-----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, AyAis8eziOTTd8K5EmznW3SqPMymC7PmgbUwmhjRseVZojcn2GWi8NRE6Cq4rM6j W3sduheyFX3uhbyhWsdXyA== /in/edgar/work/20000914/0000950148-00-001973/0000950148-00-001973.txt : 20000922 0000950148-00-001973.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950148-00-001973 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000830 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIZZLER INTERNATIONAL INC CENTRAL INDEX KEY: 0000870760 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 954307254 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10711 FILM NUMBER: 722756 BUSINESS ADDRESS: STREET 1: 6101 W CENTINELA AVE STREET 2: STE 200 CITY: CULVER CITY STATE: CA ZIP: 90230 BUSINESS PHONE: 3105680135 FORMER COMPANY: FORMER CONFORMED NAME: COLLINS FOODS INC DATE OF NAME CHANGE: 19600201 8-K 1 v65445e8-k.txt FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report: August 30, 2000 (Date of earliest event reported) 1-10711 --------- (Commission File No.) Sizzler International, Inc. ------------------------------- (Exact name of Registrant as specified in its charter) Delaware 95-4307254 - ---------------------------------------------- ---------------------------- (State or other jurisdiction of incorporation) (IRS Employer Identification Number)
6101 West Centinela Avenue, Suite 200, Culver City, CA 90230 -------------------------------------------------------------- (Address of principal executive offices, including zip code) (310) 568-0135 (Registrant's telephone number, including area code) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On August 30, 2000, Sizzler International, Inc. ("Sizzler") completed the acquisition of 82% of the membership interests of FFPE, LLC, a Delaware limited liability company, from the sole member of the company for cash and warrants. FFPE, LLC, the successor to S & C Company, Inc., a California corporation, is the owner and operator of nine casual dining restaurants doing business under the name "Oscar's" in the San Diego and Phoenix markets. The seller was FFPE Holding Company, Inc., a Delaware corporation, owned by John Sarkisian and certain Sarkisian family members and partnerships. Sizzler expects that FFPE, LLC will continue to operate the business under the management of John Sarkisian. The acquisition, previously announced, was made pursuant to the terms and conditions of an amended and restated purchase agreement. The agreement provided for a purchase price of $16 million cash, warrants to purchase 1,250,000 shares of Sizzler common stock at $4.00 per share and, subject to future performance of the Oscar's chain, an earn-out of up to $9.1 million. In accordance with the purchase agreement, Sizzler anticipates providing a loan to FFPE, LLC of up to $9.5 million. The source of the cash portion of the purchase price was cash on hand, generated primarily from the sale and leaseback of certain company-owned real estate in Australia. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired Independent Auditor's Report .............................................................. F-1 Consolidated Balance Sheet as of December 31, 1999 ........................................ F-2 Consolidated Statement of Income and Retained Earnings for the year ended December 31, 1999 F-3 Consolidated Statement of Cash Flows for the year ended December 31, 1999 ................. F-4 Notes to Consolidated Financial Statements ................................................ F-5 Consent of Independent Public Accountants ................................................. F-13 (b) Unaudited Condensed Interim Financial Statements of Business Acquired Unaudited Condensed Consolidated Interim Balance Sheet as of April 30, 2000 ................ F-14 Unaudited Condensed Consolidated Interim Statements of Income and Retained Earnings for the year ended April 30, 2000 ........................................................... F-15
3 Unaudited Condensed Consolidated Interim Statements of Cash Flows for the year ended April 30, 2000 ..................................................................... F-16 Notes to Unaudited Condensed Consolidated Financial Statements .......................... F-17 (c) Pro Forma Financial Data Unaudited Pro Forma Condensed Consolidated Balance Sheet as of July 23, 2000 .............. F-19 Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended April 30, 2000 ...................................................................... F-21 Unaudited Pro Forma Condensed Consolidated Statements of Operations for the interim period ended July 23, 2000 ................................................................ F-22
(d) Exhibits
Number Description ------ ----------- 10.1 Amended and Restated LLC Membership Interest Purchase Agreement dated August 21, 2000 among the Registrant, as purchaser, and FFPE Holding Company, Inc. JBS Investments, Ltd., OMS Investments, Ltd., TDM Enterprises, Ltd., Oscar Sarkisian and Martha Patricia Sarkisian (individually and as co-Trustees of the Sarkisian Family Trust UDT dated 7/19/95), John Sarkisian, Bernadette Sarkisian, Tamara Sarkisian-Celmo (individually and as Trustee of the Tamara Sarkisian-Celmo Family Trust UDT dated 10/16/97), S&C Company, Inc., and FFPE, LLC, as selling parties. 10.2 Amended and Restated Limited Liability Company Agreement of FFPE, LLC dated August 30, 2000 between the Registrant and FFPE Holding Company, Inc. 10.3 Membership Interest Pledge Agreement dated August 30, 2000 between the Registrant, as secured party, and FFPE Holding Company, Inc., as debtor. 10.4 Call Option Agreement dated August 30, 2000 between FFPE Holding Company, Inc., as optionor, and the Registrant, as optionee. 10.5 Put Option Agreement (John Sarkisian) dated August 30, 2000 between the Registrant, as optionor, and FFPE Holding Company, Inc., as optionee. 10.6 Put Option Agreement (Tamara Sarkisian-Celmo) dated August 30, 2000 between the Registrant, as optionor, and FFPE Holding Company, Inc., as optionee. 10.7 Warrant dated August 30, 2000, issued by the Registrant to FFPE Holding Company, Inc. 10.8 Warrant Registration Rights Agreement dated August 30, 2000 between the Registrant and FFPE Holding Company, Inc.
4 10.9 Employment Agreement of John Sarkisian dated August 30, 2000 between FFPE, LLC, as employer, and John Sarkisian, as employee. 10.10 Employment Agreement of Tamara Sarkisian-Celmo dated August 30, 2000 between FFPE, LLC, as employer, and Tamara Sarkisian-Celmo, as employee.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized. Sizzler International, Inc. By: /s/ Steven R. Selcer ------------------------------------- Name: Steven R. Selcer Title: Vice President and Chief Financial Officer Dated: September 14, 2000 5 To The Stockholders S & C Company, Inc. and Subsidiary DBA Oscar's 9823 Pacific Heights Blvd, Suite J San Diego, CA 92121 Independent Auditor's Report We have audited the accompanying consolidated balance sheet of S & C Company, Inc. (A California Corporation) and Subsidiary, DBA Oscar's as of December 31, 1999, and the related consolidated statements of income, retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of S & C Company, Inc. and Subsidiary, DBA Oscar's, as of December 31, 1999, and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. OLIVA, SAHMEL & GODDARD Certified Public Accountants August 24, 2000 Page F-1 6 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 ASSETS CURRENT ASSETS Cash (Note 2) $ 2,919 Accounts Receivable (Net of $4,000 in reserve) 105,256 Inventory (Note 2) 145,592 Prepaid Expenses (Note 2) 103,408 ----------- TOTAL CURRENT ASSETS 357,175 PROPERTY AND EQUIPMENT (Note 3) 6,565,800 OTHER ASSETS Security Deposits (Note 5) 121,821 Net Intangibles (Note 4) 20,447 Deferred Tax Asset (Note 11) 3,000 ----------- TOTAL OTHER ASSETS 145,268 TOTAL ASSETS $ 7,068,243 =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts Payable $ 1,253,013 Accrued Liabilities 709,328 Deferred Revenue & Rent (Net) (Note 6) 624,090 Intercompany - SRA Ventures, LLC (Note 7) 61,152 Line of Credit (Note 8) 200,000 Stockholder Notes (Note 9) 763,209 Current Portion - Notes Payable 765,822 ----------- TOTAL CURRENT LIABILITIES 4,376,614 NOTES PAYABLE (Note 10) 2,804,132 ----------- TOTAL LIABILITIES 7,180,746 COMMITMENTS (Note 13) STOCKHOLDERS' DEFICIT Capital Stock (Note 12) (authorized 20,000,000 shares; issued and outstanding 1,320,000 shares) 64,413 Accumulated Deficit (176,916) ----------- TOTAL STOCKHOLDERS' DEFICIT (112,503) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 7,068,243 ===========
See Accompanying Notes Page F-2 7 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1999 SALES $ 24,086,840 COST OF SALES Product Costs 7,402,229 Labor Costs 7,639,774 Other Operating Expenses (Includes $974,306 in write down of long lived assets) 6,945,682 ------------ TOTAL COST OF SALES 21,987,685 ------------ GROSS PROFIT 2,099,155 SELLING, GENERAL AND ADMINISTRATIVE 2,837,786 NET LOSS ATTRIBUTABLE TO MINORITY INTEREST (Note 2) (66,978) ------------ LOSS BEFORE INCOME TAXES (671,653) INCOME TAX EXPENSE (Note 11) 800 ------------ NET LOSS (672,453) RETAINED EARNINGS - BEGINNING OF PERIOD 1,078,262 DISTRIBUTIONS PAID (582,725) ------------ ACCUMULATED DEFICIT - END OF PERIOD $ (176,916) ============
See Accompanying Notes Page F-3 8 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 CASH FLOWS PROVIDED BY OPERATIONS Net Loss $ (672,453) ADJUSTMENTS TO RECONCILE NET CASH TO NET LOSS FROM OPERATING ACTIVITIES Depreciation & Amortization 667,243 Write down of Long-lived assets 974,306 Change in Operating Accounts Accounts Receivable (58,724) Inventory 16,102 Prepaid Expenses (6,716) Other Assets (87,498) Deferred Tax Asset (3,000) Accounts Payable 123,924 Accrued Liabilities 261,230 Deferred Rent and Revenue 624,090 ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,838,504 CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (2,027,391) Purchase of Deer Valley (238,446) ----------- NET CASH USED IN INVESTING ACTIVITIES (2,265,837) CASH FLOWS FROM FINANCING ACTIVITIES Line of Credit 184,858 Proceeds From Notes Payable 1,094,571 Paydown on Notes Payable (558,319) Shareholder Loans 591,537 Distributions Paid (582,723) Oscar's of Arizona, LLC Buy-Out (270,629) ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 459,295 ----------- NET INCREASE IN CASH 31,962 CASH AT BEGINNING OF PERIOD (29,043) ----------- CASH AT END OF PERIOD $ 2,919 =========== Additional Cash Flow Information Cash Paid for Interest $ 297,092 Cash Paid for Taxes $ 800
See Accompanying Notes Page F-4 9 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1 THE COMPANY S & C Company, Inc. and Subsidiary, DBA Oscar's operates Oscar's restaurants with eight locations of full service dining and catering. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The consolidated financial statements have been prepared using generally accepted accounting principles. Cash and Cash Equivalents The Company considers financial instruments with a fixed maturity date of less than three months to be cash equivalents. Inventory Inventory is valued at the lower of cost or market. Cost is determined using the first-in, first-out method of accounting. Prepaid Expenses Expense items of a nature, which will benefit future periods, are charged to the prepaid expense account and are amortized over the actual periods benefited. Deferred Revenue and Rent Deferred Rent represents tenant improvement allowances, which are being amortized over the term of the various leases using the straight-line method. Deferred Revenue represents a vendor rebate and is being amortized over five years using the straight-line method. Property and Equipment Property and Equipment is carried at cost. Depreciation is computed using a straight-line method of depreciation over the assets estimated useful lives of five to forty years (See Note 3). Maintenance and repairs are charged to the expense as incurred; major renewals are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Page F-5 10 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Long-lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. The Company considers a history of operating losses to be its primary indicator of potential impairment. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company deems an asset to be impaired if a forecast of undiscounted future operating cash flows directly related to the asset, including disposal value, if any, is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds fair value. The Company generally measures fair value by discounting estimated future cash flows. Considerable management judgement is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. Stock Options Stock Options are accounted for using the intrinsic value method. The Board of Directors determines the value at the grant date. All stock options are granted at fair market value as determined by the Board of Directors. Deferred Taxes The Company adopted Statement of Financial Accounting Standards No.109 (SFAS 109), Accounting for Income Taxes. SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Income Taxes The Corporation elected to be taxed as a Sub-Chapter S Corporation. Income from the Corporation is combined with income and expenses of the shareholders from other sources and reported on the shareholders' individual Federal and State income tax returns. The Corporation is not a tax paying entity for Federal purposes and pays a State income tax of $800 or 1.5% of taxable income, whichever is greater. Page F-6 11 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Consolidation The consolidated financial statements include the accounts of S & C Company, Inc. and its 100% owned subsidiary, Oscar's of Arizona, LLC. S & C Company, Inc. owned a 50% interest in Oscar's of Arizona, LLC through December 1, 1999 at which time it acquired the remaining 50%. The financial statements reflect the entire activity of the subsidiary with the net minority interest identified separately. Intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 PROPERTY AND EQUIPMENT Major classifications of Property and Equipment and Accumulated Depreciation are as follows:
1999 ---- Leasehold Improvements $ 4,233,519 Restaurant Equipment 2,799,693 Furniture and Fixtures 256,674 Electronic Equipment 296,445 Automobiles 282,511 ----------- TOTAL PROPERTY AND EQUIPMENT 7,868,842 Accumulated Depreciation (1,303,042) ----------- PROPERTY AND EQUIPMENT $ 6,565,800 ===========
NOTE 4 INTANGIBLES Intangible Assets consist of Loan Costs and are being amortized over the term of the loans using the straight-line method. Intangible Assets are shown net of accumulated amortization of $11,235. NOTE 5 SECURITY DEPOSITS Security Deposits consist of lease deposits for the eight restaurant locations and the corporate office. Page F-7 12 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 6 DEFERRED REVENUE AND RENT Deferred Revenue is being amortized over five years and shown net of accumulated amortization of $7,500. Deferred Rent is being amortized over the life of the leases and is shown net of accumulated amortization of $60,492. NOTE 7 INTERCOMPANY - SRA VENTURES, LLC The Intercompany - SRA Ventures, LLC represents funds advanced from a related company for a restaurant site in Temecula, California. NOTE 8 LINE OF CREDIT The Line of Credit consists of a credit line with Southwest Community Bank. The limit on the line is $200,000. NOTE 9 STOCKHOLDER NOTES Stockholder Notes consist of the following:
1999 ---- Oscar and Martha Sarkisian 8% interest, multiple maturities $355,000 Tammy Celmo 8% interest, matures December 2000 55,000 John Sarkisian 8% interest, $200,000 matures November 2000, $150,000 December 2000 350,000 Bernadette Sarkisian $3,386.35 per month, 8% interest 3,209 -------- TOTAL STOCKHOLDER NOTES $763,209 ========
Page F-8 13 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 10 NOTES PAYABLE (Continued) Notes Payable consists of the following:
1999 ---- Southwest Community Bank Term note, variable interest rate of prime + 1%, matures November 1, 2003 $1,429,090 Southwest Community Bank Construction loan converting to a term loan in April of 1999, variable interest rate of prime + 1% , matures April 2004 709,449 Southwest Community Bank Construction loan converting to a term loan in May of 2000, variable interest rate of prime + 1% , matures May 2005 800,000 Bank of America - Working Capital $1,250 per month plus interest at prime plus 3% 1,300 Notes Payable - Vans Auto loans on eight Company vans with various interest rates and monthly payments 153,380 Note Payable - Greentree Five year note, 13.4% interest 13,167 Equipment Lease - Orange Twelve month note, 9% interest 24,447 Note Payable - C. Thomas Twelve month note, 8% interest 97,000 Bank of America - Prime +2% interest, Ten year note matures in 2008. Secured by assets of Oscar's of Arizona, LLC 342,121 -------
Page F-9 14 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 10 NOTES PAYABLE (Continued) TOTAL NOTES PAYABLE 3,569,954 Less: Current Portion (765,822) NOTES PAYABLE $ 2,804,132 ===========
The Company has three loans outstanding with Southwest Community Bank. These loans require that the company maintain a minimum tangible net worth of not less than $1,250,000, a ratio of total liabilities to tangible net worth of not more than 4.0 to 1.0, a ratio of cash flow coverage of not less than 1.2, and a minimum current ratio of not less than 0.2. The Company is not in compliance with these covenants as of December 31, 1999. The financial institution has granted a waiver of all incidences of noncompliance. Maturities of the Notes Payable is as follows for the years ended December 31:
1999 ---- 2000 $ 765,822 2001 709,052 2002 777,715 2003 807,118 2004 340,861 Thereafter 169,386 ---------- $3,569,954 ==========
NOTE 11 INCOME TAX AND DEFERRED TAXES Income Tax Expense consists of the following: Deferred Taxes $ -- State Income Taxes 800 ---- INCOME TAX EXPENSE $800 ====
Page F-10 15 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 12 CAPITAL STOCK The Company incorporated on December 17, 1992 under the laws of the State of California, with 20,000,000 shares of common stock authorized. The shareholders' ownership is as follows: Oscar and Martha Sarkisian 35.0% Tammy Sarkisian-Celmo 27.3% John Sarkisian 16.0% Bernadette Sarkisian 16.0% George Celmo 5.7%
NOTE 13 COMMITMENTS The Company leases its facilities under operating leases. Minimum annual rental commitments (excluding taxes, insurance, and maintenance) for the years ended December 31, are as follows: 2000 $ 1,329,840 2001 1,290,236 2002 1,293,939 2003 1,297,754 2004 1,301,683 Thereafter 4,091,017 ----------- $10,604,469 ===========
NOTE 14 RELATED PARTY TRANSACTIONS Lease Arrangements The Company leases its Temecula facility from SRA Ventures, LLC. Total rents paid to SRA Ventures, LLC were $317,741 for 1999. The lease expires December 1, 2006. SRA Ventures, LLC and the Company have common ownership. Personal Guaranty The three notes payable with Southwest Community Bank are personally guaranteed by the following: Bernadette Sarkisian, Oscar Sarkisian, John Sarkisian, Tamara Sarkisian-Celmo, Martha Sarkisian, SRA Ventures, LLC, Sarkisian Family Trust, Tamara Sarkisian-Celmo Family Trust. Page F-11 16 S & C COMPANY, INC. AND SUBSIDIARY (DBA OSCAR'S) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 15 INCENTIVE STOCK OPTION PLAN The Company has an incentive stock option plan covering 97 select employees. As of December 31, 1999 the Company has granted options to acquire a total of 56,450 shares of its common stock at prices ranging from $.35 to $2.58 per share. All options are subject to a five year vesting schedule. As of December 31, 1999 none of the options had been exercised. All stock options will be settled for cash in 2000 as a result of the sale of S & C Company, Inc. A summary of the Company's outstanding options and activity are as follows:
WEIGHTED SHARES AVERAGE UNDER EXERCISE OPTION PRICE ------ ----- OPTIONS OUTSTANDING, Beginning of year 48,600 $1.21 Granted 7,850 $2.58 Canceled -- -- Exercised -- -- ------ ----- OPTIONS OUTSTANDING, End of year 56,450 $1.26 ====== =====
NOTE 16 SUBSEQUENT EVENTS As of the date of this report the entity is in negotiations to sell a majority interest in the common stock of S & C Company, Inc. Page F-12 17 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion of our report dated August 24, 2000 in this Form 8-K. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report. OLIVA, SAHMEL & GODDARD Certified Public Accountants September 14, 2000 Page F-13 18 S&C COMPANY (OSCAR'S) UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (In thousands)
As of April 30, 2000 - --------------- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 287 Receivables, net of reserves 92 Inventories 92 InterCompany Phoenix -- Prepaid expenses and other current assets 128 ------- Total current assets 599 ======= Property and equipment, at cost -- Land -- Buildings and leasehold improvements 3,895 Equipment 4,094 Capital leases -- Construction in progress -- ------- 7,989 Less - Accumulated depreciation and amortization (1,462) ------- Total property and equipment, net 6,527 ======= INTANGIBLE ASSETS, NET 13 OTHER ASSETS, NET 122 ------- Total assets $ 7,261 ======= LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES Line of Credit $ 285 Notes payable current 766 Accounts payable 1,121 Other current liabilities 977 Intercompany payable 61 Income taxes payable 20 ------- Total current liabilities 3,230 ======= NOTES PAYABLE 3,425 DEFERRED REVENUE AND RENT 598 STOCKHOLDERS' INVESTMENT Common Stock 64 Additional paid-in capital -- Accumulated deficit (56) ------- Total stockholders' investment 8 ------- Total liabilities and stockholders' investment $ 7,261 =======
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements Page F-14 19 S&C COMPANY (OSCAR'S) UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME AND RETAINED EARNINGS (In thousands)
For the four months ended April 30, 2000 1999 - ----------------------------------- ---- ---- REVENUES Restaurant sales $ 8,587 $ 7,006 COSTS AND EXPENSES Cost of sales 2,514 2,225 Labor and related costs 2,583 2,255 Other operating expenses 1,944 1,712 Depreciation and amortization 171 147 General and administrative expenses 1,025 672 ------- ------- Total operating costs and expenses 8,237 7,012 ------- ------- Interest expense 131 92 Other income (27) (46) ------- ------- Total costs and expenses 8,341 7,057 ------- ------- Income (loss) before income taxes 247 (51) Provision for income taxes -- -- ------- ------- Net income (Loss) $ 247 $ (51) ======= ======= Retained Earnings (Deficit) - Beginning of the Period (176) 1,078 Distributions Paid (127) (327) ------- ------- RETAINED EARNINGS (DEFICIT) - END OF THE PERIOD $ (56) $ 700 ======= =======
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements Page F-15 20 S&C COMPANY (OSCAR'S) UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (In thousands)
For the four months Ended April 30, 2000 1999 - ----------------------------------- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $ 593 $ 698 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (125) (108) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of Notes Payable, Net (57) (95) Distributions to shareholders (127) (327) ----- ----- Net cash (used in) financing activities (184) (422) ----- ----- Net increase in cash and equivalents 284 168 ----- ----- Beginning balance, cash and cash equivalents 3 (197) ----- ----- Ending balance, cash and cash equivalents $ 287 $ (29) ===== =====
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements Page F-16 21 S & C COMPANY, INC. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF APRIL 30, 2000 Note 1 - Unaudited Condensed Consolidated Interim Financial Statements The unaudited interim condensed consolidated financial statements have been prepared without audit in accordance with generally accepted accounting principles. Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed. In our opinion, the condensed consolidated interim financial statements include all adjustments necessary for a fair presentation of financial position and results of operations for the periods presented. The results of operations for the periods presented should not necessarily be considered indicative of operations for the full year. Certain reclassifications have been made to prior period financial statements in order to conform to the current period presentation. It is recommended that these condensed consolidated interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto included previously in this Form 8-K. Page F-17 22 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION On August 30, 2000, Sizzler International, Inc. ("Sizzler") entered into a agreement to acquire an eighty-two percent interest in FFPE Holding Company, Inc. ("Oscar's") the owner of Oscar's Restaurants. As consideration, Sizzler paid $16 million in cash and issued a warrant to purchase 1,250,000 shares of Sizzler common stock at $4.00 a share. The purchase agreement also contains provisions that provide an earn-out of up to $9.1 million contingent upon meeting certain operating criteria. Sizzler's management has prepared the following Unaudited Pro Forma Condensed Consolidated Financial Information to give effect to this acquisition. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended April 30, 2000 and for the three months ended July 23 and July 31, 2000 for Sizzler and Oscar's respectively, give effect to the Oscar's acquisition as if it had taken place at the beginning of the period. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of July 23, 2000 gives effect to the Oscar's acquisition as if it had taken place on such date. The pro forma adjustments, which are based upon available information and certain assumptions that Sizzler believes are reasonable based on the circumstances, are applied to the historical consolidated financial statements of Sizzler and Oscar's. The Oscar's acquisition will be accounted for using the purchase method of accounting. Sizzler's allocation of purchase price is based upon management's current estimates of the fair value of assets acquired and liabilities assumed in accordance with Accounting Principles Board No. 16. The purchase price allocations reflected in the accompanying unaudited pro forma condensed consolidated financial statements may be different from the final allocation of the purchase price. The Company expects to finalize the purchase price during the second quarter and make any necessary adjustments at that time. Management does not expect the differences to be material. The accompanying unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements and the notes thereto for Sizzler and Oscar's in its annual form 10-K filed on July 21, 2000 and Oscar's audited financial statements which are included elsewhere in this filing. The unaudited pro forma condensed consolidated financial information is provided for informational purposes only and does not purport to represent what Sizzler financial position or results of operations would actually have been had the Oscar's acquisition occurred on such dates or to project Sizzler's results of operations or financial position for any future period. Page F-18 23 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
Sizzler Oscar's Pro Forma As of 7/23/00 7/31/00 Adjustments Total - ----- ------- ------- ----------- ----- ASSETS CURRENT ASSETS Cash and cash equivalents $ 36,905 $ 586 $(14,950)(1) $22,541 Receivables, net of reserves 4,811 97 (1,100)(2) 3,808 Inventories 4,124 110 -- 4,234 Current tax asset 2,544 -- -- 2,544 Prepaid expenses and other current assets 888 173 -- 1,061 -------- ------ -------- --------- Total current assets 49,272 966 (16,050) 34,188 ======== ====== ======== ========= Property and equipment, net 52,177 7,555 -- 59,732 Property held for sale, net 6,781 -- -- 6,781 Long-term notes receivable, net of reserves 1,830 -- -- 1,830 Deferred income taxes 3,490 -- -- 3,490 Intangible assets, net of accumulated amortization 1,869 14 17,221 (3) 19,104 Other assets 3,644 123 (500)(4) 3,267 -------- ------ -------- --------- Total assets $119,063 $8,658 $ 671 $ 128,392 ======== ====== ======== =========
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. Page F-19 24 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
Sizzler Oscar's Pro Forma As of 7/23/00 7/31/00 Adjustments Total - ----- ------- ------- ----------- ----- LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Current portion of long-term debt $ 5,147 $ 952 $ -- $ 6,099 Accounts payable 9,746 1,578 -- 11,324 Other current liabilities 10,471 1,000 900 (4) 12,371 Income taxes payable 2,820 20 -- 2,840 --------- ------ ------- --------- Total current liabilities 28,184 3,550 900 32,634 --------- ------ ------- --------- Long-term debt, net of current portion 20,126 4,348 (1,100)(2) 23,374 Deferred gain on sale and lease back 8,074 578 -- 8,652 Pension liability 9,563 -- -- 9,563 Minority interest -- -- 33 (5) 33 Stockholders' Investment: Common, authorized 50,000,000 shares, $0.01 par value; outstanding 27,919,886 shares at July 23, 2000 288 64 (64)(6) 288 Additional paid-in capital 278,421 -- 1,020 (7) 279,441 Retained Earnings (Accumulated deficit) (216,904) 118 (118)(8) (216,904) Treasury stock, 846,700 shares at cost at July 23, 2000 (2,303) -- -- (2,303) Accumulated other comprehensive income (6,386) -- -- (6,386) --------- ------ ------- --------- Total stockholders' investment 53,116 182 838 54,136 --------- ------ ------- --------- Total liabilities and stockholders' investment $ 119,063 $8,658 $ 671 $ 128,392 ========= ====== ======= =========
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. Page F-20 25 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Sizzler Oscar's Proforma For the year ended, 4/30/00 4/30/00 Adjustments Total - ------------------- ------- ------- ----------- ----- REVENUES Restaurant sales $ 230,869 $ 25,668 $ -- $ 256,537 Franchise revenues 8,625 -- -- 8,625 --------- --------- -------- --------- Total revenues 239,494 25,668 -- 265,162 ========= ========= ======== ========= COSTS AND EXPENSES Cost of sales 84,599 7,691 -- 92,290 Labor and related costs 63,081 7,968 -- 71,049 Other operating expenses 50,847 6,712 57,559 Depreciation and amortization 8,628 497 861 (9) 9,986 Non-recurring items 12,087 -- -- 12,087 General and administrative expenses 20,346 2,894 1,980 (10) 25,220 --------- --------- -------- --------- Total operating costs and expenses 239,588 25,762 2,841 268,191 ========= ========= ======== ========= Interest expense 3,631 371 -- 4,002 Investment income, net (1,423) -- -- (1,423) Other income (1,411) -- -- (1,411) --------- --------- -------- --------- Total costs and expenses 240,385 26,133 2,841 269,359 ========= ========= ======== ========= Loss before income taxes (891) (465) (2,841) (4,197) Benefit for income taxes (3,313) -- -- (3,313) --------- --------- -------- --------- Net income (loss) $ 2,422 $ (465) $ (2,841) $ (884) ========= ========= ======== ========= Basic and diluted earnings (loss) per share $ 0.08 $(0.03) ========= ========= Weighted average common shares outstanding: Basic 28,559 28,559 Diluted 28,877 28,877 ========= =========
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. Page F-21 26 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data)
Sizzler Oscar's Pro Forma For the interim period ended 7/23/00 7/31/00 Adjustments Total - ---------------------------- ------- ------- ----------- ----- REVENUES Restaurants $ 52,312 $ 7,349 $ -- $ 59,661 Franchise operations 2,346 -- -- 2,346 -------- ------- ----- -------- Total revenues 54,658 7,349 -- 62,007 ======== ======= ===== ======== COSTS AND EXPENSES Cost of sales 18,943 2,231 -- 21,174 Labor and related expenses 14,234 2,194 -- 16,428 Other operating expenses 11,930 1,544 -- 13,474 Depreciation and amortization 1,805 128 215 (9) 2,149 General and administrative expenses 4,312 960 -- 5,272 -------- ------- ----- -------- Total operating costs 51,224 7,057 215 58,497 ======== ======= ===== ======== Interest expense 747 117 -- 864 Investment income (559) -- -- (559) -------- ------- ----- -------- Total costs and expenses 51,412 7,174 215 58,801 ====== ===== === ====== INCOME BEFORE INCOME TAXES 3,246 174 (215) 3,205 Provision for income taxes 381 -- -- 381 -------- ------- ----- -------- NET INCOME $ 2,865 $ 174 $(215) $ 2,824 ======== ======= ===== ======== Basic and diluted earnings per share $ 0.10 $ 0.10 ======== ======== Weighted average common shares outstanding: Basic 27,986 27,986 Diluted 28,371 28,371 ====== ======
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. Page F-22 27 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION General The pro forma financial information gives effect to the following pro forma adjustments: Sizzler's acquisition of an eighty-two percent ownership interest in Oscar's will be accounted for using the purchase method of accounting. In connection with the acquisition, Sizzler paid $16.0 million in cash with, $0.8 million to remain in escrow for six months to cover potential undisclosed claims, and issued warrants to purchase 1,250,000 shares of Sizzler common stock at $4.00 a share. The purchase agreement also contains provisions that provide for an earn-out of up to $9.1 million contingent on meeting certain operating criteria. The aggregate estimated purchase price is approximately $17.4 million, which is the total of cash paid, acquisition expenses and the value assigned to the warrants issued using the Black Scholes pricing model. This aggregated purchase price does not include contingent consideration of $0.8 million cash that will be held in an escrow account or the potential earn-out payments. The pro forma financial information has been prepared on the basis of assumptions described in these notes and include assumptions relating to the allocation of the consideration paid for the assets and liabilities of Oscar's based on preliminary estimates of their fair value. The actual allocation of such consideration may differ from that reflected in the pro forma financial information after valuations and other procedures have been performed following the closing of the Oscar's acquisition. Management does not expect these differences to be material. Below is a table of the estimated acquisition cost, purchase price allocation and annual amortization of the intangible assets acquired (in thousands):
ANNUAL AMORTIZATION OF DESCRIPTION AMOUNT AMORTIZATION LIFE INTANGIBLES - ------------------------------------------------------------------------ ------------------- -------------------------- Cash $15,200 Acquisition Costs 1,400 Value of Warrants Issued 1,020 Price Adjustment based on Closing Indebtedness (250) Total Consideration 17,370 Eighty-Two percent of Net Tangible Assets 149 - ------------------------------------------------------------------------ ------------------- -------------------------- Goodwill $17,221 20 $861 - ------------------------------------------------------------------------ ------------------- --------------------------
Tangible assets of Oscar's acquired were primarily cash and fixed assets. Liabilities of Oscar's assumed in the acquisition include accounts payable, accrued liabilities, deferred revenue and debt. Page F-23 28 Notes (1) The pro forma reduction in cash is a result of the $15.2 million paid in cash to purchase Oscar's which is the $16 million purchase price net of the $0.8 million that will be held in escrow. The decrease in cash is also affected by an estimated $250,000 decrease resulting from a purchase price adjustment computed based on the ending balances in liability and asset accounts. (2) The pro forma adjustment is to eliminate a bridge loan made by Sizzler to Oscar's. (3) The pro forma adjustment is for goodwill of $17.2 million. The goodwill is the amount the purchase price exceeds the fair value of the net tangible and intangible assets assumed. (4) The pro forma reduction of Other Assets by $0.5 million is to remove the acquisition expenses already incurred and the $0.9 million increase in accrued liabilities is to record the estimated acquisition expenses incurred but not yet paid. (5) The pro forma adjustment is to record minority interest for the other owners of membership interest. The minority interest equals eighteen percent of the net tangible and intangible assets assumed. (6) The pro forma decrease to "common stock" reflects the elimination of Oscar's shareholders' equity $64,000. (7) The pro forma adjustment to increase additional paid in capital reflects the $1,020,000 impact of the issuance of Sizzler warrants to purchase common stock. The warrants were valued using the Black Scholes method with the following variables: Life 5 Rate 6.1% Volatility 61% Dividend -- Sizzler Stock price $ 2.00
(8) The pro forma increase to accumulated deficit is a result of eliminating the $118,000 retained earnings of Oscars. (9) The pro forma adjustment is to record the amortization of goodwill. $861,000 is the pro forma annual amortization for the year-ended April 30, 2000. The amortization expense for the three month period is approximately $215,000. (10) The pro forma adjustment records the compensation expense which resulted from the repurchase of all of the outstanding options in Oscar's prior to the close of the acquisition. The repurchase of the outstanding options will result in compensation expense to the extent of cash paid to settle outstanding options ($1,980,000). Page F-24 EX-10.1 2 v65445ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 AMENDED AND RESTATED LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT Dated as of August 21, 2000 by and between SIZZLER INTERNATIONAL, INC., (the "Purchaser") FFPE HOLDING COMPANY, INC. JBS INVESTMENTS, LTD., A NEVADA LIMITED PARTNERSHIP OMS INVESTMENTS, LTD., A NEVADA LIMITED PARTNERSHIP TDM ENTERPRISES, LTD., A NEVADA LIMITED PARTNERSHIP (collectively referred to as the "Sellers") OSCAR SARKISIAN AND MARTHA PATRICIA SARKISIAN (INDIVIDUALLY AND AS CO-TRUSTEES OF SARKISIAN FAMILY TRUST UDT DATED 7/19/95), JOHN SARKISIAN, BERNADETTE SARKISIAN, AND TAMARA SARKISIAN-CELMO (INDIVIDUALLY AND AS TRUSTEE OF THE TAMARA SARKISIAN-CELMO FAMILY TRUST UDT DATED 10/16/97) (the "Principals" and the "Shareholders") S&C COMPANY, INC. (the "Old Company") FFPE, LLC (the "New Company") 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I SALE OF LLC MEMBERSHIP INTEREST........................................2 ARTICLE II REPRESENTATIONS OF THE SELLING PARTIES................................11 ARTICLE III REPRESENTATIONS OF THE PURCHASER......................................22 ARTICLE IV ADDITIONAL AGREEMENTS OF THE SELLING PARTIES..........................23 ARTICLE V ADDITIONAL AGREEMENTS OF THE PURCHASER................................29 ARTICLE VI CONDITIONS............................................................31 ARTICLE VII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..........................32 ARTICLE VIII TERMINATION...........................................................37 ARTICLE IX DEFINITIONS...........................................................38 ARTICLE X MISCELLANEOUS.........................................................48
-i- 3 AMENDED AND RESTATED LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT This Amended and Restated LLC Membership Interest Purchase Agreement ("Agreement") is effective as of August 21, 2000 by and among SIZZLER INTERNATIONAL, INC., a Delaware corporation (the "Purchaser"), FFPE HOLDING COMPANY, INC., a Delaware corporation ("FFPE Holding"), JBS Investments, Ltd., a Nevada limited partnership ("JBS Investments"), OMS Investments, Ltd., a Nevada limited partnership ("OMS Investments") and TDM Enterprises, Ltd., a Nevada limited partnership ("TDM Enterprises") (JBS Investments, OMS Investments and TDM Enterprises collectively the "Partnerships," and together with FFPE Holding collectively the "Sellers"), OSCAR SARKISIAN ("Oscar"), and MARTHA PATRICIA SARKISIAN ("Pat"), individually and as CO-TRUSTEES OF SARKISIAN FAMILY TRUST UDT DATED 7/19/95 (the "Oscar and Martha Trust"), JOHN SARKISIAN ("John"), BERNADETTE SARKISIAN ("Bernadette"), TAMARA SARKISIAN-CELMO ("Tamara"), individually and as Trustee of the Tamara Sarkisian-Celmo Family Trust UDT Dated 10/16/97 (the "Tamara Trust"), S&C COMPANY, INC., a California corporation (the "Old Company"), and FFPE, LLC, a Delaware limited liability company (the "New Company"). In accordance with the terms and provisions herein, this Agreement amends that certain LLC Membership Interest Purchase Agreement dated May 23, 2000 by and among Purchaser, FFPE Holding, Oscar, Pat, Oscar and Martha Trust, John, Bernadette, Tamara, Tamara Trust, Old Company, and New Company ("Original Agreement"). If any conflict exists between the terms of this Agreement and the Original Agreement, the terms of this Agreement shall control. Unless the context otherwise requires, capitalized terms used in this Agreement shall have the meanings given to them in Article 9 of this Agreement. RECITALS: A. The Purchaser, together with its subsidiaries, owns and operates, and franchises to others, restaurants that do business under the Sizzler(R) service mark in the United States and abroad, and owns and operates Kentucky Fried Chicken(R) or KFC(R) restaurants in Queensland, Australia. B. FFPE Holding is a newly formed Delaware corporation. The Shareholders are the owners of all of the outstanding shares of capital stock of FFPE Holding. The Principals are the officers and/or directors of FFPE Holding, the Old Company and the New Company. Each of the Partnerships is a newly formed Nevada limited partnership. C. The New Company is a newly formed Delaware limited liability company. The Selling Parties have represented to the Purchaser that (a) the New Company has, or before the Closing Date will have, a single class of Membership Interest and (b) the Sellers are, or before the Closing Date will be, the owners of all of the outstanding Units of the New Company. D. The New Company is, or on or before the Closing Date shall be, the successor of, and the surviving entity in a merger with, the Old Company. 4 E. The Old Company, a California corporation, has been engaged in the operation of the Restaurants and, on or before the Closing, is expected to become the predecessor to, and to merge into, the New Company. F. On the terms and conditions set forth herein, (a) the Sellers desire to sell, and the Purchaser desires to purchase, 82 units of the New Company, which units (the "Purchased Units") shall represent 82% of all of the outstanding Units of the New Company, and (b) the Selling Parties and the Purchaser desire to carry out the Transactions. AGREEMENT: In consideration of the foregoing recitals and the mutual representations, warranties, and covenants contained in this Agreement, the parties to this Agreement agree as follows: ARTICLE I SALE OF LLC MEMBERSHIP INTEREST Section 1.1 Sale of LLC Membership Interest. For the Purchase Price, and subject to the terms and conditions herein stated, on the Closing Date the Sellers shall sell, assign, transfer and deliver to the Purchaser, and the Purchaser shall purchase and acquire from the Sellers, all of the Purchased Units. Section 1.2 Closing. The sale referred to in Section 1.1 (the "Sale") shall take place at the offices of Sheppard, Mullin, Richter & Hampton LLP, 501 W. Broadway, Nineteenth Floor, San Diego, California 92101 at 10:00 A.M., PST, on the Closing Date. The parties hereby agree that the effective time of the Closing for Federal income tax purposes shall be at 12:01 A.M., PST, on the Closing Date. Section 1.3 Selling Parties' Deliveries. At the Closing, the Selling Parties shall deliver or cause to be delivered, in form, substance and manner reasonably satisfactory to the Purchaser, the following items: (a) to the Purchaser's order, the Unit Certificates evidencing the Purchased Units (which may bear any appropriate legend), duly endorsed by the Sellers in blank as of the Closing Date or accompanied by a written assignment of the Units executed by the Sellers and dated as of the Closing Date; (b) a copy of the certificate of formation of the New Company, including any certificate of merger required in connection with the Reorganization, certified by the Secretary of State of the State of Delaware as of a date not earlier than ten (10) days before the Closing Date; (c) the original Limited Liability Company Agreement of the New Company, executed by FFPE Holding (as amended to contemplate the addition of JBS Investments, OMS Investments and TDM Enterprises as additional members of the New Company); (d) the Amended and Restated Limited Liability Agreement of the 2 5 New Company, in the form attached to this Agreement as Exhibit 25. (e) an Entity Good Standing Certificate with respect to the New Company, dated as of a date no earlier than ten (10) days before the Closing Date; (f) a Tax Certificate with respect to the New Company, dated as of a date no earlier than ten (10) days before the Closing Date; (g) a certificate from the Secretary of State or other appropriate official in each state in which the New Company is required to qualify to do business, to the effect that the New Company is qualified to do business in such state, as of a date not earlier than ten (10) days before the Closing Date; (h) a copy of the certificate of incorporation of FFPE Holding, certified by the Secretary of State of the State of Delaware as of a date not earlier than ten (10) days before the Closing Date; (i) a copy of the bylaws of FFPE Holding, certified by the Secretary of FFPE Holding as of the Closing Date; (j) an Entity Good Standing Certificate with respect to FFPE Holding, dated as of a date no earlier than ten (10) days before the Closing Date; (k) a Tax Certificate with respect to FFPE Holding, dated as of a date no earlier than ten (10) days before the Closing Date; (l) a copy of the Board Resolutions of FFPE Holding, certified by the Secretary of FFPE Holding as of the Closing Date; (m) a copy of the articles of incorporation of the Old Company, including any certificate of merger required in connection with the Reorganization, certified by the Secretary of State of the State of California as of a date not earlier than ten (10) days before the Closing Date; (n) the bylaws of the Old Company, certified by the Secretary of the Company as of the Closing Date; (o) a copy of the Board Resolutions of the Old Company, certified by the Secretary of the Old Company as of the Closing Date; (p) copies or originals of all other agreements, instruments, certificates, and documents executed, delivered, or filed by or among the Selling Parties in connection with the Reorganization; (q) the Call Option Agreement, executed by FFPE Holding and dated as of the Closing Date; (r) the Put Option Agreements, executed by FFPE Holding and dated as of the Closing Date; 3 6 (s) the Releases, fully executed by all parties thereto and dated as of the Closing Date; (t) the Consulting Agreements, executed by Oscar and Pat, respectively, and dated as of the Closing Date; (u) the Employment Agreements, executed by the employees thereunder and dated as of the Closing Date; (v) the Warrants, in such denominations as FFPE Holding may request, executed by FFPE Holding and dated as of the Closing Date; (w) the Warrant Registration Rights Agreement, executed by the holders of the Registrable Securities, as defined therein and dated as of the Closing Date; (x) the Pledge Agreement, executed by FFPE Holding and dated as of the Closing Date; (y) to the Purchaser's order, the Unit Certificate evidencing the Retained Units (which may bear any appropriate legend), duly endorsed by FFPE Holding in blank as of the Closing Date or accompanied by a written assignment of the Units in blank executed by FFPE Holding and undated; (z) Landlord Estoppel Certificates with respect to each of the Company Real Property Leases, executed by or on behalf of the landlords or lessors thereunder; (aa) Written evidence of the cancellation or termination of all outstanding Company Options, and the release of all Liabilities of the Company and its Affiliates in connection therewith, by the holders of such Company Options, subject only to delivery by the Company of the payment for such Company Options; (bb) Written evidence of the redemption or repurchase of all outstanding shares of common stock of the Old Company issued pursuant to exercise of Company Options, and the release by the holders thereof of all Liabilities of the Company and its Affiliates in connection with the grant or exercise of such Company Options, or the issuance of shares pursuant to such exercise, and such redemption or repurchase; (cc) a written agreement as to allocation of Purchase Price pursuant to Section 1.10, executed by the Selling Parties; (dd) such consent, waiver and estoppel certificate and release of liens and other instruments with respect to Southwest Community Bank as the Purchaser shall reasonably require; (ee) any documents, instruments or actions in connection with the drawdown or funding of a Revolving Loan under the Loan Documents reasonably required by the Purchaser; 4 7 (ff) the opinion of counsel to the Selling Parties, executed by such counsel and dated as of the Closing Date; and (gg) the Selling Parties' Closing Certificate, executed by the Selling Parties and dated as of the Closing Date; (hh) a written assumption of liability under the January 4 Note, executed and delivered by the Shareholders; (ii) a copy of the certificates of limited partnership for JBS Investments, TDM Enterprises and OMS Investments, certified by the Secretary of State of the State of Nevada as of a date not earlier than ten (10) days before the Closing Date; (jj) a copy of the articles of limited partnership for each of JBS Investments, TDM Enterprises and OMS Investments; (kk) an Entity Good Standing Certificate with respect to JBS Investments, TDM Enterprises and OMS Investments, dated as of a date no earlier than ten (10) days before the Closing Date; (ll) Tax Certificates for each of JBS Investments, TDM Enterprises and OMS Investments, dates as of a date no earlier than ten (10) days before the Closing Date; (mm) a certificate from the Secretary of State or other appropriate official in each state in which JBS Investments, TDM Enterprises or OMS Investments are required to qualify to do business, to the effect that such limited partnerships are qualified to do business in such state, as of a date not earlier than ten (10) days before the Closing Date; (nn) An Indemnity Agreement in form and substance satisfactory to Purchaser regarding that certain Real Property Lease relating to the Deer Valley Restaurant; (oo) A letter regarding the Phoenix Loan, executed by the lender thereof, in form and substance satisfactory to the Purchaser; (pp) A bill of sale, executed by SRA Ventures, LLC of the assignment by SRA Ventures, LLC as assignor, of any right, title or interest it may have in and to any personal property located at or used in connection with the operation of the Restaurants, in form and substance satisfactory to the Purchaser; (qq) an option agreement executed by SRA Ventures, as optionor, for the benefit of the Purchaser, as optionee, in the form attached hereto as an exhibit. Section 1.4 Purchaser's Deliveries. At the Closing, the Purchaser shall deliver or cause to be delivered, in form, substance and manner reasonably satisfactory to the Selling Parties, the following items: (a) deposit of $15,200,000 of the Purchase Price into the Pay Off Escrow; 5 8 (b) deposit of $800,000 of the Purchase Price into the Adjustment Escrow; (c) the Warrants, executed by the Purchaser in favor of FFPE Holding, in such denominations as FFPE Holding shall request and dated as of the Closing Date; (d) the Warrant Registration Rights Agreement, executed by the Purchaser and dated as of the Closing Date; (e) a copy of the Certificate of Incorporation of the Purchaser, certified by the Secretary of State of the State of Delaware as of a date not earlier than ten (10) days before the Closing Date; (f) the bylaws of the Purchaser, certified by the Secretary of the Purchaser as of the Closing Date; (g) a copy of the Board Resolutions of the Purchaser, certified by the Secretary of the Purchaser as of the Closing Date; (h) an Entity Good Standing Certificate and a Tax Certificate with respect to the Purchaser, dated as of a date not earlier than ten (10) days before the Closing Date; (i) the Call Option Agreement, executed by the Purchaser and dated as of the Closing Date; (j) the Put Option Agreements, executed by the Purchaser and dated as of the Closing Date; (k) the Pledge Agreement, executed by the Purchaser and dated as of the Closing Date; (l) the Consulting Agreements, executed by the New Company and dated as of the Closing Date; (m) the Employment Agreements, executed by the New Company and dated as of the Closing Date; (n) a written agreement as to allocation of Purchase Price pursuant to Section 1.10, executed by the Purchaser; (o) the drawdown or funding of the Revolving Loan (as defined under the Loan Documents); (p) a bond in the amount of $3.1 million from a surety or other institution reasonably acceptable to FFPE Holding, securing the Purchaser's obligations under Section 1.5(a)(i) of this Agreement. Purchaser shall have the right to substitute a different bond or letter of credit (both of which must be from a surety or bank reasonably acceptable to FFPE Holding and on terms and conditions no less advantageous to FFPE Holding than the immediately preceding bond or letter of credit) or in lieu of a different bond or letter of credit, 6 9 place $3,100,000 in cash into an escrow account. In the event that Purchaser has not paid the Additional Consideration by the Additional Consideration Payment Date, then FFPE Holding shall have the right to pursue its remedies in accordance with the terms of the bond, the letter of credit or the cash escrow, as the case may be; (q) the opinion of counsel to the Purchaser, executed by such counsel and dated as of the Closing Date; and (r) the Purchaser's Closing Certificate. Section 1.5 Additional Consideration. On the terms and subject to the conditions of this Section 1.5, within 20 business days after the determination of the Additional Consideration (the "Additional Consideration Payment Date"), the Purchaser shall pay or cause to be paid to FFPE Holding additional consideration (the "Additional Consideration"), determined as follows: (a) The amount of the Additional Consideration payable by the Purchaser to FFPE Holding on the Additional Consideration Payment Date consists of two components and shall be determined as follows: (i) If, and only if, any of Net Sales, Restaurant EBITDA, Total EBITDA or Number of Business Units for the Earn-Out Period exceeds the Minimum Criteria as set forth in the Additional Consideration Table, then the Purchaser shall pay to FFPE Holding the amount of Additional Consideration set forth in the Additional Consideration Table, which amounts in the aggregate, shall not exceed $3,100,000. (ii) If, and only if, each of Net Sales, Restaurant EBITDA, and Total EBITDA for the Earn-Out Period exceeds the Full Target, as set forth in the Additional Consideration Table, and if the number of Business Units is at least 18, then an additional amount shall be paid as follows: the Purchaser shall pay to FFPE Holding (A) one-half (1/2) of the first $2,000,000 in Excess Restaurant EBITDA, and (B) one-third (1/3) of any Excess Restaurant EBITDA that is greater than such initial $2,000,000 Excess Restaurant EBITDA; provided, however, that the Purchaser shall not be obligated to pay in excess of $5,000,000 under clause (B) of Section 1.5(a)(ii) of this Agreement. (b) Not later than May 1, 2003, the Purchaser shall compute the amount of Net Sales, Restaurant EBITDA, Total EBITDA and Number of Business Units for the Earn-Out Period, and the Purchaser shall provide to FFPE Holding for its review and approval, the Purchaser's computations and working papers reflecting how such computations were made. If the Sellers have any objections to the computation of Net Sales, Restaurant EBITDA, Total EBITDA and Number of Business Units for the Earn-out Period, they will deliver detailed statements describing their objections to the Purchaser within 30 days after receiving the Purchaser's computations and working papers reflecting how such computations were made. The parties will use their reasonable efforts to resolve any such objections. If, however, the parties do not obtain final resolution of this matter within 30 days after the Purchaser has received the statements of objections, the parties shall submit the dispute for resolution in the manner and shall bear the costs thereof as described in Section 1.9(d). The Accountant's determination of the amount of Net Sales, Restaurant EBITDA, Total EBITDA and Number of Business Units for the Earn-Out Period shall be rendered by the Accountant in a writing setting 7 10 forth in reasonable specificity the reasons for each conclusion reached in its decision. The Accountant's determination shall be binding upon all parties. The Purchaser and FFPE Holding shall use their best efforts to aid the Accountant in reaching a decision within 30 days from the date the dispute is tendered to the Accountant. In computing the EBITDA for purposes of this Section, the Purchaser shall make any adjustment required by the Intercompany Accounting procedures as described on the EBITDA Adjustment Guidelines, attached as Exhibit 26. Section 1.6 Sales and Transfer Taxes. The Purchaser shall bear the cost of any and all Transfer Taxes applicable to the Sale. Section 1.7 Pay Off Escrow. (a) Before the Closing, the parties shall open an escrow (the "Pay Off Escrow") for the purpose of ensuring the prior payment and satisfaction in full of certain interests in and claims against the Company. The Pay Off Escrow shall be opened at Chicago Title Company in Los Angeles, California or such other institutional escrow holder mutually acceptable to the parties (the "Pay Off Escrow Holder"). (b) The parties shall open the Pay Off Escrow by executing and delivering, together with the Pay Off Escrow Holder, a written escrow agreement (the "Pay Off Escrow Agreement"). The terms and conditions of the Pay Off Escrow Agreement shall be consistent with this Agreement unless the parties otherwise agree. (c) On or before the Closing, FFPE Holding shall prepare a schedule of holders of any Company Options or any shares of the Old Company's common stock outstanding immediately before the merger contemplated as part of the Reorganization (the "Scheduled Holders"). All of the Scheduled Holders shall have agreed to the cancellation or termination of their Company Options or the redemption or repurchase of their shares, as of immediately before such merger. The schedule shall indicate the name, address, Social Security Number, amount of securities, and termination or redemption price of such securities. (d) At the Closing, the Purchaser shall deposit into the Pay Off Escrow the cash portion of the Purchase Price described in Section 1.4(a) (the "Pay Off Escrow Amount") and Purchaser and FFPE Holding shall deliver joint written instructions to the Pay Off Escrow Holder (the "Payoff Escrow Payment Instructions"). The Payoff Escrow Payment Instructions shall instruct the Pay Off Escrow Holder to immediately disburse the Pay Off Escrow Amount, as follows: (i) first, to the Pay Off Escrow Holder for its fees and costs; (ii) second, to the holder of the Mattix Note in the amount necessary to pay in full all indebtedness thereunder; (iii) third, to the Scheduled Holders in their respective amounts shown on the schedule; (iv) fourth, to George Celmo in the amount necessary to pay in full all indebtedness of the Company owed to him (other than the January 4 Note); 8 11 (v) fifth, to Fleming, Lessard & Shields in an amount to pay in full all indebtedness of the Company owed to them; (vi) sixth, to Sheppard, Mullin, Richter & Hampton LLP in an amount as indicated on the escrow instructions delivered to the Pay Off Escrow Holder; and (vii) seventh, to Sellers in accordance with their pro rata ownership interests in the New Company. (e) Upon delivery to the Pay Off Escrow Holder of the Payoff Escrow Payment Instructions, the Pay Off Escrow Holder shall immediately disburse the amount specified in such Payment Instructions. (f) The Pay Off Escrow Amount may be invested by the Pay Off Escrow Holder in certificates of deposit, U.S. governmental obligations, or interest-bearing accounts as reasonably requested by FFPE Holding. All interest accruing on the Pay Off Amount shall be for the benefit of FFPE Holding. (g) The Pay Off Escrow Holder shall close the Pay Off Escrow as soon as possible following execution of the Payoff Escrow Payment Instructions. The Pay Off Escrow Holder shall provide a statement to each of FFPE Holding and the Purchaser of all deposits, interest, costs and disbursements related to the Pay Off Escrow Account. All Pay Off Escrow fees and costs shall be payable by FFPE Holding. Section 1.8 Adjustment Escrow. (a) Before the Closing, the parties shall open an escrow (the "Adjustment Escrow") for the purpose of ensuring the availability of cash to satisfy any required adjustment to the Purchase Price under Section 1.9 hereof (an "Adjustment"). The Adjustment Escrow shall be opened at Chicago Title Company in Los Angeles, California or such other institutional escrow holder mutually acceptable to the parties (the "Adjustment Escrow Holder"). The parties shall open the Adjustment Escrow by executing and delivering, together with the Adjustment Escrow Holder, written escrow agreement(s) and instructions (the "Adjustment Escrow Agreement"). The terms and conditions of the Adjustment Escrow Agreement shall be consistent with this Agreement unless the parties otherwise agree. (b) All amounts deposited by the Purchaser into the Adjustment Escrow at the Closing, and any interest thereon (the "Holdback Amount"), shall be retained in the Adjustment Escrow until termination of the Adjustment Escrow or the earlier disbursement of all or any portion of the Holdback Amount in satisfaction of any required Adjustment. The Holdback Amount may be invested by the Adjustment Escrow Holder in certificates of deposit, U.S. governmental obligations, or interest-bearing accounts as reasonably requested by FFPE Holding. Subject to disbursement to the Purchaser in satisfaction of any required Adjustment, all interest accruing on the Holdback Amount shall be for the benefit of FFPE Holding. (c) Promptly following the determination of the amount of any Adjustment pursuant to Section 1.9, the Purchaser and FFPE Holding shall execute and deliver joint written instructions to the Adjustment Escrow Holder regarding the disbursement of the Holdback Amount in accordance with such Section (the "Adjustment Payment Instructions"). 9 12 Upon delivery of the Adjustment Payment Instructions to the Adjustment Escrow Holder, the Adjustment Escrow Holder shall promptly disburse the amounts to the Persons specified in such Adjustment Payment Instructions. (d) The Adjustment Escrow shall remain open until the earlier of (a) the date on which all of the Holdback Amount has been disbursed pursuant to the Adjustment Payment Instructions, (b) the last day of the sixth calendar month following the Closing Date, unless the Adjustment Escrow Holder has theretofore received written notice from Purchaser to the effect that there is a claim of Adjustment to which the Purchaser believes it is entitled under Section 1.9, which is unpaid, and which is the subject of pending litigation, arbitration or other dispute resolution proceeding not anticipated to be completed on or before such six-month expiration, or (c) the date of termination set forth in any joint written instructions from the Purchaser and FFPE Holding or any judgment or order of the court delivered to the Adjustment Escrow Holder, in either case to the effect that the Adjustment Escrow has been or shall be terminated (any such date, a "Termination Date"). (e) As soon as practicable following a Termination Date, the Adjustment Escrow Holder shall do the following: (i) close the Adjustment Escrow; (ii) disburse to the Purchaser, out of the Holdback Amount, any amounts as to which the Adjustment Escrow Holder had theretofore received Payment Instructions to pay to the Purchaser but that remain undisbursed as of the Termination Date; (iii) unless otherwise instructed by FFPE Holding, distribute all of the Holdback Amount remaining after any disbursement required by Section 1.8(e)(ii) hereof to FFPE Holding; and (iv) deliver to Purchaser and FFPE Holding an accounting of the receipt, investment, and all disbursements of the Holdback Amount and all Adjustment Escrow fees and costs. (f) All Adjustment Escrow fees and costs shall be payable by Purchaser. Section 1.9 Purchase Price Adjustment. (a) The Purchase Price shall be subject to reduction after the Closing Date (i) in the amount, if any, by which Closing Indebtedness exceeds $4,236,000 (the "Closing Indebtedness Overage") and (ii) in the amount, if any, by which Closing Current Liabilities less Closing Current Assets exceeds $745,000 (the "Working Capital Deficiency"), determined as set forth in this Section. (b) The Purchase Price shall be subject to increase after the Closing Date by an amount equal to (i) the amount, if any, by which Closing Indebtedness is less than $4,236,000 (the "Closing Indebtedness Deficiency") and (ii) the amount, if any, by which Closing Current Assets less Closing Current Liabilities (the "Working Capital Excess") exceeds $600,000. 10 13 (c) Promptly following the Closing, FFPE Holding shall prepare, and cause the New Company's certified public accountants to audit, consolidated financial statements of the New Company as of the Closing Date prepared in accordance with GAAP and with such adjustments and reserves as may be required by Section 4.10 (the "Closing Financial Statements"). On the basis of the Closing Financial Statements, the New Company's accountants shall compute Closing Indebtedness, Closing Current Assets, Closing Current Liabilities and Closing Current Indebtedness. In making their computations, the accountants shall not consider Current Assets to include cash in the amount of any unpaid non-working capital items. The New Company shall deliver the Closing Financial Statements and the computations to the Purchaser within 60 days after the Closing Date. If within thirty days following delivery of the Closing Financial Statements and the computations, the Purchaser has not given FFPE Holding notice of its objection thereto (such notice to contain a statement of the basis of the Purchaser's objection), then the Closing Indebtedness, Closing Current Assets, Closing Current Liabilities and Closing Current Indebtedness included in the computation shall be used to determine the Closing Indebtedness Overage, Closing Indebtedness Deficiency, the Working Capital Deficiency, and Working Capital Excess, if any. (d) If the Purchaser gives such notice of objection, and the parties fail to resolve such objection within thirty (30) days, then the issues in dispute will be submitted to a "Big Five" accounting firm (the "Accountants") for resolution. If issues are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are reasonably available to that party, and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the Purchaser and FFPE Holding will each bear 50% of the fees of the Accountants for such determination. (e) If as finally determined either the Closing Indebtedness Overage is greater than zero or the Working Capital Deficiency is greater than zero, then on the tenth business day following the final determination of such amounts, FFPE Holding shall pay to the Purchaser an amount equal to the Closing Indebtedness Overage and the Working Capital Deficiency, as the case may be. All payments will be made together with interest at 8% compounded daily beginning on the Closing Date and ending on the date of payment. Payment must be made in immediately available funds. At FFPE Holding's option, payment may be made by either check, wire transfer, or disbursement from the Adjustment Escrow pursuant to Adjustment Payment Instructions to the Adjustment Escrow Holder. (f) If as finally determined either the Closing Indebtedness Deficiency is greater than zero or the Working Capital Excess is greater than zero, then on the tenth business day following the final determination of such amounts, the Purchaser shall pay to FFPE Holding an amount equal to the Closing Indebtedness Deficiency and the Working Capital Excess, as the case may be. All payments will be made together with interest at 8% compounded daily beginning on the Closing Date and ending on the date of payment. Payment must be made in immediately available funds. At the Purchaser's option, payment may be made by either check or wire transfer. 11 14 Section 1.10 Allocation of Purchase Price. For federal and state income tax purposes, Sellers and Purchaser agree that (i) the transactions described in Section 1.1 (Sale of LLC Membership Interest) are properly treated and shall be reported by Sellers and Purchaser as a sale by Sellers and purchase by Purchaser in the aggregate of an 82% interest as a member in the capital and profits of the New Company, (ii) the New Company is and shall be treated by Sellers and Purchaser as a partnership governed by subchapter K of the Code, and (iii) the consideration received or to be received for such 82% membership interest in such sale and purchase for all purposes of the Code consists of the Purchase Price and 82% of the liabilities of the New Company as of the time of such sale and purchase (in connection with which and for all such purposes, including without limitation the determination of the Purchaser's basis in such 82% membership interest and the gain or loss of Sellers with respect to the sale thereof, the parties shall treat the Additional Consideration in accordance with the "open transaction" method of reporting) (such consideration, as it may be adjusted from time to time in accordance with such method of reporting, is referred to herein as the "Tax Purchase Price"). Sellers acknowledge that Purchaser intends to cause the New Company to make an election under Section 754 of the Code in connection with such sale and purchase, and Sellers agree to execute such documents as may reasonably be required for them to execute in order for the New Company to make such election. For purposes of Sections 743, 755, 1060 and any other applicable provisions of the Code or regulations thereunder, the Tax Purchase Price shall be allocated among the assets of the Company with respect to Purchaser consistent with the allocations set forth in a schedule to be prepared by the parties on or before the Closing. In connection with such allocation, the parties acknowledge and agree that no portion of the Tax Purchase Price shall be allocated to the covenants of the Principals in Section 4.9 hereof (Non-Competition), it being understood that the Principals have entered into such covenants solely in consideration of the execution of this Agreement by the other parties hereto and not in consideration of any portion of the Tax Purchase Price. The determination of the initial Book Value of assets of the New Company, within the meaning of Section 1.8 of the Amended and Restated Limited Liability Operating Agreement attached as Exhibit 25, as of the constructive formation of the New Company a tax partnership pursuant to Treasury Regulations Section 301.7701-2(f)(2) upon the transfer of interests in the New Company from FFPE Holding to the Partnerships, shall be made in a manner consistent with the foregoing allocation of the Tax Purchase Price and shall be adjusted from time to time to reflect Additional Consideration paid. ARTICLE II REPRESENTATIONS OF THE SELLING PARTIES Except as otherwise set forth in the Selling Parties' Disclosure Schedule, each of the Selling Parties represent and warrant as follows: Section 2.1 Existence and Good Standing. (a) FFPE Holding is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. FFPE Holding is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary. 12 15 (b) The New Company is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The New Company is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character or location of the property owned, lease or operated by it or the nature of the business conducted by it makes such qualification necessary. The New Company has not elected to be treated as an association for federal tax purposes pursuant to United States Treasury Regulations Section 301.7701-3(c). (c) The Old Company is a corporation duly incorporated, validly existing and in good standing under the laws of California and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Old Company is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character or location of the property owned, lease or operated by it or the nature of the business conducted by it makes such qualification necessary. (d) JBS Investments is a duly formed limited partnership and is existing in good standing under the laws of Nevada and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (e) OMS Investments is a duly formed limited partnership and is existing in good standing under the laws of Nevada and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (f) TDM Enterprises is a duly formed limited partnership and is existing in good standing under the laws of Nevada and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Section 2.2 Capital Stock. (a) The New Company will, as of the Closing, have an authorized capitalization consisting of one hundred (100) Units of Membership Interest, of which 100 Units as of the Closing will be issued and outstanding. No other Units of Membership Interest are authorized or issued. All issued and outstanding Units are duly authorized, validly issued, fully paid and non-assessable. There are no outstanding subscriptions, options, warrants, rights, puts, calls, pre-emptive rights, commitments, conversion rights, rights of exchange, plans or other agreements of any kind relating to any of the outstanding, authorized but unissued or unauthorized shares of or units of equity interest in, or any other security of the New Company, and there is no authorized or issued security of any kind convertible into or exchangeable, for any such capital stock or other security, other than as contemplated by this Agreement. (b) The Old Company has an authorized capitalization consisting of one class of capital stock, designated as common stock, of which 1,320,000 shares are issued and outstanding. No other shares of capital stock are authorized or issued. All issued and outstanding subscriptions, options, warrants, rights, puts, calls, preemptive rights, commitments, conversion rights, rights of exchange, plans or other agreements of any kind relating to any of the outstanding, authorized but unissued or unauthorized shares of or units of equity interest in, or 13 16 any other security of the Old Company, and there is no authorized or issued security of any kind convertible into or exchangeable, for any such capital stock or other security, other than as contemplated by this Agreement. Section 2.3 Subsidiaries. The only Company Subsidiary is Oscar's of Arizona, LLC (the "Arizona LLC"). The Company is the sole member of the Arizona LLC. The Company owns its membership interest in the Arizona LLC free and clear of any Encumbrance. The Company's membership interest in the Arizona LLC has been duly authorized, validly issued, fully paid and is non-assessable and was issued free of preemptive rights and in compliance with applicable laws. No equity securities of the Arizona LLC are or may become required to be issued or purchased by reason of any options, warrants, rights to subscribe to, puts, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, membership interests of the Arizona LLC, and there are no contracts, commitments, understandings or arrangements by which the Arizona LLC is bound to issue additional membership interests, or options, warrants or rights to purchase or acquire any additional membership interests or securities convertible into or exchangeable for such membership interests. Section 2.4 Ownership of Stock. The Sellers, on or before the Closing, will be the lawful owners of all of the Units. On or before the Closing, the Units will be free and clear of any Encumbrances, other than restrictions imposed by applicable securities laws. The delivery to the Purchaser of the Units at Closing pursuant to the provisions of this Agreement will transfer to the Purchaser valid title thereto, free and clear of any and all Encumbrances. Section 2.5 Authorization and Validity of Agreement. Each of the Selling Parties has the full capacity to execute and deliver this Agreement, to perform such Selling Party's respective obligations hereunder and to consummate the Transactions and the Reorganization. This Agreement has been duly executed and delivered by each of the Selling Parties and, assuming the due execution of this Agreement by the Purchaser, is a valid and binding obligation of each of the Selling Parties, enforceable against each such Selling Party in accordance with its terms, except to the extent that its enforceability may be subject to the Enforceability Exceptions. Section 2.6 Governmental Approvals. No Consent of any Governmental Authority on the part of any of the Selling Parties or Company Subsidiaries is required in connection with the execution or delivery by any of the Selling Parties of this Agreement or the consummation by the Selling Parties of the Transactions, other than pursuant to the HSR Act, approvals by state alcoholic beverage control authorities, and any required state or federal securities law filings in connection with any solicitation of the holders of Company Options or with the Warrants. Section 2.7 Consents and Approvals; No Violations. The execution and delivery of this Agreement, the consummation of the Transactions and compliance by the Selling Parties with the provisions hereof will not (a) conflict with or result in any breach of any provision of the charter documents of the Sellers, the Company or any of the Company Subsidiaries, (b) require any Consent under or result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, payment or acceleration) under any of the terms, conditions or provisions of any agreement or other instrument involving in excess of $10,000 to which FFPE Holding, the Company or any Company Subsidiaries are parties or by which their respective assets are bound, (c) result in the 14 17 creation or imposition of any Encumbrance upon any of the outstanding shares of the capital stock or units of membership interest or assets of the Sellers, the Company or any Company Subsidiary, or (d) subject to obtaining the Consents from Governmental Authorities referred to in Section 4.4(a) hereof, contravene any provision of any Law to which the Sellers, the Company or any Company Subsidiary or its or any of their respective assets or properties are subject. Section 2.8 Company Financial Statements. The Selling Parties have made available to the Purchaser true and complete copies of the Company Financial Statements. The Company Financial Statements other than the Interim Statement have been prepared in accordance with GAAP (except as may be indicated therein or in the notes thereto) and present or will present fairly, in all material respects, the financial position of the Company and the Company Subsidiaries as at the dates thereof and the results of their operations and cash flows for the periods then ended, subject, in the case of any unaudited interim financial statements included within the Company Financial Statements, to normal year-end audit adjustments. All accounts receivable of the Company, whether reflected in the Company Financial Statements or otherwise, represent sales actually made in the ordinary course of business, and are current and collectible net of any reserves shown in the Company Financial Statements filed prior to the date hereof. Section 2.9 Absence of Certain Changes or Events; No Undisclosed Liabilities. Since December 31, 1999, there has not been: (a) any event that has had or would reasonably be expected to have a Company Material Adverse Effect, (b) any declaration, payment or setting aside for payment of any dividend or other distribution or any redemption or other acquisition of any shares of capital stock or securities of the Company by the Company or any Company Subsidiary (other than to shareholders to allow them to pay their taxes on 1999 income) (c) any material damage or loss to any material asset or property, whether or not covered by insurance, or (d) any change by the Company in accounting principles or practices. Since December 31, 1999, there has not been any action taken by any Selling Party, or any Company Subsidiary that, if taken during the period from the date of this Agreement through the Closing Date, would constitute a breach of Section 4.1. Except for those liabilities that are fully reflected or reserved against on the balance sheet of the Company included in the Company Financial Statements and for liabilities incurred in the ordinary course of business consistent with past practice, since December 31, 1999, neither the Company nor any of the Company Subsidiaries has incurred any liability or any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due). Section 2.10 Litigation. There is no action, suit or proceeding at law or in equity by any Person or any arbitration or any administrative or other proceeding by or before any Governmental Authority pending or, to the Selling Parties' Knowledge, threatened against the Company or any of the Company Subsidiaries. Section 2.11 Contracts. (a) There are no Company Contracts that are not listed in the Selling Parties' Disclosure Schedule. All Company Contracts are valid and binding and are in full force and effect and enforceable by the Company or Company Subsidiary, as applicable, in accordance with their respective terms, subject to the Enforceability Exceptions. Neither the Company nor any of the Company Subsidiaries is in violation or breach of or default under any Company Contract. 15 18 (b) All payments owed by the Company or any Company Subsidiary on any Company Contract have been paid. The Company has not received written notice that it is in default under any Company Contract. There exists no event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any further event or condition, would give rise to a right in favor of any Person party to a Company Contract to accelerate the obligations of the Company or Company Subsidiary under the Company Contract or otherwise become a default by the Company or Company Subsidiary under such Company Contract. (c) Neither the Company nor any Company Subsidiary is a party to, or has any of its assets or properties subject to, any agreement, arrangement or understanding (written or oral) with any other Person (including a Company Subsidiary or an Affiliate of the Company or of any Company Subsidiary), which (i) provides capital, surplus, balance sheet or any other form of economic or financial support to such other person other than the Arizona LLC, (ii) guarantees the obligations of, or performance of any acts, by such other Person, or (iii) imposes legal liability on the Company or any Company Subsidiary for any payments (contingent or otherwise) under any third-party note, guarantee, debt, bond, mortgage, indenture, contract, lease, license, agreement or instrument, in each case (i), (ii) and (iii) in an amount in excess of $10,000. Section 2.12 Employee Benefit Plans. For purposes of this Section 2.12, the term "Company" shall include all members of the "Controlled Group of Employers," which includes all entities that would be aggregated with the Company pursuant to Code Section 414. (a) The Selling Parties' Disclosure Schedule contains a true and complete list of all Company Employee Benefit Plans. (i) Each Company Employee Benefit Plan (and each related trust, insurance contract, or fund) (other than any Multiemployer Plan) complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code, and other applicable laws and has been operated in all material respects in accordance with the terms of each such plan's document. (ii) All required reports and descriptions (including, as applicable, Form 5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan descriptions) have been filed or distributed appropriately with respect to each such Company Employee Benefit Plan (other than any Multiemployer Plan). The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met in all material respects with respect to each such Company Employee Benefit Plan which is a "group health plan" (as such term is defined in Section 607(1) of ERISA and Section 5000(b)(1) of the Code). (iii) All contributions (including all employer contributions and employee salary reduction contributions) which are due under any Company Employee Benefit Plan which is an Employee Pension Benefit Plan have been paid to each Company Employee Benefit Plan in a timely manner and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each Company Employee Pension Benefit Plan or accrued in accordance with GAAP. All premiums or other payments required to be paid under each Company Employee Benefit Plan which is an Employee Welfare Benefit Plan for all 16 19 periods ending on or before the Closing Date have been paid in a timely manner with respect to each such plan. (iv) Each Company Employee Benefit Plan which is an Employee Pension Benefit Plan intended to meet the requirements of a "qualified plan" under Code Sec. 401(a) (other than Multiemployer Plan) has received a favorable determination letter from the Internal Revenue Service with respect to the tax-qualified status of the plan and, to the Selling Parties' Knowledge, no event has occurred and no condition exists which would reasonably be expected to result in the revocation of any such determination. (v) The market value of the assets under each Company Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) subject to Title IV of ERISA equals or exceeds the present value of all vested and nonvested accumulated benefit liabilities thereunder as of the close of its most recent plan year determined in accordance with the methods, factors, and assumptions used by such plan's actuary. (vi) The Selling Parties have delivered to the Purchaser correct and complete copies of (as applicable) the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each Company Employee Benefit Plan (other than any Multiemployer Plan). (b) No Company Benefit Plan which is subject to Title IV of ERISA (other than any Multiemployer Plan) has been completely or partially terminated (other than in a standard termination under ERISA Section 4041(b)) or has been the subject of a reportable event, within the meaning of ERISA Section 4043(c), which would reasonably be expected to result in a liability of the Company. No proceeding by the PBGC to terminate any such Company Benefit Plan (other than any Multiemployer Plan) has been instituted or, to the Selling Parties' Knowledge, threatened. (c) There have been no Prohibited Transactions with respect to any Company Benefit Plan, which would reasonably be expected to result in a liability of the Company. To the Selling Parties' Knowledge, no fiduciary has any liability for breach of fiduciary duty under, or any other failure to act or comply with, the applicable requirements of Part 4 of subtitle B of Title I of ERISA, in connection with the administration or investment of the assets of any such Company Benefit Plan, other than any Multiemployer Plan, which would reasonably be expected to result in a liability of the Company. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Company Benefit Plan (other than Multiemployer Plan) (other than routine claims for benefits) is pending or, to the Selling Parties' Knowledge, is any of the foregoing threatened. Neither the Selling Parties nor, to the Selling Parties' Knowledge, the directors and officers (and employees with responsibility for employee benefits matters) of the Company has any knowledge of any event which has occurred or condition which exists that would reasonably be expected to result in any such action, suit, proceeding, hearing, or investigation. 17 20 (d) The Company has not incurred and, to the Selling Parties' Knowledge, no event has occurred and no condition exists that would reasonably be expected to result in the incurrence by the Company of, any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any Withdrawal Liability, as that term is defined below) or under the Code with respect to any such Company Benefit Plan which is an Employee Pension Benefit Plan intended to be qualified under Section 401(a) of the Code. (e) The Company has not incurred any unsatisfied withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA ("Withdrawal Liability") to any Multiemployer Plan, and, to the Selling Parties' Knowledge, if, as of the close of the most recent fiscal year of any Multiemployer Plan to which any of them contributes, the Company or any such member were to engage in a complete withdrawal (as defined in Section 4203 of ERISA) from any such Multiemployer Plan, neither the Company nor any such member would incur Withdrawal Liability. (f) The Company does not maintain or ever has maintained or contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B or any applicable state law). (g) None of the persons performing services for the Company have been improperly classified as being independent contractors, leased employees, or as being exempt from the payment of wages for overtime. (h) None of the assets of any Benefit Plan that is a "pension plan" within the meaning of Section 3(2) of ERISA are invested in a group annuity contract or other insurance contract that is subject to any surrender charge, interest rate adjustment, or other similar expense upon its premature termination. (i) No Benefit Plan is of a (i) "multiple employer welfare arrangement," as that term is defined in ERISA Section 3(40) or (ii) a "welfare benefit fund," as that term is defined in Code Section 419(e). Section 2.13 Employment Agreements. The Selling Parties have identified in the Selling Parties' Disclosure Schedule, and have made available to the Purchaser, true and complete copies of (1) all severance, employment consulting and other agreements with directors, executive officers, key employees or consultants of the Company; (2) all severance programs and policies of each of the Company and each Company Subsidiary with or relating to Employees or directors; and (3) all plans, programs, agreements and other arrangements of each of the Company and each Company Subsidiary with or relating to Employees which contain change in control provisions. Except for the amount of the payments due under such agreements, programs, policies, plan or other arrangements referred to in the preceding sentence, neither the execution and delivery of this Agreement nor the consummation of the Transactions will (either alone or in conjunction with any other event, such as termination of employment) (A) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any director or any employee of the Company 18 21 or any Company Subsidiary or Affiliate under any Employee Benefit Plan or otherwise, (B) increase any benefits otherwise payable under any Employee Benefit Plan or (C) result in any acceleration of the time of payment or vesting of any benefits. Section 2.14 Taxes. (a) The Company has filed or caused to be filed all returns and reports for Taxes ("Tax Returns") required to be filed by, or with respect to, the Company on or prior to the date hereof and has timely paid all Taxes shown to be due on such Tax Returns. All such Tax Returns were correct and complete in all respects. (b) All Taxes and Liabilities for Taxes of the Company or of the Selling Parties relating to the Company due and payable by the Company or for which the Company or its assets may be responsible and which are due and payable have been paid. All Taxes attributable to all taxable periods ending on or before the Closing Date (other than taxes attributable to the transfer of the Purchased Units in accordance with Section 1.1 hereof), to the extent not required to be previously paid, have been fully and adequately reserved for on the books and records of the Company and the Company will not accrue a Tax liability after the date hereof up to the time immediately before Closing other than a Tax liability accrued in the ordinary course of business. (i) There is no audit, assessment or claim now pending or, to the Selling Parties' Knowledge, threatened by any taxing authority regarding any Taxes relating to the Company for the Pre-Closing Period or for which the Company or its assets may be responsible. No claim has ever been made in writing by an authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction for the Pre-Closing Period. (ii) The Company has not been included in any "consolidated," "unitary" or "combined" Tax Return provided for under the law of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable period for which the statute of limitations has not expired. (iii) There are no agreements for the extension or waiver of the time for assessment of any Taxes relating to the Company for any Pre-Closing Period, and the Company has not been requested to enter into any such agreement or waiver. (iv) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party. (v) There are no tax sharing or allocation agreements in effect as between the Company and any other party (including, without limitation, any of FFPE Holding and any predecessor or Affiliate of any of the Selling Parties other than the Company) under which the Purchaser or the Company could be liable for any Taxes after the Closing Date. (c) Effective for the tax year beginning January 1, 1993, Old Company duly and timely filed an election, executed by all persons whose signatures were required on such election, to be treated as an "S" corporation on IRS Form 2553 in accordance with the 19 22 instructions on that form, and from and after such date, Old Company has been duly qualified as an "S" corporation as defined in the Code, and Old Company has been entitled to be so treated as an "S" corporation during such period. (d) There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company. Section 2.15 Intellectual Property (a) The Company or the Company Subsidiaries own, or are licensed or otherwise possess legally enforceable rights to use all Company Intellectual Property. (b) There are no conflicts with or infringements of any Company Intellectual Property by any third party and the conduct of the Business does not conflict with or infringe any proprietary rights of any third party. (c) The Selling Parties' Disclosure Schedule contains a complete list of all material trademarks, registrations, and applications pertaining to the Company Intellectual Property. All such Company Intellectual Property so listed is owned by the Company and/or the Company Subsidiaries, free and clear of any Encumbrances. (d) There are no licenses, sublicenses or other agreements under which any of the Selling Parties or any of the Company Subsidiaries have granted rights to any Person to use the Company Intellectual Property. Neither any of the Selling Parties nor any Company Subsidiary will, as a result of the execution and delivery by the Selling Parties or the performance by the Selling Parties of their respective obligations under this Agreement, be in breach of any license, sublicense or other agreement relating to the Company Intellectual Property. (e) The Company and each of the Company Subsidiaries own or have the right to use all computer and point-of-sale hardware and software currently used in and material to the Business, on a per user basis. (f) All Company Intellectual Property was developed by employees of the Company within the scope of their employment or independent contractors as "works-made-for-hire" as that term is defined under Section 101 of the United States copyright laws, pursuant to written agreements. Section 2.16 Insurance. The Selling Parties' Disclosure Schedule sets forth a true and complete list of all insurance policies (in effect currently or at any time during the previous four years) carried by, or covering the Company and the Company Subsidiaries, with respect to the Business and their respective assets and properties, other than as is indicated on the Selling Parties' Disclosure Schedule, together with, in respect of each such policy, the amount of coverage and the deductible. Other than as is indicated on the Selling Parties' Disclosure Schedule, each insurance policy listed in the Selling Parties' Disclosure Schedule is in full force and effect and all premiums due thereon have been paid in full for those policies in effect currently or in effect at any time during the previous four years). 20 23 Section 2.17 Title to Properties. The Selling Parties' Disclosure Schedule sets forth a true and complete list of all Company Real Property (other than Company Real Property Leases). The Company Real Property set forth in the Selling Parties' Disclosure Schedule comprises all of the real property currently used in the operation of the Business. Section 2.18 Leases. The Selling Parties' Disclosure Schedule sets forth a true and complete list of all Company Real Property Leases. Each Company Real Property Lease is a valid leasehold interest and is in full force and effect. All rents, additional rents and other amounts owed by Company or any Company Subsidiary under any Company Real Property Lease have been paid. Each of the Company and the Company Subsidiaries enjoys peaceful and undisturbed possession under all Company Real Property Leases. The Company is not currently in default under any Company Real Property Lease. The Company Real Property Leases are free and clear of all Encumbrances, except for Permitted Encumbrances. The consummation of the Transactions will not create any Encumbrance (other than Permitted Encumbrances) on any of the Company Real Property. There exists no event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default by the Company under any Company Real Property Lease. Section 2.19 Environmental, Health and Safety Matters. (a) No Hazardous Substances have been generated, treated, stored, release or disposed of, or otherwise placed, deposited in or located any Company Real Property, by the Company or, to FFPE Holding's knowledge, any other Person, except in compliance with all applicable Laws. (b) To Selling Parties' Knowledge, no activity has been undertaken on any Company Real Property that would cause or contribute to (i) any Company Real Property becoming a treatment, storage or disposal facility in violation of RCRA or any similar state law or local ordinance, (ii) a release or threatened release of any Hazardous Wastes from the Company Real Property in violation of CERCLA or any similar state law or local ordinance, or (iii) the discharge of pollutants or effluents into any water source or system, the dredging or filling of any waters or the discharge into the air of any emissions, for which the Company does not have all required Permits under the Federal Water Act or the Clean Air Act or any similar state law or local ordinance. (c) To Selling Parties' Knowledge, there are no substances or conditions in or on the Company Real Property that may support a claim or cause of action under any Environmental, Health and Safety Laws. (d) To Selling Parties' Knowledge, there are no above ground or underground tanks that have been located under, in or about the Company Real Property which have been subsequently removed or filled. (e) Neither the Sellers nor the Company or any Company Subsidiaries has received any written notice, report or other information regarding any actual or alleged violation of Environmental, Health and Safety Laws, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, 21 24 remedial or corrective obligations, relating to the Company and the Company Subsidiaries or their properties arising under Environmental, Health and Safety Laws. Section 2.20 Compliance with Laws. The Business has been operated in compliance with all Laws applicable thereto, other than any failure of compliance which would involve an amount less than $10,000. Section 2.21 Permits. The Company and each of the Company Subsidiaries have all Company Permits. All Company Permits are in full force and effect. Neither the Company nor any Company Subsidiary is in violation of any Company Permit. No proceedings are pending or, to the Selling Parties' Knowledge, threatened to revoke or limit any Company Permit or to limit the manner in which the Company conducts the Business. Section 2.22 Operations. Each Restaurant is supplied with utilities (including, without limitation, water, sewage, disposal, electricity, gas and telephone) and other services necessary for the operation of such facility as currently operated, and, to the Selling Parties' Knowledge, there is no condition which would reasonably be expected to result in the termination or material modification of the present access from the Restaurant to or materially increase the cost of such utility services. Section 2.23 Labor Matters. Neither the Company nor any Company Subsidiary is a party to any labor agreement with respect to their respective employees with any labor organization, union or group. As to the employees, no labor organization or group of employees has made a pending demand which has been served upon the Company or any Company Subsidiary for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding pending which has been served upon the Company or any Company Subsidiary nor are any such proceedings or petitions threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority. There are no strikes, work stoppages, slowdowns, lockouts, arbitrations or grievances, or other labor disputes pending or, to the Selling Parties' Knowledge, threatened against the Selling Parties or its Affiliates involving the Employees, nor are there any organizing activities pending. Section 2.24 Transactions with Affiliates. The Selling Parties' Disclosure Schedule identifies all contracts, commitments and agreements (other than ordinary and customary executive benefits) in effect as of the date hereof by and between (A) the Company or any Company Subsidiary on the one hand and any of the Selling Parties or other Affiliate of the Company on the other hand. Section 2.25 Broker's or Finder's Fees. Except for the fees of Flemming, Lessard & Shields (for which FFPE Holding shall be solely responsible), no agent, broker, person or firm acting on behalf of any of the Selling Parties or the Company is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any Affiliate of any of the parties hereto, in connection with any of the Transactions. Section 2.26 Selling Parties' Disclosure Statement. The parties have acknowledged that the Selling Parties have delivered a preliminary Selling Parties' Disclosure Schedule, in the form attached to this Agreement as Exhibit 19. Within three (3) business days of the date hereof, 22 25 the Selling Parties shall deliver a final Selling Parties' Disclosure Statement (the "Final Schedule") to the Purchaser. The Final Schedule shall amend and restate the Selling Parties' Disclosure Statement in the form attached to this Agreement. Within three (3) business days of such delivery, Purchaser shall identify in writing all documents, contracts, agreements, instruments or other information described or referred to in the Final Schedule, which are remaining to be delivered to the Purchaser. Within three (3) business days of such delivery, FFPE Holding shall deliver copies of all such items so identified. For a period of three (3) days following its receipt of the last item so delivered by FFPE Holding, the Purchaser shall have the right to disapprove the Final Schedule and any and all items described or referred to therein. Such right shall be exercised by Purchaser's delivery to FFPE Holding of written notice of disapproval expressly referencing this Section. The Purchaser shall have the right to exercise such right of disapproval in its sole discretion. The parties acknowledge that, in accordance with this Section 2.26, the Purchaser has exercised its right to disapprove the Final Schedule and certain matters contained therein and that such disapproval constitutes non-fulfillment of the condition precedent to the Purchaser's obligation to effect the Transactions specified in Section 6.3(g) of the Agreement (the "Due Diligence Condition"). The Purchaser agrees to waive the Due Diligence Condition upon and subject to the execution, delivery and performance of this Agreement. The parties hereto approve the schedule attached hereto and agree that it shall be the final Selling Parties' Disclosure Schedule referred to in this Agreement. ARTICLE III REPRESENTATIONS OF THE PURCHASER The Purchaser represents and warrants as follows: Section 3.1 Existence and Good Standing of the Purchaser; Authorization. (a) The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. (b) The Purchaser has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Transactions. The execution, delivery and performance of this Agreement by the Purchaser, and the consummation by it of the Transactions, have been duly authorized and approved by the board of directors of the Purchaser and no other corporate or similar action on the part of the Purchaser or its shareholders is necessary to authorize the execution, delivery and performance of this Agreement by the Purchaser and the consummation of the Transactions. This Agreement has been duly executed and delivered by the Purchaser and, assuming the due execution of this Agreement by the Selling Parties, is a valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except to the extent that its enforceability may be subject to the Enforceability Exceptions. Section 3.2 Consents and Approvals; No Violations. The execution and delivery of this Agreement, the consummation of the Transactions and compliance by the Purchaser with the 23 26 provisions hereof will not (a) conflict with or result in any breach of any provision of the articles of incorporation or bylaws of the Purchaser, (b) require any Consent under or result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, payment or acceleration) under any of the terms, conditions or provisions of any agreement or other instrument to which the Purchaser is a party or by which its assets are bound, (c) result in the creation or imposition of any Encumbrance upon any of the outstanding shares of the capital stock or assets of the Purchaser, or (d) subject to obtaining the Consents from Governmental Authorities referred to in Section 4.4(a) hereof, contravene any provision of any Law to which the Purchaser or its assets or properties are subject. Section 3.3 Purchase for Investment. The Purchaser will acquire the Units solely for its own account for investment and not with a view toward any resale or distribution thereof. Section 3.4 Broker's or Finder's Fees. Except for the fees of J.H. Chapman LLC (for which the Purchaser shall be solely responsible), no agent, broker, person or firm acting on behalf of the Purchaser is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any Affiliate of any of the parties hereto, in connection with any of the Transactions. Section 3.5 No Material Adverse Change. Except as described in the Purchaser's disclosures filed with the U.S. Securities and Exchange Commission, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Purchaser and, to the Purchaser's Knowledge, no event has occurred or circumstance exists that may result in such material adverse change. ARTICLE IV ADDITIONAL AGREEMENTS OF THE SELLING PARTIES Section 4.1 Conduct of Business of the Company and the Company Subsidiaries. (a) Unless Purchaser shall otherwise agree in writing and except as expressly contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, the Sellers shall cause the Company to, and the Company shall (and cause each of the Company Subsidiaries to) (1) conduct the Business in the ordinary course and consistent with past practice, (2) use the commercially reasonable efforts of the Company and of the Company Subsidiaries to preserve intact their business organization, keep available the services of its and their officers and employees, maintain satisfactory relationships with all Persons with whom it and they do business, and preserve the possession, control and condition of all of its and their assets, and (3) refrain from taking any of the following actions: (i) amend or propose to amend the articles of incorporation or bylaws of the Company or any Company Subsidiary; (ii) authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any shares of, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of, the capital 24 27 stock or other securities of the Company or any of the Company Subsidiaries including, but not limited to, any securities convertible into or exchangeable for shares of stock of any class of the Company or any of its subsidiaries; (iii) split, combine or reclassify any shares of the Company's capital stock or declare, pay or set aside any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, other than dividends or distributions to the Company or any Company Subsidiary, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any shares of its capital stock or other securities; (iv) (A) create, incur, assume, forgive, or make any changes to the terms of or the collateral securing any receivables or employee or officer loans or advances, (B) create, incur, assume, or make any change to the terms of or the collateral securing any indebtedness of the Company, except for planned expansion as contemplated in the Business Plan or to refinance existing obligations on terms that are no less favorable to the Company or its subsidiaries than the existing terms; (C) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, indirectly, contingently or otherwise) for the obligations of any Person , except to finance planned expansion as contemplated in the Business Plan; (D) make or incur any expenditure in an amount over $100,000, except for planned expansion as contemplated in the Business Plan; (E) make any loans, advances or capital contributions to, or investments in, any other Person (other than to a Company Subsidiary and customary travel, relocation or business advances to employees); (F) acquire the stock or assets of, or merge or consolidate with, any other Person; (G) voluntarily incur any material liability or obligation (absolute, accrued, contingent or otherwise) other than in the ordinary course of business consistent with past practice , except obligations in connection with the finance of planned expansion as contemplated in the Business Plan; or (H) sell, transfer, mortgage, pledge, or otherwise dispose of, or encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any assets or properties, real, personal or mixed material to the Company and the Company Subsidiaries taken as a whole other than to secure debt permitted under subclause (A) of this clause (iv) or other than in the ordinary course of business consistent with past practice; (v) increase in any manner the wages, salaries, bonus, compensation or other benefits of any of its officers or employees or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, termination, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, for or in respect of, any shareholder, officer, director, other employee, agent, consultant or Affiliate other than as required pursuant to the terms of agreements in effect on the date of this Agreement, or enter into or engage in any agreement, arrangement or transaction with any of its directors, officers, employees or affiliates except current compensation and benefits in the ordinary course of business, consistent with past practice, or in accordance with the Business Plan; (vi) (A) commence or settle any litigation or other proceedings with any Governmental Authority or other person, or (B) make or rescind any election relating to Taxes, settle any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or 25 28 controversy relating to Taxes, file any amended Tax Return or claim for refund, change any method of accounting or make any other material change in its accounting or Tax policies or procedures. (vii) adopt or amend any resolution or agreement concerning indemnification of its directories, officers, employees or agents; (viii) commit or omit to do any act which act or omission would cause a breach of any covenant contained in this Agreement or would cause any representation or warranty contained in this Agreement to become untrue, as if each such representation and warranty were continuously made from and after the date hereof; (ix) fail to maintain its books, accounts and records in the usual manner on a basis consistent with that heretofore employed; (x) materially increase or decrease the average restaurant, corporate or warehouse facility inventory or house bank accounts in any Restaurant; (xi) enter into any new line of business; (xii) enter into any lease, contract or agreement pursuant to which the Company is obligated to pay or incur obligations of more than $10,000 per year, other than (i) the purchase of inventory in the ordinary course of business consistent with past practice or (ii) in connection with planned expansion as contemplated in the Business Plan; (xiii) make any changes to its current investment strategy, policy or practices; (xiv) make, engage or incur costs for the design or construction of any new Restaurant, the remodeling or renovation of existing Restaurants or Restaurants except as provided in the Business Plan; (xv) allow any employee or other person to remove any Company asset, display, proprietary asset, retail item or other property from the corporate office, warehouses, restaurants of the Company or any other Company facilities; (xvi) issue any gift certificates, coupons or complimentary rights for dining or retail other than in such amounts as are in the ordinary course of business consistent with past practice; or (xvii) authorize any of, or agree to commit to do any of, the foregoing actions. (b) The Selling Parties shall, and shall cause the Company Subsidiaries to, use its or their commercially reasonable efforts to comply in all material respects with all Laws applicable to it or any of its properties, assets or business and maintain in full force and effect all the Company Permits necessary for, or otherwise material to, such business. 26 29 Section 4.2 Notification of Certain Matters. The Selling Parties shall give prompt notice to Purchaser if any of the following occur after the date of this Agreement: (i) receipt of any notice or other communication in writing from any third party alleging that the Consent of such third party is or may be required in connection with the Transactions, provided that such Consent would have been required to have been disclosed in this Agreement; (ii) receipt of any material notice or other communication from any Governmental Authority in connection with the Transactions; (iii) the occurrence of an event which would be reasonably likely to have a Company Material Adverse Effect; or (iv) the commencement or threat of any litigation involving or affecting the Company or any Company Subsidiary, or any of their respective properties or assets, or, to the Selling Parties' Knowledge, any employee, agent, director or officer, in his or her capacity as such, of the Company or any Company Subsidiary which, if pending on the date hereof, would have been required to have been disclosed in this Agreement or which relates to the consummation of the Sale. Section 4.3 Access and Information. The Purchaser may, prior to the Closing Date, through its representatives, review the properties, books and records of the Company to familiarize itself with such properties and the business of the Company. The Selling Parties shall cause the Company to permit the Purchaser and its representatives to have reasonable access to the Restaurants and the Company's other properties and facilities and to the books and records of the Company during normal working hours and upon reasonable notice to conduct such review. As part of its review, the Purchaser shall have the right to conduct physical inspections of the Restaurants and any Company facilities (and the structures located thereon) owned or leased by the Company. Section 4.4 Reasonable Best Efforts. (a) Subject to the terms and conditions herein provided, the Selling Parties shall use commercially reasonable efforts take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the Transactions, including, but not limited to, (i) obtaining all Consents from Governmental Authorities and other third parties required for the consummation of the Transactions (provided that the Selling Parties shall not cause the Company to make any payment or amend the terms of any agreement in connection with obtaining any such Consent without the prior written approval of Purchaser) and (ii) timely making all necessary filings under the HSR Act. Upon the terms and subject to the conditions hereof, the Selling Parties shall use commercially reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions to Closing set forth herein. (b) The Selling Parties shall inform Purchaser regularly, and to respond to requests of Purchaser, as to the status of whether or not each Consent required from third parties (other than Governmental Authorities) in connection with this Agreement and the Transactions have been obtained. Section 4.5 Public Announcements. So long as this Agreement is in effect, the Selling Parties shall not, and shall cause the Company and the Company Subsidiaries not to, (a) issue or cause the publication of any press release or any other announcement or communication with respect to the Transactions without the written consent of Purchaser, or (b) discuss with the press or the media this Agreement, or the Transactions (and will refer any and all questions and 27 30 inquiries to Purchaser), except in any case under (a) or (b) where such release or announcement is required by applicable Law, in which case the Company, prior to making such announcement, will consult with Purchaser regarding the same. Selling Parties will have a reasonable opportunity to review and comment upon any press release to be issued by Purchaser in connection with this Agreement, consistent with Purchaser's legal obligations to make public disclosure. Section 4.6 No Solicitation. (a) The Selling Parties shall not, nor shall they permit the Company or the Company Subsidiaries or any of their respective officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by them, it or any of the Company Subsidiaries, directly or indirectly, to (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action knowingly designed or reasonably likely to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Company Sale Proposal or (ii) participate in any discussion or negotiations regarding any Company Sale Proposal. (b) In addition to the obligations of the Company set forth in paragraphs (a), the Selling Parties shall promptly advise Purchaser orally and in writing of any request for information or of any Company Sale Proposal, the material terms and conditions of such request or the Company Sale Proposal and the identity of the person making such request or Company Sale Proposal and shall keep Purchaser fully informed on a prompt basis with respect to any developments with respect to the foregoing. Section 4.7 Personal Guarantees. The Selling Parties may, in their sole discretion, seek to obtain from third parties the termination of, and release from Liability under, any personal guarantees by the Principals of any Liability of the Company. The failure of the Selling Parties to obtain any such termination or release shall not be a Selling Parties condition precedent to effecting the Sale and the other Transactions. Section 4.8 Service Mark Registration. Following the date hereof, the Selling Parties will promptly use their best efforts to cause the Company to change the trademark and service mark under which the Restaurants are operated from "Oscar's" to another mark eligible for registration in the United States Patent and Trademark Office. The new mark shall be approved in writing by the Purchaser. The Selling Parties shall, or shall cause the Company to use their best efforts, comply with all of the Company's obligations under the letter agreement dated May 5, 2000 between the Old Company and Hilton. Section 4.9 Non-Competition. (a) The parties acknowledge that the Principals have intimate knowledge of the Business, which, if exploited by him or her in contravention of this Agreement, would seriously, adversely and irreparably affect the ability of the Purchaser and its Affiliates to continue the Business acquired pursuant hereto. (b) To induce the Purchaser to enter into this Agreement, the Principals have agreed to the provisions of this Section 4.9. 28 31 (c) Each of the Principals covenant and agree that for the period ending five (5) years from the Closing Date or two years after the date of the termination of his employment with Purchaser or an Affiliate thereof, whichever is the last to occur, such Principal will not, without the prior written consent of Purchaser, directly or indirectly, in Southern California or the greater Phoenix metropolitan area (the "Territory"), compete with the Business. (d) For purposes of this Section 4.9, the term "compete" shall mean (a) hiring, soliciting, taking away or attempting to hire, solicit or take away any employee engaged in, or who has in the preceding four months has been engaged in, the Business either on behalf of himself or herself or any other person or entity; or (b) entering into or attempting to enter into any business directly competing with the Business within the Territory, either alone or with any individual, partnership, corporation or association. (e) For purposes of this Agreement, the words "directly or indirectly" as they modify the word "compete" shall mean (a) acting as an agent, representative, consultant, officer, director, independent contractor or employee of any entity or enterprise, which is competing (as defined in Section 4.9(c), above) with the Business; or (b) participating in any such competing entity or enterprise, or any Business affiliate of such entity or enterprise, as an owner, partner, limited partner, joint venturer, creditor, or shareholder (except as a shareholder holding less than a five percent interest in a corporation whose shares are actively traded on a regional or a national securities exchange or in the over-the-counter market). (f) The Principals recognize that the territorial and time limitations set forth in Section 1, above, are reasonable, not burdensome and are properly required by Law for the adequate protection of Purchaser, and in the event that such territorial or time limitations are deemed to be unreasonable by a court of competent jurisdiction, then Principals and Purchaser agree and submit to the reduction of either said territorial or time limitation, or both, to such an area or period as said court shall deem reasonable. (g) Each of the Principals acknowledges that his or her expertise in the Business is of a special, unique, unusual, extraordinary and intellectual character, which gives said expertise a peculiar value, and that a breach by him or her of any of the provisions of this Agreement cannot be reasonably or adequately compensated in damages in an action at law and that such breach will cause Purchaser irreparable injury and damage. Each of the Principals further acknowledges that he or she possesses unique skills, knowledge and ability and that competition in violation of this Agreement would be extremely detrimental to Purchaser. By reason thereof, each of the Principals agrees that Purchaser shall be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to temporary, preliminary and/or permanent injunctive and other equitable relief to prevent or curtail any breach of this Agreement, without proof of actual damages that have been or may be caused to Purchaser by such breach or threatened breach; provided, however, that no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against the pursuing of other legal or equitable remedies in the event of a breach. (h) Notwithstanding any provision of this Section 4.9 to the contrary, John shall not be prohibited from acting as a consultant for or making a passive minority equity investment in, any privately held company engaged in the operation of "fine dining" restaurants exclusively. 29 32 (i) The provisions of this Section 4.9 shall not apply to any activities by Tamara after the expiration of the twelve (12) month period following the termination of her Employment Agreement, to the extent such activities do not relate to any restaurant business involving all of the following: (1) A menu that is substantially similar to the menu of the New Company's business; or (2) A "quick service" or counter service or partial counter service restaurant having an average check amount per person that is substantially similar to the average check in the New Company's business. Section 4.10 Adjustments to Company Financial Statements. On or before the Closing Date, the Company shall establish such reserves and shall make such other adjustments to the Company Financial Statements as are necessary to bring them into conformity with GAAP as customarily applied to the Purchaser's financial statements. Section 4.11 Company Options. The Principals and the Shareholders agree to use commercially reasonable efforts to ensure that, as of the effective date of the merger contemplated as part of the Reorganization, Sellers shall be the only holders of Units and that there shall be no outstanding options to purchase any Units. Accordingly, following the date of this Agreement, the Selling Parties shall use their best efforts to obtain the items described in Section 1.3(bb) and (cc), and shall do so in compliance with applicable law. ARTICLE V ADDITIONAL AGREEMENTS OF THE PURCHASER Section 5.1 Access and Information. Between the date of this Agreement and the Closing Date, Purchaser will give, and shall direct its accountants and legal counsel to give, the Selling Parties and their authorized representatives (including, without limitation, its financial advisors, accountants and legal counsel), at all reasonable times, access as reasonably requested to all offices and other facilities and to all contracts, agreements, commitments, books and records of or pertaining to Purchaser and its subsidiaries, and to the parties thereto, will permit the foregoing to make such reasonable inspections as they may require and will cause its officers promptly to furnish the Selling Parties with (a) such financial and operating data and other information with respect to the business and properties of Purchaser and its Subsidiaries as the Selling Parties may from time to time reasonably request and (b) a copy of each material report, schedule and other document filed or received by Purchaser or any of its Subsidiaries pursuant to the requirements of applicable securities laws or the NYSE. Section 5.2 Notification of Certain Matters. Purchaser shall give prompt notice to the Selling Parties if any of the following occur after the date of this Agreement: (i) receipt of any notice or other communication in writing from any third party alleging that the Consent of such third party is or may be required in connection with the Transactions, provided that such Consent would have been required to have been disclosed in this Agreement; (ii) receipt of any notice or other communication from any Governmental Authority (including, but not limited to, the NYSE or any securities exchange) in connection with the Transactions; (iii) the commencement or 30 33 threat of any litigation involving or affecting Purchaser or any of its Subsidiaries, or any of their respective properties or assets, or, to its knowledge, any employee, agent, director or officer, in his or her capacity as such, of Purchaser or any of its Subsidiaries which, if pending on the date hereof, would have been required to have been disclosed in this Agreement or which relates to the consummation of the Sale. Section 5.3 Reasonable Best Efforts. Subject to the terms and conditions herein provided, Purchaser shall use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the Transactions, including, but not limited to, (i) obtaining all Consents from Governmental Authorities and other third parties required for the consummation of the Transactions and (ii) timely making all necessary filings under the HSR Act. Upon the terms and subject to the conditions hereof, Purchaser agrees to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions to Closing set forth herein. Section 5.4 Filing Fees. Purchaser shall be responsible and bear the cost of all filing and application fees and expenses of the Selling Parties (other than the costs of the Company's officers and employees and any attorneys' fees and costs) in connection with any required applications, statements, filings or submissions to the SEC or pursuant to the HSR Act or to obtain any Consents from any Governmental Authorities required for the consummation of the Transactions. Section 5.5 Personal Guarantees. The Purchaser shall use its commercially reasonable efforts to cooperate with any efforts of the Selling Parties to obtain a termination of, or release from Liability under, any Qualified Personal Guarantees by the Principals. The Purchaser's efforts need not include more than the following: (a) providing such third parties with financial and other information regarding the Purchaser; (b) offering, or causing a Subsidiary to offer, to assume the guarantee sought to be terminated; or (c) providing, or causing a Subsidiary to provide, a replacement guarantee. Effective immediately following the Closing Date, Purchaser shall indemnify and hold harmless the Principals from and against Liability under any Qualified Personal Guarantee as to which a release or termination has not been obtained on or before the Closing Date. Notwithstanding anything to the contrary set forth herein, Purchaser agrees that it shall indemnify and hold harmless FFPE Holding from and against any Liability pursuant to that certain Guarantee of Lease dated as of August __, 2000, executed by FFPE Holding and the Purchaser in connection with that certain Lease Agreement dated June 18, 1993, among Mr. Karl H. Keller and Mrs. Lori Keller, as landlords, and the Old Company, as tenant, for the property located at 1505 Encinitas Boulevard, Encinitas, California. The obligations of Purchaser to indemnify the Principals under this paragraph shall be limited to those Qualified Personal Guarantees identified in the Selling Parties' Disclosure Schedule attached hereto. Section 5.6 Certain Tax Matters. (a) For all purposes of this Agreement, Taxes other than income Taxes shall be allocated to periods before or after Closing based on the actual revenue, receipts, income, expense, loss, and operations of Company during such periods and in the case of ad valorem Taxes based on the lapse of time before and after Closing during the relevant Tax period, except that (i) any Taxes imposed on the New Company pursuant to California Revenue 31 34 & Taxation Code Section 17942 shall be allocated entirely to the period after Closing, and (ii) no increase in the rate of any such Tax as a result of the transactions contemplated by this Agreement (for example, a reassessment of value for ad valorem Tax purposes) shall be considered to be allocable to any period before Closing. (b) FFPE Holding shall be entitled to all refunds of Taxes relating to any period or partial period before Closing, and Purchaser shall pay to FFPE Holding the amount of such refund promptly upon receipt thereof by Purchaser or any Affiliate of Purchaser unless such refund has been treated as an asset of the Company. (c) Purchaser shall use commercially reasonable best efforts to cause the New Company to assume the Old Company's obligations to pay federal and state employment taxes, file federal and state employment tax returns and provide Forms W-2 to employees of the Old Company hired by the New Company, so as to avoid over-withholding as to such employees and to avoid requirements to provide Forms W-2 on an expedited basis, as contemplated by Internal Revenue Service Revenue Procedure 96-60, 1996-2 C.B. 399 and/or Internal Revenue Service Revenue Ruling 62-60, 1962-1 C.B. 1986 and corresponding provisions of state law. (d) Shareholders shall be responsible for preparing and filing the short period tax return for FFPE Holding and Old Company for the calendar year 2000 from January 1, 2000 to the Closing Date. Purchaser shall be supplied with a copy of such tax return. (e) No action shall be taken by any party to this Agreement to cause the New Company to be treated as anything but a partnership for tax purposes. (f) The Principals shall be responsible for preparing and filing all required tax returns in connection with JBS Investments, OMS Investments and TDM Enterprises that are to be filed by such entities. ARTICLE VI CONDITIONS Section 6.1 Conditions to Each Party's Obligations. The respective obligations of the Selling Parties and the Purchaser to effect the Sale of the Shares and the other Transactions shall be subject to the fulfillment or waiver at or prior to the Closing of the following conditions: (a) No Injunction. No order, statute, rule, regulation executive order, stay, decree, judgment or injunction shall have been enacted, entered, promulgated, or enforced by any Governmental Authority since the date of this Agreement which prohibits or prevents the consummation of the Transactions which has not been vacated, dismissed or withdrawn prior to the Closing Date. (b) HSR. Any waiting period applicable to the Sale under the HSR shall have expired or early termination thereof shall have been granted. Section 6.2 Conditions to Selling Parties' Obligations. The obligations of the Selling Parties to effect the Transactions shall be subject to the fulfillment or waiver at or prior to the 32 35 Closing of the following additional conditions, any one or more of which may be waived by a Selling Party: (a) Purchaser Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects (except that where any statement in a representation or warranty expressly includes a "material adverse effect", "material" or other materiality qualifier, such representation or warranty shall be true and correct in all respects) as of the date hereof and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except those representation and warranty that speak as of an earlier date, which shall be true and correct as of such earlier date (it being understood that, for purposes of determining the accuracy of such representations and warranties, any update of or modification to the Purchaser Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded). (b) Performance of Agreements. Each and all of the covenants of the Purchaser to be performed at or prior to the Closing pursuant to the terms hereof shall have been duly performed in all material respects. (c) Deliveries. The Purchaser shall have tendered delivery of all items described in Section 1.4 of this Agreement which are required to be delivered at or prior to the Closing in accordance with such section. (d) No Insolvency. There shall not have occurred any Event of Insolvency with respect to the Purchaser. (e) Continued Listing. The SII Common Stock shall not have ceased to be listed on a national securities exchange. Section 6.3 Conditions to Purchaser's Obligations. The obligation of the Purchaser to effect the Transactions contemplated hereby shall be subject to the fulfillment or waiver at or prior to the Closing of the following conditions: (a) Selling Parties' Representations and Warranties. The representations and warranties of the Selling Parties contained in this Agreement shall be true and correct in all material respects (except that where any statement in a representation or warranty expressly includes a "material adverse effect", "material" or other materiality qualifier, such representation or warranty shall be true and correct in all respects) as of the date hereof and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except those representations and warranties that speak as of an earlier date, which shall be true and correct as of such earlier date (it being understood that, for purposes of determining the accuracy of such representations and warranties, any update of or modification to the Selling Parties' Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded). (b) Performance of Agreements. Each and all of the covenants of the Selling Parties to be performed at or prior to the Closing pursuant to the terms hereof shall have been duly performed in all material respects. 33 36 (c) Deliveries. The Selling Parties shall have tendered delivery of all items described in Section 1.3 of this Agreement which are required to be delivered at or prior to the Closing in accordance with such section. (d) Governmental and Other Approvals. All Consents necessary by Governmental Authorities to permit the consummation of the Transactions shall have been received and shall be in full force and effect. (e) Company Real Property Leases. None of the Company Real Property Leases shall have been terminated. No landlord or lessor under any Company Real Property Lease shall have failed to have consented in writing to the Reorganization or the Transactions, or shall have exercised or asserted, in connection with the Reorganization or the Transactions, any right to declare a default, terminate, purchase tenant's interest in or the premises leased under, or increase by more than 10% any rent or other charges under any Company Real Property Lease. (f) There shall not have been any Material Adverse Effect with respect to the Company. (g) The Purchaser shall not have exercised its right of disapproval in accordance with Section 2.26 of this Agreement. ARTICLE VII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION Section 7.1 Survival of Representations. The representations and warranties of the Selling Parties contained in Article II and the representations and warranties of the Purchaser contained in Article III (or in any Selling Party's Closing Certificate or any Purchaser's Closing Certificate) are made only as of the date of this Agreement and as of the Closing Date. Such representations and warranties shall survive the Closing Date, notwithstanding any investigation made or information obtained by the other party, but shall expire on the last day of the eighteenth (18th) calendar month following the month in which the Closing Date occurs, except for the representations and warranties set forth at Sections 2.4, 2.12, 2.14 and 2.19, which shall expire upon the expiration of the applicable statute of limitations (or, in the case of Section 2.19, four years). Section 7.2 Indemnification by Selling Parties. Subject to the limitations of Section 7.5, each of the Selling Parties shall indemnify, defend and hold the Purchaser and its officers, directors, Affiliates and agents, and any successors thereto, harmless from Damages incurred or paid by any such Persons as a result of (i) the failure of any representation or warranty made by the Selling Parties in this Agreement, the Selling Parties' Closing Certificate, or the Selling Parties' Disclosure Statement to be true and correct as of the Closing Date, (ii) the breach by the Selling Parties of any of its covenants in this Agreement, (iii) any Liability of any of the Selling Parties to any holder of Company Options, whether arising under contract or federal or state securities or other applicable law, or (iv) any Liability of the Company arising under the January 4 Note. 34 37 Section 7.3 Indemnification by Purchaser. Subject to the limitations of Section 7.5, the Purchaser shall indemnify, defend and hold each of the Selling Parties and any of their respective officers, directors, Affiliates and agents, and any successors thereto, harmless from Damages incurred or paid by any such Persons as a result of (i) the failure of any representation or warranty made by the Purchaser in this Agreement, the Purchaser's Closing Certificate, or the Purchaser's Disclosure Statement to be true and correct as of the Closing Date or (ii) the breach by the Purchaser of any of its covenants in this Agreement. Section 7.4 Insurance Recoveries (a) The Purchaser with respect to any claim of indemnity under Section 7.2, and the Selling Parties with respect to any claim of indemnity under Section 7.3, shall use their respective reasonable best efforts to effect any available recovery from an insurer with respect to any insurance policy under which Damages may be recovered. (b) The obligations of the Purchaser and the Selling Parties described in Section 7.4(a): (i) need not be performed before a claim of indemnity is made under this Article 7; (ii) are not conditions precedent to any party's indemnification obligations under this Article 7; (iii) shall not be deemed to have been suspended, excused or waived by the payment of any amount with respect to a claim of indemnity under this Article 7; (iv) shall not be interpreted to obligate an Indemnified Party to initiate, pursue or join in any litigation against any insurer or any other Person in order to effect any such recovery; provided, however, in the event that any Indemnified Party declines to pursue any such action or litigation against any insurer, the Indemnified Party shall, upon the Indemnifying Party's written request, shall promptly assign to the Indemnifying Party the Indemnified Party's rights and claims, if any, against such insurer with respect to any such recovery; provided further, in the event that the Indemnifying Party thereafter initiates or pursues any litigation or other proceeding against the insurer with respect to any such assigned rights or claims, the Indemnifying Parties shall indemnify, defend and hold the Indemnified Party harmless from and against any Liability as the Indemnified Party may suffer or incur in connection with such litigation or proceeding. (c) The amount of any indemnity to which an Indemnified Party may be entitled under Section 7.2 or 7.3 hereof shall be reduced by the net (after deducting all attorney fees, expenses and other costs of recovery) amount such Indemnified Party recovers from any insurer in respect of such Damages. (d) If an Indemnified Party recovers any amount (after deducting all attorney fees, expenses and other costs of recovery) from any insurer or other party in respect of any Damages after the Indemnifying Party has paid all or a portion of such Damages, then in the case of a claim of indemnity under Section 7.2 the Selling Parties and in the case of a claim of indemnity under Section 7.3 the Purchaser shall reimburse the Indemnifying Party in an amount 35 38 equal to the lesser of (x) the net recovery amount received by the Indemnified and (y) the amount of Damages paid by the Indemnifying Party. Section 7.5 Limitations. The obligations to indemnify set forth in Section 7.1 and 7.2 shall be subject to the following limitations: (a) No Indemnified Party shall be entitled to indemnity pursuant to Section 7.2 if the Damages for which indemnity is sought arose out of or from (i) the failure of any representation or warranty made by the Purchaser in this Agreement, the Purchaser's Closing Certificate, or the Purchaser's Disclosure Statement to be true and correct in all material respects as of the Closing Date or (ii) the breach by the Purchaser of any of its covenants in this Agreement. (b) No Indemnified Party shall be entitled to indemnity pursuant to Section 7.3 if the Damages for which indemnity is sought arose out of or from (i) the failure of any representation or warranty made by the Selling Parties in this Agreement, the Selling Parties' Closing Certificate, or the Selling Parties' Disclosure Statement to be true and correct in all material respects as of the Closing Date or (ii) the breach by any of the Selling Parties of any of their covenants in this Agreement. (c) No Indemnified Party shall be entitled to indemnity pursuant to Section 7.2 for any single claim of Damages not exceeding $2,500, and unless, until, and only to the extent that the aggregate Damages for which all claims of indemnity under such section have been made (including one or more claims of Damages not exceeding $2,500) exceed $150,000. After the $150,000 has been exceeded, the $2,500 threshold per item still applies, other than with respect to a series of substantially similar related claims, including a class action. (d) No Indemnified Party shall be entitled to indemnity pursuant to Section 7.3 for any single claim of Damages not exceeding $2,500, and unless, until, and only to the extent that the aggregate Damages for which all claims of indemnity under such section have been made (including one or more claims of Damages not exceeding $2,500) exceed $150,000. After the $150,000 has been exceeded, the $2,500 threshold per item still applies, other than with respect to a series of substantially similar related claims, including a class action. (e) All claims of indemnity under Section 7.2 with respect to the failure of any representation or warranty made by the Selling Parties in this Agreement, the Selling Parties' Closing Certificate, or the Selling Parties' Disclosure Statement to be true and correct in all material respects as of the Closing Date, and all claims of indemnity under Section 7.3 with respect to the failure of any representation or warranty made by the Purchaser in this Agreement, the Purchaser's Closing Certificate, or the Purchaser's Disclosure Statement to be true and correct in all material respects of the Closing Date, must be asserted on or prior to the date of expiration of such representations and warranties set forth in Section 7.1, by the transmittal of written notice to the other party prior to such date of expiration, and all proceedings with respect to such claims must be brought within six months after such date of expiration. (f) No Indemnified Party shall be entitled to indemnity pursuant to Section 7.2(i) for Damages in an aggregate amount exceeding $3,512,000. 36 39 (g) No Indemnified Party shall be entitled to indemnity pursuant to Section 7.3(i) for Damages in an aggregate amount exceeding $3,512,000. (h) No Indemnified Party shall be entitled to indemnity from the Old Company or the New Company pursuant to Section 7.2 for Damages arising after the Closing Date. Section 7.6 Sole Recourse. Following the Closing Date, an Indemnified Party's sole recourse and remedy for monetary damages against an Indemnified Party in respect of any breach of any representation, warranty or covenant in this Agreement or any exhibit or schedule attached hereto or any certificate delivered in connection herewith shall be under the provisions of and to the extent provided in this Article 7. Section 7.7 Indemnification Procedure. (a) Promptly after incurring Damages, the assertion by a third party of a claim that could give rise to Damages against an Indemnified Party, or the discovery of facts or circumstances following the Closing which could give rise to a claim under this Article 7, the Indemnified Party shall promptly deliver a Certificate to the Indemnifying Party. (b) In case the Indemnifying Party shall object to the indemnification of an Indemnified Party in respect of any claim or claims specified in any Certificate, the Indemnifying Party shall, within thirty (30) days after receipt by the Indemnifying Party of such Certificate, deliver to the Indemnified Party a written notice to such effect and the Indemnifying Party and the Indemnified Party shall, within the 30-day period beginning on the date of receipt by the Indemnified Party of such written objection, attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims to which the Indemnifying Party shall have so objected. If the Indemnified Party and the Indemnifying Party shall succeed in reaching agreement on their respective rights with respect to any of such claims, the Indemnified Party and the Indemnifying Party shall promptly prepare and sign a memorandum setting forth such agreement. Should the Indemnified Party and the Indemnifying Party be unable to agree as to any particular item or items or amount or amounts, then the Indemnified Party and the Indemnifying Party shall submit such dispute to binding, final and non-appealable arbitration in Los Angeles, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association. In the event of arbitration, each party shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Such arbitrators shall either be chosen from retired judges of the California court system or be other qualified individuals mutually acceptable to both the Purchaser and the Selling Parties. Notwithstanding anything to the contrary in this Section 7.7(b), the parties to any arbitration conducted pursuant to this Section 7.7(b) shall have the right to conduct limited discovery consistent with the nature and complexity of the dispute which is the subject of such arbitration. (c) Promptly after the assertion by any third party of any claim against any Indemnified Party that, in the judgment of such Indemnified Party, may result in the incurring by such Indemnified Party of Damages for which such Indemnified Party would be entitled to indemnification pursuant to this Agreement, such Indemnified Party shall deliver to the Indemnifying Party a written notice describing in reasonable detail such claim and such Indemnifying Party may, at its option, assume the defense of the Indemnified Party against such 37 40 claim (including the employment of counsel, who shall be reasonably satisfactory to such Indemnified Party), and the payment of expenses. Any Indemnified Party shall have the right to employ separate counsel in any such action or claim and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Indemnifying Party unless (x) the Indemnifying Party shall have failed, within a reasonable time after having been notified by the Indemnified Party of the existence of such claim as provided in the preceding sentence, to assume the defense of such claim, (y) the employment of such counsel has been specifically authorized in writing by the Indemnifying Party or (z) the named parties to any such action (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party and such Indemnified Party shall have been advised in writing by such counsel that there may be one or more legal defenses available to the Indemnified Party which are not available to the Indemnifying Party, or available to the Indemnifying Party, but the assertion of which would be adverse to the interests of the Indemnified Party. No Indemnifying Party shall be liable to indemnify any Indemnified Party for any settlement of any such action or claim effected without the written consent of the Indemnifying Party, but if settled with the written consent of the Indemnifying Party, or if there be a final judgment for the plaintiff in any such action, the Indemnifying Party shall indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of such settlement or judgment. (d) Claims for Damages specified in any Certificate to which an Indemnifying Party shall not object in writing within thirty (30) of receipt of such Certificate, claims for Damages covered by a memorandum of agreement of the nature described in Section 7.7(b), claims for Damages the validity and amount of which have been the subject of judicial determination as described in Section 7.7(b) and claims for Damages the validity and amount of which shall have been the subject of a final, non-appealable judicial determination, or shall have been settled with the consent of the Indemnifying Party, as described in Section 7.7(c) are hereinafter referred to, collectively, as "Agreed Claims". Within ten business days of the determination of the amount of any Agreed Claims, the Indemnifying Party shall pay to the Indemnified Party an amount equal to the Agreed Claim by wire transfer in immediately available funds to the bank account or accounts designated in writing by the Indemnified Party not less than one business day prior to such payment. Section 7.8 Right of Offset. If the Purchaser incurs any Damages for which it is entitled to indemnification from any of the Selling Parties pursuant to the procedure set forth in Section 7.7 above, and there is not a sufficient number of Units held by the Purchaser pursuant to the Pledge Agreement to reimburse the Purchaser for such Damages, Purchaser may, subject to Sections 7.4 and 7.5, apply all or any part of any payment that is payable to any of the Selling Parties under this Agreement, the Call Option Agreement, or the Put Option Agreements in order to pay, or to provide for the payment of, any of such Damages. The exercise of such right of offset by the Purchaser hereunder shall be evidenced by means of a notice to such effect given by the Purchaser to FFPE Holding. FFPE Holding shall have fifteen (15) days to respond to the notice before Purchaser may make an offset. Upon the exercise by the Purchaser of its right of offset hereunder, (a) the amount to which the Purchaser is entitled to offset shall be and is deemed to be, applied in reduction of, and shall constitute a payment of, any amount due under any provision of this Agreement, or the Call Option Agreement, or the Put Option Agreements, as applicable, to the extent specified in the notice of offset. No rights of offset may be exercised by Purchaser without complying with Section 7.7 hereof. 38 41 ARTICLE VIII TERMINATION Section 8.1 Events of Termination This Agreement may be terminated at any time prior to the Closing Date as follows: (a) by mutual written consent of the Purchaser and all of the Selling Parties; (b) by either Purchaser or any of the Selling Parties if the Sale shall not have been consummated on or prior to September 15, 2000, provided, however, that the right to terminate this Agreement pursuant to this Section 8.1(b) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Sale to be consummated by such time; (c) by Purchaser if any of the Selling Parties shall have breached in any material respect any of such party's representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 20 business days after the giving of written notice to the Company; and (d) by any of the Selling Parties if Purchaser shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 20 business days after the giving of written notice to Purchaser. Section 8.2 Effect of Termination. In the event that this Agreement shall be terminated pursuant to Section 8.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, agents, legal or financial advisors or other representatives); provided, however, that no such termination shall relieve any party hereto from any liability for any breach of this Agreement prior to termination. If this Agreement is terminated as provided herein, each party shall use its reasonable best efforts to redeliver all documents, work papers and other material (including any copies thereof of any other party relating to the Transactions, whether obtained before or after the execution hereof, to the party furnishing the same. ARTICLE IX DEFINITIONS In this Agreement, the following expressions shall have the following meanings unless the context otherwise requires: "Additional Consideration Table" shall mean the schedule attached hereto as Exhibit 23. "Adjustment Escrow" shall have the meaning given to such term in Section 1.8 hereof. "Adjustment Escrow Agreement" shall have the meaning given to such term in Section 39 42 1.8 hereof. "Adjustment Payment Instructions" shall have the meaning given to such term in Section 1.7 hereof. "Adjustment Escrow Holder" shall have the meaning given to such term in Section 1.8 hereof. "Affiliate" shall mean any Person directly or indirectly controlling, controlled by or under direct or indirect common control with another Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agreed Claims" shall have the meaning set forth in Section 7.3(d) hereof. "Board Resolutions" of a corporation party to this Agreement shall mean the resolutions of the corporation's board of directors approving the Agreement and the Transactions and authorizing the officers of the corporation, on behalf of the corporation, to enter into the Agreement and carry out the Transactions. "Business" shall mean the operation of the Restaurants and all other businesses of the Company and the Company Subsidiaries as currently conducted. "Business Plan" shall mean the Company's Business Plan attached as Exhibit 21. "Call Option Agreement" means the Call Option Agreement in the form attached to this Agreement as Exhibit 15, under which FFPE Holding grants to the Purchaser an option to purchase the Retained Units. "CERCLA" shall mean the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 USC Section 9601 et. seq. "Certificate" shall mean the certificate referenced in Section 7.7 of this Agreement which shall: (i) state that the Indemnified Party has paid or properly accrued Damages or reasonably anticipates that it will incur liability for Damages for which such Indemnified Party is entitled to indemnification pursuant to this Agreement; and (ii) specify in reasonable detail each individual item of Damage included in the amount so stated, the date such item was paid or properly accrued, the basis for any anticipated liability and the nature of the misrepresentation, breach of warranty, breach of covenant or claim to which each such item is related and the computation of the amount to which such Indemnified Party claims to be entitled under Section 7.2 or 7.3 of this Agreement. "Clean Air Act" shall mean the Clean Air Act, 42 U.S.C. Sections 7401 et seq. 40 43 "Closing" shall mean the consummation of the Sale and "Close" shall have a correlative meaning. "Closing Current Assets" shall mean current assets of the Company (consisting of any accounts receivable, inventory, prepaid expenses and cash and cash equivalents) on a consolidated basis as of the Closing Date as shown on the Closing Financial Statements. "Closing Current Indebtedness" shall mean the current portion of Closing Indebtedness on a consolidated basis as of the Closing Date as shown on the Closing Financial Statements. "Closing Current Liabilities" shall mean the current liabilities of the Company (consisting of any accounts and notes payable, accrued expenses, provisions for taxes and current maturity on long-term debt) on a consolidated basis as of the Closing Date as shown on the Closing Financial Statements, but shall not include Closing Current Indebtedness. "Closing Date" shall mean the 10:00 a.m., PST, on August 30, 2000, or, if the conditions to the Closing have not been satisfied or performed by such date, then the date and time as soon as practicable thereafter following satisfaction or performance of all such conditions. "Closing Indebtedness" shall mean (i) any liability, of the Company or any of the Company Subsidiaries (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of the Company or any of the Company Subsidiaries or only to a portion thereof), (B) evidenced by a note, debenture or similar instrument (including a purchase money obligation) or (C) for the payment of money relating to a capitalized lease obligation; (ii) any liability of others of the kind described in the preceding clause (i) which the Company or any of the Company Subsidiaries has guaranteed or which is otherwise the legal liability of any such Person; (iii) any obligation secured by an Encumbrance to which any of the property or assets of the Company or any of the Company Subsidiaries are subject, whether or not the obligations secured thereby shall have been assumed by or shall otherwise be such Person's legal liability; and (iv) any and all deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (i), (ii) or (iii), in each case on a consolidated basis as of the Closing Date as determined from the Closing Financial Statements, other than the Bridge Note (as defined in the Loan Documents); provided, however, that for purposes of Section 1.9(a) hereof, "Closing Indebtedness" shall not include the first $100,000 of indebtedness evidenced by that certain Note date March 18, 1997, in the original principal amount of $400,000, executed by Oscar's of Arizona, L.L.C. in favor of Bank of America Community Development Bank. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean the Old Company before and the New Company on and after the merger pursuant to the Reorganization. "Company Contract" shall mean (i) any Company Real Property Lease and (ii) any franchise, management, royalty, license, lease or joint venture agreement or any note, bond, mortgage, indenture, contract, lease, license, agreement or instrument involving obligations of more than $10,000 to which the Company or a Company Subsidiary is a party or subject or by which the Company or a Company Subsidiary is bound. 41 44 "Company Employee Benefit Plan" shall mean all Employee Benefit Plans that the Company or by a member of the Controlled Group of Employers maintains for current or former employees of the Company or by a member of the Controlled Group of Employers with respect to their employment by the Company or by a member of the Controlled Group of Employers. "Company Financial Statements" shall mean the audited consolidated financial statements as of December 31, 1999 and unaudited interim financial statements as of March 31, 2000 of the Company ("Interim Statement"). "Company Intellectual Property" shall mean all (1) trademarks and service marks (registered or unregistered), trade dress, trade names and other names and slogans embodying business goodwill or indications of origin, all applications or registrations in any jurisdiction pertaining to the foregoing and all goodwill associated therewith; (2) patentable inventions, technology, computer programs and software (including password unprotected interpretive code or source code, object code, development documentation, programming tools, drawings, specifications and data) and all applications and patents in any jurisdiction pertaining to the foregoing, including re-issues, continuations, divisions, continuations in part, renewals or extensions; (3) recipes and trade secrets, including confidential and other non-public information; (4) copyrights in writings, designs, software programs, mask works or other works, applications or registrations in any jurisdiction for the foregoing and all moral rights related thereto (including but not limited to operating manuals); (5) databases and all database rights; and (6) Internet Web sites, domain names and applications and registrations pertaining thereto that, in each case, are used in the Business. "Company Material Adverse Effect" shall mean any material adverse effect on the Business, assets, prospects, condition (financial or otherwise), Liabilities or the results of operations of the Company or any of the Company Subsidiaries, other than any such effect resulting from, arising out of, or relating to (i) general business or economic conditions, (ii) conditions generally affecting the industry in which the Company competes, or (iii) the taking of any action required by this Agreement. "Company Options" shall mean any options, warrants or other rights to purchase or acquire any capital stock of the Old Company. "Company Permits" shall mean any permits (including signage permits), certificates, licenses (including alcoholic beverage licenses), approvals and other authorizations required in connection with the operation of the Business. "Company Real Property" shall mean any and all real property owned in fee or leased by the Company or any of the Company Subsidiaries as of the date hereof, including all improvements. "Company Real Property Leases" shall mean any lease of real property to which the Company or a Company Subsidiary is a party. "Company Sale Proposal" means any inquiry, proposal or offer from any person relating to (1) any direct or indirect acquisition or purchase of assets of the Company and the Company Subsidiaries other than in the ordinary course of business, (2) any issuance, sale, or other 42 45 disposition of (including by way of merger, consolidation, business combination, share exchange, joint venture, or any similar transaction) any securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) of the Company or any Company Subsidiary, (3) any tender offer, exchange offer or other transaction in which, if consummated, any person shall acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act), or the right to acquire beneficial ownership, or any "group" (as such term is defined under the Securities Exchange Act) shall have been formed which beneficially owns or has the right to acquire beneficial ownership, of, any of the outstanding voting capital stock of the Company, or, (4) any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any Company Subsidiary, other than the Transactions. "Company Subsidiary" shall mean any Subsidiary of the Company. "Consent" of or by a specified Person shall mean any consent, approval, waiver or authorization by or notice to or declaration or filing with a specified Person. "Consulting Agreements" shall mean the Consulting Agreements in the forms attached to this Agreement as Exhibits 7 and 8, between the New Company and Oscar Sarkisian and Pat Sarkisian, respectively. "Contingent Obligation" shall mean any Liability of a Person under a guaranty or other contract pursuant to which a Person has agreed to be responsible for the obligations of another Person which is not a party to this Agreement. "Controlled Group of Employers" shall have the meaning set forth in Section 2.12 hereof. "Damages" shall mean any and all damages, losses, Liabilities, costs and expenses, including reasonable attorneys' and other professional fees and cost, including both claims of third parties and economic losses, other than charges for in-house counsel and in-house administrative charges and other than lost profits or punitive damages. "Earn-Out Period" shall mean the period beginning on the first day of the calendar month in which the Closing Date occurs and ending on the last day of the thirtieth (30th) calendar month thereafter. "Employee Benefit Plan" shall mean any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan intended to be qualified under Code Section 401(a), (c) defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan) intended to be qualified under Code Section 401(a) or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" shall have the meaning set forth in ERISA Section 3(2). "Employee Welfare Benefit Plan" shall have the meaning set forth in ERISA Section 3(1). 43 46 "Employment Agreements" means the Employment Agreements in the forms attached to this Agreement as Exhibits 9 through 12, between the Company, as employer, and a FFPE Holding or other Person. "Encumbrances" shall mean any liens, mortgages, deeds of trust, pledges, security interests, charges, encumbrances, restrictions, adverse rights or claims of every kind and character. "Enforceability Exceptions" shall mean the extent to which the enforceability of a contractual obligation may be limited by applicable bankruptcy, insolvency, reorganization and similar laws affecting the enforcement of creditors' rights generally and to general equitable principles. "Entity Good Standing Certificate" shall mean, with respect to a legal entity, a certificate by the Secretary of State of the jurisdiction in which such legal entity has been organized to the effect that the legal entity is in good standing as a legal entity in such jurisdiction. "Environmental, Health and Safety Laws" shall mean all RCRA, CERCLA, the Clean Air Act, the Federal Water Act, the Hazardous Materials Transportation Act, 49 USC Section 1801, et. seq., and all other federal, state and local statutes, regulations, and ordinances concerning public health and safety, worker health and safety, and pollution or protection of the environment, including, without limitation, all those concerning the handling, transportation, treatment, release, storage, disposal, distribution, labeling, testing, processing or discharge of Hazardous Substances. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Event of Insolvency" shall take place with respect to a Person if: (a) such Person shall (i) make a general assignment for the benefit of creditors; (ii) generally not be paying its debts as such debts become due; (iii) admit in writing its inability to pay its debts as they become due; (iv) file a voluntary petition in bankruptcy; (v) file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment of debt, liquidation or dissolution or similar relief under any present or future statute, law or regulation of any jurisdiction; (vi) petition or apply to any tribunal for any receiver, custodian or any trustee for any substantial part of its property; (vii) be the subject of any such proceeding filed against it that remains undismissed for a period of 90 days; (viii) file any answer admitting or not contesting the material allegations of any such petition filed against it or any order, judgment or decree approving such petition in any such proceeding; (ix) seek, approve, consent to, or acquiesce in any such proceeding, or in the appointment of any trustee, receiver, sequestrator, custodian, liquidator, or fiscal agent for it, or any substantial part of its property, or an order is entered appointing any such trustee, receiver, custodian, liquidator or fiscal agent and such order remains in effect for 90 days; (x) wind up, liquidate or dissolve; or (xi) take any formal action for the purpose of effecting any of the foregoing; or (b) An order for relief is entered under the United States bankruptcy laws or any other decree or order is entered by a court having jurisdiction (i) adjudging such 44 47 Person bankrupt or insolvent; (ii) approving as properly filed a petition seeking reorganization, liquidation, arrangement, adjustment or composition of or in respect of such Person under the United States bankruptcy laws or any other applicable federal or state law; (iii) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of such Person or of any substantial part of the property thereof; or (iv) ordering the winding up or liquidation of the affairs of such Person, and any such decree or order continues unstayed and in effect for a period of 90 days. "Excess Restaurant EBITDA" shall mean the amount by which Restaurant EBITDA exceeds the Full Target for Restaurant EBITDA as set forth in the Additional Consideration Table. "Federal Water Act" shall mean the Federal Water Act, 33 U.S.C. Sections 1251 et seq. "GAAP" means generally accepted accounting principles, applied on a consistent basis. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation, any governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self regulatory organization. "Hazardous Substances" shall mean any toxic or hazardous substances or wastes, pollutants or contaminants (including, without limitation, asbestos, urea formaldehyde, the group of organic compounds known as polychlorinated by-phenyls, petroleum products including gasoline, fuel oil, crude oil, and various constituents of such products, and any hazardous substance as defined in CERCLA. "Holdback Amount" shall have the meaning given to such term in Section 1.8 hereof. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnified Party" shall mean any party entitled to indemnification under Article VII. "Indemnifying Party" shall mean any party that is required to indemnify another party under Article VII. "IRS" shall mean the Internal Revenue Service of the United States of America. "January 4 Note" shall mean the Promissory Note dated January 4, 2000 in the original principal amount of $265,000 by the Old Company to George Celmo. "Landlord Estoppel Certificates" shall mean landlord estoppel certificate in form reasonably satisfactory to the Purchaser pursuant to which the landlords or lessors of Company Real Property Leases (a) consent to the assignment of the Company Real Property Leases and any change of control of the tenant pursuant to the Reorganization and the Transactions, (b) waive any right to purchase or terminate, or increase rent or other charges, or exercise any other 45 48 special remedy under the Company Real Property Lease in connection with the Reorganization and the Transactions, and (c) certify the full force and effect of, and the absence of any default under, the Company Real Property Lease and make such other statements or certifications as are usual and customary in such instruments. "Law" shall mean any statute, law, rule or regulation or any order, decision, injunction, judgment, aware or decree. "Letter of Intent" shall mean the Letter of Intent dated February 28, 2000 between the Selling Parties and the Purchaser. "Liabilities" means any claim, debt, liability or obligation of any kind whatsoever, whether arising under contract or applicable law or in connection with a business, and whether conditioned or absolute, liquidated or unliquidated, contingent or non-contingent. "Loan Documents" shall have the meaning set forth in the Credit Agreement in the form attached hereto as Exhibit 22. "Material Adverse Effect" means any occurrence, condition or event which when taken individually or together with other occurrences, conditions or events would have a material adverse effect on the financial condition or results of operations a Person or Persons. "Membership Interest" shall mean the ownership interests of the New Company. "Multiemployer Plan" shall have the meaning set forth in ERISA Section 3(37). "Net Sales" shall mean the net revenues of the Restaurants, including total cash, credit card receipts and amounts sold on account for food and non-food purchases minus applicable sales tax minus promotions, discounts and complementary meals. Net Sales shall include sales made in exchange for goods or services in a bartering transaction for the value of those services. "New Company" shall have the meaning set forth in the introductory paragraph hereof. "Number of Business Units" shall mean the actual number of Restaurant locations opened for business on December 31, 2002. "NYSE" shall mean the New York Stock Exchange, Inc. "Old Company" shall have the meaning set forth in the introductory paragraph hereof. "Pay Off Escrow" shall have the meaning given to such term in Section 1.7 hereof. "Pay Off Escrow Agreement" shall have the meaning given to such term in Section 1.7 hereof. "Pay Off Escrow Holder" shall have the meaning given to such term in Section 1.7 hereof. "Pay Off Payment Instructions" shall have the meaning given to such term in Section 1.7 46 49 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation. "Permits" shall mean any business or other licenses, certificates of authority, certificates of occupancy, permits (including, without limitation, conditional use permits and such other entitlements), variances, exemptions, orders or other approvals or authorizations. "Permitted Encumbrances" shall mean (a) liens with respect to Taxes either not delinquent or being diligently contested in appropriate proceedings; and (b) mechanics', materialmen's or similar statutory liens for amounts not yet due or being diligently contested in appropriate proceedings. "Person" shall mean and include an individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, an unincorporated organization and any Governmental Authority. "Pledge Agreement" shall mean the Membership Interest Pledge Agreement in the form attached to this Agreement as Exhibit 18 pursuant to which FFPE Holding, as Pledgor, pledges the Retained Units as security for its obligations under the Article VII hereof. "Post-Closing Period" shall mean any taxable year or other taxable period that begins after the Closing Date. "Pre-Closing Period" shall mean any taxable year or other taxable period that ends on or before the Closing Date. "Principals" shall refer to Oscar, Pat, John, Bernadette and Tamara, as such terms are defined in the introductory paragraph hereof. "Prohibited Transaction" shall have the meaning set forth in ERISA Section 406 and Code Section 4975. "PST" shall mean Pacific Standard Time. "Purchase Price" shall mean the consideration for the Purchased Units, consisting of cash of $16,000,000.00, the Warrants, and the Additional Consideration, as adjusted. "Purchased Units" shall have the meaning set forth in the introductory paragraph hereof. "Purchaser" shall have the meaning set forth in the introductory paragraph hereof. "Purchaser's Closing Certificate" shall mean a certificate of an officer of the Purchaser, dated as of the Closing Date, to the effect set forth in Section 6.2(a) hereof. "Purchaser's Knowledge" shall mean the knowledge of the officers of Purchaser, after reasonable inquiry. "Put Option Agreements" mean the Put Option Agreements in the form attached to this 47 50 Agreement as Exhibits 16 and 17, under which the Purchaser grants to FFPE Holding an option to sell the Retained Units to the Purchaser. "Qualified Personal Guarantee" shall mean any personal guarantee in effect as of the date hereof (other than to Southwest Community Bank) by a Principal of any Liability of the Company, other than a guarantee that is expected to be paid or performed in full on or before the Closing. "RCRA" shall mean the Resource Conservation and Recovery Act of 1976, 42 USC Section 6901 et. seq. "Releases" shall mean the General Releases of Liability in the forms attached to this Agreement as Exhibits 1 through 6, in which claims and liabilities against the Company and the Purchaser are waived and released. "Reorganization" shall mean the series of actions by which, on or before the Closing, the Sellers and the New Company shall be organized, the Principals shall contribute all of the issued and outstanding shares of the Old Company's capital stock to FFPE Holding, and the Old Company shall merge with and into the New Company, the outstanding shares of the Old Company capital stock shall be canceled and the New Company shall issue all of its authorized Units of Membership Interests to FFPE Holding. In connection with such transactions, FFPE Holding shall make an election pursuant to Section 1361(b)(3) of the Code to treat Old Company as a qualified Subchapter S subsidiary. Additionally, FFPE Holding shall transfer a certain amount of Units of Membership Interests of the New Company to each of JBS Investments, OMS Investments and TDM Enterprises. As a result, FFPE Holding, JBS Investments, OMS Investments and TDM Enterprises shall own all of the authorized Units of Membership Interests of the New Company. "Restaurant" means any restaurants owned or operated by the Company. "Restaurant EBITDA" shall mean Net Sales minus Restaurant operating costs, determined in accordance with GAAP, including, but not limited to, food, beverage and paper products, wages, benefits, workers' compensation insurance and payroll taxes for Restaurant employees, bonuses paid to Restaurant employees, pre-opening costs, advertising costs directly benefiting the Restaurants, auto and travel incurred by Restaurant employees, bank charges for restaurant bank accounts, cash short/(over), charitable contributions, credit card discounts, dues and subscriptions incurred by the Restaurant managers, seminars and educational materials for Restaurant employees, authorized entertainment expenses incurred by Restaurant employees, property, auto and general liability insurance, Restaurant supplies, laundry and uniforms, payroll processing costs, consulting expenses directly related to one or more allocated salaries for corporate repair and maintenance personnel that is allocated to the Restaurants based on actual hours worked at the Restaurants, taxes (excluding federal and state income taxes) and licenses, telephone, utilities and various other expenses. "Retained Units" means the eighteen (18) outstanding units of Membership Interest of FFPE, LLC held by FFPE Holding that are not subject to the Sale, which units represent eighteen percent (18%) of all of the outstanding units of Membership Interest. 48 51 "Sale" shall have the meaning set forth in Section 1.2. "Sellers" shall have the meaning set forth in the introductory paragraph hereof. "Selling Parties" shall mean the Sellers, the Principals, the Shareholders, the Old Company and the New Company. "Selling Parties' Closing Certificate" shall mean a certificate of, an officer of, the Selling Parties, dated as of the Closing Date, to the effect set forth in Section 6.3(a). "Selling Parties' Disclosure Schedule" shall mean the Selling Parties' Disclosure Schedule attached hereto as Exhibit 19. "Selling Parties' Knowledge" shall mean the knowledge of FFPE Holding and the officers and directors of the Company, in each case after reasonable inquiry. "Shareholders" shall mean John, Bernadette, the Oscar and Martha Trust and the Tamara Trust. "SII Common Stock" means the common stock of Sizzler International, Inc., par value $.01 per share. "Subsidiary" of any specified Person shall mean shall mean any corporation any of the outstanding voting power of which, or any partnership, joint venture, limited liability company or other entity any of the total equity interest of which, is directly or indirectly owned by such specified Person. "Tax or Taxes" shall mean all U.S. or non-U.S. federal, national, state, county, local, municipal or provincial taxes, or assessments, duties, fees, levies or other governmental charges in the nature of taxes, including all net income, gross income, ad valorem, gains, profits, capital stock, advance corporation, production, business and occupation, employment, payroll, estimated, stamp, registration, transfer, custom duties, excise, franchise, license, severance, premium, windfall profits, environmental (including taxes under Code Section 59A), unemployment, disability, alternative or add-on minimum, gross receipt, real property, capital, personal property, withholding, FICA, sales and use taxes, VAT, taxes withheld from or payable with respect to employees' salaries (whether or not requiring the filing of returns), and all additions to tax, penalties (civil or criminal), and interest relating thereto. "Tax Certificate" shall mean, with respect to a corporation, a certificate by the appropriate official of the jurisdiction in which such corporation has been incorporated to the effect that the corporation has no outstanding tax delinquencies in such jurisdiction and with respect to a limited liability company, a certificate by the appropriate official of the jurisdiction in which such limited liability Company has been formed to the effect that the limited liability Company has no outstanding tax delinquencies in such jurisdiction. "Tax Returns" shall have the meaning set forth in Section 2.14(a) hereof. "Termination Date" shall have the meaning given to such term in Section 1.8 hereof. 49 52 "Total EBITDA" shall mean the consolidated total earnings of the Company before deductions for interest, income taxes, depreciation and amortization as determined in accordance with GAAP. "Transactions" means the Sale and the other transactions contemplated by this Agreement. "Transfer Taxes" shall mean all stamp, deed, duties, notary public and other similar taxes, transfer, documentary, sales, use, registration and other such taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the sale of the Stock contemplated herein. "Units" shall mean units of Membership Interest. "Unit Certificates" shall mean duly executed certificates of the New Company evidencing Units of Membership Interest. "Warrants" shall mean the warrants to purchase 1,250,000 shares of SII Common Stock at an exercise price of $4.00 per share, each in the form attached to this Agreement as Exhibit 13 between the Purchaser and the Person therein named. "Warrant Registration Rights Agreement" shall mean the Warrant Registration Rights Agreement attached to this Agreement as Exhibit 17. ARTICLE X MISCELLANEOUS Section 10.1 Confidentiality. Unless (i) otherwise expressly provided in this Agreement, (ii) required by applicable Law or any listing agreement with, or the rules and regulations of, the NYSE, (iii) necessary to secure any required Consents as to which the other party has been advised or (iv) consented to in writing by Purchaser and the Company, any information or documents furnished in connection herewith shall be kept strictly confidential by the Selling Parties, Purchaser and their respective officers, directors, employees and agents. Prior to any disclosure pursuant to the preceding sentence, the party intending to make such disclosure shall consult with the other party regarding the nature and extent of the disclosure. Nothing contained herein shall preclude disclosures to the extent necessary to comply with accounting, SEC and other disclosure obligations imposed by applicable Law. To the extent required by such disclosure obligations, Purchaser, after consultation with Selling Parties, may file with the SEC a Report on Form 8-K pursuant to the Securities Exchange Act with respect to the Transactions, which report may include, among other things, financial statements and pro forma financial information with respect to the other party. In connection with any filing with the SEC of a registration statement or amendment thereto under the Securities Act, the Purchaser, after consultation with Selling Parties, may include a prospectus containing any information required to be included therein with respect to the Sale, including, but not limited to, financial statements and pro forma financial information with respect to the Company, and thereafter distribute said prospectus. Purchaser and the Selling Parties shall cooperate with the other and provide such information and documents as may be required in connection with any 50 53 such filings. In the event the Sale is not consummated, each party shall return to the other any documents furnished by the other and all copies thereof any of them may have made and will hold in absolute confidence any information obtained from the other party except to the extent (i) such party is required to disclose such information by Law or such disclosure is necessary or desirable in connection with the pursuit or defense of a claim, (ii) such information was known by such party prior to such disclosure or was thereafter developed or obtained by such party independent of such disclosure or (iii) such information becomes generally available to the public other than by breach of this Section 10.1. Prior to any disclosure of information pursuant to the exception in clause (i) of the preceding sentence, the party intending to disclose the same shall so notify the party which provided the name in order that such party may seek a protective order or other appropriate remedy should it choose to do so. Section 10.2 Expenses. The Purchaser shall bear all reasonable attorneys' fees and costs of the Selling Parties directly incurred in connection with the Reorganization, in an amount not to exceed $20,000. Except as otherwise expressly set forth herein, all fees and expenses incurred in connection with this Agreement and the Transactions shall be paid by the party incurring such costs or expenses, including, without limitation, the fees and expenses of their respective counsel, financial advisors and accountants. Section 10.3 Waiver of Compliance; Consents. Any failure by any of the Selling Parties on the one hand, or the Purchaser on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by Purchaser on the one hand, or the Selling Parties, on the other hand, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Section 10.4 Governing Law; Consent to Jurisdiction. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of California applicable to contracts made and to be performed entirely within the State of California by California residents without regard to California choice of law principles. Section 10.5 Exhibits and Schedules. All Exhibits and Schedules are incorporated herein by reference. Section 10.6 Captions. The Article and Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. Section 10.7 Notices. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by telecopy or by registered or certified mail, postage prepaid, addressed as follows: if to the Purchaser at: 51 54 Sizzler International, Inc. 6101 West Centinela Avenue Culver City, California 90230 Attn: Michael B. Green, Esq. Tel: (310) 568-0135 Fax: (310) 568-8255 with a copy to its counsel at: Pachulski, Stang, Ziehl, Young & Jones PC 10100 Santa Monica Boulevard Suite 1100 Los Angeles, California 90067 Attn: David J. Barton, Esq. Tel: (310) 277-6910 Fax: (310) 201-0760 and if to any of the Selling Parties at the address listed for such party on Schedule 24: and with a copy to their counsel at: Sheppard, Mullin, Richter & Hampton, LLP 501 West Broadway 19th Floor San Diego, California 92101-3598 Attn: Richard L. Kintz, Esq. Tel: (619) 338-6500 Fax: (619) 234-3815 or such other address or number as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by telecopy or mailed. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered to and received by the party to whom it is directed three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or upon delivery via overnight courier service, in each case addressed to the intended recipient as described above. Any notice, request, claim, demand or other communication given in any other manner shall only be deemed received by the intended recipient thereof upon such recipient's actual receipt thereof. Section 10.8 Parties in Interest. This Agreement may not be transferred, assigned, sold, conveyed, pledged or hypothecated by any party hereto without the express prior written consent of the other party, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 10.9 Counterparts. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. 52 55 Section 10.10 Entire Agreement. This Agreement, including the Exhibits, Schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes the Letter of Intent (which shall cease to have any force or effect) and all other prior agreements and understandings (written or oral) between the parties with respect to such subject matter. Section 10.11 Amendments. This Agreement may not be changed orally, but only by an agreement in writing signed by the parties hereto. Any provision of this Agreement can be waived, amended, supplemented or modified by written agreement of the parties hereto. Section 10.12 Third Party Beneficiaries. Nothing contained in this Agreement or in any instrument or document executed by any party in connection with the Transactions shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a party hereto or thereto or a successor or permitted assign of such a party. Section 10.13 Waiver of Certain Damages. The parties to this Agreement expressly waive and forgo any right to recover indirect, special, incidental, consequential, punitive, exemplary or similar damages (collectively, "Special Damages") in any arbitration, lawsuit, litigation or proceeding arising out of or resulting from any controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity of this Agreement. Each party certifies and acknowledges that (a) no representative, agent or attorney or any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (b) it understands and has considered the implications of this waiver, (c) it makes this waiver voluntarily and (d) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 10.13. The parties expressly agree that nothing in this Section 10.13 shall in any manner be deemed to modify or limit the definition of Damages for purposes of the interpretation or enforcement of the provisions of Article VII hereof relating to any party's obligation to defend or indemnify the other against claims asserted against such party by third parties. Section 10.14 Severability. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. Section 10.15 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. Section 10.16 Disclosure Schedules. The Selling Parties and Purchaser acknowledge that the Selling Parties' Disclosure Schedule and the Purchaser's Disclosure Schedule (i) relate to 53 56 certain matters concerning the disclosures required and the Transactions, (ii) are qualified in their entirety by reference to specific provisions of this Agreement and (iii) are not intended to constitute and shall not be construed as indicating that such matter is required to be disclosed, nor shall such disclosure be construed as an admission that such information is material with respect to the Company or Purchaser, as the case may be, except to the extent required by this Agreement. Section 10.17 Principles of Construction (a) All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (c) The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", unless already expressly followed by such phrase or the phrase "but not limited to". (d) All references to "U.S. dollars" or "$" shall be deemed references to lawful money of the United States of America. (e) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in the United States of America. (f) All words importing any gender shall be deemed to include the other genders. (g) All references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to. (h) Unless otherwise specified, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, modifications and supplements thereto. (i) Each party has reviewed and commented upon this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Section 10.18 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT, EXCEPT AS SET FORTH IN SECTION 7.7(b) HEREOF, THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF 54 57 ARBITRATION, AND UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT AND/OR ANY RELATED AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Section 10.19 Shareholders' Representative. (a) The Shareholders, by entering into this Agreement and the Transactions, hereby irrevocably appoint John Sarkisian (the "Shareholders' Representative") as their agent and attorney-in-fact for purposes of this Agreement, and consent to the taking by the Shareholders' Representative of any and all actions and the making of any decisions required or permitted to be taken by FFPE Holding or Shareholders pursuant to the EBITDA Adjustment Guidelines attached hereto as Exhibit 26, and take all actions necessary in the judgment of the Company Shareholders' Representative for the accomplishment of the foregoing, and John Sarkisian hereby accepts his appointment as the Shareholders' Representative for purposes of this Section 10.19. Purchaser shall be entitled to deal exclusively with the Shareholders' Representative on all matters relating to this Section 10.19, and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Shareholder by the Shareholders' Representative, and on any other action taken or purported to be taken on behalf of any Shareholder by the Shareholders' Representative, as fully binding upon such Shareholder. (b) Shareholders' Representative shall not be liable for any act done or omitted hereunder as the Shareholders' Representative while acting in good faith and in the exercise of reasonable judgment. The Shareholders shall severally indemnify the Shareholders' Representative and hold the Shareholders' Representative harmless against any loss, liability or expense incurred without gross negligence, bad faith or willful misconduct on the part of the Shareholders' Representative and arising out of or in connection with the acceptance or administration of the Shareholders' Representative's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Shareholders' Representative. 55 58 IN WITNESS WHEREOF, each of the Selling Parties and the Purchaser have executed this Agreement effective as of the day and year first above written. PURCHASER: Sizzler International, Inc., a Delaware corporation By: /s/ CHARLES L. BOPPELL ---------------------------------- Name: Charles L. Boppell Title: President and CEO By: /s/ STEVEN R. SELCER ---------------------------------- Name: Steven R. Selcer Title: Vice President and CFO FFPE HOLDING: FFPE Holding Company, Inc., a Delaware corporation By: /s/ JOHN SARKISIAN ---------------------------------- Name: John Sarkisian Title: President By: /s/ TAMARA SARKISIAN-CELMO ---------------------------------- Name: Tamara Sarkissian-Celmo Title: Vice President 56 59 PRINCIPALS AND SHAREHOLDERS: OSCAR: /s/ OSCAR SARKISIAN ------------------------------------- Oscar Sarkisian PAT: /s/ MARTHA PATRICIA SARKISIAN ------------------------------------- Martha Patricia Sarkisian THE OSCAR AND MARTHA TRUST: By: /s/ JOHN SARKISIAN ---------------------------------- John Sarkisian, Co-Trustee of Sarkisian Family Trust UDT dated 7/19/95 JOHN: /s/ JOHN SARKISIAN ------------------------------------- John Sarkisian BERNADETTE: /s/ BERNADETTE SARKISIAN ------------------------------------- Bernadette Sarkisian 57 60 TAMARA: /s/ TAMARA SARKISIAN-CELMO ------------------------------------- Tamara Sarkisian-Celmo THE TAMARA TRUST: By: /s/ TAMARA SARKISIAN-CELMO ---------------------------------- Tamara Sarkisian-Celmo, Trustee of the Tamara Sarkisian-Celmo Family Trust UDT dated 10/16/97 THE OLD COMPANY: S & C Company, Inc., a California corporation By: /s/ JOHN SARKISIAN ---------------------------------- Name: John Sarkisian Title: President By: /s/ TAMARA SARKISIAN-CELMO ---------------------------------- Name: Tamara Sarkisian-Celmo Title: Vice President THE NEW COMPANY: FFPE, LLC, a Delaware limited liability company By: /s/ JOHN SARKISIAN ---------------------------------- John Sarkisian, President FFPE Holding Company, Inc., a Delaware corporation, its managing member 58 61 JBS INVESTMENTS: JBS INVESTMENTS, LTD., A Nevada limited partnership By: /s/ JOHN SARKISIAN ---------------------------------- Name: John Sarkisian -------------------------------- Title: ------------------------------- OMS INVESTMENTS: OMS INVESTMENTS, LTD., A Nevada limited partnership By: /s/ JOHN SARKISIAN, ---------------------------------- as Attorney-in-Fact Name: John Sarkisian -------------------------------- Title: ------------------------------- 59 62 TDM ENTERPRISES: TDM ENTERPRISES, LTD., A Nevada limited partnership By: /s/ TAMARA SARKISIAN-CELMO ---------------------------------- Name: Tamara Sarkisian-Celmo -------------------------------- Title: Vice President ------------------------------- 60 63 EXHIBITS 1. General Release of Liability by John Sarkisian 2. General Release of Liability by Pat Sarkisian 3. General Release of Liability by Oscar Sarkisian 4. General Release of Liability by Tamara Sarkisian-Celmo 5. General Release of Liability by Joseph Anfuso 6. General Release of Liability by Christopher Thomas 7. Consulting Agreement of Oscar Sarkisian 8. Consulting Agreement of Pat Sarkisian 9. Employment Agreement of John Sarkisian 10. Employment Agreement of Tamara Sarkisian-Celmo 11. Employment Agreement of Joseph Anfuso 12. Employment Agreement of Christopher Thomas 13. Warrant 14. Form of Warrant Registration Rights Agreement 15. Call Option Agreement 16. Put Option Agreement (John Sarkisian) 17. Put Option Agreement (Tamara Sarkisian-Celmo) 18. Membership Interest Pledge Agreement 19. Selling Parties' Disclosure Schedule 20. [Intentionally omitted.] 21. Business Plan 22. Credit Agreement 23. Additional Consideration Table 24. Schedule of Addresses 25. Amended and Restated Limited Liability Company Agreement of the New Company 26. EBITDA Adjustment Guidelines 27. Allocation of Purchase Price 28. Option Agreement 64 EXHIBIT 23 ADDITIONAL CONSIDERATION TABLE
------------------------- ------------------------ ---------------------------- MINIMUM CRITERIA ADDITIONAL MAXIMUM ------------------------- ------------------------ ---------------------------- MINIMUM FOR EACH ADDITIONAL FULL PERFORMANCE CRITERIA TARGET EARN-OUT ADDITIONAL EARN-OUT TARGET EARN-OUT - -------------------- ----------- -------- ---------- ---------- ------------ ---------- Net Sales $97,137,000 $527,000 $100,000 $ 540 $114,279,000 $ 620,000 Restaurant EBITDA $17,766,000 $790,500 $100,000 $ 4,450 $ 20,901,000 $ 930,000 Total EBITDA $ 8,800,000 $527,000 $100,000 $ 5,990 $ 10,353,000 $ 620,000 No. of Business Units 15 $697,500 $ 1 $46,500 20 $ 930,000 ---------- $3,100,000 ==========
For example, if Net Sales, Restaurant EBITDA, Total EBITDA and Number of Business Units are $110,000,000, $19,000,000, $9,500,000 and 19, respectively, then the amount of the Additional Consideration under this subparagraph (i) shall be $2,895,000 (i.e., $597,000 + $845,000 + $569,000 + $884,000 = $2,895,000). The minimum threshold of $100,000 for each additional increment is by way of example. Entitlements to additional increments will be prorated from the first dollar of overage on each of the four categories. EXHIBIT 23 65 EXHIBIT 24 John and Bernadette Sarkisian P.O. Box 970 Cardiff, CA 92007 Oscar and Pat Sarkisian 1484 La Plaza San Marcos, CA 92069 Tamara Sarkisian-Celmo 8405 Rice Court San Diego, CA 92129 EXHIBIT 24 66 EBITDA ADJUSTMENT GUIDELINES The parties acknowledge that a substantial portion of the value of the sale of the Membership Interests may be related to the Additional Consideration described in Section 1.5 of the Agreement. Therefore, FFPE Holding and Purchaser have agreed upon the following EBITDA Adjustment Guidelines: 1. Intercompany Accounting. During the term of the Earn Out Period, for purposes of determining Additional Consideration, the EBITDA of the Company shall be adjusted to eliminate any impact adverse to FFPE Holding of any of the following items, unless such item is agreed to by FFPE Holding in the Agreement or otherwise [or required under GAAP]: (a) Any charge or allocation of any corporate overhead services or similar items (collectively, "Overhead Charges"); (b) Any charge to the Company for any costs related to the Sizzler acquisition of the Company, including, but not limited to: acquisition expenses, legal expenses, investment banking and similar expense; (c) Any non-recurring or extraordinary charges other than attributed to the Company during the Earn Out Period from any source; (d) Any subsequent change to the reserves of the Company established at the Closing (as defined in the Agreement); and (e) The 2% management fee, if any, paid or payable to Purchaser permitted in Section 6.5 of the limited liability company agreement of the Company. 2. Corporate Services. During the term of the Earn Out Period, in the event that Sizzler can provide needed goods and services at a price and terms equal to or less than the price and terms offered by and at a quality level equal to that of unaffiliated third parties, then such goods and services shall be acquired from Sizzler. 3. Volume Discounts. During the term of the Earn Out Period, Sizzler shall not charge the Company for any volume purchasing discounts that the Company is able to recognize as a result of the joint purchasing power of Sizzler and the Company. 4. Consent. For purposes of these Guidelines, the agreement of John Sarkisian shall be conclusively presumed to be the agreement of FFPE Holding and of the Shareholders. EXHIBIT 26 EX-10.2 3 v65445ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FFPE, LLC, A DELAWARE LIMITED LIABILITY COMPANY Exhibit 25 2 TABLE OF CONTENTS
Page ---- ARTICLE 1. DEFINITIONS..............................................................1 1.1 "Accounting Period"...........................................................1 1.2 "Act".........................................................................1 1.3 "Adjusted Capital Account"....................................................1 1.4 "Adjustment Period"...........................................................1 1.5 "Agreement"...................................................................1 1.6 "Assignee"....................................................................2 1.7 "Bankruptcy"..................................................................2 1.8 "Book Value"..................................................................2 1.9 "Capital Account".............................................................2 1.10 "Capital Contributions".......................................................3 1.11 "Cause".......................................................................3 1.12 "Code"........................................................................3 1.13 "Depreciation"................................................................4 1.14 "Dissociated Member"..........................................................4 1.15 "Dissolution".................................................................4 1.16 "Dissolution Event"...........................................................4 1.17 "Interest"....................................................................4 1.18 "LLC".........................................................................4 1.19 "Manager".....................................................................4 1.20 "Member Nonrecourse Debt Minimum Gain"........................................4 1.21 "Member Nonrecourse Deductions"...............................................4 1.22 "Members".....................................................................5 1.23 "Minimum Gain"................................................................5 1.24 "Net Income" or "Net Loss"....................................................5 1.25 "Nonrecourse Deductions"......................................................5 1.26 "Person"......................................................................5 1.27 "Property"....................................................................5 1.28 "Substitute Member"...........................................................5 1.29 "Treasury Regulations"........................................................6 1.30 "Units".......................................................................6 1.31 "Unreturned Capital"..........................................................6 ARTICLE 2. FORMATION OF LIMITED LIABILITY COMPANY.......................................6 2.1 Formation.....................................................................6 2.2 Name; Principal Place of Business.............................................6 2.3 Agent for Service of Process..................................................6
Exhibit 25 -i- 3
Page ---- 2.4 Agreement.....................................................................6 2.5 Business......................................................................6 2.6 Term..........................................................................7 ARTICLE 3. MEMBERSHIP...................................................................7 3.1 Members.......................................................................7 3.2 Units.........................................................................7 3.3 Representations and Warranties................................................7 3.4 Additional Members............................................................8 3.5 Admission of Substitute Members...............................................8 3.6 Resignation or Withdrawal of a Member.........................................8 3.7 Dissociation of a Member......................................................8 3.8 Rights of Dissociating Member.................................................8 3.9 Expulsion of a Member.........................................................9 ARTICLE 4. CAPITAL......................................................................9 4.1 Capital Contributions.........................................................9 4.2 Unit Register.................................................................9 4.3 Additional Capital Contributions.............................................10 4.5 Interest.....................................................................10 ARTICLE 5. ACTION BY MEMBERS...........................................................10 5.1 Meetings of Members..........................................................10 5.2 Annual Meetings..............................................................10 5.3 Special Meetings.............................................................10 5.4 Membership List..............................................................11 5.5 Quorum.......................................................................11 5.6 Voting Rights; Approval of Members at a Meeting..............................12 5.7 Approval of Members without Meeting..........................................12 ARTICLE 6. MANAGEMENT..................................................................13 6.1 Management by Manager........................................................13 6.2 Authority of Manager.........................................................13 6.3 Meetings.....................................................................13 6.4 Action without Meeting.......................................................13 6.5 Compensation of Manager and Members..........................................14 6.6 Powers and Authority of Manager..............................................14 6.7 Duties of Manager............................................................15 6.8 Devotion of Time.............................................................16 6.9 Competing Activities.........................................................16
Exhibit 25 -ii- 4
Page ---- ARTICLE 7. OFFICERS....................................................................16 7.1 Required Officers............................................................16 7.2 Compensation of Officers.....................................................16 7.3 Duties of Chief Executive Officer............................................17 7.4 Duties of Secretary..........................................................17 ARTICLE 8. DISTRIBUTIONS...............................................................17 8.1 Mandatory Distributions......................................................17 8.2 Distributions in Kind........................................................17 8.3 Restrictions on Distributions................................................18 8.4 No Other Withdrawals.........................................................18 ARTICLE 9. ALLOCATIONS.................................................................18 9.1 Allocation of Income and Loss................................................18 9.2 Special Allocations..........................................................18 9.3 Special Tax Provisions.......................................................19 9.4 Partnership Tax Treatment....................................................20 ARTICLE 10. ACCOUNTING AND RECORDS......................................................20 10.1 Financial and Tax Reporting..................................................20 10.2 Books and Records............................................................20 10.3 Reports......................................................................21 10.4 Tax Returns..................................................................21 10.5 Tax Matters Partner..........................................................21 ARTICLE 11. TRANSFER OF MEMBERSHIP......................................................21 11.1 Transfer.....................................................................21 11.2 Rights of Assignees..........................................................22 ARTICLE 12. INDEMNIFICATION AND LIMITATION OF LIABILITY.................................22 12.1 Indemnification..............................................................22 12.2 Limitation of Liability......................................................23 ARTICLE 13. TERMINATION.................................................................23 13.1 Termination..................................................................23 13.2 Continuation of the LLC......................................................23 13.3 Authority to Wind Up.........................................................24 13.4 Winding Up; Certificate of Cancellation......................................24 13.5 Distribution of Property.....................................................24
Exhibit 25 -iii- 5
Page ---- ARTICLE 14. SPECIAL TAX PROVISIONS......................................................24 14.1 Substantial Economic Effect..................................................24 14.2 Qualified Income Offset; Prophylactic Offsets; Minimum-Gain Chargeback...................................................................25 14.3 Compliance with Timing Requirements of Treasury Regulations..................26 14.4 Sharing Arrangement; Interest in LLC Items...................................26 14.5 Taxation of the LLC..........................................................26 ARTICLE 15. MISCELLANEOUS...............................................................27 15.1 Amendment....................................................................27 15.2 Binding Effect...............................................................27 15.3 Counterparts.................................................................27 15.4 Entire Agreement.............................................................27 15.5 Further Assurances...........................................................27 15.6 Governing Law................................................................27 15.7 Notices......................................................................27 15.8 Power of Attorney............................................................28 15.9 Savings Clause...............................................................28 15.10 Severability.................................................................28 15.11 Withholding Taxes............................................................28
Exhibit 25 -iv- 6 SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FFPE, LLC THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement"), is entered into as of August 29, 2000 ("Effective Date"), by FFPE Holding Company, Inc., a Delaware corporation ("Holdings"), and Sizzler International, Inc., a Delaware corporation ("Sizzler") (each a "Member" and collectively, the "Members" of FFPE, LLC, a Delaware limited liability company ("LLC")). ARTICLE 1. DEFINITIONS The following terms shall have the meanings set forth below for purposes of this Agreement: 1.1 "Accounting Period" means for each Accounting Period the period beginning on the Monday closest to May 1 and ending on the Sunday closest to April 30; provided, however, that the first Accounting Period shall commence on the date of formation of the LLC and shall end on April 30, 2001; and provided, further, that an Accounting Period shall end and a new Accounting Period shall commence on any date on which an Additional or Substituted Member is admitted to the LLC or a Member ceases to be a Member for any reason. 1.2 "Act" means the Limited Liability Company Act, Delaware Corporation Code, as amended from time to time. 1.3 "Adjusted Capital Account" shall mean the Capital Account of each Member as of the end of any Accounting Period after taking into account all adjustments required to be made to the Capital Account for such period other than the allocation of Net Income or Loss. 1.4 "Adjustment Period" shall mean the ten year period from the Effective Date of this Agreement. 1.5 "Agreement" means this Amended and Restated Limited Liability Company Agreement, as amended from time to time. -1- 7 1.6 "Assignee" means a transferee of Units who has not been admitted as a Substitute Member. 1.7 "Bankruptcy" means, with respect to any Person, that: (a) a petition has been filed by or against such Person as a "debtor" and the adjudication of such Person as a bankrupt under the provisions of the bankruptcy laws of the United States of America has commenced; (b) such Person has made an assignment for the benefit of its creditors generally; or (c) a receiver has been appointed for substantially all of the property and assets of such Person. 1.8 "Book Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Book Value of any asset contributed by a Member to the LLC shall be the gross fair market value of such asset (not reduced by any associated liabilities), as agreed to by the contributing Member and the Manager, provided that the initial Book Values of the assets contributed to the LLC shall be as set forth in Section 4.1; (ii) The Book Value of the Property of the LLC shall be adjusted to equal their respective gross fair market values, as determined by the Manager, as of the following times: (a) the acquisition of an additional Interest by any new or existing Member in exchange for more than a de minimis Capital Contribution; (b) the distribution by the LLC to a Member of more than a de minimis amount of Property as consideration for an Interest; and (c) the liquidation of the LLC within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(q); provided, however, that adjustments pursuant to clauses (a) and (b) above shall be made only if the Manager reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the LLC; and (iii) The Book Value of any Property distributed to a Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the Manager. The Book Value of any Property which has been established or adjusted to reflect gross fair market value hereunder shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income or Net Loss. 1.9 "Capital Account" means with respect to each Member a separate account established and maintained in accordance with the following provisions: -2- 8 The Capital Account of each Member shall be increased by: (i) the amount of money and the fair market value of any property contributed to the LLC (determined by the Manager as of the date of contribution) by such Member pursuant to the provisions of this Agreement (net of any liabilities secured by such property that the LLC is considered to assume or hold subject to and for purposes of Section 752 of the Code), (ii) such Member's share of Net Income (or items thereof) allocated to its Capital Account pursuant to this Agreement, and (iii) any other amounts required by Treasury Regulation Section 1.704-1(b), provided the Managers determine that such increase is consistent with the economic arrangement among the Members as expressed in this Agreement. And shall be decreased by: (i) The amount of money and the fair market value of any property distributed by the LLC (determined by the Manager as of the date of distribution) to such Member pursuant to the provisions of this Agreement (net of any liabilities secured by such property that such Member is considered to assume or hold subject to for purposes of Section 752 of the Code), (ii) such Member's share of Net Losses (or items thereof) allocated to its Capital Account pursuant to this Agreement, and (iii) any other amounts required by Treasury Regulation Section 1.704-1(b), provided that the Manager determines that such decrease is consistent with the economic arrangement among the Members as expressed in this Agreement. 1.10 "Capital Contributions" of a Member means that amount of cash and/or the agreed value of other property actually contributed or deemed to be contributed by such Member to the LLC pursuant to Article 4. 1.11 "Cause" shall mean (i) any act of fraud; (ii) gross negligence or willful misconduct related to the conduct of the affairs of the LLC; or (iii) the filing of a petition in bankruptcy by or against any Member or officer of the LLC which is not dismissed within ninety (90) days of filing, or a general assignment for the benefit of creditors or take advantage of any insolvency act. 1.12 "Code" means the Internal Revenue Code of 1986, as amended from time to time. -3- 9 1.13 "Depreciation" means, for each Accounting Period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Period, except that if the gross asset value of an asset differs from its adjusted basis for federal income tax purposes during such Accounting Period, Depreciation shall be an amount which bears the same ratio to Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Period bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Accounting Period is zero, Depreciation shall be determined with reference to such asset as if the adjusted basis of the asset for federal income tax purposes were equal to the Book Value and using any reasonable method of cost recovery selected by the Manager. 1.14 "Dissociated Member" means a Member who has ceased to be a Member as a result of death, expulsion, Bankruptcy or Dissolution. 1.15 "Dissolution" of a Member which is not a natural person means that such Member has terminated its existence, whether partnership or corporate, wound up its affairs and dissolved; provided, however, that a change in the membership of any Member that is a general partnership shall not constitute a "Dissolution" hereunder, whether or not the Member is deemed technically dissolved for partnership law purposes, so long as the business of the Member is continued. 1.16 "Dissolution Event" means the death, expulsion, Bankruptcy, or Dissolution of a Member, the occurrence of which terminates the Member's continued membership in the LLC. 1.17 "Interest" means all right of a Member or an Assignee to share in distributions and allocations hereunder. 1.18 "LLC" means FFPE, LLC, the limited liability company formed pursuant to this Agreement. 1.19 "Manager" means the person charged with the management of the business and affairs of the LLC in accordance with Section 6.1. 1.20 "Member Nonrecourse Debt Minimum Gain" shall have the same meaning as partner nonrecourse debt minimum gain under Treasury Regulation Section 1.704-2(i)(3). 1.21 "Member Nonrecourse Deductions" shall have the same meaning as partner nonrecourse deduction set forth in Treasury Regulation Section 1.704-2(i)(2). -4- 10 1.22 "Members" means all Members, including Substitute Members and any Additional Members admitted pursuant to this Agreement but does not include Assignees. 1.23 "Minimum Gain" has the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations. 1.24 "Net Income" or "Net Loss" means for any Accounting Period the amount, computed as of the last day thereof, of the net income or loss of the LLC determined in accordance with federal income tax principles (but without requiring any items to be stated separately pursuant to Code Section 703), with the following adjustments: (i) Any income of the LLC that is exempt from federal income tax shall be included in the computation of Net Income or Net Loss; (ii) Any expenditures of the LLC described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(l) shall be included in the computation of Net Income or Net Loss; (iii) Any adjustment in the Book Value of Property in accordance with this Agreement shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss; (iv) In any situation in which an item of income, gain, loss or deduction is affected by the adjusted basis of Property, the Book Value of the Property shall be used in lieu of adjusted basis; and 1.25 "Nonrecourse Deductions" has the meaning set forth in Section 1.704-2(b)(1) of the Treasury Regulations. 1.26 "Person" means a natural person, partnership (whether general or limited and whether domestic or foreign), LLC, foreign limited liability company, trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or representative capacity. 1.27 "Property" means all real property and other assets owned by the LLC from time to time. 1.28 "Substitute Member" means an Assignee who has been admitted to all the rights of a Member pursuant to this Agreement. -5- 11 1.29 "Treasury Regulations" means regulations issued pursuant to the Code, as amended from time to time. 1.30 "Units" means the ownership interests in the LLC. 1.31 "Unreturned Capital" means, with respect to each Member, the excess of (i) such Member's Capital Contributions over (ii) the aggregate amount distributed to such Member in excess of the amounts required to be distributed to such Member pursuant to Section 8.1. ARTICLE 2. FORMATION OF LIMITED LIABILITY COMPANY 2.1 Formation. The LLC was formed on a Certificate of Formation (the "Certificate") conforming to the requirements of the Act in the Office of the Secretary of State of the State of Delaware. The original limited liability company agreement of the LLC was the Limited Liability Company Agreement of FFPE, LLC, dated May 12, 2000 (the "Original Agreement"). The Original Agreement was amended as of August 25, 2000 by that certain First Amendment to the Limited Liability Company Agreement of FFPE, LLC, the purpose of which was to reflect the transfer of Units to new Members. On August 24, 2000, S&C Company, Inc., a California corporation, was merged with and into the LLC. 2.2 Name; Principal Place of Business. Unless and until amended in accordance with this Agreement and the Act, the name of the LLC will be "FFPE, LLC". The principal place of business of the LLC in California shall be 9823 Pacific Heights Blvd., Suite J, San Diego, California 92121, or such other place or places as the Members from time to time determine. 2.3 Agent for Service of Process. Until such time as the Manager has appointed a different person to act in the State of Delaware as the agent of the LLC for service of process, the LLC's agent for service of process in the State of Delaware shall be as set forth in the Articles. 2.4 Agreement. This Agreement shall be the sole Limited Liability Company Agreement for the LLC. 2.5 Business. The purpose of the LLC is to own, operate and further develop a chain of casual dining restaurants doing business under the name Oscar's or such other trade names as agreed upon by the Members, and to engage in any and all activities -6- 12 incidental to or in furtherance of the foregoing purposes, and to engage in any other activity for which a limited liability company may be organized under the Act. 2.6 Term. The term of the LLC shall commence upon the filing of the Certificate and shall continue for the period set forth therein unless its existence is sooner terminated pursuant to Article 13 of this Agreement. ARTICLE 3. MEMBERSHIP 3.1 Members. The names and addresses of the Members of the LLC are set forth on Exhibit A hereto. 3.2 Units. Ownership of the LLC shall be divided into and represented by Units of the LLC. The total number of Units which the LLC is authorized to issue shall initially be One Hundred (100). All of the authorized Units shall be issued and outstanding, fully paid and nonassessable. 3.3 Representations and Warranties. Each Member hereby represents and warrants to the LLC and each other Member as follows: 3.3.1 Compliance with Other Agreements. The Member's execution, delivery and performance of this Agreement does not conflict with any other agreement or arrangement to which such Member is a party or by which such Member is bound. 3.3.2 Purchase Entirely for Own Account. The Member is acquiring its or his interest in the LLC for the Member's own account for investment purposes only and not with a view to or for the resale, distribution, subdivision or fractionalization thereof and has no contract, understanding, undertaking, agreement or arrangement of any kind with any Person to sell, transfer or pledge to any Person any interest in the LLC, nor does such Member have any plans to enter into any such agreement. 3.3.3 Investment Experience. By reason of such Member's business or financial experience, the Member has the capacity to protect his or their own interests in connection with the transactions contemplated hereunder, is able to bear the risk of investment in the LLC, and at the present time could afford a complete loss of such investment. 3.3.4 Disclosure of Information. The Member is aware of the LLC's business affairs and financial condition and has acquired sufficient information -7- 13 about the LLC to reach an informed and knowledgeable decision to acquire Units in the LLC. 3.3.5 Securities Laws. Assuming federal and state securities laws apply to the interests described herein, the Member acknowledges that the Units have not been registered under the Securities Act of 1933 or any state securities laws, inasmuch as they are being acquired in a transaction not involving a public offering, and, under such laws, may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements. In this connection, the Member represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act of 1933. 3.4 Additional Members. Subject to paragraph 6.6.4, additional Members may be admitted upon such terms and conditions as the Manager may determine. 3.5 Admission of Substitute Members. An Assignee of Units of the LLC may be admitted as a Substitute Member with the approval of the Manager. If so admitted, the Substitute Member shall have, with respect to the Units so assigned, all the rights and powers and shall be subject to all the restrictions and liabilities of the Member who assigned such Units. The admission of a Substitute Member shall not release any Member who assigned such Units from liability to the LLC that may have arisen prior to the transfer. 3.6 Resignation or Withdrawal of a Member. Except as specifically provided below, and subject to the provisions for transfer contained in Article 11, no Member shall have the right to resign or withdraw from membership in the LLC or withdraw his interest in the capital of the LLC. 3.7 Dissociation of a Member. The death, expulsion, Bankruptcy or dissolution of a Member: (a) will cause such Member to become a Dissociated Member; (b) will terminate the continued membership of such Member in the LLC; and (c) may or may not cause a dissolution of this LLC pursuant to Article 13 hereof. 3.8 Rights of Dissociating Member. In the event any Member becomes a Dissociated Member: 3.8.1 If the dissociation causes a dissolution and winding up of the LLC under Article 13, the Dissociated Member or its legal representative (the "Holder") shall be entitled to participate in the winding up of the LLC to the same extent as any other Member. 3.8.2 If the dissociation does not cause a dissolution and winding up of the LLC under Article 13, the Holder shall have only those rights as an Assignee under this Agreement. -8- 14 3.9 Expulsion of a Member. No Member may be expelled other than for Cause. ARTICLE 4. CAPITAL 4.1 Capital Contributions. The initial capital accounts shall be as set forth in Exhibit "A." The initial capital contribution by Sizzler shall be an amount equal to the Purchase Price (as such term is defined in the Amended and Restated LLC Membership Interest Purchase Agreement dated August 21, 2000, to which Holdings and Sizzler are parties), other than Additional Consideration (as defined in such Purchase Agreement), plus transaction costs related to the acquisition of the Purchased Units (as defined in such Purchase Agreement). The initial capital contribution by Holdings shall be an amount equal to 18/82 of the initial capital contribution of Sizzler as described in the preceding sentence. However, upon the payment of any Additional Consideration pursuant to the Amended and Restated LLC Membership Interest Purchase Agreement dated August 21, 2000 the portion thereof treated as principal for federal income tax purposes shall upon such payment be treated as a capital contribution by Sizzler and an amount equal to 18/82 thereof shall be treated as a capital contribution by Holdings; and Exhibit "A" shall be amended accordingly. In exchange for their Capital Contributions described above, the Members shall have the rights set forth herein, including the Units as set forth in Section 4.1. In exchange for such contributions, the Members shall be issued the number of Units as follows:
Member Units ------ ----- Sizzler 82 Holdings 18 --- Total 100 ===
4.2 Unit Register. In order that the LLC may determine the Members entitled to notice of or to consent, approve or vote on any matter, or the Members or Assignees entitled to receive payment of any distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Manager shall cause the LLC to maintain a register of the ownership of all Units of the LLC (the "Unit Register"). No transfer of Units shall be effective unless and until the LLC has been properly notified of such transfer and any and all conditions or requirements necessary to effect such transfer have been met, performed or satisfied. The LLC and its Members, Manager and officers shall -9- 15 be entitled to recognize the exclusive right of a person registered on the LLC's books as the owner of Units to receive distributions, and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such Unit or Units on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 4.3 Additional Capital Contributions. No Member shall be required to make any additional Capital Contribution to the capital of the LLC. No Member shall be permitted to make any additional Capital Contribution to the capital of the LLC without the approval of the Members. 4.4 Unit Certificates. The Units may be evidenced by such written certificate as may be memorialized by the Manager. Any such Unit Certificates shall be deemed "investment securities" within the meaning of Articles 8 and 9 of the Uniform Code as adopted in applicable jurisdiction. 4.5 Interest. No Member shall be entitled to payment of any interest with respect to its Capital Contributions to or its share of the capital of the LLC. ARTICLE 5. ACTION BY MEMBERS 5.1 Meetings of Members. All meetings of the Members for the election of Managers shall be held at such place as may be fixed from time to time by the Manager and stated in the notice of the meeting. Meetings of Members for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 5.2 Annual Meetings. 5.2.1 Annual meetings of Members, commencing with the year 2000, shall be held on such date and at such time as shall be designated from time to time by the Manager and stated in the notice of the meeting, at which they shall elect a Manager, and transact such other business as may properly be brought before the meeting. 5.2.2 Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each Member entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. 5.3 Special Meetings. -10- 16 5.3.1 Special meetings of the Members, for any purpose or purposes, may be called by the Manager or the Chief Executive Officer or at the request in writing of Members owning at least seven percent (7%) of the Units issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 5.3.2 A special meeting of the Members for the election of a new Manager or Board of Managers may be called by any Member within 90 days of the date on which such Member has acquired Units of the LLC. 5.3.3 Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each Member entitled to vote at such meeting. 5.3.4 Business transacted at any special meeting of Members shall be limited to the purposes stated in the notice. 5.4 Membership List. The Person who has charge of the Unit Register of the LLC shall prepare and make, at least ten days before every meeting of Members, a complete list of the Members entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Member and the number of Units registered in the name of each Member. Such list shall be open to the examination of any Member, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member who is present. 5.5 Quorum. The holders of a majority of the Units issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the Members for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Members, the Members entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member entitled to vote at the adjourned meeting. -11- 17 5.6 Voting Rights; Approval of Members at a Meeting. 5.6.1 Except as provided in Section 5.6.3, each Member shall at every meeting of the Members be entitled to one vote in person or by proxy for each Unit, but no proxy shall be voted after three years from its date, unless the proxy expressly provides for a longer period. Neither the assigning Member nor the Assignee of Units which have been assigned shall have any right to a vote with respect to any assigned Units. No Dissociated Member or Member who has assigned all of his Units of the LLC (collectively, "Former Members") shall have any right to vote on any matter. A Member who has assigned some, but not all, of his Units of the LLC shall be treated as a Member and entitled to a vote on all matters to the extent of his retained Units of the LLC. No Assignee of Units of the LLC shall have the right to consent to, approve or vote on any matters, unless such Assignee has become a Substitute Member pursuant to Section 3.5 hereof. 5.6.2 Except to the extent that the express provision of the statutes, the Certificate, or this Agreement require a different vote (in which case such express provision shall govern and control) and except as set forth in Section 5.6.3, when a quorum is present at any meeting, the vote of the holders of a majority of the Units present in person or by proxy shall decide any question brought before such meeting. 5.6.3 Notwithstanding Section 5.6.1 or 5.6.2, with respect to the election of Managers, each Member entitled to one vote with respect to a Unit under Section 5.6.1 shall be entitled to one vote for such Unit multiplied by the number of Managers to be elected. All such votes may be cast for a single Manager or in such other manner as the Member determines to be appropriate in the circumstance. 5.7 Approval of Members without Meeting. Any action required to be taken at any annual or special meeting of Members of the LLC, or any action which may be taken at any annual or special meeting of such Members, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding Units having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Units entitled to vote thereon were present and voted. Prompt notice of the taking of any action without a meeting by less than unanimous written consent shall be given to those Members who have not consented in writing. ARTICLE 6. MANAGEMENT 6.1 Management by Manager. The LLC shall be managed and controlled by a single Manager of the LLC. Initially the Manager shall be Sizzler and any reference -12- 18 herein to "Manager" or "Managers" shall refer only to Sizzler so long as it serves as the only Manager. 6.2 Authority of Manager. 6.2.1 Except as otherwise limited and set forth in Section 6.6 below, the Manager may exercise all powers of the LLC and shall have all requisite power and authority to do such lawful acts and things as the Manager may determine to be necessary or appropriate in the conduct of the business and affairs of the LLC. Except as otherwise provided herein, it is intended that the powers and authority of the Manager shall be substantially the same as the powers and authority of directors of a corporation formed under the laws of the State of Delaware. 6.2.2 Notwithstanding the above, the Manager may not do or permit to be done any of the following without the express approval of the Members: (i) Any act or thing which this Agreement expressly requires to be approved, consented to, determined or authorized by all of the Members; and (ii) Voluntarily cause the dissolution of the LLC. 6.2.3 Unless the Act or this Agreement expressly requires a greater vote or consent, all matters requiring the vote, approval, consent, authorization or determination of the Manager or of all Managers shall require the vote or consent of a majority of the Managers. 6.3 Meetings. The Manager may hold meetings, both regular and special, either within or outside the State of Delaware. Regular meetings may be held at such time and place as shall be specified by the Manager in establishing the schedule for such regular meetings, or if a schedule is not otherwise fixed, in a notice given as hereinafter provided. Special meetings may be held at such time and place as shall be specified in a notice given as hereinafter provided. 6.4 Action without Meeting. Any action required or permitted to be taken by the Manager may be taken without a meeting, if a majority of all Managers consent thereto in writing, and the writing or writings are filed with the books and records of the LLC. 6.5 Compensation of Manager and Members. Unless otherwise expressly approved by the Members, the Manager shall not be entitled to any compensation for services or activities undertaken in their capacity as a Manager of the LLC, provided that the Manager shall be reimbursed for any and all costs and expenses reasonably incurred in connection with the performance of its duties as Manager. Notwithstanding the -13- 19 foregoing, and at the Manager's option, the Manager shall be entitled to a fee of two percent (2%) of gross revenues of the Company which shall accrue and not be paid during the Adjustment Period. 6.6 Powers and Authority of Manager. The Manager shall have all necessary power and authority to act on behalf of the Company conferred upon managers under the Act. Notwithstanding the delegation to Manager of the power and obligation to supervise and conduct the day-to-day operations of the LLC, the Manager shall not individually or on behalf of the LLC effect, and shall not cause or permit to occur, any of the following actions unless same have been approved in writing by all of the Members: 6.6.1 Acts of Contravention. Doing any act in contravention of this Agreement; 6.6.2 Burdensome Acts. Doing any act which would make it impossible or unreasonably burdensome to carry on the business of the LLC; 6.6.3 Possess Property. Possessing property of the LLC; 6.6.4 Equity Issuance. Issuing any equity interest with respect to the LLC that results in an economic dilution of any Units, other than a dilution that is shared by all Members in accordance with their respective Units; 6.6.5 Limited Liability Company. Taking or failing to take any action that could cause the LLC not to be treated as a valid limited liability company duly organized under the laws of the State of Delaware; and 6.6.6 Amendments. Entering into any amendment, modification, revision, supplement or rescission with respect to any of the foregoing to the extent approval of same was previously required pursuant to this Section 6.6. 6.7 Duties of Manager. 6.7.1 The Manager shall perform its duties in good faith, in a manner it reasonably believes to be in the best interests of the Company and its Members, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. 6.7.2 In performing its duties, the Manager shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, of professional third parties unless they had knowledge concerning the matter in question that would cause such reliance to be unwarranted and provided that -14- 20 the Manager acts in good faith and after reasonable inquiry when the need therefor is indicated by the circumstances. 6.7.3 A Manager who so performs the duties of Manager shall not have any liability by reason of being or having been a Manager of the Company. Neither the Manager nor any of its affiliates, employees, delegates, agents, successors or assigns shall be liable to the Company or any Member for any liabilities incurred by reason of their acts or omissions in connection with the Company's business or in dealing with other Members or third parties on behalf of the Company if such acts or omissions are taken in good faith and are not finally adjudicated by a court of competent jurisdiction to constitute fraud or gross negligence by the Manager or its affiliates, employees, delegates, agents, successors or assigns. In any case where the Manager or its affiliates, employees, delegates, agents successors or assigns are personally liable on Company obligations, all liabilities incurred first must be satisfied from the assets of the Company (including any insurance). 6.7.4 With respect to all matters (including disputes with respect thereto) relating to the Company, its business, and all computations and determinations required to be made under this Agreement, the Manager may rely on, and shall have no liabilities to other Members or the Company if it relies on, the opinion or advice of accountants, lawyers or consultants retained by the Company or by the Manager on behalf of the Company. 6.7.5 Under no circumstances will any director, officer, shareholder, member, manager, partner, employee, agent or affiliate of any Member have any personal responsibility for any liability or obligation of the Manager (whether on a theory of alter ego, piercing the corporate veil, or otherwise), and any recourse permitted under this Agreement or otherwise of the Members, any former Member, and the Company against a Manager will be limited to the assets of the Manager as they may exist from time to time. 6.8 Devotion of Time. The Manager is not obligated to devote all of its time or business efforts to the affairs of the Company. The Manager shall devote whatever time, effort, and skill as it deems appropriate for the operation of the Company. 6.9 Competing Activities. The Manager and its officers, directors, shareholders, partners, members, managers, agents, employees and affiliates may engage or invest in, independently or with others, any business activity of any type or description, including without limitation: (a) rendering advice or services to other persons; (b) investing their own capital and revenues or the capital and revenues of others in any fashion; and (c) those that might be the same as or similar to the Company's business and that might be in direct or indirect competition with the Company. Neither the Company nor any Member shall have any right in or to such other ventures or -15- 21 activities or to the income or proceeds derived therefrom. The Manager shall not be obligated to present any investment opportunity or prospective economic advantage to the Company, even if the opportunity is of the character that, if presented to the Company, could be taken by the Company. The Manager shall have the right to hold any investment opportunity or prospective economic advantage for its own account or to recommend such opportunity to Persons other than the Company. The Members acknowledge that the Manager and its affiliates own and/or manage other businesses, including businesses that may compete with the Company and for the Manager's time. The Members hereby waive any and all rights and claims which they may otherwise have against the Manager and its officers, directors, shareholders, partners, members, managers, agents, employees and affiliates as a result of any of such activities. ARTICLE 7. OFFICERS 7.1 Required Officers. The officers of the LLC shall include a Chief Executive Officer and a Secretary to be appointed by the Manager. The Manager may create other offices and elect persons to hold such other offices as they deem appropriate. Any number of offices may be held by the same person. The duties of any officers shall be established from time to time by the Manager or by the Chief Executive Officer acting under authority granted by the Manager. Each officer shall hold office for such term as shall be determined from time to time by the Manager and may be removed from office at any time by the Manager. 7.2 Compensation of Officers. The salaries of all officers of the LLC shall be reasonably fixed by the Manager or by the Chief Executive Officer acting under authority granted by the Manager, or as otherwise set forth by an Employment Agreement. 7.3 Duties of Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the LLC and, unless and until the Manager determines otherwise, shall have general and active management of the day-to-day business and affairs of the LLC and shall see that all orders and resolutions of the Manager are carried into effect. The Chief Executive Officer shall execute bonds, mortgages and other contracts, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be prohibited by the Manager or be expressly delegated by the Manager to some other officer or agent of the LLC. The initial Chief Executive Officer of the LLC shall be John Sarkisian. 7.4 Duties of Secretary. The Secretary shall attend all meetings of the Members and record all the proceedings of the meetings of the Members in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the Members and special meetings of the Members, and shall perform such -16- 22 other duties as may be prescribed by the Chief Executive Officer. The initial Secretary shall be Michael B. Green. ARTICLE 8. DISTRIBUTIONS 8.1 Mandatory Distributions. There shall be no distribution of cash to the Members during the first five years after the Effective Date, without the unanimous consent of the Members. In the event that Sizzler incurs a tax during such period as a result of the allocation of income to it from the LLC because it no longer has a net operating loss, then this tax liability, as computed in the sentence below, shall be a payable to Sizzler after the end of such five year period. It is the objective of the Members that all of the cash of the LLC is to stay in the LLC and be used for the business purposes of the LLC. Notwithstanding the foregoing, if Holdings receives an allocation of taxable income during such five year period then the Manager shall distribute to Holdings an amount equal to the excess, if any, of (i) the amount of net income of the LLC (net of taxable losses) allocated to Holdings determined on a cumulative basis for all years (through and including the immediately preceding tax year) multiplied by 45% over (ii) all amounts previously distributed to Holdings pursuant to this Section 8.1. 8.2 Distributions in Kind. All distributions shall be made in cash or cash equivalents, unless the Members shall have approved a distribution of property in kind. Each Member shall be entitled to receive an interest in any assets distributed in kind which is proportional to such Member's ownership of the outstanding Units of the LLC, unless such Member expressly consents to the receipt of a different interest. 8.3 Restrictions on Distributions. The following restrictions on Distributions shall apply: 8.3.1 The LLC shall not make any distribution to the Members unless, immediately after giving effect to the distribution, all liabilities of the LLC, other than liabilities to Members on account of their Units in the LLC and liabilities as to which recourse of creditors is limited to specified property of the LLC, do not exceed the fair market value of the LLC Property, provided that the fair value of any property that is subject to a liability as to which recourse of creditors is so limited shall be included in the LLC assets only to the extent that the fair value of the property exceeds such liability. 8.3.2 No Member shall be liable to the LLC for the amount of a distribution received provided that, at the time of the distribution, such Member did not know that the distribution was in violation of Section 8.4.1. If a Member receives a distribution in violation of Section 8.4.1 and such Member knew at the time of the -17- 23 distribution that the distribution violated such condition, such Member shall be liable to the LLC for the amount of the distribution. 8.4 No Other Withdrawals. Except as provided in this Article 8 and in Section 3.8, no withdrawals or distributions shall be required or permitted. ARTICLE 9. ALLOCATIONS 9.1 Allocation of Income and Loss. After giving effect to the special allocations set forth in Section 9.2 hereof, Net Income or Net Loss, or items of income, gain, loss or deduction included in the determination of Net Income or Net Loss, for each Accounting Period shall be allocated to the Members as follows: Net Income and Net Loss for the Accounting Period shall be allocated to Members in accordance with their respective Units. 9.2 Special Allocations. Notwithstanding Section 9.1, the following special allocations shall be made prior to making any allocations under Section 9.1 hereof: (a) There shall be allocated to Sizzler all of the Net Income of the LLC until the expiration of both the Put Option Agreement and Call Option Agreement. (b) Member Nonrecourse Deductions for any Accounting Period shall be allocated in the manner required under Treasury Regulation Section 1.704-2(i)(1). (c) Nonrecourse Deductions (as defined in Treasury Regulation Section 1.704-2(c), other than Member Nonrecourse Deductions) for any Accounting Period shall be allocated to the Members in proportion to their ownership of Units. (d) In any Accounting Period in which there is a decrease in Member Nonrecourse Debt Minimum Gain (determined in accordance with Treasury Regulation Section 1.704-2(i)(3)), there shall be a chargeback of income and gain for such Accounting Period (and, if necessary, subsequent Accounting Periods) in accordance with Treasury Regulation Section 1.704-2(i)(4) (and all related Sections). (e) In any Accounting Period in which there is a decrease in Minimum Gain, there shall be a chargeback of income and gain for such Accounting Period (and, if necessary, subsequent Accounting Periods) in accordance with Treasury Regulation Section 1.704-2(f) (and all related Sections). -18- 24 9.3 Special Tax Provisions. In addition to the allocations set forth in Sections 9.1 and 9.2, the following special provisions shall apply to the allocation of taxable income to the Members: 9.3.1 Section 704(c) Adjustments. In accordance with Code Section 704(c) and the Treasury Regulations thereunder, items of income, gain, loss and deduction with respect to an asset, if any, contributed to the capital of the LLC shall, solely for tax purposes, be allocated between the Members so as to take account of any variation between the adjusted basis of such property to the LLC for federal income tax purposes and its market value upon contribution to the LLC. The amount of the 704(c) adjustment is set forth on Exhibit "A". Without the prior written consent of Holdings, which may be granted or denied in its sole and absolute discretion, no method other than the "traditional" method shall be used by the LLC to make any allocations in accordance with Section 704(c) or the principles thereof pursuant to Treasury Regulations under Section 704 or any subsection thereof, and neither the "curative" nor "remedial" method shall be used therefor. 9.3.2 Section 754 Election. A Section 754 election may be made for the LLC at the sole discretion of Sizzler. In the event of an adjustment to the adjusted tax basis of any LLC asset under Code Section 734(b) or Code Section 743(b) pursuant to a Section 754 election by the LLC, subsequent allocations of tax items shall reflect such adjustment consistent with the Treasury Regulations promulgated under Sections 704, 734 and 743 of the Code. 9.3.3 Allocations upon Transfer. If, during an Accounting Period, a Member ("Transferor Member") transfers all or any portion of its Units to another Person, items of Net Income and Net Loss, together with corresponding tax items, that otherwise would have been allocated to the Transferor Member with regard to such Accounting Period shall be allocated between the Transferor Member and the Substitute Member in accordance with their respective Units during the Accounting Period using any method permitted by Section 706 of the Code and selected by the Manager. 9.4 Partnership Tax Treatment. The Members expect and intend that the LLC shall be treated as a partnership for all federal income tax purposes, and the Members agree that they will not: (a) take a position on any federal, state, local or other tax return or otherwise assert a position, inconsistent with such expectation and intent; or (b) do any act or thing which could cause the LLC to be treated as other than a partnership for federal income tax purposes. ARTICLE 10. ACCOUNTING AND RECORDS -19- 25 10.1 Financial and Tax Reporting. The LLC shall prepare its financial statements in accordance with generally accepted accounting principles, as from time to time in effect, and shall prepare its income tax information returns using such methods of accounting and tax year as the Members deem necessary or appropriate under the Code and Treasury Regulations. 10.2 Books and Records. 10.2.1 Supervision; Inspection. Proper and complete books of account and records of the business of the LLC shall be kept under the supervision of the Manager at the LLC's principal office in California. Such books and records shall be open to inspection, audit and copying by any Member or his or their designated representative, upon reasonable notice at any time during business hours, for any purpose reasonably related to the Member's interest in the LLC. Any information so obtained or copied shall be kept and maintained in strict confidence except as required by law. 10.2.2 Reliance on Books and Records. Any Member shall be fully protected in relying in good faith upon the records and books of account of the LLC and upon such information, opinions, reports or statements presented to the LLC by any of its other Members or employees, or by any other Person, as to matters the Member reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the LLC, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits or losses of the LLC or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid. 10.3 Reports. Within thirty (30) days after the close of each Accounting Period quarter, the Manager shall prepare and deliver to the Members a financial statement and an income and expense statement setting forth the status and results of operations of the LLC for such quarter. Within one hundred twenty (120) days after the end of each Accounting Period, the Manager shall prepare and deliver to the Members an annual financial statement, audited and reported on as of the end of such Accounting Year by a firm of independent certified public accountants of comparable standing selected by the Members, provided that the Members may waive the requirement of an audit at any time and for any reason. Within one hundred eighty (180) days after the end of the Accounting Period, the Manager shall prepare and deliver to the Members such other information as may be necessary for the Members to prepare their income tax returns. 10.4 Tax Returns. The Manager shall, within one hundred eighty (180) days after the end of each Accounting Year, file a federal income tax information return and deliver to each Member a schedule showing such Member's distributive share of the LLC's income, deductions and credits, and all other information necessary for such Members timely to file their federal income tax returns. The Manager similarly shall file, -20- 26 and provide information to the Members regarding, all appropriate state and local income tax returns. 10.5 Tax Matters Partner. The Members hereby designate the Manager as the tax matters partner pursuant to Code Section 6231(A)(7). ARTICLE 11. TRANSFER OF MEMBERSHIP 11.1 Transfer. 11.1.1 Restrictions. No Member or Assignee may transfer, sell, encumber, mortgage, assign or otherwise dispose of ("Transfer") all or any portion of its Units, unless each of the following conditions have been satisfied: (a) the provisions of Section 11.2 have been complied with; (b) the transferee has agreed in writing to assume all of the obligations of the transferor with respect to the Units transferred (including the obligations imposed hereunder as a condition to any Transfer); and (c) the Manager shall have concluded (which conclusion may be based upon an opinion of counsel satisfactory to it) that such Transfer would not result in (i) a violation of the Securities Act of 1933 as amended, or any other applicable statute of any jurisdiction, (ii) a termination of the LLC for federal or state income tax purposes or the LLC being taxed as a corporation for federal income tax purposes, or (iii) a violation of any law, rule or regulation by the assignor, the Assignee, the LLC or the Members. Any purported Transfer in contravention of this Article 11 shall be void and of no effect upon the LLC, any Member, any creditor of the LLC or any claimant against the LLC. 11.2 Rights of Assignees. The Assignee of any Units shall have no right to vote on, consent to, approve, or participate in the determination of any matter, or to otherwise participate in the management of the business and affairs of the LLC or to become a Member. The Assignee is only entitled to receive distributions pursuant to Article 8 and to be allocated the Net Income and Net Losses attributable to the Units transferred to the Assignee. ARTICLE 12. INDEMNIFICATION AND LIMITATION OF LIABILITY 12.1 Indemnification. 12.1.1 To the fullest extent permitted by the Act and by law, the Members, the partners of any Member, if such Member or Member is organized as a partnership, and the partners, shareholders, controlling persons, officers, directors and -21- 27 employees of any of the foregoing (collectively, "Indemnitees") shall, in accordance with this Section 12.1, be indemnified, protected, held harmless and defended by the LLC from and against any and all claims, damages, losses, liabilities joint and several, expenses, judgments, fines, settlements and other amounts arising from any and all claims (including reasonable legal expenses), demands, actions, suits or proceedings (civil, criminal, administrative or investigative) in which they may be involved, as a party or otherwise, by reason of their management of, or involvement in, the affairs of the LLC, or rendering of advice or consultation with respect thereto, or which relate to the LLC, its properties, business or affairs, if such Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in, or not opposed to, the best interests of the LLC, and, with respect to any criminal proceeding, had no reasonable cause to believe the conduct of such Indemnitee was unlawful. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the LLC or that the Indemnitee had reasonable cause to believe that the Indemnitee's conduct was unlawful (unless there has been a final adjudication in the proceeding that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the LLC, or that the Indemnitee did have reasonable cause to believe that the Indemnitee's conduct was unlawful). 12.1.2 Expenses (including attorneys' fees) incurred in defending any proceeding under Section 12.1.1 may be paid by the LLC in advance of the final disposition of such proceeding upon receipt of an agreement by or on behalf of the Indemnitee to repay such amount, if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the LLC as authorized hereunder. 12.1.3 The indemnification provided by this Section 12.1 shall not be deemed to be exclusive of any other rights to which any Person may be entitled under any agreement, or as a matter of law, or otherwise, both as to action in a Person's official capacity and to action in another capacity. 12.1.4 The Members shall have power to purchase and maintain insurance on behalf of the LLC, the Members, officers, employees or agents of the LLC and any other Indemnitees at the expense of the LLC, against any liability asserted against or incurred by them in any such capacity, whether or not the LLC would have the power to indemnify such Persons against such liability under the provisions of this Agreement. 12.2 Limitation of Liability. The debts, obligations and liabilities of the LLC shall be solely the debts, obligations and liabilities of the LLC; and no Member shall be obligated personally for any such debt, obligation or liability of the LLC solely be reason -22- 28 of being a Member of the LLC. ARTICLE 13. TERMINATION 13.1 Termination. The LLC shall be dissolved, its Property disposed of and its affairs wound up upon the first to occur of the following: 13.1.1 The expiration of its stated term, if any; 13.1.2 The written consent of all of the Members; 13.1.3 The occurrence of a Dissolution Event and the failure of Members that remain to consent to continue the LLC pursuant to Section 13.2 below; or 13.1.4 The entry of a decree of judicial dissolution under the Act. 13.2 Continuation of the LLC. Notwithstanding the foregoing provisions of Section 13.1, upon the occurrence of a Dissolution Event, the remaining Members have the right to avoid dissolution of the LLC and elect to continue the business of the LLC on the same terms as this Agreement. Such right can be exercised by the vote of the Members to continue the business of the LLC within ninety (90) days after the occurrence of a Dissolution Event. Expenses incurred in the continuance of the LLC shall be deemed expenses of the LLC. If there is only one remaining Member at or after the occurrence of the Dissolution Event, such remaining Member shall have the right to continue the LLC hereunder as a single member LLC. 13.3 Authority to Wind Up. The Manager shall have all necessary power and authority required to marshal the assets of the LLC, to pay its creditors, to distribute assets and otherwise wind up the business and affairs of the LLC. In particular, the Manager shall have the authority to continue to conduct the business and affairs of the LLC insofar as such continued operation remains consistent, in the judgment of the Manager, with the orderly winding up of the LLC. 13.4 Winding Up; Certificate of Cancellation. The winding up of the LLC shall be completed when all debts, liabilities and obligations of the LLC have been paid and discharged or reasonably adequate provision therefor has been made, and all of the remaining property and assets of the LLC have been distributed to the Members. Upon the completion of winding up of the LLC, a Certificate of Cancellation shall be filed with the Delaware Secretary of State. 13.5 Distribution of Property. Upon dissolution and winding up of the LLC, the -23- 29 affairs of the LLC shall be wound up and the LLC liquidated by the Manager. The assets of the LLC shall be applied to pay creditors of the LLC in the order of priority provided by law. Any remaining balance shall be distributed to the Members in accordance with their respective Capital Accounts. ARTICLE 14. SPECIAL TAX PROVISIONS 14.1 Substantial Economic Effect. The provisions of Article 9 and the other provisions of this Agreement relating to the maintenance of Capital Accounts and procedures upon liquidation of the LLC are intended to comply generally with the provisions of Treasury Regulation Section 1.704-1, and shall be interpreted and applied in a manner consistent with such Treasury Regulations and, to the extent the subject matter thereof is otherwise not addressed by this Agreement, the provisions of Treasury Regulation Section 1.704-1 are hereby incorporated by reference, unless the Manager shall determine that such incorporation will result in economic consequences inconsistent with the economic arrangement among the Members as expressed in this Agreement. In the event the Manager shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed or allocated or the manner in which contributions and distributions upon liquidation (or otherwise) of the LLC (or any Member's interest therein) are effected in order to comply with such Treasury Regulations and other applicable tax laws, or to assure that the LLC is treated as a partnership for tax purposes, or to achieve the economic arrangement of the Members as expressed in this Agreement, then notwithstanding Section 15.1 hereof, the Manager may make such modification, provided that it is not likely to have more than an insignificant detrimental effect on the total amounts distributable pursuant to any Member. The Manager shall also (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of LLC capital reflected on the LLC's balance sheet, as computed for book purposes pursuant to this Agreement in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event unanticipated events (such as the incurrence of nonrecourse indebtedness) might otherwise cause the allocations under this Agreement to not comply with Treasury Regulations Section 1.704-1(b) (and in the case of the incurrence of nonrecourse indebtedness, Treasury Regulation Section 1.704-2) provided in each case that the Managers determine that such adjustments or modifications shall not result in economic consequences inconsistent with the economic arrangement among the Members as expressed in this Agreement. 14.2 Qualified Income Offset; Prophylactic Offsets; Minimum-Gain Chargeback. Notwithstanding the provisions of Section 9.1.1 and 9.1.2, the allocations provided therein shall be subject to the following exceptions: -24- 30 (a) In the event any Member's Capital Account has an Unadjusted Excess Negative Balance (as defined in clause (f) of this Section) at the end of any Accounting Period, such Member will be reallocated items of LLC Net Income or Loss for such Accounting Period (and, if necessary, future Fiscal Years) in the amount necessary to eliminate such Unadjusted Excess Negative Balance as quickly as possible. (b) In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4) through (d)(6), items of LLC book income and gain shall be specially allocated to such Member's Capital Account in an amount and manner sufficient to eliminate, to the extent required by Treasury Regulations Section 1.704-1(b)(2)(ii)(d), the Excess Negative Balance (as defined in clause (e) of this Section) in such Member's Capital Account created by such adjustments, allocations or distributions as quickly as possible. This paragraph (b) is intended to and shall in all events be interpreted so as to constitute a "qualified income offset" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d). (c) A Member's Capital Account shall not be allocated any item of book deduction or loss to the extent such allocation would cause such Capital Account to have an Excess Negative Balance (as defined in clause (e) of this Section). (d) Any special allocations pursuant to this Section shall be taken into account as soon as possible in computing subsequent allocations, so that over the term of the, LLC the net amount of any items so allocated and the profit, gain, loss, income and expense and all other items allocated to each Member shall, to the extent possible, be equal to the net amount that would have been allocated to each such Member if such original allocations pursuant to this Section had not occurred. (e) For purposes of this Section, "Excess Negative Balance" shall mean the excess of the negative balance in a Member's Capital Account (computed with any adjustments which are required for purposes of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)) over the amount such Member is obligated to restore to the LLC (computed under the principles of Treasury Regulations Section 1.704-1(b)(2)(ii)(c)) inclusive of any addition to such restoration obligation pursuant to application of the provisions of Treasury Regulation Sections 1.704-2, or any successor provision thereto). (f) For purposes of this Section, "Unadjusted Excess Negative Balance" shall have the same meaning as Excess Negative Balance, except that the Unadjusted Excess Negative Balance of a Member shall be computed without effecting the reductions to such Member's Capital Account which are described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d). -25- 31 14.3 Compliance with Timing Requirements of Treasury Regulations. Notwithstanding any other provision of this Agreement, in the event the LLC is "liquidated" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to Article 13 to the Members who have positive Capital Accounts in compliance with Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). 14.4 Sharing Arrangement; Interest in LLC Items. The Members agree that the allocation and distribution provisions contained in this Agreement represent the sharing arrangement as between the Members and represent their interests in such allocated items and, therefore, in the event that any transaction or relationship between the parties to this Agreement is recharacterized and the provisions of this Agreement do not specifically address the effect such recharacterization should have on the allocations provided for herein, such allocations hereunder shall be made in a manner which maintains the Capital Account balances of the Members at the same levels they would have been had no such recharacterization occurred. 14.5 Taxation of the LLC. The LLC shall be taxed as a partnership and no election to have the LLC taxed as a corporation shall be made without the approval of all of the Members. ARTICLE 15. MISCELLANEOUS 15.1 Amendment. This Agreement may be amended only with the written consent of each Member except the Manager can amend this Agreement (including, but not limited to, Section 3.2 hereof) as is necessary to issue new Units and admit Members, or both. 15.2 Binding Effect. Subject to the restrictions on transfer set forth in Article 11, this Agreement shall be binding on and inure to the benefit of the Members and their respective transferees, successors, assigns and legal representatives. 15.3 Counterparts. This Agreement may be executed in one or more counterparts with the same force and effect as if each of the signatories had executed the same instrument. 15.4 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter herein. 15.5 Further Assurances. The parties agree to execute and deliver any further -26- 32 instruments or documents and perform any additional acts which are or may become necessary to effectuate and carry on the LLC created by this Agreement. 15.6 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware. 15.7 Notices. 15.7.1 Whenever, under the provisions of the Act, the Articles or this Agreement, notice is required to be given to any Member, such notice shall be in writing and may be either personally delivered or sent by U.S. Mail or by a nationally recognized courier service, addressed to such Member at his address as it appears on the records of the LLC with postage or delivery cost thereon prepaid, except that notice of LLC meetings shall be in accordance with the Act. 15.7.2 Whenever any notice is required to be given under the provisions of the Act, the Articles or this Agreement, a waiver thereof in writing, signed by the Person or Persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 15.8 Power of Attorney. By signing this Agreement, each Member designates and appoints the Manager as its true and lawful attorney, in its name, place and stead, to make, execute, sign and file such instruments, documents or certificates which may from time to time be required by the laws of the United States of America and the State of California and any political subdivision thereof or any other state or political subdivision in which the LLC shall do business to carry out the purposes of this Agreement, except where such action requires the express approval of the Members hereunder. Such attorney is not hereby granted any authority on behalf of the undersigned Members to amend this Agreement, except that as attorney for each of the undersigned Members, the Manager shall have the authority to amend this Agreement and the LLC's Articles as may be required to give effect to the transactions below, following any necessary approvals or consents of the Members: (a) Extensions of the term of the LLC; (b) Admissions of additional Members; (c) Transfer of a Member's Units, or any portion thereof; (d) Withdrawals or Distributions; and (e) Contributions of additional capital. -27- 33 Each Member shall provide to the other Members copies of all documents executed pursuant to the power of attorney contained in this Section 15.8. 15.9 Savings Clause. In the event any provision of this Agreement shall be determined by a court of competent jurisdiction to be contrary to the Act, such provision shall be deemed amended so as to conform with the Act. 15.10 Severability. Each provision of this Agreement shall be considered separable, and if any provision which is not essential to the effectuation of the basic purposes of this Agreement is determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those provisions of this Agreement which are valid. 15.11 Withholding Taxes. In the event that the LLC is obligated to withhold and pay any taxes with respect to any Member, any tax required to be withheld may be withheld from any Distribution otherwise payable to such Member, or, in lieu thereof upon remittance to the appropriate tax authority, shall be treated as having been distributed to such Member. IN WITNESS WHEREOF, the parties hereto have executed this Operating Agreement as of the day and year first above written. SIZZLER INTERNATIONAL, INC., a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- FFPE HOLDING COMPANY, INC., a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- -28- 34 EXHIBIT A NAMES OF MEMBERS and PERCENTAGE INTERESTS and CAPITAL ACCOUNTS
Initial Amount of Gross Net Capital IRCss. 704(c) Number Percentage Contribution Contribution Account Adjustment of Units Interest ------------ ------------ ------- ------------ -------- ---------- Sizzler 82 82% International, Inc., a Delaware corporation FFPE Holding 18 18% Company, Inc., a Delaware corporation
Exhibit 25 A-1 EX-10.3 4 v65445ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 MEMBERSHIP INTEREST PLEDGE AGREEMENT This MEMBERSHIP INTEREST PLEDGE AGREEMENT (this "Agreement") is made and entered into as of this 30th day of August 2000, by and among Sizzler International, Inc., a Delaware corporation (the "Company"), and FFPE Holding Company, Inc., a Delaware corporation (the "Pledgor"). R E C I T A L S A. The Company, Pledgor, S & C Company, Inc., a California corporation (the "Old Company"), the shareholders and certain principals of the Old Company, FFPE, LLC, a Delaware limited liability company (the "New Company"), and the members of the New Company are parties to the Amended and Restated LLC Membership Interest Purchase Agreement dated August 21, 2000 (the "Purchase Agreement"), pursuant to which the Company is purchasing and acquiring from Pledgor 82 units of the New Company, which units represent 82% of the outstanding membership interests in the New Company. All capitalized terms used herein but which are not otherwise defined shall have the meanings given to them in the Purchase Agreement. B. Immediately after the consummation of the transactions contemplated by the Purchase Agreement, Pledgor shall continue to hold 18 units of the New Company, which units represent 18% of the outstanding membership interests in the New Company (the "Retained Units"). C. As security for Pledgor's performance of all of its indemnification obligations, whether joint or several, under Article VII of the Purchase Agreement (the "Secured Obligations"), Pledgor has agreed to grant the Company a first priority security interest in all of the Retained Units, all on the terms and subject to the conditions of this Agreement. A G R E E M E N T In consideration of the foregoing recitals and the respective covenants, agreements, representations and warranties contained herein, the parties, intending to be legally bound, agree as follows: 1. GRANT OF SECURITY INTEREST. 1.1 PLEDGE OF RETAINED UNITS. Pledgor hereby grants in favor of the Company a security interest in, and does hereby pledge and hypothecate to the Company, and deposit with the Company, as security for the Secured Obligations, the Retained Units. The certificate evidencing the Retained Units is accompanied by instruments of assignment in the form attached as Attachment 1 hereto, duly executed in blank by Pledgor and is being delivered concurrently herewith to the Company. -1- 2 1.2 SUBSTITUTION OF COLLATERAL. Pledgor shall have the right to require the Company to release any or all of the Retained Units to Pledgor upon such time that Pledgor has deposited in immediately available funds with the Company an amount equal to the greater of (i) the proceeds from a permitted sale of the Retained Units, or (ii) the Fair Value (as defined in the Warrant dated as of the date hereof, executed by the Company in favor of FFPE Holding Company, Inc., a Delaware corporation) of the Retained Units to be released to Pledgor (in either case, the "Cash Deposit"). As soon as possible after Pledgor has made the Cash Deposit, the Company shall hold the Cash Deposit and release the Retained Units so paid for. The Cash Deposit, together with any and all remaining Retained Units, shall thereafter secure, or continue to secure, the Secured Obligations. The Company shall have the same recourse against the Cash Deposit as it would have had against the Retained Units so paid for, and Pledgor shall have the same rights in and to the Cash Deposit as it otherwise would have had with respect to the Retained Units so paid for. 2. OWNERSHIP RIGHTS OF PLEDGOR. The Company shall hold the Retained Units for the period hereinafter specified, but all of the Retained Units shall be registered on the books of the New Company in the name of Pledgor. All dividends of the New Company in cash or other property declared with respect to the Retained Units shall be paid directly to the Pledgor so long as there is no Event of Default (as defined in Section 4, below). Any dividends in units or other securities of the New Company or shares otherwise issuable with respect to or as replacements of the Retained Units shall be delivered directly to the Company to be held as a part of the pledge. Pledgor shall retain the right to vote its Retained Units so long as there is no Event of Default. 3. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents and warrants that its Retained Units constitute duly and validly issued, fully paid and nonassessable units of membership interest in the New Company and are duly and validly pledged with the Company in accordance with applicable law, and that Pledgor will defend the Company's security interest in and to its Retained Units against the claims and demands of all persons whomsoever relating to such Retained Units. Pledgor further represents and warrants to the Company that at the time its Retained Units are deposited in pledge with the Company, all of such Retained Units shall be free and clear of all claims, mortgages, pledges, liens, encumbrances and restrictions of every nature whatsoever, except for (a) any encumbrances arising out of the Purchase Agreement, and (b) any restrictions upon sale and distribution imposed by state or federal securities laws. These representations and warranties, and each of them, shall be deemed to be continuing under this Agreement. 4. DEFAULT 4.1 RIGHTS OF SECURED PARTY UPON DEFAULT. Upon an Event of Default, The Company may, without demand or other notice of any kind, at its option: (a) DISPOSAL OF RETAINED UNITS. Sell, lease, or otherwise dispose of the Retained Units at a public or private sale, with or without having such Retained Units at the place of sale, and upon terms and in such manner as the Company may reasonably determine and the Company may purchase the Retained Units at any such public sale and credit bid all or any part of the Secured -2- 3 Obligations then outstanding; provided, however, that notwithstanding any provision to the contrary in the Uniform Commercial Code, as adopted in the State of California, the Company shall give Pledgor not less than 10 business days notice of the date on which any public sale or private sale will be held; and (b) BUSINESS AND COMMERCE CODE REMEDIES. Exercise all the rights and remedies afforded a secured party by the Uniform Commercial Code, as adopted in the State of California. 4.2 EVENTS OF DEFAULT. An "Event of Default" shall occur with respect to Pledgor upon the happening of any of the following events: (a) BREACH OF OBLIGATIONS. A breach or default under Article VII of the Purchase Agreement; (b) DEFAULT UNDER THIS AGREEMENT. Any material breach by Pledgor under this Agreement which is not cured within 30 days after written notice from the Company specifying the same; (c) ATTACHMENT. The levy of, or any attachment, execution or other process against, the Retained Units owned by Pledgor, which is not released within 90 days after the levy thereof; or (d) BANKRUPTCY. The general assignment for the benefit of the Company, or the filing of any petition in bankruptcy or for relief under the provisions of the Federal Bankruptcy Act, by or against Pledgor or the Company, unless such petition is dismissed within 90 days after such petition is filed; or the appointment of a receiver by any court, whether permanent or temporary, for all or substantially all of Pledgor's (or the New Company's) property, unless such receiver is removed within 90 days after such receiver is appointed. 5. COVENANTS OF PLEDGOR. Until this Agreement has been terminated pursuant to Section 6, below, Pledgor covenants and agrees that it shall: (a) INFORMATION AFFECTING RETAINED UNITS. Promptly notify the Company of any attachment or other legal process levied against any of the Retained Units and any information received by Pledgor relative to the Retained Units which may in any way affect the value of such Retained Units or the rights and remedies of the Company in respect thereto; (b) EXECUTION OF DOCUMENTS. Execute any and all documents and do all other things reasonably requested by the Company as necessary or appropriate to perfect the security interest in the Retained Units. Pledgor hereby appoints the Company as Pledgor's attorney-in-fact to do, at the Company's option and at Pledgor's expense, all acts and things which the Company may -3- 4 reasonably deem necessary or desirable to perfect and continue the perfection and priority of the security interest hereby created; and (c) SALES OR ENCUMBRANCES. Not sell, convey, retire or otherwise dispose of all or any of the Retained Units or any interest therein, beneficial or otherwise, or create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance, or any security interest whatsoever in or with respect to any of the Retained Units or the proceeds thereof, other than that created hereby, without on or before the effective time of such sale paying all outstanding amounts of the secured indebtedness. 6. TERMINATION; RETURN OF RETAINED UNITS. The pledge of the Retained Units shall terminate upon the satisfaction or termination, whichever is the first to occur, of all of the Secured Obligations; provided, however, immediately prior to any purchase of Retained Units by the Company from Pledgor pursuant to that certain Put Option Agreement (Tamara Sarkisian-Celmo), the pledge of the Retained Units so purchased shall terminate. Upon a termination of the pledge created hereby, this Agreement and all provisions hereof shall terminate and the Company shall return all of the Retained Units, as well as such incidental property and cash as are then held in pledge by The Company which have not been used or applied toward the payment or satisfaction of such liabilities. 7. MISCELLANEOUS. 7.1 REMEDIES CUMULATIVE. The remedies provided herein in favor of the Company shall not be deemed exclusive but shall be cumulative and shall be in addition to all of the remedies in favor of The Company existing at law or in equity. 7.2 EXECUTION OF ENDORSEMENTS, ASSIGNMENTS. Upon the occurrence of a Default, the Company shall have the right for and in the name, place and stead of Pledgor to execute endorsements, assignments or other instruments of conveyance or transfer with respect to all or any of the Retained Units. 7.3 WAIVER OF RIGHTS, MODIFICATION OF AGREEMENT. No delay on the part of the Company in exercising any of the Company's options, powers or rights, or the partial or single exercise thereof, shall constitute a waiver thereof. No provision of this Agreement may be changed, waived, modified or varied in any manner orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, modification or variation is sought. 7.4 NOTICES. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given in the manner set forth in the Credit Agreement. 7.5 SUCCESSORS; AGREEMENT BINDING UPON SUCCESSORS. This Agreement is binding upon and shall inure to the benefit of the parties and their respective heirs, executors, administrators, successors or assigns. -4- 5 7.6 APPLICABLE LAW. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the internal laws of the State of California. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first above written. "PLEDGOR" "PLEDGEE": FFPE HOLDING COMPANY, INC., SIZZLER INTERNATIONAL, INC., a Delaware corporation a Delaware corporation By: /s/ TAMARA SARKISIAN-CELMO By: /s/ CHARLES L. BOPPELL ---------------------------- -------------------------- Title: Vice President Title: President and CEO ------------------------- ----------------------- -5- EX-10.4 5 v65445ex10-4.txt EXHIBIT 10.4 1 EXHIBIT 10.4 THE CALL OPTION EVIDENCED BY THIS INSTRUMENT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH LAWS. THE TRANSFERABILITY OF THE CALL OPTION IS SUBJECT TO RESTRICTIONS SET FORTH IN THIS INSTRUMENT AND IMPOSED BY SUCH LAWS. CALL OPTION AGREEMENT This Call Option Agreement (this "Agreement") is made as of August 30, 2000 by and between FFPE Holding Company, Inc. ("Optionor") and Sizzler International, Inc. (the "Optionee"). Unless the context otherwise indicates, capitalized terms used herein shall have the meanings given them in Section 10 hereof. RECITALS A. Optionor is a Delaware corporation having its principal place of business in San Diego, California. John Sarkisian, an individual resident of California ("John"), is the holder of 33.94%, Tamara Sarkisian-Celmo, as trustee of the Tamara Sarkisian-Celmo Family Trust UDT 10/16/97 ("Tamara"), is the holder of 28.94% and the Sarkisian Family Trust UDT dated 7/19/95 is the holder of 37.12% of the outstanding capital stock of Optionor. B. Optionee is a Delaware corporation having its principal place of business in Culver City, California. C. Optionor is the holder of certain units of membership interest in FFPE, LLC, a Delaware limited liability company (the "Units"). D. Pursuant to an LLC Membership Interest Purchase Agreement dated May 23, 2000 as amended by that Amended and Restated LLC membership Purchase Agreement dated August 21, 2000 between Optionor as Seller and Optionee as Purchaser (the "Purchase Agreement"), Optionee has acquired 82% of the Units. E. As of the date hereof, Optionor continues to be the holder of 18% of the outstanding Units (the "Retained Units"). F. Pursuant to the Purchase Agreement, Optionor and Optionee have entered into this Agreement, under which Optionor agrees to grant to Optionee an option to purchase all 18 Retained Units (representing 18% of all issued and outstanding Units of FFPE, LLC) from Optionor on the terms and conditions set forth in this Agreement. -1- 2 AGREEMENT 1. GRANT AND ACCEPTANCE. On the terms and conditions set forth in this Agreement, (a) Optionor hereby grants to Optionee an option (the "Call Option") to purchase from Optionor up to all of the Retained Units at the Option Exercise Price and (b) Optionee hereby confirms its acceptance of the Call Option. 2. OPTION EXERCISE PRICE. The price per Unit at which Optionee shall be entitled to purchase any Retained Units (the "Option Exercise Price") shall be the dollar amount described in (a) or (b) below, whichever is applicable: (a) With respect to any exercise of the Call Option during Year 1 or Year 2, the dollar amount equal to the number obtained by dividing (A) $7,000,000 by (B) Total Retained Units. (b) With respect to any exercise of the Call Option after the end of Year 2, the dollar amount equal to the number obtained by dividing (A) the positive difference, if any, between (1) the number obtained by multiplying the EBITDA of FFPE, LLC for the Relevant Trailing 12 Month Period by the Applicable Multiple and (2) the Current Debt of FFPE, LLC as of the end of such Relevant Trailing 12 Month Period by (B) all of the then outstanding Units. In determining the EBITDA for purposes of this Section, the parties shall make any adjustments required by the Intercompany Accounting procedures set forth on the EBITDA Adjustment Guidelines, attached as Exhibit "A." 3. TERM. The term of the Call Option shall commence as of the date of the grant thereof, which shall be the date hereof, and shall expire on the Expiration Date. Upon the Expiration Date, the Call Option and this Agreement shall become void and of no force or effect, and the parties shall have no further rights or obligations under this Agreement, other than any liability for any breach of the contract arising before the Expiration Date. 4. EXERCISABILITY. The Call Option may be exercised by Optionee at any time during the term hereof (any such exercise, an "Option Exercise"). The Call Option may be exercised in whole or in part. However, Optionee shall be entitled to a total of two Option Exercises unless Optionor gives a Notice of Partial Cancellation (as defined below) with respect to any Option Exercise, in which case Optionee shall be entitled to a total of three Option Exercises. Immediately after the final permitted Option Exercise, the Call Option shall cease to be exercisable. 5. EXERCISE PROCEDURE. (a) An Option Exercise may be made only by Optionee or a Permitted Transferee. An Option Exercise shall be commenced by giving a -2- 3 written notice of election (a "Notice of Election"). A Notice of Election shall (a) be given in accordance with Section 16 hereof, (b) state that Optionee is making an election to exercise the Call Option under this Agreement, (c) specify the number of Retained Units proposed to be acquired pursuant to the Option Exercise (the "Retained Units Proposed to be Acquired"), and (d) set forth the Applicable Multiple, the Sizzler Multiple, and the Option Exercise Price with respect to the Option Exercise, and (e) provide all of the calculations reasonably necessary for the Optionor to verify the numbers set forth in clause (d) of this Section 5(b). (b) Upon the giving of a Notice of Election by the Optionee, the Optionor shall have the right, within thirty (30) days of the giving of any Notice of Election, to give a Notice of Dispute pursuant to Section 5(c) and/or a Notice of Partial Cancellation pursuant to Section 5(d). (c) If the Optionor has reasonable grounds to believe in good faith that any calculation contained in a Notice of Election is incorrect, then within thirty (30) days of the giving of the Notice of Election the Optionor may give notice to the Optionee that it disputes the calculation (a "Notice of Dispute"). The Notice of Dispute shall set forth in detail the grounds on which the Optionor believes that the calculation is incorrect. For a period of thirty (30) days following the giving of the Notice of Dispute, the parties shall use commercially reasonable best efforts to resolve the dispute. If the parties fail to resolve the dispute within such period, then all issues in dispute relating to the Notice of Election and Notice of Dispute shall be submitted to a "Big Five" accounting firm (the "Accountants") for resolution within (ten) 10 days. If issues are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are reasonably available to that party, and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants (a "Notice of Determination"), will be binding and conclusive on the parties; and (iii) the Optionee and the Optionor will each bear 50% of the fees of the Accountants for such determination. (d) If a Notice of Election is given before the end of Year 5, and if the sum of (1) the number of Retained Units Proposed to be Acquired specified in such Notice of Election and (2) the number of all Retained Units theretofore acquired by Optionee pursuant to previous Option Exercises under this Agreement (but not pursuant -3- 4 to either of the Put Option Agreements or otherwise), exceeds 50% of the Total Retained Units, then Optionor shall have a right to cancel a portion of such Option Exercise in accordance with Section 5(e) (such right, a "Cancellation Right"). (e) A Cancellation Right must be exercised, if at all, within thirty (30) days of the giving of a Notice of Election by the Optionee. A Cancellation Right shall be exercised by giving notice of partial cancellation (a "Notice of Partial Cancellation") to the Optionee. The Notice of Partial Cancellation shall (1) be exercised in accordance with Section 16 hereof, (2) contain a statement of the Optionor's intent to exercise its Cancellation Rights under this Section 5, (3) specify the number of Retained Units that Optionor is canceling, which number shall not exceed the difference, if any, between the Retained Units Proposed to be Acquired and 50% of the Total Retained Units (other than any Retained Units theretofore acquired by the Optionee pursuant to any Put Option Agreement or otherwise). (f) An Option Exercise shall become effective upon (A) the expiration of thirty (30) days after the giving thereof if no Notice of Dispute with respect to such Option Exercise has been given in accordance with Section 5(b), (B) if a Notice of Dispute is given in accordance with Section 5(b), upon the giving of a Notice Determination with respect to such Option Exercise. (g) Upon becoming effective, an Option Exercise shall be binding and conclusive upon the parties in accordance with its terms, subject to (A) the resolution of any disputed issues submitted to the Accountants pursuant to a Notice of Dispute, as such resolution is set forth in any applicable Notice of Determination and (B) such reduction in the number of Retained Units Proposed to be Acquired as may be required by any Notice of Partial Cancellation given in accordance with the terms hereof in response to such Option Exercise. 6. SALE PROCEDURES. (a) Upon an Option Exercise becoming binding and conclusive pursuant to Section 5(g) hereof, Optionor shall become obligated to sell to Optionee the number of the Retained Units subject to such Option Exercise, subject only to delivery by the Optionee of the instruments described in Section 6(c) hereof. (b) The consummation of the sale of any Retained Units pursuant to an Option Exercise that has become binding and conclusive pursuant to Section 5(g) hereof (a "Closing") shall take place at the -4- 5 principal executive offices of Optionee on such business day, not later than 90 days after the Option Exercise has become binding and conclusive pursuant to Section 5(g) hereof, as Optionor and Optionee may select. (c) At the Closing, Optionee shall tender the full amount of the Option Exercise Price of the Retained Units Being Sold, in cash. Upon such tender, Optionor shall deliver (i) certificates evidencing the Retained Units Being Sold, duly endorsed in blank or accompanied by written instruments of transfer in form satisfactory to Optionee duly executed by Optionor, free and clear of any Encumbrances, (ii) an Opinion of Counsel, and (iii) a Seller's Certificate. 7. NON-TRANSFERABILITY OF RETAINED UNITS. (a) Except as otherwise provided herein, Optionor shall not Transfer any of the Retained Units without the express prior written consent of Optionee, which consent may be withheld in Optionor's sole and absolute discretion, and the Retained Units shall not be subject to execution, attachment or similar process. Any attempt to Transfer any of the Retained Units, or to subject the Retained Units to execution, attachment or similar process, other than in accordance with this Agreement shall be void ab initio. (b) Optionor may Transfer the Retained Units to any Affiliate, provided that the Optionor gives Optionee at least 30 days prior written notice of such Transfer and the Transferee acquires the Retained Units, assumes in writing all of the obligations of Optionor under this Agreement, and acknowledges acceptance of the Retained Units subject to all terms, conditions and restrictions hereof, a copy of which assumption and acknowledgement is provided to Optionee. (c) The certificates evidencing the Retained Units shall bear an appropriate legend regarding restrictions on transferability thereof under applicable law and this Agreement. 8. REPRESENTATIONS AND WARRANTIES OF OPTIONOR. Optionor represents and warrants to Optionee, as of the date hereof and as of the date of any exercise of the Call Option, that: (a) The Retained Units are duly authorized, validly issued, fully paid and non-assessable units of membership interest of FFPE, LLC. (b) There are no outstanding subscriptions, options, warrants, rights, puts, calls, pre-emptive rights, commitments, conversion rights, rights of exchange, plans, or other agreements of any kind relating to the Retained Units. -5- 6 (c) Optionor is the sole beneficial owner and holder of record of all 18 of the Retained Units. The Retained Units are free and clear of any Encumbrances. The delivery to Optionor of the Unit certificates evidencing the Retained Units, duly endorsed in blank or accompanied by appropriate written instruments of transfer duly executed by Optionor, is sufficient to transfer to Optionee valid title thereto, free and clear of any Encumbrance. (d) Optionor has all necessary corporate power and authority to enter into this Agreement and make any endorsement or execute and deliver any written instrument of transfer necessary to transfer the Retained Units to Optionee. (e) This Agreement has been duly executed and delivered by Optionor and is a valid and binding obligation of Optionor, enforceable against Optionor in accordance with its terms. (f) No consent by any third party or governmental authority is required in connection with the execution or delivery by Optionor of this Agreement or the consummation of the sale of the Retained Units to Optionee contemplated hereunder. The execution and delivery by Optionor of this Agreement and the sale of the Retained Units to Optionee will not conflict with or result in any breach of or constitute a default under any agreement or instrument to which FFPE, LLC or Optionor is a party or by which its or such Optionor's assets are bound. 9. ADJUSTMENTS. If outstanding Retained Units subject to the Call Option are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger or consolidation of FFPE, LLC, or as a result of a recapitalization, reclassification, dividend by or other distribution, Unit split, reverse Unit split or the like involving FFPE, LLC, then Optionor shall make appropriate and proportionate adjustment in the number and type of shares or other securities or cash or other property that may be acquired upon the exercise in full of the Call Option, provided, however, that any such adjustment shall be made without changing the aggregate Option Exercise Price of the unexercised portion of the Call Option. 10. DEFINITIONS. Capitalized terms used in this Agreement without definition shall have the following meanings: (a) "Affiliate" shall mean, with respect to a specified person, any person that controls, is controlled by or is under common control with the specified person and with respect to Optionor shall include John Sarkisian, Tamara Sarkisian-Celmo or a trust of which either is a beneficiary. -6- 7 (b) "Applicable Multiple" shall mean, with respect to any determination of the Option Exercise Price applicable to any particular exercise, the average of (A) the Sizzler Multiple at the time of such exercise and (B) either (i) ten (10) if such exercise is during Year 3, (ii) eight (8) if such exercise is during Year 4, and (iii) seven (7) if such exercise is during Year 5 or Thereafter; provided, however, in no event shall the Applicable Multiple exceed eleven (11) if such exercise is during Year 3, or nine (9) if such exercise is during Year 4, or eight (8) if such exercise is during Year 5 or Thereafter. (c) "Current Debt" of a company or a division shall refer to the total debt (current and non-current) of such company or division, determined from the financial statements thereof prepared in accordance with GAAP. (d) "EBITDA" of a company or division for any period shall mean the earnings of the company or division for such period before interest, income taxes, depreciation and amortization of the company or division, other than any non-recurring items, determined from financial statements of such company or division in accordance with GAAP. (e) "Encumbrances" shall mean any security interest, pledge, mortgage, hypothecation, lien, charge encumbrances, adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any pre-emptive rights, options, warrants, puts, calls, or restrictions on use, voting, transfer (other than restrictions under applicable securities laws), receipt of income or other exercise of any attributes of ownership. (f) "Expiration Date" shall be the first to occur of (a) the tenth (10th) anniversary of the date of this Agreement or (b) the date of purchase of all of the remaining Retained Units subject to this Agreement. (g) "Fair Market Value" of a security on any day shall be equal to the last sale price, regular way, per unit of such security on such day or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if securities -7- 8 are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use or, if on any such date such security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security selected by the Board of Directors of the corporation issuing such security. In all other cases, Fair Market Value shall be the value determined in good faith by such Board. (h) "GAAP" shall mean generally accepted accounting principles, consistently applied. (i) "Net Sale Transaction Proceeds" includes the total consideration paid or given in respect of a Sale Transaction, net of legal expenses, investment banker and other professional fees and costs, printing costs, and other transaction costs. (j) "Net Sale Transaction Proceeds Per Unit" with respect to a Sale Transaction is the Net Sale Transaction Proceeds of such transaction divided by the number of Units outstanding immediately before the exercise for which the adjustment is being determined. (k) "Opinion of Counsel" shall mean an opinion of Optionor's legal counsel, in form satisfactory to Optionor and dated as of the date of the purchase of any Retained Units hereunder, to the effect that: (a) the Retained Units are validly issued, fully paid and non-assessable units of membership interest in FFPE, LLC; (b) Optionor is the sole holder of record and beneficial owner of the Retained Units; (c) the execution and delivery of the assignment instruments do not contravene any applicable provision of law; and (d) the Retained Units have been validly assigned by Optionor to Optionee, free and clear of any Encumbrance. (l) "Permitted Transferee" shall mean any person to whom the Call Option has been transferred in accordance with Section 7(b) hereof. A Permitted Transferee shall be treated as Optionee for all purposes under this Agreement. (m) "Put Option Agreements" shall refer to the Put Option Agreement (John Sarkisian) and the Put Option Agreement (Tamara Sarkisian-Celmo), each as of even date herewith between the Optionor and the Optionee. -8- 9 (n) "Relevant Trailing 12 Month Period" shall mean, with respect to the determination of the Option Exercise Price applicable to any exercise of the Call Option, the Optionee's thirteen (13) completed four-week accounting periods immediately preceding the exercise. (o) "Retained Units Being Sold" shall mean the Retained Units Proposed to be Acquired, after giving effect to any reduction in the number of such Retained Units pursuant to the exercise of a Cancellation Right in accordance with this Agreement. (p) "Sale Transaction" includes the sale of substantially all of the assets of FFPE, LLC, a transfer of more than 50% of the outstanding Units, or a merger to which FFPE, LLC is a party other than as the surviving entity, other than a sale, transfer or merger to or with an Affiliate of Optionee. (q) "Sellers' Certificate" shall mean a written certificate signed by Optionor, in form satisfactory to Optionee and dated as of the date of any sale of Retained Units hereunder, to the effect that the representations and warranties of Optionor set forth in Section 8 (a), (b), (c), (d) and (f) of this Agreement are true and correct in all respects as of the date of the sale of any Retained Units hereunder. (r) "Sizzler Multiple" shall mean the number obtained by dividing (A) the sum of (1) the number obtained by multiplying (x) the Fair Market Value of a share of Optionee's common stock as of the end of the Relevant Trailing 12-Month Period and (y) the number of shares of Optionee's common stock outstanding as of such date and (2) the Current Debt of Optionee as of such date by (B) EBITDA of Optionee for the Relevant Trailing 12-Month Period. (s) "Subsidiary" of a specified person shall mean any corporation or other entity, more than 50% of the stock or ownership interest of which is owned by the specified person. (t) "Total Retained Units" shall mean all of the Retained Units (representing 18% of FFPE, LLC) subject to the Call Option, before any exercise thereof. (u) "Transfer" shall mean sell, transfer, assign, convey, gift, pledge, hypothecate or dispose of in any way, whether by operation of law or otherwise. (v) "Year 1" shall mean the period commencing on the date of this Agreement and terminating August 29, 2001. (w) "Year 2" shall mean the period commencing on August 30, 2001 and terminating on August 29, 2002. -9- 10 (x) "Year 3" shall mean the period commencing on August 30, 2002 and terminating on August 29, 2003. (y) "Year 4" shall mean the period commencing on August 30, 2003 and terminating on August 29, 2004. (z) "Year 5" shall mean the period commencing on August 30, 2004 and terminating on August 29, 2005. (aa) "Year 5 and Thereafter" shall mean the period commencing at the beginning of Year 5 and terminating on the Expiration Date. 11. STOCKHOLDER RIGHTS. Optionee shall not be entitled to vote, receive dividends, or be deemed for any purpose the holder of any Retained Units until the Call Option shall have been exercised and the Retained Units shall have been purchase by Optionee in accordance with the provisions of this Agreement. 12. EXPENSES. Except as otherwise express set forth herein, all fees and expenses incurred in connection with this Agreement shall be paid by the party incurring such costs or expenses. 13. WAIVER OF COMPLIANCE; CONSENTS. Any failure by Optionor or Optionee to comply with any obligation, covenant, agreement or condition herein may be waived by Optionee or Optionor, as applicable, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 14. GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of California applicable to contracts made and to be performed entirely within the State of California by California residents without regard to California choice of law principles. 15. CAPTIONS. The Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. 16. NOTICES. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by telecopy or by registered or certified mail, postage prepaid, addressed as follows: -10- 11 if to Optionee at: Sizzler International, Inc. 6101 West Centinela Avenue Culver City, California 90230 Attn: Michael B. Green Tel: (310) 568-0135 Fax: (310) 568-8255 with a copy to its counsel at: Pachulski, Stang, Ziehl, Young & Jones PC 10100 Santa Monica Boulevard Suite 1100 Los Angeles, California 90067 Attn: David J. Barton, Esq. Tel: (310) 277-6910 Fax: (310) 201-0760 and if to Optionor at: FFPE Holding Company, Inc. 9823 Pacific Heights Blvd., Suite J San Diego, California 92121 Attn: John Sarkisian Tel: 858-843-3266 Fax: 858-552-4930 and with a copy to each of the following counsel at: Sheppard, Mullin, Richter & Hampton, LLP 501 West Broadway, 19th Floor San Diego, California 92101-3598 Attn: Richard L. Kintz, Esq. Tel: (619) 338-6500 Fax: (619) 234-3815 or such other address or number as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by telecopy or mailed. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered to and received by the party to whom it is directed three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or upon delivery via overnight courier service, in each case addressed to the intended recipient as described above. Any notice, request, claim, demand or other -11- 12 communication given in any other manner shall only be deemed received by the intended recipient thereof upon such recipient's actual receipt thereof. 17. PARTIES IN INTEREST. This Agreement may not be transferred, assigned, sold, conveyed, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 18. COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. 19. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes the Letter of Intent between the parties dated February 28, 2000 and all other prior agreements and understandings (written or oral) between the parties with respect to such subject matter. 20. AMENDMENTS. This Agreement may not be changed orally, but only by an agreement in writing signed by the parties hereto. Any provision of this Agreement can be waived, amended, supplemented or modified by written agreement of the parties hereto. 21. THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a party hereto or thereto or a successor or permitted assign of such a party. 22. SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 23. SPECIFIC PERFORMANCE. Irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. -12- 13 24. PRINCIPLES OF CONSTRUCTION. (a) All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (c) The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", unless already expressly followed by such phrase or the phrase "but not limited to". (d) All references to "U.S. dollars" or "$" shall be deemed references to lawful money of the United States of America. (e) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in the United States of America. (f) All words importing any gender shall be deemed to include the other genders. (g) All references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to. (h) Unless otherwise specified, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, modifications and supplements thereto. (i) Each party has reviewed and commented upon this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 25. ADDITIONAL CONSIDERATION. In the event of the consummation of any Sale Transaction within the six-month period following any exercise of the Call Option, the Option Exercise Price paid or payable in connection with the purchase of Units pursuant to such exercise shall be subject to adjustment. If the Net Sale Transaction Proceeds per Unit exceeds the Option Exercise Price per Unit purchased or purchasable by Optionee pursuant to such exercise, then the Option Exercise Price paid or payable to Optionee shall be increased by the amount of the difference multiplied by the number of Units purchased by Optionee pursuant to such exercise. Optionor and Optionee agree to -13- 14 promptly pay or refund the amount of any increase or decrease upon demand by the other. 26. FURTHER ASSURANCES. Each party agrees to promptly provide the other party with such information as is necessary to make the computations required hereunder and to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, Optionor and Optionee have entered into this Option Agreement in Los Angeles, California as of the day and year first written. "OPTIONOR": FFPE Holding Company, Inc. By: /s/ JOHN SARKISIAN -------------------------- Its: President -------------------------- By: /s/ TAMARA SARKISIAN-CELMO -------------------------- Its: Vice President -------------------------- "OPTIONEE": Sizzler International, Inc. By: /s/ CHARLES L. BOPPELL -------------------------- Its: President and CEO -------------------------- By: /s/ STEVEN R. SELCER -------------------------- Its: Vice President and CFO -------------------------- -14- 15 EXHIBIT A EBITDA ADJUSTMENT GUIDELINES The parties acknowledge that a substantial portion of the value of the Call Option may be related to future value of the Units of the Membership Interests of FFPE, LLC (the "Company"). Therefore, Optionor and Optionee have agreed upon the following EBITDA Adjustment Guidelines: 1. Intercompany Accounting. During the term of the Call Option, for purposes of determining the Option Exercise Price, the EBITDA of the Company shall be adjusted to eliminate any impact adverse to Optionor of any of the following items, unless such item is agreed to by Optionor: (a) Any charge or allocation of any corporate overhead services or similar items (collectively, "Overhead Charges"); (b) Any charge to the Company for any costs related to the Optionee's acquisition of the Company, including, but not limited to: acquisition expenses, legal expenses, investment banking and similar expense; (c) Any non-recurring or extraordinary charges other than attributable to the Company during the term of the Put Option from any source; (d) Any subsequent change to the reserves of the Company established at the Closing (as defined in the Agreement); and (e) The 2% management fee, if any, paid or payable to Optionee permitted in Section 6.5 of the limited liability company agreement of the Company. 2. Corporate Services. During the term of the Call Option, in the event that Optionee can provide needed goods and services at a price and terms equal to or less than the price and terms offered by and at a quality level equal to that of unaffiliated third parties, then such goods and services shall be acquired from Optionee. 3. Volume Discounts. During the term of the Call Option, Optionee shall not charge the Company for any volume purchasing discounts that the Company is able to recognize as a result of the joint purchasing power of Optionee and the Company. 4. Consent. For purposes of these Guidelines, the agreement of John Sarkisian shall be conclusively presumed to be the agreement of the Optionor and of the Shareholders. -1- EX-10.5 6 v65445ex10-5.txt EXHIBIT 10.5 1 EXHIBIT 10.5 THE PUT OPTION EVIDENCED BY THIS INSTRUMENT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH LAWS. THE TRANSFERABILITY OF THE PUT OPTION IS SUBJECT TO RESTRICTIONS SET FORTH IN THIS INSTRUMENT AND IMPOSED BY SUCH LAWS. PUT OPTION AGREEMENT (John Sarkisian) This Put Option Agreement (this "Agreement") is made as of August 30, 2000 by and between Sizzler International, Inc. ("Optionor") and FFPE Holding Company, Inc. ("Optionee"). Unless the context otherwise indicates, capitalized terms used herein shall have the meanings given them in Section 10 hereof. RECITALS A. Optionor is a Delaware corporation having its principal place of business in Culver City, California. B. Optionee is a Delaware corporation having its principal place of business in San Diego, California. John Sarkisian, an individual resident of California ("John"), is the holder of 33.94%, Tamara Sarkisian-Celmo, as trustee of the Tamara Sarkisian-Celmo Family Trust UDT 10/16/97 ("Tamara"), is the holder of 28.94% and the Sarkisian Family Trust UDT dated 7/19/95 is the holder of 37.12% of the outstanding capital stock of Optionee. C. Optionee is the holder of certain units of membership interest in FFPE, LLC, a Delaware limited liability company (the "Units"). D. Pursuant to an LLC Membership Interest Purchase Agreement dated May 23, 2000 as amended by that Amended and Restated LLC membership Purchase Agreement dated August 21, 2000 between Optionor as Seller and Optionee as Purchaser (the "Purchase Agreement"), Optionee has sold 82% of the Units to Optionor. E. As of the date hereof, Optionee continues to be the holder of 18% of the outstanding Units (the "Retained Units"). F. Pursuant to the Purchase Agreement, Optionor and Optionee have entered into this Agreement, under which Optionor agrees to grant to Optionee an option to sell up to 14 Retained Units (representing 77.78% of all of the Retained Units) to Optionor on the terms and conditions set forth in this Agreement. In this Agreement, such 14 Retained Units are referred to as the "Optioned Units." -1- 2 G. Pursuant to the Purchase Agreement, Optionor and Optionee have entered into a Put Option Agreement (Tamara Sarkisian-Celmo) dated as of even date herewith (the "Other Put Option Agreement"), under which Optionor has agreed to grant to Optionee an option to sell up to 22.22% of the Retained Units to Optionor on the terms and conditions set forth in the Other Put Option Agreement. AGREEMENT 1. GRANT AND ACCEPTANCE. On the terms and conditions set forth in this Agreement, (a) Optionor hereby grants to Optionee an option (the "Put Option") to sell to Optionor the Optioned Units at the Option Exercise Price and (b) Optionee hereby confirms its acceptance of the Put Option. 2. OPTION EXERCISE PRICE. The price per Unit at which Optionee shall be entitled to sell any Optioned Units (the "Option Exercise Price") shall be the dollar amount equal to the number obtained by dividing (A) the positive difference, if any, between (1) the number obtained by multiplying the EBITDA of FFPE, LLC for the Relevant Trailing 12 Month Period by the Applicable Multiple and (2) the Current Debt of FFPE, LLC as of the end of such Relevant Trailing 12-Month Period by (B) all of the then outstanding Units. In determining the EBITDA for purposes of this Section, the parties shall make any adjustments required by the Intercompany Accounting procedures set forth on the EBITDA Adjustment Guidelines attached as EXHIBIT A. 3. TERM. The term of the Put Option shall commence as of the date of the grant thereof, which shall be the date hereof, and shall expire on the Expiration Date. Upon the Expiration Date, the Put Option and this Agreement shall become void and of no force or effect, and the parties shall have no further rights or obligations under this Agreement, other than any liability for any breach of the contract arising before the Expiration Date. 4. EXERCISABILITY. The Put Option may be exercised by Optionee or any Transferee thereof in accordance with this Agreement only during Year 3, Year 4 and Year 5 and Thereafter of the term hereof (the "Exercisability Period"). The Put Option may be exercised in whole or in part. However, Optionee shall be entitled to no more than two exercises of the Put Option. For purposes of the foregoing sentence only, the exercise by Optionee of any put option under the Other Put Option Agreement made during the Exercisability Period shall be counted as an exercise under this Agreement. Immediately after the exercise of the second of two exercises during the Exercisability Period, the Put Option shall cease to be exercisable. 5. METHOD OF EXERCISE. The Put Option may be exercised only by Optionee. The Put Option shall be exercised by written notice of exercise given by in accordance with Section 18 hereof. Such notice (a "Notice of Exercise") shall state that it is intended as an exercise under this Agreement and the number of the Optioned Units being sold. The Put Option shall include the Optionee's calculation of the sales price of the Units. To the extent that the Optionor disagrees with the calculations provided by the Optionee, then Optionor -2- 3 shall give notice of such disagreement to the Optionee within 30 days. The parties will use their reasonable efforts to resolve such disagreement. If the Optionor gives such notice of objection and the parties fail to resolve such objection within 30 days, then the issues in dispute will be submitted to a "Big Five" accounting firm (the "Accountants") for resolution. If issues are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are reasonably available to that party, and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the Optionee and the Optionor will each bear 50% of the fees of the Accountants for such determination. 6. SALE PROCEDURES. (a) Upon the giving of a Notice of Exercise, Optionor shall thereupon become obligated to purchase the number of the Optioned Units stated in the Notice of Exercise from Optionee, subject only to delivery by Optionee of the instruments described in Section 6(b) hereof. (b) The consummation of the purchase of such Optioned Units (the "Closing") shall take place at the principal executive offices of Optionor on such business day, not later than 90 days after the giving of the Notice of Exercise, as Optionor and Optionee may select. (c) At the Closing, and upon the tender by Optionee of (i) certificates evidencing the Optioned Units being sold, duly endorsed in blank or accompanied by written instruments of transfer in form satisfactory to Optionor duly executed by the Optionee, free and clear of any Encumbrances, (ii) an Opinion of Counsel, and (iii) a Sellers' Certificate, Optionor shall deliver to Optionee the full amount of the Option Exercise Price, in cash, due hereunder with respect to the Optioned Units being sold. 7. NON-TRANSFERABILITY OF PUT OPTION. (a) Except as otherwise provided herein, Optionee shall not Transfer the Put Option without the express prior written consent of Optionor, which consent may be withheld in Optionor's sole and absolute discretion, and the Put Option shall not be subject to execution, attachment or similar process. Any attempt to Transfer the Put Option, or to subject the Put Option to execution, attachment or similar process, other than in accordance with this Agreement shall be void ab initio. (b) Optionee may Transfer the Put Option to any Affiliate, provided that the Optionee gives Optionor at least 30 days' prior written notice of such Transfer and the Transferee acquires the unexercised Optioned -3- 4 Units, assumes in writing all of the obligations of Optionee under this Agreement, and acknowledges that the acceptance of the Put Option subject to all terms, conditions and restrictions hereof, a copy of which assumption and acknowledgement is provided to Optionor. 8. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee represents and warrants to Optionor, as of the date hereof and as of the date of any exercise of the Put Option, that: (a) The Optioned Units are duly authorized, validly issued, fully paid and non-assessable units of membership interest of FFPE, LLC. (b) There are no outstanding subscriptions, options, warrants, rights, puts, calls, pre-emptive rights, commitments, conversion rights, rights of exchange, plans, or other agreements of any kind relating to the Optioned Units. (c) Optionee is the sole beneficial owner and holder of record of all 14 of the Optioned Units. The Optioned Units are free and clear of any Encumbrances. The delivery to Optionor of certificates evidencing the Optioned Units, duly endorsed in blank or accompanied by appropriate written instruments of transfer duly executed by Optionee, is sufficient to transfer to Optionor valid title thereto, free and clear of any Encumbrance. (d) Optionee has the full individual capacity to enter into this Agreement and make any endorsement or execute and deliver any written instrument of transfer necessary to transfer the Optioned Units to Optionor. (e) This Agreement has been duly executed and delivered by Optionee and is a valid and binding obligation of Optionee, enforceable against Optionee in accordance with its terms. (f) No consent by any third party or governmental authority is required in connection with the execution or delivery by Optionee of this Agreement or the consummation of the sale of the Optioned Units to Optionor contemplated hereunder. The execution and delivery by Optionee of this Agreement and the sale of the Optioned Units to Optionor will not conflict with or result in any breach of or constitute a default under any agreement or instrument to which FFPE, LLC or Optionee is a party or by which its or Optionee's assets are bound. (g) Optionee has acquired and will exercise the Put Option for its own account and not with a view to or sale in connection with any distribution of the security. -4- 5 (h) The grant of the Put Option under this Agreement was not accomplished by the publication of any advertisement. (i) Optionee understands that the Put Option is subject to restrictions on transferability as set forth in this Agreement. Optionee understands that the Put Option has not been registered with the SEC under the Securities Act of 1933, as amended, or under the securities laws of any state, and has been issued by Optionor in reliance upon one or more exemptions from registration or qualification under such laws. Accordingly, the Put Option may not be transferred or resold by Optionee unless registered or qualified under such laws, or unless such transfer or resale is made pursuant to an available exemption from such registration or qualification. 9. ADJUSTMENTS. If outstanding Optioned Units subject to the Put Option are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger or consolidation of FFPE, LLC, or as a result of a recapitalization, reclassification, dividend by, or other distribution, Unit split, reverse Unit split or the like involving, FFPE, LLC, then Optionor shall make appropriate and proportionate adjustment in the number and type of shares or other securities or cash or other property that may be acquired upon the exercise in full of the Put Option, provided, however, that any such adjustment shall be made without changing the aggregate Option Exercise Price of the unexercised portion of the Put Option. 10. DEFINITIONS. Capitalized terms used in this Agreement without definition shall have the following meanings: (a) "Affiliate" shall mean, with respect to a specified person, a person who controls, is controlled by or under common control with the specified person, and with respect to the Optionor, John, Tamara, or a trust in which Tamara or John are one or more of the beneficiaries. (b) "Applicable Multiple" shall mean the average of (A) the Sizzler Multiple at the time of the exercise of the Put Option for which the Option Exercise Price is being determined and (B) either (i) eight (8) if such exercise is during Year 3, (ii) seven (7) if such exercise is during Year 4, or (iii) six (6) if such exercise is during Year 5 or Thereafter; provided, however, in no event shall the Applicable Multiple exceed nine (9) if such exercise is during Year 3, or eight (8) if such exercise is during Year 4, or seven (7) if such exercise is during Year 5 of Thereafter. (c) "Change of Control" shall mean any Transfer of 20% or more of the issued and outstanding shares of capital stock of Optionee. -5- 6 (d) "Current Debt" of a company or division shall refer to the total debt (current and non-current) of such company or division, determined from the financial statements thereof prepared in accordance with GAAP. (e) "EBITDA" of a company or a division for any period shall mean the earnings of the company or division for such period before interest, income taxes, depreciation and amortization of the company or division, other than non-recurring items, determined from financial statements of such company or division prepared in accordance with GAAP. (f) "Encumbrances" shall mean any security interest, pledge, mortgage, hypothecation, lien, charge, encumbrance, adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any pre-emptive rights, options, warrants, puts, calls, or restrictions on use, voting, transfer (other than restrictions under applicable securities laws), receipt of income or other exercise of any attributes of ownership. (g) "Expiration Date" shall be the first to occur of (a) the tenth (10th) anniversary of the date of this Agreement or (b) the date of the sale of all of the remaining Optioned Units subject to this Agreement or (c) the date as of which the Put Option is no longer exercisable under this Agreement. (h) "Fair Market Value" of a security on any day shall be equal to the last sale price, regular way, per unit of such security on such day or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if securities are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use or, if on any such date such security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security selected by the Board of Directors of the corporation issuing such security. In all other cases, Fair Market Value shall be the value determined in good faith by such Board. -6- 7 (i) "GAAP" shall mean generally accepted accounting principles, consistently applied. (j) "Opinion of Counsel" shall mean an opinion of Optionee's legal counsel, in form satisfactory to Optionor and dated as of the date of the sale of Optioned Units hereunder, to the effect that: (a) the Optioned Units are validly issued, fully paid and non-assessable units of membership interest of FFPE, LLC; (b) Optionee is the sole holder of record and beneficial owner of the Optioned Units; (c) the execution and delivery of the assignment instruments do not contravene any applicable provision of law; and (d) the Optioned Units have been validly assigned by Optionee to Optionor and, to the best of counsel's knowledge, are free and clear of any Encumbrance. (k) "Permitted Transferee" shall mean an individual to whom the Put Option and the Optioned Units to which the Put Option relates have been transferred in accordance with Section 7(b) hereof. A Permitted Transferee shall be treated as Optionee for all purposes under this Agreement. (l) "Relevant Trailing 12 Month Period" shall mean, with respect to the determination of the Option Exercise Price applicable to any exercise of the Put Option, the Optionor's thirteen (13) completed four-week accounting periods immediately preceding the exercise. (m) "Sellers' Certificate" shall mean a written certificate signed by Optionee, in form satisfactory to Optionor and dated as of the date of any sale of Optioned Units hereunder, to the effect that the representations and warranties of Optionee set forth in Section 8(a), (b), (c), (d) and (f) of this Agreement are true and correct in all respects as of the date of the sale of any Optioned Units hereunder. (n) "Sizzler Multiple" shall mean the number obtained by dividing (A) the sum of (1) the number obtained by multiplying (x) the Fair Market Value of a share of Optionor's common stock as of the end of the Relevant Trailing 12-Month Period and (y) the number of shares of Optionor's common stock outstanding as of such date and (2) the Current Debt of Optionor as of such date by (B) EBITDA of Optionor for the Relevant Trailing 12-Month Period. (o) "Subsidiary" of a specified person shall mean any corporation or other entity, more than 50% of the stock or ownership interest of which is held by the specified person. (p) "Transfer" shall mean sell, transfer, assign, convey, gift, pledge, hypothecate or dispose of in any way, whether by operation of law or -7- 8 otherwise (other than to Optionor or its Subsidiaries), or any Change of Control. (q) "Year 3" shall mean the period commencing on August 30, 2002 and terminating on August 29, 2003. (r) "Year 4" shall mean the period commencing on August 30, 2003 and terminating on August 29, 2004. (s) "Year 5 and Thereafter" shall mean the period commencing on August 30, 2004 and terminating on the Expiration Date. 11. PAYMENT OF INCOME TAXES. If Optionor is required to withhold any amount on account of federal, state or local tax (including, without limitation, any income, FICA, disability insurance, or employment tax) imposed as a result of the exercise of the Put Option, Optionee shall, concurrently with such withholding, pay such amount to Optionor in full in cash. 12. STOCKHOLDER RIGHTS. Optionor shall not be entitled to vote, receive dividends, or be deemed for any purpose the holder of any Optioned Units until the Put Option shall have been duly exercised to sell such Optioned Units in accordance with the provisions of this Agreement. 13. EXPENSES. Except as otherwise express set forth herein, all fees and expenses incurred in connection with this Agreement shall be paid by the party incurring such costs or expenses. 14. WAIVER OF COMPLIANCE; CONSENTS. Any failure by Optionor or Optionee to comply with any obligation, covenant, agreement or condition herein may be waived by Optionee or Optionor, as applicable, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 15. GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of California applicable to contracts made and to be performed entirely within the State of California by California residents without regard to California choice of law principles. 16. CAPTIONS. The Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. 17. NOTICES. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by telecopy or by registered or certified mail, postage prepaid, addressed as follows: -8- 9 if to Optionor at: Sizzler International, Inc. 6101 West Centinela Avenue Culver City, California 90230 Attn: Michael B. Green, Esq. Tel: (310) 568-0135 Fax: (310) 568-8255 with a copy to its counsel at: Pachulski, Stang, Ziehl, Young & Jones PC 10100 Santa Monica Boulevard Suite 1100 Los Angeles, California 90067 Attn: David J. Barton, Esq. Tel: (310) 277-6910 Fax: (310) 201-0760 and if to Optionee at: FFPE Holding Company, Inc. 9823 Pacific Heights Blvd., Suite J San Diego, California 92121 Attn: John Sarkisian Tel: 858-843-3266 Fax: 858-552-4930 and with a copy to each of the following counsel at: Sheppard, Mullin, Richter & Hampton, LLP 501 West Broadway, 19th Floor San Diego, California 92101-3598 Attn: Richard L. Kintz, Esq. Tel: (619) 338-6500 Fax: (619) 234-3815 or such other address or number as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by telecopy or mailed. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered to and received by the party to whom it is directed three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or upon delivery via overnight courier service, in each case addressed to the intended recipient as described above. Any notice, request, claim, demand or other communication given in any other -9- 10 manner shall only be deemed received by the intended recipient thereof upon such recipient's actual receipt thereof. 18. PARTIES IN INTEREST. This Agreement may not be transferred, assigned, sold, conveyed, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. 20. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes the Letter of Intent between the parties dated February 28, 2000 and all other prior agreements and understandings (written or oral) between the parties with respect to such subject matter. 21. AMENDMENTS. This Agreement may not be changed orally, but only by an agreement in writing signed by the parties hereto. Any provision of this Agreement can be waived, amended, supplemented or modified by written agreement of the parties hereto. 22. THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a party hereto or thereto or a successor or permitted assign of such a party. 23. SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 24. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the parties further agree that each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. -10- 11 25. PRINCIPLES OF CONSTRUCTION. (a) All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (c) The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", unless already expressly followed by such phrase or the phrase "but not limited to". (d) All references to "U.S. dollars" or "$" shall be deemed references to lawful money of the United States of America. (e) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in the United States of America. (f) All words importing any gender shall be deemed to include the other genders. (g) All references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to. (h) Unless otherwise specified, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, modifications and supplements thereto. (i) Each party has reviewed and commented upon this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 27. FURTHER ASSURANCES. Each party agrees to promptly provide the other party with such information as is necessary to make the computations required hereunder and to effectuate the purposes of this Agreement. -11- 12 IN WITNESS WHEREOF, Optionor and Optionee have entered into this Option Agreement in Los Angeles, California as of the day and year first written. "OPTIONOR": Sizzler International, Inc. By: /s/ CHARLES L. BOPPELL -------------------------- Its: President and CEO -------------------------- By: /s/ STEVEN R. SELCER -------------------------- Its: Vice President -------------------------- "OPTIONEE": FFPE Holding Company, Inc. By: /s/ JOHN SARKISIAN -------------------------- Its: President -------------------------- By: /s/ TAMARA SARKISIAN-CELMO -------------------------- Its: Vice President -------------------------- -12- 13 EXHIBIT A EBITDA ADJUSTMENT GUIDELINES The parties acknowledge that a substantial portion of the value of the Put Option may be related to the Units of the Membership Interests of FFPE, LLC (the "Company"). Therefore, Optionor and Optionee have agreed upon the following EBITDA Adjustment Guidelines: 1. Intercompany Accounting. During the term of the Put Option, for purposes of determining the Option Exercise Price, the EBITDA of the Company shall be adjusted to eliminate any impact adverse to Optionee of any of the following items, unless such item is agreed to by Optionee in the Agreement or otherwise: (a) Any charge or allocate any corporate overhead services or similar items (collectively, "Overhead Charges"); (b) Any charge to the Company for any costs related to the Optionor's acquisition of the Company, including, but not limited to: acquisition expenses, legal expenses, investment banking and similar expense; (c) Any non-recurring or extraordinary charges other than attributed to the Company during the term of the Put Option from any source; (d) Any subsequent change to the reserves of the Company established at the Closing (as defined in the Agreement); and (e) The 2% management fee, if any, paid or payable to Optionor permitted in Section 6.5 of the limited liability company agreement of the Company. 2. Corporate Services. During the term of the Put Option, in the event that Optionor can provide needed goods and services at a price and terms equal to or less than the price and terms offered by and at a quality level equal to that of unaffiliated third parties, then such goods and services shall be acquired from Optionor. 3. Volume Discounts. During the term of the Put Option, Optionor shall not charge the Company for any volume purchasing discounts that the Company is able to recognize as a result of the joint purchasing power of Optionor and the Company. 4. Consent. For purposes of these Guidelines, the agreement of John Sarkisian shall be conclusively presumed to be the agreement of the Optionee and of the Shareholders. -1- EX-10.6 7 v65445ex10-6.txt EXHIBIT 10.6 1 EXHIBIT 10.6 THE PUT OPTION EVIDENCED BY THIS INSTRUMENT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH LAWS. THE TRANSFERABILITY OF THE PUT OPTION IS SUBJECT TO RESTRICTIONS SET FORTH IN THIS INSTRUMENT AND IMPOSED BY SUCH LAWS. PUT OPTION AGREEMENT (Tamara Sarkisian-Celmo) This Put Option Agreement (this "Agreement") is made as of August 30, 2000 by and between Sizzler International, Inc. ("Optionor") and FFPE Holding Company, Inc. ("Optionee"). Unless the context otherwise indicates, capitalized terms used herein shall have the meanings given them in Section 10 hereof. RECITALS A. Optionor is a Delaware corporation having its principal place of business in Culver City, California. B. Optionee is a Delaware corporation having its principal place of business in San Diego, California. John Sarkisian, an individual resident of California ("John"), is the holder of 33.94%, Tamara Sarkisian-Celmo, as trustee of the Tamara Sarkisian-Celmo Family Trust UDT 10/16/97 ("Tamara"), is the holder of 28.94% and the Sarkisian Family Trust UDT dated 7/19/95 is the holder of 37.12% of the outstanding capital stock of Optionee. C. Optionee is the holder of certain units of membership interest in FFPE, LLC, a Delaware limited liability company (the "Units"). D. Pursuant to an LLC Membership Interest Purchase Agreement dated May 23, 2000 as amended by that Amended and Restated LLC membership Purchase Agreement dated August 21, 2000 between Optionor as Seller and Optionee as Purchaser (the "Purchase Agreement"), Optionee has sold 82% of the Units to Optionor. E. As of the date hereof, Optionee continues to be the holder of 18% of the outstanding Units (the "Retained Units"). F. Pursuant to the Purchase Agreement, Optionor and Optionee have entered into this Agreement, under which Optionor agrees to grant to Optionee an option to sell up to four Retained Units (representing 22.22% of all of the Retained Units) to Optionor on the terms and conditions set forth in this 2 Agreement. In this Agreement, such four Retained Units are referred to as the "Optioned Units." G. Pursuant to the Purchase Agreement, Optionor and Optionee have entered into a Put Option Agreement (John Sarkisian) dated as of even date herewith (the "Other Put Option Agreement"), under which Optionor has agreed to grant to Optionee an option to sell up to 77.78% of the Retained Units to Optionor on the terms and conditions set forth in the Other Put Option Agreement. AGREEMENT 1. GRANT AND ACCEPTANCE. On the terms and conditions set forth in this Agreement, (a) Optionor hereby grants to Optionee an option (the "Put Option") to sell to Optionor the Optioned Units at the Option Exercise Price and (b) Optionee hereby confirms its acceptance of the Put Option. 2. OPTION EXERCISE PRICE. The price per Unit at which Optionee shall be entitled to sell any Optioned Units (the "Option Exercise Price") shall be the dollar amount described in (a) or (b) below, whichever is applicable: (a) With respect to any exercise of the Put Option during Year 1 or Year 2, the dollar amount equal to the number obtained by dividing (A) $780,488 by (B) the number of Optioned Units; (b) With respect to any exercise of the Put Option after the end of Year 2, the dollar amount equal to the number obtained by dividing (A) the positive difference, if any, between (1) the number obtained by multiplying the EBITDA of FFPE, LLC for the Relevant Trailing 12 Month Period by the Applicable Multiple and (2) the Current Debt of FFPE, LLC as of the end of such Relevant Trailing 12-Month Period by (B) all of the then outstanding Units. In determining the EBITDA for purposes of this Section, the parties shall make any adjustments required by the Intercompany Accounting procedures set forth on the EBITDA Adjustment Guidelines attached as EXHIBIT A. 3. TERM. The term of the Put Option shall commence as of the date of the grant thereof, which shall be the date hereof, and shall expire on the Expiration Date. Upon the Expiration Date, the Put Option and this Agreement shall become void and of no force or effect, and the parties shall have no further rights or obligations under this Agreement, other than any liability for any breach of the contract arising before the Expiration Date. 4. EXERCISABILITY. The Put Option may be exercised by Optionee or any Transferee thereof in accordance with this Agreement at any time during the term hereof. The Put Option may be exercised in whole or in part. However, Optionee shall be entitled to no more than one exercise of the Put Option before the end of Year 2 and a -2- 3 total of two exercises of the Put Option during the term hereof. For purposes of the foregoing sentence only, the exercise by Optionee of any put option under the Other Put Option Agreement made after the end of Year 2 shall be counted as an exercise under this Agreement. Immediately after the exercise of the second of two exercises during the term hereof, the Put Option shall cease to be exercisable. 5. METHOD OF EXERCISE. The Put Option may be exercised only by Optionee. The Put Option shall be exercised by written notice of exercise given by in accordance with Section 18 hereof. Such notice (a "Notice of Exercise") shall state that it is intended as an exercise under this Agreement and the number of the Optioned Units being sold. The Put Option shall include the Optionee's calculation of the sales price of the Units. To the extent that the Optionor disagrees with the calculations provided by the Optionee, then Optionor shall give notice of such disagreement to the Optionee within 30 days. The parties will use their reasonable efforts to resolve such disagreement. If the Optionor gives such notice of objection and the parties fail to resolve such objection within 30 days, then the issues in dispute will be submitted to a "Big Five" accounting firm (the "Accountants") for resolution. If issues are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are reasonably available to that party, and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the Optionee and the Optionor will each bear 50% of the fees of the Accountants for such determination. 6. SALE PROCEDURES. (a) Upon the giving of a Notice of Exercise, Optionor shall thereupon become obligated to purchase the number of the Optioned Units stated in the Notice of Exercise from Optionee, subject only to delivery by Optionee of the instruments described in Section 6(b) hereof. (b) The consummation of the purchase of such Optioned Units (the "Closing") shall take place at the principal executive offices of Optionor on such business day, not later than 90 days after the giving of the Notice of Exercise, as Optionor and Optionee may select. (c) At the Closing, and upon the tender by Optionee of (i) certificates evidencing the Optioned Units being sold, duly endorsed in blank or accompanied by written instruments of transfer in form satisfactory to Optionor duly executed by the Optionee, free and clear of any Encumbrances, (ii) an Opinion of Counsel, and (iii) a Sellers' Certificate, Optionor shall deliver to Optionee the full -3- 4 amount of the Option Exercise Price, in cash, due hereunder with respect to the Optioned Units being sold. 7. NON-TRANSFERABILITY OF PUT OPTION. (a) Except as otherwise provided herein, Optionee shall not Transfer the Put Option without the express prior written consent of Optionor, which consent may be withheld in Optionor's sole and absolute discretion, and the Put Option shall not be subject to execution, attachment or similar process. Any attempt to Transfer the Put Option, or to subject the Put Option to execution, attachment or similar process, other than in accordance with this Agreement shall be void ab initio. (b) Optionee may Transfer the Put Option to any Affiliate, provided that the Optionee gives Optionor at least 30 days' prior written notice of such Transfer and the Transferee acquires the unexercised Optioned Units, assumes in writing all of the obligations of Optionee under this Agreement, and acknowledges that the acceptance of the Put Option subject to all terms, conditions and restrictions hereof, a copy of which assumption and acknowledgement is provided to Optionor. 8. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee represents and warrants to Optionor, as of the date hereof and as of the date of any exercise of the Put Option, that: (a) The Optioned Units are duly authorized, validly issued, fully paid and non-assessable units of membership interest of FFPE, LLC. (b) There are no outstanding subscriptions, options, warrants, rights, puts, calls, pre-emptive rights, commitments, conversion rights, rights of exchange, plans, or other agreements of any kind relating to the Optioned Units. (c) Optionee is the sole beneficial owner and holder of record of all four of the Optioned Units. The Optioned Units are free and clear of any Encumbrances. The delivery to Optionor of the certificates evidencing the Optioned Units, duly endorsed in blank or accompanied by appropriate written instruments of transfer duly executed by Optionee, is sufficient to transfer to Optionor valid title thereto, free and clear of any Encumbrance. (d) Optionee has all necessary corporate power and authority to enter into this Agreement and make any endorsement or execute and deliver any written instrument of transfer necessary to transfer the Optioned Units to Optionor. -4- 5 (e) This Agreement has been duly executed and delivered by Optionee and is a valid and binding obligation of Optionee, enforceable against Optionee in accordance with its terms. (f) No consent by any third party or governmental authority is required in connection with the execution or delivery by Optionee of this Agreement or the consummation of the sale of the Optioned Units to Optionor contemplated hereunder. The execution and delivery by Optionee of this Agreement and the sale of the Optioned Units to Optionor will not conflict with or result in any breach of or constitute a default under any agreement or instrument to which FFPE, LLC or Optionee is a party or by which its or Optionee's assets are bound. (g) Optionee has acquired and will exercise the Put Option for its own account and not with a view to or sale in connection with any distribution of the security. (h) The grant of the Put Option under this Agreement was not accomplished by the publication of any advertisement. (i) Optionee understands that the Put Option is subject to restrictions on transferability as set forth in this Agreement. Optionee understands that the Put Option has not been registered with the SEC under the Securities Act of 1933, as amended, or under the securities laws of any state, and has been issued by Optionor in reliance upon one or more exemptions from registration or qualification under such laws. Accordingly, the Put Option may not be transferred or resold by Optionee unless registered or qualified under such laws, or unless such transfer or resale is made pursuant to an available exemption from such registration or qualification. 9. ADJUSTMENTS. If outstanding Optioned Units subject to the Put Option are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger or consolidation of FFPE, LLC, or as a result of a recapitalization, reclassification, dividend by, or other distribution, Unit split, reverse Unit split or the like involving, FFPE, LLC, then Optionor shall make appropriate and proportionate adjustment in the number and type of shares or other securities or cash or other property that may be acquired upon the exercise in full of the Put Option, provided, however, that any such adjustment shall be made without changing the aggregate Option Exercise Price of the unexercised portion of the Put Option. -5- 6 10. DEFINITIONS. Capitalized terms used in this Agreement without definition shall have the following meanings: (a) "Affiliate" shall mean, with respect to a specified person, a person who controls, is controlled by or under common control with the specified person and with respect to the Optionor, John, Tamara, or a trust where Tamara or John are one of the beneficiaries. (b) "Applicable Multiple" shall mean the average of (A) the Sizzler Multiple at the time of the exercise of the Put Option for which the Option Exercise Price is being determined and (B) either (i) eight (8) if such exercise is during Year 3, (ii) seven (7) if such exercise is during Year 4, or (iii) six (6) if such exercise is during Year 5 or Thereafter; provided, however, in no event shall the Applicable Multiple exceed nine (9) if such exercise is during Year 3, or eight (8) if such exercise is during Year 4, or seven (7) if such exercise is during Year 5 or Thereafter. (c) "Change of Control" shall mean any Transfer of 20% or more of the issued and outstanding shares of capital stock of Optionee. (d) "Current Debt" of a company or division shall refer to the total debt (current and non-current) of such company or division, determined from the financial statements thereof prepared in accordance with GAAP. (e) "EBITDA" of a company or a division for any period shall mean the earnings of the company or division for such period before interest, income taxes, depreciation and amortization of the company or division, other than non-recurring items, determined from financial statements of such company or division prepared in accordance with GAAP. (f) "Encumbrances" shall mean any security interest, pledge, mortgage, hypothecation, lien, charge, encumbrance, adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any pre-emptive rights, options, warrants, puts, calls, or restrictions on use, voting, transfer (other than restrictions under applicable securities laws), receipt of income or other exercise of any attributes of ownership. (g) "Expiration Date" shall be the first to occur of (a) the tenth (10th) anniversary of the date of this Agreement or (b) the date of the sale of all of the remaining Optioned Units subject to this Agreement or (c) the date as of which the Put Option is no longer exercisable under this Agreement. -6- 7 (h) "Fair Market Value" of a security on any day shall be equal to the last sale price, regular way, per unit of such security on such day or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if securities are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use or, if on any such date such security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security selected by the Board of Directors of the corporation issuing such security. In all other cases, Fair Market Value shall be the value determined in good faith by such Board. (i) "GAAP" shall mean generally accepted accounting principles, consistently applied. (j) "Opinion of Counsel" shall mean an opinion of Optionee's legal counsel, in form satisfactory to Optionor and dated as of the date of the sale of Optioned Units hereunder, to the effect that: (a) the Optioned Units are validly issued, fully paid and non-assessable units of membership interest of FFPE, LLC; (b) Optionee is the sole holder of record and beneficial owner of the Optioned Units; (c) the execution and delivery of the assignment instruments do not contravene any applicable provision of law; and (d) the Optioned Units have been validly assigned by Optionee to Optionor and, to the best of counsel's knowledge, are free and clear of any Encumbrance. (k) "Permitted Transferee" shall mean an individual to whom the Put Option and the Optioned Units to which the Put Option relates have been transferred in accordance with Section 7(b) hereof. A Permitted Transferee shall be treated as Optionee for all purposes under this Agreement. (l) "Relevant Trailing 12-Month Period" shall mean, with respect to the determination of the Option Exercise Price applicable to any -7- 8 exercise of the Put Option, the Optionor's thirteen (13) completed four-week accounting periods immediately preceding the exercise. (m) "Sellers' Certificate" shall mean a written certificate signed by Optionee, in form satisfactory to Optionor and dated as of the date of any sale of Optioned Units hereunder, to the effect that the representations and warranties of Optionee set forth in Section 8(a), (b), (c), (d) and (f) of this Agreement are true and correct in all respects as of the date of the sale of any Optioned Units hereunder. (n) "Sizzler Multiple" shall mean the number obtained by dividing (A) the sum of (1) the number obtained by multiplying (x) the Fair Market Value of a share of Optionor's common stock as of the end of the Relevant Trailing 12-Month Period and (y) the number of shares of Optionor's common stock outstanding as of such date and (2) the Current Debt of Optionor as of such date by (B) EBITDA of Optionor for the Relevant Trailing 12-Month Period. (o) "Subsidiary" of a specified person shall mean any corporation or other entity, more than 50% of the stock or ownership interest of which is held by the specified person. (p) "Transfer" shall mean sell, transfer, assign, convey, gift, pledge, hypothecate or dispose of in any way, whether by operation of law or otherwise (other than to Optionor or its Subsidiaries), or any Change of Control. (q) "Year 1" shall mean the period commencing on August 30, 2000 and terminating on August 29, 2001. (r) "Year 2" shall mean the period commencing on August 30, 2001 and terminating on August 29, 2002. (s) "Year 3" shall mean the period commencing on August 30, 2002 and terminating on August 29, 2003. (t) "Year 4" shall mean the period commencing on August 30, 2003 and terminating on August 29, 2004. (u) "Year 5 and Thereafter" shall mean the period commencing on August 30, 2004 and terminating on the Expiration Date. 11. PAYMENT OF INCOME TAXES. If Optionor is required to withhold any amount on account of federal, state or local tax (including, without limitation, any income, FICA, disability insurance, or employment tax) imposed as a result of the exercise of the Put Option, Optionee shall, concurrently with such withholding, pay such amount to Optionor in full in cash. -8- 9 12. STOCKHOLDER RIGHTS. Optionor shall not be entitled to vote, receive dividends, or be deemed for any purpose the holder of any Optioned Units until the Put Option shall have been duly exercised to sell such Optioned Units in accordance with the provisions of this Agreement. 13. EXPENSES. Except as otherwise express set forth herein, all fees and expenses incurred in connection with this Agreement shall be paid by the party incurring such costs or expenses. 14. WAIVER OF COMPLIANCE; CONSENTS. Any failure by Optionor or Optionee to comply with any obligation, covenant, agreement or condition herein may be waived by Optionee or Optionor, as applicable, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 15. GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of California applicable to contracts made and to be performed entirely within the State of California by California residents without regard to California choice of law principles. 16. CAPTIONS. The Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. 17. NOTICES. Any notice or other communications required or permitted hereunder shall be sufficiently given if delivered in person or sent by telecopy or by registered or certified mail, postage prepaid, addressed as follows: if to Optionor at: Sizzler International, Inc. 6101 West Centinela Avenue Culver City, California 90230 Attn: Michael B. Green Tel: (310) 568-0135 Fax: (310) 568-8255 with a copy to its counsel at: Pachulski, Stang, Ziehl, Young & Jones PC 10100 Santa Monica Boulevard Suite 1100 Los Angeles, California 90067 Attn: David J. Barton, Esq. Tel: (310) 277-6910 Fax: (310) 201-0760 -9- 10 and if to Optionee at: FFPE Holding Company, Inc. 9823 Pacific Heights Blvd., Suite J San Diego, California 92121 Attn: John Sarkisian Tel: 858-843-3266 Fax: 858-552-4930 and with a copy to each of the following counsel at: Sheppard, Mullin, Richter & Hampton, LLP 501 West Broadway, 19th Floor San Diego, California 92101-3598 Attn: Richard L. Kintz, Esq. Tel: (619) 338-6500 Fax: (619) 234-3815 or such other address or number as shall be furnished in writing by any such party, and such notice or communication shall be deemed to have been given as of the date so delivered, sent by telecopy or mailed. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered to and received by the party to whom it is directed three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or upon delivery via overnight courier service, in each case addressed to the intended recipient as described above. Any notice, request, claim, demand or other communication given in any other manner shall only be deemed received by the intended recipient thereof upon such recipient's actual receipt thereof. 18. PARTIES IN INTEREST. This Agreement may not be transferred, assigned, sold, conveyed, pledged or hypothecated by any party hereto, other than by operation of law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. 20. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes the Letter of Intent between the parties dated February 28, 2000 and all other prior agreements and understandings (written or oral) between the parties with respect to such subject matter. 21. AMENDMENTS. This Agreement may not be changed orally, but only by an agreement in writing signed by the parties hereto. Any provision of this Agreement can -10- 11 be waived, amended, supplemented or modified by written agreement of the parties hereto. 22. THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a party hereto or thereto or a successor or permitted assign of such a party. 23. SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 24. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the parties further agree that each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. 25. PRINCIPLES OF CONSTRUCTION. (a) All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (c) The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", unless already expressly followed by such phrase or the phrase "but not limited to." (d) All references to "U.S. dollars" or "$" shall be deemed references to lawful money of the United States of America. (e) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in the United States of America. -11- 12 (f) All words importing any gender shall be deemed to include the other genders. (g) All references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to. (h) Unless otherwise specified, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, modifications and supplements thereto. (i) Each party has reviewed and commented upon this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 26. FURTHER ASSURANCES. Each party agrees to promptly provide the other party with such information as is necessary to make the computations required hereunder and to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, Optionor and Optionee have entered into this Option Agreement in Los Angeles, California as of the day and year first written. "OPTIONOR": Sizzler International, Inc. By: /s/ CHARLES L. BOPPELL -------------------------- Its: President and CEO -------------------------- By: /s/ STEVEN R. SELCER -------------------------- Its: Vice President and CFO -------------------------- "OPTIONEE": FFPE Holding Company, Inc. By: /s/ JOHN SARKISIAN -------------------------- Its: President -------------------------- By: /s/ TAMARA SARKISIAN-CELMO -------------------------- Its: Vice President -------------------------- -12- 13 EXHIBIT A EBITDA ADJUSTMENT GUIDELINES The parties acknowledge that a substantial portion of the value of the Put Option may be related to the Units of the Membership Interests of FFPE, LLC (the "Company"). Therefore, Optionor and Optionee have agreed upon the following EBITDA Adjustment Guidelines: 1. Intercompany Accounting. During the term of the Put Option, for purposes of determining the Option Exercise Price, the EBITDA of the Company shall be adjusted to eliminate any impact adverse to Optionee of any of the following items, unless such item is agreed to by Optionee in the Agreement or otherwise: (a) Any charge or allocate any corporate overhead services or similar items (collectively, "Overhead Charges"); (b) Any charge to the Company for any costs related to the Optionor's acquisition of the Company, including, but not limited to: acquisition expenses, legal expenses, investment banking and similar expense; (c) Any non-recurring or extraordinary charges other than attributed to the Company during the term of the Put Option from any source; (d) Any subsequent change to the reserves of the Company established at the Closing (as defined in the Agreement); and (e) The 2% management fee, if any, paid or payable to Optionor permitted in Section 6.5 of the limited liability company agreement of the Company. 2. Corporate Services. During the term of the Put Option, in the event that Optionor can provide needed goods and services at a price and terms equal to or less than the price and terms offered by and at a quality level equal to that of unaffiliated third parties, then such goods and services shall be acquired from Optionor. 3. Volume Discounts. During the term of the Put Option, Optionor shall not charge the Company for any volume purchasing discounts that the Company is able to recognize as a result of the joint purchasing power of Optionor and the Company. 4. Consent. For purposes of these Guidelines, the agreement of John Sarkisian shall be conclusively presumed to be the agreement of the Optionee and of the Shareholders. -1- EX-10.7 8 v65445ex10-7.txt EXHIBIT 10.7 1 EXHIBIT 10.7 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. SIZZLER INTERNATIONAL, INC. WARRANT FOR VALUE RECEIVED, on and after the date of this Warrant, and subject to the terms and conditions herein, FFPE Holding Company, Inc., a Delaware corporation (the "Holder"), is entitled to purchase from Sizzler International, Inc., a Delaware corporation (the "Company"), at any time before 5:00 p.m. California time on August 29, 2005 (the "Expiration Date"), at the Exercise Price (as defined in Section 1(e), below), One Million Two Hundred Fifty Thousand ($1,250,000) shares of fully paid and nonassessable shares of common stock, par value $0.01 per share, of the Company, subject to adjustment as set forth in Section 3, below. This Warrant is being issued to the Holder, on the terms and subject to the conditions of the Amended and Restated LLC Membership Interest Purchase Agreement dated August 30, 2000, by and among the Company, the Holder, S&C Company, Inc., the shareholders and certain principals of S&C Company, Inc., FFPE, LLC and the members of FFPE, LLC. 1. Definitions. As used in this Warrant, the following terms shall have the definitions given to them below: (a) "Change of Control Event" means any of the following: (A) the Company enters into an agreement to merge or consolidate, or otherwise reorganize, with or into one or more persons other than an affiliate, as a result of which the outstanding voting securities of the Company immediately prior to such merger or consolidation are, or are to be, converted (1) solely into cash or non-voting securities of the surviving or resulting person, or (2) at least in part into voting securities of the surviving or resulting person, but such voting securities will represent less than 50% of the outstanding voting securities of the surviving or resulting person; (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to a person that is not an affiliate; or (C) a person that was not a holder of voting securities of the Company (or an affiliate thereof) as of the date hereof acquires directly or indirectly 50% or more of the Company's outstanding voting securities. (b) "Company": Sizzler International, Inc., a Delaware corporation. -1- 2 (c) "Common Stock": Common Stock, $0.01 par value per share, of the Company. (d) "Current Market Price" shall mean as of any specified date the average of the daily market prices of the Common Stock of the Company over the twenty (20) consecutive trading days immediately preceding such date. The "daily market price" for each such trading day shall be (i) the closing price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading or on NASDAQ as applicable, (ii) if no sale takes place on such day on any such exchange or system, the average of the closing bid and asked prices on such day as officially quoted on any such exchange or system, (iii) if such Common Stock is not then listed or admitted to trading on any stock exchange or system, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by NASDAQ or the National Quotation Bureau, (iv) in the case of a security not then listed or admitted to trading on any securities exchange and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the City of Los Angeles, the State of California, customarily published on each business day, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 30 days prior to the date in question) for which prices have been so reported, and (v) if there are no bid and asked prices reported during the 30 days prior to the date in question, the Current Market Price of the security shall be determined in accordance with Section 1(f) below as if the Company did not have a class of equity securities which are publicly traded. (e) "Exercise Price": Four Dollars ($4.00), subject to adjustment pursuant to Section 3, below. (f) "Fair Value" per share of Common Stock as of any specified date shall mean (i) if the Common Stock is publicly traded on such date, the Current Market Price per share, or (ii) if the Common Stock is not publicly traded on such date, the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to the Holder, provided however, that if the Board of Directors of the Company is unable to determine the fair market value per share of Common Stock (the "Valuation"), or if the holders of the Warrants representing at least fifty-one percent (51%) of the shares of Warrant Stock which are then subject to exercise under the Warrants (collectively, the "Requesting Holders") disagree with the Board's determination of any Valuation by written notice delivered to the Company within five (5) business days after the determination thereof by the Board of Directors of the Company is communicated to Holder and the holders of the other Warrants then outstanding, which notice specifies a majority-in-interest of the Requesting Holders' determination of such Valuation, then, unless the Company accepts the Valuation so proposed and the Company and a majority-in-interest of the Requesting Holders agree upon a valuation within five (5) business days thereafter, the Company and (in the event of a disagreement by the Requesting Holders) a majority-in-interest of the Requesting Holders shall select a mutually acceptable investment banking firm of national reputation which has not had a material relationship with the Company or any officer of the Company within the -2- 3 preceding two (2) years, which shall determine such Valuation. Such investment banking firm's determination of such Valuation shall be final, binding and conclusive on the Company, the Holder and the holders of all of the other Warrants then outstanding, to the extent of the issuance or distribution to which such Valuation applies. If the Board of Directors of the Company was unable to determine such Valuation, all costs and fees of such investment banking firm shall be borne by the Company. If the Requesting Holders initially disagreed with the Board's determination of such Valuation, the party whose determination of such Valuation differed from the Valuation determined by such investment banking firm by the greatest amount shall bear all costs and fees of such investment banking firm. (g) "Holder": FFPE Holding Company, Inc., a Delaware corporation, and its permitted transferees and assigns. (h) "Warrant Stock": Shares of Common Stock or other securities purchasable upon exercise of this Warrant or any other Warrants. (i) "Warrants": This Warrant and any other warrant delivered by the Company pursuant to Section 8, below. 2. Exercisability. Subject to the accelerated exercisability provisions set forth in this Section, this Warrant shall only become exercisable as follows:
Date on Which Installment Number of Shares ------------------------- ---------------- Becomes Exercisable of Warrant Stock in Installment ------------------- ------------------------------- August 30, 2000 250,000 August 30, 2001 250,000 August 30, 2002 250,000 August 30, 2003 250,000 August 30, 200 250,000
These installments shall be cumulative, so that this Warrant may be exercised as to any or all of the shares of Warrant Stock covered by an installment at any time or times after the installment becomes exercisable and prior to the termination of this Warrant. Notwithstanding the foregoing, immediately prior to the consummation of a Change of Control Event, all of the shares of Warrant Stock subject to this Warrant shall become fully exercisable. -3- 4 3. Adjustment of Exercise Price and Number of Shares. The number of shares of Warrant Stock issuable upon the exercise hereof and the Exercise Price shall be subject to adjustment from time to time, and the Company agrees to provide notice to the Holder upon the occurrence of certain events, as follows: (a) Reclassification, etc. If the Company at any time, by subdivision, combination or reclassification of securities or otherwise, changes any of the securities to which purchase rights under this Warrant exist into the same or a different number or type of securities of any class or classes, this Warrant shall thereafter be to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change. If shares of the Common Stock are split, subdivided, recapitalized, reclassified or combined into a greater or smaller number of shares, the Exercise Price shall be proportionately reduced (in the case of actions resulting in a greater number of outstanding shares) or proportionately increased (in the case of actions resulting in a smaller number of outstanding shares), in both cases by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event. (b) Merger, Sale of Assets, etc. In the event of any (i) consolidation or merger (including a merger in which the Company is the surviving entity) or (ii) sale or other disposition of all or substantially all of the Company's assets or distribution of property to stockholders (other than distributions payable out of earnings or retained earnings), then the Company shall take all necessary actions (including but not limited to executing and delivering to the Holder an additional Warrant or other instrument, in form and substance satisfactory to the Holder) to ensure that the Holder shall thereafter have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such consolidation, merger, sale or other disposition, reclassification, change or conversion by a holder of the number of shares of Common Stock then purchasable under this Warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, changes and conversions. (c) Adjustment for Dividends in Stock. If, at any time or from time to time on or after the date hereof, the holders of all of the shares of outstanding Common Stock receive, or become entitled to receive, without payment therefor, other or additional securities of the Company by way of dividend, other than dividends or other distributions payable in cash, then and in each case, the Holder shall, upon the exercise hereof, be entitled to receive, in addition to the number of shares of Warrant Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional securities of the Company which the Holder would hold on the date of such exercise had it been the holder of record of such Warrant Stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by this Section 3. -4- 5 (d) Authorizations and Exemptions. Before taking any action which would result in an adjustment in the number of shares of Common Stock or the kind of securities for which this Warrant is exercisable or in the current Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 4. Certificate of Adjustment. Whenever the Exercise Price or number or type of securities issuable upon exercise of this Warrant is adjusted, the Company shall promptly deliver to the Holder a certificate of an officer of the Company setting for the nature of such adjustment and a brief statement of the facts requiring such adjustment. 5. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle the Holder to any of the rights of a stockholder of the Company. 6. Reservation of Stock. All Warrant Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be duly and validly issued, fully paid and nonassessable. The Company shall pay all transfer taxes, if any, attributable to the issuance of the Warrant Stock upon the exercise of this Warrant. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant, as the same may be adjusted as provided herein. 7. Exercise of Warrant. (a) Exercise; Delivery of Certificates. This Warrant may be exercised by delivering the payment of the Exercise Price for the number of shares of Warrant Stock being purchased and concurrently surrendering to the Company at its principal office or at such other location as the Company may advise the Holder in writing (the "Designated Office"), this Warrant with the Form of Exercise Subscription attached hereto as Attachment 1 duly completed and signed. This Warrant may be exercised, at the option of the Holder, at any time and from time to time during the Exercise Period, for all or any part of the vested shares of Warrant Stock. The shares of Warrant Stock purchased under this Warrant shall be and are deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made therefor. Certificates for shares of Common Stock so purchased shall be delivered to the Holder within five business days after this Warrant has been exercised, and, in case of a purchase of less than all of the Warrant Shares purchasable upon exercise of this Warrant, the Company shall cancel this Warrant and, within five business days, shall execute and deliver to the Holder a new Warrant of like tenor for the balance of the Warrant Shares. Each stock certificate so delivered shall be registered in the name of the Holder or such other name as shall be designated by the Holder. (b) Payment of Exercise Price; Cashless Exercise. Payment of the Exercise Price may be made, at the option of the Holder (i) by certified or official bank check, (ii) by wire transfer, -5- 6 (iii) by instructing the Company to withhold and cancel a number of shares of Warrant Stock then issuable upon exercise of this Warrant with respect to which the excess of the Fair Value over the Exercise Price for such canceled shares of Warrant Stock is at least equal to the Exercise Price for the shares of Warrant Stock being purchased (a "Cashless Exercise"), (iv) by surrender to the Company of shares of Common Stock previously acquired by the Holder with a Fair Value at least equal to the Exercise Price for the shares of Warrant Stock being purchased, or (v) by any combination of the foregoing. (c) Automatic Exercise. In the event that any portion of this Warrant remains unexercised at the Expiration Date and the Fair Value (determined in accordance with Section 1(f) above) of one share of Common Stock at the Expiration Date is greater than the applicable Exercise Price at the Expiration Date, then this Warrant shall be deemed to have been exercised automatically immediately prior to the close of business on the Expiration Date (or, in the event that the Expiration Date is not a business day, the immediately preceding business day) (the "Automatic Exercise Date"), and the Holder shall be treated for all purposes as the holder of record of such shares of Warrant Stock as of the close of business on such Automatic Exercise Date. This Warrant shall be deemed to be surrendered to the Company on the Automatic Exercise Date by virtue of this Section 7(c) and without any action by the Holder or any other person, and payment to the Company of the then applicable Exercise Price multiplied by the number of shares of Warrant Stock then being purchased shall be deemed to be made by Cashless Exercise pursuant to the terms of Section 7(b)(iii), above (without payment by the Holder of any cash or other consideration). As promptly as practicable on or after the Automatic Exercise Date and in any event within ten (10) business days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares of Warrant Stock issuable upon such exercise. (d) No Fractional Shares. The Company shall not be required to issue fractional shares of Common Stock upon the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this paragraph, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Fair Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. 8. Transfer. This Warrant and the Warrant Stock may be transferred or assigned by the Holder, in whole or in part, to any person subject, however, to the Holder's prior compliance with Section 11(c) below, without the prior written consent of the Company. Each permitted transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with an Assignment in the form attached as Attachment 2 hereto duly filled in and signed. Upon such surrender and delivery, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such Assignment, and shall issue to the assignor a new Warrant evidencing the portion, if any, of this Warrant not so assigned, and this Warrant shall promptly be canceled. -6- 7 9. Termination. This Warrant shall terminate at 5:00 p.m. California time on August 29, 2005. 10. Representations of Company. The Company represents and warrants to the Holder as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies; (b) The shares of Warrant Stock have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and the holders thereof are as set forth in the certificate of incorporation of the Company, as amended to the date of this Warrant (as so amended, the "Charter"), a true and complete copy of which has been delivered to the Holder; (d) The execution and delivery of this Warrant are not, and the issuance of the shares of Warrant Stock upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Charter or by-laws of the Company, do not and will not contravene, in any material respect, any governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby; and 11. Representations of the Holder. (a) The shares of Warrant Stock to be received by the Holder upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. The Holder further represents that it does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of this Warrant. -7- 8 (b) The Holder understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the Holder's representations set forth herein. (c) Subject to the right of the Holder to have the Securities acquired upon exercise of the Warrant registered pursuant to the Warrant Registration Rights Agreement of even date herewith between the Company and the Holder, the Holder agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Act and such laws is available, and (B) that the proposed transfer will not violate any of said laws. (d) The Holder acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this Statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The Holder represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company. (e) The Holder acknowledges that the shares of Warrant Stock issuable upon exercise of the Warrant must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market makers" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. 12. Lost Warrants or Stock Certificates. The Company covenants to the Holder that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any loss, theft or destruction, upon receipt of an executed lost securities bond or indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock -8- 9 certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 13. Survival of Representations, Warranties and Agreements. Each of the representations and warranties contained herein shall survive the date of this Warrant, the exercise of this Warrant (or any part hereof) and the termination or expiration of any rights hereunder. Each of the respective agreements of each of the Company and the Holder contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 14. No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against material impairment. 15. Miscellaneous. This Warrant shall be governed by the laws of the State of Delaware, without giving effect to is principles of conflict of laws. The headings herein are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. The terms of this Warrant may not be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder. All notices and other communications from the Company to the Holder shall be delivered personally, sent by overnight courier or mailed by first class mail, postage prepaid, to the last address furnished to the Company in writing by the Holder, and if sent by overnight courier shall be deemed given one business day after deposit with such courier, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: August 30, 2000 SIZZLER INTERNATIONAL, INC. By: /s/ CHARLES L. BOPPELL --------------------------------- Its: President and CEO -------------------------- -9- 10 Attachment 1 FORM OF EXERCISE SUBSCRIPTION (To be signed only upon exercise of Warrant) To the Company: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ________________ (_____________) of the number of shares of Common Stock purchasable under this Warrant for an aggregate Exercise Price of ________________________ Dollars ($__________), and requests that a certificate(s) for such shares be issued in the name of, and delivered to, ____________________________________________________________ whose address is _____________________________. The undersigned represents that it is acquiring such shares of Common Stock for its own account for investment purposes only and not with a view to or for sale in connection with any distribution thereof. Dated: ---------------- ----------------------------------------------------- Name of the Holder (must conform precisely to the name specified on the face of the Warrant) ----------------------------------------------------- Signature of authorized representative of the Holder ----------------------------------------------------- Print or type name of authorized representative Address of the Holder: ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- Attachment 1 Page 1 of 1 11 Attachment 2 ASSIGNMENT FORM FOR VALUE RECEIVED, _____________________________________________ hereby sells, assigns and transfers unto: Name: ------------------------------------------- Address: ----------------------------------------- Social Security or Tax Identification Number: --------------------- the right to purchase Common Stock represented by this Warrant to the extent of _____________ shares as to which such right is presently exercisable and does hereby irrevocably constitute and appoint _________________________________, attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Dated: ------------- --------------------------------------------------- Name of the Holder (must conform precisely to the name specified on the face of the Warrant) --------------------------------------------------- Signature of authorized representative of the Holder --------------------------------------------------- Print or type name of authorized representative Attachment 2 Page 1 of 1 EX-10.8 9 v65445ex10-8.txt EXHIBIT 10.8 1 EXHIBIT 10.8 WARRANT REGISTRATION RIGHTS AGREEMENT This WARRANT REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of this 30th day of August 2000, by and among Sizzler International, Inc., a Delaware corporation (the "Company"), and FFPE Holding Company, Inc., a Delaware corporation (the "Holder"). R E C I T A L S A. The Company is acquiring 82% of all of the outstanding membership interests (the "Units") in FFPE, LLC, a Delaware limited liability company (the "New Company"), on the terms and subject to the conditions of the Amended and Restated LLC Membership Interest Purchase Agreement dated August 21, 2000 (the "Purchase Agreement"), by and among Lender, S & C Company, Inc., a California corporation (the "Old Company"), the New Company, Holder, the shareholders of the Old Company, certain principals of the Old Company and the members of the New Company. B. In consideration of the Units, among other things, the Company is issuing and delivering to the Holder warrants to purchase an aggregate of 1,250,000 shares of Common Stock of the Company pursuant to the terms of one or more Warrants dated of even date herewith (as amended, augmented, supplemented or otherwise modified from time to time, the "Warrants"). Capitalized terms used herein but which are not otherwise defined shall have the meanings given to such terms in the Warrant. C. The execution and delivery of this Agreement by the Company is a condition precedent to the obligations of the Shareholders to consummate the transactions contemplated by the Stock Purchase Agreement. A G R E E M E N T In consideration of the foregoing recitals and the mutual covenants and conditions contained herein, the parties, intending to be legally bound, agree as follows: 1. DEFINITIONS. As used in this Agreement, the following capitalized terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. "Affiliate" has the meaning set forth in Rule 144 of the Act. "Business Day" means any day except a Saturday, Sunday or other day in Los Angeles, California on which banks are authorized to close. "Closing Date" means the date of this Agreement. -1- 2 "Common Stock" means the common stock, $0.01 par value per share, of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. "Holders" has the meaning set forth in Section 2, below. "Initiating Holders" means the holders of a majority of Registrable Securities. "Person" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Piggy-Back Registration" has the meaning set forth in Section 5, below. "Prospectus" means the prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. "Public Equity Offering" means a public offering of Common Stock registered under the Act (except for any registration pursuant to Form S-8). "Register," "registered" and "registration" means a registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective. "Registrable Securities" means any (i) Warrant Shares (whether or not the related Warrants have been exercised), and (ii) any other securities issued or issuable with respect to any such Warrant Shares by way of stock dividends or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when such securities are no longer Transfer Restricted Securities or such securities shall have ceased to be outstanding. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Agreement. "Registration Statement" means any registration statement, including, without limitation, any short-form or shelf registration statement described herein, of the Company relating to the registration for resale of Transfer Restricted Securities that is filed pursuant to the provisions of this Agreement and including the Prospectus included therein, all amendments and supplements -2- 3 thereto (including post-effective amendments) and all exhibits and all material incorporated by reference therein. "SEC" means the Securities and Exchange Commission. "Selling Holder" means a Holder who is selling Registrable Securities in accordance with the provisions of this Agreement. "Shelf Registration" has the meaning set forth in Section 4, below. "Special Counsel" means any special counsel to the Holders, for which Holders will be reimbursed pursuant to this Agreement. "Transfer Restricted Securities" means each Warrant or Warrant Share, until the earliest to occur of: (i) the date on which such Warrant or Warrant Share has been effectively registered under the Act and disposed of in accordance with the Registration Statement covering it (and the purchasers thereof have been issued a registered freely tradable security) and (ii) the date on which such Warrant or Warrant Share is distributed to the public pursuant to Rule 144 under the Act. "Warrants" means the Warrants described in the recitals. Such Warrants shall also include: (i) any new warrant or warrants issued upon the transfer of all or any portion of the warrant issued pursuant to the Purchase Agreement, and (ii) any warrant or warrants issued in substitution or replacement therefor or upon the further transfer, division or combination of any such new warrant or warrants. "Warrant Shares" means the Common Stock or other securities which any Holder may acquire upon exercise of a Warrant, together with any other securities which such Holder may acquire on account of any such securities, including, without limitation, as the result of any dividend or other distribution on Common Stock or any split-up of such Common Stock as provided for in the Warrant Agreement. 2. SECURITIES SUBJECT TO THIS AGREEMENT. A Person is deemed to be a holder of Registrable Securities (a "Holder") whenever such Person owns Registrable Securities or has the right to acquire such Registrable Securities, whether or not such acquisition has actually been effected. 3. REGISTRATION PROCEDURES. In connection with any Shelf Registration or Piggy-Back Registration, the Company shall (provided that it will not be required to take any action pursuant to this Section that would, in the written opinion of counsel for the Company, violate applicable law): (a) No fewer than five Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than two Business Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), furnish to the Holders, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such -3- 4 Holders, their Special Counsel and such underwriters, if any, and cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such inquiries as shall be necessary, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Act, and shall use its best efforts to reflect in each such document filed pursuant to a Shelf Registration, when so filed with the SEC, such reasonable comments as the Holders, their Special Counsel and the managing underwriters, if any, may propose in writing; provided, however, that the Company shall not be deemed to have kept a Registration Statement effective during the applicable period if it voluntarily takes or fails to take any action that results in Selling Holders covered thereby not being able to sell such Registrable Securities pursuant to Federal securities laws during that period; provided, further, the Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto in connection with a Shelf Registration to which the Holders of a majority of the Registrable Securities, their Special Counsel, or the managing underwriters, if any, shall reasonably object on a timely basis; (b) Take such action as may be necessary so that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated herein by reference in each case) complies in all material respects with the Act and the Exchange Act and the respective rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading; (c) Subject to Permitted Interruptions (as defined in Section 6(b), below), prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Act; and comply with the provisions of the Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (d) Notify the Selling Holders, their Special Counsel and the managing underwriters, if any, promptly (and in any case within 2 Business Days), and confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order or injunction suspending -4- 5 or enjoining the use or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time any of the representations and warranties of either the Company contained in any agreement (including any underwriting agreement) contemplated hereby cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event (the nature and pendency of which need not be disclosed during a Permitted Interruption) that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it 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, not misleading, and that in the case of the Prospectus, it 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, and (vii) of the Company's reasonable determination that a post-effective amendment to such Registration Statement would be appropriate; (e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of any order enjoining or suspending the use or effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment; (f) If requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold in connection with such offering reasonably in advance of the filing thereof, subject to Permitted Interruptions, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such Holders reasonably agree should be included therein, (ii) subject to the provisions herein regarding Permitted Interruptions, keep such registration effective and make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement; (g) Furnish to Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested as soon as practicable after the filing of such documents with the SEC; (h) Deliver to each Selling Holder, their Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto -5- 6 by each of the Selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (i) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform "blue sky" investigations and file registrations and qualifications required to be filed pursuant to this Section 3(i); to use its best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and to use its best efforts do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action that would subject them to general service of process in any such jurisdiction where they are not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject; (j) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates (with appropriate CUSIP numbers) representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the DTC, and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders many request at least two Business Days prior to any sale of Registrable Securities; (k) Use its best efforts to cause the offering of the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States, except as may be required as a consequence of the nature of such Selling Holder's business, in which case the Company will cooperate in all reasonable respects at the expense of such Selling Holder with the filing of such Registration Statement and the granting of such approvals as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; provided, however, that the Company shall not be required to register the Registrable Securities in any jurisdiction that would subject them to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject or to require the Company to qualify to do business in any jurisdiction where it is not then so qualified; (l) Upon the occurrence of any event contemplated by Section 3(d)(vi) or 3(d)(vii), as promptly as practicable, subject to Permitted Interruptions, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be -6- 7 incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a 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. If the Company notifies the Holders of the occurrence of any event contemplated by Section 3(d)(vi) or 3(d)(vii), above, the Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made; (m) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company (including with respect to businesses or assets acquired or to be acquired by it), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing or sole underwriters, if any, addressed to the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters; (iii) obtain customary "comfort" letters and updates thereof (including, if such registration includes an underwritten public offering, a "bring down" comfort letter dated the date of the closing under the underwriting agreement) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business which may hereafter be acquired by the Company for which financial statements and financial data are required to be included in the Registration Statement), addressed to each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings and such other matters as reasonably required by the managing underwriter or underwriters and as permitted by the Statement of Auditing Standards No. 72; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the Selling Holders and the underwriters, if any, than those set forth in Section 9, below (or such other provisions and procedures acceptable to Holders of a majority in aggregate number of Registrable Securities covered by such Registration Statement and the managing underwriters); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate number of the Registrable Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause 4(m)(i), above, and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (n) Make available for inspection by one representative of the Selling Holders, the managing underwriter participating in any such disposition of Registrable Securities, if any, and any -7- 8 attorney, consultant or accountant retained by such Selling Holders or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such Inspector in connection with such Registration; provided, however, the Company may first require that such Persons agree to keep confidential any non-public information relating to the Company received by such Person and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 3(n)) until such information has been made generally available to the public (other than as a result of a disclosure or failure to safeguard by such Inspector) unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors); without limiting the foregoing, no such information shall be used by such Inspector as the basis for any market transactions in securities of the Company or its subsidiaries in violation of law; (o) Use its best efforts to cause the Warrant Shares issuable upon exercise of the Warrants and any other Registrable Securities to be quoted or listed on any exchange upon which the Company's Common Stock is then quoted or listed; (p) Comply with all applicable rules and regulations of the SEC and make generally available to their security holders earning statements satisfying the provisions of Section 11(a) of the Act and Rule 158 thereunder (or any similar rule promulgated under the Act), no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; and (q) Subject to Permitted Interruptions, use its best efforts to take all other steps reasonably necessary to effect the registration, offering and sale of the Registrable Securities covered by the Registration Statement. The Company may require each Selling Holder as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed in the applicable Registration Statement and the Company may exclude from such registration the Registrable Securities of any Selling Holder who unreasonably fails to furnish such information promptly after receiving such request. If any such Registration Statement refers to any Holder by name or otherwise as the holder or any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the -8- 9 effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Act or any similar Federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d)(ii), 3(d)(iii), 3(d)(v) or 3(d)(vi), above, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 4. SHELF REGISTRATION. (a) Upon such time that the Fair Value of a share of Common Stock is greater than the Exercise Price, the Initiating Holders may request in writing that the Company file with the SEC, a registration statement for an offering to be made on a continuous basis covering all of the Registrable Securities (the "Shelf Registration"); provided, however, that if pursuant to the then applicable rules and regulations of the SEC, the registration statement may not cover all of the Registrable Securities, the Company shall cause the maximum number of the Registrable Securities which may then be covered by such registration statement to be so covered by such registration statement and file a post-effective amendment to such registration statement as and when required to cover such additional Registrable Securities. The Company will give written notice of such request to all registered holders of Registrable Securities within fifteen (15) days of receipt thereof. Within 90 days of receipt of such request the Company will, subject to the terms of this Agreement, file a Registration Statement and thereafter use its best efforts to effect the Shelf Registration under the Act. (b) The Shelf Registration shall be on such appropriate registration form of the SEC (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition on a continuous basis covering all of the Registrable Securities. The Company shall use its best efforts to keep the Shelf Registration continuously effective for the lesser of (a) the period commencing on the effective date of the Registration Statement and ending on the one-year anniversary of the Expiration Date, (b) a period ending on the date upon which all Registrable Securities covered by the Shelf Registration have been sold, (c) a period ending on the date after which restrictions on sales of securities by persons other than affiliates pursuant to Commission Rule 144 (or any successor provision) terminate, or (d) a period ending on the date after which the Holders no longer own any of the Registrable Securities. -9- 10 (c) The Company will pay all Registration Expenses in connection with any Shelf Registration requested pursuant to this Section 4. The Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, in connection with each Registration Statement requested under this Section 4, which costs shall be allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration on the basis of the respective amounts of the Registrable Securities then being registered on their behalf. (d) The Holders shall be entitled to request one (1) registration pursuant to this Section 4. The Company shall not be required to prepare and file a registration statement pursuant to this Section 4 which would become effective within six months following the effective date of a registration statement filed by the Company with the SEC pertaining to an underwritten public offering of securities for which each of the Holders was entitled to request registration of its Registrable Securities pursuant to Section 5, below. 5. PIGGY-BACK REGISTRATIONS. (a) If the Company proposes to file a Registration Statement under the Act with respect to an offering by the Company for its own account or for the account of any of the holders of any class of its Common Stock in a firmly underwritten Public Equity Offering (other than (i) a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a Registration Statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event fewer than 20 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request in writing within 20 days after receipt of such written notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Selling Holder) (a "Piggy-Back Registration"). Upon the written request of any such Holder made within 20 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, effect the registration under the Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement that covers the securities which the Company proposes to register, provided that, if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register shall be relieved of its obligation to register any Registrable Securities in connection with such registration, without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 4, above, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same -10- 11 period as the delay in registering such other securities. No registration effected under this Section 5 shall relieve the Company of its obligation to effect any registration upon request under Section 4, above, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 4. The Company shall use its best efforts to keep such Piggy-Back Registration continuously effective under the Act until the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Holders of all of the Registrable Securities covered thereby. (b) The Company shall use its best efforts to cause the managing underwriter or underwriters of such proposed offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included in the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to these provisions by giving written notice to the Company of its request to withdraw prior to the effective date of such registration statement. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective or the Company may elect to delay the registration; provided, however, that the Company shall give prompt written notice thereof to participating Holders. (c) The Company will pay all Registration Expenses in connection with registration of Registrable Securities requested pursuant to this Section 5 and the Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, relating to the sale of such Selling Holders' Registrable Securities pursuant to this Section 5, such costs being allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration on the basis of the respective amounts of Registrable Securities then being registered on their behalf. (d) If a registration pursuant to this Section 5 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, the Company will, if requested by any Holder and subject to the provisions of this Section 5, use its best efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such Holder among the securities to be distributed by such underwriters. Notwithstanding anything to the contrary, if the managing underwriter of such underwritten offering shall, in writing, inform the Holders requesting such registration and the holders of any of the Company's other securities which shall have exercised registration rights in respect of such underwritten offering of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering, then the Company will be required to include in such registration statement only the amount of securities that it is so advised should be included in such registration. In such event, (x) in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities that the Company proposes to register, and (ii) second, the securities that have been requested to be included in such registration by Holders and by Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata on the amount of securities sought to be registered by such Holders and -11- 12 Persons) and (y) in cases not initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering as follows: (i) first, the securities of any person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration, (ii) second, the securities that have been requested to be included in such registration by Holders and other persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such Holders and persons) and (iii) third, the securities which the Company proposes to register. 6. DISCONTINUANCE OF DISPOSITION OF REGISTRABLE SECURITIES (a) Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d)(iii), 3(d)(iv), 3(d)(v), 3(d)(vi) or 3(d)(vii), above, or a Permitted Interruption, such Holder will forthwith discontinue disposition of any Registrable Securities covered by a registration statement or prospectus until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(l), above, or until it is advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such prospectus. (b) Anything in this Agreement to the contrary notwithstanding, it is understood and agreed that the Company shall not be required to prepare or file a registration statement, amendment or post-effective amendment thereto or prospectus supplement or to supplement or amend any registration statement or otherwise facilitate the resale of Registrable Securities, and it shall be free voluntarily to take or omit to take any other action that would result in the impracticality of any such filing, supplement or amendment if such action is taken or omitted to be taken by the Company in good faith and for valid business reasons, including, without limitation, matters relating to acquisitions or divestitures, so long as the Company shall, as promptly as practicable thereafter, make such filing, supplement or amendment and, so long as the Company shall as promptly as is practicable thereafter, comply with the requirements of Section 3(l), above, if applicable (any period described in this Section 6(b) during which Holders of Registrable Securities are not able to sell such Registrable Securities under a registration statement is herein called a "Permitted Interruption"). The Company hereby agrees to notify each of the Holders of Registrable Securities of the occurrence of, and the termination of, each Permitted Interruption (the nature and pendency of which need not be disclosed during such Permitted Interruption). 7. PURCHASE (AND EXERCISE) OF THE WARRANTS BY THE UNDERWRITERS. Notwithstanding any other provision of this Agreement to the contrary, in connection with any Shelf Registration or Piggy-Back Registration which is to be an underwritten offering, to the extent all or any portion of the Registrable Securities to be included in such registration consist of shares of Common Stock issuable upon exercise of the Warrants or any portion thereof, the holders of such Registrable Securities may require that the underwriter or underwriters purchase (and exercise) the Warrants or any portion thereof rather than require the holders of the Registrable Securities to exercise the Warrants or portion thereof in connection with such registration, unless the underwriters inform such -12- 13 holders that such a purchase and exercise of the Warrants will materially and adversely affect the proposed offering. The Company shall take all such action and provide all such assistance as may be reasonably requested by the holders of Registrable Securities to facilitate any such purchase (and exercise) of the Warrants agreed to by the underwriter or underwriters, including, without limitation, issuing the Common Stock issuable upon the exercise of the Warrants or any portion thereof to be issued within such time period as will permit the underwriters to make and complete the distribution contemplated by the underwriting. 8. LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER REGISTRATION COVENANTS. The obligations of the Company described in Sections 4 and 5 of this Agreement are subject to each of the following limitations, conditions and qualifications: (a) The Company shall not be required by this Agreement to include securities in a Registration Statement relating to a Piggy-Back Registration above if (i) in the written opinion of counsel to the Company, addressed to the Holders seeking registration and delivered to them, the Holders of such securities seeking registration would be free to sell all such securities within the succeeding three-month period, without registration, under Rule 144 under the Act, which opinion may be based in part upon the representation by the Holders of such securities seeking registration, which registration shall not be unreasonably withheld, that each such Holder is not an affiliate of the Company within the meaning of the Act, and (ii) all requirements under the Act for effecting such sales are satisfied at such time. (b) The Company's obligations shall be subject to the obligations of the Selling Holders to furnish all information and materials and not to take any and all actions as may be required under Federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such Registration Statement. (c) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant to this Agreement unless such audit is requested by the underwriters with respect to such registration. (d) The Company shall not be required by this Agreement to include securities in or maintain a Shelf Registration if, at the time of such demand, the Company is no longer subject to Section 13 or 15(d) of the Exchange Act. 9. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Holder of Registrable Securities, and each of their respective officers, employees, affiliates, directors, partners, members, attorneys and agents, and each Person, if any, who controls each Holder of Registrable Securities (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)(each, a "Holder Indemnified Party"), from and against any and all losses, claims, damages, liabilities, judgments, (including without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, -13- 14 claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except (i) insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders or (ii) to the extent that any such losses, claims, damages, liabilities or judgments result solely from an untrue statement of a material fact contained in, or the omission of a material fact from the Registration Statement or Prospectus, which untrue statement or omission was corrected in an amended or supplemented Registration Statement or Prospectus, if the person alleging such loss, claim, damage, liability or judgment was not sent or given, at or prior to the written confirmation of such sale, a copy of the amended or supplemented Registration Statement or Prospectus if the Company had previously furnished copies thereof to such indemnified party and if delivery of a prospectus was required by the Act and was not so made. (b) Each Holder of Registrable Securities agrees, severally and not jointly, to indemnify and hold harmless the Company, and its directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent as the foregoing indemnity from the Company set forth in Section 9(a), above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the net proceeds actually received by such Holder with respect to its sale of Registrable Securities pursuant to a Registration Statement exceed (i) the amount paid by such Holder for such Registrable Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 9(a) or 9(b), above (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying person") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 9(a) and 9(b), above, a Holder shall not be required to assume the defense of such action pursuant to this Section 9(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). The indemnifying party shall promptly, but in no event more than five (5) Business Days after request for payment, pay directly or reimburse each indemnified party for any legal and any other expenses reasonably incurred by such indemnified party in connection with investigating and defending any such loss, judgment, claim, damage, liability or action. After notice from the indemnifying party to the indemnified party that it will assume the defense of such claim or action, the indemnifying party shall not be liable to the -14- 15 indemnified party for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation and other than as specified in the remainder of this Section 9(c). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred upon written request and presentation of reasonably satisfactory invoices. Such firm shall be designated in writing by all indemnified Holders, in the case of the parties indemnified pursuant to Section 9(a), above, and by the Company, in the case of parties indemnified pursuant to Section 9(b), above. The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty Business Days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 9 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, -15- 16 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, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in Section 9(b), above, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 9(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 9, no Holder or any Holder Indemnified Party shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder with respect to the sale of Registrable Securities pursuant to a Registration Statement exceed (i) the amount paid by such Holder for such Registrable Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or, alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 9(d) are several in proportion to the respective principal amount of Registrable Securities held by each Holder hereunder and not joint. 10. RULE 144A AND RULE 144/OTHER SALES. The Company agrees with each Holder, for so long as any Registrable Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Registrable Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. 11. 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 -16- 17 assignee of this Warrant or such Registrable Securities who, after such assignment or transfer, holds, or has the right to acquire, at least 100,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations), 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; provided, however, such assignment shall be effective only if immediately following such transfer, the Registrable Securities are Transfer Restricted Securities. 12. MISCELLANEOUS. (a) Amendments and Waivers. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally or by course of dealing, except by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made and delivered in accordance with the Stock Purchase Agreement. (c) Successors and Assigns. The rights and obligations of the Holder under this Agreement shall be assignable in whole or in part as set forth in Section 11, above. Each such assignee, by accepting such assignment of the rights of the assignor hereunder, shall be deemed to have agreed to and be bound by the obligations of the assignor hereunder. The rights and obligations of the Company hereunder may not be assigned or delegated. (d) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) Governing Law. In all respects, including all matters of construction, validity and performance, this Agreement and the rights and obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of California applicable to contracts made and performed in such state, without regard to the choice of law or conflicts of laws principles. (g) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (h) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are -17- 18 no restrictions, promises, warrantees or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THE "COMPANY": THE "HOLDER": SIZZLER INTERNATIONAL, INC., FFPE HOLDING COMPANY, INC., a Delaware corporation a Delaware corporation By: /s/ CHARLES L. BOPPELL By: TAMARA SARKISIAN-CELMO --------------------------------- ---------------------------- Its: President and CEO Its: Vice President -------------------------- --------------------- -18- EX-10.9 10 v65445ex10-9.txt EXHIBIT 10.9 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into as of the 30th day of August, 2000 (the "Effective Date"), by and between FFPE, LLC, a Delaware limited liability company (the "Employer") located at 10679 Westview Parkway, San Diego, California 92126, and John Sarkisian (the "Executive"), an individual whose address is P.O. Box 970, Cardiff, California 92007. In consideration of the mutual promises made in this Agreement, Employer and Executive hereby agree as follows: ARTICLE I TERM AND PLACE OF EMPLOYMENT Section 1.1 SPECIFIED PERIOD. Employer hereby employs Executive, and Executive hereby accepts employment with Employer, for a period of three (3) years, beginning on the Effective Date and, unless sooner terminated in accordance with the terms and provisions hereof, terminating on August __, 2003 (which period, as so terminated, shall be referred to as the "Employment Term"). Section 1.2 LOCATION. Unless Executive and Employer agree otherwise, Executive shall perform the services required hereunder at Employer's offices located at 10679 Westview Parkway, San Diego, California, 92126 or at such other location as may be designated by Employer, and shall spend such time at Employer's operating facilities and travelling on business of Employer as Employer shall from time to time reasonably deem necessary. ARTICLE II DUTIES AND OBLIGATIONS OF EXECUTIVE Section 2.1 GENERAL DUTIES AND SERVICES. During the Employment Term, Executive shall serve as the CEO of Employer. In such capacity, Executive will render such services of an executive and administrative nature to Employer, its divisions and Affiliates (which is defined for purposes of this Agreement to include any current or future company or other entity controlled by Employer) as are normally and customarily vested in the office of President/CEO of a corporation and such other or different duties consistent with Executive's office as Employer may from time to time assign, subject always to the direct supervision of the Manager of Employer ("Manager") and the general supervision of the President and Chief Executive Officer of Sizzler International, Inc. (the "Sizzler CEO"). Set forth on Schedule B is a list of specific rights of the Executive, which are not intended to be exclusive. In the performance of such services, Executive shall at all times (i) faithfully, industriously -1- 2 and to the best of his ability, experience and talents perform all of the duties that may be required of and from him pursuant to the terms and provisions of this Agreement; and (ii) subject to the direct supervision of the Manager and the general supervision of the Sizzler CEO, perform all appropriate duties and responsibilities necessary to the effective and efficient operations of Employer. Further, Executive agrees to abide by all policies of Employer and Sizzler and to, from time to time as requested by the Sizzler CEO, execute commercially reasonable agreements and certifications with respect to confidentiality, conflict of interest, proprietary information and Sizzler's code of business conduct. During the first year of this Agreement, Executive hereby agrees not to grant salary increases, bonuses or other compensation awards outside of the customary and usual practice associated with the Oscar's restaurant business; except for stock options which shall be eliminated. Executive shall not be required to reduce benefits to employees during the first year. In the second and third years, Executive will submit recommended salary increases, bonuses and other compensation awards to Manager for its review, according to the guidelines set by Sizzler for similarly situated employees. Section 2.2 PROPRIETARY INFORMATION. Executive expressly acknowledges that his position with the Company is one of the highest trust and confidence both by reason of his position and by reason of his access to and contact with the trade secrets and confidential and proprietary business information of Employer. Accordingly, Executive hereby covenants and agrees as follows with respect to both the Employment Term and thereafter: 2.2.1 Executive shall use his diligent efforts to protect and safeguard the trade secrets and confidential and proprietary information of Employer, including, without limitation, its technical data, records, compilations of information, processes, inventions, formulae, know how, customer lists, supplier lists, products, services, business plans, marketing plans, and opportunities; 2.2.2 Executive shall not disclose any such trade secrets or confidential and proprietary information to any third party whatsoever; except for disclosures made in good faith and in furtherance of Employer's interests during the course of his employment by Employer; 2.2.3 Executive shall not use, directly or indirectly, for his own benefit or for the benefit of any person other than the Company, any of such trade secrets or confidential and proprietary information. Notwithstanding anything to the contrary in this Section 2.2, no information shall be considered confidential which (i) is or becomes publicly available or known in the relevant trade or industry other than as a result of acts by Executive in breach of this Agreement, (ii) is disclosed to Executive by a third party on a non-confidential -2- 3 basis not in breach of any obligation of confidentiality, or (iii) is required to be disclosed by law. Section 2.3 OWNERSHIP OF BOOKS, RECORDS AND PAPERS. All records, books, correspondence, memoranda, notes, files, charts, drawings, specifications, studies, formulae and other documents relating in any manner whatsoever to Employer's business operations or those of Sizzler International, Inc. and its affiliates which come or have heretofore come into Executive's possession shall remain the exclusive property of Employer and Executive shall deliver all such materials and property to Employer upon the termination of Executive's employment hereunder, or at any other time upon the request of Employer. Section 2.4 CERTAIN REMEDIES OF EMPLOYER. Notwithstanding anything to the contrary in this Agreement, the covenants set forth in this Article II shall survive and continue to be binding upon Executive, notwithstanding the termination of his employment with Employer for any reason whatsoever. The covenants and agreements set forth in this Article II shall be deemed and construed as separate agreements, independent of any other covenants, agreements or provisions set forth in this Agreement. The existence of any claim or cause of action by the Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of any or all of such independent covenants and agreements. The Executive acknowledges and agrees that in the event of a breach or threatened breach of the provisions of this Article II by the Executive, Employer will suffer irreparable harm which would not be adequately compensated in damages in an action at law. Accordingly, in addition to such other remedies to which Employer may be entitled and notwithstanding anything to the contrary herein, Employer shall be entitled to specific performance and/or injunctive relief. ARTICLE III OBLIGATIONS OF EMPLOYER Section 3.1 GENERAL DESCRIPTION. During the Employment Term, Employer shall provide Executive with the compensation, incentives, benefits, and business expense reimbursements specified in this Agreement. Section 3.2 OFFICE AND STAFF. During the Employment Term, Employer shall provide Executive with an office, secretarial help, office equipment, supplies, and other facilities adequate for the performance of his duties. -3- 4 ARTICLE IV COMPENSATION OF EXECUTIVE Section 4.1 ANNUAL SALARY. As compensation for the services to be performed pursuant to this Agreement, Executive shall receive a salary at the rate of $200,000.00 per annum, payable not less than semi-monthly and otherwise in accordance with Employer's customary practice for its executive officers. Executive shall be eligible for consideration for such increases in salary and bonuses and stock options as determined by Manager's Board of Directors, based upon the amounts made available by the Manager for other similarly situated employees having similar responsibility. Section 4.2 TAX WITHHOLDING. Employer shall have the right to deduct or withhold from the compensation due to Executive under this Agreement any and all sums required for federal income and Social Security taxes and all state or local taxes now applicable or that may be enacted and become applicable in the future. ARTICLE V EXECUTIVE BENEFITS Section 5.1 ANNUAL VACATION. Executive shall be entitled to vacation time each year with full pay and benefits, consistent with the Employer's policy for similar executives, as may be in effect from time to time. See Schedule A, attached hereto, for the current schedule of benefits. Section 5.2 ILLNESS. Executive shall be entitled to sick leave with full pay and benefits, consistent with Employer's policy for similar executives as may be in effect from time to time. See Schedule A. Section 5.3 AUTOMOBILE ALLOWANCE. During the Employment Term, Employer shall provide Executive with a monthly automobile allowance consistent with the Employer's policy for similar executives, as may be in effect from time to time. See Schedule A. Section 5.4 MEDICAL AND DISABILITY COVERAGE. During the Employment Term, Employer agrees that, if and to the extent Employer provides the same to other executive officers of Employer, Employer will provide Executive with participation in health, dental or other medical insurance plan, disability plan, life insurance plan or any other employee benefit plan from time to time in force on terms no less favorable than those provided to such other executive officers. See Schedule A. -4- 5 ARTICLE VI BUSINESS EXPENSES Section 6.1 REIMBURSEMENT OF OTHER BUSINESS EXPENSES. 6.1.1 Employer shall promptly reimburse Executive, in accordance with Employer's policies from time to time in effect, for all reasonable and customary business expenses incurred by Executive in connection with the business of Employer. 6.1.2 Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a proper deduction on the federal and state income tax return of Employer. 6.1.3 Each such expenditure shall be reimbursable only if Executive furnishes to Employer adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of each such expenditure as an income tax deduction. ARTICLE VII TERMINATION OF EMPLOYMENT Section 7.1 TERMINATION FOR CAUSE. Employer shall have the right, exercisable immediately upon written notice, to terminate Executive's employment for "Cause." 7.1.1 DEFINITION OF CAUSE. As used herein, "Cause" means any of the following: (A) illegal use of narcotics; (B) habitual public drunkenness by Executive which materially and adversely affects Executive's performance under this Agreement; (C) Executive is convicted by a court of competent jurisdiction, or pleads "no contest" to, a felony involving moral turpitude; (D) Executive engages in fraud, embezzlement or any other illegal conduct substantially detrimental to the business or reputation of Employer, regardless of whether such conduct is designed to defraud Employer or others; (E) Executive intentionally imparts material confidential information relating to Employer or its business to competitors or to other third parties other than in the course of carrying out Executive's duties; (F) beginning at any time after the fifth full Fiscal Quarter after the date hereof, the failure of FFPE, LLC's Cumulative Restaurant EBITDA to be at least equal to 75% of the projected Cumulative Restaurant EBITDA for such cumulative period following the date hereof as set forth in the Business Plan, as such terms are defined in the Credit Agreement dated as of even date herewith; and (G) Executive refuses to perform his duties hereunder or otherwise breaches any -5- 6 material covenant, warranty or representation of this Agreement, and, except for any conduct described in clauses (A) through (E) of this Section 7.1.1, fails to cure such breach (if such breach is then capable of being cured) within 30 business days following written notice thereof specifying in reasonable detail the nature of such breach, or if such breach is not capable of being cured in such time, a cure shall not have been diligently initiated within such 30 business day period. 7.1.2 EFFECT OF TERMINATION. Upon termination in accordance with this Section 7.1.2, Executive shall be entitled to no further compensation hereunder other than the Base Salary and other benefits accrued hereunder through, but not including, the effective date of such termination. Employer's exercise of its right to terminate for Cause shall be without prejudice to any other remedy to which it may be entitled at law, in equity or under this Agreement. Section 7.2 VOLUNTARY TERMINATION. Executive may terminate his employment at any time by giving no less than 30 days' written notice to Employer. Upon termination in accordance with this Section 7.2, Executive shall be entitled to no further compensation hereunder other than the Base Salary and other benefits accrued hereunder through, but not including, the effective date of such termination. Section 7.3 TERMINATION DUE TO DEATH OR DISABILITY. This Agreement shall automatically terminate upon the death of Executive. In addition, if any disability or incapacity of Executive to perform his duties as the result of any injury, sickness or physical, mental or emotional condition continues for a period of 60 consecutive days or a total of 90 days in any 12-month period, Employer may terminate Executive's employment upon written notice to Executive. Upon termination in accordance with this Section 8(c), Executive (or Executive's estate, as the case may be) shall be entitled to (i) no further compensation hereunder other than the Base Salary and other benefits accrued hereunder through, but not including, the date of death or, in the case of disability, the date disability is determined as set forth above. Section 7.4 EXCLUSIVE REMEDY. The payments contemplated by this Agreement shall constitute Executive's exclusive and sole remedy for any claim for payments or wages that Executive might otherwise have against Employer under this Agreement which, but for Executive's termination of employment by Employer hereunder, might otherwise be due and payable by Employer to Executive. Executive covenants not to assert or pursue any such remedies, other than an action to enforce the payments due to Executive under this Agreement. -6- 7 ARTICLE VIII GENERAL PROVISIONS Section 8.1 NOTICES. Any notices to be given under this Agreement by either party to the other shall be in writing and may be transmitted by personal delivery or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change that address by written notice in accordance with this Section 8.01. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. Section 8.2 ATTORNEYS' FEES AND COSTS. In the event of any litigation, arbitration or other dispute arising as a result of or by reason of this Agreement, the prevailing party in any such litigation, arbitration or other dispute shall be entitled to, in addition to any other damages assessed, its reasonable attorneys' fees, and all other costs and expenses incurred in connection with settling or resolving such dispute. The attorneys' fees which the prevailing party is entitled to recover shall include fees for prosecuting or defending any appeal and shall be awarded for any supplemental proceedings until the final judgment is satisfied in full. In addition to the foregoing award of attorneys' fees to prevailing party, the prevailing party in any lawsuit or arbitration proceeding on this Agreement shall be entitled to its reasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce the judgment. This attorneys' fees provision is separate and several and shall survive the merger of this Agreement into any judgment. Section 8.3 ENTIRE AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the terms and conditions of Employer's employment of Executive by Employer and contains all of the covenants and agreements between the parties with respect to the terms and conditions of that employment. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or otherwise, relating to the terms and conditions of Executive's employment has been made by any party, or anyone acting on behalf of any party, which are not embodied in this Agreement, and that no other agreement, statement, or promise relating to such subject matter not contained in this Agreement shall be valid or binding on either party. Section 8.4 MODIFICATIONS. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. Section 8.5 EFFECT OF WAIVER. The failure of either party to insist on strict compliance with any of the terms, covenants, or conditions of this Agreement by the -7- 8 other party shall not be deemed a waiver of that term, covenant, or condition, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. Section 8.6 PARTIAL INVALIDITY. If any provision in this Agreement is held by a court of competent jurisdiction or pursuant to an arbitration conducted pursuant to Section 8.9 of this Agreement to be invalid, void, or unenforceable, the remaining provisions hereof shall nevertheless continue in full force without being impaired or invalidated in any way. Section 8.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely within the state of California except with regard to California's choice of law principles. Section 8.8 SUMS DUE DECEASED EXECUTIVE. If Executive dies prior to the expiration of the term of his employment, any sums that may be due him from Employer under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, and assigns. Section 8.9 ARBITRATION OF DISPUTES. Except only as otherwise provided below, either party hereto may require the arbitration of any dispute arising under or in connection with this Agreement. Such party may initiate and require arbitration by giving notice to the other party specifying the matter to be arbitrated. If legal action is already pending on any matter concerning which the notice is given, the notice shall not be effective unless given by the defendant therein and given before the expiration of twenty (20) days after service of process on the person giving the notice. Except as provided to the contrary in these provisions on arbitration, the arbitration shall be in conformity with and subject to applicable rules and procedures of the American Arbitration Association (or any successor thereto). If the American Arbitration Association is not then in existence and there is no successor, or if for any reason the American Arbitration Association fails or refuses to act, the arbitration shall be in conformity with and subject to the provisions of applicable California statutes (if any) relating to arbitration at the time of the notice. The arbitrators shall be bound by this Agreement. Pleadings in any action pending on the same matter shall, if arbitration is required as aforesaid, be deemed amended to limit the issues to those contemplated by the rules prescribed above. Each party shall pay the costs of arbitration, including arbitrator's fees, as awarded by the arbitrator(s). The number and selection of arbitrator(s) shall be in accordance with the rules prescribed above, except that (a) each arbitrator selected shall be neutral and familiar with the principal subject matter of the issues to be arbitrated, (b) the testimony of witnesses shall be given under oath, and (c) depositions and other discovery may be ordered by the arbitrator(s). Notwithstanding anything to the contrary in this Section 8.9, the parties hereto shall -8- 9 have the right at all times to resort to any court of competent jurisdiction to seek and obtain any equitable, extraordinary and/or other remedies to which they may be entitled but which would be beyond the authority of the arbitrators hereunder to grant. NOTICE: By initialing in the space below you are agreeing, except only to the extent provided to the contrary above, to have any dispute arising out of the matters included in the "arbitration of disputes" provision decided by neutral arbitration and you are giving up any rights you might possess to have the dispute litigated in a court or jury trial. By initialing in the space below you are giving up your judicial rights to discovery and appeal, unless such rights are specifically included in the "arbitration of disputes" provision. If you refuse to submit to arbitration after agreeing to this provision you may be compelled to arbitrate under the authority of the applicable state statute. Your agreement to this arbitration provision is voluntary. We have read and understand the foregoing and, except as otherwise permitted above, agree to submit disputes arising out of the matters included in the "arbitration of disputes" provision to neutral arbitration. Initials: /s/ JOHN SARKISIAN /s/ JOHN SARKISIAN -------------------- -------------------- Employer Executive Section 8.10 WAIVER OF JURY TRIAL. With respect to any dispute arising under or in connection with this Agreement, as to which neither party hereto invokes the right to arbitration hereinabove provided, or as to which legal action nevertheless occurs, each party hereto hereby irrevocably waives all rights it may have to demand a jury trial. This waiver is knowingly, intentionally, and voluntarily made by the parties hereto and each party acknowledges that neither the other party hereto nor any person acting on behalf of the other party has made any representation of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. The parties hereto each further acknowledge that they have been represented (or have had the opportunity to be represented) in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel. The parties hereto each further acknowledges that it has read and understands the meaning and ramifications of this waiver provision. Initials: /s/ JOHN SARKISIAN /s/ JOHN SARKISIAN -------------------- -------------------- Employer Executive -9- 10 Section 8.11 UNDERSTANDING OF AGREEMENT. Executive states that he has carefully read this Agreement, that he has had sufficient time and opportunity to consider its terms and to obtain legal advice, if desired, that he fully understands its final and binding effect, that the only promises made to him to sign this Agreement are those stated above, and that he is signing this Agreement voluntarily. Executed as of August 30, 2000. EMPLOYER: EXECUTIVE: FFPE, LLC a Delaware limited liability company /s/ JOHN SARKISIAN /s/ JOHN SARKISIAN - ------------------------------------- ------------------------------------- John Sarkisian, CEO John Sarkisian -10- 11 CHIEF EXECUTIVE OFFICER JOHN SARKISIAN
Annual Base Salary: $200,000 (biweekly payroll) Bonus Potential: 20% of base salary, paid quarterly Vacation: Per Vacation Policy (5 days after 1 year of service; 10 days after 2 years of service; 1 additional day after each additional year of service; caps at 15 days per year) Illness: Per Sick Leave Policy (5 paid sick days per year) Auto Allowance: Monthly taxable auto allowance of $500 Medical/Dental: Company paid for executive and dependents Life Insurance: $50,000 coverage for executive company paid Long Term Disability: Company paid 401(k): Per plan; match 10% Flexible Spending Account (Sect 125): Per Plan
Schedule A 12 SCHEDULE B TO THE EMPLOYMENT AGREEMENT OF JOHN SARKISIAN Pursuant to Section 2.1 of the Employment Agreement and by way of example and not by way of limitation upon John Sarkisian's authority as Chief Executive Officer, during the Employment Term and without the permission of John Sarkisian, there shall be: 1. No change in the price of food, products or any change in the level of services offered by FFPE, LLC; 2. No reduction in the personnel of FFPE, LLC either in the aggregate or on a restaurant by restaurant basis; 3. No change in the food, product lines and services offered by FFPE, LLC; 4. No reduction in the number of new restaurants to be opened pursuant to the Business Plan so long as FFPE, LLC is entitled to request drawdowns under the Credit Agreement dated May 23, 2000, between Sizzler International, Inc., S&C Company, Inc., and FFPE, LLC. Nothing set forth above shall restrict or limit the power or authority of the Board of Directors of Sizzler International, Inc. to determine and establish limits on the authority of John Sarkisian comparable to those imposed on other divisional presidents and chief executive officers; provided, however, that John Sarkisian shall be entitled to request consideration of any decision made by the Chief Executive Officer of Sizzler to make any change or take any action specified in Items 1 through 4 above, which action or change has been made without John Sarkisian's consent. Schedule B EX-10.10 11 v65445ex10-10.txt EXHIBIT 10.10 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into as of the 30th day of August, 2000 (the "Effective Date"), by and between FFPE, LLC, a Delaware limited liability company (the "Employer") located at 10679 Westview Parkway, San Diego, California 92126, and Tamara Sarkisian-Celmo (the "Executive"), an individual whose address is 8405 Rice Court, San Diego, California 92129. In consideration of the mutual promises made in this Agreement, Employer and Executive hereby agree as follows: ARTICLE I TERM AND PLACE OF EMPLOYMENT Section 1.1 SPECIFIED PERIOD. Employer hereby employs Executive, and Executive hereby accepts employment with Employer, for a period of one (1) year (the "Employment Term"), beginning on the Effective Date and, unless sooner terminated in accordance with the terms and provisions hereof, terminating on August __, 2001. Section 1.2 LOCATION. Unless Executive and Employer agree otherwise, Executive shall perform the services required hereunder at Employer's offices located at 10679 Westview Parkway, San Diego, California 92126, or at such other location as may be designated by Employer, and shall spend such time at Employer's operating facilities and travelling on business of Employer as Employer shall from time to time reasonably deem necessary. ARTICLE II DUTIES AND OBLIGATIONS OF EXECUTIVE Section 2.1 GENERAL DUTIES AND SERVICES. During the Employment Term, Executive shall serve as the President of Employer. In such capacity, Executive will render such services of an executive and administrative nature to Employer, its divisions and Affiliates (which is defined for purposes of this Agreement to include any current or future company or other entity controlled by Employer) as are normally and customarily vested in the office of President of a corporation and such other or different duties consistent with Executive's office as Employer may from time to time assign, subject always to the direct supervision of the CEO of Employer. In the performance of such services, Executive shall at all times (i) faithfully, industriously and to the best of her ability, experience and talents perform all of the duties that may be required of and from her pursuant to the terms and provisions of this Agreement; and (ii) perform all appropriate duties and responsibilities necessary to the effective and efficient operations of Employer. Further, Executive agrees to abide by all -1- 2 policies of Employer and to, from time to time as requested by the CEO of Employer, execute commercially reasonable agreements and certifications with respect to confidentiality, conflict of interest, proprietary information and Sizzler International, Inc's code of business conduct. Section 2.2 PROPRIETARY INFORMATION. Executive expressly acknowledges that her position with the Company is one of the highest trust and confidence both by reason of her position and by reason of her access to and contact with the trade secrets and confidential and proprietary business information of Employer. Accordingly, Executive hereby covenants and agrees as follows with respect to both the Employment Term and thereafter: 2.2.1 Executive shall use her diligent efforts to protect and safeguard the trade secrets and confidential and proprietary information of Employer, including, without limitation, its technical data, records, compilations of information, processes, inventions, formulae, know how, customer lists, supplier lists, products, services, business plans, marketing plans, and opportunities; 2.2.2 Executive shall not disclose any such trade secrets or confidential and proprietary information to any third party whatsoever; except for disclosures made in good faith and in furtherance of Employer's interests during the course of her employment by Employer; 2.2.3 Executive shall not use, directly or indirectly, for her own benefit or for the benefit of any person other than the Company, any of such trade secrets or confidential and proprietary information. Notwithstanding anything to the contrary in this Section 2.3, no information shall be considered confidential which (i) is or becomes publicly available or known in the relevant trade or industry other than as a result of acts by Executive in breach of this Agreement, (ii) is disclosed to Executive by a third party on a non-confidential basis not in breach of any obligation of confidentiality, or (iii) is required to be disclosed by law. Section 2.3 OWNERSHIP OF BOOKS, RECORDS AND PAPERS. All records, books, correspondence, memoranda, notes, files, charts, drawings, specifications, studies, formulae and other documents relating in any manner whatsoever to Employer's business operations or those of Sizzler International, Inc. which come or have heretofore come into Executive's possession shall remain the exclusive property of Employer and Executive shall deliver all such materials and property to Employer upon the termination of Executive's employment hereunder, or at any other time upon the request of Employer. -2- 3 Section 2.4 CERTAIN REMEDIES OF EMPLOYER. Notwithstanding anything to the contrary in this Agreement, the covenants set forth in this Article II shall survive and continue to be binding upon Executive, notwithstanding the termination of her employment with Employer for any reason whatsoever. The covenants and agreements set forth in this Article II shall be deemed and construed as separate agreements, independent of any other covenants, agreements or provisions set forth in this Agreement. The existence of any claim or cause of action by the Executive against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of any or all of such independent covenants and agreements. The Executive acknowledges and agrees that in the event of a breach or threatened breach of the provisions of this Article II by the Executive, Employer will suffer irreparable harm which would not be adequately compensated in damages in an action at law. Accordingly, in addition to such other remedies to which Employer may be entitled and notwithstanding anything to the contrary herein, Employer shall be entitled to specific performance and/or injunctive relief. ARTICLE III OBLIGATIONS OF EMPLOYER Section 3.1 GENERAL DESCRIPTION. During the Employment Term, Employer shall provide Executive with the compensation, incentives, benefits, and business expense reimbursements specified in this Agreement. Section 3.2 OFFICE AND STAFF. During the Employment Term, Employer shall provide Executive with an office, secretarial help, office equipment, supplies, and other facilities and services adequate for the performance of her duties. ARTICLE IV COMPENSATION OF EXECUTIVE Section 4.1 ANNUAL SALARY. As compensation for the services to be performed pursuant to this Agreement, Executive shall receive a salary at the rate of $150,000.00 per annum, payable not less than semi-monthly and otherwise in accordance with Employer's customary practice for its executive officers. Section 4.2 TAX WITHHOLDING. Employer shall have the right to deduct or withhold from the compensation due to Executive under this Agreement any and all sums required for federal income and Social Security taxes and all state or local taxes now applicable or that may be enacted and become applicable in the future. -3- 4 ARTICLE V EXECUTIVE BENEFITS Section 5.1 ANNUAL VACATION. Executive shall be entitled to vacation time each year with full pay and benefits, consistent with the Employer's policy for similar executives, as may be in effect from time to time. See Schedule A, attached hereto, for the current schedule of benefits. Section 5.2 ILLNESS. Executive shall be entitled to sick leave with full pay and benefits, consistent with Employer's policy for similar executives, as may be in effect from time to time. See Schedule A. Section 5.3 AUTOMOBILE ALLOWANCE. During the Employment Term, Employer shall provide Executive with a monthly automobile allowance consistent with the Employer's policy for similar executives, as may be in effect from time to time. See Schedule A. Section 5.4 MEDICAL AND DISABILITY COVERAGE. During the Employment Term, Employer agrees that, if and to the extent Employer provides the same to other executive officers of Employer, Employer will provide Executive with participation in health, dental or other medical insurance plan, disability plan, life insurance plan or any other employee benefit plan from time to time in force on terms no less favorable than those provided to such other executive officers. See Schedule A. ARTICLE VI BUSINESS EXPENSES Section 6.1 REIMBURSEMENT OF OTHER BUSINESS EXPENSES. 6.1.1 Employer shall promptly reimburse Executive, in accordance with Employer's policies from time to time in effect, for all reasonable and customary business expenses incurred by Executive in connection with the business of Employer. 6.1.2 Each such expenditure shall be reimbursable only if it is of a nature qualifying it as a proper deduction on the federal and state income tax return of Employer. 6.1.3 Each such expenditure shall be reimbursable only if Executive furnishes to Employer adequate records and other documentary evidence required by -4- 5 federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of each such expenditure as an income tax deduction. ARTICLE VII TERMINATION OF EMPLOYMENT Section 7.1 TERMINATION FOR CAUSE. Employer shall have the right, exercisable immediately upon written notice, to terminate Executive's employment for "Cause". 7.1.1 DEFINITION OF CAUSE. As used herein, "Cause" means any of the following: (A) illegal use of narcotics; (B) habitual public drunkenness by Executive which materially and adversely affects Executive's performance under this Agreement; (C) Executive is convicted by a court of competent jurisdiction, or pleads "no contest" to, a felony involving moral turpitude; (D) Executive engages in fraud, embezzlement or any other illegal conduct substantially detrimental to the business or reputation of Employer, regardless of whether such conduct is designed to defraud Employer or others; (E) Executive intentionally imparts material confidential information relating to Employer or its business to competitors or to other third parties other than in the course of carrying out Executive's duties; and (F) Executive refuses to perform her duties hereunder or otherwise breaches any material covenant, warranty or representation of this Agreement, and, except for any conduct described in clauses (A) through (E) of this Section 7.1.1, fails to cure such breach (if such breach is then capable of being cured) within 30 business days following written notice thereof specifying in reasonable detail the nature of such breach, or if such breach is not capable of being cured in such time, a cure shall not have been diligently initiated within such 30 business day period. 7.1.2 EFFECT OF TERMINATION. Upon termination in accordance with this Section 7.1.2, Executive shall be entitled to no further compensation hereunder other than the Base Salary and other benefits accrued hereunder through, but not including, the effective date of such termination. Employer's exercise of its right to terminate for Cause shall be without prejudice to any other remedy to which it may be entitled at law, in equity or under this Agreement. Section 7.2 VOLUNTARY TERMINATION. Executive may terminate her employment at any time by giving no less than 30 days' written notice to Employer. Upon termination in accordance with this Section 7.2, Executive shall be entitled to no further compensation hereunder other than the Base Salary and other benefits accrued hereunder through, but not including, the effective date of such termination. -5- 6 Section 7.3 TERMINATION DUE TO DEATH OR DISABILITY. This Agreement shall automatically terminate upon the death of Executive. In addition, if any disability or incapacity of Executive to perform her duties as the result of any injury, sickness or physical, mental or emotional condition continues for a period of 60 consecutive days or a total of 90 days in any 12-month period, Employer may terminate Executive's employment upon written notice to Executive. Upon termination in accordance with this Section 8(c), Executive (or Executive's estate, as the case may be) shall be entitled to (i) no further compensation hereunder other than the Base Salary and other benefits accrued hereunder through, but not including, the date of death or, in the case of disability, the date disability is determined as set forth above. Section 7.4 TERMINATION WITHOUT CAUSE. Employer shall have the right, exercisable upon 30 days' prior written notice, to terminate Executive's employment under this Agreement for any reason other than set forth in Sections 7.1, 7.2 and 7.3, above, at any time during the Term. If Executive is so terminated by Employer pursuant to this Section 7.4 during the Term, Employer shall (i) pay to Executive the Base Salary, and (ii) provide the same health insurance benefits to which Executive was entitled hereunder, in each case (i.e., the Base Salary and health insurance benefits), until the earlier to occur of (A) the expiration of the remaining portion of the Term, or (B) the expiration of the 12-month period commencing on the date Executive is terminated. Employer shall make such payments in accordance with its regular payroll schedule or in a single lump sum payment, discounted to the present value thereof (as reasonably determined by the Company's independent accountants). Section 7.5 EXCLUSIVE REMEDY. The payments contemplated by this Agreement shall constitute Executive's exclusive and sole remedy for any claim for payments or wages that Executive might otherwise have against Employer under this Agreement which, but for Executive's termination of employment by Employer hereunder, might otherwise be due and payable by Employer to Executive. Executive covenants not to assert or pursue any such remedies, other than an action to enforce the payments due to Executive under this Agreement. ARTICLE VIII GENERAL PROVISIONS Section 8.1 NOTICES. Any notices to be given under this Agreement by either party to the other shall be in writing and may be transmitted by personal delivery or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change that address by written notice in accordance with this Section 8.01. Notices delivered personally shall be deemed -6- 7 communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. Section 8.2 ATTORNEYS' FEES AND COSTS. In the event of any litigation, arbitration or other dispute arising as a result of or by reason of this Agreement, the prevailing party in any such litigation, arbitration or other dispute shall be entitled to, in addition to any other damages assessed, its reasonable attorneys' fees, and all other costs and expenses incurred in connection with settling or resolving such dispute. The attorneys' fees which the prevailing party is entitled to recover shall include fees for prosecuting or defending any appeal and shall be awarded for any supplemental proceedings until the final judgment is satisfied in full. In addition to the foregoing award of attorneys' fees to prevailing party, the prevailing party in any lawsuit or arbitration proceeding on this Agreement shall be entitled to its reasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce the judgment. This attorneys' fees provision is separate and several and shall survive the merger of this Agreement into any judgment. Section 8.3 ENTIRE AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the terms and conditions of Employer's employment of Executive by Employer and contains all of the covenants and agreements between the parties with respect to the terms and conditions of that employment. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or otherwise, relating to the terms and conditions of Executive's employment has been made by any party, or anyone acting on behalf of any party, which are not embodied in this Agreement, and that no other agreement, statement, or promise relating to such subject matter not contained in this Agreement shall be valid or binding on either party. Section 8.4 MODIFICATIONS. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. Section 8.5 EFFECT OF WAIVER. The failure of either party to insist on strict compliance with any of the terms, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of that term, covenant, or condition, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. Section 8.6 PARTIAL INVALIDITY. If any provision in this Agreement is held by a court of competent jurisdiction or pursuant to an arbitration conducted pursuant to Section 8.9 of this Agreement to be invalid, void, or unenforceable, the remaining provisions hereof shall nevertheless continue in full force without being impaired or invalidated in any way. -7- 8 Section 8.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely in the state of California, except with regard to California's choice of law principles. Section 8.8 SUMS DUE DECEASED EXECUTIVE. If Executive dies prior to the expiration of the term of his employment, any sums that may be due him from Employer under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, and assigns. Section 8.9 ARBITRATION OF DISPUTES. Except only as otherwise provided below, either party hereto may require the arbitration of any dispute arising under or in connection with this Agreement. Such party may initiate and require arbitration by giving notice to the other party specifying the matter to be arbitrated. If legal action is already pending on any matter concerning which the notice is given, the notice shall not be effective unless given by the defendant therein and given before the expiration of twenty (20) days after service of process on the person giving the notice. Except as provided to the contrary in these provisions on arbitration, the arbitration shall be in conformity with and subject to applicable rules and procedures of the American Arbitration Association (or any successor thereto). If the American Arbitration Association is not then in existence and there is no successor, or if for any reason the American Arbitration Association fails or refuses to act, the arbitration shall be in conformity with and subject to the provisions of applicable California statutes (if any) relating to arbitration at the time of the notice. The arbitrators shall be bound by this Agreement. Pleadings in any action pending on the same matter shall, if arbitration is required as aforesaid, be deemed amended to limit the issues to those contemplated by the rules prescribed above. Each party shall pay the costs of arbitration, including arbitrator's fees, as awarded by the arbitrator(s). The number and selection of arbitrator(s) shall be in accordance with the rules prescribed above, except that (a) each arbitrator selected shall be neutral and familiar with the principal subject matter of the issues to be arbitrated, (b) the testimony of witnesses shall be given under oath, and (c) depositions and other discovery may be ordered by the arbitrator(s). Notwithstanding anything to the contrary in this Section 8.9, the parties hereto shall have the right at all times to resort to any court of competent jurisdiction to seek and obtain any equitable, extraordinary and/or other remedies to which they may be entitled but which would be beyond the authority of the arbitrators hereunder to grant. NOTICE: By initialing in the space below you are agreeing, except only to the extent provided to the contrary above, to have any dispute arising out of the matters included in the "arbitration of disputes" provision decided by neutral arbitration and you are giving up any rights you might possess to have the dispute litigated in a court or jury trial. By initialing in the space below you are giving up your judicial rights to discovery and appeal, unless such rights are specifically included in the "arbitration of -8- 9 disputes" provision. If you refuse to submit to arbitration after agreeing to this provision you may be compelled to arbitrate under the authority of the applicable state statute. Your agreement to this arbitration provision is voluntary. We have read and understand the foregoing and, except as otherwise permitted above, agree to submit disputes arising out of the matters included in the "arbitration of disputes" provision to neutral arbitration. Initials: /s/ JOHN SARKISIAN /s/ JOHN SARKISIAN -------------------- -------------------- Employer Executive Section 8.10 WAIVER OF JURY TRIAL. With respect to any dispute arising under or in connection with this Agreement, as to which neither party hereto invokes the right to arbitration hereinabove provided, or as to which legal action nevertheless occurs, each party hereto hereby irrevocably waives all rights it may have to demand a jury trial. This waiver is knowingly, intentionally, and voluntarily made by the parties hereto and each party acknowledges that neither the other party hereto nor any person acting on behalf of the other party has made any representation of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. The parties hereto each further acknowledge that they have been represented (or have had the opportunity to be represented) in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel. The parties hereto each further acknowledges that it has read and understands the meaning and ramifications of this waiver provision. Initials: /s/ JOHN SARKISIAN /s/ JOHN SARKISIAN -------------------- -------------------- Employer Executive Section 8.11 UNDERSTANDING OF AGREEMENT. Executive states that she has carefully read this Agreement, that she has had sufficient time and opportunity to consider its terms and to obtain legal advice, if desired, that she fully understands its final and binding effect, that the only promises made to her to sign this Agreement are those stated above, and that she is signing this Agreement voluntarily. -9- 10 Executed as of August 30, 2000. EMPLOYER: EXECUTIVE: FFPE, LLC a Delaware limited liability company /s/ JOHN SARKISIAN /s/ TAMARA SARKISIAN-CELMO - ------------------------------------- ------------------------------------- John Sarkisian, CEO Tamara Sarkisian-Celmo -10- 11 PRESIDENT TAMMY SARKISIAN CELMO
Annual Base Salary: $150,000 (biweekly payroll) Bonus Potential: 20% of base salary, paid quarterly Vacation: Per Vacation Policy (5 days after 1 year of service; 10 days after 2 years of service; 1 additional day after each additional year of service; caps at 15 days per year) Illness: Per Sick Leave Policy (5 paid sick days per year) Auto Allowance: Monthly taxable auto allowance of $500 for gasoline Medical/Dental: Company paid for executive and dependents Life Insurance: $50,000 coverage for executive company paid Long Term Disability: Company paid 401(k): Per plan; match 10% Flexible Spending Account (Sect 125): Per Plan
Schedule A -----END PRIVACY-ENHANCED MESSAGE-----