in schedules furnished to the Company hereunder as of the date hereof, any statute, rule or government regulation applicable to GB&C2. (c) GB&C3 is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona, and is qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required. GB&C3 has all required corporate power and authority to own its property, to carry on its business as presently conducted or contemplated, to enter into and perform this Agreement and generally to carry out the transactions contemplated hereby. The copies of the Certificate of Incorporation and By-laws of GB&C3, as amended to date, which have been furnished to counsel for the Company by GB&C3, are correct and complete at the date hereof. GB&C3 is not in violation of any term of its Certificate of Incorporation or By-Laws, or in violation of any term of any material agreement, instrument, judgment, decree, order, or, except as reflected in schedules furnished to the Company hereunder as of the date hereof, any statute, rule or government regulation applicable to GB&C3. (d) GB&C4 is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona, and is qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required. GB&C4 has all required corporate power and authority to own its property, to carry on its business as presently conducted or contemplated, to enter into and perform this Agreement and generally to carry out the transactions contemplated hereby. The copies of the Certificate of Incorporation and By-laws of GB&C4, as amended to date, which have been furnished to counsel for the Company by GB&C4, are correct and complete at the date hereof. GB&C4 is not in violation of any term of its Certificate of Incorporation or By-Laws, or in violation of any term of any material agreement, instrument, judgment, decree, order, or, except as reflected in schedules furnished to the Company hereunder as of the date hereof, any statute, rule or government regulation applicable to GB&C4. 2.02. Capitalization. The authorized and issued capital stock of each of the GB&C Entities are as set forth in Schedule 2.02(a) hereto. All of the Shares have been duly and validly authorized and issued and are fully paid and non-assessable and have been issued in compliance with applicable federal and state securities laws. The Shares are held of record and beneficially by the Stockholders in the amounts indicated in Schedule 2.02(b) hereto, free and clear of any Claims. Except as set forth on Schedule 2.02(a) or Schedule 2.02(b), no Stockholder is the record or beneficial owner of any capital stock, partnership interest, shares of beneficial interest or other similar interest in any GB&C Entity. Except as provided above or in said Schedule 2.02(a), (i) there are no outstanding subscriptions, options, warrants, commitments, agreements, arrangements or commitments of any kind for or relating to the issuance, or sale of, or outstanding securities convertible into or exchangeable for, any shares of capital stock of any class or other equity interests of any of the GB&C Entities; (ii) no person has any preemptive right, right of first refusal or similar right to acquire the Shares, any other shares of capital stock of any of the GB&C Entities in connection with the transactions contemplated by this Agreement or otherwise; (iii) there are no restrictions on the transfer of any shares of capital stock of any of the GB&C Entities, other than those imposed by relevant state and federal securities laws; (iv) no person has any right to cause any of the GB&C Entities to effect the registration under the Securities Act of 1933, as amended, of any shares of its capital stock or any other securities (including debt securities); (v) none of the GB&C Entities has an obligation to purchase, redeem or otherwise acquire any of its equity securities or any interests therein, or to pay any dividend or make any other distribution in respect thereto; (vi) there are no voting trusts, stockholders' agreements, or proxies relating to any securities of any of the GB&C Entities and (vii) none of the GB&C Entities owns or has any direct or indirect interest in or control over any corporation, partnership, joint venture or other entity of any kind. 2.03. Authority of each GB&C Entity and each Stockholder. (a) Each of the GB&C Entities has full right, power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by it pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by each of the GB&C Entities of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary corporate action of each of the GB&C Entities and the Stockholders and no other corporate action on the part of any of the GB&C Entities or the Stockholders is required in connection therewith. This Agreement and each agreement, document and instrument to be executed and delivered by any of the GB&C Entities pursuant to or as contemplated by this Agreement constitute, or will when executed and delivered constitute, valid and binding obligations of each of the GB&C Entities, enforceable in accordance with their respective terms. Except as reflected in schedules furnished to the Company hereunder as of the date hereof, the execution, delivery and performance by each of the GB&C Entities of this Agreement and each such other agreement, document and instrument: (i) do not and will not violate any provision of the charter or by-laws of any of the GB&C Entities; (ii) do not and will not violate any laws of the United States, or any state or other jurisdiction applicable to any of the GB&C Entities or require any of the GB&C Entities to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained or made; (iii)do not and will not result in a breach of, constitute a default under, accelerate any obligation under, require a consent under, cause a termination under, or give rise to a right of termination of any indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award, whether written or oral, to which any of the GB&C Entities is a party or by which the property of any of the GB&C Entities is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the assets of any of the GB&C Entities. (b) Each Stockholder has full right, authority, power and capacity to enter into this Agreement and each agreement, document and instrument to be executed and delivered by him pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. This Agreement and each agreement, document and instrument to be executed and delivered by such Stockholder pursuant to or as contemplated by this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of such Stockholder, enforceable in accordance with their respective terms. Except as reflected in schedules furnished to the Company hereunder, the execution, delivery and performance by such Stockholder of this Agreement and each such agreement, document and instrument: (i) do not and will not violate any laws of the United States, or any state or other jurisdiction applicable to such Stockholder or such Stockholder to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained or made; (ii) do not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which such Stockholder is a party or by which the property of such Stockholder is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the assets or properties of any of the GB&C Entities. 2.04. Ownership of Capital Stock; Related Rights. (a) Each Stockholder owns beneficially and of record all of the Shares set forth opposite such Stockholder's name on Schedule 2.02(b) hereto. Upon delivery to the Company at the Closing of the certificates representing the Shares duly endorsed in blank for transfer or with stock powers attached duly executed in blank, against delivery of the consideration therefor described in Article I hereof, good and valid title to the Shares shall be transferred to the Company, free and clear of any and all Claims. (b) Except as set forth in Schedule 2.04, no Stockholder has any outstanding subscriptions, options, warrants, commitments, agreements, arrangements or commitments of any kind for or relating to the issuance, or sale of, or outstanding securities convertible into or exchangeable for, any shares of capital stock of any class or other equity interests of the GB&C Entities. No Stockholder has any preemptive right, right of first refusal or similar right to acquire the Shares or any other shares of capital stock of the GB&C Entities in connection with the transactions contemplated by this Agreement or otherwise. Except as set forth in Schedule 2.04, there are no restrictions on the transfer of the Shares by any Stockholder, other than those imposed by relevant state and federal securities laws, the GB&C Entities have no obligation to purchase, redeem or otherwise acquire any of the Shares or to pay any dividend or make any other distribution in respect thereto and there are no voting trusts or proxies binding upon any Stockholder relating to any of the Shares. 2.05. Investment Representations. (a) Each Stockholder is acquiring the shares of DAKA Common Stock to be issued to such Stockholder hereunder in exchange for such Stockholder's Shares for such Stockholder's own account for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, in violation of the Securities Act or any rule or regulation thereunder, as amended from time to time. (b) No Stockholder (i) is directly or indirectly controlled by, or acting on behalf of any person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, required to register as such under such Act. (c) Each Stockholder (i) has carefully reviewed the Company SEC Reports (as defined in Section 3.06 hereof) provided by the Company; (ii) has requested and received such other information, as it has deemed relevant, regarding the Company for purposes of evaluating its acquisition of the DAKA Common Stock to be issued to the Stockholders hereunder; (iii) is aware of the risks associated with an investment in the DAKA Common Stock; and (iv) has not received any form of general solicitation or advertising in connection with his or her or its decision to acquire the DAKA Common Stock to be issued to the Stockholders hereunder. No Stockholder has relied in any way on any information with respect to the DAKA Common Stock or the Company generally other than the representations of the Company contained herein or materials furnished by the Company in writing in connection herewith. (d) Each Stockholder acknowledges and understands that (i) the DAKA Common Stock to be issued to the Stockholders hereunder has not been registered under the Securities Act, or any state securities laws; (ii) the DAKA Common Stock to be issued to the Stockholders hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) it is subsequently registered under the Securities Act and applicable state securities laws or (y) such transfer or disposition does not require registration under said laws; and (iii) the Company will place a restrictive legend on the certificate(s) representing the DAKA Common Stock to be issued to the Stockholders hereunder, containing the following language: "The shares represented by this Certificate were issued without registration under the Securities Act of 1933, as amended (the "Act") and without registration under applicable state securities laws, in reliance upon exemptions contained in the Act and such laws. No transfer of these shares or any interest therein may be made except pursuant to effective registration statements under said laws unless such transfer or disposition does not require registration under said laws." (e) Each Stockholder (i) is able to bear the economic risks of the acquisition of shares of DAKA Common Stock hereunder and has adequate means of providing for current needs and possible contingencies; (ii) either alone or with his or her or its advisors has had the opportunity to ask questions and receive answers concerning the Company and the terms and conditions of the acquisition of DAKA Common Stock in exchange for the Shares, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith which the Company possesses or can acquire without unreasonable effort or expense; and (iii) together with his or her or its advisors, if any, has such knowledge and experience in financial and business matters that such Stockholder is capable of evaluating the merits and risks of this acquisition of DAKA Common Stock in exchange for the Shares, and of making an informed investment decision, and has relied solely upon the advice of his or her or its own counsel, accountant and other advisors, with regard to the legal, investment, tax and other considerations regarding such acquisition. 2.06. Real and Personal Property. (a) Real Property. The GB&C Entities own no real property. All of the real property leased by the GB&C Entities is identified on Schedule 2.06(a) (herein referred to as the "Leased Real Property") (i) Status of Leases. All leases of Leased Real Property are ---------------- identified on Schedule 2.06(a), and true and complete copies thereof have been delivered to the Company. Each of said leases has been duly authorized and executed by the respective GB&C Entity and is in full force and effect. Except as set forth in Schedule 2.06(a), none of the GB&C Entities is in default under any of said leases, nor has any event occurred which, with notice or the passage of time, or both, would give rise to such a default. Except as set forth in Schedule 2.06(a), to the GB&C Entities's knowledge, the other party to each of said leases is not in default under any of said leases and there is no event which, with notice or the passage of time, or both, would give rise to such a default. (ii) Consents. Except as set forth in Schedule 2.06(a), no consent or approval is required with respect to the transactions contemplated by this Agreement from the other parties to any lease of Leased Real Property, or from any regulatory authority, no filing with any regulatory authority is required in connection therewith, and to the extent that any such consents, approvals or filings are required, the GB&C Entities or the Stockholders will use their best efforts to obtain or complete them before the Closing. (iii)Condition of Leased Real Property. Except as set forth in --------------------------------- Schedule 2.06(a), to the GB&C Entities' knowledge, there are no material defects in the physical condition of any land, buildings or improvements constituting part of the Leased Real Property, including without limitation, structural elements, mechanical systems, loading areas, and to the GB&C Entities' knowledge, all such buildings and improvements are in good operating condition and repair, have been well maintained and are free from infestation by rodents or insects. Access to the Leased Real Property is by a public way or public street. (iv) Compliance with the Law. None of the GB&C Entities ----------------------- has received any notice from any governmental authority of any violation of any law, ordinance, regulation, license, permit or authorization issued with respect to any Leased Real Property that has not been heretofore corrected and no such violation exists which could have an adverse affect on the operation or value of any Leased Real Property. All improvements located on or constituting part of the Leased Real Property and their use and operation by the GB&C Entities were and are now in compliance in all respects with all applicable laws, ordinances, regulations, licenses, permits and authorizations, expect as set forth in Schedule 2.06(a). No approval or consent to the transactions contemplated by this Agreement is required of any governmental authority with jurisdiction over any aspect of the Leased Real Property or its use or operations. None of the GB&C Entities has received any notice of any real estate tax deficiency or assessment or is aware of any proposed deficiency, claim or assessment with respect to any of the Leased Real Property, or any pending or threatened condemnation thereof. (b) Personal Property. A complete description of the material machinery and equipment of the GB&C Entities is contained in Schedule 2.06(b) hereto. Except as specifically disclosed in said Schedule or in the Base Balance Sheet (as hereinafter defined), each of the GB&C Entities has good and marketable title to all of its personal property. Except as set forth in Schedule 2.06(b) none of such personal property or assets is subject to any mortgage, pledge, lien, conditional sale agreement, security title, encumbrance or other charge except as specifically disclosed in said Schedule or in the Base Balance Sheet. The Base Balance Sheet reflects all personal property of each of the GB&C Entities. Except as otherwise specified in Schedule 2.06(b) hereto, all leasehold improvements, furnishings, machinery and equipment of each of the GB&C Entities are in good repair, have been well maintained, and substantially comply with all applicable laws, ordinances and regulations, and such machinery and equipment is in good working order (ordinary wear and tear excepted). 2.07. Financial Statements. (a) The GB&C Entities have delivered to the Company the following financial statements, copies of which are attached hereto as Schedule 2.07: (i) Consolidated balance sheet of the GB&C Entities as at February 29, 1996 and related statements of income, retained earnings and cash flows for the two (2) month period then ended (such base balance sheet as referred to herein as the "Base Balance Sheet"); (ii) Separate balance sheets of the GB&C Entities as at February 29, 1996 and related statements of income for the two (2) month period then ended; (iii)Consolidated balance sheet as at December 31, 1995 and related income statement of the GB&C Entities for the fiscal year then ended; (iv) Separate balance sheets as at December 31, 1995 and related income statements for each of the GB&C Entities for the fiscal year then ended; (v) Balance sheet as at December 31, 1994 and statement of operations and retained earnings for the fiscal year then ended for GB&C4; (vi) Balance sheet as at December 31, 1994 and statement of operations and retained earnings and statement of cash flows for the period from February 9, 1994 through December 31, 1994 for GB&C1. Said financial statements have been prepared in accordance with generally accepted accounting principles applied consistently during the periods covered thereby, are complete and correct in all material respects and present fairly in all material respects the financial condition of the GB&C Entities at the dates of said statements and the results of their operations for the periods covered thereby. (b) As of the date of the Base Balance Sheet, none of the GB&C Entities had any liabilities of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown (including without limitation, liabilities as guarantor or otherwise with respect to obligations of others, liabilities for taxes due or then accrued or to become due, or contingent or potential liabilities relating to activities of the GB&C Entities or the conduct of their business prior to the date of the Base Balance Sheet regardless of whether claims in respect thereof had been asserted as of such date), except liabilities stated or adequately reserved against on the Base Balance Sheet, or reflected in Schedules furnished to the Company hereunder as of the date hereof. (c) As of the date hereof and as of the Closing, none of the GB&C Entities has had and will have any liabilities of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown (including without limitation, liabilities as guarantor or otherwise with respect to obligations of others, or liabilities for taxes due or then accrued or to become due or contingent or potential liabilities relating to activities of the GB&C Entities or the conduct of their business prior to the date hereof or the Closing, as the case may be, regardless of whether claims in respect thereof had been asserted as of such date), except liabilities (i) stated or adequately reserved against on the Base Balance Sheet or the notes thereto, (ii) reflected in Schedules furnished to the Company hereunder on the date hereof, or (iii) incurred after the date of the Base Balance Sheet in the ordinary course of business of any GB&C Entity. 2.08. Taxes. (a) The GB&C Entities have paid or caused to be paid all federal, state, local, municipal, foreign, and other taxes, including without limitation income taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes, employment and payroll-related taxes, withholding taxes, stamp taxes, transfer taxes and property taxes, whether or not measured in whole or in part by net income, and all deficiencies, or other additions to tax, interest, fines and penalties owed by it (collectively, "Taxes"), required to be paid by it through the date hereof, whether disputed or not. (b) The GB&C Entities have in accordance with applicable law filed all federal, state, local and foreign tax returns required to be filed by them through the date hereof, and all such returns correctly and accurately set forth the amount of any Taxes relating to the applicable period. A list of all federal, state, local and foreign income tax returns filed with respect to the GB&C Entities after 1992 is set forth in Schedule 2.08 attached hereto. For every taxable period of each of the GB&C Entities ended on or after December 31, 1992, the GB&C Entities have delivered to the Company complete and correct copies of all federal, state, local and foreign income tax returns, examination reports and statements of deficiencies assessed against or agreed to by the GB&C Entities. Schedule 2.08 attached hereto sets forth all federal tax elections under the Internal Revenue Code of 1986, as amended (the "Code"), that are in effect with respect to each of the GB&C Entities or for which an application by the GB&C Entities is pending. (c) Neither the Internal Revenue Service nor any other governmental authority is now asserting or, to the knowledge of the GB&C Entities or the Stockholders, threatening to assert against any GB&C Entity any deficiency or claim for additional Taxes. No claim has ever been made by an authority in a jurisdiction where the GB&C Entities do not file reports and returns that any of the GB&C Entities is or may be subject to taxation by that jurisdiction. There are no security interests on any of the assets of any of the GB&C Entities that arose in connection with any failure (or alleged failure) to pay any Tax. None of the GB&C Entities has not entered into a closing agreement pursuant to Section 7121 of the Code. (d) Except as set forth in Schedule 2.08 attached hereto, there has not been any audit of any tax return filed by any of the GB&C Entities, no audit of any tax return of any of the GB&C Entities is in progress, and none of the GB&C Entities has been notified by any tax authority that any such audit is contemplated or pending. Except as set forth in Schedule 2.08, no extension of time with respect to any date on which a tax return was or is to be filed by any of the GB&C Entities is in force, and no waiver or agreement by any of the GB&C Entities is in force for the extension of time for the assessment or payment of any Taxes. (e) None of the GB&C Entities has ever consented to have the provisions of Section 341(f)(2) of the Code applied to it. None of the GB&C Entities has agreed to, and none of the GB&C Entities has been requested by any governmental authority to, make any adjustments under Section 481(a) of the Code by reason of a change in accounting method or otherwise. None of the GB&C Entities has ever made any payments, or is obligated to make any payments, or is a party to any agreement that under certain circumstances would obligate it to make any payments, that will not be deductible under Section 280G of the Code. Each of the GB&C Entities has disclosed on its federal income tax returns all positions taken therein that could give rise to a penalty for underpayment of federal Tax under Section 6662 of the Code. None of the GB&C Entities has ever had any liability for unpaid Taxes because it is a member of an "affiliated group" (as defined in Section 1504(a) of the Code). Except as set forth in Schedule 2.08 attached hereto, the GB&C Entities are not a party to any tax sharing agreement. (f) Schedule 2.08 sets forth the following information with respect to the GB&C Entities as of the most recent practicable date (as well as on an estimated pro forma basis as of the Closing Date giving effect to the consummation of the transactions contemplated hereby): the tax basis of the GB&C Entities in their assets and liabilities and the amount of any unused and unexpired net operating loss, net capital loss, investment credit, foreign tax credit, other credit or excess charitable contribution carryforwards of the GB&C Entities; For purposes of this Section 2.08, all references to Sections of the Code shall include any predecessor provisions to such Sections and any similar provisions of federal, state, local or foreign law. 2.09. Collectibility of Accounts Receivable. Except as set forth on Schedule 2.09 all of the accounts receivable of the GB&C Entities shown or reflected on the Base Balance Sheet or existing at the date hereof (less the reserve for bad debts set forth on the Base Balance Sheet) are and all the accounts receivable of the GB&C Entities existing on the Closing Date will then be valid and enforceable claims, fully collectible and subject to no setoff or counterclaim. Except as set forth on Schedule 2.09 the GB&C Entities do not have any accounts or loans receivable from any person, firm or corporation which is affiliated with the GB&C Entities or from any director, officer, employee or Stockholder of the GB&C Entities. 2.10. Inventories. Except as disclosed in Schedule 2.10, all inventory items shown on the Base Balance Sheet or existing at the date hereof are and all inventories existing on the Closing Date will then be of a quality and quantity saleable in the ordinary course of business of the Company. All inventory items disclosed on Schedule 2.10 as exceptions pursuant to the immediately preceding sentence reflect write-downs to realizable values in the case of items which have become obsolete or unsalable through regular distribution channels in the ordinary course of the business of the GB&C Entities. The values of the inventories stated in the Base Balance Sheet and the latest balance sheet included in the unaudited financial statements reflect the normal inventory valuation policies of the GB&C Entities consistent with past practices and were determined in accordance with generally accepted accounting principles, practices and methods consistently applied. Purchase commitments are not in excess of normal requirements and none is at a price materially in excess of current market prices. Since the date of the Base Balance Sheet, no inventory items have been sold or disposed of except through sales in the ordinary course of business. 2.11. Absence of Certain Developments. Except as specifically disclosed in Schedule 2.11, since the date of the Base Balance Sheet, there has not been: (a) Any change in the financial condition, properties, assets, liabilities, business or operations of any of the GB&C Entities which change by itself or in conjunction with all other such changes has been materially adverse with respect to any of the GB&C Entities; (b) Any contingent liability incurred by any of the GB&C Entities as guarantor or otherwise with respect to the obligations of others or any cancellation of any material debt or claim owing to, or waiver of any material right of, any of the GB&C Entities; (c) Except as set forth on Schedule 2.06(b), any mortgage, encumbrance or lien placed on any of the properties of any of the GB&C Entities which remains in existence on the date hereof or will remain on the Closing Date; (d) Any obligation or liability of any nature incurred by any of the GB&C Entities, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown, other than obligations and liabilities incurred in the ordinary course of business consistent with the terms of this Agreement (it being understood that product liability claims shall not be deemed to be incurred in the ordinary course of business); (e) Any purchase, sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any of the properties or assets of any of the GB&C Entities other than in the ordinary course of business; (f) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, assets or business of any of the GB&C Entities; (g) Any declaration, setting aside or payment of any dividend by any of, or the making of any other distribution in respect of the ownership interests of any of the GB&C Entities, or any direct or indirect redemption, purchase or other acquisition by any of the GB&C Entities of its own ownership interests; (h) Any labor trouble or claim of unfair labor practices involving any of the GB&C Entities; any change in the compensation payable or to become payable by any of the GB&C Entities to any of its officers, directors, employees, agents, independent contractors or stockholders other than normal merit increases in accordance with its usual practices, or any bonus payment or arrangement made to or with any of such officers, employees, agents or independent contractors (subject to Section 4.01(g)); (i) Any change with respect to the officers or management of any of the GB&C Entities; (j) Any payment (i) on account of the promissory notes described in Schedule 2.18, or (ii) (other than mandatory scheduled payments) on account of the promissory notes or other liabilities of any of the GB&C Entities set forth in Section (xii) (Promissory Notes) of Schedule 2.13; (k) Any obligation or liability incurred or any payment made or item of value delivered by any of the GB&C Entities to any of their respective present or former officers, directors, stockholders, partners, or employees, or any loans or advances made by any of the GB&C Entities to any of their respective present or former officers, directors, stockholders, partners or employees, except normal compensation and expense allowances payable to officers or employees subject to Section 4.01(g); (l) Any change in accounting methods or practices, used by any of the GB&C Entities; (m) Any other transaction entered into by any of the GB&C Entities other than transactions in the ordinary course of business; or (n) Any agreement or understanding whether in writing or otherwise, for any of the GB&C Entities or the Stockholders to take any of the actions specified in paragraphs (a) through (m) above. 2.12. Intellectual Property. (a) Except as described in Schedule 2.12, the GB&C Entities have ownership, or unrestricted license to use, of all patents, copyrights, service works, trade dress, trade secrets, trademarks, or other proprietary rights (collectively, "Intellectual Property") used or to be used in the business of the GB&C Entities as presently conducted or contemplated. The GB&C Entities' rights in all of such Intellectual Property are freely transferable. Except as described in Schedule 2.12, there are no claims or demands of any other person pertaining to any of such Intellectual Property and no proceedings have been instituted, or are pending or threatened, which challenge the rights of the GB&C Entities in respect thereof. The GB&C Entities have the right to use, free and clear of claims or rights of other persons, all customer lists, recipes, operating procedures, designs, manufacturing or other processes, computer software, systems, data compilations, research results and other information required for or incident to the ownership and operation of the business of the GB&C Entities as presently conducted or contemplated. (b) All patents, patent applications, trademarks, trademark applications and registrations and registered copyrights which are owned by or licensed to any of the GB&C Entities or used or to be used by any of the GB&C Entities in their business as presently conducted or contemplated, and all other items of Intellectual Property which are material to the business or operations of any of the GB&C Entities, are listed in Schedule 2.12. All of such patents, patent applications, trademark registrations, trademark applications and registered copyrights have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights, or the corresponding offices of other jurisdictions as identified on said Schedule, and have been properly maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and each such jurisdiction. (c) All licenses or other agreements under which any of the GB&C Entities are granted rights in Intellectual Property are listed in Schedule 2.12. All said licenses or other agreements are in full force and effect, there is no material default by any GB&C Entity who is a party thereto, and to the GB&C Entities' knowledge there is no material default by any party thereto that is not a GB&C Entity, and, except as set forth on Schedule 2.12, all of any GB&C Entity's rights thereunder are freely assignable. To the knowledge of the GB&C Entities, the licensors under said licenses and other agreements have and had all requisite power and authority to grant the rights purported to be conferred thereby. True and complete copies of all such licenses or other agreements, and any amendments thereto, have been provided to the Company. (d) All licenses or other agreements under which any of the GB&C Entities has granted rights to others in Intellectual Property owned or licensed by the GB&C Entities are listed in Schedule 2.12. All of said licenses or other agreements are in full force and effect, there is no material default by any party thereto, and, except as set forth on Schedule 2.12, all of the rights of the GB&C Entities thereunder are freely assignable. True and complete copies of all such licenses or other agreements, and any amendments thereto, have been provided to the Company. (e) The GB&C Entities have taken all steps required in accordance with sound business practice to establish and preserve their ownership of all Intellectual Property rights with respect to their products, services and concepts. Except as described in Schedule 2.12(e), the GB&C Entities have no knowledge of any infringement by others of any Intellectual Property rights of the GB&C Entities. (f) The present and contemplated business, activities and products of the GB&C Entities do not infringe any Intellectual Property of any other person. No proceeding charging the GB&C Entities with infringement of any adversely held Intellectual Property has been filed or is threatened to be filed. To the knowledge of the GB&C Entities, there exists no unexpired trademark or service mark or related application which includes claims that would be infringed by or otherwise adversely affect the products, activities or business of the GB&C Entities. The GB&C Entities were not made and are not making unauthorized use of any confidential information or trade secrets of any person, including without limitation, any former employer of any past or present employee of the GB&C Entities. Except as set forth in Schedule 2.12, the GB&C Entities do not have, and, to the knowledge of the GB&C Entities or the Stockholders, none of the GB&C Entities' employees have, any agreements or arrangements with any persons other than the GB&C Entities related to confidential information or trade secrets of such persons or restricting any such employee's engagement in business activities of any nature. 2.13. Contracts. (a) Except for contracts, commitments, plans, agreements and licenses described in Schedule 2.13 (true and complete copies of which have been delivered to the Company), none of the GB&C Entities is a party to or subject to: (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, profit sharing, collective bargaining or the like, or any contract or agreement with any labor union; (ii) any employment contract or contract for services, or any contract which provides for discretionary payments (including, without limitation bonuses, incentive payments, stock dividends, or payments relating to the ownership of stock) which is not terminable within 30 days by such GB&C Entity without liability for any penalty or severance payment; (iii)any contract or agreement for the purchase of any commodity, material or equipment except purchase orders in the ordinary course for less than $5,000 each, such orders not exceeding $10,000 in the aggregate; (iv) any other contracts or agreements creating any obligations of such GB&C Entity of $10,000 or more with respect to any such contract or agreement not specifically disclosed elsewhere under this Agreement; (v) any contract or agreement providing for the purchase of all or substantially all of its requirements of a particular product from a supplier; (vi) any contract or agreement which by its terms does not terminate or is not terminable without penalty by such GB&C Entity or its successors within one year after the date hereof; (vii)any contract or agreement for the sale or lease of its products not made in the ordinary course of business; (viii) any contract with any sales agent or distributor of products of such GB&C Entity; (ix) any contract containing covenants limiting the freedom of such GB&C Entity to compete in any line of business or with any person or entity; (x) any contract or agreement for the purchase of any fixed asset for a price in excess of $5,000 whether or not such purchase is in the ordinary course of business; (xi) any license agreement (as licensor or licensee); (xii)any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for the borrowing of money; or (xiii) any contract or agreement with any officer, employee, director or stockholder of such GB&C Entity or with any persons or organizations controlled by or affiliated with it. (b) All contracts, agreements, leases and instruments to which any of the GB&C Entities is a party or by which any of the GB&C Entities is obligated are valid and are in full force and effect and constitute legal, valid and binding obligations of such GB&C Entity and, to the best knowledge of the Stockholders and the GB&C Entities, the other parties thereto, enforceable in accordance with their respective terms. None of the GB&C Entities or any Stockholder knows of any notice or threat of or basis for the termination of any such agreements within one year from the date hereof, which termination may have a material adverse effect on the properties, assets, business, condition (financial or otherwise), total surplus, results of operation or prospects (a "Material Adverse Effect") of the GB&C Entities or, to the best knowledge of the Stockholders, any other party to any material contract, agreement or instrument of the GB&C Entities is in default in complying with any provisions thereof, and no condition or event or fact exists which, with notice, lapse of time or both would constitute a default thereunder on the part of the GB&C Entities or, to the best knowledge of the Stockholders, any other party thereto, except for any such default, condition, event or fact that, individually or in the aggregate, would not have a Material Adverse Effect on any of the GB&C Entities. 2.14. Litigation. Except as disclosed in Schedule 2.14, there is no litigation or governmental proceeding or investigation pending or, to the best knowledge of the GB&C Entities or the Stockholders, threatened against any of the GB&C Entities affecting any of their properties or assets, or against any officer or key employee of any of the GB&C Entities relating to the business of the GB&C Entities, or which may call into question the validity, or materially hinder the enforceability or performance, of this Agreement; nor has there occurred any event or does there exist any condition on the basis of which any litigation, proceeding or investigation might properly be instituted with any substantial chance of a recovery which would be materially adverse to the GB&C Entities. 2.15. Insurance. The physical properties and assets of the GB&C Entities are insured to the extent disclosed in Schedule 2.15 and all insurance policies and arrangements of the GB&C Entities are disclosed in said Schedule. Said insurance policies and arrangements are in full force and effect, all premiums with respect thereto are currently paid, and the GB&C Entities are in compliance in all respects with the terms thereof. Said insurance is adequate and customary for the business engaged in by the GB&C Entities and is sufficient for compliance by the GB&C Entities with all requirements of law and all agreements and leases to which the GB&C Entities are a party. 2.16. Warranty or Other Claims. There are no existing or threatened product liability, warranty or other similar claims, or any fact upon which a claim of such nature could be based, against any of the GB&C Entities for products or services which are defective or fail to meet any product or service warranties. 2.17. Finder's Fee. Except as provided on Schedule 2.17, none of the GB&C Entities or the Stockholders has incurred or become liable for any broker's commission or finder's fee relating to or in connection with the transactions contemplated by this Agreement. 2.18. Transactions with Interested Persons. Except as set forth in Schedule 2.18 hereto, none of the Stockholders, officers, supervisory employees or directors of the GB&C Entities and, to the knowledge of the GB&C Entities or the Stockholders, none of their respective spouses or family members owns directly or indirectly on an individual or joint basis any material interest in, or serves as an officer or director or in another similar capacity of, any competitor or supplier of any of the GB&C Entities, or any organization which has a material contract or arrangement with the GB&C Entities. Except as set forth in Schedule 2.18, there are no loans, leases or other continuing transactions between any of the GB&C Entities and any present or former stockholder, director or officer of any of the GB&C Entities, or any member of such officer's, director's or stockholder's immediate family, or any person controlled by such officer, director or stockholder or his or her immediate family. 2.19. Permits; Compliance with Laws. Except as set forth in Schedule 2.06(a), the GB&C Entities have all necessary franchises, authorizations, approvals, orders, consents, licenses, certificates, permits, registrations, qualifications or other rights and privileges (collectively "Permits") necessary to permit the GB&C Entities to own their respective properties and to conduct their respective businesses as the same are presently conducted or proposed to be conducted and all such Permits are valid and in full force and effect. No Permit is subject to termination as a result of the execution of the Agreement or consummation of the transactions contemplated hereby. The GB&C Entities are now and have heretofore been in compliance with all applicable statutes, ordinances, orders, rules and regulations (including all applicable environmental laws and regulations) promulgated by any federal, state, municipal or other governmental authority which apply to the conduct of their business, except for any such non-compliance or violation that, individually or in the aggregate, would not have a Material Adverse Effect on any of the GB&C Entities. None of the GB&C Entities has ever entered into or been subject to any judgment, consent decree, compliance order or administrative order with respect to any environmental or health and safety law or received any request for information, notice, demand letter, administrative inquiry or formal or informal complaint or claim with respect to any environmental or health and safety matter or the enforcement of any such law. None of the GB&C Entities and none of the Stockholders knows of any pending or threatened change of any law, ordinance or regulation which could adversely affect any of the GB&C Entities or any of their businesses. 2.20. Environmental Compliance. (a) To the best of the GB&C Entities' and the Stockholders' knowledge, except as set forth in Schedule 2.20, (i) none of the GB&C Entities has ever generated, transported, used, stored, treated, disposed of, or managed any Hazardous Waste (as defined below); (ii) no Hazardous Material (as defined below) has ever been or is threatened to be spilled, released, or disposed of at any site presently or formerly owned, operated, leased, or used by any of the GB&C Entities, or has ever come to be located in the soil or groundwater at any such site; (iii) no Hazardous Material has ever been transported from any site presently or formerly owned, operated, leased, or used by any of the GB&C Entities for treatment, storage, or disposal at any other place; (iv) none of the GB&C Entities presently own, operate, lease, or use, nor have they previously owned, operated, leased, or used any site on which underground storage tanks are or were located; and (v) no lien has ever been imposed by any governmental agency on any property, facility, machinery, or equipment owned, operated, leased, or used by any of the GB&C Entities in connection with the presence of any Hazardous Material. (b) To the best of the GB&C Entities' and the Stockholders' knowledge, except as set forth in Schedule 2.20, (i) none of the GB&C Entities has liability under, nor has any GB&C Entity ever violated, any Environmental Law (as defined below); (ii) each of the GB&C Entities, any property owned, operated, leased, or used by the any of the GB&C Entities, and any facilities and operations thereon are presently in compliance with all applicable Environmental Laws; (iii) none of the GB&C Entities has ever entered into or been subject to any judgment, consent decree, compliance order, or administrative order with respect to any environmental or health and safety matter or received any request for information, notice, demand letter, administrative inquiry, or formal or informal complaint or claim with respect to any environmental or health and safety matter or the enforcement of any Environmental Law; and (iv) none of the GB&C Entities have knowledge or reason to know that any of the items enumerated in clause (iii) of this paragraph will be forthcoming. (c) To the best of the GB&C Entities' and the Stockholders' knowledge, except as set forth in Schedule 2.20, no site owned, operated, leased, or used by any of the GB&C Entities contains any asbestos or asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea formaldehyde foam insulation. (d) To the best of the GB&C Entities' and the Stockholders' knowledge, the GB&C Entities have provided to the Company copies of all documents, records, and information available to the GB&C Entities concerning any environmental or health and safety matter relevant to any of the GB&C Entities, whether generated by the GB&C Entities or others, including, without limitation, environmental audits, environmental risk assessments, site assessments, documentation regarding off-site disposal of Hazardous Materials, spill control plans, and reports, correspondence, permits, licenses, approvals, consents, and other authorizations related to environmental or health and safety matters issued by any governmental agency. (e) For purposes of this Section 2.20, (i) "Hazardous Material" shall mean and include any hazardous waste, hazardous material, hazardous substance, petroleum product, oil, toxic substance, pollutant, contaminant, or other substance which may pose a threat to the environment or to human health or safety, as defined or regulated under any Environmental Law; (ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or regulated under any Environmental Law; (iii) "Environmental Law" shall mean any environmental or health and safety-related law, regulation, rule, ordinance, or by-law at the foreign, federal, state, or local level, whether existing as of the date hereof, previously enforced, or subsequently enacted; and (iv) the "GB&C Entities" shall mean and include the GB&C Entities and all other entities for whose conduct the GB&C Entities are or may be held responsible under any Environmental Law. 2.21. Disclosure. The representations, warranties and statements contained in this Agreement and in the certificates, exhibits and schedules delivered by any of the Stockholders or the GB&C Entities pursuant to this Agreement to the Company do not contain any untrue statement of a material fact, and, when taken together, do not omit to state a material fact required to be stated therein or necessary in order to make such representations, warranties or statements not misleading in light of the circumstances under which they were made. There is no material fact directly relating to the business, operations or condition of the GB&C Entities (other than facts which relate to general economic trends or conditions) that has a Material Adverse Effect or, to the best knowledge of the GB&C Entities and the Stockholders, in the future may (so far as may now be reasonably foreseen based upon material facts of which they are now aware) have a Material Adverse Effect on any of the GB&C Entities that has not been set forth in this Agreement or in the Schedules hereto. Notwithstanding any provision in this Agreement to the contrary, neither the GB&C Entities nor any Stockholder makes any representation regarding the accuracy of any financial forecasts furnished to the Company with respect to the GB&C Entities. 2.22. Employees; Labor Matters. The GB&C Entities employ a total of approximately 48 full-time employees and 36 part-time employees and generally enjoy good employer-employee relationships. None of the GB&C Entities currently employs, will as of the Closing date employ, or has employed during the six calendar months prior to the Closing date 48 or more employees in any single facility. The GB&C Entities do not employ a total of 48 or more employees (excluding employees who work less than 20 hours per week or who have worked for the GB&C Entities less than six of the last twelve months) and will not have employed 48 or more employees at any point during the 90 days prior to and including the Closing date. None of the GB&C Entities is delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it to the date hereof or amounts required to be reimbursed to such employees. Upon termination of the employment of any of said employees, neither the GB&C Entities nor the Company will by reason of the transactions contemplated under this Agreement or anything done prior to the Closing be liable to any of said employees for so-called "severance pay" or any other payments, except as set forth in Schedule 2.22. None of the GB&C Entities has any policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment, except as set forth in said Schedule. The GB&C Entities are in compliance with all applicable laws and regulations respecting labor, employment, fair employment practices, work place safety and health, terms and conditions of employment, and wages and hours. There are no charges of employment discrimination or unfair labor practices, nor are there any strikes, slowdowns, stoppages of work, or any other concerted interference with normal operations which are existing, pending or threatened against or involving any of the GB&C Entities. No question concerning representation exists respecting any employees of any of the GB&C Entities. There are no grievances, complaints or charges that have been filed against any of the GB&C Entities under any dispute resolution procedure (including, but not limited to, any proceedings under any dispute resolution procedure under any collective bargaining agreement) that might have an adverse effect on any of the GB&C Entities or the conduct of their respective businesses, and there is no arbitration or similar proceeding pending and no claim therefor has been asserted. No collective bargaining agreement is in effect or is currently being or is about to be negotiated by any of the GB&C Entities. None of the GB&C Entities has received any information indicating that any of its employment policies or practices is currently being audited or investigated by any federal, state or local government agency. Each of the GB&C Entities is, and at all times since November 6, 1986 has been, in compliance with the requirements of the Immigration Reform Control Act of 1986. 2.23. Customers, Distributors and Suppliers. Schedule 2.23(a) sets forth any customer, sales representative or distributor (whether pursuant to a commission, royalty or other arrangement) which accounts for more than 20% of the sales of any GB&C Entity for the twelve (12) months ended December 31, 1995 (collectively, the "Customers and Distributors"). Schedule 2.23(b) lists all of the suppliers of the GB&C Entities to whom during the fiscal year ended December 31, 1995, the GB&C Entities, in the aggregate, made payments aggregating $10,000 or more showing, with respect to each, the name, address and dollar volume involved (the "Suppliers"). The relationships of the GB&C Entities with their Customers, Distributors and Suppliers are good commercial working relationships. No Customer, Distributor or Supplier has canceled, materially modified, or otherwise terminated its relationship with any GB&C Entity, or has during the last twelve months decreased materially its services, supplies or materials to any GB&C Entity or its usage or purchase of the services or products of any GB&C Entity, nor to the knowledge of the GB&C Entities, does any Customer, Distributor or Supplier have any plan or intention to do any of the foregoing. 2.24. Banking Relations. All of the arrangements which any GB&C Entity has with any banking institution are completely and accurately described in Schedule 2.24 attached hereto, indicating with respect to each of such arrangements the type of arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the person or persons authorized in respect thereof. 2.25. Powers of Attorney. Except as set forth in Schedule 2.25, no GB&C Entity or Stockholder has any outstanding power of attorney. 2.26. Corporate Records; Copies of Documents. The corporate record books of each of the GB&C Entities accurately record all corporate action taken by their respective stockholders and board of directors and committees. The copies of the corporate records of each of the GB&C Entities, as made available to the Company for review, are true and complete copies of the originals of such documents. Each GB&C Entity has made available for inspection and copying by the Company and its counsel true and correct copies of all documents referred to in this Section or in the Schedules delivered to the Company pursuant to this Agreement. 2.27. Employee Benefit Programs. (a) Schedule 2.27 lists every Employee Program (as defined below) that has been maintained (as defined below) by any GB&C Entity at any time during the three-year period ending on the Closing date. (b) Each Employee Program which has ever been maintained by any GB&C Entity and which has at any time been intended to qualify under Section 401(a) or 501(c)(9) of the Code has received a favorable determination or approval letter from the Internal Revenue Service ("IRS") regarding its qualification under such section and has, in fact, been qualified under the applicable section of the Code from the effective date of such Employee Program through and including the Closing (or, if earlier, the date that all of such Employee Program's assets were distributed). No event or omission has occurred which would cause any such Employee Program to lose its qualification under the applicable Code section. (c) No GB&C Entity knows or has reason to know, of any failure of any party to comply with any laws applicable to the Employee Programs that have been maintained by any GB&C Entity. With respect to any Employee Program ever maintained by any GB&C Entity, there has occurred no "prohibited transaction," as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or breach of any duty under ERISA or other applicable law (including, without limitation, any health care continuation requirements or any other tax law requirements, or conditions to favorable tax treatment, applicable to such plan), which could result, directly or indirectly, in any taxes, penalties or other liability to any GB&C Entity, or the Company. No litigation, arbitration, or governmental administrative proceeding (or investigation) or other proceeding (other than those relating to routine claims for benefits) is pending or threatened with respect to any such Employee Program. (d) No GB&C Entity or any Affiliate (as defined below) (i) has ever maintained any Employee Program which has been subject to title IV of ERISA (including, but not limited to, any Multiemployer Plan (as defined below)) or (ii) has ever provided health care or any other non-pension benefits to any employees after their employment is terminated (other than as required by part 6 of subtitle B of title I of ERISA) or has ever promised to provide such post-termination benefits. (e) With respect to each Employee Program maintained by any GB&C Entity within the three years preceding the Closing, complete and correct copies of the following documents (if applicable to such Employee Program) have previously been delivered to the Company: (i) all documents embodying or governing such Employee Program, and any funding medium for the Employee Program (including, without limitation, trust agreements) as they may have been amended; (ii) the most recent IRS determination or approval letter with respect to such Employee Program under Code Sections 401 or 501(c)(9), and any applications for determination or approval subsequently filed with the IRS; (iii) the three most recently filed IRS Forms 5500, with all applicable schedules and accountants' opinions attached thereto; (iv) the summary plan description for such Employee Program (or other descriptions of such Employee Program provided to employees) and all modifications thereto; (v) any insurance policy (including any fiduciary liability insurance policy) related to such Employee Program; (vi) any documents evidencing any loan to an Employee Program that is a leveraged employee stock ownership plan; and (vii) all other materials reasonably necessary for Buyer to perform any of its responsibilities with respect to any Employee Program subsequent to the Closing (including, without limitation, health care continuation requirements). (f) For purposes of this section: (i) "Employee Program" means (A) all employee benefit plans within the meaning of ERISA Section 3(3), including, but not limited to, multiple employer welfare arrangements (within the meaning of ERISA Section 3(4)), plans to which more than one unaffiliated employer contributes and employee benefit plans (such as foreign or excess benefit plans) which are not subject to ERISA; and (B) all stock option plans, bonus or incentive award plans, severance pay policies or agreements, deferred compensation agreements, supplemental income arrangements, vacation plans, and all other employee benefit plans, agreements, and arrangements not described in (A) above. In the case of an Employee Program funded through an organization described in Code Section 501(c)(9), each reference to such Employee Program shall include a reference to such organization. (ii) An entity "maintains" an Employee Program if such entity sponsors, contributes to, or provides (or has promised to provide) benefits under such Employee Program, or has any obligation (by agreement or under applicable law) to contribute to or provide benefits under such Employee Program, or if such Employee Program provides benefits to or otherwise covers employees of such entity, or their spouses, dependents, or beneficiaries. (iii)An entity is an "Affiliate" of a GB&C Entity if it would have ever been considered a single employer with such GB&C Entity under ERISA Section 4001(b) or part of the same "controlled group" as such GB&C Entity for purposes of ERISA Section 302(d)(8)(C). (iv) "Multiemployer Plan" means a (pension or non-pension) employee benefit plan to which more than one employer contributes and which is maintained pursuant to one or more collective bargaining agreements. 2.28. List of Directors and Officers. Schedule 2.28 hereto contains a true and complete list of all current directors and officers of each GB&C Entity. In addition, Schedule 2.28 hereto contains a list of all employees of the GB&C Entities and the salaries of such employees as of the date hereof. 2.29. Non-Foreign Status. No Stockholder is a "foreign person" within the meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2. 2.30. Transfer of Shares. No holder of stock of any GB&C Entity has at any time transferred any of such stock to any employee of any GB&C Entity, which transfer constituted or could be viewed as compensation for services rendered to any GB&C Entity by said employee. 2.31. Attributes Regarding Pooling Accounting. The GB&C Entities are autonomous and have never been a subsidiary or division of another corporation. The GB&C Entities have not changed the equity interest of its voting common stock in contemplation of the transaction contemplated by this Agreement to be consummated pursuant hereto or any other business combination, including but not limited to such changes effected by distributions to stockholders and additional issuances, exchanges and retirements of securities. No GB&C Entity has ever reacquired any shares of its voting common stock. To the best knowledge of the GB&C Entities, the GB&C Entities have disclosed to the Company all facts and circumstances regarding the GB&C Entities and the transactions in which the GB&C Entities have engaged which could reasonably be expected to adversely effect or preclude accounting for the transaction contemplated by this Agreement as a pooling of interests if consummated at any time from the date hereof through October 15, 1996. 2.32. Definition of the GB&C Entities' Knowledge. As used in this Agreement, the phrases "to the GB&C Entities' knowledge" or "to the best of the GB&C Entities' knowledge" (or words of similar import) means the knowledge or the best knowledge of any Stockholder or individual set forth on Schedule 2.32, and includes any fact, matter or circumstance which any of such individuals, as an ordinary and prudent business person in the same capacity with respect to the same type and size of business as the GB&C Entities, should have known. 2.33. Stockholder Personal Guaranties. Set forth on Schedule 2.33 are all personal guaranties executed by any Stockholder with respect to any contract, lease or other agreement to which a GB&C Entity is or was a party. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the GB&C Entities and the Stockholders as follows: 3.01. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite power and authority and all necessary governmental approvals to own, lease and operate its properties and to conduct its business as it is currently conducted, except where the failure to have such power, authority or governmental approval would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so qualified or licensed and in good standing that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.02. Certificate of Incorporation and By-Laws. The Company has provided to the GB&C Entities a true, complete and correct copy of the Certificate of Incorporation and the By-Laws, each as amended to date, of the Company. Such Certificate of Incorporation, By-Laws are in full force and effect. The Company is not in violation of any provision of its Certificate of Incorporation or By-Laws. 3.03. Capitalization. The authorized capital stock of the Company consists of 30,000,000 shares of common stock, par value $.01 per share ("Company Common Stock") and 1,000,000 shares of preferred stock, $.01 par value per share ("Company Preferred Stock"). As of the date of this Agreement, (i) 9,489,235 shares of Company Common Stock are issued and outstanding, (ii) 751,778 shares of Company Common Stock are issuable upon the exercise of outstanding stock options granted pursuant to the Company's employee stock option plans, (iii) no shares of Company Common Stock are held in the treasury of Company, and (iv) 11,912 shares of Company Preferred Stock are issued and outstanding and 294,822 shares of Company Common Stock are issuable upon conversion of such shares, and (v) 1,047,664 shares of Company Common Stock are issuable upon conversion of outstanding convertible subordinated notes (which have been called for redemption on April 4, 1996). 3.04. Authority Relative to this Agreement. Except as set forth on Schedule 3.04, the Company has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of the Company, and no other corporate proceedings or action on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the Company, constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. 3.05. Consents and Approvals; No Violations. (a) The Board of Directors of the Company has approved this Agreement. (b) Except as set forth in Schedule 3.05, the execution and delivery of this Agreement by the Company does not, and the performance of the transactions contemplated by this Agreement by the Company will not, require any filing with or notification to, or any consent, approval, authorization or permit from, any Governmental Entity or any other person except (i) for applicable requirements of the Securities Act, the Exchange Act and state securities or "blue sky" laws, or (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, (A) would not prevent or delay the Company from performing its obligations under this Agreement in any material respect, or (B) would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (c) Except as set forth in Schedule 3.05, the execution and delivery of this Agreement by the Company does not, and the performance of the transactions contemplated by this Agreement by the Company will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or violate any order, writ, injunction, decree, statute, treaty, law, rule or regulation applicable to the Company or by which any property or asset of the Company is bound or affected or (iii) result in a violation or a breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or result in the loss of a benefit under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or any property or asset of the Company is bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences that (A) would not prevent or delay the Company from performing its obligations under this Agreement in any material respect or (B) would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.06. SEC Reports. (a) The Company has filed all forms, reports and documents required to be filed by it with the SEC since June 30, 1994 and has heretofore made available to the GB&C Entities, in the form filed with the SEC (excluding any exhibits thereto), (i) its Annual Report on Form 10-K for the fiscal year ended July 1, 1995, (ii) its Quarterly Report for the fiscal quarter ended September 30, 1995, (iii) its Quarterly Report for the fiscal quarter ended December 30, 1995, (iv) its definitive proxy statement dated as of January 16, 1996, and (iv) all other forms, reports, registration statements and other documents filed by the Company with the SEC since December 31, 1995 (the forms, reports, registration statements and other documents referred to in clauses (i) and (ii) above being referred to herein, collectively, as the "Company SEC Reports"). The Company SEC Reports and any other forms, reports and other documents filed by the Company with the SEC after the date of this Agreement (i) were or will be prepared in accordance with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations thereunder and (ii) did not at the time they were filed, or will not at the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were or are made, not misleading. (b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company SEC Reports was prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and each fairly presented the consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as the case may be, as at the respective dates thereof and for the respective periods indicated therein (subject, in the case of unaudited statements, to normal and recurring year-end adjustments that were not and are not expected, individually or in the aggregate, to be material in amount). 3.07. Absence of Certain Changes. (a) Since December 31, 1995, except as disclosed in any Company SEC Report, there has not been (i) a Company Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of any capital stock of the Company, (iii) any entry into any agreement, commitment or transaction by the Company that is material to the Company, except agreements, commitments or transactions in the ordinary course of business, (iv) any change by the Company in accounting methods, principles or practices, or (v) any damage, destruction or loss (whether or not covered by insurance) with respect to any property or asset of the Company and having, individually or in the aggregate, a Material Adverse Effect on the Company. (b) To the best knowledge of the Company, the Company has disclosed to the GB&C Entities all facts and circumstances regarding the Company and the transactions it has engaged in which could reasonably be expected to adversely affect or preclude accounting for the transaction contemplated by this Agreement as a pooling of interests if consummated at any time from the date hereof through October 15, 1996. As of the date hereof, to the best knowledge of the Company based on the facts and circumstances known to it, the Company has no reason to believe that accounting for the transactions contemplated hereby as a pooling of interests if consummated at any time from the date hereof through October 15, 1996 would not be available. 3.08. Brokers. Except as set forth in Schedule 3.08, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission from the Company in connection with the transactions contemplated herein by this Agreement. 3.09. DAKA Common Stock. The DAKA Common Stock to be issued hereunder in exchange for the Shares shall, when issued in accordance with this Agreement, be validly issued, fully paid and non-assessable. 3.10. Definition of the Company's Knowledge. As used in this Agreement, the phrase "to the knowledge of the Company" or "to the best knowledge of the Company" (or words of similar import) means the knowledge or the best knowledge of those individuals identified in Schedule 3.10, and includes any fact, matter or circumstance which any of such individuals, as an ordinary and prudent business person employed in the same capacity in the same type and size of business as the Company, should have known. 3.11. Disclosure. To the best knowledge of the Company, all material facts relating to the business, operations, properties, assets, liabilities (contingent or otherwise) and financial condition of the Company have been disclosed to the GB&C Entities in or in connection with this Agreement. The representations, warranties and statements made by the Company in this Agreement and in the certificates delivered pursuant hereto do not contain any untrue statement of the material fact, and, when taken together, do not omit to state any material fact necessary to make such representations, warranties and statements, in light of the circumstances under which they are made, not misleading. 3.12. No Investment Company. The Company is not an "investment company" within the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code. 3.13. Tax Representations. (a) The Company has no present plan or intent to reacquire any of its stock issued in connection with the transactions contemplated hereby; (b) The Company has no present plan or intent to cause any of the GB&C Entities to issue additional shares of stock that would result in the Company losing "control" (within the meaning of Section 368(c) of the Code) of any of the GB&C Entities. (c) It is the present intent of the Company to cause each of the GB&C Entities (or the Company or a subsidiary of the Company in the event that the Company or such subsidiary acquires the assets of such GB&C Entity pursuant to a transfer described in clause (ii) or (iii) of Section 3.13(e)) to continue the historic business of such GB&C Entity or use a significant portion of the historic business assets of such GB&C Entity in a business. (d) The Company has no present plan or intent to sell or otherwise dispose of the stock of any of the GB&C Entities except for transfers of stock to corporations "controlled" (within the meaning of Section 368(c) of the Code) by the Company or dispositions by merger into the Company or into any direct wholly owned subsidiary of the Company or by liquidation. (e) The Company has no present plan or intent to cause any of the GB&C Entities to sell or otherwise dispose of any of their assets except for (i) dispositions made in the ordinary course of business, (ii) transfers described in Section 368(a)(2)(C) of the Code, or (iii) dispositions by merger into the Company or into any direct wholly owned subsidiary of the Company or by liquidation. ARTICLE IV COVENANTS OF THE GB&C ENTITIES AND THE STOCKHOLDERS 4.01. Conduct of Respective Businesses of the GB&C Entities Pending the Transactions Contemplated Hereby. Each of the Stockholders and the GB&C Entities covenants and agrees that between the date of this Agreement and the Closing Date, the GB&C Entities shall and the Stockholders shall cause each GB&C Entity to (i) carry on its respective businesses in the usual, regular and ordinary course, consistent with past practice, (ii) use its reasonable best efforts to preserve intact its present business organizations, keep available the services of its present officers and employees, (iii) keep in effect casualty, public liability, worker's compensation and other insurance policies in coverage amounts not less than those in effect as of the date of this Agreement, (iv) preserve and protect the rights of each GB&C Entity in Intellectual Property (as defined by Section 2.12 hereof), and (v) use its best efforts to preserve its relationships with customers, franchisees, suppliers, licensors and other persons with which it has significant business dealings. Without limiting the generality of the foregoing, between the date of this Agreement and the Effective Time, each GB&C Entity shall not, and the Stockholders shall prevent each GB&C Entity from, doing, proposing or agreeing, directly or indirectly, to do any of the following without the prior written consent of the Company: (a) (i) Declare, set aside or pay any dividend or make any other distribution (whether in cash, stock, or property or any combination thereof) in respect of any of its capital stock, as the case may be, (ii) split, combine, reclassify or subdivide any of its capital stock or (iii) repurchase, redeem or otherwise acquire any of its capital stock; (b) Authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) (collectively, "Issue") any shares of stock of any class or any other securities (including indebtedness having the right to vote) or equity equivalents (including, without limitation, phantom stock or stock appreciation rights); (c) Acquire or encumber or sell, lease, transfer or dispose of any assets other than in the ordinary course of business; (d) Incur any long-term indebtedness for borrowed money, guarantee any indebtedness, issue or sell debt securities or warrants or rights to acquire any debt securities, guarantee (or otherwise become liable or potentially liable for) any debt of others, make any loans, advances or capital contributions; mortgage, pledge or otherwise encumber any material assets; or create or suffer any material lien thereupon other than in the ordinary course of business consistent with prior practice or incur any short-term indebtedness for borrowed money except for credit facilities in existence on the date hereof; (e) Pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than any payment, discharge or satisfaction (i) in the ordinary course of business consistent with past practice of trade payables other than promissory notes or other liabilities set forth in section (xii) of Schedule 2.13, (ii) on account of mandatory scheduled payments with respect to the promissory notes set forth in section (xii) (promissory notes) other than promissory notes also set forth in Schedule 2.18 or (iii) consented to in writing by the Company; (f) Change any of the accounting principles or practices used by it (except as required by generally accepted accounting principles); (g) Make any change in the compensation payable or to become payable to any officers, employees or agents of any GB&C Entity or grant any severance or termination pay to, or enter into or amend any employment, severance or other agreement or arrangement with, any of its or any other GB&C Entity's directors, officers or other employees, or establish, adopt or enter into or amend any collective bargaining, bonus, incentive, deferred compensation, profit sharing, stock option or purchase, insurance, pension, retirement or other employee benefit plan; (h) Amend or otherwise change such GB&C Entity's Certificate of Incorporation or By-Laws; (i) Enter into a new agreement, contract or commitment involving payment to or by the Company of $10,000 or more or amend any existing agreement that could reasonably be expected to have a Material Adverse Effect on any GB&C Entity; (j) Enter into or modify or amend any lease, license agreement, franchise agreement or development agreement; (k) Knowingly engage in any transaction or cause any fact or circumstance to occur which would preclude accounting for the transaction contemplated by this Agreement as a pooling of interests. 4.02. Sale of Shares; Acquisition Proposals. Unless and until this Agreement is terminated in accordance with its term for any reason, no Stockholder shall directly or indirectly exchange, deliver, assign, pledge, encumber or otherwise transfer or dispose of any Shares (including options in respect thereof) owned beneficially and of record by such Stockholder, nor shall any Stockholder directly or indirectly grant any right of any kind to acquire, dispose of, vote or otherwise control in any manner any Shares. Unless and until this Agreement is terminated in accordance with its terms, neither any GB&C Entity, nor any Stockholder nor any director, officer, employee or agent of any GB&C Entity shall, directly or indirectly, (a) take any action to solicit, initiate submission of or encourage proposals or offers from any person relating to any acquisition or purchase of all or any portion of the Shares or all or (other than in the ordinary course of business consistent with past practice) any portion of any assets of, or any equity interest in any GB&C Entity, any merger or business combination with any GB&C Entity, or any other acquisition, transaction or financing or joint venture involving such Stockholder or any GB&C Entity (an "Acquisition Proposal"), (b) participate in any negotiations regarding any Acquisition Proposal with any person other than the Company and its affiliates and representatives, (c) furnish any information with respect to or afford access to the properties, books or records of such Stockholder or any GB&C Entity to any person who may consider making or has made an offer with respect to an Acquisition Proposal other than the Company and its affiliates and representatives, or (d) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any person other than the Company and its affiliates and representatives to do or seek any of the foregoing. The Stockholders shall promptly notify the Company upon receipt of any offer or indication that any person is considering making an offer with respect to an Acquisition Proposal or any request for information relative to any GB&C Entity, and will keep the Company fully informed of the status and details of any such offer, indication or request. 4.03. Breach of Representations and Warranties. Promptly upon any Stockholder becoming aware of any breach, or the impending or threatened occurrence of any event which would cause or constitute a breach, or would have caused or constituted a breach had such event occurred or been known prior to the date hereof, of any of the representations and warranties of the Stockholders contained in or referred to in this Agreement and made as of the date hereof, the Stockholders shall give detailed written notice thereof to the Company and shall use their best efforts to prevent or promptly remedy the same. 4.04. Confidentiality. In the course of the Stockholders' involvement with GB&C Entities as stockholders or employees or otherwise, the Stockholders have had, and may from time to time after the date hereof have, access to confidential records, data, trade secrets and similar confidential information owned or used by a GB&C Entity in the course of its business (the "Confidential Information"). Accordingly, each Stockholder agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose Confidential Information to any person, and (c) not to use, directly or indirectly, any of the Confidential Information for any competitive or commercial purpose; provided, however, that the limitations set forth above shall not apply to any Confidential Information which (i) is then generally known to the public other than by reason of a breach of this Section 4.04; or (ii) is disclosed in accordance with an order of a court of competent jurisdiction or applicable law. Upon request by the Company, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters in a Stockholder's possession or control shall be returned to the Company or a GB&C Entity. 4.05. Further Action; Reasonable Best Efforts. (a) Upon the terms and subject to the conditions hereof, each of the GB&C Entities and the Stockholders shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein including, without limitation, using its reasonable best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of any governmental or regulatory authority, domestic or foreign (a "Governmental Entity"), and all parties to contracts with any GB&C Entity or any Stockholder as are necessary for the consummation of the transactions contemplated herein. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each GB&C Entity and each Stockholder shall use their reasonable best efforts to take all such action. Each such party shall promptly consult with the other with respect to, provide any necessary information with respect to and provide the other (or its counsel) with copies of, (i) all filings made by such party with any Governmental Entity or any other person in connection with the execution of this Agreement and the consummation of the transactions contemplated hereby and (ii) all other written materials submitted or prepared by any such party concerning obtaining all licenses, permits, consents, approvals, authorizations and orders that are required to be obtained in connection with the execution of this Agreement and the consummation of the transactions contemplated by this Agreement. (b) Each GB&C Entity and each Stockholder shall use its best efforts to cause all conditions to Closing herein to be satisfied and shall not take any action, or enter into any transaction, that would cause any of its representations or warranties contained in this Agreement to be untrue or result in a breach of any covenant made by it in this Agreement. 4.06. Access. The GB&C Entities and the Stockholders shall permit the Company and its authorized representatives (including without limitation the Company's attorneys, accountants, financial advisors and pension and environmental consultants) to have full access to all of the properties, assets, books, records, business files, executive personnel, tax returns, contracts and documents of the GB&C Entities and furnish to the Company and its authorized representatives such financial and other information with respect to such business or properties as the Company may from time to time reasonably request. 4.07. Financial Information. Each GB&C Entity shall, and the Stockholders shall cause each GB&C Entity to: (i) provide such financial and other information and documents as the Company may reasonably request in connection with any filings to be made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (ii) use its best efforts to cause its independent public accountants, to deliver such consents, reports and comfort letters in connection therewith as the Company may reasonably request, provided that all such consents, reports and comfort letters shall be at the expense of the Company, (iii) generally cooperate with the Company and its representatives and agents in connection therewith, (iv) provide monthly financial statements, including a balance sheet as of month-end and a monthly income statement, as soon as practicable but not later than 30 days after the last day of each month and quarterly financial statements (unaudited) and annual financial statements (audited) meeting the requirements set forth in Section 2.07 hereof as soon as practicable but not later than 45 days after the last day of each quarter or fiscal year, as applicable, and (v) make such representations relating to accounting for the transactions contemplated hereby as a pooling of interests as may be required by Deloitte & Touche LLP, which representations shall be set forth in Schedule 4.07. 4.08. General Release. Each Stockholder agrees to deliver at the Closing a general release in the form of Exhibit 4.08 attached hereto releasing all claims which such Stockholder has or may have through the Closing Date other than such claims and rights referred to in such general release which shall survive the Closing and remain in effect (including rights arising under this Agreement). 4.09. Affiliates of the GB&C Entities. On or before the Closing Date (a) the GB&C Entities shall deliver to the Company a letter identifying all persons who may be deemed affiliates of the GB&C Entities under Rule 145 of the Securities Act ("Rule 145"), including, without limitation, all directors and executive officers of the GB&C Entities and (b) the GB&C Entities shall advise the persons identified in such letter of the resale restrictions imposed by applicable securities laws. The GB&C Entities shall use their best efforts to obtain as soon as practicable from any person who may be deemed to have become an affiliate of the GB&C Entities after the GB&C Affiliates' delivery of the letter referred to above and prior to the Closing Date, a written agreement substantially in the form of Exhibit 4.09. ARTICLE V. COVENANTS OF THE COMPANY. 5.01. Consents and Approvals. The Company will use its best efforts to obtain prior to the Closing all necessary consents and approvals to the performance of its obligations under this Agreement, including, without limitation, the consents and approvals described in Schedule 3.05 attached hereto, and will cooperate in all respects with the GB&C Entities and the Stockholders with a view toward obtaining timely satisfaction of conditions to the Closing set forth herein. The Company will keep the GB&C Entities and the Stockholders informed of the status of any inquiries made of the Company by any governmental agency as authority with respect to this Agreement or the transactions contemplated hereby. 5.02. Confidentiality. From the date of this Agreement until the Closing, or for a period of five years from the date of this Agreement if the Closing does not take place for any reason, all confidential business and related information furnished to the Company and its affiliates and representatives by either a GB&C Entity or a Stockholder shall be kept confidential by the Company and its affiliates and representatives; provided, however, that the foregoing shall be inapplicable (a) with respect to information which (i) is or becomes available to the public without breach of this confidentiality obligation, or (ii) is or becomes available to the Company from a third party, provided that the third party did not receive the same, directly or indirectly, from a GB&C Entity or a Stockholder and was not under an obligation of confidentiality to the source of such information at the time it was disclosed to the Company, (b) in connection with filings contemplated by this Agreement and (c) to the extent disclosure is required by any applicable law or regulation, by any authorized administrative or governmental agency or, in the opinion of counsel to the Company, in connection with any proposed public offering of the Company's securities pursuant to applicable requirements of the securities laws or any stock exchange or self-regulatory organization; provided, however, that the Company will provide notice to the GB&C Entities and the Stockholders before disclosing any information pursuant to this Section 5.02 and will cooperate with the GB&C Entities and the Stockholders on endeavoring to preserve, to the extent reasonably practicable and not inconsistent with its legal obligations (including the obligation to make timely, full and accurate disclosure in a prospectus or securities filings or reports), the confidential nature thereof. The Stockholder acknowledges and agrees that a copy of this Agreement, together with exhibits and schedules hereto may be filed by the Company as an exhibit to a Registration Statement filed by the Company under the Securities Act, and that financial information derived from or contained in the financial statements included in Schedule 2.07 will be set forth in the prospectus included as part of such Registration Statement. ARTICLE VI. CONDITIONS. 6.01. Conditions to the Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing, of the following additional conditions precedent: (a) Representations; Warranties; Covenants. Each of the representations and warranties of the GB&C Entities and the Stockholders made pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of the Closing Date; the GB&C Entities and the Stockholders shall, on or before the Closing Date, have performed and satisfied all of their covenants and agreements set forth herein, which by the terms hereof, are to be performed and satisfied on or before the Closing Date; and the GB&C Entities and the Stockholders shall have delivered to the Company certificates executed as of the Closing Date certifying to the foregoing effect. (b) Opinion of Counsel and Other Documents. On the Closing Date, the Company shall have received (i) opinions of counsel for the GB&C Entities and the Stockholders dated as of the Closing Date and addressed to the Company, substantially in the form attached as Exhibit 6.01(b) hereto, and (ii) such other certificates and documents with respect to the Stockholders as counsel for the Company shall have reasonably requested at least two (2) business days prior to the Closing Date. (c) No Actions or Proceedings. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened by or on behalf of any GB&C Entity or any Stockholder or which seeks to enjoin, restrain or prohibit, or might result in money damages to any party hereto in respect of, this Agreement or the complete consummation of the transactions contemplated by this Agreement, or which otherwise would in the reasonable judgment of the Company make it inadvisable to consummate such transactions. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party which enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions contemplated by this Agreement. (d) Company Approvals and Consents. The Company shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities required to be made by it in connection with the execution and delivery of this Agreement and the performance by it of the transactions contemplated hereby; the Company shall have received all required authorizations, waivers, consents and permits required to be received by the Company to permit the consummation of the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to the Company, from all third parties. (e) Deliveries. The GB&C Entities and the Stockholders shall have delivered or entered into the documents and instruments contemplated by this Agreement, in each case, in form and substance satisfactory to the Company and its counsel. (f) GB&C Entities Approvals and Consents. The GB&C Entities shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities, if any, required to be made by the GB&C Entities in connection with the execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the continued operation of the business of the GB&C Entities subsequent to the Closing Date. The GB&C Entities and the Stockholders shall have received all required authorizations, waivers, consents and permits to permit the consummation of the transactions contemplated by this Agreement, in the form and substance reasonably satisfactory to the Company, with any conditions or limitations contained therein or imposed thereby subject to the approval of the Company, from (i) lessors of stores operated by the GB&C Entities rather than franchisees and (ii) other third parties, including, without limitation, applicable governmental authorities, regulatory agencies, lenders and contract parties, required in connection with transactions contemplated by this Agreement or by any GB&C Entity's permits, leases, licenses and franchises, to avoid a breach, default, termination, acceleration or modification of any agreement, contract, instrument, mortgage, lien, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award as a result of the execution or performance of this Agreement, or otherwise in connection with the execution and performance of this Agreement. (g) Material Adverse Changes. There shall not have been since the date of this Agreement, any change or series of changes that, in the reasonable business judgment of the Company, acting in good faith, have or could reasonably be anticipated to have a Material Adverse Effect on any GB&C Entity. (h) Proceedings Satisfactory to the Company. All proceedings to be taken by the GB&C Entities and the Stockholders in connection with the consummation of the Closing and the other transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transaction contemplated hereby reasonably requested by the Company will be reasonably satisfactory in the form and substance to the Company and its counsel. (i) The Company shall have received confirmation in writing from Salomon Brothers that the amounts owed them will not exceed the amount disclosed in Schedule 2.17. (j) The Company shall have received from Fred R. Olivier and Maria Olivier a general release in the form of Exhibit 4.08 hereto. (k) The Company shall have received in writing from Snell & Wilmer L.L.P. an acknowledgment that fees due them in connection with their representation of the GB&C Entities will not exceed $17,500. 6.02. Conditions to the Obligations of the Stockholders. The obligations of the Stockholders to consummate the transactions contemplated by this Agreement are subject to the fulfillment of, prior to or at the Closing, the following additional conditions precedent: (a) Representations; Warranties; Covenants. Each of the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of the Closing Date; the Company shall, on or before the Closing Date, have performed and satisfied all of its covenants and agreements set forth herein which by the terms hereof are to be performed and satisfied by the Company on or before the Closing Date; and the Company shall have delivered to the Stockholders a certificate as of the Closing Date certifying to the foregoing effect. (b) Opinion of Counsel and Other Documents. On the Closing Date, the GB&C Entities and the Stockholders shall have received (i) an opinion of counsel for the Company, dated as of the Closing Date and addressed to the GB&C Entities and the Stockholders, substantially in the form attached as Exhibit 6.02(b)(i) hereto and (ii) such other certificates and documents as counsel to the Stockholders shall have reasonably requested from the Company at least two (2) business days prior to the Closing Date. (c) No Actions or Proceedings. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened which seeks to enjoin, restrain or prohibit, or might result in damages in respect of, this Agreement or the complete consummation of the transactions as contemplated by this Agreement. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party which enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions as contemplated by this Agreement. ARTICLE VII. TERMINATION OF AGREEMENT. 7.01. Termination. This Agreement may be terminated any time prior to the Closing Date as follows: (a) With the mutual consent of the Company and the Stockholders owning a majority of the Shares. (b) By either the Company or the Stockholders owning a majority of the Shares, if the Closing has not occurred on or before April 30, 1996. (c) By the Company, if there has been a material misrepresentation or breach of warranty on the part of any GB&C Entity or Stockholder in the representations and warranties contained herein or a material breach of covenants on the part of any GB&C Entity or Stockholder and the same has not been cured within 10 days after notice thereof. In the event of any termination pursuant to this Section 7.01(c), written notice setting forth the reasons therefor shall forthwith be given by the Company to the GB&C Entities and the Stockholders. (d) By Stockholders owning a majority of the Shares, if there has been a material misrepresentation or breach of warranty on the part of the Company in the representations and warranties contained herein or a material breach of covenants on the part of the Company and the same has not been cured within 10 days after notice thereof. In the event of any termination pursuant to this Section 7.01(d), written notice setting forth the reasons therefor shall forthwith be given by the Stockholders to the Company. Notwithstanding anything herein to the contrary, the right to terminate this Agreement under this Section 7.01 shall not be available to any party to the extent the failure of such party, respectively, to fulfill any of its obligations under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date (as a result, for example, of an action or failure to act causing a failure of a condition precedent). 7.02. Effect of Termination. All obligations of the parties hereunder shall cease upon any termination pursuant to Section 7.01; provided, however, that (i) the provisions of this Article VII and of Sections 5.02 and 11.09 shall survive any termination of this Agreement; (ii) nothing herein shall relieve any party from any liability for a material error or omission in any of its representations or warranties contained herein or a material failure to comply with any of its covenants, conditions or agreements contained herein; and (iii) any party may proceed as further set forth in Section 7.03 below. 7.03. Right to Proceed. Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Section 6.01 hereof have not been satisfied, the Company shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder, and if any of the conditions specified in Section 6.02 hereof have not been satisfied, the Stockholders, by a decision of the Stockholders owning a majority of the Shares, shall have the right to proceed with the transactions contemplated hereby without waiving any of their rights hereunder. ARTICLE VIII. SURVIVAL; INDEMNIFICATION 8.01. Survival of Representations, Warranties, Etc. All representations, warranties, agreements, covenants and obligations herein or in any schedule or certificate delivered by any party incident to the transactions contemplated hereby are material and may be relied upon by the party receiving the same and shall survive the Closing regardless of any investigation by or knowledge of such party and shall not merge into the performance of any obligation by any party hereto, subject to the provisions of this Article VIII. 8.02. Indemnification by the Stockholders. The Stockholders, on behalf of themselves and their respective successors, executors, administrators, estates, heirs and permitted assigns, jointly and severally, agree subsequent to the Closing Date to indemnify and hold harmless the Company, its affiliates and their respective shareholders, officers, directors, employees and agents (individually, a "Company Indemnified Party" and collectively, the "Company Indemnified Parties") from and against and in respect of all losses, liabilities, obligations, damages, deficiencies, actions, suits, proceedings, demands, assessments, orders, judgments, fines, penalties, costs and expenses (including the reasonable fees, disbursements and expenses of attorneys, accountants and consultants) of any kind or nature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing) sustained, suffered or incurred by or made against any Company Indemnified Party (a "Loss" or "Losses") arising out of, based upon or in connection with: (a) conditions, circumstances or occurrences which constitute or result in any breach of any representation or warranty made by either a Stockholder or a GB&C Entity in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement (collectively, "Stockholder Representation and Warranty Claims"); (b) any breach of any covenant or agreement made by either a Stockholder or a GB&C Entity in this Agreement or in any Schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such covenant or agreement; (c) any fees and expenses (including without limitation legal fees and accounting fees) relating to this Agreement or any transactions contemplated hereby paid, assumed or otherwise borne by any GB&C Entity. Claims under clauses (a) through (c) of this Section 8.02 hereinafter collectively referred to as "Company Indemnifiable Claims". The rights of Company Indemnified Parties to recover indemnification in respect of any occurrence referred to in clauses (b) and (c) of this Section 8.02 shall not be limited by the fact that such occurrence may not constitute an inaccuracy in or breach of any representation or warranty referred to in clause (a) of this Section 8.02. 8.03. Limitations on Indemnification by Stockholders. (a) General Threshold. Subject to the exceptions set forth in Section 8.03(d), the Stockholders shall not be obligated to indemnify Company Indemnified Parties in respect of Stockholder Representation and Warranty Claims except to the extent the cumulative amount of all Stockholder Representation and Warranty Claims exceeds fifty thousand Dollars ($50,000) (the "Company Threshold"), whereupon the full amount of such losses shall be recoverable in accordance with the terms hereof. (b) General Maximum Indemnification. Subject to the exceptions set forth in Section 8.03(d), neither Stockholder shall be obligated to indemnify Company Indemnified Parties in respect of Stockholder Representation and Warranty Claims that exceed $7,871,736. (c) Time Limits for Claims. Subject to the exceptions set forth in Section 8.03(d), no claim for indemnification may be made by any Company Indemnified Party in respect of Stockholder Representation and Warranty Claims unless the written notice required by Section 8.06 with respect to such Losses shall have been received by the Stockholders on a date prior to the 18 month anniversary of the Closing; provided, however, that the limitation of this clause (c) shall not apply to Company Indemnifiable Losses described in Section 8.03(d), indemnification with respect to which shall expire six (6) months after the termination of the applicable statute of limitations relating to the subject matter covered by such Section; and provided further, however, that in each case if prior to the applicable date of expiration a specific state of facts shall have become known which may constitute or give rise to any Company Indemnifiable Loss as to which indemnity may be payable and a Company Indemnified Party shall have given notice of such facts to the Stockholders, then the right to indemnification with respect thereto shall remain in effect until such matter shall have been finally determined and disposed of, and any indemnification due in respect thereof shall have been paid, according to the date on which notice of the applicable claim is given. (d) Dollar-for-Dollar Claims. Notwithstanding anything herein to the contrary, Company Indemnified Parties shall not be subject to any limitation, whether pursuant to this Section 8.03 or otherwise, and shall be entitled to dollar-for-dollar recovery, in seeking indemnification from either Stockholder with respect to the following: (i) Losses arising from fraud or an intentional misrepresentation on the part of either Stockholder; (ii) Losses arising from breach of a covenant by a GB&C Entity or a Stockholder; (iii)Except as otherwise provided in any schedule to this Agreement, losses involving a breach by a Stockholder of the representations and warranties contained in Sections 2.02, 2.03 (except 2.03(a)(ii)), 2.04, 2.08(a), (b), (c) and (d), 2.11(g) or 2.17; and (iv) Losses described in Section 8.02(c). Indemnification pursuant to this Section 8.03(d) shall not be counted against the maximum amount set forth in Section 8.03(b). (e) No Limitation of Rights. Notwithstanding anything herein to the contrary, the limitations set forth in this Section 8.03 shall apply only with respect to post-Closing indemnification obligations and shall in no way limit any rights the Company may have in law or equity, in the event the Closing does not occur. 8.04. Indemnification by the Company. The Company agrees subsequent to the Closing Date to indemnify and hold harmless the Stockholders from and against and in respect of all Losses sustained, suffered or incurred by or made against any of them arising out of, based upon or in connection with (a) conditions, circumstances or occurrences which constitute or result in any breach of any representation or warranty made by the Company in this Agreement or in any Schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such representations or warranties (collectively, "Stockholder Representation and Warranty Claims"); and (b) any breach of any covenant or agreement made by the Company in this Agreement or in any Schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such covenant or agreement (such claims under clauses (a) and (b) being hereinafter collectively referred to as "Stockholder Indemnifiable Claims"). 8.05. Limitations on Indemnification by the Company. (a) The right of any Stockholders to indemnification under Section 8.04 shall be subject to the following provisions: (i) Indemnification with respect to Stockholder Representation and Warranty Claims shall expire on the eighteen (18) month anniversary of the Closing; provided, however, that the limitation of this clause (i) shall not apply to Stockholder Representation and Warranty Claims based on any inaccuracy in or breach of Section 3.04, which shall expire with respect to any such Section six (6) months after the termination of the applicable statute of limitations relating to the subject matter covered by such Section; and provided, further, that if prior to the above date of expiration a specific state of facts shall have become known which may constitute or give rise to any Stockholder Representation and Warranty Claim as to which indemnity may be payable and the Stockholders shall have given notice of such facts to the Company, then the right to indemnification with respect thereto shall remain in effect without regard to when such matter shall have been finally determined and disposed of, according to the date on which notice of the applicable claim is given. The limitations herein with respect to Stockholder Representation and Warranty Claims shall not limit the rights of Stockholder with respect to any other claims. (ii) No indemnification shall be payable with respect to Stockholder Representation and Warranty Claims except to the extent that the cumulative amount of all Stockholder Representation and Warranty Claims shall exceed $50,000, whereupon the full amount of such claims shall be recoverable in accordance with the terms hereof. (b) Notwithstanding anything herein to the contrary, the Stockholders shall not be subject to limitation, whether pursuant to Section 8.05(a) hereof or otherwise, in seeking indemnification with respect to any Stockholder Indemnifiable Claim (i) involving fraud or an intentional misrepresentation by the Company, (ii) arising from breach of a covenant by the Company or (iii) involving a breach by the Company of the representations and warranties contained in Section 3.04 and 3.09. (c) Notwithstanding anything herein to the contrary, the limitations set forth in this Section 8.05 shall apply only with respect to post-Closing indemnification obligations and shall in no way limit any rights any party may have in the event the Closing does not occur. 8.06. Notice; Defense of Claims. Promptly after receipt by an indemnified party of notice of any claim, liability or expense to which the indemnification obligations hereunder would apply, the indemnified party shall give notice thereof in writing to the indemnifying party (the Company with respect to claims by any Stockholder and the Stockholders, as applicable, with respect to claims by Company Indemnified Parties), but the omission to so notify the indemnifying party promptly will not relieve the indemnifying party from any liability except to the extent that the indemnifying party shall have been prejudiced as a result of the failure or delay in giving such notice. Such notice shall state the information then available regarding the amount and nature of such claim, liability or expense and shall specify the provision or provisions of this Agreement under which the liability or obligation is asserted. If within 20 days after receiving such notice the indemnifying party gives written notice to the indemnified party stating that (i) it would be liable under the provisions hereof for indemnity in the amount of such claim if such claim were successful (ii) that it shall be fully responsible (with no reservation of any rights) for all liabilities relating to such claim, liability or expense and that it will provide full indemnification (whether or not otherwise required hereunder) to the indemnified party with respect to such claim, liability or expense and (iii) that it disputes and intends to defend against such claim, liability or expense at its own cost and expense, then counsel for the defense shall be selected by the indemnifying party (subject to the consent of the indemnified party which consent shall not be unreasonably withheld) and the indemnified party shall not be required to make any payment with respect to such claim, liability or expense as long as the indemnifying party is conducting a good faith and diligent defense at its own expense; provided, however, that the assumption of defense of any such matters by the indemnifying party shall relate solely to the claim, liability or expense that is subject or potentially subject to indemnification, and provided further that prior to such assumption of defense the indemnifying party shall enter into an agreement with the indemnified party in form and substance satisfactory to the indemnified party pursuant to which the indemnifying party unconditionally guarantees the payment and performance of any liability or obligation which may arise out of or in any way relating to such claim, liability or expense or the facts giving rise thereto. The indemnifying party shall have the right, with the consent of the indemnified party, which consent shall not be unreasonably withheld, to settle all indemnifiable matters related to claims by third parties which are susceptible to being settled provided its obligation to indemnify the indemnifying party therefor will be fully satisfied. The indemnifying party shall keep the indemnified party apprised of the status of the claim, liability or expense and any resulting suit, proceeding or enforcement action, shall furnish the indemnified party with all documents and information that the indemnified party shall reasonably request and shall consult with the indemnified party prior to acting on major matters, including settlement discussions. Notwithstanding anything herein stated to the contrary, the indemnified party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party, undertake the defense of (with counsel selected by the indemnified party), and shall have the right to compromise or settle (exercising reasonable business judgment), such claim, liability or expense. If such claim, liability or expense is one that by its nature cannot be defended solely by the indemnifying party, then the indemnified party shall make available all information and assistance that the indemnifying party may reasonably request and shall cooperate with the indemnifying party in such defense. 8.07. Indemnification by the GB&C Entities. The GB&C Entities and their successors agree to indemnify and hold harmless the Stockholders against all claims against any Stockholder arising from any personal guaranty set forth on Schedule 2.33, provided that the contract, lease or other agreement with respect to which such personal guaranty was executed is dated before the date hereof, and provided that, except as set forth on Schedule 8.07, the cause of action giving rise to a claim for indemnification under this Section 8.07 arose after the date of consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the rights of any Company Indemnified Parties under Article 8 hereof shall in no way be impaired by the foregoing indemnification. Indemnification under this Section 8.07 shall not be subject to the expiration provisions and amount limitation of Section 8.05. ARTICLE IX. REGISTRATION RIGHTS. 9.01. Definitions. As used in this Article IX, the following terms shall have the following meanings: "Advice" has the meaning set forth in Section 9.03. "Affiliate" means, with respect to any specified person, any other person who, directly or indirectly, controls, is controlled by, or is under common control with such specified person. "Commission" means the Securities and Exchange Commission. "Controlling Persons" has the meaning set forth in Section 9.05(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Holder" means (i) any Stockholder and (ii) each person (other than the Company and its Affiliates) to whom any Stockholder transfers Securities as provided in Section 9.07 hereof, if the person to whom such Securities are transferred acquires such Securities as Registrable Securities. "Lock-up Period" has the meaning set forth in Section 9.06. "Lock-up Request" has the meaning set forth in Section 9.06. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and by all other amendments and supplements to the prospectus, including post-effective amendments, and in each case including all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Registrable Securities" means the Securities; provided, however, that any Securities shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities become eligible for sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (iii) such Securities cease to be outstanding. "Registration Statement" means any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Securities" means the shares of Company Common Stock issued to the Stockholders pursuant to this Agreement so long as they are owned beneficially and of record by a Holder. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Suspension Notice" has the meaning set forth in Section 9.03. "Suspension Period" has the meaning set forth in Section 9.03. 9.02. Resale Registration. (a) Filing; Effectiveness. No later than October 15, 1996, the Company shall file a registration statement on Form S-3 (the "Resale Registration Statement") under the Securities Act covering the resale by such Holders of their Registrable Securities pursuant to Rule 415 under the Securities Act from time to time in transactions not involving any underwritten public offering and use its best efforts (i) to cause such Resale Registration Statement to be declared effective by the Commission for such Registrable Securities as soon as practicable thereafter and (ii) to keep the Resale Registration Statement continuously effective until the earliest of (x) the date on which such Holders no longer hold any Registrable Securities registered under the Resale Registration Statement or (y) the second anniversary of the Closing Date. The Company may at its option include the Registrable Securities of the Holders in any Registration Statement filed by the Company. The Company shall not be required to request that a registration statement requested pursuant to this Section 9.02 become effective prior to 90 days following the effective date of a registration statement initiated by the Company if any managing underwriter named in such registration statement has advised the Company in writing that the registration or sale of additional securities by stockholders of the Company within such 90-day period would have a material adverse effect on the likelihood of success of such underwritten offering; provided, however, that the Company shall use its best efforts to achieve such effectiveness promptly following such 90- day period if the request pursuant to this Section 9.02 has been made prior to the expiration of such 90-day period. The Company may postpone the filing of any Registration Statement required hereunder for a reasonable period of time, not to exceed 60 days, if the Company has been advised by outside legal counsel that such filing would require the disclosure of a material transaction or other matter and the Company determines reasonably and in good faith that such disclosure would have a Material Adverse Effect on the Company; provided, however, that the Company shall (A) use reasonable efforts to disclose such material transaction or other matter as soon as in its good faith judgment it is prudent to do so and (B) may so postpone such filing only if all other persons who are named as selling securityholders under then effective registration statements filed by the Company with the Commission and all directors of the Company are advised of the fact that a material transaction or other matter is not being disclosed during the length of such postponement and of the consequences of such nondisclosure under the Securities Act and the Exchange Act. (b) Effective Registration. A registration will not be deemed to have been effected as a Resale Registration unless the Resale Registration Statement with respect thereto has been declared effective by the Commission; provided, however, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Resale Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Resale Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Resale Registration Statement may legally resume. 9.03. Registration Procedures. In connection with the obligations of the Company to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, the Company shall use reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof, and in connection therewith: (a) The Company shall prepare and file with the Commission a Registration Statement on Form S-3 or other similar form under the Securities Act which permits secondary sales of securities in a "shelf registration," and use reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; (b) The Company shall promptly prepare and file with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders set forth in such Registration Statement or supplement to the Prospectus; (c) The Company shall promptly furnish to any Holder such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder; (d) The Company shall, on or prior to the date on which a Registration Statement is declared effective, use reasonable efforts to register or qualify the Registrable Securities covered by such Registration Statement under such other securities or "blue sky" laws of such states of the United States as any Holder requests; provided, however, that the Company shall not be required (i) to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 9.03(d) or (ii) to file any general consent to service of process; (e) The Company shall promptly notify each Holder, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As soon as practicable following expiration of the Suspension Period (as defined below), the Company shall prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In the case of a Resale Registration Statement, each Holder, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 9.03(e)(v), shall forthwith discontinue disposition of the Registrable Securities pursuant to the Resale Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 9.03(e) or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Holder will, or will request any broker-dealer acting as such Holder's agent or as an underwriter to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's or broker-dealer's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; provided, however, that in no event shall the period from the date on which any Holder receives a Suspension Notice to the date on which any Holder receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 9.03(e) (the "Suspension Period") exceed 60 days; and provided further that such Suspension Notice shall not be effective unless the Company has contemporaneously given an analogous notice to all other persons named as selling securityholders in then effective registration statements filed by the Company with the Commission and to the Company's directors. In the event that the Company shall give any Suspension Notice, the time periods for which a Resale Registration Statement is required to be kept effective pursuant to Section 9.02 hereof shall be extended by the number of days during the Suspension Period. 9.04. Registration Expenses. The Company shall bear all expenses incurred in connection with the registration of the Registrable Shares pursuant to Section 9.02 of this Agreement. Such expenses shall include, without limitation, all printing, legal and accounting expenses incurred by the Company and all registration and filing fees imposed by the Commission, any state securities commission or the Nasdaq National Market. The Holders shall be responsible for any brokerage or underwriting commissions and taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registrable Securities and for any legal, accounting and other expenses incurred by them. 9.05. Indemnification and Contribution. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder, its partners, officers, directors, trustees, stockholders, employees and agents, and each person who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under common control with, or is controlled by, such Holder, together with the partners, officers, directors, trustees, stockholders, employees and agents of such controlling person (collectively, the "Controlling Persons"), from and against all losses, claims, damages, liabilities and expenses (including without limitation reasonable legal fees and expenses incurred by any Holder or any such Controlling Person documented in writing) (collectively, the "Damages") to which such Holder, its partners, officers, directors, trustees, stockholders, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, or caused by any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such Damages arise out of or are based upon any such untrue statement or omission based upon information relating to such Holder furnished in writing to the Company by such Holder specifically for use therein; provided, however, that the Company shall not be liable to any Holder under this Section 9.05(a) to the extent that any such Damages were caused by the fact that such Holder sold Securities to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, and only if, (i) the Company has previously furnished copies of such amended or supplemented Prospectus to such Holder and (ii) such Damages were caused by any untrue statement or omission or alleged untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. (b) Indemnification by the Holders. Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its stockholders, directors, officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Holder, but only with reference to information relating to such Holder furnished in writing to the Company by such selling Holder specifically for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); provided, however, that such selling Holder shall not be obligated to provide such indemnity to the extent that such Damages result from the failure of the Company to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information provided by such selling Holder to the Company expressly for such purpose. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Contribution. To the extent that the indemnification provided for in paragraph (a) or (b) of this Section 9.05 is unavailable to an indemnified party or insufficient in respect of any Damages, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Holders on the other hand in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If indemnification is available under paragraph (a) or (b) of this Section 9.05, the indemnifying parties shall indemnify each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 9.05(c). The Company and each Holder agrees that it would not be just or equitable if contribution pursuant to this Section 9.05(c) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. 9.06. Restrictions on Sale. In the event of an underwritten public offering for the account of the Company, upon the written request (the "Lock-up Request") of the managing underwriter (or underwriters) of such offering, each Holder agrees not to effect any public sale or distribution of any securities similar to those being registered in such offering (other than pursuant to such offering), including, without limitation, through sales of Securities pursuant to a Resale Registration Statement, during the 14 days prior to, and during the 90-day period beginning on the effective date of the Registration Statement relating to such offering (the "Lock-up Period"); provided, however, that the Holders shall not be required to comply with such Lock-up Request unless the Company simultaneously demands analogous restrictions on sale and uses all reasonable efforts to obtain from all other persons who are contractually bound with the Company to comply with such Lock-up Requests and from the Company's directors. In the event of the delivery of a Lock-up Request, the time periods for which a Resale Registration Statement is required to be kept effective pursuant to Section 9.02 hereof shall be extended by the number of days during the Lock-up Period. 9.07. Transfer of Registration Rights. The registration rights of the Stockholders and any Holders under this Article IX may be transferred to any transferee of Registrable Securities that acquires at least 1,000 shares of Registrable Securities (appropriately adjusted for stock splits, stock dividends and the like). Each such transferee shall be deemed to be a "Holder" for purposes of this Article IX. ARTICLE X. NON-COMPETITION AGREEMENT. 10.01. Non-Competition Agreement. Each of the Stockholders shall execute and deliver a Non-Competition Agreement in the form of Exhibit 10.01 attached hereto (the "Non- Competition Agreement"), whereby each of them agrees that during the period commencing on the date of the Closing and ending on the later of (a) the date which is three (3) years after the date of the Closing or (b) the second anniversary of the date on which the relevant individual ceases to be an employee or consultant of DAKA or a GB&C Entity or any of their respective affiliates for any reason, he will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States, engage in any activity which is, or participate or invest in or assist (whether as owner, part-owner, shareholder, partner, director, officer, trustee, employee, franchiser, licensor, agent or consultant, or in any other capacity) any business organization other than the Company (or any affiliate of the Company) that is engaged in the current business of the GB&C Entities, including without limitation the manufacture, sale, franchising, marketing, licensing or distribution of bagels or coffee; except that each such individual may make passive investments in a competitive enterprise the shares of which are publicly traded if such investment constitutes less than one percent of the equity of such enterprise. Without implied limitation, the forgoing covenant shall include, to the extent permitted by applicable law, hiring or attempting to hire for or on behalf of any such competitor any officer or other employee of the Company, the GB&C Entities or any of their respective affiliates, encouraging any officer or other employee to terminate his or her relationship or employment with the Company, the GB&C Entities or any of their respective affiliates, soliciting for or on behalf of any such competitor any licensee, franchisee, supplier or other service provider of the Company, the GB&C Entities or any of their respective affiliates, and diverting to any Person (as hereinafter defined) any license, franchise, supply or other business opportunity of the Company, the GB&C Entities or any of their respective affiliates. As of the date of this Agreement, other than with respect to the GB&C Entities, no Stockholder is performing any consulting or other duties for, nor is a party to any similar agreement with, any business or venture competing with the Company, the GB&C Entities or any of their respective affiliates. For purposes of this Agreement, the term "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust, and any other entity or organization. For purposes of this Section 10.01, the term "affiliate" shall mean, as to any Person, (i) each direct or indirect subsidiary of such Person, (ii) each other Person of which such Person is a direct or indirect subsidiary, and (iii) each other direct or indirect subsidiary of such other Person. ARTICLE XI. MISCELLANEOUS. 11.01. Fees and Expenses. (a) Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement, and no expenses of any of the GB&C Entities or the Stockholders relating in any way to the purchase and sale of the Shares hereunder and the transactions contemplated hereby, including without limitation legal, accounting or other professional expenses of any of the GB&C Entities or the Stockholders, shall be charged to or paid or borne by any of the GB&C Entities or the Company. (b) The Stockholders will pay all costs incurred, whether at or subsequent to the Closing, in connection with the transfer of the Shares to the Company as contemplated by this Agreement, including without limitation, all transfer taxes and charges applicable to such transfer, and all costs of obtaining permits, waivers, registrations or consents with respect to any assets, rights or contracts of the GB&C Entities. 11.02. Tax Accounting Matters and Tax Returns. (a) The books of each of the GB&C Entities shall, consistent with Section 1362(e)(6)(D) of the Code, be closed effectively as of the day preceding the Closing Date and, accordingly, a separate and distinct accounting period of each of the GB&C Entities shall commence on the Closing Date. (b) With respect to each applicable federal income tax return obligation of the GB&C Entities for the taxable year that includes the Closing Date, two tax returns shall be required for each of the GB&C Entities, one return covering each GB&C Entity's "S short year" (within the meaning of Section 1362(e)(1)(A) of the Code or the corresponding provision under applicable state law) and a second covering each GB&C Entity's "C short year" (within the meaning of Section 1362(e)(1)(B) of the Code); provided that all returns relating to periods after the "S short year" shall be subject to applicable federal consolidated return rules and regulations. State income tax returns will be filed in a consistent manner unless otherwise required by applicable state law. (c) The Stockholders and the Company shall cooperate in the preparation and filing of all tax returns relating to each of the GB&C Entities' S and C short years. In particular, the Stockholders, the Company, and each of the GB&C Entities shall make available to each other, as reasonably requested, all information, records, or documents that shall be necessary for the preparation and filing of all tax returns for each of the GB&C Entities' S short years and C short years. The Stockholders, the GB&C Entities, and the Company shall also cooperate with each other in connection with information relating to the adjusted basis of GB&C assets and the stock of the GB&C Entities as of the date of the Closing. (d) It is expressly provided herein that the tax returns for the S short years of the GB&C Entities shall not be filed with the applicable taxing authority without the written consent of Michael F. Zerbib and Jason R. Olivier, which consent shall not be unreasonably withheld. (e) All information, records, and documents used in connection with the preparation of income tax returns of the GB&C Entities for the taxable year that includes the Closing Date shall be preserved and maintained until the expiration of any applicable statute of limitations. (f) Each of the Company, the GB&C Entities, and the Stockholders shall, in connection with any tax returns filed by the any of the foregoing, report or reflect the acquisition by the Company of the stock of the GB&C Entities as reorganizations within the meaning of Section 368 of the Code. For this purpose, in the event requested by the Company, the Stockholders shall furnish (i) certificates reflecting, as of the Closing Date, the absence of any plan or intention to dispose of more than fifty percent (50%) of the aggregate shares of DAKA Common Stock receivable by the Stockholders pursuant to this Agreement, and (ii) such other representations that the Company may reasonably request to establish the status of such acquisitions as reorganizations under Section 368 of the Code. 11.03. Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of Delaware without regard to its conflict of laws provisions. 11.04. Notices. Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered or sent by facsimile transmission, upon receipt, or if sent by registered or certified mail, upon the sooner of the date on which receipt is acknowledged or the expiration of three days after deposit in United States post office facilities properly addressed with postage prepaid. All notices to a party will be sent to the addresses set forth below or to such other address or person as such party may designate by notice to each other party hereunder: TO THE COMPANY: DAKA International, Inc. One Corporate Place 55 Ferncroft Road Danvers, MA 01923-4001 Attn: Charles W. Redepenning, Jr. With a copy to: Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 Attn: Ettore A. Santucci, P.C. Facsimile: (617) 523-1231 TO THE GB&C ENTITIES: The Great Bagel & Coffee Co. 125 West Genini Drive Suite E 4/5 Temple, AZ 85283 Attn: Jason Olivier With a copy to: Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 Attn: Ettore A. Santucci, P.C. Facsimile: (617) 523-1231 TO ANY STOCKHOLDER: Michael F. Zerbib 3216 N. 3rd Street Phoenix, AZ 85012 With a copy to: Snell & Wilmer LLP One Arizona Center 400 E. VanBuren, 10th Floor Phoenix, AZ 85004-0001 Attn: Terry Morris Roman Facsimile: (602) 382-6070 Any notice given hereunder may be given on behalf of any party by his counsel or other authorized representatives. 11.05. Entire Agreement. This Agreement, including the Schedules and exhibits referred to herein and the other writings specifically identified herein or contemplated hereby, is complete, reflects the entire agreement of the parties with respect to its subject matter, and supersedes all previous written or oral negotiations, commitments and writings. No promises, representations, understandings, warranties and agreements have been made by any of the parties hereto except as referred to herein or in such Schedules and exhibits or in such other writings; and all inducements to the making of this Agreement relied upon by either party hereto have been expressed herein or in such Schedules or exhibits or in such other writings. 11.06. Assignability. This Agreement shall be assignable by the Company prior to the Closing to a subsidiary of the Company although no such assignment shall relieve the Company of any liabilities or obligations under this Agreement. This Agreement shall not otherwise be assignable by the Company without the prior written consent of Stockholders owning a majority of the Shares or (except as otherwise permitted by Section 9.07 hereof) by any Stockholder without prior written consent of the Company. This Agreement shall be binding upon and enforceable by, and shall inure to the benefit of, the parties hereto and their respective successors, heirs, executors, administrators and permitted assigns, and no others. Notwithstanding the foregoing, nothing in this Agreement is intended to give any person not named herein the benefit of any legal or equitable right, remedy or claim under this Agreement, except as expressly provided herein. 11.07. Captions and Gender. The captions in this Agreement are for convenience only and shall not affect the construction or interpretation of any term or provision hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter, as the context may require. 11.08. Execution in Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. 11.09. Amendments; Waivers. This Agreement may not be amended or modified except by a writing duly and validly executed by each Stockholder and the Company. Any party hereto may waive any covenant or condition intended for its benefit in its discretion, but delay on the party of any party in exercising any right, power or privilege hereunder shall not operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party arising out of or otherwise in respect of any inaccuracy in or breach of any representation or warranty, or any failure to perform or comply with any covenant or agreement, contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy, breach or failure is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy, breach or failure. 11.10. Publicity and Disclosures. Until the Closing Date, so long as this Agreement is in effect, none of the parties hereto nor any of their respective stockholders, subsidiaries, affiliates, officers, directors or employees shall issue or cause the publication of any press release or other announcement with respect to this Agreement or the other transactions contemplated hereby without the prior written consent of the other parties hereto, which consent shall not be unreasonably withheld, except to the extent disclosure is required by any applicable law or regulation or by any court or authorized administrative or governmental agency. 11.11. Specific Performance. The parties agree that it would be difficult to measure damages which might result from a breach of this Agreement by the GB&C Entities, the Stockholders or the Company and that money damages would be an inadequate remedy for such a breach. Accordingly, if there is a breach or proposed breach of any provision of this Agreement by the GB&C Entities, the Stockholders or the Company, and the Company or the Stockholders, as the non-breaching party, does not elect to terminate under Article VII, the non-breaching party shall be entitled, in addition to any other remedies which such party may have, to an injunction or other appropriate equitable relief to restrain such breach without having to show or prove actual damage to such party. 11.12. Severability. The parties agree that, in the event that any provision of this Agreement or the application of any such provision to any party is held by a court of competent jurisdiction to be contrary to law, the provision in question shall be construed so as to be lawful and the remaining provisions of this Agreement shall remain in full force and effect. SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT DATED MARCH __, 1996 IN WITNESS WHEREOF, the undersigned have executed this Agreement as a sealed instrument as of the day and year first above written. DAKA INTERNATIONAL, INC. By: /s/ Charles W. Redepenning, Jr. -------------------------------------- Charles W. Redepenning, Jr. Senior Vice President and General Counsel THE GREAT BAGEL AND COFFEE FRANCHISING CORP. By: /s/ Jason R. Olivier --------------------------- GBC CREDIT COMPANY By: /s/ Jason R. Olivier --------------------------- GEMINI PRODUCTION FACILITY, INC. By: /s/ Jason R. Olivier --------------------------- THE GREAT BAGEL AND COFFEE COMPANY By: /s/ Jason R. Olivier --------------------------- SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT DATED _________ __, 1996 /s/ Mark C. Gordon ------------------ Mark C. Gordon /s/ Brian H. Loeb ----------------- Brian H. Loeb /s/ Jason R. Olivier -------------------- Jason R. Olivier /s/ Michael F. Zerbib --------------------- Michael F. Zerbib /s/ Nicholas D. Zerbib ---------------------- Nicholas D. Zerbib /s/ Thierry E. Zerbib --------------------- Thierry E. Zerbib EX-2.6 7 STOCK PURCHASE AGREEMENT By and Among Casual Dining Ventures, Inc. and DAKA International, Inc. and Edgebrook, Inc. Dated as of March 31, 1996 TABLE OF CONTENTS ARTICLE I. PURCHASE AND SALE OF SHARES Section 1.01. Plan; Purchase and Sale of the Shares Section 1.02. Consideration Section 1.03. Adjustments to Consideration Section 1.04. General Releases Section 1.05. Closing Section 1.06. Deliveries at Closing Section 1.07. Actions Subsequent to Closing ARTICLE II. REPRESENTATION AND WARRANTIES OF EDGEBROOK Section 2.01. Making of Representations and Warranties Section 2.02. Ownership of Capital Stock; Related Rights Section 2.03. Authority of Edgebrook Section 2.04. Investment Representations Section 2.05. General Release Representations Section 2.06. Information Supplied to the Company Section 2.07. Investment Banking; Brokerage ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 3.01. Making of Representations and Warranties Section 3.02. Organization and Corporate Power Section 3.03. Authority Section 3.04. Investment Banking; Brokerage Section 3.05. DAKA Common Stock Section 3.06. Investment Representation ARTICLE IV. COVENANTS Section 4.01. Sale of Shares; Acquisition Proposals Section 4.02. Consents and Approvals Section 4.03. Breach of Representations and Warranties Section 4.04. Confidentiality Section 4.05. Non-Hire of ADC Employees ARTICLE V. CONDITIONS Section 5.01. Conditions to the Obligations of the Company Section 5.02. Conditions to the Obligations of Edgebrook (i) ARTICLE VI. TERMINATION OF AGREEMENT Section 6.01. Termination Section 6.02. Effect of Termination Section 6.03. Right to Proceed ARTICLE VII. SURVIVAL; INDEMNIFICATION Section 7.01. Survival of Representations, Warranties, Etc. Section 7.02. Indemnification by Edgebrook Section 7.03. Limitations on Indemnification by Edgebrook Section 7.04. Indemnification by the Company Section 7.05. No Limitation of Rights Section 7.06. Notice; Defense of Claims ARTICLE VIII. REGISTRATION RIGHTS Section 8.01. Definitions Section 8.02. Resale Registration Section 8.03. Registration Procedures Section 8.04. Registration Expenses Section 8.05. Indemnification and Contribution Section 8.06. Restrictions on Sale Section 8.07. Transfer of Registration Rights ARTICLE IX. MISCELLANEOUS Section 9.01. Law Governing Section 9.02. Notices Section 9.03. Prior Agreements Superseded Section 9.04. Assignability Section 9.05. Fees and Expenses Section 9.06. Publicity and Disclosures Section 9.07. Captions Section 9.08. Execution in Counterparts Section 9.09. Certain Remedies; Severability Section 9.10. Amendments; Waivers (ii) STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is made as of the 31st day of March, 1996, by and among DAKA International, Inc., a Delaware corporation ("DAKA"), Casual Dining Ventures, Inc., a Delaware corporation and a wholly-owned subsidiary of DAKA ("CDVI"), and Edgebrook, Inc., a Minnesota corporation ("Edgebrook") and a stockholder of Americana Dining Corp., a Delaware corporation ("ADC"). DAKA and CDVI are referred to herein collectively as the "Company." W I T N E S S E T H WHEREAS, Edgebrook is the record and beneficial owner of 505,000 shares of common stock, par value $.01 per share, of ADC ("ADC Common Stock"); and WHEREAS, the shares of ADC Common Stock owned beneficially and of record by Edgebrook are hereinafter referred to collectively as the "Shares;" and WHEREAS, CDVI is the record and beneficial owner of 2,295,000 shares of ADC Common Stock and of 466,667 shares of preferred stock, par value $.01 per share, of ADC and DAKA is the record and beneficial owner of all issued and outstanding shares of capital stock of CDVI; and WHEREAS, Edgebrook desires to transfer to CDVI all of the Shares in exchange for shares of the common stock, par value $.01 per share, of DAKA (the "DAKA Common Stock") to be issued by DAKA to CDVI and immediately transferred by CDVI to Edgebrook and CDVI desires to acquire from Edgebrook all of the Shares in exchange for such shares of DAKA Common Stock in an arrangement qualifying as a reorganization under the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), whereby, after giving effect to such transactions, CDVI will own beneficially and of record in excess of 80% of the issued and outstanding shares of ADC Common Stock, on the terms and conditions hereinafter set forth; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I. PURCHASE AND SALE OF SHARES. Section 1.01. Plan; Purchase and Sale of the Shares. CDVI and Edgebrook hereby adopt a plan of reorganization pursuant to the provisions of Section 368(a)(1)(B) of the Code. The terms and conditions governing this plan of reorganization are hereinafter set forth. Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants herein set forth, CDVI hereby agrees to purchase from Edgebrook, and Edgebrook hereby agrees to sell and deliver to CDVI, at the Closing (as hereinafter defined in Section 1.05 hereof), the Shares free and clear of any and all liens, claims, options, charges, encumbrances or rights of any nature ("Claims"). Section 1.02. Consideration. Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants set forth herein, and in consideration of the sale and delivery by Edgebrook of the Shares, CDVI hereby agrees to issue to Edgebrook .18182 of one share of DAKA Common Stock, for each Share of ADC Common Stock sold and delivered to CDVI, subject to possible adjustment, as provided in Section 1.03 hereof. No fractional shares will be issued by CDVI to Edgebrook. Instead, the total number of shares of DAKA Common Stock to be issued to Edgebrook (regardless of whether Edgebrook's Shares are represented by a single or multiple certificates) will be rounded up or down to the nearest number of whole shares of DAKA Common Stock (or in the case of .5, to the next higher whole number). Reference is made to the representations and warranties of Edgebrook set forth in Section 2.04 hereof, including, without limitation, the acknowledgment and understanding that (a) the DAKA Common Stock to be issued to Edgebrook hereunder has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws, (b) the DAKA Common Stock to be issued to Edgebrook hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) it is subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to DAKA an opinion of counsel satisfactory to DAKA that such registration is not required, and (c) DAKA will place a restrictive legend to the foregoing effect on the certificate(s) representing the DAKA Common Stock to be issued to Edgebrook hereunder. Section 1.03. Adjustments to Consideration. In the event that (a) on the Closing Date (as such term is hereinafter defined), the Closing Price (as such term is hereinafter defined) of a share of DAKA Common Stock is less than $21.00 per share and (b) Edgebrook elects to terminate this Agreement pursuant to Section 6.01(e) hereof, then CDVI will have the right to rescind such termination by adjusting the consideration for the Shares as follows, in which case Edgebrook will be obligated to proceed with the sale and delivery of the Shares: in consideration for each Share of ADC Common Stock to be sold by Edgebrook, CDVI will deliver a fraction of one share of DAKA Common Stock (determined to the nearest one-tenth of one-thousandth of a share) calculated by multiplying (i) .18182 by (ii) the quotient of (x) $21.00 divided by (y) the Closing Price. For purposes of this Agreement, the term "Closing Price" shall mean the average per share closing sale price of DAKA Common Stock as reported on the Nasdaq National Market over the twenty (20) trading days immediately preceding the second trading day prior to the Closing Date. Notwithstanding the foregoing, if between the date of this Agreement and the Closing Date the outstanding shares of DAKA Common Stock or ADC Common Stock are changed into a different number of shares or a different class or series, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the consideration described above shall be correspondingly and proportionately adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. Section 1.04. General Releases. (a) Edgebrook, by executing and delivering this Agreement, and in consideration of the covenants and agreements of the Company contained herein and other good and valuable consideration hereby: (i) releases and discharges ADC, DAKA, and their respective subsidiaries, each of the present and former stockholders, directors, officers, employees and agents of ADC, DAKA, and their respective subsidiaries, affiliates of any of the foregoing and their respective successors and assigns (each a "Released Party") of and from any and all commitments, indebtedness, suits, demands, claims, obligations and liabilities, contingent or otherwise, of every kind and nature, including claims and causes of action both at law and in equity, which Edgebrook and/or its successors, administrators or assigns ever had, now has or, to the extent arising from or in connection with any act, omission or state of facts taken or existing on or prior to the date hereof and the Closing Date, may have after the date hereof against any Released Party, whether asserted, unasserted, absolute, contingent, known or unknown, other than claims or causes of action arising under or pursuant to this Agreement, and each document executed in connection herewith, including, without limitation, rights to indemnification under Article VII of this Agreement; and (ii) waives any rights Edgebrook may have under that certain Shareholders Agreement dated as of March 28, 1994, by and among ADC and the stockholders of ADC (the "Shareholders Agreement"), including, without limitation, any rights of first refusal and any rights of pro rata participation. (b) The foregoing release shall be fully effective and unconditional upon execution and delivery of this Agreement and shall not be affected by termination of this Agreement other than (i) termination by the Company in breach of the provisions of Section 6.01 hereof or (ii) termination by Edgebrook pursuant to Section 6.01(d) hereof. Section 1.05. Closing. The sale and delivery and the purchase and acceptance of the Shares (the "Closing") shall take place at the offices of the Company on the day on which all of the conditions to Closing set forth in Article V (other than conditions to be satisfied at the Closing which shall be satisfied or waived as of the Closing) have been satisfied or waived in accordance with the terms hereof, such day being referred to herein as the Closing Date. Section 1.06. Deliveries at Closing. At the Closing, (a) DAKA shall issue to CDVI the number of shares of DAKA Common Stock to be delivered by CDVI to Edgebrook hereunder in consideration of the Shares and CDVI shall execute in favor of and deliver to DAKA a promissory note in an original principal amount equal to the product of (x) the Closing Price on the Closing Date by (y) such number of shares of DAKA Common Stock; (b) Edgebrook shall deliver a certificate or certificates representing all Shares owned beneficially and of record by Edgebrook, together with stock powers (or the equivalent) duly executed in 3 blank and such other documents as may be required to transfer to CDVI good and valid title to such Shares free and clear of all Claims and (c) CDVI shall deliver to Edgebrook a certificate or certificates representing the appropriate number of shares of DAKA Common Stock bearing the legend provided in Section 2.04(d) hereof issued in the name of Edgebrook. All transfer, excise or similar taxes arising out of the sale or delivery of the Shares to CDVI shall be paid by the Edgebrook. Section 1.07. Actions Subsequent to Closing. Edgebrook and the Company after the Closing, and without further consideration, shall from time to time execute and deliver or cause to be executed and delivered such further instruments of transfer, assignments, consents or documents as may be reasonably necessary or appropriate to carry out the intent and purposes hereof. ARTICLE II. REPRESENTATION AND WARRANTIES OF EDGEBROOK. Section 2.01. Making of Representations and Warranties. As a material inducement to the Company to enter into this Agreement and to consummate the transactions contemplated hereby, Edgebrook makes to the Company the representations and warranties contained in this Article II. Section 2.02. Ownership of Capital Stock; Related Rights. (a) Edgebrook owns beneficially and of record all of the Shares set forth in the preamble hereof. Upon delivery to CDVI at the Closing of the certificates representing the Shares duly endorsed in blank for transfer or with stock powers attached duly executed in blank, against delivery of the consideration therefor described in Article I hereof, good and valid title to the Shares shall be transferred to CDVI, free and clear of any and all Claims. (b) Except for the Shareholders Agreement, Edgebrook has no outstanding subscriptions, options, warrants, commitments, agreements, arrangements or commitments of any kind for or relating to the issuance, or sale of, or outstanding securities convertible into or exchangeable for, any shares of capital stock of any class or other equity interests of ADC; (b) Edgebrook has no preemptive right, right of first refusal or similar right to acquire the Shares or any other shares of capital stock of ADC in connection with the transactions contemplated by this Agreement or otherwise; (c) there are no restrictions on the transfer of the Shares, other than those imposed by relevant state and federal securities or insurance laws; (d) ADC has no obligation to purchase, redeem or otherwise acquire any of the Shares or to pay any dividend or make any other distribution in respect thereto; and (e) there are no voting trusts or proxies relating to any of the Shares. Section 2.03. Authority of Edgebrook. (a) Edgebrook has full authority and power to enter into this Agreement and each agreement, document and instrument to be executed and delivered by or on behalf of Edgebrook pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. This Agreement and each agreement, document and instrument to be executed and delivered by Edgebrook or pursuant to or as contemplated by this Agreement constitute, or when executed and delivered by Edgebrook will constitute, valid and binding obligations of Edgebrook enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws applicable to creditors' rights and remedies and to the exercise of judicial discretion in accordance with general principles of equity. (b) The execution, delivery and performance by Edgebrook of this Agreement and each such agreement, document and instrument: (i) do not and will not violate any provision of the charter or by- laws or governing partnership agreement or other organizational document, if any, of Edgebrook; (ii) do not and will not violate any laws, rules or regulations of the United States or any state or other jurisdiction applicable to Edgebrook, or require Edgebrook to obtain any approval, consent or waiver of, or to make any filing with, any person (governmental or otherwise) that has not been obtained or made; and (iii)do not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Edgebrook is a party or by which the property of Edgebrook is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on the Shares or any other asset or property of Edgebrook. Section 2.04. Investment Representations. (a) Edgebrook is acquiring the shares of DAKA Common Stock to be issued to it hereunder in exchange for its Shares for Edgebrook's own account for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, in violation of the Securities Act or any rule or regulation thereunder, as amended from time to time. (b) Edgebrook (i) is not directly or indirectly controlled by, or acting on behalf of any person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, required to register as such under such Act or (ii) was not formed solely for the purpose of acquiring the DAKA Common Stock to be issued to it hereunder. (c) Edgebrook (i) has carefully reviewed the disclosure information provided by the Company; (ii) has requested and received such other information, as it has deemed relevant, regarding the Company for purposes of evaluating its acquisition of the DAKA Common Stock to be issued to it hereunder; (iii) is aware of the risks associated with an investment in the DAKA Common Stock; and (iv) has not received any form of general solicitation or advertising in connection with its decision to acquire the DAKA Common Stock to be issued to it hereunder. Edgebrook has not relied in any way on any information with respect to the DAKA Common Stock or the Company generally other than the representations of the Company contained herein or materials furnished by the Company in writing in connection herewith. (d) Edgebrook acknowledges and understands that (i) the DAKA Common Stock to be issued to it hereunder has not been registered under the Securities Act, or any state securities laws; (ii) the DAKA Common Stock to be issued to it hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) it is subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to DAKA an opinion of counsel satisfactory to DAKA that such registration is not required; and (iii) DAKA will place a restrictive legend on the certificate(s) representing the DAKA Common Stock to be issued to Edgebrook hereunder, containing the following language: "The shares represented by this Certificate were issued without registration under the Securities Act of 1933, as amended (the "Act") and without registration under applicable state securities laws, in reliance upon exemptions contained in the Act and such laws. No transfer of these shares or any interest therein may be made except pursuant to effective registration statements under said laws unless this Corporation has received an opinion of counsel satisfactory to it that such transfer or disposition does not require registration under said laws and, for any sales under Rule 144 of the Act, such evidence as it shall request for compliance with that rule." (e) Edgebrook (i) is able to bear the economic risks of the acquisition of shares of DAKA Common Stock hereunder and has adequate means of providing for current needs and possible contingencies; (ii) either alone or with its advisors has had the opportunity to ask questions and receive answers concerning the Company and the terms and conditions of the acquisition of DAKA Common Stock in exchange for the Shares, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith which the Company possesses or can acquire without unreasonable effort or expense; and (iii) together with its advisors, if any, has such knowledge and experience in financial and business matters that Edgebrook is capable of evaluating the merits and risks of this acquisition of DAKA Common Stock in exchange for the Shares, and of making an informed investment decision, and has relied solely upon the advice of its own counsel, accountant and other advisors, with regard to the legal, investment, tax and other considerations regarding such acquisition. Section 2.05. General Release Representations. With respect to the general release of the Released Parties, as defined in Section 1.04 hereof, by Edgebrook (a) Edgebrook has not assigned any claim or possible claim against any Released Party, (b) Edgebrook fully intends to release all claims against the Released Parties including, without limitation, known, unknown and contingent claims (other than those specifically reserved in Section 1.04 hereof), and (iii) Edgebrook has consulted with counsel with respect to the general release set forth in Section 1.04 hereof and has been fully apprised of the consequences thereof. Section 2.06. Information Supplied to the Company. To the best of Edgebrook's knowledge, neither this Agreement, nor any certificate furnished pursuant to or in connection with this Agreement by or on behalf of Edgebrook contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in the light of the circumstances under which they were made. Section 2.07. Investment Banking; Brokerage. There are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees of lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Edgebrook. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Section 3.01. Making of Representations and Warranties. As a material inducement to Edgebrook to enter into this Agreement and to consummate the transactions contemplated hereby, the Company hereby makes to it the representations and warranties contained in this Article III. Section 3.02. Organization and Corporate Power. Each of DAKA and CDVI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full corporate power and authority to own or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted and to enter into this Agreement and each agreement, document and instrument to be executed and delivered by it pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. Section 3.03. Authority. The execution, delivery and performance of this Agreement and each agreement, document and instrument to be executed and delivered by the Company pursuant to this Agreement have been duly authorized by all necessary corporate action of the Company, and no other corporate action on the part of the Company is required in connection therewith. This Agreement and each such agreement, document and instrument constitutes, or when executed and delivered by the Company will constitute, valid and binding obligations of the Company enforceable in accordance with their respective terms. The execution, delivery and performance by the Company of this Agreement and each such agreement, document and instrument: (a) do not and will not violate any provisions of the certificate of incorporation or by-laws of DAKA or CDVI; (b) do not and will not result in any violation by the Company of any laws, rules or regulations of the United States or any state or other jurisdiction applicable to the Company or any of its affiliates, or require the Company or any of its affiliates to obtain any approval, consent or waiver of, or to make any filing of any notice with, any person (governmental or otherwise) that has not been obtained or made; and (c) do not and will not result in a breach of, constitute a default under, accelerate any obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other agreement, contract, instrument, mortgage, lien, order, writ, judgment, injunction, decree, determination or arbitration award to which the Company is a party or by which the property of the Company is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any property or asset owned by the Company except for such occurrence that would not have a material adverse effect on the properties, business, condition (financial or otherwise), or prospects of the Company. Section 3.04. Investment Banking; Brokerage. There are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees of lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of ADC or the Company. Section 3.05. DAKA Common Stock. The DAKA Common Stock to be issued hereunder in exchange for the Shares shall, when issued in accordance with this Agreement, be validly issued, fully paid and non-assessable. Section 3.06. Investment Representation. All Shares of ADC Common Stock being acquired by CDVI under the terms of this Agreement are being acquired by CDVI for investment for its own account without a view to, and not for sale in connection with, any distribution of the ADC Common Stock. ARTICLE IV. COVENANTS. Section 4.01. Sale of Shares; Acquisition Proposals. Unless and until this Agreement is terminated in accordance with its terms for any reason, Edgebrook shall not directly or indirectly exchange, deliver, assign, pledge, encumber or otherwise transfer or dispose of any Shares (including options in respect thereof) owned beneficially and of record, nor shall Edgebrook directly or indirectly grant any right of any kind to acquire, dispose of, vote or otherwise control in any manner any Shares. Unless and until this Agreement is terminated in accordance with its terms, neither Edgebrook nor any director, officer, employee or agent of Edgebrook shall, directly or indirectly, (a) take any action to solicit, initiate submission of or encourage proposals or offers from any person relating to any acquisition or purchase of all or any portion of the Shares or all or (other than in the ordinary course of business consistent with past practice) any portion of any assets of, or any equity interest in, Edgebrook or ADC, any merger or business combination with Edgebrook or ADC, or any other acquisition, transaction or financing or joint venture involving Edgebrook or ADC (an "Acquisition Proposal"), (b) participate in any negotiations regarding an Acquisition Proposal with any person other than the Company and its affiliates and representatives, (c) furnish any information with respect to or afford access to the properties, books or records of Edgebrook or ADC to any person who may consider making or has made an offer with respect to an Acquisition Proposal other than the Company and its affiliates and representatives, or (d) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any person other than the Company and its affiliates and representatives to do or seek any of the foregoing. Edgebrook shall promptly notify the Company upon receipt of any offer or indication that any person is considering making an offer with respect to an Acquisition Proposal or any request for information relative to ADC, and will keep the Company fully informed of the status and details of any such offer, indication or request. Section 4.02. Consents and Approvals. (a) Edgebrook will use its best efforts to cause all conditions to the obligations of the parties hereunder to be satisfied and to obtain or cause to be obtained prior to the Closing Date all necessary consents and approvals to the performance of its obligations under this Agreement. Edgebrook will cooperate in all respects with the Company with a view toward obtaining timely satisfaction of the conditions to the Closing set forth herein. (b) The Company will use its best efforts to cause all conditions to the obligations of the parties hereunder to be satisfied and to obtain or cause to be obtained prior to the Closing Date all necessary consents and approvals to the performance of the obligations of the Company under this Agreement. The Company will cooperate in all respects with Edgebrook with a view toward obtaining timely satisfaction of the conditions to the Closing set forth herein. Section 4.03. Breach of Representations and Warranties. Promptly upon Edgebrook becoming aware of any breach, or the impending or threatened occurrence of any event which would cause or constitute a breach, or would have caused or constituted a breach had such event occurred or been known prior to the date hereof, of any of its representations and warranties contained in or referred to in this Agreement and made as of the date hereof, Edgebrook shall give detailed written notice thereof to the Company and shall use its best efforts to prevent or promptly remedy the same. Section 4.04. Confidentiality. In the course of Edgebrook's involvement with ADC as stockholders or employees or otherwise, Edgebrook has had, and may from time to time after the date hereof have, access to confidential records, data, customer lists, trade secrets and similar confidential information owned or used by ADC in the course of its business (the "Confidential Information"). Accordingly, Edgebrook agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose Confidential Information to any person, and (c) not to use, directly or indirectly, any of the Confidential Information for any competitive or commercial purpose; provided, however, that the limitations set forth above shall not apply to any Confidential Information which (i) is then generally known to the public other than by reason of a breach of this Section 4.04; or (ii) is disclosed in accordance with an order of a court of competent jurisdiction or applicable law. Upon request by the Company, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters in Edgebrook's possession or control shall be returned to the Company or ADC. Section 4.05. Non-Hire of ADC Employees. Until March 1, 1997, Edgebrook shall not hire or attempt to hire any officer or other employee of ADC or encourage any officer or other employee to terminate his or her relationship with ADC. ARTICLE V. CONDITIONS. Section 5.01. Conditions to the Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing, of the following additional conditions precedent: (a) Representations; Warranties; Covenants. Each of the representations and warranties of Edgebrook made pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of the Closing Date; Edgebrook shall, on or before the Closing Date, have performed and satisfied all of their covenants and agreements set forth herein, which by the terms hereof, are to be performed and satisfied on or before the Closing Date; and Edgebrook shall have delivered to the Company certificates executed as of the Closing Date certifying to the foregoing effect. (b) Other Documents. On the Closing Date, the Company shall have received such other certificates and documents with respect to Edgebrook as counsel for the Company shall have reasonably requested at least two (2) business days prior to the Closing Date. (c) No Actions or Proceedings. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened by or on behalf of Edgebrook or which seeks to enjoin, restrain or prohibit, or might result in money damages to any party hereto in respect of, this Agreement or the complete consummation of the transactions contemplated by this Agreement, or which otherwise would in the reasonable judgment of the Company make it inadvisable to consummate such transactions. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party which enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions contemplated by this Agreement. (d) Company Approvals and Consents. The Company shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities required to be made by it in connection with the execution and delivery of this Agreement and the performance by it of the transactions contemplated hereby; the Company shall have received all required authorizations, waivers, consents and permits to permit the consummation of the transactions contemplated by this Agreement, in form and substance reasonably satisfactory to the Company, from all third parties. (e) Deliveries. Edgebrook shall have delivered or entered into the documents and instruments contemplated by this Agreement, in each case, in form and substance satisfactory to the Company and its counsel. (f) ADC Approvals and Consents. ADC shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities, if any, required to be made in connection with the execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the continued operation of the business of ADC subsequent to the Closing Date, and ADC shall have received all required authorizations, waivers, consents and permits to permit the consummation of the transactions contemplated by this Agreement, in the form and substance reasonably satisfactory to the Company, with any conditions or limitations contained therein or imposed thereby subject to the approval of the Company, from all third parties, including, without limitation, applicable governmental authorities, regulatory agencies, lessors, lenders and contract parties, required in connection with transactions contemplated by this Agreement or by ADC's permits, leases, licenses and franchises, to avoid a breach, default, termination, acceleration or modification of any agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award as a result of the execution or performance of this Agreement, or otherwise in connection with the execution and performance of this Agreement. (g) Material Adverse Changes. There shall not have been since the date of this Agreement, any change or series of changes that, in the reasonable business judgment of the Company, acting in good faith, have or could reasonably be anticipated to have a material adverse effect on the properties, business, condition (financial or otherwise) or prospects of ADC. (h) Proceedings Satisfactory to the Company. All proceedings to be taken by Edgebrook in connection with the consummation of the Closing and the other transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transaction contemplated hereby reasonably requested by the Company will be reasonably satisfactory in the form and substance to the Company and its counsel. Section 5.02. Conditions to the Obligations of Edgebrook. The obligation of Edgebrook to consummate the transactions contemplated by this Agreement are subject to the fulfillment of, prior to or at the Closing, the following additional conditions precedent: (a) Representations; Warranties; Covenants. Each of the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, with the same effect as though made on and as of the Closing Date; the Company shall, on or before the Closing Date, have performed and satisfied all of its covenants and agreements set forth herein which by the terms hereof are to be performed and satisfied by the Company on or before the Closing Date; and the Company shall have delivered to Edgebrook a certificate as of the Closing Date certifying to the foregoing effect. (b) Other Documents. On the Closing Date, Edgebrook shall have received such other certificates and documents as counsel to Edgebrook shall have reasonably requested from the Company at least five (5) business days prior to the Closing Date. (c) No Actions or Proceedings. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened which seeks to enjoin, restrain or prohibit, or might result in damages in respect of, this Agreement or the complete consummation of the transactions as contemplated by this Agreement. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party which enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions as contemplated by this Agreement. ARTICLE VI. TERMINATION OF AGREEMENT. Section 6.01. Termination. This Agreement may be terminated any time prior to the Closing Date as follows: (a) With the mutual consent of CDVI and Edgebrook. (b) By either CDVI or Edgebrook, if the Closing has not occurred on or before June 1, 1996; provided, however, that if the only reason why the Closing has not occurred is that the condition set forth in Section 5.01(f) has not been satisfied, then such date shall be automatically extended until August 31, 1996. (c) By CDVI, if there has been a material misrepresentation or breach of warranty on the part of Edgebrook in the representations and warranties contained herein or a material breach of covenants on the part of Edgebrook and the same has not been cured within 10 days after notice thereof. In the event of any termination pursuant to this Section 6.01(c), written notice setting forth the reasons therefor shall forthwith be given by CDVI to Edgebrook. (d) By Edgebrook, if there has been a material misrepresentation or breach of warranty on the part of the Company in the representations and warranties contained herein or a material breach of covenants on the part of the Company and the same has not been cured within 10 days after notice thereof. In the event of any termination pursuant to this Section 6.01(d), written notice setting forth the reasons therefor shall forthwith be given by Edgebrook to the Company. (e) By Edgebrook, if the Closing Price (as defined in Section 1.02 hereof) of the DAKA Common Stock is less than $21.00; provided, however, that such termination shall be deemed rescinded and not effective if CDVI elects to adjust the consideration for the Shares as provided in Section 1.03. Notwithstanding anything herein to the contrary, the right to terminate this Agreement under Section 6.01 shall not be available to any party to the extent the failure of such party, respectively, to fulfill any of its obligations under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date (as a result, for example, of an action or failure to act causing a failure of a condition precedent). Section 6.02. Effect of Termination. All obligations of the parties hereunder shall cease upon any termination pursuant to Section 6.01; provided, however, that (i) the provisions of this Article VI shall survive any termination of this Agreement; (ii) Edgebrook's general release set forth in Section 1.04 hereof shall be and remain fully effective and unconditional regardless of such termination, except in the event of termination by Edgebrook pursuant to Section 6.01(d); (iii) nothing herein shall relieve any party from any liability for a material error or omission in any of its representations or warranties contained herein or a material failure to comply with any of its covenants, conditions or agreements contained herein; and (iv) any party may proceed as further set forth in Section 6.03 below. Section 6.03. Right to Proceed. Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Section 5.01 hereof have not been satisfied, the Company shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder, and if any of the conditions specified in Section 5.02 hereof have not been satisfied, Edgebrook, shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder. ARTICLE VII. SURVIVAL; INDEMNIFICATION. Section 7.01. Survival of Representations, Warranties, Etc. All representations, warranties, agreements, covenants and obligations herein or in any schedule or certificate delivered by any party incident to the transactions contemplated hereby are material and may be relied upon by the party receiving the same and shall survive the Closing regardless of any investigation by or knowledge of such party and shall not merge into the performance of any obligation by any party hereto. Section 7.02. Indemnification by Edgebrook. Edgebrook, on behalf of itself and its respective successors, administrators, estates, and permitted assigns, agrees subsequent to the Closing Date to indemnify and hold harmless the Company, ADC, their respective affiliates and their respective shareholders, officers, directors, employees and agents (individually, a "Company Indemnified Party" and collectively, the "Company Indemnified Parties") from and against and in respect of all losses, liabilities, obligations, damages, deficiencies, actions, suits, proceedings, demands, assessments, orders, judgments, fines, penalties, costs and expenses (including the reasonable fees, disbursements and expenses of attorneys, accountants and consultants) of any kind or nature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing) sustained, suffered or incurred by or made against a party entitled to indemnification (a "Loss" or "Losses"), as such losses are incurred, arising out of, based upon or in connection with: (i) conditions, circumstances or occurrences which constitute or result in any breach of any representation or warranty made by Edgebrook in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such representations or warranties (collectively, "Representation and Warranty Claims"); (ii) any breach of any covenant or agreement made by Edgebrook in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such covenant or agreement; (iii)any fees and expenses of Edgebrook (including without limitation legal fees and accounting fees) relating to the execution, delivery and performance of this Agreement paid, assumed or otherwise borne by ADC. Section 7.03. Limitations on Indemnification by Edgebrook. Notwithstanding anything herein to the contrary, recovery by Company Indemnified Parties on account of indemnification claims made pursuant to Section 7.02 hereof shall not be subject to any limitation, and they shall be entitled to dollar-for-dollar recovery, in seeking indemnification from Edgebrook with respect to (i) Losses arising from fraud or an intentional misrepresentation on the part of Edgebrook; (ii) Losses arising from intentional breach of a covenant by Edgebrook; (iii) Losses involving a breach by Edgebrook of the representations and warranties contained in Sections 2.02 and 2.03 Section 7.04. Indemnification by the Company. The Company agrees to indemnify and hold harmless Edgebrook from and against and in respect of all Losses sustained, suffered or incurred by or made against any of them arising out of, based upon or in connection with (a) conditions, circumstances or occurrences which constitute or result in any breach of any representation or warranty made by the Company in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such representations and (b) any breach of any covenant or agreement made by the Company in this Agreement or in any schedule, exhibit, certificate, financial statement, agreement or other instrument delivered under or in connection with this Agreement, or by reason of any claim, action or proceeding asserted or instituted arising out of any matter or thing covered by any such covenant or agreement. Section 7.05. No Limitation of Rights. Notwithstanding anything herein to the contrary, the limitations set forth in this Article VII shall apply only with respect to post-Closing indemnification obligations and shall in no way limit any rights the Company or Edgebrook may have in law or equity in the event the Closing does not occur. Section 7.06. Notice; Defense of Claims. Promptly after receipt by an indemnified party of notice of any claim, liability or expense to which the indemnification obligations hereunder would apply, the indemnified party shall give notice thereof in writing to the indemnifying party, but the omission to so notify the indemnifying party promptly will not relieve the indemnifying party from any liability except to the extent that the indemnifying party shall have been prejudiced as a result of the failure or delay in giving such notice. Such notice shall state the information then available regarding the amount and nature of such claim, liability or expense and shall specify the provision or provisions of this Agreement under which the liability or obligation is asserted. If within 20 days after receiving such notice the indemnifying party gives written notice to the indemnified party stating that (i) it would be liable under the provisions hereof for indemnity in the amount of such claim if such claim were successful, (ii) that it shall be fully responsible (with no reservation of any rights) for all liabilities relating to such claim, liability or expense and that it will provide full indemnification (whether or not otherwise required hereunder) to the indemnified party with respect to such claim, liability or expense and (iii) that it disputes and intends to defend against such claim, liability or expense at its own cost and expense, then counsel for the defense shall be selected by the indemnifying party (subject to the consent of the indemnified party which consent shall not be unreasonably withheld) and the indemnified party shall not be required to make any payment with respect to such claim, liability or expense as long as the indemnifying party is conducting a good faith and diligent defense at its own expense; provided, however, that the assumption of defense of any such matters by the indemnifying party shall relate solely to the claim, liability or expense that is subject or potentially subject to indemnification, and provided further that prior to such assumption of defense the indemnifying party shall enter into an agreement with the indemnified party in form and substance satisfactory to the indemnified party pursuant to which the indemnifying party unconditionally guarantees the payment and performance of any liability or obligation which may arise out of or in any way relating to such claim, liability or expense or the facts giving rise thereto. The indemnifying party shall have the right, with the consent of the indemnified party, which consent shall not be unreasonably withheld, to settle all indemnifiable matters related to claims by third parties which are susceptible to being settled provided its obligation to indemnify the indemnifying party therefor will be fully satisfied. The indemnifying party shall keep the indemnified party apprised of the status of the claim, liability or expense and any resulting suit, proceeding or enforcement action, shall furnish the indemnified party with all documents and information that the indemnified party shall reasonably request and shall consult with the indemnified party prior to acting on major matters, including settlement discussions. Notwithstanding anything herein stated to the contrary, the indemnified party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party, undertake the defense of (with counsel selected by the indemnified party), and shall have the right to compromise or settle (exercising reasonable business judgment), such claim, liability or expense. If such claim, liability or expense is one that by its nature cannot be defended solely by the indemnifying party, then the indemnified party shall make available all information and assistance that the indemnifying party may reasonably request and shall cooperate with the indemnifying party in such defense. ARTICLE VIII. REGISTRATION RIGHTS. Section 8.01. Definitions. As used in this Article VIII, the following terms shall have the following meanings: "Advice" has the meaning set forth in Section 8.03. "Affiliate" means, with respect to any specified person, any other person who, directly or indirectly, controls, is controlled by, or is under common control with such specified person. "Commission" means the Securities and Exchange Commission. "Controlling Persons" has the meaning set forth in Section 8.05(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Holder" means (i) Edgebrook and (ii) each person (other than DAKA and its Affiliates) to whom Edgebrook transfers Securities as provided in Section 8.07 hereof, if the person to whom such Securities are transferred acquires such Securities as Registrable Securities. "Lock-up Period" has the meaning set forth in Section 8.06. "Lock-up Request" has the meaning set forth in Section 8.06. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and by all other amendments and supplements to the prospectus, including post-effective amendments, and in each case including all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Registrable Securities" means the Securities; provided, however, that any Securities shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities become eligible for sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (iii) such Securities cease to be outstanding. "Registration Statement" means any registration statement of DAKA that covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Securities" means the shares of DAKA Common Stock issued to Edgebrook pursuant to this Agreement so long as they are owned beneficially and of record by a Holder. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Suspension Notice" has the meaning set forth in Section 8.03. "Suspension Period" has the meaning set forth in Section 8.03. Section 8.02. Resale Registration. (a) Filing; Effectiveness. If on any one (1) occasion after October 1, 1996, one or more Holders holding an aggregate of at least 9,000 Registrable Securities shall notify DAKA in writing that they intend to offer or cause to be offered for public resale all or any portion of their Registrable Securities, DAKA will notify all of the Holders of Registrable Securities of its receipt of such notification and upon the written request of any such Holder delivered to DAKA within 15 days after receipt from DAKA of such notification, DAKA shall use reasonable efforts to prepare and file a registration statement on Form S-3 (the "Resale Registration Statement") under the Securities Act covering the resale by such Holders of their Registrable Securities pursuant to Rule 415 under the Securities Act from time to time in transactions not involving any underwritten public offering and use reasonable efforts (i) to cause such Resale Registration Statement to be declared effective by the Commission for such Registrable Securities as soon as practicable thereafter and (ii) to keep the Resale Registration Statement continuously effective until the earliest of (x) the date on which such Holders no longer hold any Registrable Securities registered under the Resale Registration Statement or (y) the second anniversary of the Closing Date; provided, however, that (A) upon the request of one or more Holders holding an aggregate of at least 9,000 Registrable Securities received prior to October 1, 1996, DAKA will proceed promptly and in good faith to prepare the Resale Registration Statement, even if DAKA is not required to file it with the Commission until October 1, 1996, so as to avoid a delay past October 1, 1996 in making such filing and (B) if DAKA prior to October 1, 1996 files any registration statement with the Commission under the Securities Act (other than on Form S-4 or a similar form relating to business combinations or exchanges or Form S-8 or a similar form relating to any employee benefit plan), then DAKA shall give the Holders notice thereof and the Holders may demand registration pursuant to this Section 8.02 immediately after such filing. DAKA shall not be required to cause a registration statement requested pursuant to this Section 8.02 to become effective prior to 90 days following the effective date of a registration statement initiated by DAKA if any managing underwriter named in such registration statement has advised DAKA in writing that the registration or sale of additional securities by stockholders of DAKA within such 90-day period would have a material adverse effect on the likelihood of success of such underwritten offering; provided, however, that DAKA shall use its best efforts to achieve such effectiveness promptly following such 90-day period if the request pursuant to this Section 8.02 has been made prior to the expiration of such 90-day period. DAKA may postpone the filing of any Registration Statement required hereunder for a reasonable period of time, not to exceed 60 days, if DAKA has been advised by outside legal counsel that such filing would require the disclosure of a material transaction or other matter and DAKA determines reasonably and in good faith that such disclosure would have a material adverse effect on DAKA; provided, however, that DAKA shall (A) use reasonable efforts to disclose such material transaction or other matter as soon as in its good faith judgment it is prudent to do so and (B) may so postpone such filing only if all other persons who are named as selling securityholders under then effective registration statements filed by DAKA with the Commission and all directors of DAKA are advised of the fact that a material transaction or other matter is not being disclosed during the length of such postponement and of the consequences of such nondisclosure under the Securities Act and the Exchange Act. (b) Effective Registration. A registration will not be deemed to have been effected as a Resale Registration unless the Resale Registration Statement with respect thereto has been declared effective by the Commission; provided, however, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Resale Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Resale Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Resale Registration Statement may legally resume. Section 8.03. Registration Procedures. In connection with the obligations of DAKA to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, DAKA shall use reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof, and in connection therewith: (a) DAKA shall prepare and file with the Commission a Registration Statement on Form S-3 or other similar form under the Securities Act which permits secondary sales of securities in a "shelf registration," and use reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; (b) DAKA shall promptly prepare and file with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders set forth in such Registration Statement or supplement to the Prospectus; (c) DAKA shall promptly furnish to any Holder such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder; (d) DAKA shall, on or prior to the date on which a Registration Statement is declared effective, use reasonable efforts to register or qualify the Registrable Securities covered by such Registration Statement under such other securities or "blue sky" laws of such states of the United States as any Holder requests; provided, however, that DAKA shall not be required (i) to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 8.03(d) or (ii) to file any general consent to service of process; (e) DAKA shall promptly notify each Holder, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As soon as practicable following expiration of the Suspension Period (as defined below), DAKA shall prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In the case of a Resale Registration Statement, each Holder, upon receipt of any notice (a "Suspension Notice") from DAKA of the happening of any event of the kind described in Section 8.03(e)(v), shall forthwith discontinue disposition of the Registrable Securities pursuant to the Resale Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 8.03(e) or until it is advised in writing (the "Advice") by DAKA that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by DAKA, such Holder will, or will request any broker-dealer acting as such Holder's agent or as an underwriter to, deliver to DAKA (at DAKA's expense) all copies, other than permanent file copies then in such Holder's or broker-dealer's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; provided, however, that in no event shall the period from the date on which any Holder receives a Suspension Notice to the date on which any Holder receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 8.03(e) (the "Suspension Period") exceed 60 days; and provided further that such Suspension Notice shall not be effective unless DAKA has contemporaneously given an analogous notice to all other persons named as selling securityholders in then effective registration statements filed by DAKA with the Commission and to DAKA's directors. In the event that DAKA shall give any Suspension Notice, the time periods for which a Resale Registration Statement is required to be kept effective pursuant to Section 8.02 hereof shall be extended by the number of days during the Suspension Period. Section 8.04. Registration Expenses. DAKA shall bear all expenses incurred in connection with the registration of the Registrable Shares pursuant to Section 8.02 of this Agreement. Such expenses shall include, without limitation, all printing, legal and accounting expenses incurred by DAKA and all registration and filing fees imposed by the Commission, any state securities commission or the NASDAQ National Market. The Holders shall be responsible for any brokerage or underwriting commissions and taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registrable Securities and for any legal, accounting and other expenses incurred by them. Section 8.05. Indemnification and Contribution. (a) Indemnification by DAKA. DAKA agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder, its partners, officers, directors, trustees, stockholders, employees and agents, and each person who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under common control with, or is controlled by, such Holder, together with the partners, officers, directors, trustees, stockholders, employees and agents of such controlling person (collectively, the "Controlling Persons"), from and against all losses, claims, damages, liabilities and expenses (including without limitation reasonable legal fees and expenses incurred by any Holder or any such Controlling Person documented in writing) (collectively, the "Damages") to which such Holder, its partners, officers, directors, trustees, stockholders, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, or caused by any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if DAKA shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such Damages arise out of or are based upon any such untrue statement or omission based upon information relating to such Holder furnished in writing to DAKA by such Holder specifically for use therein; provided, however, that DAKA shall not be liable to any Holder under this Section 8.05(a) to the extent that any such Damages were caused by the fact that such Holder sold Securities to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, and only if, (i) DAKA has previously furnished copies of such amended or supplemented Prospectus to such Holder and (ii) such Damages were caused by any untrue statement or omission or alleged untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. (b) Indemnification by the Holders. Each Holder agrees, severally and not jointly, to indemnify and hold harmless DAKA, its stockholders, directors, officers and each person, if any, who controls DAKA within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from DAKA to such Holder, but only with reference to information relating to such Holder furnished in writing to DAKA by such selling Holder specifically for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); provided, however, that such selling Holder shall not be obligated to provide such indemnity to the extent that such Damages result from the failure of DAKA to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information provided by such selling Holder to DAKA expressly for such purpose. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Contribution. To the extent that the indemnification provided for in paragraph (a) or (b) of this Section 8.05 is unavailable to an indemnified party or insufficient in respect of any Damages, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of DAKA on the one hand and the Holders on the other hand in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of DAKA on the one hand and of the Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by DAKA or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If indemnification is available under paragraph (a) or (b) of this Section 8.05, the indemnifying parties shall indemnify each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 8.05(c). DAKA and each Holder agrees that it would not be just or equitable if contribution pursuant to this Section 8.05(c) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. Section 8.06. Restrictions on Sale. In the event of an underwritten public offering for the account of DAKA, upon the written request (the "Lock-up Request") of the managing underwriter (or underwriters) of such offering, each Holder agrees not to effect any public sale or distribution of any securities similar to those being registered in such offering (other than pursuant to such offering), including, without limitation, through sales of Securities pursuant to a Resale Registration Statement, during the 14 days prior to, and during the 90-day period beginning on the effective date of the Registration Statement relating to such offering (the "Lock-up Period"); provided, however, that the Holders shall not be required to comply with such Lock-up Request unless DAKA simultaneously demands analogous restrictions on sale and uses all reasonable efforts to obtain from all other persons who are contractually bound with DAKA to comply with such Lock-up Requests and from DAKA's directors. In the event of the delivery of a Lock-up Request, the time periods for which a Resale Registration Statement is required to be kept effective pursuant to Section 8.02 hereof shall be extended by the number of days during the Lock-up Period. Section 8.07. Transfer of Registration Rights. The registration rights of Edgebrook and any Holders under this Article VIII may be transferred to any transferee of Registrable Securities that acquires at least 1,000 shares of Registrable Securities (appropriately adjusted for stock splits, stock dividends and the like). Each such transferee shall be deemed to be a "Holder" for purposes of this Article VIII. ARTICLE IX. MISCELLANEOUS. Section 9.01. Law Governing. This Agreement shall be construed under and governed by the internal laws, and not the law of conflicts, of the State of Minnesota. Section 9.02. Notices. Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given if delivered or sent by facsimile transmission (promptly followed by hard copy confirmation), upon receipt, or if sent by registered or certified mail upon the sooner of the expiration of three days after deposit in United States post office facilities properly addressed with postage prepaid or acknowledgment of receipt, as follows: To the Company: One Corporate Place 55 Ferncroft Road Danvers, MA 01923 Attn: Charles W. Redepenning, Jr. Senior Vice President and General Counsel with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109-2881 Attn: Ettore Santucci, P.C. To Edgebrook: One Financial Plaza 120 South 6th Street Minneapolis, MN 55424 Attn: Craig A. Oberlander or to such other address of which any party may notify the other parties as provided above. Section 9.03. Prior Agreements Superseded. This Agreement supersedes all prior understandings and agreements among the parties relating to the subject matter hereof. Section 9.04. Assignability. This Agreement shall be assignable by the Company (a) prior to the Closing to a subsidiary of the Company although no such assignment shall relieve the Company of any liabilities or obligations under this Agreement and (b) after the Closing, to any person. This Agreement shall not otherwise be assignable by the Company without the prior written consent of Edgebrook or (except as otherwise permitted by Section 8.07 hereof) by Edgebrook without prior written consent of the Company. This Agreement shall be binding upon and enforceable by, and shall inure to the benefit of, the parties hereto and their respective successors, heirs, executors, administrators and permitted assigns, and no others. Notwithstanding the foregoing, nothing in this Agreement is intended to give any person not named herein the benefit of any legal or equitable right, remedy or claim under this Agreement, except as expressly provided herein. Section 9.05. Fees and Expenses. Each of the parties to this Agreement shall pay its own expenses and costs associated with the negotiation, execution and delivery of this Agreement and any agreement or instrument contemplated hereby and the consummation of the transactions contemplated hereby, including all fees and expenses of counsel, accountants and financial advisors or other professionals acting on behalf of such party. Section 9.06. Publicity and Disclosures. None of the parties hereto nor any of their respective stockholders, affiliates, officers, directors or employees shall issue or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the Company and Edgebrook, except to the extent disclosure is required by any applicable law or regulation or by any court or authorized administrative or governmental agency. Section 9.07. Captions. The captions in this Agreement are for convenience only and shall not affect the construction or interpretation of any term or provision hereof. Section 9.08. Execution in Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. Section 9.09. Certain Remedies; Severability. It is specifically understood and agreed that any breach of this Agreement by any of the parties will result in irreparable injury to the aggrieved party, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy for such breach and that, in addition to any other remedy it may have, such aggrieved party shall be entitled to enforce the specific performance of this Agreement by the breaching party and to seek both temporary and permanent injunctive relief, without the necessity of proving actual damages, but without limitation of their rights to recover such damages. In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement. Section 9.10. Amendments; Waivers. This Agreement may not be amended or modified except by a writing duly and validly executed by the Company and Edgebrook. Any party hereto may waive any covenant or condition intended for its benefit in its discretion, but delay on the part of any party in exercising any right, power or privilege hereunder shall not operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party arising out of or otherwise in respect of any inaccuracy in or breach of any representation or warranty, or any failure to perform or comply with any covenant or agreement, contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy, breach or failure is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy, breach or failure. IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed as of the date set forth above. CASUAL DINING VENTURES, INC. By: /s/ Charles W. Redepenning, Jr. ---------------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President DAKA INTERNATIONAL, INC. By: /s/ Charles W. Redepenning, Jr. ----------------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President EDGEBROOK, INC. By: /s/ Craig Oberlander ----------------------------- Name: Craig Oberlander Title: President EX-3.1 8 CERTIFICATE OF INCORPORATION of DAKA INTERNATIONAL, INC. AS AMENDED FIRST: The name of the Corporation is DAKA International, Inc. (hereinafter the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at that address is The Corporation Trust Company. THIRD: The nature of the business to be conducted or promoted and the purposes of the Corporation are to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL"). FOURTH: The total number of shares of capital stock of all classes which the Corporation shall have the authority to issue is thirty-one million (31,000,000) shares, of which thirty million (30,000,000) shares shall be Common Stock, par value $.01 per share, and one million (1,000,000) shares shall be Preferred Stock, par value $.01 per share." The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock, in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the GCL, including, without limitation, the authority to provide that any such class or series may be (a) subject to redemption at such time or times and at such price or prices; (b) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (c) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (d) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. Except as otherwise specifically required by law or as specifically provided in any resolution of the Board of Directors providing for the issuance of any particular class or series of Preferred Stock, the exclusive voting power of the Corporation shall be vested in the Common Stock of the Corporation. Each share of Common Stock shall entitle the holder thereof to one vote at all meetings of the stockholders of the Corporation." FIFTH: The name and mailing address of the Sole Incorporator is as follows: Name: Mailing Address: Arthur M. Aaron One Beacon Street Boston, Massachusetts 02108 SIXTH: A. The business and affairs of the Corporation shall be managed by or be under the direction of the Board of Directors which shall consist of not less than three or more than seven directors, the exact number of which shall be determined from time to time by the Board of Directors pursuant to a resolution duly adopted by a majority of the total number of authorized directors, whether or not one or more vacancies on the Board of Directors exist at the time any such resolution is presented to the Board of Directors. Election of directors need not be by written ballot unless the By-Laws so provide. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1989, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy in the Board of Directors resulting from any increase in the authorized number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. A director elected by the Board of Directors to fill a newly created directorship resulting from an increase in the number of directors shall hold office until the next election of the class of which such director was chosen. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Designation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Section A of Article SIXTH unless expressly provided by such terms. B. The Board of Directors shall have the power to make, adopt, alter, amend, change, add to or repeal the By-Laws of the Corporation by resolution adopted by affirmative vote of a majority of the entire Board of Directors. Stockholders may not make, adopt, alter, amend, change, add to or repeal the By-Laws of the Corporation except upon the affirmative vote of the holders of record of shares of Voting Stock (as defined in Article TENTH) representing at least 80% of the votes entitled to be cast by the holders of all of the then outstanding shares of Voting Stock, voting as a single class. SEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the GCL or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the GCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Special meetings of the stockholders of the Corporation may not be called by the stockholders of the Corporation. NINTH: Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the Corporation to the contrary, no action required to be taken at any annual or special meeting of stockholders of the Corporation may be taken by written consent without a meeting except any action taken upon the signing of a consent in writing, setting forth the action so taken, by all stockholders of the Corporation entitled to vote thereon. TENTH: A. In addition to any affirmative vote required by law or this Certificate of Incorporation or the By-Laws of the Corporation, and except as otherwise expressly provided in Section B of this Article TENTH, a Business Combination (as hereinafter defined) with, or proposed by or on behalf of, any interested Stockholder (as hereinafter defined) or any Affiliate or Associate (as hereinafter defined) of any Interested Stockholder or any person who thereafter would be an Affiliate or Associate of such Interested Stockholder shall require the affirmative vote of not less than eighty percent (80%) of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (as hereinafter defined), voting together as a single class, excluding Voting Stock beneficially owned by such Interested Stockholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. B. The provisions of Section A of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or by any other provision of this Certificate of Incorporation or the By-Laws of the Corporation, or any agreement with any national securities exchange, if all of the conditions specified in either of the following Paragraphs 1 or 2 are met or, in the case of a Business Combination not involving the payment of consideration to the holders of the Corporation's outstanding Capital Stock (as hereinafter defined), if the condition specified in the following Paragraph 1 is met: 1. The Business Combination shall have been approved (whether such approval is made prior to or subsequent to the acquisition of, or announcement or public disclosure of the intention to acquire, beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder), either specifically or as a transaction which is within an approved category of transactions, by a majority (whether such approval is made prior to or subsequent to the acquisition of, or announcement or public disclosure of the intention to acquire, beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder) of the Continuing Directors (as hereinafter defined). 2. All of the following conditions shall have been met: (a) The aggregate amount of cash and the Fair Market Value (as hereinafter defined), as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest amount determined under clauses (i), (ii), (iii) and (iv) below: (i) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; (iii)the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock within the two-year period immediately prior to the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock to (y) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Stockholder acquired beneficial ownership of any share of Common Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock; and (iv) the Corporation's net income per share of Common Stock for the four consecutive fiscal quarters immediately preceding the Announcement Date, multiplied by the higher of the then price/earnings multiple (if any) of such Interested Stockholder or the highest price/earnings multiple of the Corporation within the two-year period immediately preceding the Announcement Date (such price/earnings multiples being determined as customarily computed and reported in the financial community). (b) The aggregate amount of cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock other than Common Stock shall be at least equal to the highest amount determined under clauses (i), (ii), (iii) and (iv) below: (i) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; (ii) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; (iii)the price per share equal to the Fair Market Value per share of such class or series of Capital Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock within the two-year period immediately prior to the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock to (y) the Fair Market Value per share of such class or series of Capital Stock on the first day in such two-year period on which the Interested Stockholder acquired beneficial ownership of any share of such class or series of Capital Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; and (iv) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation regardless of whether the Business Combination to be consummated constitutes such an event. The provisions of this Paragraph 2 shall be required to be met with respect to every class or series of outstanding Capital Stock, whether or not the Interested Stockholder has previously acquired beneficial ownership of any shares of a particular class or series of Capital Stock. (c) The consideration to be received by holders of a particular class or series of outstanding Capital Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Stockholder. (d) After the Determination Date and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock; (ii) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock), except as approved by a majority of the Continuing Directors; (iii) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (iv) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage beneficial ownership of any class or series of Capital Stock. (e) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder (the "Act") (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Directors as to the fairness (or not) of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Stockholder and its Affiliates or Associates (as hereinafter defined), such investment banking firm to be paid a reasonable fee for its services by the Corporation. (f) Such Interested Stockholder shall not have made any major change in the Corporation's business or equity capital structure without the approval of a majority of the Continuing Directors. C. The following definitions shall apply with respect to this Article TENTH: 1. The term "Business Combination" shall mean: (a) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii) any other company (whether or not itself an Interested Stockholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities or commitments of the Corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder which (except for any arrangement, whether as employee, consultant or otherwise, other than as a director, pursuant to which any Interested Stockholder or any Affiliate or Associate thereof shall, directly or indirectly, have any control over or responsibility for the management of any aspect of the business or affairs of the Corporation, with respect to which arrangements the value tests set forth below shall not apply), together with all other such arrangements (including all contemplated future events), has an aggregate Fair Market Value and/or involves aggregate commitments of $10,000,000 or more or constitutes more than 5 percent of the book value of the total assets (in the case of transactions involving assets or commitments other than capital stock) or 5 percent of the stockholders' equity (in the case of transactions in capital stock) of the entity in question (the "Substantial Part"), as reflected in the most recent fiscal year-end consolidated balance sheet of such entity existing at the time the stockholders of the Corporation would be required to approve or authorize the Business Combination involving the assets, securities and/or commitments constituting any Substantial Part; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation or for any amendment to the Corporation's By-Laws; or (d) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (e) any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) to (d). 2. The term "Capital Stock" shall mean all capital stock of the Corporation authorized to be issued from time to time under Article FOURTH of this Certificate of Incorporation, and the term "Voting Stock" shall mean all Capital Stock which by its terms may be voted on all matters submitted to stockholders of the Corporation generally. 3. The term "person" shall mean any individual, firm, company or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. 4. The term "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (a) is, or has announced or publicly disclosed a plan or intention to become, the beneficial owner of Voting Stock representing fifteen percent (15%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock representing fifteen percent (15%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock. 5. A person shall be a "beneficial owner" of any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. 6. The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on September 15, 1988 (the term "registrant" in said Rule 12b-2 meaning in this case the Corporation). 7. The term "Subsidiary" means any company of which a majority of any class of equity security is beneficially owned by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 4 of this Section (c), the term "Subsidiary" shall mean only a company of which a majority of each class of equity security is beneficially owned by the Corporation. 8. The term "Continuing Director" means any member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director while such successor is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and is recommended or elected to succeed the Continuing Director by a majority of Continuing Directors. 9. "Fair Market Value" means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the New York Stock Exchange Composite Tape or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by a majority of the Continuing Directors; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors. 10. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Paragraphs 2(a) and 2(b) of Section B of this Article TENTH shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holders of such shares. D. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article TENTH on the basis of information known to them after reasonable inquiry, all questions arising under this Article TENTH, including, without limitation, (a) whether a person is an Interested Stockholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, (d) whether a Proposed Action (as hereinafter defined) is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, (e) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $10,000,000 or more, and (f) whether the assets or securities that are the subject of any Business Combination constitute a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties. E. Nothing contained in this Article TENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. The fact that any Business Combination complies with the provisions of Section B of this Article TENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. G. For the purposes of this Article TENTH, a Business Combination or any proposal to amend, repeal or adopt any provision of this Certificate of Incorporation inconsistent with this Article TENTH (collectively, "Proposed Action") is presumed to have been proposed by, or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (a) after the Interested Stockholder became such, the Proposed Action is proposed following the election of any director of the Corporation who with respect to such Interested Stockholder, would not qualify to serve as a Continuing Director or (b) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person a majority of the Continuing Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonable inquiry. H. Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), any proposal to amend, repeal or adopt any provision of this Certificate of Incorporation inconsistent with this Article TENTH which is proposed by or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder shall require the affirmative vote of the holders of not less than eighty percent (80%) of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, voting together as a single class, excluding Voting Stock beneficially owned by such Interested Stockholder; provided, however, that this Section H shall not apply to, and such eighty percent (80%) vote shall not be required for, any amendment, repeal or adoption unanimously recommended by the Board of Directors if all of such directors are persons who would be eligible to serve as Continuing Directors within the meaning of Section C, Paragraph 8 of this Article TENTH. ELEVENTH: A. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware GCL or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Section A of Article ELEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. B. The Corporation shall indemnify to the full extent authorized or permitted by law (as now or hereafter in effect) any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that such person, or such person's testator or intestate, is or was a director or officer, employee or agent of the Corporation or by reason of the fact that such person, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. No amendment to or repeal of this Section B of Article ELEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. C. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the GCL. The Corporation may also create a trust fund, grant a security interest and/or use other means (including, but not limited to, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to insure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. TWELFTH: No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or all of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purposes, if: (a) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the votes of the disinterested directors be less than a quorum; or (b) the material facts as to his relationship or interest and as to the contract or transaction are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. THIRTEENTH: Any merger or consolidation pursuant to Sections 251 or 252 of the GCL involving the Corporation, any sale, lease or exchange of all or substantially all of the Corporation's property and assets pursuant to Section 271 of the GCL or any dissolution of the Corporation pursuant to Section 275 of the GCL shall require the affirmative vote of the holders of two-thirds of the Voting Stock (as defined in Article TENTH). FOURTEENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation, provided, however, that notwithstanding any other provision of this Certificate of Incorporation, any agreement with any national securities exchange or any provision of law which might permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Voting Stock (as defined in Article TENTH) required by any other provision of this Certificate of Incorporation, any agreement with any national securities exchange or any provision of law, the affirmative vote of the holders of record of shares of Voting Stock representing at least eighty percent (80%) of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Article SIXTH, Article EIGHTH, Article NINTH, Article TENTH, Article THIRTEENTH, or this Article FOURTEENTH, or to adopt any provision inconsistent therewith. I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the GCL, do make this Certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 15th day of September, 1988. /s/ Arthur M. Aaron ------------------- Arthur M. Aaron Sole Incorporator EX-10.20 9 THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT is made and entered into as of January 12, 1996, by and among La Salsa Holding Co., a Delaware corporation (the "Company"), and the persons and entities listed on Schedule 1 hereto (the "Investors") for the purpose of (i) amending and restating the rights related to registration pursuant to the Securities Act of 1933 (the "Act" ) for the shares of capital stock of the Company purchased by the Investors pursuant to the Original Agreements, the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement and the Original Series D Stock Purchase Agreement (as defined below) and (ii) to establish such similar registration rights for the shares of Series D Convertible Preferred Stock purchased pursuant to a Series D Convertible Preferred Stock and Warrant Purchase Agreement (the "New Agreement"), by and between the Company and Casual Dining Ventures, Inc. ("CDV"), to be executed concurrently herewith and shares of Series D Convertible Preferred Stock issuable upon exercise of a warrant purchased by CDV pursuant to the New Agreement (the "CDV Warrant"). WHEREAS, in connection with the transactions contemplated under that certain Asset and Stock Purchase and Reorganization Agreement, dated as of February 19, 1992 (the "Asset Purchase Agreement"), the Company, Sienna Limited Partnership I, a California limited partnership ("Sienna"), InterWest Partners IV, a California limited partnership ("InterWest"), Howdy S. Kabrins ("Kabrins"), La Salsa, Inc., a California corporation ("La Salsa"), and Sienna Holdings, Inc., a California corporation, as Nominee ("Nominee"), entered into that certain Series A Preferred and Common Stock Purchase Agreement, dated as of March 4, 1992 (the "First Agreement"), under which the parties were granted certain registration rights related to the capital stock acquired pursuant to the Asset Purchase Agreement and the First Agreement; WHEREAS, Michael E. Kassan ("Kassan") entered into a Series A Preferred and Common Stock Purchase Agreement, dated as of August 26, 1992 by and among Kassan, the Company, Sienna and InterWest (the "Kassan Agreement") which granted Kassan certain registration rights related to the capital stock he acquired under the Kassan Agreement, and such shares were subsequently transferred to Howdy S. Kabrins; WHEREAS, Charles A. Lynch ("Lynch," and collectively with Kabrins, La Salsa, Nominee, Sienna, InterWest and Kassan, the "Original Investors") entered into a Series A Preferred and Common Stock Purchase Agreement, dated as of August 26, 1992 by and among Lynch, the Company, Sienna and InterWest (the "Lynch Agreement") which granted Lynch certain registration rights related to the capital stock he acquired under the Lynch Agreement; WHEREAS, Sienna and InterWest purchased additional shares of the Company's capital stock pursuant to a Series A Preferred and Common Stock Purchase Agreement, dated as of October 6, 1992 by and among the Company, Sienna and InterWest (the "Second Agreement," and collectively with the First Agreement, Kassan Agreement and Lynch Agreement, the "Original Agreements") which granted registration rights for the shares purchased thereunder identical to the rights granted in the First Agreement; WHEREAS, on May 11, 1993, the Company filed an amendment to its certificate of incorporation which reclassified the capital stock purchased pursuant to the Original Agreements into Series A Convertible Preferred Stock (collectively with the Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, the "Convertible Preferred Stock"); WHEREAS, the Company, Theodore H. Ashford ("Ashford"), Crown Associates III, L.P., a Delaware limited partnership ("C.A. III"), Crown-Glynn Associates, L.P., a Delaware limited partnership ("Crown-Glynn"), U.S. Trust Company of New York as Trustee for the Crown Trust ("Crown Trust, " and collectively with C.A. III and Crown- Glynn, "Crown"), Bankers Trust Company, as Master Trustee for Hughes Aircraft Retirement Plans ("Hughes"), InterWest, Noro-Moseley Partners II, L.P., a Georgia limited partnership ("Noro-Moseley"), Seidler Salsa, L.P., a Delaware limited partnership ("Seidler"), and Sienna (collectively, the "Series B Investors") entered into that certain Series B Convertible Preferred Stock Purchase Agreement dated as of May 12, 1993 (the "Series B Stock Purchase Agreement"), and in connection therewith entered into a Registration Rights Agreement dated as of May 12, 1993, (the "Registration Rights Agreement"), by and among the Company, the Original Investors, and the Series B Investors, which superseded the registration rights granted in the Original Agreements and granted certain registration rights for the shares purchased under the Series B Stock Purchase Agreement and the Original Agreements; WHEREAS, the Company, Ashford, C.A. III, Noro-Moseley, Seidler, Hughes, Sienna, Nominee and InterWest (collectively, the "Series C Investors") entered into that certain Series C Convertible Preferred Stock Purchase Agreement dated as of April 1, 1994 (the "Series C Stock Purchase Agreement"), and in connection therewith entered into an Amended and Restated Registration Rights Agreement dated as of April 1, 1994 (the "Amended Registration Rights Agreement"), by and among the Company, the Original Investors, the Series B Investors and the Series C Investors, which superseded the registration rights granted in the Registration Rights Agreement and granted certain registration rights for the shares purchased under the Original Agreements, the Series B Stock Purchase Agreement and the Series C Stock Purchase Agreement; WHEREAS, the Company, FMA High Yield Income L.P., WSIS Flexible Income Partners L.P., WSIS High Income L.P., Sienna Limited Partnership II, InterWest, Hughes, Noro-Moseley and Ashford (collectively, the "Original Series D Investors") entered into that certain Series D Convertible Preferred Stock Purchase Agreement dated as of March 3, 1995 and March 8, 1995 (the "Original Series D Stock Purchase Agreement"), and in connection therewith entered into a Second Amended and Restated Registration Rights Agreement dated as of March 3, 1995 (the "Second Amended and Restated Registration Rights Agreement"), by and among the Company, the Original Investors, the Series B Investors, the Series C Investors and the Original Series D Investors, which superseded the registration rights granted in the Second Amended and Restated Registration Rights Agreement and granted certain registration rights for the shares purchased under the Original Agreements, the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement and the Original Series D Stock Purchase Agreement; WHEREAS, the second Amended and Restated Registration Rights Agreement may be amended and restated with the written consent of each of (i) the Company, (ii) the holders of a majority of the Registrable Securities (as such term is defined in such agreement) and (iii) the holders of greater than sixty-six and two thirds percent (66-2/3%) of the outstanding shares of Series D Convertible Preferred Stock and Series D Notes; WHEREAS, the Company, the holders of a majority of the Registrable Securities and the holders of greater than sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of Series D Convertible Preferred Stock and Series D Notes; and WHEREAS, the parties hereto desire to amend and restate the Second Amended and Restated Registration Rights Agreement in connection with the sale of additional shares of Series D Convertible Preferred Stock financing of the Company to CDV by executing this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, the parties hereto agree as follows: 1. Definitions. For purposes of this Section 1: (a) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (b) The term "Registrable Securities" means (1) any Common Stock of the Company issued or issuable upon the conversion of the Company's Convertible Preferred Stock, or in the case of the Series D Convertible Preferred Stock, upon the conversion of the convertible senior subordinated notes issuable in redemption of such Series D Convertible Preferred Stock (the "Series D Notes"), issued pursuant to, or issued in exchange for the securities issued pursuant to, the Asset Purchase Agreement, the Original Agreements, the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement, the Original Series D Stock Purchase Agreement, the New Agreement, the Foothill Warrant or the CDV Warrant, (2) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the securities set forth in (1) above excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Agreement are not assigned. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 8 hereof. (d) The term "Foothill Warrant" means the warrant dated February 20, 1993, issued to Foothill Capital Corporation, initially to purchase 100,000 shares of Common Stock. 2. Request for Registration. (a) If the Company shall receive at any time after the date hereof a written request from the Holders of a majority of the Registrable Securities that the Company file a registration statement under the Act, then the Company shall, within ten (10) days of receipt thereof, give written notice in accordance with Section 14(d) of such request to all Holders and shall, subject to the limitations of subsection 2(b), effect as soon as practicable, and in any event shall use its best efforts to effect within sixty (60) days of the receipt of such request (or ninety (90) days in the case of an initial public offering), the registration under the Act of all Registrable Securities that such Holders initiating the registration request hereunder ("Initiating Holders") and any other Holders request to be registered within twenty (20) days of the mailing of such notice by the Company. (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2, and the Company shall include such information in the written notice referred to in subsection 2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders; provided, however, that if the Company has not selected an underwriter reasonably acceptable to the Initiating Holders within twenty (20) days after the Company's receipt of the request for registration from the Initiating Holders, then the Initiating Holders may select an underwriter reasonably acceptable to the Company in connection with such registration. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder. (c) Notwithstanding the foregoing, the Company shall not be obligated to effect more than three registrations, filings and qualifications pursuant to Section 2. (d) CDV shall forfeit one of the demand registrations granted to CDV under Section 3 below for each registration effected under this Section 2 in which shares of Registrable Securities held by CDV are included. 3. CDV Request for Registration. (a) If the Company shall receive at any time after three (3) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a transaction under Rule 145 of the Act) a written request from CDV that the Company file a registration statement under the Act, then the Company shall, subject to the limitations of subsection 3(b), effect as soon as practicable, and in any event shall use its best efforts to effect within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities that CDV requests hereunder. (b) If CDV intends to distribute the Registrable Securities covered by its request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to this Section 3. The underwriter will be selected by the Company and shall be reasonably acceptable to CDV; provided, however, that if the Company has not selected an underwriter reasonably acceptable to CDV within twenty (20) days after the Company's receipt of the request for registration from CDV, then CDV may select an underwriter reasonably acceptable to the Company in connection with such registration. In such event, the right of CDV to include its Registrable Securities in such registration shall be conditioned upon CDV's participation in such underwriting and the inclusion of CDV's Registrable Securities in the underwriting to the extent provided herein. CDV shall (together with the Company as provided in subsection 5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 3, if the underwriter advises CDV in writing that marketing factors require a limitation of the number of shares to be underwritten, then the number of shares of Registrable Securities that may be included by CDV in the underwriting shall be reduced accordingly; provided, however, that if the number of shares of Registrable Securities that may be included in the underwriting is less than fifty percent (50%) of the number of shares of Registrable Securities requested to be registered by CDV, such registration shall not be treated as effected for purposes of Section 3(c) below. (c) Notwithstanding the foregoing, the Company shall not be obligated to effect more than three registrations, filings and qualifications pursuant to Section 3. 4. Company Registration. (a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a compensatory Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable Blue Sky or other state securities laws). Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 14(d), the Company shall, subject to the provisions of subsection 4(b), cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 4 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. (b) In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 4(a) to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine, in their sole discretion, will not jeopardize the success of the offering by the Company. If: (a) the total amount of securities, including Registrable Securities, requested by Holders to be included in such offering exceeds (b) the amount of securities to be sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by all such selling stockholders). 5. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering, provided each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; (f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (g) use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Agreement, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 6. Holders to Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding such Holder, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder's Registrable Securities. 7. Expenses of Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 2, 3 and 4, including without limitation all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders (which counsel shall be reasonably satisfactory to all selling Holders) shall be borne by the Company. 8. Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law. The Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld) unless such settlement includes an unconditional term thereof whereby the claimant or plaintiff gives to the Company a release from all liability with respect to such claim or action, nor shall the Company be liable to any particular Holder, underwriter or controlling person in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) Each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration. Each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, (which consent shall not be unreasonably withheld) unless such settlement includes an unconditional term thereof whereby the claimant or plaintiff gives to the Holder a release from all liability with respect to such claim or action; provided further, that in no event shall any indemnity under this subsection 8(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 8, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if, and only if, prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8. (d) The obligations of the Company and Holders under this Section 8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement and otherwise. 9. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities; provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned, and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 10. Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would grant to such holder or prospective holder registration rights. 11. "Market Stand-Off" Agreement. Each Investor hereby agrees that, during the period of duration specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company or such nderwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; and (c) such period shall not exceed one hundred eighty (180) days after the effective date of such registration statement. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 12. Amendment of Registration Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of (i) the Company and (ii) the holders of a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities and the Company. 13. Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Agreement after ten (10) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with an underwritten public offering of the Common Stock of the Company with aggregate proceeds to the Company in excess of $10,000,000. 14. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the State of California (without regard to the application of choice of law rules), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party hereto, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. (b) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (c) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (d) Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. A copy of any notices sent to the Company shall be sent to: Sienna Holdings, One Market, Steuart Street Tower, Suite 2550, San Francisco, CA 94105-1008, Attn: Mr. Daniel L. Skaff; InterWest Partners, 3000 Sand Hill Road, Building 3, Suite 255, Menlo Park, CA 94025, Attn: Mr. Wallace R. Hawley; Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303, Attn: Gari L. Cheever, Esq. A copy of any notice sent to Noro- Moseley shall be sent to: Jones, Day, Reavis & Pogue, 3500 One Peachtree Center, 303 Peachtree Street, Atlanta, Georgia 30308-3242, Attn: John E. Zamer, Esq. All notices and communications shall be deemed to have been received: (i) in the case of personal delivery, on the date of such delivery; (ii) in the case of telex or facsimile transmission, on the date on which the sender receives confirmation by telex or facsimile transmission that such notice was received by the addressee, provided that a copy of such transmission is additionally sent by mail as set forth in (iv) below; (iii) in the case of overnight air courier, on the second business day following the day sent, with receipt confirmed by the courier; and (iv) in the case of mailing by first class certified or registered mail, postage prepaid, return receipt requested, on the fifth business day following such mailing. (e) Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (f) Final Terms. This Agreement is the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, negotiations and understandings, written or oral, including without limitation, the Original Agreements, the Registration Rights Agreement and the Amended Registration Rights Agreement, and the Original Agreements, the Registration Rights Agreement, the Amended Registration Rights Agreement and the Second Amended and Restated Registration Rights Agreement are hereby terminated and shall be of no further force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. LA SALSA HOLDING CO., a Delaware Corporation By: /s/ Charles L. Boppell -------------------------------- Charles L. Boppell, President and Chief Executive Officer Address: 11601 Santa Monica Blvd. Los Angeles, California 90025 INTERWEST PARTNERS IV, a California Limited Partnership By: INTERWEST MANAGEMENT PARTNERS IV, L.P., its General Partner By: /s/ Wallace R. Hawley ------------------------------- Wallace R. Hawley, General Partner Address: 3000 Sand Hill Road Building 3, Suite 255 Menlo Park, CA 94025 HOWDY S. KABRINS /s/ Howdy S. Kabrins -------------------- Address: 2800 Olympic Blvd., Suite 201 Santa Monica, California 90404 LA SALSA, INC., a California corporation By: /s/ Howdy S. Kabrins ------------------------------ Howdy S. Kabrins, President Address: 2800 Olympic Blvd., Suite 201 Santa Monica, California 90404 CROWN ASSOCIATES III, L.P., a Delaware Limited Partnership By: /s/ Margaret S. McNamara ---------------------------------- Margaret S. McNamara General Partner Crown Partners III, L.P. Address: 67 East Park Place, 8th Floor Morristown, New Jersey 07960 CROWN-GLYNN ASSOCIATES, L.P., a Delaware Limited Partnership By: /s/ Margaret S. McNamara ---------------------------------- Margaret S. McNamara General Partner Crown-Glynn Partners, L.P. Address: 67 East Park Place, 8th Floor Morristown, New Jersey 07960 NUEBERGER & BERMAN AS TRUSTEE FOR THE CROWN TRUST By: /s/ --------------- Name: (illegible) Title: Address: 605 Third Avenue, 36th Floor New York, New York 10158 THEODORE H. ASHFORD /s/ Theodore H. Ashford ----------------------- Address: Building B-107 Greenville Center 3801 Kennett Pike Wilmington, Delaware 19807 NORO-MOSELEY PARTNERS II, L.P. a Georgia Limited Partnership By: Moseley and Company II, its General Partner By: /s/ Jack R. Kelly ----------------------------- Name: Jack R. Kelly Title: General Partner Address: 9 North Parkway Square 4200 Northside Parkway, N.W. Atlanta, Georgia 30327 SEIDLER SALSA, L.P., a Delaware Limited Partnership By: THE SEIDLER COMPANY, its General Partner By: /s/ Peter Seidler --------------------------- Peter Seidler President Address: 515 S. Figueroa St., Sixth Floor Los Angeles, California 90071 BANKERS TRUST COMPANY AS MASTER TRUSTEE FOR HUGHES AIRCRAFT RETIREMENT PLANS By: /s/ Brian Gaon -------------------------- Name: Brian Gaon Title: Attorney-in-Fact Address: 34 Exchange Place Jersey City, New Jersey 07302 CHARLES A. LYNCH /s/ Charles A. Lynch -------------------- Address: 96 Ridgeview Drive Atherton, CA 94027 SIENNA LIMITED PARTNERSHIP I a California Limited Partnership By: SIENNA ASSOCIATES, its General Partner By: /s/ Daniel L. Skaff ----------------------------- Daniel L. Skaff, Chairman of the General Partner Address: One Market Steuart Street Tower Suite 2550 San Francisco, CA 94105 SIENNA HOLDINGS, INC. a California corporation, as Nominee By: /s/ Daniel L. Skaff ----------------------------- Daniel L. Skaff, Chairman Address: One Market Steuart Street Tower Suite 2550 San Francisco, CA 94105 SIENNA LIMITED PARTNERSHIP II a California Limited Partnership By: SIENNA ASSOCIATES, its General Partner By: /s/ Daniel L. Skaff ----------------------------- Daniel L. Skaff, Chairman of the General Partner Address: One Market Steuart Street Tower Suite 2550 San Francisco, CA 94105 FMA HIGH YIELD INCOME L.P. By: SCHRODER WERTHEIM INVESTMENT SERVICES, INC., its general partner By: /s/ David Gibson ---------------------------- Name: David Gibson Title: Director Address: 345 N. Maple Drive, Suite 320 Beverly Hills, CA 90210 Nominee (name in which the securities are registered if different than name of Investor): Lewco Securities Corp. Tax I.D. No.: 13-2765944 WSIS FLEXIBLE INCOME PARTNERS L.P. By: SCHRODER WERTHEIM INVESTMENT SERVICES, INC., its general partner By: /s/ David Gibson ---------------------------- Name: David Gibson Title: Director Address: 345 N. Maple Drive, Suite 320 Beverly Hills, CA 90210 Nominee (name in which the securities are registered if different than name of Investor): Lewco Securities Corp. Tax I.D. No.: 13-2765944 WSIS HIGH INCOME L.P. By: SCHRODER WERTHEIM INVESTMENT SERVICES, INC., its general partner By: /s/ David Gibson ---------------------------- Name: David Gibson Title: Director Address: 345 N. Maple Drive, Suite 320 Beverly Hills, CA 90210 Nominee (name in which the securities are registered if different than name of Investor): Lewco Securities Corp. Tax I.D. No.: 13-2765944 CASUAL DINING VENTURES, INC. By: /s/ Charles W. Redepenning, Jr. ------------------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President Address: One Corporate Place 55 Ferncroft Road Danvers, MA 01923 DONALD BENJAMIN /s/ Donald Benjamin ------------------- FRANK HOLDRAKER /s/ Frank Holdraker ------------------- VICKI TANNER -------------------- RONALD D. WEINSTOCK INC. /s/ Ronald D. Weinstock Inc. ---------------------------- Ronald D. Weinstock, President SCHEDULE 1 FMA High Yield Income L.P. WSIS Flexible Income Partners L.P. WSIS High Income L.P. Howdy S. Kabrins La Salsa, Inc. Crown Associates III, L.P. Crown-Glynn Associates, L.P. Nueberger & Berman as Trustee for the Crown Trust Theodore H. Ashford Noro-Moseley Partners II, L.P. Seidler Salsa, L.P. Bankers Trust Company as Master Trustee for Hughes Aircraft Retirement Plans Charles A. Lynch Sienna Limited Partnership I Sienna Limited Partnership II Sienna Holdings, Inc., as Nominee InterWest Partners IV Donald Benjamin Vicki Tanner Ronald D. Weinstock Inc. Frank Holdraker Casual Dining Ventures, Inc. EX-10.21 10 FOURTH AMENDED AND RESTATED RESTRICTED STOCK AGREEMENT THIS AGREEMENT is made and entered into as of January 12, 1996, by and among La Salsa Holding Co., a Delaware corporation (the "Company"), Howdy S. Kabrins ("Kabrins" or the "Founder"), La Salsa, Inc., a California corporation ("La Salsa"), InterWest Partners IV, a California limited partnership ("InterWest"), Sienna Holdings, Inc., a California corporation, as Nominee ("Nominee"), Sienna Limited Partnership I, a California limited partnership ("Sienna") and the other persons and entities listed on Schedule 1 hereto (Kabrins, La Salsa, InterWest, Nominee, Sienna and such persons and entities are collectively referred to as the "Stockholders" or individually each may be referred to as a "Stockholder") for the purpose of amending and restating in its entirety the Third Amended Agreement (as defined below). WHEREAS, the parties believe that it is in the best interest of the Company and the Stockholders to provide for certain limitations on the future disposition of the shares of capital stock of the Company held by the Stockholders; WHEREAS, in connection with the transactions contemplated under that certain Asset and Stock Purchase and Reorganization Agreement (the "Asset Purchase Agreement"), dated as of February 19, 1992, by and among Kabrins, the Company, La Salsa and the other parties named therein, the parties desired to restrict the sale, transfer, pledge, assignment, or encumbrance of the shares of capital stock of the Company owned by the Stockholders pursuant to a Restricted Stock Agreement dated as of March 4, 1992 (the "Original Agreement"); WHEREAS, as of August 26, 1992, Charles A. Lynch and Michael E. Kassan ("Kassan") became parties to the Original Agreement; WHEREAS, the parties amended and restated the Original Agreement in connection with the Series B Convertible Preferred Stock financing of the Company pursuant to an Amended and Restated Restricted Stock Agreement dated as of May 12, 1993 (the "Amended Agreement"); WHEREAS, the parties amended the Amended Agreement in connection with the termination of Kabrins' employment with the Company and the grant of certain franchise rights related to the Company's restaurants pursuant to the First Amendment to Amended and Restated Restricted Stock Agreement dated as of March 18, 1994; WHEREAS, the parties amended and restated the Amended Agreement in connection with the Series D Convertible Preferred Stock financing of the Company pursuant to a Second Amended and Restated Restricted Stock Agreement dated as of March 3, 1995 (the "Second Amended Agreement"); WHEREAS, the parties amended the Second Amended Agreement in connection with the transfer of certain shares by Kabrins pursuant to the Amendment No. 1 to Second Amended and Restated Restricted Stock Agreement dated as of October 12, 1995 (the "Amendment"). WHEREAS, the parties amended and restated the Second Amended Agreement, as amended by the Amendment, in connection with the issuance of the Company's Class B Common Stock and the transfer of certain shares by Kabrins pursuant to a Third Amended and Restated Restricted Stock Agreement dated as of November 14, 1995 (the "Third Amended Agreement"); WHEREAS, the parties hereto now desire to amend and restate the Third Amended Agreement, in connection with the sale and issuance of 4,166,667 shares of the Company's Series D Convertible Preferred Stock and a warrant (the "CDV Warrant") to purchase an additional 4,729,470 shares of the Company's Series D Convertible Preferred Stock to Casual Dining Ventures, Inc. ("CDV"), to restrict the sale, transfer, pledge, assignment or encumbrance of the shares of capital stock of the Company or any securities convertible into Common Stock of the Company currently owned or subsequently acquired by the Stockholders (the "Shares") by executing this Agreement; WHEREAS, the Third Amended Agreement may be amended with the written consent of (i) the holders of at least two-thirds (2/3) of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, voting together as a single class and (ii) the holders of at least two-thirds (2/3) of the outstanding shares of Series D Convertible Preferred Stock; and WHEREAS, the holders of at least two-thirds (2/3) of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, voting together as a single class and the holders of at least two-thirds (2/3) of the outstanding shares of Series D Convertible Preferred Stock are parties hereto. NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, the parties hereto agree as follows: 1. Right of First Refusal on Stockholder Transfers. Before any Shares registered in the name of a Stockholder may be sold or transferred to a third party (a "Proposed Transferee"), including a transfer by operation of law or other involuntary transfer, such Shares shall first be offered to the Company, then to the other Stockholders, in the following manner: (a) Company Right of First Refusal. (i) The Shares shall first be offered to the Company. The Stockholder proposing to sell or transfer Shares (the "Selling Stockholder") shall deliver or mail by certified mail a written notice (the "Notice") to the Company and the other Stockholders (the "Non-Selling Stockholders") stating (i) such Selling Stockholder's bona fide intention to sell or transfer Shares, (ii) the number of Shares to be sold or transferred (which amount of Shares shall be referred to herein as "Offered Securities") and (iii) the price for which such Selling Stockholder proposes to sell or transfer such Offered Securities. (ii) The Company shall have the right, at any time within fifteen (15) days of receipt of the Notice, to purchase all, but not less than all, of the Offered Securities, at the price per share specified in the Notice. Such right shall be exercised by written notice signed by an officer of the Company and delivered or mailed as provided in Section 11(c) hereof, which notice shall specify the time, place and date for settlement of such purchase. (b) Non-Selling Stockholder Right of First Refusal. (i) If the Company elects not to exercise its right pursuant to Section 1(a) hereof with respect to all of the Offered Securities, or if such right is not exercised within fifteen (15) days of receipt of the Notice by the Company, the Selling Stockholder shall notify the Non-Selling Stockholders of such fact within five (5) days after the expiration of such fifteen (15) day period. (ii) Each Non-Selling Stockholder will have an option, for fifteen (15) days after receiving the notice specified in Section 1(b)(i) hereof, to give written notice to the Company and the Selling Stockholder of such Non-Selling Stockholder's election to purchase its pro rata portion of all, but not less than all, of the Offered Securities, which shall be equal to the product of (i) the amount of Offered Securities multiplied by (ii) a fraction, the numerator of which shall be the number of shares of Common Stock of the Company held by such Non-Selling Stockholder (on an as-converted basis), and the denominator of which shall be the aggregate number of shares of Common Stock owned by the Non-Selling Stockholders as a group (on an as-converted basis). The purchase price at which the Shares are offered to the Non-Selling Stockholders shall be the price specified in the Notice. (iii)If exercised by a Non-Selling Stockholder pursuant hereto, the right to purchase the Offered Securities shall be exercised by written notice, signed by such Non-Selling Stockholder, and delivered or mailed to the Company and the Selling Stockholder as provided in Section 11(c) hereof. The exercise of the option shall specify the time, place and date for settlement of such purchase, which shall be consummated at a closing held at the Company within ten (10) days after the expiration of the notice period specified in Section 1(b)(ii). The Company shall promptly, in writing, inform each Non-Selling Stockholder which purchases all the shares available to it (a "Fully-Exercising Stockholder") of any other Non-Selling Stockholder's failure to do likewise. During the seven (7) day period commencing after receipt of such information, each Fully-Exercising Stockholder shall be entitled to obtain that portion of the Shares for which Non-Selling Stockholders were entitled to subscribe but which were not subscribed for by the Non-Selling Stockholders (the "Unsubscribed Shares") which is equal to the product of (i) the amount of Unsubscribed Shares multiplied by (ii) a fraction, the numerator of which shall be the number of shares of Common Stock of the Company held by such Fully-Exercising Stockholder (on an as-converted basis), respectively, and the denominator of which shall be the aggregate number of shares of Common Stock owned by all Fully-Exercising Stockholders who wish to purchase Unsubscribed Shares (on an as-converted basis). (c) Permitted Sales of Refused Securities. If neither the Company nor the Non-Selling Stockholders have purchased all of the Offered Securities under their respective rights of first refusal as described herein, the Selling Stockholder may sell all of the Offered Securities to any person at the price specified in the Notice or at a higher price, provided that such sale or transfer is consummated within one hundred twenty (120) days of the date of the Notice, and provided further that any such sale is in accordance with all the terms and conditions hereof. If the Selling Stockholder fails to consummate the sale or transfer within such one hundred twenty (120) day period, the option of the Company and the Non-Selling Stockholders provided hereby shall be deemed to be revived with respect to such shares and no sale or transfer of Shares shall be effected without first offering the shares in accordance herewith. (d) Exempt Transfers. In addition to the permissible transfers set forth in Section 6 hereof, the rights of first refusal herein shall not pertain or apply in the case of: (i) transfers in connection with a bona fide business acquisition of the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; or (ii) transfers pursuant to a public offering registered under the Securities Act. 2. Co-Sale Right. Subject to the rights of first refusal set forth in - ------------- Section 1 hereof: (a) In the event any of the Stockholders receive one or more bona fide offers (collectively, the "Purchase Offer") from a third party to purchase from such Stockholder (hereinafter referred to in this Section 2 as the "Selling Stockholder") any or all of its Shares, upon specific terms and conditions (including a specified purchase price payable in cash or other property), then such Stockholder shall promptly provide to the Company and the other Stockholders written notice of the terms and conditions of such Purchase Offer (such notice is referred to herein as the "Transfer Notice"), and the following provisions shall apply. (b) Each of the other Stockholders shall have the right, exercisable upon written notice to the Company and the Selling Stockholder within fifteen (15) business days after receipt of the Transfer Notice, to participate in the Selling Stockholder's sale of such stock pursuant to the specified terms and conditions of such Purchase Offer. To the extent one or more of the other Stockholders exercises such right of participation in accordance with the terms and conditions set forth below, the number of shares of capital stock which the Selling Stockholder may sell pursuant to such Purchase Offer shall be correspondingly reduced. The right of participation of each of the other Stockholders shall be subject to the following terms and conditions: (i) Each of the other Stockholders may sell all or any part, of that number of shares of the Company's Common Stock, or shares of the Company's Preferred Stock or other convertible securities on an as-converted basis, being sold by the Selling Stockholder equal to the product obtained by multiplying, (x) the aggregate number of shares of Common Stock covered by the Purchase Offer (assuming conversion of any Preferred Stock and other convertible securities) by (y) a fraction, the numerator or which is the number of shares of such Common Stock of the Company (assuming conversion of any Preferred Stock and other convertible securities) owned at the time by such Stockholder wishing to participate, and the denominator of which is the combined number of shares of Common Stock of the Company (assuming conversion of any Preferred Stock and other convertible securities) owned at the time by the Selling Stockholder and the other Stockholders; (ii) To the extent one of the other Stockholders elects not to sell the full number of Shares it is entitled to sell pursuant to Section 1(b)(i) above, the other Stockholders' rights to participate in the sale shall be increased pro rata by a corresponding number of shares; and (iii)Each of the other Stockholders participating in such sale shall effect its participation in any such sale by delivering to the Company for transfer to the third-party offeror one or more certificates, properly endorsed for transfer, which represent the number of shares of the capital stock of the Company which such Stockholder elects to sell pursuant to this Section 2. (c) The stock certificates which the other Stockholders deliver to the Company pursuant to this Section 2 shall be transferred by the Company to the third-party offeror in consummation of the sale of the Company's capital stock being sold pursuant to the terms and conditions specified in the Transfer Notice, and the Company shall promptly thereafter remit to the other Stockholders that portion of the proceeds of the sale to which the other Stockholders are entitled by reason of their participation in such sale. (d) The exercise or non-exercise of the rights of the other Stockholders hereunder to participate in one or more sales by the Selling Stockholder shall not adversely affect their rights to participate in subsequent sales by the Selling Stockholder. (e) For purposes of this Section 2 only, the definition of the term "Stockholder" shall not include FMA High Yield Income L.P., WSIS High Yield Income L.P., WSIS Flexible Income Partners L.P., or any transferee thereof (collectively, "Schroder Wertheim"), unless the number of shares to be purchased under a Purchase Offer exceeds fifty percent (50%) of the then outstanding shares of Common Stock of the Company (on an as-converted basis). 3. Right to Purchase. (a) Notwithstanding anything contained in Section 1 or Section 2 of this Agreement, if at any time Salsero I, Salsero II and Founder have all of their Franchise Agreements terminated by the Franchisor as a result of Salsero I and/or Salsero II and/or Founder failing to substantially comply with their Franchise Agreements and their failure to diligently pursue to cure said deficiencies or breaches, and said termination is accepted by Salsero I, Salsero II and Founder, in writing, or said Franchise Agreements are deemed terminated by a Court of competent jurisdiction and said judgment becomes final (a "Termination Event"), the Company shall have the right within ninety (90) days after the date of the Termination Event to purchase all of the Shares then owned by Founder at the price set forth below. For purposes of this Section 3, "Personal Representative" shall mean the person or persons, including any bank or trust company, who shall be the duly appointed, qualified, and acting executor or executors of the last will and testament of the Founder, or the duly appointed, qualified, and acting administrator, administrator with the will annexed, or administrator to collect of the estate of the Founder. (b) Within ninety (90) days after the date of a Termination Event, the Company shall have the right to: (i) first, purchase all, but not less than all, of the Shares held by the Founder by giving written notice thereof to the Founder, or his Personal Representative, as the case may be; and (ii) second, purchase some, but not all of the Shares held by Founder and offer to the other Stockholders those Shares held by Founder the Company elects not to purchase (the "Available Shares"). If the Company elects to purchase all of the Founder's Shares, the notice shall specify a date for the closing of such purchase which shall be not more than thirty (30) days after the Termination Event. (c) If the Company elects not to purchase all of the Shares held by the Founder, the Company shall, within ninety (90) days after such Termination Event, notify the Founder, or his Personal Representative, as the case may be, and all other Stockholders (hereinafter in this Section 3 referred to individually and collectively as the "Offerees"), that it will not be purchasing all of the Shares of such Founder. Such notice shall indicate the number of Shares (if any) the Company will purchase and the number of Available Shares. The Offerees shall then have the option, exercisable within thirty (30) days after receipt of such notice from the Company, to purchase all, but not less than all, of the Available Shares of the Founder, in proportion to their respective ownership of the Company's capital Stock at the time, and to the extent one of the other Offerees elects not to purchase the full number of Shares it is entitled to purchase pursuant to this Section 3(c), the other Offerees rights to participate in such purchase shall be increased pro rata by a corresponding number of shares. The option set forth in this Section 3(c) shall be exercised by written notice from the Offerees given to the Founder, or his Personal Representative, as the case may be, and the Company within thirty (30) days after receipt of such notice from the Company. Said notice shall specify a date for the closing of the purchase which shall be not more than thirty (30) days after receipt of the notice by the Company. The purchase price per share at which the Offerees may purchase said Available Shares, and the terms and conditions of such purchase, shall be the same as the price per share, and the terms and conditions, at which the Company may purchase Shares pursuant to Sections 3(b), 3(d) and 3(e) hereof. If the Company and/or one or more Offerees are purchasing Shares pursuant hereto, the closings of such purchases shall be simultaneous and shall be conditioned on one another. If at the end of thirty (30) days after receipt of such notice from the Company, the Offerees have not committed to purchase all of the Available Shares, then the rights of the Company and the Offerees under Sections 3(b) and 3(c) herein shall be terminated. (d) The price of the Shares being purchased pursuant to this Section 3 will be equal to the fair market value of such Shares as of the Termination Date, which value will be determined by mutual agreement between the Company and the Founder, or his Personal Representative, as the case may be; provided, however, that in the event that such mutual agreement is not reached within thirty (30) days after the exercise by the Company or the Offerees of their purchase rights hereunder (the "Exercise Date"), the fair market value of such Shares shall be determined through an appraisal by an independent third party mutually acceptable to such parties. In the event that such parties cannot agree on an independent third party appraiser within forty-five days after such Exercise Date, the Founder, or his Personal Representative, as the case may be, shall select one (1) appraiser, and the Company, or Offerees who are purchasing a majority of the Shares, as the case may be, shall select one (1) appraiser, both selections to be made within sixty (60) days after such Exercise Date. These two appraisers shall submit their respective valuations for the Shares within thirty (30) days after their selection. If the higher of the two valuations is within 10% of the lower, the average of such valuations will be deemed the fair market value of the shares in question. Otherwise, the two appraisers shall select a third appraiser who shall submit a valuation within sixty (60) days of the selection of the two initial appraisers. At that time, the valuation submitted which deviates the most from the average of the three valuations shall be disregarded, and the average of the remaining two valuations shall be deemed to be the applicable fair market value. In the event the valuation of such Shares is determined by appraisal, the cost of such appraisal shall be borne by the party who appointed the appraiser whose valuation deviated the most from the final valuation. (e) The purchase price of the Shares being purchased pursuant to this Section 3 shall be payable at the closing, as specified in Section 5 hereof, at the option of the Company or any Offeree, as the case may be, either (i) in cash, or (ii) with ten percent (10%) of such purchase price paid in cash, and the remaining balance paid by a promissory note, with such promissory note having a term of five (5) years, bearing interest at a fixed rate equal to the prime lending rate, as determined on the business day immediately prior to such closing by Bank of America, and providing for accrued interest to be due and payable quarterly and principal amounts to be due and payable in five equal annual installments; provided, that such promissory note shall be substantially in the form of the Founder's Note as defined in the Asset Purchase Agreement. (f) Notwithstanding anything to the contrary in this Agreement, if the Company has the right to purchase Shares pursuant to this Section 3, but, at the applicable time, the Company at such time is prohibited or restricted from doing so by reason of any loan agreement or debt covenant, then the Company's rights and options, shall be tolled and suspended for a period of three (3) months from the date such rights or options first became exercisable (provided that the Company shall have an additional three (3) months to close any purchase of the Founder's Shares). In such case, all references in this Section 3 to dates and time periods shall be deemed delayed for so long as necessary to give effect to the provisions of this Section 3(f). (g) Upon expiration of all purchase options of the Company and the Offerees, the Shares shall no longer be subject to the provisions of this Section 3, but shall continue to be subject to all of the other restrictions and rights contained in this Agreement. (h) Non-Competition. (i) The Founder agrees that in the event his or her Shares are purchased by the Company or the Offerees pursuant to this Section 3, he shall not engage (except in his capacity as an officer, director, and/or employee of the Company), directly or indirectly, whether on his own account or as a shareholder (other than as a shareholder of the Company or as a less than 2% shareholder of a publicly-held company), partner, joint venturer, employee, consultant, advisor and/or agent, of any person, firm, corporation, or other entity, in any or all of the following activities in any of the counties of California in which La Salsa is doing business at the date of the closing of the purchase of Founder's Shares, for a period of three (3) years after the date of the termination referred to in Section 3(a): (A) Own, operate or franchise (1) any Mexican or "south of the border" type restaurant, including without limitation, one which utilizes the concepts of "tacos al carbon" or "tacquerias" or (2) any business which sells, distributes or in any other way markets retail products which the Company has researched, developed or marketed prior to the Founder's termination of employment; (B) Solicit customers or business patronage which results in competition with the Company or any of its affiliates in any of the types of business described in (A) above; (C) Promote or assist, financially or otherwise, any person, firm, association, corporation, or other entity engaged in any of the types of business described in clause (A) above; or (D) Solicit, offer employment to or hire any employee of the Company or any of its subsidiaries in connection with the types of business described in (A) above. (ii) Without limitation, the parties agree and intend that the covenants contained in this subsection 2(h) shall be deemed to be a series of separate covenants and agreements, one for each and every county of each state and political subdivision of the United States and other nation to which this Agreement is applicable. If, in any judicial proceeding, a court shall refuse to enforce in such action all of the separate covenants deemed included herein, then at the option of the Company, wholly unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such a proceeding. (iii)In the event the agreement in this Section 3(h) shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend over the maximum period of time for which it may be enforceable and over the maximum geographical area as to which it may be enforceable and to the maximum extent in all other respects as to which it may be enforceable, and enforced as so interpreted, all as determined by such court in such action. The parties hereto acknowledge and agree that the time, scope, geographic area and other provisions of this Section 3(h) have been specifically negotiated by sophisticated parties represented by counsel of their own selection and specifically hereby agree that such time, scope, geographic area and other provisions are reasonable under the circumstances. (iv) The parties agree that due to the unique nature of the services and capabilities of Kabrins, there can be no adequate remedy at law for any breach of his obligations hereunder, that any such breach may allow Kabrins and/or third parties to unfairly compete with the Company resulting in irreparable harm to the Company, and therefore, that upon any such breach or any threat thereof, the Company shall be entitled to appropriate equitable relief in addition to whatever remedies it might have at law. Further, the Company shall be entitled to indemnification by Kabrins from any loss or harm, including, without limitation, attorney's fees, in connection with any breach, or any enforcement of his obligations hereunder. 4. Further Restriction on the Shares. For as long as the Shares are subject to the restrictive provisions set forth in Sections 1, 2 and 3 of this Agreement, the Stockholders shall not pledge or encumber any or all Shares which now or hereafter may be held or owned by them provided, however, that Kabrins may pledge up to fifty percent (50%) of the Shares owned by him to a nationally recognized financial institution if such institution agrees in writing with the Company and the other Stockholders that it will otherwise become a party to and bound by this Agreement. 5. Closing. The closing of the purchase and sale of Shares pursuant to Section 3 of this Agreement shall take place at the principal business office of the Company. On the date of closing, the applicable Stockholder shall tender to the Company and/or the applicable Offerees, as the case may be, certificates evidencing the number of Shares to be purchased and sold pursuant to the terms hereof, properly endorsed for transfer to the applicable purchaser with signature guaranteed, and accompanied by any other documents which are necessary in the reasonable opinion of the Company to evidence the authority of the applicable Offeror to make such sale and transfer good title to the Shares. The Company and/or each applicable Offeree, as the case may be, shall pay to the Stockholder the aggregate purchase price of the Shares being purchased by it, him or her by delivering to the Stockholder a promissory note in accordance with terms of this Agreement and/or by delivering immediately available funds to the Stockholder, as applicable. 6. Permissible Transfers. Notwithstanding the above, and except as otherwise set forth in Section 3 of this Agreement, any rights granted under this Agreement to the Company or the Stockholders with respect to transfers of Shares by other Stockholders shall not apply to a transfer by a Stockholder (i) to the estate of such Stockholder, or by gift, will, or intestate succession of such Stockholder to his or her spouse or to the siblings, lineal descendants, or ancestors of such Stockholder or his or her spouse, (ii) to a trust for the benefit of such Stockholder's spouse or to the siblings, lineal descendants or ancestors of such Stockholder or his or her spouse, (iii) between any Stockholders, (iv) as provided in Section 7 below; (v) in the case of a Stockholder which is not a natural person, to any person(s) or entity controlling, controlled by or under common control with such Stockholder or in the case of a partnership to any partner thereof, so long as such transfer does not violate any applicable securities laws; (vi) in the case of Kassan, the transfer of 82,000 shares of Series A Convertible Preferred Stock to Kabrins, (vii) in the case of Kabrins, the sale of 461,538 shares of Series A Convertible Preferred Stock to the Company or its designee pursuant to that certain Supplemental Agreement between Kabrins and the Company dated as of May 12, 1993, the pledge of 115,000 shares of Series A Convertible Preferred Stock to Lou Adler pursuant to that certain Settlement Agreement and Mutual General Release dated January 10, 1995, by and among Kabrins, Sylvano, Inc., a California corporation, L.S. Malibu Partnership, a California limited partnership, La Salsa Management, Inc., a California corporation, Lou Adler, Sienna and the Company, the transfer of 10,000 shares of Series A Convertible Preferred Stock to Vicki Tanner pursuant to that certain Stock Transfer Agreement dated October 12, 1995, by and among Kabrins, Vicki Tanner and Sienna Holdings, Inc. (the "Tanner Transfer"), or the transfer of 9,000, 4,500 and 4,500 shares of Series A Convertible Preferred Stock to Donald Benjamin, Ronald D. Weinstock Inc. and Frank Holdraker, respectively (the "Management Transferees") pursuant to certain Stock Transfer Agreements dated November 14, 1995, by and between Kabrins and each of the Management Transferees (the "Management Transferee Transfers"); provided, however, that, in all cases above, the transferee shall agree in writing to be subject to the terms hereof, including the restrictions set forth in Section 3 hereof, to the same extent as if he, she, or it were an original Stockholder of the Company and, in the case of a transfer by Kabrins or his transferees other than either the Tanner Transfer or the Management Transferee Transfers, to be subject to the terms of the Voting Trust Agreement dated as of March 4, 1992, as amended, among certain Stockholders and Sienna Holdings, Inc. as if such transferee were Kabrins. 7. Ownership Among Kabrins and La Salsa. The parties hereto acknowledge that at the time the Shares were issued by the Company pursuant to the Asset Purchase Agreement, such Shares were held beneficially by La Salsa and not by Kabrins individually. Until such time as the Shares are distributed to Kabrins, as an individual, La Salsa shall be treated as a "Stockholder" for purposes of this Agreement and any proposed sales, transfers, pledges, assignments, or encumbrances by La Salsa of any of the Shares held by La Salsa shall be subject to the terms hereof; provided, that it is agreed and understood that promptly following the issuance of the Shares, La Salsa may distribute its Shares to Kabrins free of the provisions of Sections 1 and 2 herein. 8. Right of First Offer on Company Issuances. (a) If the Company proposes to issue any equity securities or other securities convertible into capital stock of the Company, it shall give written notice thereof to each of the Stockholders at least thirty (30) days prior to the date of the proposed issuance. Such notice shall state (i) the title of the securities to be issued, (ii) the issue price, (iii) the type of consideration for the issuance and (iv) if the securities are not voting common stock, the rights, privileges, preferences and other terms thereof. Each Stockholder shall have fifteen (15) days in which to notify the Company in writing that it will subscribe for and purchase up to all of its pro rata share (pro rata to its combined ownership of the Shares, on an as-converted basis) of such securities on the terms specified in the Company's notice. If a Stockholder does not so subscribe, then those Stockholders who did subscribe shall have the right to increase their subscriptions proportionately. (b) After the notices described in Section 8(a) herein have all been given, the Company shall have the right to cancel the proposed issuance or proceed therewith, in which case the closing shall take place at a place and on a date to be set by the Company upon at least ten (10) days prior written notice. In any event, the closing pursuant to Section 8(a) or (b) herein shall take place simultaneously with the closing of the remainder of the issuance. (c) Notwithstanding the above, the provisions of this Section 8 shall not apply to (i) any issuance or proposed issuance of securities upon the conversion, exchange or exercise of warrants, options, rights or other securities previously issued in compliance with this Agreement, (ii) the issuance to consultants to and former employees of the Company of options to purchase an aggregate of 65,000 shares of Common Stock, (iii) any adjustment to the number of warrant shares or exercise price required pursuant to the warrant held by Foothill Capital Corporation dated February 20, 1993, initially to purchase 100,000 shares of Common Stock, (iv) the issuance of options to purchase, at no less than the fair market value of the Common Stock on the date of such issuance, 2,877,820 shares of Common Stock pursuant to any stock option plan or similar arrangement hereinafter instituted by the Corporation or any of its Subsidiaries, (v) securities to the public pursuant to an effective registration statement, (vi) securities as consideration, in whole or in part, for the acquisition, in whole or in part, of a corporation or other business or the assets thereof, (vii) the issuance of up to 1,000,000 shares of the Company's Class B Common Stock, (viii) the sale and issuance of up to 4,166,667 shares of the Company's Series D Convertible Preferred Stock to CDV pursuant to that certain Series D Convertible Preferred Stock and Warrant Purchase Agreement of even date herewith (the "CDV Purchase Agreement") or (ix) the sale and issuance of the CDV Warrant pursuant to the CDV Purchase Agreement. 9. Election of Directors. (a) Each of the Stockholders hereby agrees that for the term of this Agreement, the board of directors of the Company shall, except as set forth in Sections 9(e) and 9(f) below, consist of (i) four nominees designated by Sienna and InterWest, (ii) two nominees designated by the Founder, (iii) one nominee designated by the holders of a majority of the outstanding Series B Convertible Preferred Stock (excluding Sienna and InterWest), (iv) one nominee designated by Schroder Wertheim, (v) a number of nominees determined pursuant to Section 9(g) below designated by CDV (or its successor, as set forth in Section 9(g) below) and (vi) one representative of Company management to be nominated by a majority of the other directors. Each Stockholder shall vote its Shares, and shall take all actions necessary, to ensure that the number of directors constituting the entire board of directors shall be equal to the total number of nominees as set forth above. (b) Each Stockholder hereby agrees to vote all Shares owned or held of record by it at each annual or special meeting in favor of, or to take all actions by written consent in lieu of any such meeting necessary to cause, the election as members of the board of directors of those individuals nominated in accordance with, and to otherwise effect the intent of, this Section 9. (c) Each Stockholder hereby agrees that, except as set forth in Sections 9(e), (f) and (g) herein, no directors shall be removed unless the Stockholder which designated such nominee pursuant to Section 9(a) herein shall have voted in favor of or consented in writing to such removal. (d) In the event that a vacancy is created on the board of directors by the death, disability, retirement, resignation or removal of a director, each Stockholder agrees to use its best efforts to cause the directors designated by it to vote for an individual designated to fill such vacancy and serve as a director by whichever Stockholder had designated (pursuant to Section 9(a) above) the director whose death, disability, retirement, resignation or removal resulted in such vacancy; provided, however, that such individual so designated may not previously have been a director of the Company who was removed from the board of directors. (e) Notwithstanding anything to the contrary in this Section 9, if the Founder disposes of more than five percent (5%) but less than fifty percent (50%) of the number of Shares initially issued to him by the Company in connection with the closing of the transactions pursuant to the Asset Purchase Agreement (such number to be adjusted to give effect to stock splits, stock dividends and similar occurrences) (the "Initial Shares"), he shall only be entitled to nominate one (1) director and the board of directors shall reduce the number of total directors accordingly. To give effect to such change, the Founder shall cause one of his nominated directors to resign, and, if no such resignation occurs, each Stockholder shall take any and all actions required to effect such removal. If the Founder disposes of more than fifty percent (50%) of the Initial Shares, the Founder shall not be entitled to nominate any directors, the board of directors shall reduce the number of total directors accordingly, and the procedures set forth in the immediately preceding sentence shall be followed with respect to all of the directors previously nominated by the Founder. (f) Notwithstanding anything to the contrary in this Section 9, in the event of the occurrence of any of the following events (a "Schroder Wertheim Change of Control"): (i) a change of more than fifty percent (50%) of the voting power of FMA High Yield Income, L.P., WSIS Flexible Income Partners L.P. or WSIS High Income L.P. (collectively, the "Schroder Wertheim Entities"), or any entity controlling, controlled by or under common control with any of the Schroder Wertheim Entities or (ii) the sale of all or substantially all of the assets of any of the Schroder Wertheim Entities, Schroder Wertheim shall not be entitled to nominate any directors and the board of directors shall reduce the number of total directors accordingly. To give effect to such change, Schroder Wertheim shall cause its nominated director to resign, and, if no such resignation occurs, each Stockholder shall take any and all actions required to effect the removal of such director. The Schroder Wertheim Entities shall provide written notice (the "Change of Control Notice") of any Schroder Wertheim Change of Control to the Company, to be delivered as provided in Section 11(c) hereof, within fifteen (15) days of such Schroder Wertheim Change of Control. (g) So long as CDV holds at least 2,066,116 shares of the Company's Series D Convertible Preferred Stock (4,424,020 shares if CDV has exercised the CDV Warrant), CDV shall be entitled to nominate a number of directors equal to the greater of (x) one director (two directors if CDV has exercised the CDV Warrant in full) and (y) that number of directors such that (i) the ratio of members of the Company's Board of Directors nominated by CDV to the total number of members of the Company's Board of Directors is equal to (ii) the ratio of the number of outstanding shares of the Company's Common Stock held by CDV (assuming conversion of shares of Convertible Preferred Stock, but not assuming the exercise of any options or warrants) to the number of outstanding shares of the Company's capital stock (calculated on a fully-diluted basis), and the board of directors shall increase or decrease the number of total directors accordingly as necessary. In the event that the foregoing calculation would result in a fraction, the number of directors that CDV shall be entitled to nominate shall be rounded to the nearest whole number. In the event that CDV holds less than 2,066,116 shares of the Company's Series D Convertible Preferred Stock (4,424,020 shares if CDV has exercised the CDV Warrant), CDV shall be entitled to nominate a number of directors such that (i) the ratio of members of the Company's Board of Directors nominated by CDV to the total number of members of the Company's Board of Directors is equal to (ii) the ratio of the number of outstanding shares of the Company's Common Stock held by CDV (assuming conversion of shares of Convertible Preferred Stock, but not assuming the exercise of any options or warrants) to the number of outstanding shares of the Company's capital stock (calculated on a fully-diluted basis), and the board of directors shall increase or decrease the number of total directors accordingly as necessary. In the event that the foregoing calculation would result in a fraction, the number of directors that CDV shall be entitled to nominate shall be rounded to the nearest whole number. In the event that a single person acquires from CDV all of the shares of the capital stock of the Company either (i) purchased under that certain Series D Convertible Preferred Stock and Warrant Purchase Agreement of even date herewith, by and between the Company and CDV, and, if exercised, the CDV Warrant or (ii) issued upon conversion of such shares, then the rights of CDV hereunder to designate nominees to the Company's Board of Directors shall terminate and be of no further force and effect and, in lieu thereof, such acquiror shall have the right to designate one (1) nominee to the Company's Board of Directors, and the board of directors shall adjust the number of total directors accordingly. 10. Schroder Wertheim Change of Control Right of First Refusal. In the event of a Schroder Wertheim Change of Control, the Company shall have the right, at any time within fifteen (15) days of receipt by the Company of the Change of Control Notice, to purchase all, but not less than all, of the Shares held by the Schroder Wertheim Entities (the "Schroder Wertheim Shares") at (i) if the Schroder Wertheim Shares are shares of capital stock of the Company, a price per share equal to the original purchase price of such Schroder Wertheim Shares or (ii) if the Schroder Wertheim Shares are Senior Subordinated Convertible Notes due 2002 (the "Series D Notes"), at a purchase price equal to the aggregate principal amount of such Series D Notes, plus any accrued but unpaid interest. Such right shall be exercised by written notice signed by an officer of the Company and delivered or mailed as provided in Section 11(c) hereof, which notice shall specify the time, place and date for settlement of such purchase. 11. Miscellaneous. (a) Endorsement on Stock Certificates. Each certificate representing Shares of the Company now or hereafter held by the Stockholders shall be stamped with a legend in substantially the following form: "The transfer of the shares of stock represented by this certificate is restricted under the terms of a Fourth Amended and Restated Restricted Stock Agreement dated January 12, 1996, a copy of which is on file at the office of the Company." (b) Specific Performance. The parties hereby declare that it is impossible to measure in money the damages which would accrue to one or more parties hereto, by reason of a failure of a party hereto to perform any of the obligations under this Agreement. Therefore, if any party hereto shall institute any action or proceeding to enforce the provisions hereof, any person (including the Company) against whom such action or proceeding is brought hereby waives the claim or defense therein that such party, or his or her Personal Representative, as the case may be, has an adequate remedy at law, and such person shall not urge in any such action or proceeding the claim or defense that such remedy at law exists. (c) Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties, provided, that in the case of notice to the Company, a copy shall be delivered to each Stockholder also. Any notice intended for the estate of a party hereto shall be addressed to the Personal Representative of such party at the address appearing on the records of the Court by which such Personal Representative was appointed. A copy of any notices sent to the Company shall be sent to: Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303, Attn: Gari L. Cheever, Esq. All notices and communications shall be deemed to have been received: (i) in the case of personal delivery, on the date of such delivery; (ii) in the case of telex or facsimile transmission, on the date on which the sender receives confirmation by telex or facsimile transmission that such notice was received by the addressee, provided that a copy of such transmission is additionally sent by mail as set forth in (iv) below; (iii) in the case of overnight air courier, on the second business day following the day sent, with receipt confirmed by the courier; and (iv) in the case of mailing by first class certified or registered mail, postage prepaid, return receipt requested, on the fifth business day following such mailing. (d) Invalid Provision. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and the Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. (e) Modification. No change, modification, or amendment of this Agreement shall be valid without the written consent of the holders of at least two-thirds (2/3) of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, voting together as a single class. (f) Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company, and its successors and assigns, the Stockholders, and his or her heirs, executors, administrators, and personal representatives, and such other person or persons who may, from time to time, become owners of the shares of capital stock of the Company, and become bound by all the terms and conditions of this Agreement; provided, however, that the rights granted to certain Stockholders in Section 9(a) to designate nominees to the Company's Board of Directors may not be assigned without the prior written consent of the Company. (g) Term of Agreement. Except as otherwise specified herein, this Agreement shall remain in force and effect until the consummation of an underwritten public offering of the Common Stock of the Company with aggregate proceeds to the Company in excess of $10,000,000, unless sooner terminated by agreement among the Company and the Stockholders; provided, however, that termination of this Agreement in the manner hereinbefore provided shall not affect the validity of the exercise of any options contained herein prior to such termination. (h) Attorneys' Fees; Expenses. (i) If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement or to protect the rights obtained hereunder the prevailing party shall be entitled to its reasonable attorneys, fees, costs, and disbursements in addition to any other relief to which it may be entitled. (ii) Each Stockholder shall pay in full all fees, costs and disbursements, direct or indirect, incurred by the Company in connection with the sale or transfer by such Stockholder to a third party of any Shares registered in the name of such Stockholder, including a transfer by operation of law or other involuntary transfer. (i) Governing Law. This Agreement shall be governed by and construed under the laws of the State of California (without regard to the application of choice of law rules), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party hereto, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. (j) Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same original Agreement. (k) Final Terms. This Agreement is the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, negotiations and understandings, written or oral, including without limitation, the Original Agreement, the Amended Agreement, as amended, and the Second Amended Agreement, as amended, and the Original Agreement, the Amended Agreement, as amended, the Second Amended Agreement, as amended, and the Third Amended Agreement are hereby terminated and shall be of no further force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. LA SALSA HOLDING CO., a Delaware Corporation By: /s/ Charles L. Boppell ----------------------------- Charles L. Boppell President and Chief Executive Officer Address: 11601 Santa Monica Blvd. Los Angeles, California 90025 HOWDY S. KABRINS /s/ Howdy S. Kabrins -------------------- Address: 2800 Olympic Blvd., Suite 201 Santa Monica, California 90404 LA SALSA, INC., a California corporation By: /s/ Howdy S. Kabrins --------------------------- Howdy S. Kabrins, President Address: 2800 Olympic Blvd., Suite 201 Santa Monica, California 90404 SIENNA LIMITED PARTNERSHIP I California Limited Partnership By: SIENNA ASSOCIATES, its General Partner By: /s/ Daniel L. Skaff -------------------------- Daniel L. Skaff, Chairman of the General Partner Address: One Market Steuart Street Tower Suite 2550 San Francisco, CA 94105 SIENNA LIMITED PARTNERSHIP II a California Limited Partnership By: SIENNA ASSOCIATES, its General Partner By: /s/ Daniel L. Skaff -------------------------- Daniel L. Skaff, Chairman of the General Partner Address: One Market Steuart Street Tower Suite 2550 San Francisco, CA 94105 SIENNA HOLDINGS, INC. a California corporation, as Nominee By: /s/ Daniel L. Skaff -------------------------- Daniel L. Skaff, Chairman Address: One Market Steuart Street Tower Suite 2550 San Francisco, CA 94105 CHARLES A. LYNCH /s/ Charles A. Lynch -------------------- Address: 3000 Sand Hill Road Building 1, Suite 125 Menlo Park, CA 94025 INTERWEST PARTNERS IV a California Limited Partnership By: INTERWEST MANAGEMENT PARTNERS IV, L.P., its General Partner By: /s/ Wallace R. Hawley ---------------------------- Wallace R. Hawley, General Partner Address: 3000 Sand Hill Road Building 3, Suite 255 Menlo Park, CA 94025 FMA HIGH YIELD INCOME L.P. By: SCHRODER WERTHEIM INVESTMENT SERVICES, INC., its general partner By: /s/ David Gibson ----------------------- Name: David Gibson Title: Director Address: 345 N. Maple Drive, Suite 320 Beverly Hills, CA 90210 Nominee (name in which the securities are registered if different than name of Stockholder): Lewco Securities Corp. Tax I.D. No.: 13-2765944 WSIS FLEXIBLE INCOME PARTNERS L.P. By: SCHRODER WERTHEIM INVESTMENT SERVICES, INC., its general partner By: /s/ David Gibson ------------------------ Name: David Gibson Title:Director Address: 345 N. Maple Drive, Suite 320 Beverly Hills, CA 90210 Nominee (name in which the securities are registered if different than name of Stockholder): Lewco Securities Corp. Tax I.D. No.: 13-2765944 WSIS HIGH INCOME L.P. By: SCHRODER WERTHEIM INVESTMENT SERVICES, INC., its general partner By: /s/ David Gibson ----------------------- Name: David Gibson Title:Director Address: 345 N. Maple Drive, Suite 320 Beverly Hills, CA 90210 Nominee (name in which the securities are registered if different than name of Stockholder): Lewco Securities Corp. Tax I.D. No.: 13-2765944 CASUAL DINING VENTURES, INC. By: /s/ Charles W. Redepenning, Jr. -------------------------------------- Name: Charles W. Redepenning, Jr. Title:Senior Vice President Address: One Corporate Place 55 Ferncroft Road Danvers, MA 01923 NUEBERGER & BERMAN AS TRUSTEE FOR THE CROWN TRUST By: /s/ ----------- Name: (illegible) Title: Address: 605 Third Avenue, 36th Floor New York, New York 10158 CROWN ASSOCIATES III, L.P., a Delaware Limited Partnership By: /s/ Margaret S. McNamara ------------------------------- Margaret S. McNamara General Partner Crown Partners III, L.P. Address: 67 East Park Place, 8th Floor Morristown, New Jersey 07960 CROWN-GLYNN ASSOCIATES, L.P., a Delaware Limited Partnership By: /s/ David F. Bellot -------------------------- David F. Bellot General Partner Crown-Glynn Partners, L.P. Address: 67 East Park Place, 8th Floor Morristown, New Jersey 07960 NORO-MOSELEY PARTNERS II, L.P. a Georgia Limited Partnership By: Moseley and Company II, its General Partner By: /s/ Jack R. Kelly ------------------------ Name: Jack R. Kelly Title:General Partner Address: 9 North Parkway Square 4200 Northside Parkway, N.W. Atlanta, Georgia 30327 THEODORE H. ASHFORD /s/ Theodore H. Ashford ----------------------- Address: Building B-107 Greenville Center 3801 Kennett Pike Wilmington, Delaware 19807 SEIDLER SALSA, L.P., a Delaware Limited Partnership By: THE SEIDLER COMPANY, its General Partner By: /s/ Peter Seidler ------------------------- Peter Seidler President Address: 515 S. Figueroa St., Sixth Floor Los Angeles, California 90071 BANKERS TRUST COMPANY AS MASTER TRUSTEE FOR HUGHES AIRCRAFT RETIREMENT PLANS By: /s/ Brian Gaon ------------------- Name: Brian Gaon Title: Attorney-in-Fact Address: 34 Exchange Place Jersey City, New Jersey 07302 DONALD BENJAMIN /s/ Donald Benjamin ------------------- VICKI TANNER ------------------- RONALD D. WEINSTOCK INC. /s/ Ronald D. Weinstock Inc. ---------------------------- Ronald D. Weinstock, President FRANK HOLDRAKER /s/ Frank Holdraker ------------------- SCHEDULE 1 Stockholders (in addition to those Stockholders listed in the first paragraph of this Agreement) Charles A. Lynch Theodore H. Ashford Crown Associates III, L.P. Crown-Glynn Associates, L.P. Nueberger & Berman as Trustee for The Crown Trust Noro-Moseley Partners II, L.P. Seidler Salsa, L.P. Bankers Trust Company, as Master Trustee for Hughes Aircraft Retirement Plans FMA High Yield Income L.P. WSIS Flexible Income Partners L.P. WSIS High Yield Income L.P. Sienna Limited Partnership II Donald Benjamin Vicki Tanner Ronald D. Weinstock Inc. Frank Holdraker Casual Dining Ventures, Inc. EX-10.22 11 THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. LA SALSA HOLDING CO. WARRANT TO PURCHASE SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK This Warrant is issued to Casual Dining Ventures, Inc. ("Warrantholder") by La Salsa Holding Co., a Delaware corporation (the "Company"), as of this 12th day of January, 1996, in connection with the issuance and sale of shares of the Series D Convertible Preferred Stock of the Company to Warrantholder pursuant to that certain Series D Convertible Preferred Stock and Warrant Purchase Agreement, of even date herewith, by and between the Company and Warrantholder (the "Purchase Agreement"). 1. Purchase of Shares. Subject to the terms and conditions hereinafter set forth, the holder of this Warrant is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the holder hereof in writing), to purchase 4,729,470 shares of Series D Convertible Preferred Stock of the Company. The shares of Series D Convertible Preferred Stock issuable pursuant to this Section 1 (the "Shares") shall be subject to adjustment pursuant to Section 7 hereof. 2. Purchase Price. The purchase price for the Shares is $1.50 per share. Such price shall be subject to adjustment pursuant to Section 7 hereof (such price, as adjusted from time to time, is herein referred to as the "Exercise Price"). 3. Exercise Period. This Warrant is exercisable beginning April 12, 1997 and shall remain so exercisable until and including July 12, 1997. 4. Method of Exercise. While this Warrant remains outstanding and exercisable in accordance with Section 3 above, the holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by: (i) the surrender of the Warrant, together with a duly executed copy of the form of subscription attached hereto, to the Secretary of the Company at its principal offices; and (ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased. 5. Certificates for Shares. Upon the exercise of the purchase rights evidenced by this Warrant, one or more certificates for the number of Shares so purchased shall be issued as soon as practicable thereafter, and in any event within thirty (30) days of the delivery of the subscription notice. 6. Reservation of Shares. The Company covenants that it will at all times keep available such number of authorized shares of its Series D Convertible Preferred Stock, free from all preemptive rights with respect thereto, which will be sufficient to permit the exercise of this Warrant for the full number of Shares specified herein. The Company further covenants that such Shares, when issued pursuant to the exercise of this Warrant, will be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issuance thereof. 7. Adjustment of Exercise Price and Number of Shares. The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows: (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time prior to the expiration of this Warrant subdivide its Series D Convertible Preferred Stock, by split-up or otherwise, or combine its Series D Convertible Preferred Stock or issue additional securities as a dividend with respect to any shares of its Series D Convertible Preferred Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 7(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. (b) Reclassification, Reorganization, and Consolidation. In case of any reclassification, capital reorganization or change in the Series D Convertible Preferred Stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 7(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the holder of this Warrant, so that the holder of this Warrant shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization or change by a holder of the same number of shares of Series D Convertible Preferred Stock as were purchasable by the holder of this Warrant immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the holder of this Warrant so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per share payable hereunder, provided the aggregate purchase price shall remain the same. (c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Warrant Price, the Company shall promptly notify the holder of such event and of the number of shares of Series D Convertible Preferred Stock or other securities or property thereafter purchasable upon exercise of the Warrant. 8. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Warrant Price then in effect. 9. No Stockholder Rights. Prior to exercise of this Warrant, the holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and such holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company. 10. Successors and Assigns. The terms and provisions of this Warrant and the Purchase Agreement shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns. 11. Amendments and Waivers. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and Warrantholder. Any waiver or amendment effected in accordance with this section shall be binding upon Warrantholder, any future holder of the Shares, and the Company. 12. Governing Law. This Warrant shall be governed by the laws of the State of California as applied to agreements among California residents made and to be performed entirely within the State of California. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized. LA SALSA HOLDING CO. By: /s/ Charles L. Boppell -------------------------------- Charles L. Boppell President Accepted and Agreed: WARRANTHOLDER: CASUAL DINING VENTURES, INC. By: /s/ Charles W. Redepenning, Jr. - ---------------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President and General Counsel SUBSCRIPTION La Salsa Holding Co. Attention: Corporate Secretary The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant to Purchase Shares of Series D Convertible Preferred Stock issued by La Salsa Holding Co. and held by the undersigned, ____________ shares of Series D Convertible Preferred Stock of La Salsa Holding Co. Payment of the exercise price per share required under such Warrant accompanies this Subscription. The undersigned hereby represents and warrants that the undersigned is acquiring such shares for its own account for investment purposes only, and not for resale or with a view to distribution of such shares or any part thereof. Date: Name: By: Title: Address: Name in which shares should be registered: EX-10.23 12 SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 25, 1996 among DAKA INTERNATIONAL, INC. SUBSIDIARY GUARANTORS THE BANKS SIGNATORY HERETO and THE CHASE MANHATTAN BANK, N.A. as Agent Table of Contents ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS Section 1.01. Definitions Section 1.02. Accounting Terms ARTICLE 2. THE LOANS Section 2.01. The Loans Section 2.02. The Notes Section 2.03. Purposes Section 2.04. Borrowing Procedures Section 2.05. Prepayments and Conversions Section 2.06. Interest Periods; Renewals Section 2.07. Changes of Commitments Section 2.08. Certain Notices Section 2.09. Minimum Amounts Section 2.10. Interest Section 2.11. Fees Section 2.12. Payments Generally Section 2.13. Treatment of Loans Section 2.14. Restatement ARTICLE 3. THE LETTERS OF CREDIT Section 3.01. Letters of Credit Section 3.02. Purposes Section 3.03. Procedures for Issuance of Letters of Credit Section 3.04. Participating Interests Section 3.05. Payments Section 3.06. Further Assurances Section 3.07. Obligations Absolute Section 3.08. Cash Collateral Account Section 3.09. Letter of Credit Fees ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC. Section 4.01. Additional Costs Section 4.02. Limitation on Types of Loans Section 4.03. Illegality Section 4.04. Certain Conversions pursuant to Sections 4.0 and 4.03 Section 4.05. Certain Compensation ARTICLE 5. CONDITIONS PRECEDENT Section 5.01. Documentary Conditions Precedent Section 5.02. Additional Conditions Precedent (i) Section 5.03. Deemed Representations ARTICLE 6. REPRESENTATIONS AND WARRANTIES Section 6.01. Organization, Good Standing and Due Qualification Section 6.02. Power and Authority; No Conflicts Section 6.03. Legally Enforceable Agreements Section 6.04. Litigation Section 6.05. Financial Statements Section 6.06. Ownership and Liens Section 6.07. Taxes Section 6.08. ERISA Section 6.09. Subsidiaries and Ownership of Stock Section 6.10. Credit Arrangements Section 6.11. Operation of Business Section 6.12. Hazardous Materials Section 6.13. No Default on Outstanding Judgments or Orders Section 6.14. No Defaults on Other Agreements Section 6.15. Labor Disputes and Acts of God Section 6.16. Governmental Regulation Section 6.17. No Forfeiture Section 6.18. Solvency Section 6.19. Security Documents ARTICLE 7. AFFIRMATIVE COVENANTS Section 7.01. Maintenance of Existence Section 7.02. Conduct of Business Section 7.03. Maintenance of Properties Section 7.04. Maintenance of Records Section 7.05. Maintenance of Insurance Section 7.06. Compliance with Laws Section 7.07. Right of Inspection Section 7.08. Reporting Requirements Section 7.09. Additional Subsidiary Guarantors ARTICLE 8. NEGATIVE COVENANTS Section 8.01. Debt Section 8.02. Guaranties, Etc. Section 8.03. Liens Section 8.04. Leases Section 8.05. Investments Section 8.06. Dividends Section 8.07. Sale of Assets Section 8.08. Stock of Subsidiaries, Etc. Section 8.09. Transactions with Affiliates Section 8.10. Mergers, Etc. (ii) Section 8.11. Acquisitions Section 8.12. No Activities Leading to Forfeiture Section 8.13. Amendments or Waivers of Certain Documents ARTICLE 9. FINANCIAL COVENANTS Section 9.01. Interest Coverage Ratio Section 9.02. Minimum Tangible Net Worth Section 9.03. Leverage Ratio Section 9.04. Tangible Assets Section 9.05. Net Income Section 9.06. Fixed Charge Coverage Ratio ARTICLE 10. EVENTS OF DEFAULT Section 10.01. Events of Default ARTICLE 11. UNCONDITIONAL GUARANTY Section 11.01. Guarantied Obligations Section 11.02. Performance Under This Agreement Section 11.03. Waivers Section 11.04. Releases Section 11.05. Marshaling Section 11.06. Liability Section 11.07. Primary Obligation Section 11.08. Election to Perform Obligations Section 11.09. No Election Section 11.10. Severability Section 11.11. Other Enforcement Rights Section 11.12. Delay or Omission; No Waiver Section 11.13. Restoration of Rights and Remedies Section 11.14. Cumulative Remedies Section 11.15. Survival ARTICLE 12. THE AGENT Section 12.01. Appointment, Powers and Immunities of Agent Section 12.02. Reliance by Agent Section 12.03. Defaults Section 12.04. Rights of Agent as a Bank Section 12.05. Indemnification of Agent Section 12.06. Documents Section 12.07. Non-Reliance on Agent and Other Banks Section 12.08. Failure of Agent to Act Section 12.09. Resignation or Removal of Agent Section 12.10. Amendments Concerning Agency Function Section 12.11. Liability of Agent Section 12.12. Transfer of Agency Function (iii) Section 12.13. Non-Receipt of Funds by the Agent Section 12.14. Withholding Taxes Section 12.15. Several Obligations and Rights of Banks Section 12.16. Pro Rata Treatment of Loans, Etc. Section 12.17. Sharing of Payments Among Banks ARTICLE 13. MISCELLANEOUS Section 13.01. Amendments and Waivers Section 13.02. Usury Section 13.03. Expenses Section 13.04. Survival Section 13.05. Assignment; Participations Section 13.06. Notices Section 13.07. Setoff Section 13.08. JURISDICTION; IMMUNITIES Section 13.09. Table of Contents; Headings Section 13.10. Severability Section 13.11. Counterparts Section 13.12. Integration Section 13.13. GOVERNING LAW Section 13.14. Confidentiality Section 13.15. Treatment of Certain Information Section 13.16. New Subsidiary Guarantors Section 13.17. Reaffirmation Section 13.18. All Seasons Acquisition Section 13.19. AEI Sale-Leasebacks (iv) EXHIBITS Exhibit A Promissory Note Exhibit B Compliance Certificate Exhibit C Opinion of Counsel to the Obligors Exhibit D Amended and Restated Security Agreement Exhibit E Amended and Restated Trademark Security Agreement Exhibit F Third Amended and Restated Pledge Agreement Exhibit G Form of Assumption Agreement SCHEDULES Schedule I Commitments Schedule II Subsidiaries Schedule III Credit Arrangements Schedule IV Liens (v) SECOND AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 25, 1996 among DAKA INTERNATIONAL, INC., a corporation organized under the laws of Delaware (the "Borrower"); each of the Subsidiaries of the Borrower which is a signatory hereto or which shall become a party hereto from time to time (collectively the "Subsidiary Guarantors" and, together with the Borrower, the "Obligors"); each of the banks which is a signatory hereto or which shall become a party hereto from time to time (collectively, the "Banks"); and THE CHASE MANHATTAN BANK, N.A., as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). WHEREAS, the Borrower, the Subsidiary Guarantors, the Banks and the Agent have entered into that certain Amended and Restated Credit Agreement dated as of April 29, 1994 (as amended, the "Existing Credit Agreement") pursuant to which the Banks have extended credit to the Obligors evidenced by certain Promissory Notes (the "Existing Notes") issued by the Borrower and guarantied by the Subsidiary Guarantors; WHEREAS, the Borrower, the Subsidiary Guarantors, the Banks and the Agent have agreed to enter this Agreement to provide for, among other things, an increase in the aggregate Commitments to $150,000,000 and modifications of certain covenants and definitions; and WHEREAS, the Obligors are and will be operated as separate entities but are and will be operated on an integrated basis in connection with their respective financial resources; the Obligors have requested that the Banks make loans to the Borrower, the repayment of which will be guarantied by the Subsidiary Guarantors; the Subsidiary Guarantors will receive direct economic and financial benefits from the Debt incurred under this Agreement by the Borrower and the incurrence of such Debt is in the best interests of the Subsidiary Guarantors; and the Obligors acknowledge that the Banks would not provide the financing hereunder but for the joint and several obligations of the Obligors hereunder with respect hereto. NOW THEREFORE, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. Section 1.01. Definitions. As used in this Agreement the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa): "Acceptable Acquisition" means any Acquisition which meets all of the following conditions: (a) the aggregate consideration paid for such Acquisition does not exceed $7,500,000, (b) the aggregate consideration paid for such Acquisition and for all prior Acquisitions during the same fiscal year does not exceed $12,500,000, (c) the Acquisition has been approved in good faith by the Board of Directors of the Person making the Acquisition and (d) no Default or Event of Default exists or would exist after giving effect to such Acquisition. "Acquisition" means any transaction pursuant to which any Consolidated Entity (a) acquires equity securities (or warrants, options or other rights to acquire such securities) of any Person except in accordance with Section 8.05(d) or (b) causes any Person to be merged into any Consolidated Entity, in any case pursuant to a merger, purchase of assets or any reorganization providing for the delivery or issuance to the holders of such Person's then outstanding securities, in exchange for such securities, of cash or securities of any Consolidated Entity, or a combination thereof, or (c) purchases all or substantially all of the business or assets of any Person. "Affiliate" means any Person (other than an Obligor): (a) which directly or indirectly controls, or is controlled by, or is under common control with, the Borrower; (b) which directly or indirectly beneficially owns or holds 10% or more of any class of voting stock of the Borrower; (c) 10% or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower; or (d) which is a partnership in which the Borrower is a general partner. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" means this Second Amended and Restated Credit Agreement, as amended or supplemented from time to time. References to Articles, Sections, Exhibits, Schedules and the like refer to the Articles, Sections, Exhibits, Schedules and the like of this Agreement unless otherwise indicated. "Assumption Agreement" means each of the Assumption Agreements in the form of Exhibit G delivered under Section 7.09 hereof. "Banking Day" means any day on which commercial banks are not authorized or required to close in New York, New York or in Boston, Massachusetts and whenever such day relates to a Eurodollar Loan or notice with respect to any Eurodollar Loan, a day on which dealings in Dollar deposits are also carried out in the London interbank market. "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "Chase" means The Chase Manhattan Bank, N.A., a national banking association organized under the laws of the United States of America, acting in its capacity as a Bank hereunder. "Closing Date" means the date this Agreement has been executed by the Borrower, the Subsidiary Guarantors, the Banks and the Agent. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" means all of each Obligor's right, title and interest in and to Property in which such Obligor has granted a Lien to the Agent under any Facility Document. "Commitment" means, with respect to each Bank, the obligation of such Bank to make its Loans and participate in its Pro Rata Share of Letter of Credit Obligations under this Agreement in the aggregate principal amount set forth on Schedule I, as such amount may be reduced or otherwise modified from time to time. "Commitment Percentage" means, as to any Bank at any date of determination thereof, the percentage of the aggregate Commitments constituted by such Bank's Commitment at such date. "Compliance Certificate" means the compliance certificate in the form of Exhibit B to be delivered by the Borrower under the terms of this Agreement. "Consolidated Debt" means, at any date of determination thereof, the aggregate amount of Debt of the Consolidated Entities, as determined on a consolidated basis in accordance with GAAP. "Consolidated EBIT" means, with respect to any fiscal period, (a) Consolidated Net Income for such period, plus (b) the aggregate amount of (i) income taxes, (ii) Consolidated Interest Expense, (iii) transaction expense incurred in the fiscal quarter ending on March 30, 1996 in connection with the acquisition of Champps Entertainment, Inc. up to $2,900,000, (iv) transaction expense incurred in the fiscal quarter ending on March 30, 1996 in connection with the acquisition of The Great Bagel Coffee Company and certain other businesses up to $500,000 and (v) the noncash charge taken in accordance with Statement of Financial Accounting Standard No. 121 in the fiscal quarter ending on March 30, 1996 in connection with charges for impairments to the carrying value of certain restaurant and foodservice contract assets, write down of goodwill, reacquired franchise rights, investments and other assets taken, up to $8,000,000, to the extent that such aggregate amount was deducted in the computation of Consolidated Net Income. "Consolidated Entity" means the Borrower or any Subsidiary of the Borrower whose accounts are or are required to be consolidated or included with the accounts of the Borrower in accordance with GAAP. "Consolidated Funded Debt" means, at any time, the aggregate amount, without duplication, of (a) indebtedness of the Consolidated Entities for borrowed money (as reflected on the consolidated financial statements of the Consolidated Entities), (b) indebtedness of the Consolidated Entities for the deferred purchase price of Property or services (except trade payables in the ordinary course of business), (c) obligations of the Consolidated Entities arising under acceptance facilities, (d) obligations secured by any Lien on Property of the Consolidated Entities (as reflected on the consolidated financial statements of the Consolidated Entities) and (e) obligations of the Consolidated Entities as lessee under Capital Leases (as reflected on the consolidated financial statements of the Consolidated Entities), in each case as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any fiscal period, the amount of interest accrued on, and with respect to, Consolidated Debt (including, without limitation, amortization of debt discount and imputed interest on Capital Leases) plus all finance charges, premiums and other fees, charges and expenses extracted in exchange for the forbearance from the collection of money during such period in all cases as determined in accordance with GAAP. "Consolidated Liabilities" means all liabilities of the Consolidated Entities, as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any fiscal period, net income for the Consolidated Entities for such fiscal period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth" means, at any date of determination thereof, the sum of (a) the amount of any capital stock, paid in capital and similar equity accounts plus (or minus in the case of a deficit) the capital surplus and retained earnings of the Consolidated Entities at such date plus (b) Consolidated Subordinated Debt. "Consolidated Rental Expense" means, with respect to any fiscal period, the aggregate amount of rental expense of the Consolidated Entities incurred during such fiscal period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Subordinated Debt" means, at any date of determination thereof, Debt of the Consolidated Entities which is subordinated to all obligations owed to the Banks in amounts and on terms and conditions acceptable to the Banks, as determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Assets" means, at any date of determination thereof, all assets of the Consolidated Entities except assets of the Consolidated Entities which would be classified as intangibles under GAAP including, without limitation, patents, copyrights, trademarks, trade names, franchises, goodwill and other similar intangible assets. "Consolidated Tangible Net Worth" means, at any date of determination thereof, the result of (a) Consolidated Tangible Assets minus (b) the result of (i) Consolidated Liabilities minus (ii) Consolidated Subordinated Debt. "Debt" means, with respect to any Person: (a) indebtedness of such Person for borrowed money; (b) indebtedness for the deferred purchase price of Property or services (except trade payables in the ordinary course of business); (c) Unfunded Benefit Liabilities of such Person (if such Person is not the Borrower, determined in a manner analogous to that of determining Unfunded Benefit Liabilities of the Borrower); (d) the face amount of any outstanding letters of credit issued for the account of such Person; (e) obligations arising under acceptance facilities; (f) Guaranties of such Person; (g) obligations secured by any Lien on Property of such Person; (h) obligations of such Person as lessee under Capital Leases; and (i) all capital stock of such Person subject to repurchase or redemption during the term of this Agreement, other than at the sole option of such Person. "Debt to EBIT Ratio" means, at any time, the ratio of (a) Consolidated Funded Debt to (b) Consolidated EBIT for the immediately preceding four fiscal quarters of the Borrower, as determined at such time. "Default" means any event which with the giving of notice or lapse of time, or both, would become an Event of Default. "Default Rate" means, with respect to the principal of any Loan and, to the extent permitted by law, any other amount payable by the Borrower or any of the Subsidiary Guarantors under this Agreement or any other Facility Document, or any Note that is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period from and including the due date, to, but excluding the date on which such amount is paid in full equal to one percent (1%) above the Variable Rate as in effect from time to time plus the Margin (if any); provided that, if the amount so in default is principal of a Fixed Rate Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Default Rate" for such principal shall be, for the period from and including the due date and to but excluding the last day of the Interest Period therefor, two percent (2%) above the interest rate for such Loan as provided in Section 2.10 hereof and, thereafter, the rate provided for above in this definition. "Dollars" and the sign "$" mean lawful money of the United States of America. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "ERISA Affiliate" means any corporation or trade or business which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Borrower is a member, or (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Borrower is a member. "Eurodollar Loan" means any Loan when and to the extent the interest rate therefor is determined on the basis of the definition "Fixed Base Rate." "Event of Default" has the meaning given such term in Section 9.01. "Facility Documents" means this Agreement, the Notes, the Assumption Agreements, the Letters of Credit, the Interest Rate Protection Agreements and the Security Documents, as each may be amended from time to time. "Federal Funds Rate" means, for any day, the rate per annum (expressed on a 365/366 day basis of calculation, if the rate on Variable Rate Loans is so calculated) equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day (or for any day that is not a Banking Day, for the immediately preceding Banking Day). "Fiscal Year Net Worth Increase Amounts" means the sum of (a) the greater of (i) Zero Dollars ($0) and (ii) 50% of Consolidated Net Income of the Consolidated Entities for each fiscal year of the Borrower ending after June 29, 1996 plus (b) 100% of the proceeds (net of underwriting commissions and discounts and reasonable fees and expenses) from the issuance of capital stock of the Borrower or from the incurrence of Consolidated Subordinated Debt during such fiscal year. "Fixed Base Rate" means with respect to any Interest Period for a Fixed Rate Loan: the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of one percent (1%)) quoted at approximately 11:00 a.m. London time by the principal London branch of the Reference Bank two Banking Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of Dollar deposits in immediately available funds, for a period, and in an amount, comparable to the Interest Period and principal amount of the Eurodollar Loan which shall be made. "Fixed Charge Coverage Ratio" means, at any date of determination thereof, the ratio of (a) the sum of (i) Consolidated EBIT for the two (2) most recently ended fiscal quarters of the Borrower, plus (ii) Consolidated Rental Expense for such fiscal period (to the extent that such amount was deducted in the computation of Consolidated EBIT for such fiscal period) to (b) the sum of (i) Consolidated Interest Expense for such fiscal period, plus (ii) all principal due on, and with respect to, Consolidated Debt during such fiscal period, plus (iii) Consolidated Rental Expense for such fiscal period. "Fixed Rate" means, for any Fixed Rate Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of one percent (1%)) determined by the Agent to be equal to the quotient of (i) the Fixed Base Rate for such Loan for such Interest Period, divided by (ii) one minus the Reserve Requirement for such Loan for such Interest Period. "Fixed Rate Loan" means any Eurodollar Loan. "Forfeiture Proceeding" means any action, proceeding or investigation affecting the Borrower, any of its Subsidiaries or any of its Affiliates before any court, governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or the receipt of notice by any such party that any of them is a suspect in or a target of any governmental inquiry or investigation, which may result in an indictment of any of them or the seizure or forfeiture of any of their Property which would have a Material Adverse Effect. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 6.05 (except for changes concurred in by the Borrower's independent public accountants). "Guaranty" means, with respect to any Person, guaranties, endorsements (other than for collection in the ordinary course of business) and other contingent obligations of such Person with respect to the obligations of any other Person (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods or services or to supply or advance any funds, assets, goods or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of any such other Person against loss) other than guaranties of obligations, or investment in certain assets, under food service contracts incurred in the ordinary course of business. "Hazardous Materials" means any and all pollutants, contaminants, toxic or hazardous wastes or any other substances, the removal of which is required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is restricted, prohibited or penalized by any applicable law. "Interest Coverage Ratio" means, at any date of determination thereof, the ratio of (a) Consolidated EBIT for the two (2) most recently ended fiscal quarters of the Borrower to (b) Consolidated Interest Expense for such two (2) most recently ended fiscal quarters. "Interest Period" means, with respect to any Fixed Rate Loan, the period commencing on the date such Loan is made, converted from another type of Loan or renewed, as the case may be, and ending, as the Borrower may select pursuant to Section 2.06: on the numerically corresponding day in the first, second, third, or sixth calendar month thereafter, provided that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate calendar month. "Interest Rate Protection Agreement" means an interest rate swap, cap or collar agreement or similar arrangement between one or more Banks and an Obligor providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "Lending Office" means, for each Bank and for each type of Loan, the lending office of such Bank (or of an affiliate of such Bank) designated as such for such type of Loan on its signature page hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Agent and the Borrower as the office by which its Loans of such type are to be made and maintained. "Letter of Credit Availability" means, at any date of determination thereof, the amount by which (a) the lower of (i) the result of (A) the aggregate amount of the Commitments as of such date minus (B) the unpaid aggregate principal amount of the Loans then outstanding (including all Loans not then made as to which notice has been given by the Borrower under Section 2.08) and (ii) $10,000,000 exceeds (b) the aggregate amount of the Letter of Credit Obligations at such date (including all Letter of Credit Obligations under Letters of Credit not then issued as to which a request has been made under Section 3.02). "Letter of Credit Obligations" means, at any date of determination thereof, all liabilities of the Consolidated Entities with respect to Letters of Credit, whether or not any liability is contingent, including (without limitation) the sum of (a) the aggregate amount available to be drawn under the Letters of Credit then outstanding plus (b) the aggregate amount of all unpaid Reimbursement Obligations. "Leverage Ratio" means, at any time, the ratio of (a) the result of (i) Consolidated Liabilities minus (ii) Consolidated Subordinated Debt to (b) Consolidated Net Worth, in each case determined at such time. "Lien" means any lien (statutory or otherwise), security interest, mortgage, deed of trust, priority, pledge, charge, conditional sale, title retention agreement, financing lease or other encumbrance or similar right of others, or any agreement to give any of the foregoing. "Loan" means any loan made by a Bank pursuant to Section 2.01. "Margin" means, for a each type of Loan, the percentage for such type of Loan set forth opposite the range of the Debt to EBIT Ratio in the schedule below as determined as of the last day of each fiscal quarter of the Borrower, with adjustments to become effective on the date of receipt by the Agent of a Compliance Certificate of a senior financial officer of the Borrower demonstrating the Debt to EBIT Ratio for such fiscal quarter accompanied by the most recent financial statements of the Consolidated Entities required to be furnished to the Banks under Section 7.08: Margin Variable Rate Fixed Rate Debt to EBIT Ratio Loans Loans (a) less than 1.50 to 1.00 0% .50% (b) equal to or greater than 1.50 to 0% .75% 1.00 and less than 2.00 to 1.00 (c) equal to or greater than 2.00 to 0% 1.00% 1.00 and less than 3.00 to 1.00 (d) equal to or greater than 3.00 to 0% 1.25% 1.00 and less than 4.00 to 1.00 (e) equal to or greater than 4.00 to .50% 1.75% 1.00 "Material Adverse Effect" means any material adverse effect on the financial condition, operations, properties or business of the Consolidated Entities, taken as a whole, or on the ability of the Borrower to repay the principal, interest and all other amounts owing under the Notes and the other Facility Documents. "Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Notes" means the promissory notes of the Borrower in the form of Exhibit A hereto evidencing the Loans made by a Bank hereunder and all promissory notes delivered in substitution or exchange therefor, as amended or supplemented from time to time. "Obligations" means the unpaid principal of and interest on (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Notes and all other obligations and liabilities of any obligor to the Agent or any Bank, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, any other Facility Document and any other document made, delivered or given in connection therewith or herewith, whether on account of principal, interest, Guaranties, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Agent or any Bank) or otherwise. "Participating Bank" means, any Bank (other than Chase) with respect to its Participating Interest in each Letter of Credit. "Participating Interest" means, with respect to each Letter of Credit, (a) in the case of Chase, its interest in such Letter of Credit after giving effect to the granting of any participating interest therein pursuant hereto and (b) in the case of each Participating Bank, its undivided participating interest in such Letter of Credit. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "Plan" means any employee benefit or other plan established or maintained, or to which contributions have been made, by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Pledge Agreement" means the Third Amended and Restated Pledge Agreement in the form of Exhibit D to be delivered by the Borrower and certain of its Subsidiaries under the terms of this Agreement, as amended or supplemented from time to time. "Prime Rate" means that rate of interest from time to time announced by the Reference Bank at its principal office as its prime commercial lending rate. "Principal Office" means the principal office of the Agent, presently located at 1 Chase Manhattan Plaza, New York, New York 10081. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Pro Rata Share" means, with respect to each Bank, a share proportional to such Bank's Commitment Percentage. "Reference Bank" means The Chase Manhattan Bank, N.A. (or if The Chase Manhattan Bank, N.A. no longer quotes on the London interbank market, such successor leading bank in the London interbank market which shall be reasonably appointed by the Agent). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulatory Change" means, with respect to any national banking association, any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including without limitation Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such national banking association, of or under any United States, federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reimbursement Obligation" means the obligation of the Borrower to reimburse Chase in accordance with the terms of this Agreement for the payment made by Chase under any Letter of Credit. "Required Banks" means, at any time while no Loans or Letters of Credit are outstanding, Banks having at least 60% of the aggregate amount of the Commitments and, at any time while Loans or Letters of Credit are outstanding, Banks holding at least 60% of the aggregate principal amount of the Loans and the Letter of Credit Obligations. "Reserve Requirement" means, for any Interest Period for any Fixed Rate Loan for any Interest Period therefor, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Fixed Base Rate for Eurodollar Loans is to be determined as provided in the definition of "Fixed Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. "Security Agreement" means the Amended and Restated Security Agreement in the form of Exhibit D to be delivered by each of the Obligors under the terms of this Agreement, as amended or supplemented from time to time. "Security Documents" means the Security Agreement, the Pledge Agreement, the Trademark Security Agreement and each other security document that may from time to time be delivered to the Agent in connection herewith or therewith. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by such Person. "Termination Date" means June 30, 1999; provided that if such date is not a Banking Day, the Termination Date shall be the next succeeding Banking Day (or, if such next succeeding Banking Day falls in the next calendar month, the next preceding Banking Day). "Trademark Security Agreement" means the Amended and Restated Trademark Security Agreement in the form of Exhibit E to be delivered by certain of the Obligors under the terms of this Agreement, as amended or supplemented from time to time. "UCP" means the Uniform Customs and Practice for Documentary Credits (1983Revision), International Chamber of Commerce Publication No. 500, as the same maybe amended from time to time. "Unfunded Benefit Liabilities" means, with respect to any Plan, the amount (if any) by which the present value of all benefit liabilities (within the meaning of Section 4001(a)(16) of ERISA) under the Plan exceeds the fair market value of all Plan assets allocable to such benefit liabilities, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA for calculating the potential liability of the Borrower or any ERISA Affiliate under Title IV of ERISA. "Variable Rate" means, for any day, the higher of (a) the Federal Funds Rate for such day plus 1/4 of one percent and (b) the Prime Rate for such day. "Variable Rate Loan" means any Loan when and to the extent the interest rate for such Loan is determined in relation to the Variable Rate. Section 1.02. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP. ARTICLE 2. THE LOANS. Section 2.01. The Loans. (a) Subject to the terms and conditions of this Agreement, each of the Banks severally agrees to make loans (the "Loans") to the Borrower from time to time from and including the date hereof to and including the Termination Date, up to but not exceeding in the aggregate principal amount at any one time outstanding, the result of (i) the amount of its Commitment minus (ii) the amount of its Pro Rata Share of the Letter of Credit Obligations at such time. The Loans may be outstanding as Variable Rate Loans or Eurodollar Loans (each a "type" of Loans). Each type of Loans of each Bank shall be made and maintained at such Bank's Lending Office for such type of Loans. (b) The Loans shall be due and payable on the Termination Date. Section 2.02. The Notes. The Loans of each Bank shall be evidenced by a single promissory note in favor of such Bank in the form of Exhibit A, dated the date of this Agreement, duly completed and executed by the Borrower. Section 2.03. Purposes. The Borrower shall use the proceeds of the Loans for general corporate purposes (including, without limitation, working capital and to finance Acquisitions permitted under Section 8.11) and advances to Subsidiary Guarantors for their respective corporate purposes. Such proceeds shall not be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying "margin stock" within the meaning of Regulation U. Section 2.04. Borrowing Procedures. The Borrower which intends to effect a borrowing shall give the Agent notice of each borrowing to be made hereunder as provided in Section 2.08. Not later than 1:00 p.m. New York, New York time on the date of such borrowing, each Bank shall, through its Lending Office and subject to the conditions of this Agreement, make the amount of the Loan to be made by it on such day available to the Agent at the Principal Office and in immediately available funds for the account of the Agent. The amount so received by the Agent shall, subject to the conditions of this Agreement, be made available to the Borrower, in immediately available funds, by the Agent crediting an account of the Borrower designated by the Borrower and maintained with the Agent at the Principal Office. Section 2.05. Prepayments and Conversions. The Borrower shall have the right to make prepayments of principal, or to convert one type of Loans into another type of Loans, at any time or from time to time; provided that: (a) the Borrower shall give the Agent notice of each such prepayment or conversion as provided in Section 2.08; and (b) Fixed Rate Loans may be prepaid or converted only on the last day of an Interest Period for such Loans unless the Borrower agrees to provide to the Agent for the account of each Bank compensation in accordance with Section 4.05. Section 2.06. Interest Periods; Renewals. (a) In the case of each Fixed Rate Loan, the Borrower shall select an Interest Period of any duration in accordance with the definition of Interest Period in Section 1.01, subject to the following limitations: (i) no Interest Period may extend beyond the Termination Date; (ii) notwithstanding clause (i) above, no Interest Period shall have a duration less than one month, and if any such proposed Interest Period would otherwise be for a shorter period, such Interest Period shall not be available; (iii) if an Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next Banking Day, unless such Banking Day would fall in the next calendar month in which event such Interest Period shall end on the immediately preceding Banking Day; and (iv) no more than ten Interest Periods of each Bank may be outstanding at any one time. (b) Upon notice to the Agent as provided in Section 2.08, the Borrower may renew any Fixed Rate Loan on the last day of the Interest Period therefor as the same type of Loans with an Interest Period of the same or different duration in accordance with the limitations provided above. If the Borrower shall fail to give notice to the Agent of such a renewal, such Fixed Rate Loan shall automatically become a Variable Rate Loan on the last day of the current Interest Period; provided that the foregoing shall not prevent the conversion of any type of Fixed Rate Loan into another type of Loan in accordance with Section 2.05. Section 2.07. Changes of Commitments. The Borrower shall have the right to reduce or terminate the amount of unused Commitments at any time or from time to time, provided that: (a) the Borrower shall give notice of each such reduction or termination to the Agent as provided in Section 2.08; and (b) each partial reduction shall be in an aggregate amount at least equal to $1,000,000. The Commitments once reduced or terminated may not be reinstated. Section 2.08. Certain Notices. Notices by the Borrower to the Agent of each borrowing pursuant to Section 2.04, and each prepayment or conversion pursuant to Section 2.05 and each renewal pursuant to Section 2.06(b), and each reduction or termination of the Commitments pursuant to Section 2.07 shall be irrevocable and shall be effective only if received by the Agent not later than 12:00 noon New York, New York time, and (a) in the case of borrowings and prepayments of, conversions into and (in the case of Fixed Rate Loans) renewals of (i) Variable Rate Loans, given the same Banking Day; and (ii) Eurodollar Loans, given three Banking Days prior thereto; (b) in the case of reductions or termination of the Commitments, given three Banking Days prior thereto. Each such notice shall specify the Loans to be borrowed, prepaid, converted or renewed and the amount (subject to Section 2.09) and type of the Loans to be borrowed, or converted, or prepaid or renewed (and, in the case of a conversion, the type of Loans to result from such conversion and, in the case of a Fixed Rate Loan, the Interest Period therefor) and the date of the borrowing or prepayment, or conversion or renewal (which shall be a Banking Day). Each such notice of reduction or termination shall specify the amount of the Commitments to be reduced or terminated. The Agent shall promptly notify the Banks of the contents of each such notice. Section 2.09. Minimum Amounts. Except for borrowings which exhaust the full remaining amount of the Commitments, prepayments or conversions which result in the prepayment or conversion of all Loans of a particular type or conversions made pursuant to Section 4.04, each borrowing, prepayment, conversion and renewal of principal of Loans of a particular type shall be in an amount not less than (i) $100,000 in the aggregate for all Banks in the case of Variable Rate Loans and (ii) $500,000 in the aggregate in the case of Fixed Rate Loans unless such minimum amount is waived by the Required Banks (borrowings, prepayments, conversions or renewals of or into Loans of different types or, in the case of Fixed Rate Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, prepayments, conversions and renewals for the purposes of the foregoing, one for each type of Interest Period). Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of Fixed Rate Loans of each type having concurrent Interest Periods shall be at least equal to $500,000. Section 2.10. Interest. Interest shall accrue on the outstanding and unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan is due at the following rates per annum: (i) for a Variable Rate Loan, at a variable rate per annum equal to the Variable Rate plus any Margin and (ii) for a Fixed Rate Loan, at a fixed rate equal to the Fixed Rate plus the Margin. If the principal amount of any Loan and any other amount payable by the Borrower hereunder or under the Notes shall not be paid when due (at stated maturity, by acceleration or otherwise), interest shall accrue on such amount to the fullest extent permitted by law from and including such due date to but excluding the date such amount is paid in full at the Default Rate. (a) The interest rate on each Variable Rate Loan shall change when the Variable Rate changes and interest on each such Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Interest on each Fixed Rate Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall notify the Borrower and the Banks. (b) Accrued interest shall be due and payable in arrears upon any full payment of principal or conversion and (i) for each Variable Rate Loan, on the last day of each month commencing the first such date after such Loan; and (ii) for each Fixed Rate Loan, on the last day of the Interest Period with respect thereto and, in the case of an Interest Period greater than three months or 90 days, at three-month intervals after the first day of such Interest Period; provided that interest accruing at the Default Rate shall be due and payable from time to time on demand of the Agent. Section 2.11. Fees. (a) The Borrower shall pay to the Agent for the account of each Bank a commitment fee on the daily average of the result of (x) the unused Commitment of such Bank minus (y) such Bank's Pro Rata Share of Letter of Credit Obligations, for the period from and including the date hereof to the earlier of the date the Commitments are terminated or the Termination Date at a rate per annum equal to (i) if the Debt to EBIT Ratio is less than 2.00 to 1.00, 1/4 of one percent or (ii) if the Debt to EBIT Ratio is greater than 2.00 to 1.00, 3/8 of one percent, calculated on the basis of a year of 360 days for the actual number of days elapsed. The accrued commitment fee shall be due and payable in arrears upon any reduction or termination of the Commitments and on the last day of each September, December, March and June. (b) The Borrower shall pay to the Agent for its own account the fees set forth in the fee letter dated of even date herewith between the Borrower and the Agent. Section 2.12. Payments Generally. All payments under this Agreement or the Notes shall be made in Dollars in immediately available funds not later than 1:00 p.m. New York, New York time on the relevant dates specified above (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Banking Day) to the Agent's account number 910-2-696094 maintained at the Principal Office for the account of the applicable Lending Office of each Bank. The Agent, or any Bank for whose account any such payment is to be made, may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower with the Agent or such Bank, as the case may be, and any Bank so doing shall promptly notify the Agent. The Borrower shall, at the time of making each payment under this Agreement or the Notes, specify to the Agent the principal or other amount payable by the Borrower under this Agreement or the Notes to which such payment is to be applied (and in the event that it fails to so specify, or if a Default or Event of Default has occurred and is continuing, the Agent may apply such payment as it may elect in its sole discretion (subject to Section 12.16)). If the due date of any payment under this Agreement or the Notes would otherwise fall on a day which is not a Banking Day, such date shall be extended to the next succeeding Banking Day and interest shall be payable for any principal so extended for the period of such extension. Each payment received by the Agent hereunder or under any Note for the account of a Bank shall be paid promptly to such Bank, in immediately available funds, for the account of such Bank's Lending Office. Section 2.13. Treatment of Loans. All "Loans" (as defined in the Existing Credit Agreement) which are outstanding under the Existing Credit Agreement immediately prior to the Closing Date shall be deemed to be Loans made hereunder at the Closing Date the type and Interest Period of which shall be determined by the mutual agreement of the Borrower and the Banks and the Borrower agrees to provide to the Agent for the account of each Bank compensation in accordance with Section 3.05. Section 2.14. Restatement. The terms and conditions of, and the agreements, representations and warranties set forth in the Existing Credit Agreement are hereby replaced and superseded in their entirety by the terms, conditions, agreements, representations and warranties set forth in this Agreement and the other Facility Documents and the Existing Credit Agreement shall be of no further force and effect. Nothing contained herein or in any of the other Facility Documents shall impair, limit or affect the continuation of the liability of each Obligor for the Obligations heretofore incurred and the security interests, Liens and other collateral interests heretofore granted, pledged and assigned to the Agent by such Obligor. All loans, advances and other financial accommodations under the Existing Credit Agreement and all other Obligations of the Obligors to the Banks outstanding and unpaid as of the date hereof pursuant to the Existing Credit Agreement shall be deemed to be Obligations pursuant to the terms hereof and shall constitute and be deemed a Loan by the Banks to the Borrower and shall be repayable in accordance with the terms of this Agreement. ARTICLE 3. THE LETTERS OF CREDIT. Section 3.01. Letters of Credit. (a) Subject to the terms and conditions of this Agreement, Chase, on behalf of the Banks, and in reliance on the agreement of the Banks set forth in Section 3.04, agrees to issue on any Banking Day prior to the Termination Date for the account of the Borrower irrevocable standby letters of credit in such form as may from time to time be approved by Chase acting reasonably (together with the applications therefor, the "Letters of Credit"); provided that on the date of the issuance of any Letter of Credit, and after giving effect to such issuance, the Letter of Credit Obligations shall not exceed the Letter of Credit Availability. (b) Each Letter of Credit shall (i) have an expiry date no later than the Termination Date, (ii) be denominated in Dollars, (iii) be in a minimum face amount of $100,000 and (iv) provide for the payment of sight drafts when presented for honor thereunder in accordance with the terms thereof and when accompanied by the documents described or when such documents are presented, as the case may be. Section 3.02. Purposes. The Borrower shall use the Letters of Credit for the purpose of securing obligations incurred in the ordinary course of the business of the Obligors (including, without limitation, the insurance obligations of the Obligors); provided that the Letters of Credit shall not be used for the benefit of Subsidiaries who are not Subsidiary Guarantors for any purpose. Section 3.03. Procedures for Issuance of Letters of Credit. The Borrower may from time to time request that Chase issue a Letter of Credit by delivering to Chase at its address for notices specified herein an application therefor in such form as may from time to time be approved by Chase acting reasonably, completed to the satisfaction of Chase, and such other certificates, documents and other papers and information as Chase may reasonably request. Upon receipt of any application, Chase will process such application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit in such customized form as may reasonably be requested by the Borrower (but in no event shall Chase issue any Letter of Credit later than five Banking Days after receipt of the application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by Chase and the Borrower. Chase shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. Section 3.04. Participating Interests. In the case of each Letter of Credit, effective as of the date of the issuance thereof, Chase agrees to allot and does allot to each other Bank, and each such Bank severally and irrevocably agrees to take and does take a Participating Interest in such Letter of Credit in a percentage equal to such Bank's Pro Rata Share of the Letter of Credit Obligations. On the date that any Bank becomes a party to this Agreement in accordance with Section 13.05, Participating Interests in any outstanding Letter of Credit held by the transferor Bank from which such transferee Bank acquired its interest hereunder shall be proportionately reallotted between such transferee Bank and such transferor Bank. Each Participating Bank hereby agrees that its obligation to participate in each Letter of Credit, and to pay or to reimburse Chase for its participating share of the drafts drawn thereunder, is absolute, irrevocable and unconditional and shall not be affected by any circumstances whatsoever (unless Chase's actions with respect thereto constitute gross negligence or wilful misconduct), including, without limitation, the occurrence and continuance of any Default or Event of Default, and that each such payment shall be made without any offset, abatement, withholding or other reduction whatsoever. Section 3.05. Payments. (a) In order to induce Chase to issue the Letters of Credit, the Borrower hereby agrees to reimburse Chase, unless such Reimbursement Obligation has been accelerated pursuant to Section 10.02, on each date that the Borrower has been notified by Chase that any draft presented under any Letter of Credit is paid by Chase, for (i) the amount of the draft paid by Chase and (ii) the amount of any taxes, reasonable fees, reasonable charges or other reasonable costs or expenses whatsoever incurred by Chase in connection with any payment made by Chase under, or with respect to, such Letter of Credit. Each such payment shall be made to Chase at its office specified in Section 13.06, in lawful money of the United States and in immediately available funds on the day that payment is made by Chase. Interest on any and all amounts remaining unpaid by the Borrower under this Section 3.05 at any time from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full shall be payable to Chase on demand at a fluctuating rate per annum equal to the Variable Rate plus 1% per annum plus the Margin (if any). (b) In the event that Chase makes a payment (a "Letter of Credit Funding") under any Letter of Credit and is not reimbursed in full therefor on the date of such Letter of Credit Funding, in accordance with the terms hereof, Chase will promptly through the Agent notify each Participating Bank that acquired its Participating Interest in such Letter of Credit from Chase. No later than the close of business on the date such notice is given if such notice is given, each such Participating Bank will transfer to the Agent, for the account of Chase, in immediately available funds, an amount equal to such Participating Bank's Pro Rata Share of the unreimbursed portion of such Letter of Credit Funding, together with interest, if any, accrued thereon from and including the date of such transfer at a rate per annum equal to the Federal Funds Rate. Upon its receipt from such Participating Bank of such amount, Chase will, if so requested by such Participating Bank, complete, execute and deliver to such Participating Bank a Letter of Credit Participation Certificate dated the date of such receipt and in such amount. (c) Whenever, at any time after Chase has made payment under a Letter of Credit and has received from any Participating Bank such Participating Bank's Pro Rata Share of the unreimbursed portion of such payment, Chase receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, Chase will distribute to the Agent, for the account of such Participating Bank, its Pro Rata Share thereof; provided, however, that in the event that the receipt by Chase of such reimbursement or such payment of interest (as the case may be) is required to be returned, such Participating Bank will promptly return to the Agent, for the account of Chase, any portion thereof previously distributed by Chase to it. Section 3.06. Further Assurances. The Borrower hereby agrees to do and perform any and all acts and to execute any and all further instruments from time to time reasonably requested by Chase more fully to effect the purposes of this Agreement and the issuance of the Letters of Credit opened hereunder. Section 3.07. Obligations Absolute. Provided that Chase has fulfilled its obligations under the UCP, the payment obligations of the Borrower under Section 3.05 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (a) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), Chase or any Participating Bank, or any other Person, whether in connection with this Agreement, any other Loan Document, the transactions contemplated herein, or any unrelated transaction; (b) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect unless Chase's actions with respect thereto constituted gross negligence or willful misconduct; (c) payment by Chase under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit, except payment resulting solely from the gross negligence or willful misconduct of Chase; or (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, except circumstances or happenings resulting solely from the gross negligence or willful misconduct of Chase. Section 3.08. Cash Collateral Account. If the Commitments are terminated and all amounts owing under this Agreement, the Notes and the Letters of Credit become due and payable pursuant to Section 10, the Borrower shall deposit with the Agent, on the date such obligations become due and payable, an amount in cash equal to the Letter of Credit Obligations as of such date and the Letter of Credit fees in accordance with Section 3.09. Such amount shall be deposited in a cash collateral account to be established by the Agent, for the benefit of the Banks, and shall constitute collateral security for the Letter of Credit Obligations and other amounts owing hereunder. All amounts in such cash collateral account shall be maintained pursuant to a cash collateral account agreement which shall grant to the Agent exclusive dominion and control (including exclusive rights of withdrawal) over all such amounts and shall be otherwise satisfactory in form and substance to the Agent. Section 3.09. Letter of Credit Fees. (a) The Borrower agrees to pay the Agent, for the account of Chase and the Participating Banks, a non-refundable letter of credit fee with respect to each Letter of Credit, payable in the same currency as that in which such Letter of Credit is denominated, computed at the rate per annum equal to one percent, calculated on the basis of a year of 360 days for the actual days elapsed, of the aggregate undrawn amount under such Letter of Credit on the date on which such fee is calculated. Such fees shall be payable quarterly in advance on the date of issuance of such Letter of Credit and each three month anniversary thereof and shall be nonrefundable. (b) The Borrower agrees to pay Chase, for its own account, its normal and customary administration, amendment, transfer, payment and negotiation fees charged in connection with its issuance and administration of letters of credit. ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC. Section 4.01. Additional Costs. The Borrower shall pay directly to each Bank from time to time on demand such amounts as such Bank may determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining any Fixed Rate Loans under this Agreement or its Note or its obligation to make any such Loans hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Note in respect of any of such Loans (other than taxes imposed on the overall net income of such Bank or of its Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Lending Office); or (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "Fixed Base Rate" in Section 1.01); or (iii) imposes any other condition affecting this Agreement or its Note (or any of such extensions of credit or liabilities). Each Bank will notify the Borrower of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 4.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. If any Bank requests compensation from the Borrower under this Section 4.01(a), the Borrower may, by notice to such Bank (with a copy to the Agent), require that such Bank's Loans of the type with respect to which such compensation is requested be converted in accordance with Section 4.04. (a) Without limiting the effect of the foregoing provisions of this Section 4.01, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Borrower (with a copy to the Agent), the obligation of such Bank to make or renew, and to convert Loans of any other type into, Loans of such type hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (and all Loans of such type held by such Bank then outstanding shall be converted in accordance with Section 4.04). (b) Determinations and allocations by a Bank for purposes of this Section 4.01 of the effect of any Regulatory Change pursuant to subsections (a) or (b) on its costs of making or maintaining Loans or its obligation to make Loans, or on amounts receivable by, or the rate of return to, it in respect of Loans or such obligation, and of the additional amounts required to compensate such Bank under this Section 4.01, shall be conclusive, provided that such determinations and allocations are made in good faith on a reasonable basis. Section 4.02. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if: (a) the Agent determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Fixed Base Rate" in Section 1.01 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for any type of Fixed Rate Loans as provided in this Agreement; or (b) the Required Banks determine (which determination shall be conclusive) and notify the Agent that the relevant rates of interest referred to in the definition of "Fixed Base Rate" in Section 1.01 upon the basis of which the rate of interest for any type of Fixed Rate Loans is to be determined do not adequately cover the cost to the Banks of making or maintaining such Loans; then the Agent shall give the Borrower and each Bank prompt notice thereof, and so long as such condition remains in effect, the Banks shall be under no obligation to make or renew Loans of such type or to convert Loans of any other type into Loans of such type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected type, either prepay such Loans or convert such Loans into another type of Loans in accordance with Section 2.05. Section 4.03. Illegality. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for any Bank or its Lending Office to (a) honor its obligation to make or renew Eurodollar Loans hereunder or convert Loans of any type into Loans of such type, or (b) maintain Eurodollar Loans hereunder, then such Bank shall promptly notify the Borrower thereof (with a copy to the Agent) and such Bank's obligation to make or renew Eurodollar Loans and to convert other types of Loans into Loans of such type hereunder shall be suspended until such time as such Bank may again make, renew, or convert and maintain such affected Loans and such Bank's outstanding Eurodollar Loans, as the case may be, shall be converted in accordance with Section 4.04. Section 4.04. Certain Conversions pursuant to Sections 4.01 and 4.03. If the Loans of any Bank of a particular type (Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type") are to be converted pursuant to Section 4.01 or 4.03, such Bank's Affected Loans shall be automatically converted into Variable Rate Loans on the last day(s) of the then current Interest Period(s) for the Affected Loans (or, in the case of a conversion required by Section 4.01(b) or 4.03, on such earlier date as such Bank may specify to the Borrower with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 4.01 or 4.03 which gave rise to such conversion no longer exist: (a) to the extent that such Bank's Affected Loans have been so converted, all payments and prepayments of principal which would otherwise be applied to such Bank's Affected Loans shall be applied instead to its Variable Rate Loans; (b) all Loans which would otherwise be made or renewed by such Bank as Loans of the Affected Type shall be made instead as Variable Rate Loans and all Loans of such Bank which would otherwise be converted into Loans of the Affected Type shall be converted instead into (or shall remain as) Variable Rate Loans; and (c) if Loans of other Banks of the Affected Type are subsequently converted into Loans of another type (other than Variable Rate Loans), such Bank's Variable Rate Loans shall be automatically converted on the conversion date into Loans of such other type to the extent necessary so that, after giving effect thereto, all Loans held by such Bank and the Banks whose Loans are so converted are held pro rata (as to principal amounts, types and Interest Periods) in accordance with their respective Commitments. If such Bank gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 4.01 or 4.03 which gave rise to the conversion of such Bank's Affected Loans pursuant to this Section 4.04 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type are outstanding, such Bank's Variable Rate Loans shall be converted upon the written consent of the Borrower, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type to the extent necessary so that, after giving effect thereto, all Loans held by the Banks holding Loans of the Affected Type and by such Bank are held pro rata (as to principal amounts, types and Interest Periods) in accordance with their respective Commitments. Section 4.05. Certain Compensation. The Borrower shall pay to the Agent for the account of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense which such Bank determines is attributable to: (a) any payment, prepayment, conversion or renewal of a Fixed Rate Loan made by the Borrower on a date other than the last day of an Interest Period for such Loan (whether by reason of acceleration or otherwise); or (b) any failure by the Borrower to borrow, convert into or renew a Fixed Rate Loan to be made, converted into or renewed by such Bank on the date specified therefor in the relevant notice under Sections 2.04, 2.05 or 2.06, as the case may be. Without limiting the foregoing, such compensation shall include an amount equal to the excess, if any, of: (i) the present value of the amount of interest which otherwise would have accrued on the principal amount so paid, prepaid, converted or renewed or not borrowed, converted or renewed for the period from and including the date of such payment, prepayment or conversion or failure to borrow, convert or renew to but excluding the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or renew, to but excluding the last day of the Interest Period for such Loan which would have commenced on the date specified therefor in the relevant notice) at the applicable rate of interest for such Loan provided for herein; over (ii) the present value of the amount of interest (as reasonably determined by such Bank) such Bank would have bid in the London interbank market (if such Loan is a Eurodollar Loan) for Dollar deposits for amounts comparable to such principal amount and maturities comparable to such period. A determination of any Bank as to the amounts payable pursuant to this Section 4.05 shall be conclusive absent manifest error. ARTICLE 5. CONDITIONS PRECEDENT. Section 5.01. Documentary Conditions Precedent. The obligations of the Banks to make the Loans and the obligations of the Banks to issue any Letter of Credit are subject to the condition precedent that the Agent shall have received on or before the date of such Loans or the issuance of such Letters of Credit each of the following, in form and substance satisfactory to the Agent and its counsel: (a) counterparts of this Agreement executed by each of the Borrower, the Subsidiary Guarantors, the Banks and the Agent; (b) the Notes duly executed by the Borrower; (c) the Security Agreement, the Trademark Security Agreement and the Pledge Agreement duly executed by each of the Obligors a party thereto together with evidence that all actions necessary or appropriate (or, in any event, as may be requested by the Agent) to create, perfect or protect the Liens created or purported to be created by the Security Agreement, the Trademark Security Agreement and the Pledge Agreement have been taken; (d) [Intentionally Omitted]; (e) certificates or other evidence of casualty insurance policies with appropriate loss payable endorsements indicating assignment of proceeds thereunder to the Agent for the ratable benefit of the Banks and certificates or other evidence of liability insurance with appropriate endorsements indicating the coverage of the Agent for the ratable benefit of the Banks as an additional insured; (f) certificates of the Secretary or Assistant Secretary of each of the Obligors, dated the Closing Date, (i) attesting to all corporate action taken by such Obligor, including resolutions of its Board of Directors authorizing the execution, delivery and performance of each of the Facility Documents to which it is a party and each other document to be delivered pursuant to this Agreement, (ii) certifying the names and true signatures of the officers of such Obligor authorized to sign the Facility Documents to which it is a party and the other documents to be delivered by such Obligor under this Agreement and (iii) verifying that the charter and by-laws of such Obligor attached thereto are true, correct and complete as of the date thereof; (g) a certificate of a duly authorized officer of each of the Obligors, dated the Closing Date, stating that the representations and warranties in Article 6 are true and correct on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or Event of Default; (h) good standing certificates and certified copies of all charter documents with respect to each Obligor certified by the Secretary of State of its jurisdiction of incorporation, and evidence that each of the Obligors is qualified as a foreign corporation in every other jurisdiction in which it does business where the failure to so qualify could reasonably be expected to have a Material Adverse Effect; (i) favorable opinions of (i) Goodwin, Procter & Hoar L.L.P., outside counsel to the Obligors, (ii) Wolin, Fuller, Ridley & Miller L.L.P., special Texas counsel to the Obligors, and (iii) Fredrikson & Byron, P.A., special Minnesota counsel to the Obligors, each dated the Closing Date, in substantially the form of Exhibit C and as to such other matters as the Agent or any Bank may reasonably request; (j) certified complete and correct copies of the financial statements referred to in Section 6.05; and (k) certified complete and correct copies of all documentation (the "All Seasons Term Sheet") evidencing the acquisition of all of the outstanding capital stock (and all rights, options and warrants to purchase capital stock) of All Seasons Services, Inc. (the "All Seasons Acquisition"). On the Closing Date, the Existing Banks shall surrender to the Borrower the Existing Notes held by it under the Existing Credit Agreement, in each case marked "Replaced". Section 5.02. Additional Conditions Precedent. The obligations of the Banks to make any Loans pursuant to a borrowing which increases the amount outstanding hereunder (including the initial borrowing) or to issue any Letter of Credit shall be subject to the further conditions precedent that on the date of such Loans, the following statements shall be true: the representations and warranties contained in Article 6, in Article 3 of the Security Agreement, in Article 3 of the Trademark Security Agreement and in Article 3 of the Pledge Agreement, are true and correct on and as of the date of such Loans or the issuance of such Letters of Credit as though made on and as of such date (except (x) for in all instances transactions and changes not prohibited by this Agreement and (y) all references to July 1, 1995 in Section 6.05 shall be to the most recent fiscal year end for which financials are available and all references to March 30, 1996 shall be to the most recent fiscal quarter end for which financials are available); and no Default or Event of Default has occurred and is continuing, or would result from such Loans or the issuance of such Letter of Credit. Section 5.03. Deemed Representations. Each notice of borrowing hereunder or request for the issuance of a Letter of Credit and acceptance by the Borrower of the proceeds of such borrowing or of the issuance of such Letter of Credit shall constitute a representation and warranty that the statements contained in Section 5.02 are true and correct both on the date of such notice or request and, unless such Borrower otherwise notifies the Agent prior to such borrowing or such issuance, as of the date of such borrowing or such issuance. ARTICLE 6. REPRESENTATIONS AND WARRANTIES. Each of the Obligors hereby represents and warrants that: Section 6.01. Organization, Good Standing and Due Qualification. Each of the Consolidated Entities is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has the corporate, partnership or limited liability company power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged, and is duly qualified as a foreign corporation, partnership or limited liability company and in good standing under the laws of each other jurisdiction in which such qualification is required and where such failure to qualify could reasonably be expected to have a Material Adverse Effect. Section 6.02. Power and Authority; No Conflicts. The execution, delivery and performance by each of the Obligors of the Facility Documents to which it is a party have been duly authorized by all necessary corporate, partnership or limited liability company action and do not and will not: (a) require any consent or approval of its stockholders, partners or members; (b) contravene its organizational documents; (c) violate any provision of, or require any filing (other than the filing of the financing statements contemplated by the Security Agreement and the filing of the Trademark Security Agreement), registration, consent or approval under, any law, rule, regulation (including, without limitation, Regulation U), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to any Consolidated Entity; (d) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Consolidated Entity is a party or by which it or its properties may be bound or affected if such breach, default or failure to obtain consent could reasonably be expected to have a Material Adverse Effect; (e) result in, or require, the creation or imposition of any Lien (other than as created under the Security Documents), upon or with respect to any of the properties now owned or hereafter acquired by any Consolidated Entity; or (f) cause any Consolidated Entity to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument if such default could reasonably be expected to have a Material Adverse Effect. Section 6.03. Legally Enforceable Agreements. Each Facility Document to which any Obligor is a party is, or when delivered under this Agreement will be, a legal, valid and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally. Section 6.04. Litigation. There are no actions, suits or proceedings pending or, to the knowledge of any Obligor, threatened, against or affecting any Consolidated Entity before any court, governmental agency or arbitrator, which could reasonably be expected to have a Material Adverse Effect. Section 6.05. Financial Statements. The consolidated and consolidating balance sheets of the Consolidated Entities as at July 1, 1995, and the related consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities for the fiscal year then ended, and the accompanying footnotes, together with the opinion on the consolidated statements of Deloitte & Touche, independent certified public accountants, and the interim consolidated and consolidating balance sheet of the Consolidated Entities, as at March 30, 1996, and the related consolidated and consolidating income statement and statements of cash flows and changes in stockholders' equity of the Consolidated Entities, for the nine month period then ended, copies of which have been furnished to each of the Banks, are complete and correct and fairly present the financial condition of the Consolidated Entities at such dates and the results of the operations of the Consolidated Entities for the periods covered by such statements, all in accordance with GAAP consistently applied. (a) The projections and pro forma financial information provided by the Borrower regarding the All Seasons Acquisition are based on good faith estimates and assumptions by the management of the Borrower, it being recognized by the Banks, however, that projections as to future events are not to be viewed as fact and that actual results during the period or periods covered by any such projections may differ from the projected results and that the differences may be material. After reviewing historical financial statements and considering the pro forma position of the Consolidated Entities subsequent to the All Seasons Acquisition, the Borrower believes in good faith that the Consolidated Entities will continue to be in compliance with the financial covenants contained in Article 9 on a pro forma basis. (b) There are no liabilities of any Consolidated Entity, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto and which would be required to be recorded in such financial statements or notes in accordance with GAAP, other than liabilities arising in the ordinary course of business since March 30, 1996. No information, exhibit or report furnished by any Consolidated Entity to the Banks in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not materially misleading. Since March 30, 1996, there has been no change which could reasonably be expected to have a Material Adverse Effect. Section 6.06. Ownership and Liens. Each of the Consolidated Entities has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets, and leasehold interests reflected in the financial statements referred to in Section 6.05 (other than any properties or assets disposed of in the ordinary course of business), and none of the properties and assets owned by any Consolidated Entity and none of its leasehold interests is subject to any Lien, except as disclosed in such financial statements or as may be permitted hereunder and except for the Liens created by the Security Documents. Section 6.07. Taxes. Each of the Consolidated Entities has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. The federal income tax liability of the Consolidated Entities has been audited by the Internal Revenue Service and has been finally determined and satisfied for all taxable years up to and including the taxable year ended 1984. Section 6.08. ERISA. To the best knowledge of each Obligor, each Plan and Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other applicable Federal or state law, and no event or condition is occurring or exists concerning which any Obligor would be under an obligation to furnish a report to the Bank in accordance with Section 7.08(j) hereof. As of the most recent valuation date for each Plan, each Plan was "fully funded", which for purposes of this Section 6.08 shall mean that the fair market value of the assets of the Plan is not less than the present value of the accrued benefits of all participants in the Plan, computed on a Plan termination basis. To the best knowledge of each Obligor, no Plan has ceased being fully funded as of the date these representations are made with respect to any Loan under this Agreement. For purposes of this Section 6.08, "material" shall be determined in relation to the financial position of the Consolidated Entities as specified in Section 10.01(g). Section 6.09. Subsidiaries and Ownership of Stock. Schedule I sets forth the name of each Subsidiary of the Borrower, the jurisdiction of its incorporation and the Persons owning the outstanding capital stock of such Subsidiary. All of the outstanding shares of capital stock of each Subsidiary are validly issued, fully paid and nonassessable, and all such shares are owned by the Borrower or another Subsidiary free and clear of all Liens. Except as set forth in Schedule I, neither the Borrower nor any of its Subsidiaries owns or holds the right to acquire any shares of stock or any other security or interest in any other Person. Section 6.10. Credit Arrangements. Schedule II is a complete and correct list of all credit agreements, indentures, note purchase agreements, guaranties of indebtedness of third parties for borrowed money and guaranties of obligations of third parties as lessees under Capital Leases in excess of $1,000,000, Capital Leases and other investments, agreements and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which any Consolidated Entity is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule. Section 6.11. Operation of Business. Each of the Consolidated Entities possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, which are material to conduct its business substantially as now conducted and as presently proposed to be conducted and where the failure to possess such licenses, permits, franchises, patents, copyrights, trademarks and trade names could reasonably be expected to have a Material Adverse Effect, and no Consolidated Entity is in violation of any valid rights of others with respect to any of the foregoing where such violation is material and could reasonably be expected to have a Material Adverse Effect. Section 6.12. Hazardous Materials. Each of the Consolidated Entities is in compliance with all Environmental Laws in effect in each jurisdiction where it is presently doing business except where such failure to be in compliance could not reasonably be expected to have a Material Adverse Effect. No Consolidated Entity is subject to any liability under any Environmental Law except where the existence of such liability could not reasonably be expected to have a Material Adverse Effect. In addition, no Consolidated Entity has received any (i) notice from any governmental authority by which any of its present or previously-owned or leased real properties has been designated, listed, or identified in any manner by any governmental authority charged with administering or enforcing any Environmental Law as a Hazardous Material disposal or removal site, "Super Fund" clean-up site, or candidate for removal or closure pursuant to any Environmental Law, (ii) notice of any Lien arising under or in connection with any Environmental Law that has attached to any revenues of, or to, any of its owned or leased real properties, or (iii) summons, citation, notice, directive, letter, or other written communication from any governmental authority concerning any intentional or unintentional action or omission by such Consolidated Entity in connection with its ownership or leasing of any real Property resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping, or otherwise disposing of any Hazardous Material into the environment resulting in any violation of any Environmental Law, in each case where the effect of which could reasonably be expected to have a Material Adverse Effect. Section 6.13. No Default on Outstanding Judgments or Orders. Each of the Consolidated Entities has satisfied all judgments such that the aggregate amount of outstanding judgments not otherwise fully covered by insurance does not exceed $500,000 and no Consolidated Entity is in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign which could reasonably be expected to have a Material Adverse Effect. Section 6.14. No Defaults on Other Agreements. No Consolidated Entity is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument which could reasonably be expected to have a Material Adverse Effect. Section 6.15. Labor Disputes and Acts of God. Neither any material part of the business nor the properties of any Consolidated Entity are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), which could reasonably be expected to have a Material Adverse Effect. Section 6.16. Governmental Regulation. No Consolidated Entity is subject to regulation under the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce Act, the Federal Power Act or any statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby. Section 6.17. No Forfeiture. Neither the Borrower nor any of its Subsidiaries or Affiliates is engaged in or proposes to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding and no Forfeiture Proceeding against any of them is pending or threatened. Section 6.18. Solvency. (a) The present balance sheet value of the assets of the consolidated group of the Consolidated Entities after giving effect to all the transactions contemplated by the Facility Documents and the funding of all Commitments and the issuance of all Letters of Credit hereunder exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of such consolidated group as determined in accordance with GAAP. (b) The Property of each Obligor does not constitute unreasonably small capital for such Obligor to carry out its business as now conducted and as proposed to be conducted including the capital needs of such Obligor. (c) No Obligor intends to, nor does any Obligor believe that it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by such Obligor, and of amounts to be payable on or in respect of debt of such Obligor). The cash available to such Obligor after taking into account all other anticipated uses of the cash of such Obligor, is anticipated to be sufficient to pay all such amounts on or in respect of debt of such Obligor when such amounts are required to be paid. (d) Except as may be otherwise fully covered by insurance, no Obligor believes that final judgments against it in actions for money damages will be rendered at a time when, or in an amount such that, such Obligor will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum reasonable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to each Obligor after taking into account all other anticipated uses of the cash of such Obligor (including the payments on or in respect of debt referred to in paragraph (c) of this Section 6.18), is anticipated to be sufficient to pay all such final judgments promptly in accordance with their terms. Section 6.19. Security Documents. The Security Documents are effective to create in favor of the Agent for the benefit of the Banks a legal, valid and enforceable Lien on and security interest in all right, title and interest of each Obligor in the Collateral securing the obligations of the Obligors under this Agreement, the Notes, the Letters of Credit and the other Facility Documents. To the extent that a Lien on and security interest in the Collateral can be perfected by the filing of financing statements under the Uniform Commercial Code, the Agent has a fully perfected and continuing first priority Lien on and security interest in such Collateral described in the Security Agreement, the Trademark Security Agreement and the Pledge Agreement, free from all Liens other than Liens permitted under Section 8.03. ARTICLE 7. AFFIRMATIVE COVENANTS. So long as any Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Bank shall have any Commitment under this Agreement, the Borrower shall, and shall cause each of its Subsidiaries to: Section 7.01. Maintenance of Existence. Preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required and where such failure to so qualify could reasonably be expected to have a Material Adverse Effect. Section 7.02. Conduct of Business. Continue to engage in a business of the same general type as conducted by it on the date of this Agreement. Section 7.03. Maintenance of Properties. Maintain, keep and preserve all of its Properties, tangible and intangible, (except those assets no longer used or useful in the conduct of its business) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 7.04. Maintenance of Records. Keep adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of the Consolidated Entities. Section 7.05. Maintenance of Insurance. Maintain insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof. Section 7.06. Compliance with Laws. Comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its Property unless contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP. Section 7.07. Right of Inspection. At any reasonable time and from time to time, and upon reasonable advance notice but no advance notice shall be required if a Default or an Event of Default then exists, permit the Agent or any Bank or any agent or representative thereof, to examine and make copies and abstracts from the records and books of account of, and visit the properties of, such Consolidated Entity, and to discuss the affairs, finances and accounts of such Consolidated Entity with its officers and directors and independent accountants. Section 7.08. Reporting Requirements. Furnish directly to each of the Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, consolidated and consolidating balance sheets of the Consolidated Entities as of the end of such fiscal year and consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities for such fiscal year, all in reasonable detail and stating in comparative form the respective consolidated and consolidating figures for the corresponding date and period in the prior fiscal year and all prepared in accordance with GAAP and as to the consolidated statements accompanied by an opinion thereon acceptable to the Agent and each of the Banks by Deloitte & Touche or other independent accountants of national standing selected by the Borrower; provided that delivery within the period specified above of copies of the Annual Report on Form 10-K of the Borrower filed with the Securities and Exchange Commission, together with the adjustments to such consolidated financial statements necessary to provide consolidating information for each of its Subsidiaries, shall be deemed to satisfy the requirements of this Section 7.08(a) so long as such Form 10-K as so adjusted shall contain the information referred to in this Section 7.08(a); (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, consolidated and consolidating balance sheets of the Consolidated Entities as of the end of such quarter and consolidated and consolidating income statements and statements of cash flows and changes in stockholders' equity of the Consolidated Entities, for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and stating in comparative form the respective consolidated and consolidating figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP and certified by the chief financial officer of the Borrower (subject to year-end adjustments); provided that delivery within the period specified above of copies of the Quarterly Report on Form 10-Q of the Borrower filed with the Securities and Exchange Commission, together with the adjustments to such consolidated financial statements necessary to provide consolidating information for each of its Subsidiaries, shall be deemed to satisfy the requirements of this Section 7.08(b) so long as such Form 10-Q as so adjusted shall contain the information referred to in this Section 7.08(b); (c) simultaneously with the delivery of the financial statements referred to above, a Compliance Certificate of the chief financial officer of the Borrower (i) certifying that to the best of his knowledge no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) with computations demonstrating compliance with the covenants contained in Article 9; (d) simultaneously with the delivery of the annual financial statements referred to in Section 7.08(a), a certificate of the independent public accountants who audited such statements to the effect that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (e) as soon as available and in any event within 30 days after the end of each fiscal year of the Borrower, a written report setting forth, among other things, in reasonable detail (i) the plans by the Consolidated Entities for such fiscal year for financial, marketing and other corporate strategies and covering such matters as are customary in the restaurant and food service industries, and setting forth the amounts budgeted for revenues and expenses and operating cash flow for such fiscal year and (ii) the plans by the Consolidated Entities for the current fiscal year for financial, marketing and other corporate strategies and covering such matters as are customary in the restaurant and food service industries, and setting forth the amounts budgeted for revenues and expenses and operating cash flow for the current fiscal year; (f) as soon as available and in any event no later than 10 days prior to any Consolidated Entity making an Acquisition, copies of all historical financial statements of the business being acquired and pro forma financial statements of the Consolidated Entities reflecting such Acquisition; (g) promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Consolidated Entity which, if determined adversely to such Consolidated Entity, could reasonably be expected to have a Material Adverse Effect; (h) as soon as possible and in any event within 10 days after the occurrence of each Default or Event of Default a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Obligors with respect thereto; (i) as soon as possible, and in any event within ten days after any Obligor knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan, whichever is applicable, have occurred or exist, a statement signed by a senior financial officer of such Obligor setting forth details respecting such event or condition and the action, if any, which such Obligor or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Borrower or an ERISA Affiliate with respect to such event or condition): any reportable event, as defined in Section 4043(b) of ERISA, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code) and any request for a waiver under Section 412(d) of the Code for any Plan; the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Borrower or an ERISA Affiliate to terminate any Plan; the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; the complete or partial withdrawal from a Multiemployer Plan by the Borrower or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt of the Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; the institution of a proceeding by a fiduciary or any Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; the adoption of an amendment to any Plan that pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; any event or circumstance exists which may reasonably be expected to constitute grounds for the Borrower or any ERISA Affiliate to incur liability under Title IV of ERISA or under Sections 412(c)(11) or 412(n) of the Code with respect to any Plan; and the Unfunded Benefit Liabilities of one or more Plans increase after the date of this Agreement in an amount which is material in relation to the financial condition of the Consolidated Entities, on a consolidated basis; provided, however, that such increase shall not be deemed to be material so long as it does not exceed during any consecutive 3 year period $500,000. (j) promptly after the request of any Bank, copies of each annual report filed pursuant to Section 104 of ERISA with respect to each Plan (including, to the extent required by Section 104 of ERISA, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information referred to in Section 103) and each annual report filed with respect to each Plan under Section 4065 of ERISA; provided, however, that in the case of a Multiemployer Plan, such annual reports shall be furnished only if they are available to the Borrower or an ERISA Affiliate; (k) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which the Borrower sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements which any Consolidated Entity files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; (l) promptly after the commencement thereof or promptly after any Obligor knows of the commencement or threat thereof, notice of any Forfeiture Proceeding; and (m) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as the Agent or any Bank may from time to time reasonably request. Section 7.09. Additional Subsidiary Guarantors. In the event that any Subsidiary of the Borrower shall have as determined at the end of each fiscal quarter of the Borrower assets greater than $1,500,000 (as determined in accordance with GAAP), the Borrower will immediately cause such Subsidiary to become a "Subsidiary Guarantor" (and thereby an Obligor hereunder) pursuant to an Assumption Agreement, and shall deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each Obligor pursuant to Article 4 of the Existing Credit Agreement or as the Agent shall have reasonably requested. ARTICLE 8. NEGATIVE COVENANTS. So long as any Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Bank shall have any Commitment under this Agreement, the Borrower shall not, and shall cause each of its Subsidiaries not to: Section 8.01. Debt. Create, incur, assume or suffer to exist any Debt, except: (a) Debt of the Obligors under this Agreement, the Notes, the Letters of Credit and the other Facility Documents; (b) Debt described in Schedule II and, unless otherwise identified with an asterisk on Schedule II, any renewals, extensions or refinancings thereof, provided that the principal amount thereof does not increase; (c) Consolidated Subordinated Debt; (d) Debt of any Obligor to any other Obligor, provided that (i) if such Debt is secured, such Debt is evidenced by a promissory note and such note together with such security is pledged as collateral for the Loans, the Letter of Credit Obligations and the other obligations under the Facility Documents and (ii) if Debt is evidenced by a promissory note or other instrument, such note is pledged to the Agent as collateral for the Loans, the Letter of Credit Obligations and the other obligations under the Facility Documents; (e) Debt consisting of Guaranties permitted pursuant to Section 8.02; (f) accounts payable to trade creditors in the ordinary course of business for goods or services; (g) Debt of any Consolidated Entity secured by purchase money Liens or incurred in connection with Capital Leases provided that the aggregate amount of such Debt for all Obligors shall not exceed at any time $15,000,000; and (h) other Debt of any Consolidated Entity not listed in clauses (a) through (g), inclusive, provided that the aggregate amount of such Debt for all Consolidated Entities does not exceed $1,000,000 at any time. Section 8.02. Guaranties, Etc. Assume, guarantee, endorse or otherwise become directly or contingently responsible or liable for any Guaranty, except: (a) Guaranties by the Subsidiaries of the Borrower of the Obligations; (b) Guaranties by endorsement of negotiable instruments for deposit or collection, similar transactions in the ordinary course of business; (c) Guaranties constituting Debt permitted pursuant to Section 8.01; (d) Guaranties by any Obligor of any obligations of any other Obligor permitted hereunder provided that the aggregate amount of such obligations for all Obligors does not exceed $5,000,000; (e) Guaranties by Fuddruckers, Inc. of rental payments owed by Atlantic Restaurant Ventures, Inc. under leases of "Fuddruckers" restaurants which will be or have been entered into in the ordinary course of business; and (f) Guaranties by the Borrower of obligations under leases permitted under Section 8.04. Section 8.03. Liens. Create, incur, assume or suffer to exist, any Lien, upon or with respect to any of its Properties, now owned or hereafter acquired, except: (a) Liens in favor of the Agent on behalf of the Banks securing the Loans and the Letter of Credit Obligations hereunder; (b) Liens for taxes or assessments or other government charges or levies if not yet due and payable or if due and payable if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained in accordance with GAAP; (c) Liens imposed by law, such as mechanic's, materialmen's, landlord's, warehousemen's and carrier's Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than 60 days, or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP; (d) Liens under workmen's compensation, unemployment insurance, social security or similar legislation (other than ERISA); (e) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (f) judgment and other similar Liens arising in connection with court proceedings which do not exceed $1,000,000 in the aggregate or where the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (g) easements, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use and enjoyment by any Obligor of the Property encumbered thereby in the normal course of its business or materially impair the value of the Property subject thereto; (h) Liens described on Schedule IV not otherwise permitted under this Section 8.03 and, to the extent that such Lien secures Debt permitted under Section 8.01(b), Liens that secure any renewals, extensions or refinancings of such Debt, but not the extension of such Lien to other Property; (i) purchase money Liens on any Property hereafter acquired or the assumption of any Lien on Property existing at the time of such acquisition, or a Lien incurred in connection with any conditional sale or other title retention agreement or a Capital Lease; provided that any Property subject to any of the foregoing is acquired by any Obligor in the ordinary course of its business and the Lien on any such Property is created contemporaneously with such acquisition; the obligation secured by any Lien so created, assumed or existing shall not exceed 100% of the lesser of cost or fair market value as of the time of acquisition of the Property covered thereby to such Obligor acquiring the same; each such Lien shall attach only to the Property so acquired and fixed improvements thereon; and the obligations secured by such Lien are permitted by the provisions of Section 8.01(g). Section 8.04. Leases. Create, incur, assume or suffer to exist, any obligation as lessee for the rental or hire of any real or personal Property, except: (a) leases existing on the date of this Agreement and any extensions or renewals thereof; (b) operating leases (other than Capital Leases) which are entered into in the ordinary course of business; (c) leases between any Obligor and any other Obligor; and (d) Capital Leases permitted by Section 8.01 and Section 8.03. Section 8.05. Investments. Make, or permit any of its Subsidiaries to make, any loan or advance to any Person or purchase or otherwise acquire, or permit any such Subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations or other securities of, make any capital contribution to, or otherwise invest in, or acquire any interest in, any Person, except: (a) direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (b) commercial paper of a domestic issuer rated at least "A1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (c) certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating within the United States of America having capital and surplus in excess of $100,000,000; (d) for stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to such Consolidated Entity; (e) in connection with any Acquisition permitted by Section 8.11; (f) advances for reimbursement of expenses of employees incurred in the ordinary course of business; (g) to or in any Obligor; and (h) in Property to be used or useful in the ordinary course of business of such Consolidated Entity. Section 8.06. Dividends. Declare or pay, any dividends, purchase, redeem, retire or otherwise acquire for value, any of its capital stock now or hereafter outstanding, or make, any distribution of assets to its stockholders as such whether in cash, assets or in obligations of such Consolidated Entity, or allocate or otherwise set apart, any sum for the payment of any dividend or distribution on, or for the purchase, redemption or retirement of any shares of its capital stock, or make, any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock, or make, payments of interest on, or payments or prepayments of principal of, or the setting apart of money for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of principal or interest, on Consolidated Subordinated Debt, except that: (a) any Consolidated Entity may declare and deliver dividends and make distributions payable solely in its common stock; (b) any Consolidated Entity may purchase or otherwise acquire shares of its capital stock by exchange for or out of the proceeds received from a substantially concurrent issue of new shares of its capital stock; and (c) any Consolidated Entity may declare and deliver dividends and make distributions to the Borrower or any Obligor. Section 8.07. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness, receivables and leasehold interests); except: (a) for inventory disposed of in the ordinary course of business; (b) the sale or other disposition of assets no longer used or useful in the conduct of its business; (c) that any Obligor may sell, lease, assign, or otherwise transfer its assets to any other Obligor; and (d) that any Obligor may license its intellectual Property to franchisees in the ordinary course of business. Section 8.08. Stock of Subsidiaries, Etc. Sell or otherwise dispose of any shares of capital stock of any Subsidiary of the Borrower, except in connection with a transaction permitted under Section 8.10, or permit any such Subsidiary to issue any additional shares of its capital stock, except directors' qualifying shares. Section 8.09. Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any Affiliate, including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of such Consolidated Entity's business and upon fair and reasonable terms no less favorable to such Consolidated Entity than would obtain in a comparable arm's length transaction with a Person not an Affiliate. Section 8.10. Mergers, Etc. Merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or acquire all or substantially all of the assets or the business of any Person (or enter into any agreement to do any of the foregoing), except that: (a) any Consolidated Entity may merge into or consolidate with or transfer assets to any Obligor; and (b) any Consolidated Entity may effect any Acquisition permitted by Section 8.11. Section 8.11. Acquisitions. Make any Acquisition other than an Acceptable Acquisition. Section 8.12. No Activities Leading to Forfeiture. Engage in or propose to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding. Section 8.13. Amendments or Waivers of Certain Documents. (a) Defease or make any payments the effect of which is to defease, or make any voluntary or optional payment or prepayment on, or redemption of, Consolidated Subordinated Debt in whole or in part, (b) amend, supplement or otherwise change (or agree to any amendment or other change of) the terms of Consolidated Subordinated Debt, if the effect of such amendment, supplement or change is to increase the interest rate on Consolidated Subordinated Debt, advance the dates upon which payment of principal or interest are due on Consolidated Subordinated Debt (including any change that adds or modifies mandatory prepayments), change, in a manner materially adverse to the Consolidated Entities or which confers additional rights on the holders thereof, any event of default or covenant (or any definition relating thereto) with respect to Consolidated Subordinated Debt, change the redemption or repurchase provisions with respect to Consolidated Subordinated Debt in a manner materially adverse to the Consolidated Entities or which confers additional rights on the holders thereof, change the subordination provisions of Consolidated Subordinated Debt or otherwise increase the obligations of the obligor or confer additional rights on the holders of Consolidated Subordinated Debt without, in each case, obtaining the prior written consent of the Required Banks to such amendment or change. ARTICLE 9. FINANCIAL COVENANTS. So long as any Obligation shall remain unpaid, any Letter of Credit shall remain outstanding or any Bank shall have any Commitment under this Agreement and as determined as of the end of each fiscal quarter of the Borrower, each of the Obligors jointly and severally covenant that: Section 9.01. Interest Coverage Ratio. The Interest Coverage Ratio shall be not less than 3.00 to 1.00. Section 9.02. Minimum Tangible Net Worth. Consolidated Tangible Net Worth shall not be less than the sum of (a) $75,000,000 plus (b) for each fiscal year of the Borrower ending after June 29, 1996, the aggregate sum of the Fiscal Year Net Worth Increase Amounts calculated for each such fiscal year. Section 9.03. Leverage Ratio. The Leverage Ratio shall be not greater than 2.00 to 1.00. Section 9.04. Tangible Assets. Consolidated Tangible Assets shall be not less than $175,000,000. Section 9.05. Net Income. Consolidated Net Income for the two (2) most recently ended fiscal quarters shall be not less than $0 for both such quarters. Section 9.06. Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio shall be not less than 1.25 to 1.00. ARTICLE 10. EVENTS OF DEFAULT. Section 10.01. Events of Default. Any of the following events shall be an "Event of Default": (a) the Borrower shall: (i) fail to pay the principal of any Note on or before ten (10) days after the date when due and payable; (ii) fail to pay any Reimbursement Obligation when due; or (iii) fail to pay interest on any Note or any fee or other amount due hereunder on or before ten (10) days after the date when due and payable; (b) any material representation or warranty made or deemed made by any Obligor in this Agreement or in any other Facility Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under or in connection with any Facility Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; (c) any Obligor shall: (i) fail to perform or observe any term, covenant or agreement contained in Section 2.03 or Section 3.02, Section 8.06 through Section 8.11, inclusive, or Article 9; or (ii) fail to perform or observe any term, covenant or agreement on its part to be performed or observed (other than the obligations specifically referred to elsewhere in this Section 10.01) in any Facility Document and such failure shall continue for 30 consecutive days; (d) any Consolidated Entity shall: (i) fail to pay any indebtedness aggregating in excess of $500,000, including but not limited to material indebtedness for borrowed money (excluding the payment obligations described in (a) above), of such Obligor or any such Subsidiary, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or (ii) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (e) any Consolidated Entity: (i) shall generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding shall have been commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed for a period of 60 days or more; or shall be the subject of any proceeding under which its assets may be subject to seizure, forfeiture or divestiture (other than a proceeding in respect of a Lien permitted under Section 8.03(b)); or (v) by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its Property; or (vi) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of 30 days or more; (f) one or more judgments, decrees or orders for the payment of money not otherwise fully covered by insurance in excess of $1,000,000 in the aggregate shall be rendered against any Consolidated Entity and such judgments, decrees or orders shall continue unsatisfied and in effect for a period of 30 consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (g) any event or condition shall occur or exist with respect to any Plan or Multiemployer Plan concerning which any Obligor is under an obligation to furnish a report to the Bank in accordance with Section 7.08(j) hereof and as a result of such event or condition, together with all other such events or conditions, such Obligor has incurred or in the opinion of the Banks is reasonably likely to incur a liability to a Plan, a Multiemployer Plan, the PBGC, or a Section 4042 Trustee (or any combination of the foregoing) which is material in relation to the financial position of the Consolidated Entities; provided, however, that any such amount shall not be deemed to be material so long as all such amounts do not exceed $500,000 in the aggregate during the term of this Agreement; (h) the Unfunded Benefit Liabilities of one or more Plans have increased after the date of this Agreement in an amount which is material (as specified in Section 7.08(j)(viii) hereof); (i) (I) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rules 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 25% or more of the outstanding shares of voting stock of the Borrower; and (ii) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 12-month period were directors of the Borrower cease for any reason to constitute a majority of the board of directors of the Borrower; (j) (i) any Forfeiture Proceeding shall have been commenced or any Obligor shall have given any Bank written notice of the commencement of any Forfeiture Proceeding as provided in Section 9.08(l) and such Forfeiture Proceeding is not dismissed within 15 days of such commencement; or (ii) any Bank has a good faith basis to believe that a Forfeiture Proceeding has been threatened or commenced and such Forfeiture Proceeding is not dismissed within 15 days of such commencement; (k) any of the Security Documents shall at any time after its execution and delivery and for any reason cease: (i) to create a valid and perfected first priority security interest in and to the Property purported to be subject to such Agreement to the extent such security interest can be perfected by the filing of financing statements under the Uniform Commercial Code; or (ii) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Obligor or any Obligor shall deny it has any further liability or obligation under the Security Documents or any Obligor shall fail to perform any of its obligations thereunder; or (l) the subordinating party shall have breached any of the subordination provisions of any document, agreement or instrument evidencing or relating to Consolidated Subordinated Debt. Section 10.02. Remedies. If any Event of Default shall occur and be continuing, the Agent shall, upon request of the Required Banks, by written notice to the Borrower, (a) declare the Commitments to be terminated, whereupon the same shall forthwith terminate and so shall the obligations of Chase to issue any Letter of Credit, (b) declare the outstanding principal of the Notes, all interest thereon and all other amounts payable under this Agreement, the Notes and the other Facility Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower and/or (c) direct the Borrower to pay to the Agent an amount, to be held as cash security in the cash collateral account held by the Agent under Section 3.08, equal to the Letter of Credit Obligations then outstanding; provided that, in the case of an Event of Default referred to in Section 10.01(e) or Section 10.01(i)(i) above, the Commitments shall be immediately terminated, and the Notes, the Letter of Credit Obligations, all interest thereon and all other amounts payable under this Agreement shall be immediately due and payable without notice, presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. Section 10.03. Cure. With respect to, and only with respect to, Events of Default arising from the breach of any covenant contained in Section 8.01 through Section 8.05, inclusive, prior to the exercise of remedies under Section 10.02 and/or under the Security Documents, the Borrower shall be entitled to receive written notice from the Agent (or any Bank) and an opportunity to cure during the 15 day period subsequent to the date of such notice; provided that such entitlement to notice and opportunity to cure shall only be available so long as each Obligor complies with all of its obligations under Section 7.08. ARTICLE 11. UNCONDITIONAL GUARANTY. Section 11.01. Guarantied Obligations. Each of the Subsidiary Guarantors, jointly and severally, in consideration of the execution and delivery of this Agreement by the Banks and the Agent, hereby irrevocably and unconditionally guarantees to the Agent, for the benefit of the Banks, as and for such Subsidiary Guarantor's own debt, until final payment has been made: (a) the due and punctual payment in cash of the Obligations, in each case when and as the same shall become due and payable, whether at maturity, pursuant to mandatory or optional prepayment, by acceleration or otherwise, all in accordance with the terms and provisions hereof and thereof, it being the intent of the Subsidiary Guarantors that the guaranty set forth in this Section 11.01 (the "Unconditional Guaranty") shall be a guaranty of payment and not a guaranty of collection; and (b) the punctual and faithful performance, keeping, observance, and fulfillment by each of the Obligors of all duties, agreements, covenants and obligations of the Obligors contained in each of the Facility Documents to which it is a party. Section 11.02. Performance Under This Agreement. In the event the Borrower or any Subsidiary Guarantor fails to make, on or before the due date thereof, any payment of the principal of, or interest on, the Notes, the Letter of Credit Obligations or of any other amounts payable, or any other indebtedness owing, under any of the Facility Documents or if the Borrower or any Subsidiary Guarantor shall fail to perform, keep, observe, or fulfill any other obligation referred to in clause (a) or clause (b) of Section 11.01 hereof in the manner provided in the Notes, the Letters of Credit or in any of the other Facility Documents, the Subsidiary Guarantors shall cause forthwith to be paid the moneys, or to be performed, kept, observed, or fulfilled each of such obligations, in respect of which such failure has occurred. Section 11.03. Waivers. To the fullest extent permitted by law, each Subsidiary Guarantor does hereby waive: (a) notice of acceptance of the Unconditional Guaranty; (b) notice of any borrowings under this Agreement, or the creation, existence or acquisition of any of the Obligations, subject to such Subsidiary Guarantor's right to make inquiry of the Agent to ascertain the amount of the Obligations at any reasonable time; (c) notice of the amount of the Obligations, subject to such Subsidiary Guarantor's right to make inquiry of the Agent to ascertain the amount of the Obligations at any reasonable time; (d) notice of adverse change in the financial condition of the Borrower, any other Subsidiary Guarantor or any other fact that might increase such Subsidiary Guarantor's risk hereunder; (e) notice of presentment for payment, demand, protest, and notice thereof as to the Notes, the Letters of Credit or any other instrument; (f) notice of any Default or Event of Default; (g) all other notices and demands to which such Subsidiary Guarantor might otherwise be entitled (except if such notice or demand is specifically otherwise required to be given to such Subsidiary Guarantor hereunder or under the other Facility Documents); (h) the right by statute or otherwise to require any or each Bank or the Agent to institute suit against the Borrower or to exhaust the rights and remedies of any or each Bank or the Agent against the Borrower, such Subsidiary Guarantor being bound to the payment of each and all Obligations, whether now existing or hereafter accruing, as fully as if such Obligations were directly owing to each Bank by such Subsidiary Guarantor; and (i) any defense arising by reason of any disability or other defense (other than the defense that the Obligations shall have been fully and finally performed and indefeasibly paid) of the Borrower or by reason of the cessation from any cause whatsoever of the liability of the Borrower in respect thereof. Until all of the Obligations shall have been paid in full, none of the Subsidiary Guarantors shall have any right of subrogation, reimbursement, or indemnity whatsoever in respect thereof and no right of recourse to or with respect to any assets or Property of the Borrower or any other Subsidiary Guarantor. Nothing shall discharge or satisfy the obligations of the Subsidiary Guarantor hereunder except the full and final performance and payment of the Obligations by the Subsidiary Guarantors, upon which each Bank agrees to transfer and assign its interest in the Notes to the Subsidiary Guarantors without recourse, representation or warranty of any kind (other than that such Bank owns such Notes and that such Notes are free of Liens created by such holder). If an Event of Default shall exist, all of the Obligations shall in the manner and subject to the limitations provided herein for the acceleration of, the Notes and the Letter of Credit Obligations, forthwith become due and payable without notice. Section 11.04. Releases. Each of the Subsidiary Guarantors consents and agrees that, without notice to or by such Subsidiary Guarantor and without affecting or impairing the obligations of such Subsidiary Guarantor hereunder, each Bank or the Agent, in the manner provided herein, by action or inaction, may: (a) compromise or settle, extend the period of duration or the time for the payment, or discharge the performance of, or may refuse to, or otherwise not, enforce, or may, by action or inaction, release all or any one or more parties to, any one or more of the Notes or the other Facility Documents; (b) grant other indulgences to the Borrower in respect thereof; (c) amend or modify in any manner and at any time (or from time to time) any one or more of the Notes, the Letters of Credit and the other Facility Documents in accordance with Section 13.01 or otherwise; (d) release or substitute any one or more of the endorsers or guarantors of the Guaranteed Obligations whether parties hereto or not; and (e) exchange, enforce, waive, or release, by action or inaction, any security for the Obligations (including, without limitation, any of the collateral therefor) or any other guaranty of any of the Notes or the Letter of Credit Obligations. Section 11.05. Marshaling. Each of the Subsidiary Guarantors consents and agrees that: (a) the Agent shall be under no obligation to marshal any assets in favor of such Subsidiary Guarantor or against or in payment of any or all of the Obligations; and (b) to the extent the Borrower or any other Subsidiary Guarantor makes a payment or payments to any Bank, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, or required, for any of the foregoing reasons or for any other reason, to be repaid or paid over to a custodian, trustee, receiver, or any other party under any bankruptcy law, common law, or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made and such Subsidiary Guarantor shall be primarily liable for such obligation. Section 11.06. Liability. Each of the Subsidiary Guarantors agrees that the liability of such Subsidiary Guarantor in respect of this Article 11 shall be immediate and shall not be contingent upon the exercise or enforcement by any Bank or the Agent of whatever remedies such Bank or the Agent may have against the Borrower or any other Subsidiary Guarantor or the enforcement of any Lien or realization upon any security such Bank or the Agent may at any time possess. Section 11.07. Primary Obligation. The Unconditional Guaranty set forth in this Article 11 is a primary and original obligation of each of the Subsidiary Guarantors and is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and shall remain in full force and effect until the full and final payment of the Obligations without respect to future changes in conditions, including change of law or any invalidity or irregularity with respect to the issuance or assumption of any obligations (including, without limitation, the Notes and the Letter of Credit Obligations) of or by the Borrower or any other Subsidiary Guarantor, or with respect to the execution and delivery of any agreement (including, without limitation, the Notes and the other Facility Documents) of the Borrower or any other Subsidiary Guarantor. Section 11.08. Election to Perform Obligations. Any election by any of the Subsidiary Guarantors to pay or otherwise perform any of the obligations of the Borrower under the Notes or under any of the other Facility Documents, whether pursuant to this Article 11 or otherwise, shall not release the Borrower from such obligations or any of its other obligations under the Notes or under any of the other Facility Documents. Section 11.09. No Election. The Agent shall have the right to seek recourse against any one or more of the Subsidiary Guarantors to the fullest extent provided for herein for such Subsidiary Guarantor's obligations under this Agreement (including, without limitation, this Article 11) in respect of the Notes. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of the Agent's right to proceed in any other form of action or proceeding or against other parties unless such holder has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by any Bank or the Agent against the Borrower under any document or instrument evidencing obligations of the Borrower to such Bank or the Agent shall serve to diminish the liability of any of the Subsidiary Guarantors under this Agreement (including, without limitation, this Article 11) except to the extent that such Bank finally and unconditionally shall have realized payment by such action or proceeding, notwithstanding the effect of any such action or proceeding upon any Subsidiary Guarantor's right of subrogation against the Borrower. Section 11.10. Severability. Subject to Article 10 hereof, each of the rights and remedies granted under this Article 11 to the Agent may be exercised by the Agent without notice by the Agent to, or the consent of or any other action by, the Agent, provided that each of the Subsidiary Guarantors will give the Agent immediate notice of any exercise of rights and remedies by the Agent under this Article 11. Section 11.11. Other Enforcement Rights. The Agent may proceed, as provided in Article 11 hereof, to protect and enforce the Unconditional Guaranty by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement contained herein (including, without limitation, in this Article 11) or in execution or aid of any power herein granted; or for the recovery of judgment for the obligations hereby guarantied or for the enforcement of any other proper, legal or equitable remedy available under applicable law. Each Bank shall have, to the fullest extent permitted by law and this Agreement, a Lien upon, and right of set-off against, any and all credits and any and all other Property of any Subsidiary Guarantor, now or at any time whatsoever with, or in the possession of, such holder, or anyone acting for such holder, as security for any and all obligations of the Subsidiary Guarantors hereunder and such Lien shall be deemed permitted for all purposes under Article 8 hereof. Section 11.12. Delay or Omission; No Waiver. No course of dealing on the part of any Bank or the Agent and no delay or failure on the part of any such Person to exercise any right hereunder (including, without limitation, this Article 11) shall impair such right or operate as a waiver of such right or otherwise prejudice such Person's rights, powers and remedies hereunder. Every right and remedy given by the Unconditional Guaranty or by law to any Bank or the Agent may be exercised from time to time as often as may be deemed expedient by such Person. Section 11.13. Restoration of Rights and Remedies. If any Bank or the Agent shall have instituted any proceeding to enforce any right or remedy under the Unconditional Guaranty, under any Note held by such Bank, or under any Security Document, and such proceeding shall have been discontinued or abandoned for any reason, or shall have been determined adversely to such Bank or the Agent, then and in every such case each such Bank, the Agent, the Borrower and each Subsidiary Guarantor shall, except as may be limited or affected by any determination in such proceeding, be restored severally and respectively to its respective former positions hereunder and thereunder, and thereafter, subject as aforesaid, the rights and remedies of such Bank or the Agent shall continue as though no such proceeding had been instituted. Section 11.14. Cumulative Remedies. No remedy under this Agreement (including, without limitation, this Article 11), the Notes or any of the other Facility Documents is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given hereunder this Agreement (including, without limitation, this Article 11), under the Notes, the Letters of Credit or under any of the other Facility Documents. Section 11.15. Survival. So long as the Obligations shall not have been fully and finally performed and indefeasibly paid, the obligations of the Subsidiary Guarantors under this Article 11 shall survive the transfer and payment of any Note and the payment in full of all the Notes and the Letter of Credit Obligations and the expiration and termination of the Commitments. ARTICLE 12. THE AGENT. Section 12.01. Appointment, Powers and Immunities of Agent. Each Bank hereby irrevocably (but subject to removal by the Required Banks pursuant to Section 12.09) appoints and authorizes the Agent to act as its agent hereunder and under any other Facility Document with such powers as are specifically delegated to the Agent by the terms of this Agreement and any other Facility Document, together with such other powers as are reasonably incidental thereto. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Facility Document, and shall not by reason of this Agreement be a trustee for any Bank. The Agent shall not be responsible to the Banks for any recitals, statements, representations or warranties made by any Obligor or any officer or official of such Borrower or any other Person contained in this Agreement or any other Facility Document, or in any certificate or other document or instrument referred to or provided for in, or received by any of them under, this Agreement or any other Facility Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Facility Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any collateral security for the Loans or the Letters of Credit or for any failure by any Obligor to perform any of its obligations hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Facility Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. Section 12.02. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent may deem and treat each Bank as the holder of the Loans made by it and the Letter of Credit Obligations attributable to it for all purposes hereof unless and until a notice of the assignment or transfer thereof satisfactory to the Agent signed by such Bank shall have been furnished to the Agent but the Agent shall not be required to deal with any Person who has acquired a participation in any Loan or Letter of Credit Obligation from a Bank. As to any matters not expressly provided for by this Agreement or any other Facility Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Banks, and such instructions of the Required Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks and any other holder of all or any portion of any Loan or Letter of Credit Obligation. Section 12.03. Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default (other than the non-payment of principal of or interest on the Loans and the Letter of Credit Obligations to the extent the same is required to be paid to the Agent for the account of the Banks) unless the Agent has received notice from a Bank or any Obligor specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to Section 12.08) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Required Banks; provided that, unless and until the Agent shall have received such directions, the Agent may take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks; and provided further that the Agent shall not be required to take any such action which it determines to be contrary to law. Section 12.04. Rights of Agent as a Bank. With respect to its Commitment, the Loans made by it and the Letter of Credit Obligations attributable to it, the Agent in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its capacity as a Bank. The Agent and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with, any Obligor (and any of its affiliates) as if it were not acting as the Agent, and the Agent may accept fees and other consideration from any Obligor for services in connection with this Agreement or otherwise without having to account for the same to the Banks. Although the Agent and its affiliates may in the course of such relationships and relationships with other Persons acquire information about any Obligor, its Affiliates and such other Persons, the Agent shall have no duty to disclose such information to the Banks. Section 12.05. Indemnification of Agent. The Banks agree to indemnify the Agent (to the extent not reimbursed under Section 13.03 or under the applicable provisions of any other Facility Document, but without limiting the obligations of the Obligors under Section 13.03 or such provisions), ratably in accordance with the aggregate unpaid principal amount of the Loans made by the Banks and the Letter of Credit Obligations attributable to the Banks (without giving effect to any participations, in all or any portion of such Loans or such Letter of Credit Obligations, sold by them to any other Person) (or, if no Loans or Letter of Credit Obligations are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any other Facility Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Obligors are obligated to pay under Section 13.03 or under the applicable provisions of any other Facility Document but excluding, unless a Default or Event of Default has occurred, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; provided that no Bank shall be liable for any of the foregoing to the extent they arise from the negligence or willful misconduct of the party to be indemnified. Section 12.06. Documents. The Agent will forward to each Bank, promptly after the Agent's receipt thereof, a copy of each report, notice or other document required by this Agreement or any other Facility Document to be delivered to the Agent for such Bank. Section 12.07. Non-Reliance on Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Obligors and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Facility Document. The Agent shall not be required to keep itself informed as to the performance or observance by the Obligors of this Agreement or any other Facility Document or any other document referred to or provided for herein or therein or to inspect the Properties or books of any Obligor. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of any Obligor (or any of their Affiliates) which may come into the possession of the Agent or any of its affiliates. The Agent shall not be required to file this Agreement, any other Facility Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Facility Document or any document or instrument referred to herein or therein, to anyone. Section 12.08. Failure of Agent to Act. Except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Banks under Section 12.05 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Section 12.09. Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving written notice thereof to the Banks and the Borrower, and the Agent may be removed at any time with or without cause by the Required Banks; provided that the Borrower and the other Banks shall be promptly notified thereof. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a bank which has an office in New York, New York or Boston, Massachusetts. The Required Banks or the retiring Agent, as the case may be, shall upon the appointment of a successor Agent promptly so notify the Borrower and the other Banks. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. Section 12.10. Amendments Concerning Agency Function. The Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Facility Document which affects its duties hereunder or thereunder unless it shall have given its prior consent thereto. Section 12.11. Liability of Agent. The Agent shall not have any liabilities or responsibilities to the Obligors on account of the failure of any Bank to perform its obligations hereunder or to any Bank on account of the failure of any Obligor to perform its obligations hereunder or under any other Facility Document. Section 12.12. Transfer of Agency Function. Without the consent of the Obligors or any Bank, the Agent may at any time or from time to time transfer its functions as Agent hereunder to any of its offices wherever located, provided that the Agent shall promptly notify the Obligors and the Banks thereof. Section 12.13. Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrower (either one as appropriate being the "Payor") prior to the date on which such Bank is to make payment hereunder to the Agent or the Borrower is to make payment to the Agent, as the case may be (either such payment being a "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment (and, if such recipient is the Borrower and the Payor Bank fails to pay the amount thereof to the Agent forthwith upon demand, the Borrower) shall, on demand, repay to the Agent the amount made available to it together with interest thereon for the period from the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the average daily Federal Funds Rate for such period. Section 12.14. Withholding Taxes. Each Bank represents that it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish to the Agent such forms, certifications, statements and other documents as the Agent may request from time to time to evidence such Bank's exemption from the withholding of any tax imposed by any jurisdiction or to enable the Agent to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, if any Bank is not created or organized under the laws of the United States of America or any state thereof, in the event that the payment of interest by the Borrower is treated for U.S. income tax purposes as derived in whole or in part from sources from within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms, certifications, statements or documents, duly executed and completed by such Bank as evidence of such Bank's exemption from the withholding of U.S. tax with respect thereto. The Agent shall not be obligated to make any payments hereunder to such Bank in respect of any Loan, Letter of Credit or such Bank's Commitment until such Bank shall have furnished to the Agent the requested form, certification, statement or document. Section 12.15. Several Obligations and Rights of Banks. The failure of any Bank to make any Loan to be made by it on the date specified therefor or make any payment with respect to any Reimbursement Obligation on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank or to make any payment with respect to any Reimbursement Obligation. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. Section 12.16. Pro Rata Treatment of Loans, Etc. Except to the extent otherwise provided: (a) each borrowing under Section 2.04 shall be made from the Banks, each reduction or termination of the amount of the Commitments under Section 2.07 shall be applied to the Commitments of the Banks, and each payment of commitment fee accruing under Section 2.11 shall be made for the account of the Banks, pro rata according to the amounts of their respective unused Commitments; (b) each conversion under Section 2.05 of Loans of a particular type (but not conversions provided for by Section 4.04), shall be made pro rata among the Banks holding Loans of such type according to the respective principal amounts of such Loans by such Banks; (c) each prepayment and payment of principal of or interest on Loans of a particular type and a particular Interest Period shall be made to the Agent for the account of the Banks holding Loans of such type and Interest Period pro rata in accordance with the respective unpaid principal amounts of such Loans of such Interest Period held by such Banks and (d) each prepayment and payment of Letter of Credit Obligations shall be made pro rata in accordance with the Pro Rata Share of the Banks in the Letter of Credit Obligations attributable to such Banks. Section 12.17. Sharing of Payments Among Banks. If a Bank shall obtain payment of any principal of or interest on any Loan made by it or any payment of any Letter of Credit Obligations attributable to it through the exercise of any right of setoff, banker's lien, counterclaim, or by any other means, it shall promptly purchase from the other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans made by, or the Letter of Credit Obligations attributable to, the other Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Banks shall share the benefit of such payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Loans and the Letter of Credit Obligations held by each of them. To such end the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Obligors agree that any Bank so purchasing a participation (or direct interest) in the Loans made by, or the Letter of Credit Obligations attributable to, the other Banks may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation (or direct interest). Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness of the Obligors. Section 12.18. Security Documents. Subject to the foregoing provisions of this Section 12, the Agent shall, on behalf of the Banks: (a) execute any and all of the Security Documents on behalf of the Banks; (b) hold and apply any and all Collateral, and the proceeds thereof, at any time received by it, in accordance with the provisions of the Security Documents and this Agreement; (c) exercise any and all rights, powers and remedies of the Banks under this Agreement or any of the Security Documents, including the giving of any consent or waiver or the entering into of any amendment, subject to the provisions of Section 12.03; (d) execute, deliver and file UCC financing statements, mortgages, deeds of trust, lease assignments and other such agreements, and possess instruments on behalf of any or all of the Banks; and (e) in the event of acceleration of the Borrower's obligations hereunder, use its best efforts to sell or otherwise liquidate or dispose of the Collateral and otherwise exercise the rights of the Banks thereunder upon the direction of the Required Banks. Section 12.19. Collateral. Notwithstanding Section 12.18, the Agent and the other Banks agree, as among themselves, that the Agent shall not, without the consent of the Required Banks, make any sale or disposition of the Collateral pursuant to any of the Security Documents. The Agent acknowledges to the other Banks that it is acting in an agency capacity hereunder and that the security interest in the Collateral granted under the Security Documents secures the obligations of the Obligors under this Agreement, the Notes, the Letters of Credit and the other Facility Documents owing to all of the Banks. In the event of any Default or Event of Default, the Agent will apply and/or pay over to the Banks any net proceeds derived from the Collateral pro rata on the basis of the aggregate unpaid principal amount of the Loans made by the Banks and the Letter of Credit Obligations attributable to the Banks. The Agent will be reimbursed or properly indemnified by the Banks in the event the Agent is requested by the Banks to take or omit to take any action with respect to the Collateral (any such reimbursement or indemnification to be pro rata as provided in Section 12.05). The Agent shall have the right to retain counsel to advise it as to any action or decision with respect to the Collateral and shall be reimbursed by the other Banks for the cost of the same (to the extent the Agent is not reimbursed by any Obligor) prior to distributing any of the Collateral or any proceeds thereof (any such reimbursement to be pro rata as aforesaid). Section 12.20. Amendment of Section 12. Except with respect to Sections 12.18 and 12.19, the Borrower hereby agrees that the foregoing provisions of this Section 12 constitute an agreement amount the Agent and the Banks (and the Agent and the Banks acknowledge that the Borrower is not a party to or bound by such foregoing provisions) and that any and all of the provisions of this Section 12 may be amended at any time by the Required Banks without the consent or approval of, or notice to, the Borrower. ARTICLE 13. MISCELLANEOUS. Section 13.01. Amendments and Waivers. Except as otherwise expressly provided in this Agreement, any provision of this Agreement or any other Facility Document may be amended or modified only by an instrument in writing signed by the Borrower, the Agent and the Required Banks, or by the Borrower and the Agent acting with the consent of the Required Banks and any provision of this Agreement or any other Facility Document may be waived by the Required Banks or by the Agent acting with the consent of the Required Banks; provided that no amendment, modification or waiver shall, unless by an instrument signed by all of the Banks or by the Agent acting with the consent of all of the Banks: (a) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Commitments, (b) extend the date fixed for the payment of principal of or interest on any Loan, (c) reduce the amount of any payment of principal thereof or the rate at which interest is payable thereon or any fee payable hereunder, (d) alter the terms of this Section 13.01, (e) amend the definition of the term "Required Banks", (f) waive any of the conditions precedent set forth in Article 5 hereof, (g) discharge any Subsidiary Guarantor from its Unconditional Guaranty under Article 10 hereof or (h) release all or any part of the Collateral (except for sales otherwise allowed hereunder) and provided, further, that any amendment of Article 12 hereof or any amendment which increases the obligations of the Agent hereunder shall require the consent of the Agent. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 13.02. Usury. Anything herein to the contrary notwithstanding, the obligations of the Borrower under this Agreement and the Notes shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to a Bank limiting rates of interest which may be charged or collected by such Bank. Section 13.03. Expenses. The Obligors shall reimburse the Agent on demand for all reasonable costs, expenses, and charges (including, without limitation, reasonable fees and charges of external legal counsel for the Agent) in connection with the preparation of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any other Facility Document and any other documents prepared in connection herewith or therewith. The Obligors shall reimburse the Agent and each Bank for all reasonable costs, expenses and charges (including, without limitation, reasonable fees and charges of external legal counsel for the Agent and each Bank) in connection with the enforcement or preservation of any rights or remedies during the existence of an Event of Default (including, without limitation, in connection with any restructuring or insolvency or bankruptcy proceeding). The Obligors agree to indemnify the Agent and each Bank and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) directly relating to this Agreement or to any actual or proposed use by the Borrower of the proceeds of the Loans or to the performance or enforcement of this Agreement or the other Facility Documents, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or wilful misconduct of the Person to be indemnified). Section 13.04. Survival. The obligations of the Obligors under Sections 4.01, 4.05 and 13.03 shall survive the repayment of the Loans and the Letters of Credit and the termination of the Commitments. Section 13.05. Assignment; Participations. (a) This Agreement shall be binding upon, and shall inure to the benefit of, the Obligors, the Agent, the Banks and their respective successors and assigns, except that the Obligors may not assign or transfer their rights or obligations hereunder. Each Bank may assign, or sell participations in, all or any part of any Loan or its rights and obligations under the Letters of Credit to another bank or other entity; provided that any such assignment by such Bank of its rights and obligations in respect of the Letters of Credit shall require the prior consent of Chase such consent not to be unreasonably withheld; provided further that (i) in the case of an assignment, upon notice thereof by the Bank to the Borrower with a copy to the Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it were a Bank hereunder; and (ii) in the case of a participation, the participant shall have no rights under the Facility Documents and all amounts payable by the Borrower under Article 3 shall be determined as if such Bank had not sold such participation. The agreement executed by such Bank in favor of the participant shall not give the participant the right to require such Bank to take or omit to take any action hereunder except action directly relating to (i) the extension of a payment date with respect to any portion of the principal of or interest on any amount outstanding hereunder allocated to such participant, (ii) the reduction of the principal amount outstanding hereunder or (iii) the reduction of the rate of interest payable on such amount or any amount of fees payable hereunder to a rate or amount, as the case may be, below that which the participant is entitled to receive under its agreement with such Bank. Such Bank may furnish any information concerning the Obligors in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants); provided that such Bank shall require any such prospective assignee or such participant (prospective or otherwise) to agree in writing to maintain the confidentiality of such information. In connection with any assignment pursuant to this paragraph (a), the assigning Bank shall pay the Agent an administrative fee for processing such assignment in the amount of $5,000. (b) In addition to the assignments and participations permitted under paragraph (a) above, any Bank may assign and pledge all or any portion of its Loans, its Notes and its rights and obligations under the Letters of Credit to (i) any affiliate of such Bank or (ii) any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. Section 13.06. Notices. Unless the party to be notified otherwise notifies the other party in writing as provided in this Section, and except as otherwise provided in this Agreement, notices shall be given to the Agent by telephone, confirmed by telex, telecopy or other writing, and to the Banks and to the Obligors by ordinary mail or telecopier addressed to such party at its address on the signature page of this Agreement. Notices shall be effective: (a) if given by mail, 72 hours after deposit in the mails with first class postage prepaid, addressed as aforesaid; and (b) if given by telecopier, when the telecopy is transmitted to the telecopier number as aforesaid; provided that notices to the Agent and the Banks shall be effective upon receipt. Section 13.07. Setoff. The Obligors agree that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of the Obligors at any of such Bank's offices, in Dollars or in any other currency, against any amount payable by the Obligors to such Bank under this Agreement or such Bank's Note which is not paid when due (regardless of whether such balances are then due to the Obligors), in which case it shall promptly notify the Obligors and the Agent thereof; provided that such Bank's failure to give such notice shall not affect the validity thereof. Payments by the Obligors hereunder shall be made without setoff or counterclaim. Section 13.08. JURISDICTION; IMMUNITIES. (a) THE OBLIGORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY MASSACHUSETTS STATE OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES, AND THE OBLIGORS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE OR FEDERAL COURT. THE OBLIGORS IRREVOCABLY CONSENT TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE OBLIGORS AT ITS ADDRESS SPECIFIED IN SECTION 13.06. THE OBLIGORS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE OBLIGORS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE OBLIGORS FURTHER AGREE THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE AGENT SHALL BE BROUGHT ONLY IN MASSACHUSETTS STATE OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY. THE OBLIGORS WAIVE ANY RIGHT THEY MAY HAVE TO JURY TRIAL. (b) Nothing in this Section 13.08 shall affect the right of the Agent or any Bank to serve legal process in any other manner permitted by law or affect the right of the Agent or any Bank to bring any action or proceeding against any Obligor or its Property in the courts of any other jurisdictions. (c) To the extent that any Obligor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its Property, such Obligor hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the Notes. Section 13.09. Table of Contents; Headings. Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. Section 13.10. Severability. The provisions of this Agreement are intended to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. To the extent that mandatory and non-waivable provisions of applicable law (including but not limited to any applicable laws pertaining to fraudulent conveyance and any applicable business corporation, partnership and limited liability company laws) otherwise would render the full amount of any Subsidiary Guarantor's obligations hereunder and under the other Facility Documents invalid or unenforceable, such Subsidiary Guarantor's obligations hereunder and under the other Facility Documents shall be limited to the maximum amount which does not result in such invalidity or unenforceability. Section 13.11. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. Section 13.12. Integration. The Facility Documents set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions. Section 13.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. Section 13.14. Confidentiality. Each Bank and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with safe and sound banking practices, any non-public information supplied to it by the Obligors pursuant to this Agreement which is identified by the Obligors as being confidential at the time the same is delivered to the Banks or the Agent, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) in connection with any litigation to which any one or more of the Banks is a party or (v) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) agrees to use reasonable precautions to keep such information confidential; and provided finally that in no event shall any Bank or the Agent be obligated or required to return any materials furnished by the Obligers. Section 13.15. Treatment of Certain Information. The Obligors (a) acknowledge that services may be offered or provided to it (in connection with this Agreement or otherwise) by each Bank or by one or more of their respective subsidiaries or affiliates and (b) acknowledge that information delivered to each Bank by the Obligors may be provided to each such subsidiary and affiliate. Section 13.16. New Subsidiary Guarantors. Each of the Obligors not a signatory to the Existing Credit Agreement unconditionally and irrevocably accepts, adheres to, and becomes party to and bound as a "Subsidiary Guarantor" under this Agreement, as fully if such Obligor had been signatory to the Existing Credit Agreement as a "Subsidiary Guarantor". In confirmation (but without limitation) of the foregoing, each such Obligor hereby (a) unconditionally agrees to make prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal and interest on all of the Obligations and (b) unconditionally grants, bargains, conveys, assigns, transfers, mortgages, hypothecates, pledges, confirms and grants a continuing security interest to the Agent, for the ratable benefit of the Banks, in and to the Collateral. Section 13.17. Reaffirmation. Each of the Obligors acknowledges that the Liens granted to the Agent under the Security Documents in the Collateral secures all obligations of each of the Obligors under this Agreement, the Notes, the Letters of Credit and the other Facility Documents, including, without limitation, all liabilities and obligations under the Loans as herein modified and increased and all of the Letter of Credit Obligations. All references to "Note" or "Notes" in any Facility Document shall be deemed to be to the Notes issued hereunder. All references to "Secured Obligations" in any Facility Document shall be deemed to include all liabilities and obligations under the Loans as herein modified and increased and all of the Letter of Credit Obligations. Each of the Obligors further acknowledges and reaffirms all of its other respective obligations and duties under the Facility Documents to which it is a party. Section 13.18. All Seasons Acquisition. Notwithstanding Section 8.05 and Section 8.11, each of the Agent and the Banks hereby consents to the All Seasons Acquisition in accordance with the terms of the All Seasons Term Sheet for a purchase price of approximately $15,000,000 in Borrower common stock and the contemporaneous repayment of all of the outstanding Debt of All Seasons Services, Inc. in the approximate amount of $12,000,000-$14,000,000. Each of the Agent and the Banks hereby agrees that the All Seasons Acquisition shall not be counted towards the $12,500,000 annual limitation contained in the definition of "Acceptable Acquisition" in Section 1.01. Section 13.19. AEI Sale-Leasebacks. Notwithstanding Section 8.03, Section 8.04, Section 8.05, Section 8.07 and Section 8.11, each of the Agent and the Banks hereby consents to a development and sale-leaseback financing facility up to a maximum principal amount of $40,000,000 for the proposed purchase and subsequent sale by Champps Entertainment, Inc. ("Champps") of newly constructed restaurants to, and the simultaneous leaseback from, AEI Fund Management, Inc. ("AEI") substantially in accordance with the terms and conditions of the commitment letter dated December 7, 1995 from AEI to Champps, copies of which have been furnished to the Banks. Each of the Agent and the Banks hereby agrees that the purchase of any such restaurant subject to such sale-leaseback shall not be counted towards the $12,500,000 annual limitation contained in the definition of "Acceptable Acquisition" in Section 1.01. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. DAKA INTERNATIONAL, INC. By: Name: Title: FUDDRUCKERS, INC. By: Name: Title: DAKA, INC. By: Name: Title: CASUAL DINING VENTURES, INC. By: Name: Title: ATLANTIC RESTAURANT VENTURES, INC. By: Name: Title: [SIGNATURE PAGE TO CREDIT AGREEMENT] DAKA RESTAURANTS, L.P. By its General Partner, Daka, Inc. By: Name: Title: FRENCH QUARTER COFFEE COMPANY By: Name: Title: AMERICANA DINING CORP. By: Name: Title: CHAMPPS ENTERTAINMENT OF EDISON, INC. By: Name: Title: CHAMPPS ENTERTAINMENT OF TEXAS, INC. By: Name: Title: [SIGNATURE PAGE TO CREDIT AGREEMENT] CHAMPPS ENTERTAINMENT OF WAYZATA, INC. By: Name: Title: CHAMPPS ENTERTAINMENT, INC. By: Name: Title: SPECIALTY CONCEPTS, INC. By: Name: Title: Address for Notices: One Corporate Place 55 Ferncroft Road Danvers, Massachusetts 01923 Telecopier No.:(508)774-1334 [SIGNATURE PAGE TO CREDIT AGREEMENT] AGENT: THE CHASE MANHATTAN BANK, N.A. By: Name: Title: Address for Notices: 4 Chase Metrotech Center 13th Floor Brooklyn, NY 11245 Attention: New York Agency with a copy to: c/o Chemical New England Corporation 85 Welles Avenue Suite 200 Boston, MA 01259 Attention: Roger Stone [SIGNATURE PAGE TO CREDIT AGREEMENT] BANKS: THE CHASE MANHATTAN BANK, N.A. By: Name: Title: Lending Office and Address for Notices: c/o Chemical New England Corporation 85 Welles Avenue Suite 200 Boston, MA 01259 Attention: Roger Stone [SIGNATURE PAGE TO CREDIT AGREEMENT] BANKS: FLEET NATIONAL BANK By: Name: Title: Lending Office and Address for Notices: One Federal Street Boston, MA 02211 Attention: Amy Tsokanis [SIGNATURE PAGE TO CREDIT AGREEMENT] BANKS: MELLON BANK, N.A. By: Name: Title: Lending Office and Address for Notices: One Boston Place Boston, MA 02108 Attention: Steven Wagner [SIGNATURE PAGE TO CREDIT AGREEMENT] BANKS: THE FIRST NATIONAL BANK OF BOSTON By: Name: Title: Lending Office and Address for Notices: New England Corporate Banking Mail Stop 01-07-05 100 Federal Street Boston, MA 02110 Attention: William Latham [SIGNATURE PAGE TO CREDIT AGREEMENT] SCHEDULE I Commitments The Chase Manhattan Bank, N.A. $78,333,333.34 Fleet National Bank $21,666,666.66 Mellon Bank, N.A. $25,000,000.00 The First National Bank of Boston $25,000,000.00 -------------- Total Commitments $150,000,000.00 EX-10.24 13 SEVERANCE, NON-COMPETITION AND CONFIDENTIALITY AGREEMENT SEVERANCE, NON-COMPETITION AND CONFIDENTIALITY AGREEMENT (the "Agreement") dated as of March 18, 1996, by and between Steven J. Wagenheim ("Employee") and Americana Dining Corp. ("Americana"). WITNESSETH: WHEREAS, Employee is employed by Americana as President pursuant to that certain Employment Agreement dated March 28, 1994 (the "1994 Employment Agreement"); and WHEREAS, reference is made to the Asset Purchase Agreement dated as of March 18, 1996, by and among Americana and New Brighton Ventures, Inc. ("New Brighton Ventures") (together with any amendments thereto or modifications thereof, the "Asset Purchase Agreement") pursuant to which New Brighton Ventures will acquire the assets, subject to certain liabilities, of the New Brighton, Minnesota Champps Americana restaurant (the "Restaurant") from Americana for a purchase price of One Million Three Hundred Fifty Thousand Dollars ($1,350,000) (the "Restaurant Acquisition") subject to the terms and conditions set forth in the Asset Purchase Agreement; and WHEREAS, in connection with the Restaurant Acquisition, and by the mutual agreement of the parties, Employee will be relieved of his employment duties with Americana following the closing of such transaction, upon the terms and conditions set forth herein; and WHEREAS, Employee and Americana desire to settle fully and finally all differences between them, including any claims relating to Employee's employment and termination from employment with Americana; NOW THEREFORE, in consideration of the mutual promises and covenants set forth in this Agreement, the receipt and sufficiency of which is hereby acknowledged, Employee and Americana agree as follows: 1. Termination of Employment. Employee agrees that his employment with Americana will terminate effective July 1, 1996, that he will not be reemployed by Americana, and that he will not apply for or otherwise seek employment with Americana or any of its divisions, subsidiaries, or affiliates at any time. Effective as of the Effective Time (as defined below), the duties and responsibilities of Employee as an employee of Americana will be as described in Section 3(c) of this Agreement, it being agreed and acknowledged that between the Effective Date and June 30, 1996 the primary business activity of Employee shall be to manage the Restaurant on behalf of New Brighton Ventures. 2. Effective Date of Agreement. This Agreement shall become effective as of the closing date of the Restaurant Acquisition in accordance with the terms of the Asset Purchase Agreement (the "Effective Date"), but subject in all events to the consummation of the Restaurant Acquisition and effective only if the Restaurant Acquisition is actually consummated. Subject to the closing of the Restaurant Acquisition, on the Effective Date, upon this Agreement becoming effective, the 1994 Employment Agreement shall terminate and have no further force or effect and shall be replaced and superseded for all purposes by this Agreement. If the Restaurant Acquisition is not consummated for any reason whatsoever, or if the Asset Purchase Agreement is terminated in accordance with the provisions thereof for any reason whatsoever, this Agreement shall not become effective and shall be null and void and shall have no force and effect to the same extent as if this Agreement had never been executed and delivered by the parties hereto and there shall be no liability under or by reason of the terms hereof on the part of Americana or any of its affiliates, officers, directors, employees, agents, successors or assigns, or of the Employee, without limitation of any other rights any of them may have. If this Agreement does not become effective in accordance with the preceding sentence, the 1994 Employment Agreement shall remain in effect in accordance with its presently existing terms. 3. Settlement with Employee. As a material inducement to Employee to enter into this Agreement and in consideration for the release given by Employee in paragraph 4 of this Agreement, Americana and the Employee agree to the following: (a) On the Effective Date, Americana will pay to Employee a one-time, lump sum payment of One Hundred Thousand Dollars ($100,000) less all applicable taxes and withholdings; (b) Americana will continue to pay Employee his base salary and fringe benefits through June 30, 1996, in accordance with the terms of the 1994 Employment Agreement, so long as Employee continues to perform the duties and responsibilities set forth in Section 3(c) hereof, but will not be obligated to pay Employee any bonus with respect to the fiscal year ending on or about June 30, 1996; and (c) Employee agrees that between the Effective Date and June 30, 1996, Employee's duties and responsibilities will be limited to such of the following duties and responsibilities as Americana from time to time may in its discretion request Employee to perform: (i) managing and overseeing all aspects of the pre-opening and opening of the Champps Americana restaurant in Columbus, Ohio, by devoting thereto such time and effort, both on-site and off-site, as Employee has in the past devoted to the pre-opening and opening by Americana of other similar restaurants, including, most recently, the Champps Americana restaurant located in Cleveland, Ohio, (ii) overseeing the management and operations of the Champps Americana restaurants located in Cleveland, Ohio and Richfield, Minnesota during this transition period (consistent with the understanding the Employee will after the Effective Date primarily manage the Restaurant on behalf of New Brighton Ventures) and (iii) performing such other services in a senior management capacity as may be mutually agreed to by Americana and Employee. After June 30, 1996, Employee agrees to make himself available as an independent consultant to render such services at Americana's request, in which case Americana shall compensate Employee for such consulting services at a rate of $500 per day plus reasonable out-of-pocket, travel and lodging expenses. Any such consulting requested by Americana shall not be deemed to constitute employment by Americana of Employee, who shall at all times be construed to be an independent contractor. Employee shall not hold himself out as a partner, employee or agent of Americana, or incur, assume or create, in writing or otherwise, any warranty, liability or other obligation of any kind, express or implied, in the name of or on behalf of Americana. 4. General Release of Claims by Employee. As a material inducement to Americana to enter into this Agreement and in consideration for the payments and benefits to be provided by Americana to Employee as outlined in paragraph 3, Employee hereby irrevocably and unconditionally releases, acquits and forever discharges Americana, and each of its current and former owners, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, divisions, subsidiaries, whether wholly or partially owned, and affiliates (and current and former agents, directors, officers, employees, representatives and attorneys of such divisions, subsidiaries and affiliates), and all persons acting by, through, under or in concert with any of them (collectively "Releasees"), or any of them, from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred), of any nature whatsoever, known or unknown, including, without limitation, any claim under the Age Discrimination in Employment Act, as amended ("Claim" or "Claims"), which Employee now has, owns or holds, or claims to have, own or hold or which Employee at any time heretofore had, owned or held, or claimed to have, own or hold against each or any of the Releasees. 5. Non-Competition. In view of the fact that Employee, as a co-founder, shareholder, director and officer of Americana, has had access to confidential and proprietary information relating to Americana, and as a material inducement to and a condition precedent to Americana's agreement to compensate Employee as provided herein and to sell to New Brighton Ventures the Restaurant pursuant to the Asset Purchase Agreement, in order to preserve the goodwill associated with the business of Americana, Employee hereby agrees to the following restrictions on his activities: (a) The Employee hereby agrees that during the period commencing on the Effective Date and ending on the date which is three (3) years after the Effective Date, he will not, other than as provided in paragraph 5(b) hereof, without the express written consent of Americana, directly or indirectly, anywhere in the geographic area set forth in paragraph 5(c) below, engage or participate in any activity, invest in or otherwise assist (whether as owner, part-owner, shareholder, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity) any business organization (other than Americana pursuant to the terms of this Agreement) whose activities, products or services are in the Designated Industry (as defined below); except that the Employee may make passive investments in a competitive enterprise the shares of which are publicly traded if such investment constitutes less than one (1) percent of the equity of such enterprise. For purposes of this paragraph 5, the term "Designated Industry" shall mean the business of owning, licensing, franchising, operating or otherwise participating in the ownership or operation of one or more restaurants that Americana is able to show are substantially similar in trade dress and concept to "Champps Americana" restaurants, as such trade dress and concept is either incorporated as of the Effective Date in restaurants owned and operated or being developed by Americana or Champps Entertainment, Inc. or articulated in plans, designs or proposals drawn or formulated prior to the Effective Date, but is not intended to cover all "casual dining" or sports-themed concepts. Without implied limitation, the foregoing covenant shall include: (i) until March 1, 1997, not hiring for or on behalf of Employee or any such business organization any officer or employee of Americana or any of its affiliates, except that Employee or an affiliate of Employee shall be permitted to employ (A) all staff currently employed by Americana in the operation of the Restaurant ("Restaurant Personnel") and (B) Mitchel J. Wachman after the later of (x) June 30, 1996 or (y) such date on which Employee ceases to be an employee of Americana; and (ii) not soliciting for hire by Employee or any such business organization any officer or employee of Americana or any of its affiliates and not encouraging for or on behalf of Employee or any such business organization any officer, employee, licensee, franchisee, supplier or other service provider to terminate his or her relationship with Americana or any of its affiliates except as permitted by clause (B) above. As of the date of this Agreement, other than with respect to Americana or its affiliates, Employee is not performing any consulting or other duties for, and is not a party to any similar agreement with, any business or venture competing with Americana or any of its affiliates. (b) Notwithstanding anything to the contrary contained herein, nothing herein shall restrict, limit or impair in any manner the ability or right of Employee to engage in the following activities: (i) Employee may, directly or through New Brighton Ventures or another affiliate, manage or provide consulting services to other licensees or franchisees of Americana with respect to Champps Americana restaurants, including the licensee for the Milwaukee, Wisconsin Champps restaurant, at their request, provided that such services comply with the terms and conditions of the license or franchise agreement in effect with respect to such location; and (ii) Employee may own and operate, through New Brighton Ventures or another entity owned or controlled by him, the Restaurant in accordance with the Sub-License Agreement to be dated as of the Effective Date by and between Americana, as sublicensor, and New Brighton Ventures, as sublicensee. (c) The provisions of this paragraph 5 shall apply in the following geographic areas: (i) all states in which Americana or any of its affiliates is, as of the date hereof, conducting any business activities; (ii) all states in which Americana or any of its affiliates commences conducting business activities during the term of this Agreement; and (iii) the United States of America. (d) The parties acknowledge that the time, scope, geographic area and other provisions of this paragraph 5 have been specifically negotiated by sophisticated commercial parties and agree that (i) all such provisions are reasonable under the circumstances, (ii) all such provisions are given as an integral and essential part of the transactions contemplated hereby and (iii) but for the covenants of the Employee contained in this paragraph 5, Americana would neither enter into this Agreement nor the Asset Purchase Agreement nor consummate the transactions contemplated hereby or thereby. The Employee has independently consulted with his counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the businesses conducted by Americana and its affiliates. (e) It is specifically understood and agreed that any breach of the provisions of this paragraph 5 by the Employee will result in irreparable injury to Americana and its affiliates, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, Americana and its affiliates shall be entitled to seek specific performance of this paragraph 5 by the Employee through such temporary and permanent injunctive relief as a court of competent jurisdiction may award or decree irrespective of whether Americana may be entitled to compensatory damages. The parties hereto agree that the liability of the Employee for breaches of the provisions of this paragraph 5 shall not be limited to the amount of the payment received by the Employee pursuant to paragraph 3 of this Agreement. In the event that any covenant contained in this paragraph 5 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographic area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographic area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. In any such action brought to enforce the Agreement, the prevailing party shall be awarded reasonable attorneys' fees and costs and expenses incurred therein. The existence of any claim or cause of action which the Employee may have against Americana or any of its affiliates under this paragraph 5 shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement and shall be pursued through separate court action by the Employee. 6. Confidentiality of Agreement. Employee agrees that all matters relating to the existence and content of this Agreement are confidential and agrees that he shall not disclose such matters to any person or entity except his counsel, financial advisors and immediate family, but only if those individuals agree to keep such matters confidential; provided, however, that Employee may disclose this agreement in connection with good faith negotiations with prospective employers, clients or business associates who agree to keep all such matters so disclosed confidential and may, upon written notice to Americana, disclose this Agreement to the extent required by applicable law or regulation. 7. Non-Disparagement. Employee agrees not to make any statements which disparage Americana or any of its affiliates or their respective employees, officers, directors, stockholders, products or services. Americana agrees to undertake good faith efforts to prevent its stockholders, directors, officers or employees who are informed of this Agreement from making any statements which disparage Employee. 8. Confidential Information. Employee acknowledges that by virtue of his past employment with Americana, and by virtue of any services to be rendered hereunder, he has had and will have access to confidential information and trade secrets. Employee agrees not to reproduce or disclose to any other person or entity or use for his own benefit or for the benefit of any other person or entity any such confidential information or trade secrets of Americana or any of its affiliates, except as is necessary for compliance with paragraph 3(c) and as is appropriate to allow Employee to conduct the activities that he is permitted to conduct pursuant to paragraph 5(b) hereof, to the extant that Employee complies with the terms and conditions of this Agreement. Employee further acknowledges that such information will be entrusted to him by Americana and that Employee will take all steps necessary to protect the confidentiality of such information. The term "confidential information" includes, but is not limited to, financial information, business plans, customer lists, restaurant design information or concepts, advertising concepts, recipes, matters which are subject to trademark or copyright protection, trade secrets, marketing or sales information, price and cost information, information regarding suppliers, personnel information, prospects and opportunities which have been discussed or considered by Americana or any of its affiliates, except that the term "confidential information" does not include any information that is common knowledge in the restaurant industry and is in the public domain (such as basic restaurant business practices and skills which Employee acquired prior to his association with Americana and its predecessors and possesses without infringement upon any intellectual property or similar rights of Americana or any of its affiliates), other than information that has become public on account of Employee's failure to comply with the provisions of this Agreement. Employee agrees to execute any documents reasonably necessary to protect the rights or interests of Americana in confidential information. 9. Litigation Cooperation. Employee hereby agrees to cooperate fully with Americana in the defense or prosecution of any claims or actions now in existence or which may be brought or threatened in the future against or on behalf of Americana which relate to events that transpired while Employee was employed by Americana. Employee's full cooperation in connection with such claims or actions shall include, but not be limited to, his being available to meet with counsel to prepare for trial or discovery, to assist in connection with any audit, inspection, proceeding or inquiry, to act as a witness in connection with litigation affecting Americana and, at the direction of Americana, to cooperate with any auditor or governmental agency. Americana agrees that it will pay Employee for any expenses he reasonably incurs and for the reasonable value of his time spent in connection with such cooperation. 10. Non-Cooperation. Employee agrees that he shall not voluntarily provide information to or otherwise cooperate with any individual, corporation, firm, partnership, or other entity who is contemplating or pursuing litigation against Americana and he shall not otherwise voluntarily participate in any threatened or pending litigation against Americana, other than any action brought by Employee to enforce this Agreement or to construe its terms. 11. Indemnification. (a) As a further inducement to Americana to enter into this Agreement, Employee hereby agrees to indemnify and hold each and all of the Releasees harmless from and against any and all loss, cost, damage, or expense, including, without limitation, attorneys' fees incurred by Releasees or any of them arising out of any breach of this Agreement by Employee. In addition, Employee recognizes that Americana would suffer irreparable injury in the event he were to breach any of his obligations under this Agreement and agrees that Americana will have the right to seek injunctive relief to enforce the terms of this Agreement. (b) Americana hereby agrees to indemnify and hold Employee harmless from and against loss, cost, damage or expense, including, without limitation, attorneys' fees incurred by Employee, arising out of actions or omissions of Employee while employed by Americana to the extent that such indemnification would be provided by Americana in the ordinary course of business to other employees similarly situated with respect to similar actions or omissions. 12. Non-Admission. This Agreement shall not in any way be construed as an admission by Americana of any liability or any act of wrongdoing whatsoever by Americana against Employee and Americana specifically disclaims any liability or wrongdoing whatsoever against Employee or any other person on the part of itself, its employees and its agents. 13. Advice of Counsel. Employee represents and agrees that he has been advised to discuss all aspects of this Agreement with his attorney, that he has carefully read and fully understands all of the provisions of this Agreement and that he is voluntarily entering into this Agreement. 14. Attorneys' Fees. Each party agrees that they will bear their own costs and attorneys' fees in connection with this Agreement. 15. No Transfer. Employee represents that he has not heretofore assigned or transferred, or purported to assign or transfer, to any person or entity, any Claim against the Releasees or any portion thereof or interest therein. 16. No Reliance. Employee represents and acknowledges that in executing this Agreement he does not rely and has not relied upon any representation or statement made by any of the Releasees or by any of the Releasees' agents, representatives or attorneys with regard to the subject matter, basis or effect of this Agreement, other than the promises and representations made in this Agreement. 17. Binding Nature of Agreement. This Agreement shall be binding upon each of the parties and upon their heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of each party and to their heirs, administrators, representatives, executors, successors, and assigns. 18. Governing Law. This Agreement shall be deemed to be made and entered into in the State of Minnesota, and shall in all respects be interpreted, enforced and governed under the laws of said State. The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. 19. Severability. Should any provision of this Agreement be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected thereby and said illegal or invalid part, term, or provision shall be deemed not to be a part of this Agreement. 20. Modification of Agreement. This Agreement may be amended, revoked, changed, or modified only upon a written agreement executed by both parties. No waiver of any provision of this Agreement will be valid unless it is in writing and signed by the party against whom such waiver is charged. 21. Entire Agreement. This Agreement sets forth the entire agreement between the parties hereto, and fully supersedes any and all prior agreements or understandings between the parties hereto pertaining to the subject matter hereof. 22. Notices. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if delivered in person or via facsimile (promptly followed by hard copy confirmation) or mailed by certified or registered mail, postage prepaid, or by express courier service, service fee prepaid, to the addresses as specified below or to such other address of which any party may notify the other parties as provided herein. Notices shall be effective as of the date of such delivery or mailing. To Americana: With a copy to: One Corporate Place Goodwin, Procter & Hoar LLP 55 Ferncroft Road Exchange Place Danvers, MA 01923-4001 Boston, MA 02109 Attn: Charles W. Redepenning, Jr., Esq. Attn: Ettore A. Santucci, P.C. To Mr. Steven J. Wagenheim: With a copy to: 245 Kentucky Avenue North Briggs and Morgan, P.A. Golden Valley, MN 55427 2400 IDS Center Minneapolis, MN 55402 Attn: Avron L. Gordon, Esq. 23. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Severance, Non-Competition and Confidentiality Agreement as of the date first set forth above. /s/ Steven J. Wagenheim ----------------------- Steven J. Wagenheim Then personally appeared before me Steven J. Wagenheim and stated that the execution of the within Severance, Non-Competition and Confidentiality Agreement was his free act and deed. /s/ Jennifer P. Christman ------------------------- Notary Public My commission expires: January 21, 2000 AMERICANA DINING CORP. By: /s/ Charles W. Redepenning, Jr. ----------------------------------- Name: Charles W. Redepenning, Jr. Title: Senior Vice President and Secretary Then appeared before me Charles W. Redepenning, Jr. for Americana Dining Corp. and stated that he executed the within Severance, Non-Competition and Confidentiality Agreement in his capacity as Senior Vice President and Secretary for Americana Dining Corp., and that execution of this document was within his authority. /s/ Ettore Santucci ------------------- Notary Public My commission expires: Dec.21, 2001 EX-10.25 14 LA SALSA LICENSE AGREEMENT (FUDDRUCKERS) LA SALSA LICENSE AGREEMENT (FUDDRUCKERS) TABLE OF CONTENTS SECTION 1: GRANT OF LICENSE 1.1 Grant 1.2 Development and Operation 1.3 Additional Restaurants; Relocation SECTION 2: TERM 2.1 Term 2.2 Removal; Termination Without Cause SECTION 3: RESTAURANT SYSTEM AND PROCEDURES 3.1 Openings 3.2 Operation 3.3 The Manuals 3.4 Changes to the Manuals 3.5 Products and Services 3.6 Confidentiality 3.7 LSF Property 3.8 Covenants 3.9 Employees 3.10 Approved Suppliers 3.11 Proprietary Ingredients SECTION 4: TRAINING 4.1 Initial Training 4.2 Certified Training 4.3 Training Employees 4.4 Continuing Training 4.5 Expenses i SECTION 5: MAINTENANCE; MODERNIZATION 5.1 Repairs and Maintenance 5.2 Modernization SECTION 6: FEES 6.1 Fees 6.2 No Fees Refundable 6.3 Payment of Fees SECTION 7: MARKETING AND ADVERTISING 7.1 Marketing, Promotion and Advertising Programs 7.2 Local or Regional Advertising 7.3 Marketing Fund 7.4 Marketing Fund Policy 7.5 Temporary Investment 7.6 Advertising Co-op 7.7 Approval of Advertising SECTION 8: ACCOUNTING AND RECORD KEEPING 8.1 Records 8.2 Sales Reports 8.3 Other Reports SECTION 9: AUDITS AND INSPECTIONS 9.1 Audit Rights 9.2 Inspection 9.3 Books and Records SECTION 10: INDEMNIFICATION 10.1 Indemnification SECTION 11: INSURANCE 11.1 Insurance 11.2 Certificates ii SECTION 12: COVENANTS 12.1 Debts and Taxes 12.2 Compliance with Laws SECTION 13: TRADEMARKS 13.1 Ownership 13.2 Goodwill 13.3 Use of Marks 13.4 Changes in Marks; Protection 13.5 Infringements SECTION 14: TRANSFER 14.1 Personal Contracts; Definition 14.3 FUDDRUCKERS Franchisees 14.4 Assumption 14.5 Definition of "Change of Control" SECTION 15: EXPIRATION AND TERMINATION 15.1 Termination for Cause 15.2 Requirements Upon Termination SECTION 16: MISCELLANEOUS 16.1 No Effect 16.2 Right and Remedies 16.3 Consents 16.4 Partial Invalidity 16.5 Arbitration; Jurisdiction 16.6 Attorneys' Fees 16.7 Governing Law 16.8 Notices 16.9 Terms and Headings 16.10 Entire Agreement 16.11 Amendment or Modification 16.12 Counterparts 16.13 Facsimile Signatures iii LA SALSA LICENSE AGREEMENT THIS LICENSE AGREEMENT is made and executed as of February 14, 1996 ("Effective Date") by and between La Salsa Franchise, Inc., a California corporation with its principal place of business at Los Angeles, CA ("LSF") and La Salsa Holding Co., a Delaware corporation ("Holding"), on the one hand, and Fuddruckers, Inc., a Texas corporation, on behalf of itself and its subsidiaries ("Fuddruckers"), and DAKA International, Inc., a Delaware corporation ("DAKA"), on the other hand. RECITALS: A. LSF and its parent Holding have developed a distinctive concept and type of fresh Mexican grill restaurant featuring Mexican style food and related items and beverages under the name "LA SALSA" (LA SALSA Restaurants"). B. Holding has authorized LSF to license others to use the various trademarks and service marks employed in LA SALSA Restaurants, including the federally registered mark "LA SALSA" (referred to together as the "Marks") and to use the recipes, procedures and other techniques involved in operating a LA SALSA Restaurant (the "Operating System"). C. Fuddruckers, a wholly-owned subsidiary of DAKA, has developed and operates a chain of gourmet hamburger restaurants under the name "FUDDRUCKERS," which are well known and established on a national basis ("Restaurants"). D. DAKA and Fuddruckers desire that Fuddruckers obtain a license to use the marks and Operating System in the operation of fresh Mexican grills (the "Grills") to be included as part of the continued operation of certain company-owned FUDDRUCKERS Restaurants which are now, and others which will be in the future, mutually agreed upon by LSF and Fuddruckers. E. LSF and Fuddruckers anticipate that in the future FUDDRUCKERS franchisees will be offered the right to operate Grills as part of their franchised FUDDRUCKERS restaurants under one or more additional agreements. F. LSF is willing to grant a license to Fuddruckers upon the terms and conditions set forth herein. NOW THEREFORE, in consideration of the mutual promises contained in this Agreement, the parties hereby agree as follows: SECTION 1: GRANT OF LICENSE 1.1 Grant. LSF hereby grants Fuddruckers a limited license to use the Marks and the Operating System solely in direct connection with the sale of LA SALSA food, beverage and other products from Grills contained within Restaurants identified and mutually agreed upon between LSF and Fuddruckers. The first twenty Restaurants will be identified by the parties within six months after the date of this Agreement and specified on Exhibit A-2 attached hereto and incorporated herein by reference. A partial list is currently attached as Exhibit A-1. Fuddruckers expressly acknowledges and agrees that LSF has granted franchise development territories and franchise locations which include protected territory provisions that may prevent the development and/or operation of any Grills by Fuddruckers within such protected territories. 1.2 Development and Operation. (a) Fuddruckers agrees to use its best efforts to open and operate Grills at such twenty Restaurants as soon as possible after execution of this Agreement and in any event within six months after the date of this Agreement. These Grills will be opened and operated by Fuddruckers as test units which will contain the image, signage, size, menu items, equipment, fixtures, personnel, point of sale systems and other aspects of LA SALSA operations as LSF and Fuddruckers may agree upon as to each Grill. (b) Prior to developing additional Grills beyond the first twenty and before the end of the Initial Term (defined below), the parties will set forth in writing the plans and specifications to be used by Fuddruckers in opening and operating such additional Grills and will sign and attach such document to this Agreement as Exhibit B. The parties will also specify on Exhibit B the mutually acceptable procedures for selecting additional Restaurants for installing Grills and for relocating Grills to other Restaurants. Fuddruckers agrees to comply with all of such plans, specifications and procedures unless it has received the prior written consent of LSF. (c) Only company-owned FUDDRUCKERS restaurants operated by Fuddruckers and its subsidiaries in the United States will be operated pursuant to this Agreement. A current list of the addresses of the company-owned FUDDRUCKERS Restaurants to which the parties anticipate a Grill may be added is attached hereto and incorporated herein by reference as Exhibit C. Fuddruckers may add additional Restaurants to such list with the prior written approval of LSF which approval will not be unreasonably withheld. Prior to the end of the initial Term (as defined below), and from time to time thereafter, Fuddruckers will delete any Restaurant from such list whenever it concludes that no Grill will be added to such Restaurant. (d) DAKA agrees to cause Fuddruckers to meet all of its obligations under this Agreement. 1.3 Additional Restaurants; Relocation. Fuddruckers may add one or more Restaurant Grills to this Agreement by written agreement signed in each case by both Fuddruckers and LSF prior to opening of the Grill for such Restaurant. Fuddruckers will not relocate a Grill or any other part of the program from any of the Restaurants without the prior written consent of LSF, which consent will not be unreasonably withheld. 1.4 Protected Territory. (a) "Protected Territory" for purposes of this Agreement shall mean the area within three existing city blocks of any Restaurant located in a central business district or within a one-mile radius of any Restaurant located elsewhere. (b) During the term of this Agreement, neither LSF nor Holding will own, operate or grant any franchise or license to own or operate a LA SALSA Restaurant within the Protected Territory around a Restaurant containing a Grill. (c) During the three years following the Effective Date, neither LSF nor Holding will own, operate or grant any franchise or license to own or operate a LA SALSA Restaurant within the Protected Territory around a Restaurant listed on Exhibit C or added to Exhibit C pursuant to either Sections 1.2(c) or 1.3. (d) Fuddruckers and Daka acknowledge and agree that LSF will during the term hereof continue the development of LA SALSA company and franchise Restaurants within areas adjacent to such Protected Territories and expects to grant franchise area development rights to third parties covering such areas. (e) If Fuddruckers gives written notice of cancellation during the Initial Term under Section 2.1(a) below, LSF and Holding shall have no continuing obligation under this Section 1.4. SECTION 2: TERM 2.1 Term. (a) This Agreement will be effective as of the Effective Date set forth above and will continue for an initial term ending one year after the Effective Date (the "Initial Term"), subject to earlier termination as expressly provided for in this Agreement. Unless Fuddruckers gives written notice of cancellation to LSF on or before thirty days prior to the end of the Initial Term, this Agreement will automatically continue after the Initial Term for a period ending on the tenth of the Effective Date. (b) Each Grill opened by Fuddruckers during each calendar year may operate under the terms of this Agreement until December 31 of the calendar year set forth in the following table: Calendar Expiration Year of Opening Date of License 1996 December 31, 2006 1997 December 31, 2007 1998 December 31, 2008 1999 December 31, 2009 2000 December 31, 2010 2001 December 31, 2006 2002 December 31, 2006 2003 December 31, 2006 2004 December 31, 2006 2005 December 31, 2006 2006 December 31, 2006 (c) Prior to the end of the ten-year term of this Agreement, the parties may enter into an additional ten-year License Agreement regarding Grills upon terms and conditions mutually satisfactory to the parties. So long as the following conditions are met, Fuddruckers may at its option by written notice to LSF extend this Agreement to operate the Grills for an additional period for each Grill of ten years from the expiration date set forth in the above table and add additional Grills under this Agreement for an extended period ending on December 31, 2016 (the "Extended Term"), so long as it meets the following conditions: (i) Fuddruckers must give LSF written notice of extension not less than ninety days before the end of the initial ten-year term; (ii) Fuddruckers must not at the time of its written notice of extension be in material default (as defined hereafter) of this Agreement without having cured such default within the applicable cure period; (iii)Fuddruckers must agree to make within a reasonable period agreed to by Fuddruckers and LSF all required changes as set forth in a written notice from LSF, including as examples, (A) additional training requirements and (B) modernization of the Grills and their equipment such as redecorating certain Grills and installing new equipment to reflect the then current LA SALSA standards and image as set forth in the Manuals or in writings issued by LSF; and (iv) Fuddruckers and LSF will adjust to their satisfaction the amount of the Fees referred to in Section 6.1 in order to reflect changes in such fees charged by LSF at that time. (d) For purposes of this Agreement unless otherwise specifically provided, "material default" shall be defined as a Grill's material deviation from LA SALSA's recipes, basic menu, decor and trade dress as described in Exhibit B. 2.2 Removal; Termination Without Cause. (a) LSF agrees that after the Initial Term Fuddruckers may at any time and from time to time upon thirty (30) days written notice to LSF remove any Restaurant from this Agreement. (b) LSF further agrees that after the initial Term Fuddruckers may at any time upon thirty (30) days written notice to LSF terminate this Agreement in full without cause. (c) Fuddruckers agrees that upon the effectiveness of any such removal or such termination, LSF and Holding shall have no further obligation under Section 1.4 above as to any Restaurant to which such removal or termination applies. SECTION 3: RESTAURANT SYSTEM AND PROCEDURES 3.1 Openings. LSF will advise and assist Fuddruckers in opening and operating each Grill, including attendance at each of the first three Grill openings. LSF representatives will assist Fuddruckers in coordinating the pre-opening activities for each Grill and will be available to assist with its operations for up to five (5) days during the opening week or as reasonably requested by Fuddruckers. Fuddruckers agrees to reimburse LSF or Holding promptly following invoice for all of their reasonable travel, lodging and other costs incurred in connection with living expenses in providing this in-store training and assistance for each Grill opening. Fuddruckers will carry out an advertising program designed for the opening of each Grill, as mutually agreed upon between Fuddruckers and LSF. 3.2 Operation. (a) Fuddruckers agrees that it will identify and appoint an individual who will be its representative in managing the Restaurants, Grills and who will devote his or her best efforts and personal attention to the day to day operation of the Grills (the "Representative") Fuddruckers may change to another Representative from time to time following written notice to LSF. (b) Fuddruckers hereby authorizes and appoints the Representative with full authority to act on behalf of Fuddruckers and DAKA in regard to performing or administering this Agreement. LSF may deal completely with the Representative in such regard unless and until its actual receipt of written notice from Fuddruckers of cancellation of such authority. (c) Fuddruckers agrees that it will operate each LA SALSA Grill in accordance with the LA SALSA standards of high quality and friendly service which will at no time be less than the same degree of high quality and friendly service that Fuddruckers otherwise requires at the operation of its own FUDDRUCKERS restaurants, recognizing that an integral part of the Operating System includes vary friendly treatment of customers. (d) Without limitation, Fuddruckers specifically agrees to comply with all health, safety and other laws applicable to the operation of each Grill. 3.3 The Manuals. LSF will furnish Fuddruckers with one copy of its current LA SALSA operations Manuals ("Manuals") for each Restaurant prior to the opening of each Grill. Fuddruckers acknowledges and agrees that because the recipes and procedures set forth in the Manuals are fundamental to the Operating System and the way the public identifies the Marks with the LA SALSA food products, it will strictly follow such procedures and recipes at all times and will use only high quality ingredients in preparing such products consistent with the same level of quality used in its own food products. 3.4 Changes to the Manuals. (a) Fuddruckers specifically agrees that the Manuals are an integral, necessary and material element of the Operating System and that it will be necessary for LSF, in order to maintain the high quality of the Operating System and maximize its competitive position, to revise and update the Manuals from time to time. LSF has the right at any time and from time to time, in the good faith exercise of its reasonable business judgment, to revise, delete from and add to the materials contained in the Manuals. Subject to the limitations described below, Fuddruckers expressly agrees to comply promptly with all such changes to the Manuals that are applicable system-wide to LA SALSA outlets. LSF will furnish Fuddruckers from time to time portions or all of the Manuals as and when they are updated, and Fuddruckers will keep each of the Manuals current at all times. (b) In light of the limited menu to be served at the Grills and their location within FUDDRUCKERS Restaurants, the parties agree that: (i) during the Initial Term Fuddruckers will not be required to make any expenditures of more than $1,000.00 per Grill to comply with changes to the Manuals; and (ii) after the Initial Term, Fuddruckers will not more than once during any twelve (12) month period be obligated to make expenditures of more than $5,000.00 per Grill to comply with changes in the Manuals or to make any such change if Fuddruckers and LSF agree in the reasonable exercise of their business judgment that the expenditures would not be commercially reasonable in light of the remaining term of this Agreement. 3.5 Products and Services. Fuddruckers agrees to offer for sale from the Grill at each Restaurant the food, beverages and other products described in Exhibit B unless Fuddruckers and LSF agree in writing to any exceptions to Exhibit B. 3.6 Confidentiality. (a) Fuddruckers and DAKA each agree that Holding and LSF are the owners of all rights in and to the Operating System, including the information and materials described or contained in the Manuals, and that the Operating System and Manuals contain trade secrets and themselves constitute trade secrets of LSF which have been or will be revealed to Fuddruckers and/or DAKA in confidence. Fuddruckers and DAKA each agree not to disclose, duplicate, license, sell or reveal any portion thereof to any other person, except an employee of Fuddruckers required by his or her work to be familiar with such information. Fuddruckers and DAKA each agree to keep and respect all confidential information received from LSF, to obtain from the Representative an agreement to keep and respect all such confidences and to be responsible for compliance by the Representative with such agreement. (b) Fuddruckers and DAKA will pursuant to this Agreement disclose to LSF and Holding confidential, proprietary and trade secret information regarding Fuddruckers and DAKA. LSF agrees that it and Holding will keep and respect all confidential information received from Fuddruckers and DAKA and will not disclose, duplicate, license, sell or reveal any portion thereof to any person, except any employee of LSF or Holding required by his or her work to be familiar with such information. 3.7 LSF Property. The Manuals and all other confidential materials furnished to Fuddruckers hereunder are on loan only, will remain the property of LSF and are required to be returned to LSF immediately for any Grill which is no longer being operated under this Agreement. 3.8 Covenants. (a) Fuddruckers and DAKA each agree that LA SALSA Restaurants must compete (by among other things introducing new products, conducting advertising programs and establishing alternative distribution outlets) against similar businesses which may have far greater financial resources and may be better established in the restaurant industry. Therefore, Fuddruckers and DAKA agree to use their best efforts to assure compliance throughout the term of this Agreement with this Section 3.8. (b) LSF recognizes and agrees that (i) FUDDRUCKERS Restaurants currently sell certain Mexican style food items, (ii) that other DAKA subsidiaries and affiliates sell unbranded Mexican style food items at institutional and other retailer specialty outlets and (iii) that other DAKA subsidiaries and affiliates are franchisees of other restaurant chains that feature Mexican style food items. (c) DAKA and Fuddruckers agree that during the term of this Agreement and any extension and for a period of one year after its expiration or termination, Fuddruckers will not (i) use the LA SALSA Marks, trade dress, recipes and other proprietary parts of the Operating System without the prior express written consent of LSF, (ii) do any act which is injurious or prejudicial to the goodwill associated with the LA SALSA chain, the Operating System or the value of the marks, (iii) operate under a different name any restaurant chain similar to the LA SALSA chain of restaurants which feature primarily Mexican style food and related items under a "taqueria" or "fresh Mexican grill" concept. (d) Fuddruckers and DAKA each agree that any violation of this Section 3.8 would result, in irreparable injury to LSF and its Operating system and that LSF would be without an adequate remedy at law. Fuddruckers and DAKA each therefore agree that in the event of a breach or threatened breach of any such covenant, LSF may obtain, in addition to any other remedies which it may have hereunder or at law or in equity, a temporary and/or permanent injunction and a decree for specific performance of the terms of this section 3.8 without the necessity of showing actual or threatened damage. (e) The parties agree that each of the foregoing covenants will be construed as independent of each other and of any other covenant or provision of this Agreement. If all or any portion of a covenant in this section 3.6 is held unenforceable by a court having valid jurisdiction in a final decision between the parties hereto and from which no appeal has or may be taken, Fuddruckers expressly agrees to be bound by the remaining portion of such covenant. 3.9 Employees. The parties each hereby agree that such party will not knowingly recruit and hire any person employed by the other party or by any other LA SALSA franchisee without first obtaining such other party's written consent. The parties agree that in the event of a breach of this covenant, actual damages would be extremely difficult to compute, and accordingly, in the event of such a breach, the breaching party agrees to pay the prior employer of such person liquidated damages equal to the greater of (a) such person a prior annual salary or (b) the annual salary and any bonus and other benefits paid or to be paid by the breaching party to such person during the first year of employment. 3.10 Approved Suppliers. Fuddruckers agrees to purchase all products for sale at the Grille from suppliers who are then approved in writing by LSF as an approved LA SALSA supplier. If Fuddruckers wants to purchase any products from a supplier who is not so approved, Fuddruckers will notify LSF of such supplier and instruct the proposed supplier to contact LSF and follow LSF's procedures for becoming an approved LA SALSA supplier. LSF may charge a $250.00 fee for the fees and costs involved in these approval procedures. LSF agrees upon request by Fuddruckers to expedite the approval process if Fuddruckers demonstrates that it has been unable to purchase sufficient supplies from approved suppliers on a timely basis to meet its needs. 3.11 Proprietary Ingredients. Fuddruckers agrees to buy to the extent required by the Manuals certain proprietary ingredients from LSF or a designated approved supplier (which may be an affiliate of LSF). Fuddruckers understands and agrees that such ingredients are prepared pursuant to secret, proprietary recipes and/or procedures belonging to LSF or its affiliates. LSF agrees that if reasonably requested by Fuddruckers, it will use its best efforts to have such proprietary ingredients made available for sale by additional designated approved suppliers, subject to strict confidentiality requirements and reasonable fees which may be charged by LSF to such suppliers for approval and regular inspections for compliance. SECTION 4: TRAINING 4.1 Initial Training. LSF will make available to the Representative and those persons identified to act as Grill Training managers the LA SALSA Restaurant operations Training Course. Fuddruckers agrees that the Representative and each Grill Training Manager must attend and complete LSF's Restaurant Operations Training Course to the reasonable satisfaction of LSF. All or a portion of the Restaurant Operations Training Course may be waived in writing by LSF. 4.2 Certified Training. LSF will make available to Fuddruckers a LA SALSA Operations Training Course program for purposes of training Fuddruckers, Grill Training Managers. Certification training will be conducted by a LA SALSA training manager either at a Holding Restaurant or an operating Grill which has been certified by LSF for training. Upon successful completion of the Training Course to LSF's satisfaction, LSF will certify each such Training Manager for the purpose of training other employees of Fuddruckers. It is expressly understood and agreed that each certified Training Manager and each certified training Grill must continue to meet, on an ongoing basis, LSF's established criteria to maintain such status as certified for LA SALSA training. 4.3 Training Employees. Except as set forth specifically herein, Fuddruckers will be responsible for the initial and continuing training of all Grill employees. 4.4 Continuing Training. The Representative and such other employees as LSF may designate will, from time to time as reasonably required by LSF, personally attend and complete LSF-provided refresher courses in LA SALSA operations and food preparation and any training sessions held for the purpose of introducing new products or procedures. 4.5 Expenses. Fuddruckers agrees to pay LSF $2,500.00 for each Fuddruckers employee who enrolls in the LA SALSA initial Restaurant Operations Training Course and for each Certified Training Manager trained by LSF or Holding. Such payment will be paid prior to each such person's commencement of training. Operations refresher courses and new product or new procedure training sessions will be tuition-free to Fuddruckers and Fuddruckers, eligible employees. All other training costs and expenses will be the responsibility of Fuddruckers, such as the cost of travel, lodging, meals and other related and incidental expenses. SECTION 5: MAINTENANCE; MODERNIZATION 5.1 Repairs and Maintenance. Fuddruckers agrees to maintain each Grill and other portions of each Restaurant consistent with its own high quality and service standards applicable to all FUDDRUCKERS restaurants as well as with LA SALSA's standards as set forth in the Manuals. Except as may be expressly provided in Exhibit B or the manuals, no changes of any kind in design, equipment or decor will be made in any Grill without the prior written approval of LSF in each instance. 5.2 Modernization. (a) Subject to the limitations sct forth below, Fuddruckers agrees, from time to time as reasonably required by LSF (taking into consideration cost and the then remaining term of this Agreement), to modernize each Grill to LSF's then current standards and specifications. Fuddruckers understands and agrees that this obligation is in addition to the need to make repairs, maintain equipment and purchase new equipment. No such modernization will be required by LSF unless and until LSF, Holding and their wholly owned affiliates ("Affiliates") have at that time implemented such standards and specifications in at least twenty-five percent (25%) of the LA SALSA Restaurants operated by them in the continental United States. No such modernization will be required of Fuddruckers during the last two years of any Grill's operation under this Agreement. (b) In light of the limited menu to be served at the Grills and their location within Fuddruckers Restaurants, the parties agree that Fuddruckers will not more than once during any twelve (12) month period be obligated to make modernization expenditures of more than $15,000 per Grill or to make any such change if Fuddruckers and LSF agree in the reasonable exercise of their business judgment that tho expenditures would not be commercially reasonable in light of the remaining term of this Agreement. The parties agree that the foregoing $15,000 limit may be increased during the term hereof by any increases in the Cost of Living index determined by reference to nationwide United States governmental statistics as compared to those existing at the date of this Agreement. SECTION 6: FEES 6.1 Fees. As partial consideration for the rights granted by LSF, Fuddruckers will pay LSF: (a) (i) For each of the first twenty Restaurants at which a Grill is opened, an "Initial" fee for each Grill in the total amount of $6,275.00 due on or before the opening of such Grill; and (ii) for any Restaurants after the first twenty at which a Grill is opened, an "Initial" fee for each Grill in the total amount of $3,600.00 due on or before the opening of such Grill; (b) A monthly "License Fee" equal to five percent (5%) of Gross Sales (as defined below) as payment to LSF for the continuing right to use the LA SALSA Operating System and Marks; and (c) A "Marketing Fund" Fee for each such month as its contribution to the Marketing Fund provided for in Section 7.3 below. 6.2 No Fees Refundable. Fuddruckers agrees that the fees referred to above in Section 6.1 are not refundable in whole or part under any circumstances and have been fully earned by LSF by the grant of this license. 6.3 Payment of Fees. (a) Fuddruckers agrees to pay LSF the License Fees and Marketing Fund Fees provided for above monthly in lump sum so that LSF will receive all of such Fees within fifteen (15) calendar days after the end each month. Fuddruckers agrees that TIME IS OF THE ESSENCE regarding payment of all Fees. (b) Fuddruckers agrees to pay the License Fees and Fees to LSF by timely mailing or delivering of a or less of the Restaurants containing Grills are DAKA or Fuddruckers to a party not a member of the Companies (as defined below), LSF may by written that the License Fees and Marketing Fund Fees for paid by automatic direct transfer of funds. Within ten (10) days after receipt of such notice, the transferee must furnish the information, execute such forms, make such arrangements and complete such procedures as are reasonably necessary to establish direct transfers from its account(s) to such account(s) as LSF may designate in order to pay directly the License and Marketing Fund Fees within the payment period referred to above. Without limiting the foregoing, the transferee must obtain a telefax machine and/or computer point of sale system as designated by LSF and to make timely telefax or modem reports to LSF of the sales and other information necessary to allow LSF to cause such transfers to be made and must maintain sufficient funds in its account(s) to allow timely honoring of each payment to LSF by its bank or other financial institution. LSF will require the transferee to specifically authorize LSF to make such direct transfers of the License Fees and Marketing Fund Fees so long as such transfers are limited to amounts computed with reference to sales information furnished to LSF or with reference to good faith estimates by LSF. (c) Notwithstanding when Fees are required to be paid, Fuddruckers agrees to provide written sales reports to LSF on a weekly basis as reasonably required by LSF so that LSF may maintain current information regarding sales information. (d) License Fees and Marketing Fund Fees which are not paid when due will bear interest from and after their respective due dates at the rate of eighteen percent (18%) per annum or the highest rate permitted by law, whichever is less. Any late payment of any fees must be accompanied by a late payment administrative charge of $25.00. 6.4 Gross Sales. The term "Gross Sales" as used in this Agreement will mean the total of all cash or other form of payment ("Receipts") received by Fuddruckers for the sale of LA SALSA food, beverages and other products, including promotional items or for catering services involving LA SALSA products. Gross Sales will include all sales of LA SALSA items that are collected through any FUDDRUCKERS Restaurant so long as they are directly related to the Grill. if a Grill does not collect Receipts directly for the beverages sold with LA SALSA food products , the allocation of beverages to Gross Sales shall be computed each month by applying the percentage of sales from Receipts of LA SALSA food products at the Restaurant to the percentage of Receipts from all food products at the Restaurant against the total beverage Receipts received during such month by such Restaurant. Neither Gross Sales nor Receipts shall include (a) any sums collected and paid out for sales taxes levied on the sale of food, beverages, property or services, (b) the proceeds from the sale of a Grill' s used equipment, (c) meals provided to Fuddruckers employees according to established Fuddruckers policies, (d) sales for which refunds are made due to customer dissatisfaction or (e) any discounts or coupons which are applied against the full sales price. SECTION 7: MARKETING AND ADVERTISING 7.1 Marketing, Promotion and Advertising Programs. Recognizing the value of marketing, advertising and promotions to enhance the goodwill and public image of the LA SALSA chain of restaurants, the parties agree that LSF will develop marketing, promotion and advertising programs designed to promote and enhance the collective success of all LA SALSA Restaurants including the Grills. It is expressly agreed that in all respects of such marketing, promotion and advertising (such as type, quantity, timing, placement and choice of media, market areas and advertising agencies), the decisions of LSF made in good faith will be final and binding. In regard to all advertising and sales promotion programs, both parties agree to cooperate with each other and refrain from any action which the other party may deem to be harmful to its image. 7.2 Local or Regional Advertising. Fuddruckers agrees to spend on a quarterly basis a minimum dollar amount equal to two percent (2%) of its Gross Sales from the Grills in conducting direct advertising and sales promotion programs for the Grills. All such programs must be approved in advance by LSF in writing, and such expenditures will not include any overhead related to marketing or advertising. LSF specifically agrees that Fuddruckers may conduct advertising that promotes the Grills in conjunction with the Restaurants. LSF may require Fuddruckers to provide proof of all such marketing, promotion and advertising expenditures. Payments made to an Advertising Cooperative ("Co-op") for the area in which a Grill is located, as provided for below, will be applied towards Fuddruckers, required spending. 7.3 Marketing Fund. (a) LSF has established and maintains a marketing Fund, and Fuddruckers agrees that its purpose is to maximize the general public recognition and acceptance of LA SALSA Restaurants. Monies from the Marketing Fund must be used to pay for marketing, promotion and advertising program development such as, but not limited to, costs and expenses related to the employment of advertising agencies, payment of talent and residuals, research and development, design and development of trademarks and logos, creation of materials, promotions, public relations, market research and clearance of marketing, advertising and promotional programs. (b) In addition to the spending required by Section 7.2 above, Fuddruckers agrees to pay LSF a Marketing Fund Fee of one percent (1%) of Gross Sales from operating the Grills for each payment period as set forth above in Section 6. (c) LSF, at its sole discretion, may at any time increase the Marketing Fund Fee in any increments so long as the total Marketing Fund Fee does not exceed a maximum of two percent (2%) of Gross Sales. (d) LSF, Holding and their wholly-owned Affiliates will also contribute to the Marketing Fund the same percentage of the Gross Sales from their operations of LA SALSA Restaurants in the continental United States. (e) LSF will deposit all Marketing Fund Fees in a separate Marketing Fund account which is not considered an asset of LSF. (f) Fuddruckers agrees that LSF has so obligation to make expenditures for Fuddruckers or others which are equivalent or proportionate to the contributions made to the Marketing Fund or to ensure that any particular Grill benefits directly or pro rata from any marketing program or advertising. (g) It negotiations on behalf of the Marketing Fund result in payment by suppliers of allowances or rebates designated for the Marketing Fund, all such funds will be paid promptly into the Marketing Fund. (h) All monies in the Marketing Fund, including any interest or other income earned from the investment of such monies, must be spent and disbursed only in accordance with this Agreement and the Marketing Fund Policy provided for in Section 7.4 below. (i) LSF agrees to cause an annual accounting of the Marketing Fund and to make the results of such accounting available to Fuddruckers upon request. If such accounting is made by an independent accounting firm, the expenses thereof shall be paid from the marketing Fund. 7.4 Marketing Fund Policy. LSF may develop and modify from time to time as necessary a Marketing Fund Policy which will include procedures and guidelines for disbursements and expenditures from the Marketing Fund and other administrative procedures as LSF may deem necessary or appropriate. 7.5 Temporary Investment. LSF may temporarily invest any or all of the monies held in the Marketing Fund from time to time at the sole discretion of LSF in accordance with the Marketing Fund Policy. All interest or other income received from such investments will be used by LSF to pay for the expenses of administering the Marketing Fund pursuant to the Marketing Fund Policy. Interest or income received from temporary investments that exceed the reasonable expenses of administering the fund will be considered part of the Marketing Fund. 7.6 Advertising Co-op. (a) LSF may from to time at its discretion designate any geographical area as a basis for an Advertising Co-op for the purpose of marketing, advertising and promoting LA SALSA Restaurants in that area, including the restaurants operated by Holding. The Co-op will also serve as a means of exchanging of ideas, sharing of information and problem solving. (b) Fuddruckers agrees to become a member of a Co-op at any time a Grill is located within the designated area for such Co-op. (c) For each such Co-op, Fuddruckers agrees to execute and deliver any agreements or undertakings required by such Co-op, to make minimum contributions as required by its members and to maintain Fuddruckers states as a member in good standing of such Co-op at all times. (d) The contribution to a Co-op will be not less than one percent (it) or more than two percent (21) of Gross Sales unless the Co-op members agree to additional funding in accordance with established Bylaws. (e) Fuddruckers agrees that a failure by Fuddruckers to comply with a properly approved requirement or decision of such Co-op will be a material default under this Agreement. 7.7 Approval of Advertising. (a) All advertising copy and other materials used by Fuddruckers must be in strict compliance with the requirements contained in the Manuals and otherwise set forth by LSF. (b) If Fuddruckers wishes to use other or modified materials, Fuddruckers must submit to LSF, in each instance and at least 15 business days prior to first use, the proposed advertising copy and materials for approval in advance of publication. Fuddruckers may use only advertising materials which have been approved in writing by LSF. (c) In no event will Fuddruckers, advertising for Grills contain any statement or material which may be considered (i) in bad taste or offensive to the public or to any group of persons or (ii) defamatory of any person or an attack on any competitor. 7.8 Grand Opening. Fuddruckers agrees to conduct for each Grill a grand opening promotion as mutually agreed to in each case by LSF and Fuddruckers. SECTION 8: ACCOUNTING AND RECORD KEEPING 8.1 Records. Fuddruckers will maintain and preserve for a minimum of three (3) years from the date of preparation full, complete and accurate books, records and accounts in accordance with generally accepted accounting principles covering all of the Restaurants at which a Grill is or has been operated. LSF and DAKA will from time to time as necessary work together in good faith and agree upon the use by Fuddruckers of the appropriate electronic cash registers, computer programs, bookkeeping and record keeping forms. 8.2 Sales Reports. (a) Fuddruckers agrees to provide LSF with weekly Sales Reports for each Grill using such forms as are mutually agreed upon between Fuddruckers and LSF. Fuddruckers will transmit such reports by modem or other electronic means as mutually agreed upon by the parties so that LSF will receive each report within twenty-four hours after the end of each LSF sales week (which currently begins on Tuesday and ends at the close of business on the following Monday). (b) Fuddruckers will also provide LSF with Sales Reports for each Grill covering each Fuddruckers accounting period and each Fuddruckers fiscal year. Such reports will be sent to LSF within thirty (30) calendar days after each accounting period and ninety (90) calendar days after each fiscal year, respectively. If the accounting period does not cover the same weeks as the Weekly Sales Reports, the report will include a reconciliation showing each week or partial week included in such report. 8.3 Other Reports. In addition, if the ownership of Fuddruckers changes to the extent that there is a change of control (as defined below), LSF may require additional reports and documents regarding operation of the Grills and the Restaurants at which Grills are located similar to what it then requires of its LA SALSA franchisees, such as: (a) Restaurant Profit and Loss Statements, Balance Sheets and Statements of cash Flows for each accounting period designated by LSF, which information may be unaudited but must be certified by Fuddruckers to be true and accurate and which must be received by LSF not later than thirty (30) calendar days after the end of the accounting period as prescribed by LSF; (b) Annual Balance Sheet, Profit and Loss statement and Statements of Cash Flow for each Restaurant, which information may be unaudited but must be certified by Fuddruckers to he true and accurate and which must be received by LSF not later than ninety (90) calendar days after the end Of each fiscal year; (c) Sales and income tax reports covering the Grills; and (d) Any amendments or corrections of any of the foregoing, which must be sent immediately to LSF following preparation. TIME IS OF THE ESSENCE with respect to completion and submission of each such document. SECTION 9: AUDITS AND INSPECTIONS 9.1 Audit Rights. Fuddruckers agrees that LSF will at all times have the following audit rights: (a) Representatives of LSF may on a reasonable basis review, inspect and copy any and all accounting records and other such documents as may be reasonably necessary to audit Fuddruckers, compliance with this Agreement, including documents held or maintained by other affiliates of Fuddruckers. (b) If any such inspection or audit reveals that the Gross Sales reported in any report or statement are less then the actual Gross Sales calculated during such inspection, then Fuddruckers will immediately pay LSF the additional amount of fees owing by reason of the understatement of Gross sales previously reported, together with interest as provided in Section 6.3. In the event that any report or statement by Fuddruckers understated gross sales by more than three percent (3%) of the actual Gross Sales calculated during LSF's inspection, Fuddruckers will, in addition to paying for the additional fees, pay and reimburse LSF for any and all expenses incurred in connection with its inspection, including, but not limited to, reasonable accounting and legal fees, together with interest if such fees are not timely reimbursed. Such payments will be without prejudice to any other rights or remedies LSF may have under this Agreement or otherwise. (c) In addition to the above, in the event that the ownership of Fuddruckers changes to the extent there is a change of control (as defined below), representatives of LSF may inspect and copy such other documents as may be reasonably necessary to confirm Fuddruckers, compliance with this Agreement. 9.2 Inspection. LSF will have the right at any time and from time to time without notice to have its representatives enter the Restaurant premises for the purpose of inspecting its condition and its operations for compliance with LSF's requirements contained in this Agreement and in the Manuals, and for any other reasonable purpose connected with the operation of a Grill. 9.3 Books and Records. Without limiting the generality of Section 9.1, LSF representatives will have the right at all times during normal business hours to confer with Restaurant employees and customers and to inspect Fuddruckers, books, records and sales tax returns or ouch portions thereof as pertain to the operation of any Grill. SECTION 10: INDEMNIFICATION 10.1 Indemnification. (a) Fuddruckers will indemnify LSF, Holding their subsidiaries and other affiliates and its or their officers, directors, employees, agents, affiliates, successors and assigns from and against (i) any and all claims based upon, arising out of or in any way related to the operation or condition of any part of the Restaurants or Restaurants' premises, the conduct of the Restaurants, businesses, the ownership or possession of real or personal property, any negligent act, misfeasance or nonfeasance by Fuddruckers or any of its agents, contractors, servants or employees, and including, without limitation, all obligations of Fuddruckers incurred pursuant to any provisions of this Agreement and (ii) any and all fees (including reasonable attorneys, fees), costs and other expenses incurred by or on behalf of LSF in the investigation of or defense against any and all such claims. (b) LSF and Holding will indemnify DAKA and Fuddruckers, their subsidiaries and other affiliates and its or their officers, directors, employees, agents, affiliates, successors and assigns from and against any and all claims based upon, arising out of or in a any way related to (i) claims that the operation of any Grill violates territorial exclusivity granted to a LA SALSA franchisee or developer by LSF or Holding, (ii) claims that the operation of any Grill breaches an express or implied contractual obligation owed by LSF or Holding to any LA SALSA franchisee or developer or (iii) claims that the operation of any Grill constitutes tortious conduct against any such LA SALSA franchisee or developer so long as the operation of such Grill has been expressly approved by LSF. such indemnification shall include any and all fees (including reasonable attorneys' fees), costs and other expenses incurred by or on behalf of LSF in the investigation of or defense against any and all such claims. SECTION 11: INSURANCE 11.1 Insurance. Fuddruckers agrees to maintain at all times adequate insurance regarding the operation of each Restaurant at which a Grill is located consistent with its general policy regarding insurance at all of its Restaurants. Such policy may include self-insurance so long as it is adequate to ensure continued operation of the Grills. Fuddruckers will take such action as is necessary to cause LSF and Holding to be named as additional insureds in all liability policies covering the Grills so that Fuddruckers, LSF and Holding will at all times be protected against any and all loss, liability or occurrence, arising out of or in connection with the construction, condition, operation, use or occupancy of the Grills, the Restaurants or the Restaurants' premises. In all events the insurance policy or policies will include (a) comprehensive general liability insurance, including product liability coverage, in an amount sufficient to satisfy the requirements of the umbrella liability insurance policy required below, (b) liquor liability coverage (if any alcoholic beverages are offered for sale from the Restaurant) , (c) umbrella liability insurance providing a minimum of $5,000,000 additional coverage, and (d) workers, compensation insurance as required by applicable law. Fuddruckers obligation to maintain such insurance will not be limited in any way by reason of any insurance maintained by LSF. LSF may require additional insurance if there is any change in control of Fuddruckers or the Grill. 11.2 Certificates. Upon obtaining the insurance required by this Agreement and on each policy renewal date thereafter, Fuddruckers will deliver to LSF for its approval certificates of insurance showing compliance with the requirements of this Section 11. Such certificates must state that the policy or policies will not be canceled or altered without at least thirty (30) days, prior written notice to LSF. Maintenance of such insurance and the performance by Fuddruckers of its obligations under this Section 11 will not relieve Fuddruckers under the indemnity provisions of this Agreement or limit such liability. SECTION 12: COVENANTS 12.1 Debts and Taxes. Fuddruckers will pay promptly when due all debts and other obligations incurred directly or indirectly in connection with the Restaurants and their operation; including, without limitation, all taxes and assessments that may be assessed against the Restaurants' land, building and other improvements, equipment, fixtures, signs, furnishings and other property, and all undisputed liens and encumbrances of every kind and character incurred by or on behalf of Fuddruckers in conducting the Restaurants' business. Fuddruckers may contest any ouch debt or obligation in good faith so long as such contest will not result in the loss of the Restaurant premises or interruption of the Restaurant's operation. 12.2 Compliance with Laws. Fuddruckers will at its own cost and expense promptly comply with all laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and offices thereof. Without limiting the generality of the foregoing, Fuddruckers will abide by all applicable rules and regulations of any Public Health Department. SECTION 13: TRADEMARKS 13.1 Ownership. Fuddruckers agrees that LSF has the sole and exclusive right (except for rights granted under existing and future franchise or license agreements) to use the Marks in connection with the products and services to which they are or may be applied by LSF. Fuddruckers represents, warrants and agrees that neither during the term of this Agreement nor after its expiration or other termination will Fuddruckers directly or indirectly contest or aid in contesting the validity, ownership or use of the Marks by LSF or take any action whatsoever in derogation of the rights claimed therein by LSF. 13.2 Goodwill. Nothing contained in this Agreement will be construed to vest in Fuddruckers any right, title or interest in or to the Marks, the goodwill now or hereafter associated therewith or any right in the design of any Grill, other than the rights and license expressly granted herein during the term hereof. Any and all goodwill associated with or identified by the Marks will inure directly and exclusively to the benefit of LSF, including without limitation any goodwill resulting from operation and promotion of the Grills. 13.3 Use of Marks. Fuddruckers will not use the Marks in connection with any statement or material which may, in the judgment of LSF, be in bad taste or inconsistent with LSF's public image, or tend to bring disparagement, ridicule or scorn upon LSF, the Marks or the goodwill associated therewith. 13.4 Changes in Marks; Protection. LSF will have the right at any time and from time to time upon notice to Fuddruckers to make additions to, deletions from, and changes in the Marks, or any of them, all of which additions, deletions and changes will be as effective as if they were incorporated in this Agreement. All such additions, deletions and changes will be made in good faith, on a reasonable basis and with a view toward the overall beat interest of the LA SALSA Restaurants. LSF will protect and preserve the integrity and validity of the marks by taking the actions deemed by LSF in its discretion to be appropriate in the event of any apparent infringement of the Marks. 13.5 Infringements. Fuddruckers will notify LSF promptly of any claims or charges of trademark infringement against LSF or Fuddruckers, as well as any information Fuddruckers may have of any suspected infringement of the Marks. Fuddruckers will take no action with regard to such matters without the prior written approval of LSF and will cooperate in a manner expressly approved by LSF. SECTION 14: TRANSFER 14.1 Personal Contracts; Definition. (a) Fuddruckers agrees that a material part of the consideration for LSF's entering into this Agreement is the personal confidence reposed in Fuddruckers and its management. No person will succeed to any of the rights of Fuddruckers under this Agreement by virtue of any voluntary or involuntary proceeding in bankruptcy, receivership, attachment, execution, assignment for the benefit of creditors, other legal process or transfer not expressly authorized by LSF. (b) Fuddruckers or DAKA may transfer interests herein among members of the DAKA Family of Companies so long as DAKA and Fuddruckers remain fully responsible for compliance with this Agreement and LSF is given prior written notice of such transfer. (c) For purposes of this Agreement, the DAKA Family of Companies is defined as any corporation, partnership, joint venture or other entity more than fifty percent (50%) of which is owned directly or indirectly by DAKA. 14.2 Material Breach. Any attempt by Fuddruckers to transfer any of its rights or interest under this Agreement will constitute a material breach of this Agreement, and in such event LSF will have the right to terminate this Agreement upon written notice to Fuddruckers. LSF will not be bound by any attempted transfer in any manner whatsoever, by law or otherwise, of any of Fuddruckers, rights or interests under this Agreement. 14.3 FUDDRUCKERS Franchisees. While the parties intend for LSF to grant Grill licenses to FUDDRUCKERS franchisees as part of this program, the terms and conditions of such licenses have not been agreed upon between these parties at the time of this Agreement. The parties will negotiate in good faith during the Initial Term to reach mutual agreement in regard to such licenses, including any transfers by Fuddruckers to a franchisee of an existing Restaurant containing a Grill. No such transfer will be allowed hereunder until such time. 14.4 Assumption. This Agreement and LSF's rights, interests and obligations hereunder will inure to the benefit of any entity which succeeds to the business of LSF and assumes the obligations of LSF hereunder. Subject only to notice thereof, Fuddruckers hereby consents and agrees to any such transfer. 14.5 Definition of "Change of Control". The parties agree that for all purposes of this Agreement, a "change of control" of ownership shall be defined as any change of more than fifty percent (50%) of the beneficial or record ownership of Fuddruckers and Fuddruckers or the surviving entity has a net worth which is less than that of DAKA on a consolidated basis as of the Effective Date. SECTION 15: EXPIRATION AND TERMINATION 15.1 Termination for Cause. (a) LSF will have the right to terminate this Agreement immediately upon written notice to Fuddruckers if a petition in bankruptcy, an arrangement for the benefit of creditors or a petition for reorganization is filed by or against Fuddruckers, or if Fuddruckers will make any assignment for the benefit of creditors, or if a receiver or trustee is appointed for any one of the Restaurants, unless remedied to the satisfaction of LSF within twenty (20) days. (b) In the event of any material failure by Fuddruckers to make its payment obligations hereunder, LSF may terminate this Agreement in full following ten (10) days written notice to Fuddruckers and DAKA unless such delinquency has been cured within such ten day period. (c) LSF may terminate the right of any Grill to operate under his Agreement in the event of any substantial non-monetary default of this Agreement as applied to such Grill. Fuddruckers will have the right to cure such default during the period ending thirty (30) days after receipt from LSF or its authorized representative of a written notice of default, except that if such default cannot by its nature reasonably be cured within such thirty-day period, and so long as Fuddruckers is diligently taking all action reasonably necessary to effect such cure, the cure period will be extended to a reasonable amount of time to effect such cure. If such default has not been cured by the end of the applicable cure period, this Agreement will automatically terminate as to such Grill. (d) if a non-monetary default is a material default (as defined in Section 2.1 above) and that material default has not been cured by the end of the applicable cure period, this Agreement will automatically terminate as to such Grill, and Fuddruckers agrees to pay LSF as liquidated damages the amount of $25,000.00 for each Grill in such material default, with the parties agreeing that actual damages are extremely difficult to ascertain for any such default and that the foregoing liquidated damages are a reasonable estimate thereof and for the costs to LSF of enforcing this Agreement. (e) if at any time one-fifth (20%) of the Grills operating under this Agreement have failed during the applicable cure period to cure material defaults under subsection (d) above or to pay LSF its liquidated damages thereunder, LSF may immediately terminate this Agreement in full upon written notice to DAKA and Fuddruckers. (f) In the event of any termination in full or as to any Grill, LSF will have no further obligation under Section 1.4 above as to any Restaurant no which such termination applies. 15.2 Requirements Upon Termination. Upon the expiration, termination or cancellation for whatever reason of the operation of a Grill under this Agreement, Fuddruckers must in regard to each such Grill: (a) immediately discontinue the use of the marks and the Operating System, including all LA SALSA recipes; (b) unless LSF consents to the contrary, remove the Marks from all buildings, signs, fixtures and furnishings in each Restaurant, eliminate entirely LSF's trade dress and alter and paint the Grills with a design and color which is basically different from LSF's authorized design and painting schemes so that there will no longer be any indication to the public that the Restaurant was used to sell LA SALSA products. If Fuddruckers fails to make or cause to be made any such change within thirty (30) days after written notice, LSF will have the right to enter upon any Restaurant premises, without being deemed guilty of trespass or any other tort, and make or cause to be made such changes, and Fuddruckers will reimburse LSF for all of its reasonable expenses immediately following demand; (c) return to LSF all copies of the manuals, advertising and promotional materials and other proprietary information relating to LA SALSA Restaurants; and (d) not thereafter use any identifying characteristic that is in any way associated with LA SALSA or similar to those associated with LA SALSA, or operate or do business under any name or in any manner that might tend to give the public the impression that Fuddruckers is or was a licensee of or otherwise associated with LSF and LA SALSA. SECTION 16: MISCELLANEOUS 16.1 No Effect. The waiver by either party of any breach or default, or series of breaches or defaults, of any term, covenant or condition herein or of any same or similar term, covenant or condition in any other agreement between LSF and Fuddruckers will not be deemed a waiver of any subsequent or continuing breach or default of the same or any other terms, covenants or conditions contained in this Agreement, or in any other agreement between LSF and Fuddruckers. 16.2 Right and Remedies. All rights and remedies of a party will be cumulative and not alternative, in addition to and not exclusive of any other rights or remedies provided for herein or which may be available at law or in equity in case of any breach, failure or default or threatened breach, failure or default of any term, provision or condition of this Agreement. All rights and remedies will be continuing and not exhausted by any one or more uses thereof and may be exercised at any time or from time to time as often as may be expedient Any option or election to enforce any such right or remedy may be exercised or taken at any time and from time to time. The expiration or earlier termination of this Agreement will not discharge or release Fuddruckers from any liability or obligation then accrued or any liability or obligation continuing beyond or arising out of the expiration or earlier termination of this Agreement. 16.3 Consents. Whenever the consent of a party is sought or required hereunder, such consent will not be unreasonably withheld. 16.4 Partial Invalidity. If any part of this Agreement will for any reason be declared invalid, unenforceable or impaired in any way, the validity of the remaining portions will not be affected thereby, and such remaining portions will remain in full force and effect as if this Agreement had been executed with such invalid portion eliminated. it is hereby declared the intention of the parties that they would have executed the remaining portion of this Agreement without including therein any such portions which might be declared invalid. 16.5 Arbitration; Jurisdiction. Except as set forth in this Section 16.5, any dispute between the parties which involves this Agreement and cannot be resolved by the parties themselves will be submitted to binding arbitration in accordance with the rules of the American Arbitration Association applicable to commercial arbitrations. Such arbitration will be held within either the county where LSF's executive headquarters are located or the county where DAKA's executive headquarters are located (the "Home Counties"), and judgment upon the decision of the arbitrator may be entered in any court having jurisdiction over the matter. However, arbitration will not be used for any dispute which involves Fuddruckers, continued usage of any of the Marks or the Operating System or any issue involving injunctive relief against any party, all of which issues will be submitted initially to a court within a Home County. The parties expressly consent to personal jurisdiction in either Home County as set forth above and agree that such court(s) will have exclusive jurisdiction over any such issues not subject to arbitration. 16.6 Attorneys' Fees. If either party initiates any arbitration or other legal proceeding which involves issues arising out of this Agreement, the prevailing party in such action will be paid its reasonable attorneys, fees and costs by the other party. 16.7 Governing Law. The parties agree that the law of the State of California will apply to the construction and enforcement of this Agreement and govern all questions which arise with reference hereto. 16.8 Notices. All notices and other communications required or permitted to be given hereunder will be deemed given when delivered in person, sent by telefax to such person's telefax number, sent by an established overnight delivery service or mailed by registered or certified mail addressed to the recipient at the address set forth below, unless that party will have given such written notice of change of address to the sending party, in which event the new address so specified will be used. It mailed, such notice shall be deemed to have been received three days after mailing, and if sent by overnight delivery, such notice shall be deemed to have been received the day following sending. LSF and La Salsa Franchise, Inc. Holding: 11601 Santa Monica Blvd. Los Angeles, CA 90025 ATTN: The President FUDDRUCKERS: Fuddruckers, Inc. One Corporate Plaza 55 Ferncroft Road Danvers, MA 01923-4001 ATTN: General Counsel DANA: DANA International, Inc. One Corporate Plaza 55 Ferncroft Road Danvers, MA 01923-4001 ATTN: Sr. VP & General Counsel 16.9 Terms and Headings. All terms used in this Agreement regardless of the number and gender in which they are used, will be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context or sense of this Agreement may require, the same as if such words had been written in this Agreement themselves. The headings inserted in this Agreement are for reference purposes only and will not affect the construction of this Agreement or limit the generality of any of its provisions. 16.10 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties and supersede and cancel any and all prior and contemporaneous agreements, understandings, representations, inducements and statements, oral or written, of the parties in connection with the subject matter hereof. 16.11 Amendment or Modification. Except as expressly authorized herein, no amendment or modification of this Agreement will be binding unless executed in writing by both LSF and Fuddruckers. 16.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Agreement, but all of which together shall constitute one and the same instrument. 16.13 Facsimile Signatures. The parties agree that signed copies of this Agreement sent to the other parties by telefax or other facsimile transmission will be considered binding on such signing party the same as if delivered personally. Each party will thereafter send to each of the other parties an originally signed copy of this Agreement for such party's records. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. FUDDRUCKERS: FUDDRUCKERS, INC. By Title: DAKA: DAKA INTERNATIONAL, INC. By Title: LSF: LA SALSA FRANCHISE, INC. By President HOLDINGS: LA SALSA HOLDING CO. By President EXHIBIT A-1 FUDDRUCKERS/LA SALSA LOCATIONS (February 14, 1996) 1. Park Plaza Center 340 Third Avenue Chula Vista, CA 91910 2. 5500 Grossmont Center La Mesa, CA 92041 3. Hastings Ranch Plaza 3883 E. Foothill Boulevard Pasadena, CA 91107 4. Lakewood Center Mall 5229 North Clark St. Lakewood, CA 90714 EXHIBIT A-2 (To Come) EXHIBIT B (To Come) EXHIBIT C FUDDRUCKERS RESTAURANT LOCATIONS February 14, 1996 ALABAMA 3440 Galleria Circle #135 Birmingham, AL 35244 CALIFORNIA Rolling Hills Plaza SC #050 2549 Pacific Coast Highway Torrance, CA 91107 Park Plaza Center #055 340 3rd Avenue Chula Vista, CA 91941 Lakewood Center Mall #078 5229 North Clark Street Lakewood, CA 90714 GEORGIA 240 Perimeter Center Parkway #015 Atlanta, GA 30060 Peachtree Corners #065 3384 Holcombe Bridge Road Norcross, GA 30092 Northlake Tower Festival #091 3953 La Vista Road Tucker, GA 30084 3953 La Vista Road Tucker, GA 30084 1086 S. Baxter Street #185 Athens, GA 30606 Gwinnett Mall #220 2180 Merchants Way Duluth, GA 30136 FUDDRUCKERS RESTAURANT LOCATIONS January 17, 1996 Town Center Mall #223 2708 Town Center Drive Kennesaw, GA 30144 6360 Northpoint Parkway #233 Alpharetta, GA 30210 ILLINOIS 1500 Branding Lane #067 Downes Grove N. IL 60515 7731 Lemont Road #129 Downers Grove, S. IL 60515 1000 Rohlwing #188 Addison, IL 60101 4250 Fox Valley Center Drive #201 Aurora, IL 60504 1538 Clavey Road #057 Highland Park, IL 60035 300 Town Center #090 Matteson, IL 60443 1990 River Oaks Drive #105 Calumet City, IL 60409 1151 E. Dundee Road #134 Palatine, IL 60067 15756 South Harlem Avenue #213 Orland Park, IL 60452 (Barrington Road) #240 395 Barrington Road Schaumburge, IL 60193 INDIANA 95 West 81st Avenue #226 Merrillville, IN 46410 IOWA Fuddruckers Express Care #259 1050 Southtown Drive Waterloo, IA 50702 KENNTUCKY (Turfway) #239 135 Hansel Avenue Florence, KY 41042 MARYLAND Annapolis Restaurant Park #065 175 Jennifer Road Annapolis, MD 21401 125 Market Street #143 Baltimore, MD 21202 1300 Rockville Pike #174 Rockville, MD 20852 17111 Darnestown Road #218 Gaithersburg, MD 20878 1700 Riverstown Road #247 Pikesville, MD 21208 MASSACHUSETTS (City Place) #150 27 Stuart Street Boston, MA 02116 900 Broadway #151 Saugus, MA 01906 MICHIGAN 4061 28th Street SE #166 Kentwood, MI 49512 MINNESOTA 3801 West 77th Street #043 Bloomington, MN 55435 2740 N. Snelling Avenue #060 Roseville, MN 55113 Park Place W. Office Center #073 6445 Wayzata Boulevard St. Louis Park, MN 55337 8955 Spring Brook Road #242 Coon Rapids, MN 55433 5800 Shingle Creek Parkway #248 Brooklyn Center, MN 54430 MISSOURI 10752 Sunset Plaza #132 St. Louis, MO 63127 2175 Barrett Station Road #141 St. Louis, MO 63131 12333 Dorsett Road #207 Maryland Heights, MO 63043 OHIO (Beechmont) #228 7705 Five Mile Road Cincinati, OH 45230 (Winton Rd) #230 11992 Chaser Plaza Drive Forest Park, OH 45740 (Fields Ertel) #237 9996 Escott Drive Mason, OH 45040 (Glenway) #238 6421 Glenway Avenue Cincinnati, OH 45211 (Rookwood Pavilion( #245 2692 Madison Road Suite 3K Norwood, OH 45206 (Crosswoods) #266 121 East Campus View Blvd. Columbus, OH 43234 TEXAS 8602 Botts Lane #001 San Antonio, TX 78216 3100 Chimney Rock #002 Houston, TX 77056 9845 IH-10 West #003 San Antonio, TX 78230 2700 West Anderon Lane #004 Austin, TX 78757 (Willowbrook) #005 7611 FM 1960 West Houston, TX 77070 (Greens Road) #007 403 Greens Road Houston, TX 77060 2040 Nasa Road One #008 Clearlake, TAX 77058 855 Normandy #009 Houston, TX 77015 (Brodie Oaks) #011 4024 South Lamar Austin, TX 78704 2475 Kirkwood #013 Houston, TX 77077 11950 Kurland #026 Houston, TX 77034 3644 Irving Mall #063 Irving, TX 75062 115 Alamo Plaza #084 San Antonio, TX 78205 West Park Plaza (Ingram) #106 6759 N.W. Loop 410 San Antonio, TX 78238 2205 North Central Expressway #118 Suite 100 Plano, TX 75075 5080 Spectrum Drive #124 Suite 111W Dallas, TX 75248 2290 Buckthorne Place #024 Woodlands, TX 77381 3301 FM 1960 West #200 Houston, TX 77068 10500 Town & Country #231 Houston, TX 77024 4360 Kingwood Drive #232 Kingwood, TX 77339 13010 N.W. Freeway #246 Houston, TX 77040 (Copperfield) #269 7250 Highway 6 North Houston, TX 7095 VIRGINIA 8317 West Broad Street #079 Richmond, VA 23229 4300 Backlick Road #083 Annandale, VA 22003 4625 Virginia Beach Blvd. #114 Virginia Bch., VA 23462 6201 Arlington Blvd., #142 Falls Church, BA 22011 1030 Elden Street #177 Herndon, VA 22070 3575 Chain Bridge Rd. #199 Fairfax, VA 22030 4141C Duke Street #209 Alexandria, VA 22134 1105 Merchants Way #243 Chesapeake, VA 23328 773 South Park Blvd. #249 Colonial Heights, VA 23834 101 Regal Avenue #250 Newport News, VA 23602 101 Midlothian Turnpike #260 Midlothian, VA 23235 2871 Plank Rd. #252 Fredericksburg, VA 22407 (Potomac Mills) #264 14075 Shoppers Best Way Woodbridge, VA 22193 WISCONSIN 160 West Bluemound #053 Brookfield, WI 53005 UNDER DEVELOPMENT CHESAPEAKE SQUARE, VA 2400 Chesapeake Square Ring Rd., Chesapeake, VA 23321 EDEN PRARIE, MN 11825 Technology Dr., Eden Prarie, MN 55344 CLEVELAND AVE., OH 6146 Cleveland Avenue, Columbus, OH 43231 MAPLE GROVE, MN 14500 Weaver Lake Road, Maple Grove, MN 55231 SUN CENTER, OH 3586 West Dublin Granville Road, Columbus, OH 43235 EAST MAIN, OH 5271 East Main St., Columbus, OH 43213 NO. ANDOVER, MA Crossroads Shopping Center, Turnpike Street, No. Andover, MA 01845 SNELLVILLE, GA 1915 Scenic Highway (Presidential Market Ctr.), Snellville, GA 30278 AUSTIN, TX 6607 135 Frontage Rd., North Bound, Austin, TX 78752 GREENWAY PLAZA, (Houston) TX 3929 Southwest Freeway, Houston, TX 77027 STOUGHTON, MA Turnpike Street, Rout 139, Stoughton Crossing, Stoughton, MA (zip N/A) EAGAN, MN Eagan Promenade FREDERICK, MD Westview Restaurant Park, Frederick, MD MILFORD, MA Quarry Square Mall, Milford, MA COLUMBIA, MD Lakeside Shopping Center, Columbia, MD EASTON, OH Morse Rd. and I-270, Easton, OH EX-23.1 15 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-62387 on Form S-3 and in Registration Statements Nos. 333-01587, 33-58065, 33-51994 and 33-29662 of DAKA International, Inc. all on Form S-8 of our report dated September 6, 1996 (except for Note 5 as to which the date is October 15, 1996), appearing in the Annual Report on Form 10-K of DAKA International, Inc. for the period ended June 29, 1996. Deloitte & Touche LLP Boston, Massachusetts October 15, 1996 EX-24.1 16 SPECIAL POWER OF ATTORNEY The undersigned hereby constitutes and appoints, William H. Baumhauer and Earl T. Benson and each of them, jointly and severally, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of DAKA International, Inc. for the fiscal year ended June 29, 1996, and any an all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/Erline Belton - ----------------------------------------- Erline Belton Dated: September 6, 1996 SPECIAL POWER OF ATTORNEY The undersigned hereby constitutes and appoints, William H. Baumhauer and Earl T. Benson and each of them, jointly and severally, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of DAKA International, Inc. for the fiscal year ended June 29, 1996, and any an all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/Allen R. Maxwell - ----------------------------------------- Allen R. Maxwell Dated: September 6, 1996 SPECIAL POWER OF ATTORNEY The undersigned hereby constitutes and appoints, William H. Baumhauer and Earl T. Benson and each of them, jointly and severally, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of DAKA International, Inc. for the fiscal year ended June 29, 1996, and any an all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/Alan D. Schwartz - ----------------------------------------- Alan D. Schwartz Dated: September 6, 1996 SPECIAL POWER OF ATTORNEY The undersigned hereby constitutes and appoints, William H. Baumhauer and Earl T. Benson and each of them, jointly and severally, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of DAKA International, Inc. for the fiscal year ended June 29, 1996, and any an all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/E. L. Cox - ----------------------------------------- E. L. Cox Dated: September 6, 1996 SPECIAL POWER OF ATTORNEY The undersigned hereby constitutes and appoints, William H. Baumhauer and Earl T. Benson and each of them, jointly and severally, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of DAKA International, Inc. for the fiscal year ended June 29, 1996, and any an all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/Dean P. Vlahos - ----------------------------------------- Dean P. Vlahos Dated: September 6, 1996 SPECIAL POWER OF ATTORNEY The undersigned hereby constitutes and appoints, William H. Baumhauer and Earl T. Benson and each of them, jointly and severally, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of DAKA International, Inc. for the fiscal year ended June 29, 1996, and any an all amendments thereto, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/Joseph W. O'Donnell - ----------------------------------------- Joseph W. O'Donnell Dated: September 6, 1996 EX-27 17
5 0000840826 DAKA INTERNATIONAL, INC. 1,000 YEAR JUN-29-1996 JUN-29-1996 11,708 0 37,164 465 10,119 63,791 163,153 38,590 231,557 35,176 98,355 0 0 111 82,756 231,557 391,546 404,824 332,406 332,406 0 0 5,874 203 129 905 0 0 0 905 0.09 0.09
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