-----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, KeDUU68BeY8zSe3Fdc1WqAqTc+lu5Ura+LI2X4yKiXMzkWQg4Z2mhJR/p0hIDZ3R vntil8wcHR3CsnuSYXII0A== 0000950168-97-001435.txt : 19970530 0000950168-97-001435.hdr.sgml : 19970530 ACCESSION NUMBER: 0000950168-97-001435 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19970529 SROS: NONE GROUP MEMBERS: COMPASS GROUP PLC GROUP MEMBERS: COMPASS HOLDINGS INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DAKA INTERNATIONAL INC CENTRAL INDEX KEY: 0000840826 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 043024178 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-40008 FILM NUMBER: 97616164 BUSINESS ADDRESS: STREET 1: ONE CORPORATE PL STREET 2: 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 BUSINESS PHONE: 5087749115 MAIL ADDRESS: STREET 1: ONE CORPORATE PLACE 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMPASS HOLDINGS INC CENTRAL INDEX KEY: 0001038978 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 561870425 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 900 MARKET STREET, SUITE 200 CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 7043294000 SC 14D1 1 SC14D1 FOR COMPASS HOLDINGS, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 14D-1 (RULE 14D-100) TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 DAKA INTERNATIONAL, INC. (Name of Subject Company (Issuer)) COMPASS HOLDINGS, INC. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF COMPASS GROUP PLC (Bidders) COMMON STOCK, $.01 PAR VALUE PER SHARE (Title of Class of Securities) 234068203 (CUSIP Number of Class of Securities) MARY H. KERCHER, GENERAL COUNSEL COMPASS GROUP USA, INC. 2400 YORKMONT ROAD CHARLOTTE, NORTH CAROLINA 28217 (704) 329-4034 FACSIMILE (704) 329-4010 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Bidder) WITH A COPY TO: BOYD C. CAMPBELL, JR. SMITH HELMS MULLISS & MOORE, L.L.P. 214 NORTH CHURCH STREET CHARLOTTE, NORTH CAROLINA 28202 (704) 343-2030 FACSIMILE (704) 358-0252 CALCULATION OF FILING FEE [CAPTION] TRANSACTION VALUATION* AMOUNT OF FILING FEE** $83,612,265 $16,723
* For purposes of calculating the filing fee only. This calculation assumes the purchase of all 11,148,302 shares of common stock, par value $.01 per share, of DAKA International, Inc. ("Shares") at $7.50 per share in cash. ** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate value of cash offered by Compass Holdings, Inc. for such shares. [ ]CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2) AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING. Amount Previously Paid: Not applicable. Form or Registration No.: Not applicable. Filing Party: Not applicable. Date Filed: Not applicable. CUSIP NO. 234068203 14D-1 1 NAME OF REPORTING PERSON: Compass Holdings, Inc. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 56-1870425 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON None 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) N/A 10 TYPE OF REPORTING PERSON CO
CUSIP NO. 234068203 14D-1 1 NAME OF REPORTING PERSON: Compass Group PLC S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: N/A 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS BK 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION England and Wales 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON None 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) N/A 10 TYPE OF REPORTING PERSON CO
This Statement relates to a tender offer by Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a public limited company incorporated under the laws of England and Wales (the "Parent"), to purchase all outstanding shares of common stock, par value $.01 per share (the "Shares") of DAKA International, Inc., a Delaware corporation (the "Company"), at a purchase price of $7.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 29, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and which are incorporated herein by reference. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is DAKA International, Inc. The address of the principal executive offices of the Company is set forth in Section 7 ("Certain Information Concerning the Company") of the Offer to Purchase. (b) The exact title of the class of equity securities being sought in the Offer is the common stock, par value $.01 per share, of the Company. The information set forth in the Introduction of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a) through (d), (g) The information set forth in Section 8 ("Certain Information Concerning the Purchaser and Parent") of the Offer to Purchase, and in Schedule I thereto, is incorporated herein by reference. (e) and (f) None of the Purchaser or Parent, nor, to the best of their knowledge, any of the persons listed in Schedule I of the Offer to Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction and Section 10 ("Background of the Offer; the Merger Agreement; the Distribution; the Tax Allocation Agreement; the Post-Closing Covenants Agreement") and Section 8 ("Certain Information Concerning the Purchaser and Parent") of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) and (b) The information set forth in Section 9 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF BIDDER. (a) through (e) The information set forth in the Introduction and Section 11 ("Purpose of the Offer, the Merger and the Distribution; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. (f) and (g) The information set forth in Section 12 ("Effect of the Offer on the Market for the Shares; Stock Exchange Listing; Registration Under the Exchange Act") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in Section 8 ("Certain Information Concerning the Purchaser and Parent") and Schedule I of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Introduction, Section 8 ("Certain Information Concerning the Purchaser and Parent") and Section 10 ("Background of the Offer; The Merger Agreement; the Distribution; the Tax Allocation Agreement; the Post-Closing Covenants Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and in Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 ("Certain Information Concerning the Purchaser and Parent") of the Offer to Purchase and the Financial Statements set forth in Exhibit (g) hereto are incorporated herein by reference. The incorporation by reference herein of the above-mentioned financial information does not constitute an admission that such information is material to a decision by a security holder of the Company whether to sell, tender or hold securities being sought in the Offer. ITEM 10. ADDITIONAL INFORMATION. (a) None. (b) and (c) The information set forth in Section 16 ("Certain Legal Matters; Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 12 ("Effect of the Offer on the Market for the Shares; Stock Exchange Listing; Registration under the Exchange Act") and Section 16 ("Certain Legal Matters; Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference in its entirety. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase, dated May 29, 1997 (a)(2) Form of Letter of Transmittal (a)(3) Form of Letter from MacKenzie Partners, Inc., to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients (a)(5) Notice of Guaranteed Delivery (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (a)(7) Form of tombstone advertisement, dated May 29, 1997 (a)(8) Form of press release issued by Parent on May 27, 1997 (b) None (c)(1) Agreement and Plan of Merger, dated as of May 27, 1997, by and among Parent, Purchaser, Compass Interim, Inc. and the Company (incorporated herein by reference from Exhibit A to the Offer to Purchase filed as Exhibit (a)(1) hereto) (c)(2) Reorganization Agreement, dated as of May 27, 1997, by and among the Company, Daka, Inc., Unique Casual Restaurants, Inc., Parent and Purchaser (c)(3) Tax Allocation Agreement, dated as of May 27, 1997, among the Company, Unique Casual Restaurants, Inc., Parent and Purchaser (c)(4) Post-Closing Covenants Agreement, dated as of May 27, 1997, among the Company, Daka, Inc., Unique Casual Restaurants, Inc., Champps Entertainment, Inc., Fuddruckers, Inc., Parent and Purchaser (c)(5) Stock Purchase Agreement, dated May 26, 1997, among Parent, Purchaser, the Company and the Series A Preferred Stockholders (c)(6) Employment Agreement, dated May 23, 1997, among Compass Group USA, Inc., the Company, Daka, Inc. and Allen R. Maxwell (d) None (e) Not applicable (f) None (g) Financial Statements of Parent
SIGNATURE After due inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. COMPASS GROUP PLC By: /s/ MICHAEL J. BAILEY NAME: MICHAEL J. BAILEY TITLE: DIRECTOR COMPASS HOLDINGS, INC. By: /s/ MICHAEL J. BAILEY NAME: MICHAEL J. BAILEY TITLE: CHIEF EXECUTIVE OFFICER Dated: May 29, 1997 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE (a)(1) Offer to Purchase, dated May 29, 1997................................... (a)(2) Form of Letter of Transmittal........................................... (a)(3) Form of Letter from MacKenzie Partners, Inc. to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.................... (a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients........................................... (a)(5) Notice of Guaranteed Delivery........................................... (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9..................................................... (a)(7) Form of tombstone advertisement, dated May 29, 1997..................... (a)(8) Form of press release issued by Parent on May 27, 1997.................. (b) None (c)(1) Agreement and Plan of Merger, dated as of May 27, 1997, by and among Parent, Purchaser, Compass Interim, Inc. and the Company (incorporated herein by reference from Exhibit A to the Offer to Purchase filed as Exhibit (a)(1) hereto).................................................. (c)(2) Reorganization Agreement, dated as of May 27, 1997, by and among the Company, Daka, Inc., Unique Casual Restaurants, Inc., Parent and Purchaser............................................................... (c)(3) Tax Allocation Agreement, dated as of May 27, 1997, among the Company, Unique Casual Restaurants, Inc., Parent and Purchaser................... (c)(4) Post-Closing Covenants Agreement, dated as of May 27, 1997, among the Company, Daka, Inc., Unique Casual Restaurants, Inc., Champps Entertainment, Inc., Fuddruckers, Inc., Parent and Purchaser............ (c)(5) Stock Purchase Agreement, dated May 26, 1997, among Parent, Purchaser, the Company and the Series A Preferred Stockholders..................... (c)(6) Employment Agreement, dated May 23, 1997, among Compass Group USA, Inc., the Company, Daka, Inc. and Allen R. Maxwell............................ (d) None (e) Not applicable (f) None (g) Financial Statements of Parent
EX-20 2 EXHIBIT (A)(1) OFFER TO PURCHASE FOR CASH All Outstanding Shares of Common Stock of DAKA INTERNATIONAL, INC. at $7.50 Net Per Share by Compass Holdings, Inc. an indirect wholly owned subsidiary of Compass Group PLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED HEREIN). THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE EXPECTED TO RESULT IN (A) THE DISTRIBUTION TO THE STOCKHOLDERS OF DAKA INTERNATIONAL, INC. (THE "COMPANY") OF SHARES OF STOCK IN A NEW ENTITY THAT WILL OWN THE BUSINESSES OF THE COMPANY, INCLUDING THE FUDDRUCKERS AND CHAMPPS RESTAURANT CHAINS, OTHER THAN ITS FOODSERVICE BUSINESS (THE "DISTRIBUTION") AND (B) THE ACQUISITION OF THE COMPANY'S FOODSERVICE BUSINESS BY COMPASS GROUP PLC ("PARENT") PURSUANT TO THE OFFER AND MERGER DESCRIBED HEREIN. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE DISTRIBUTION, DETERMINED THAT THE OFFER, THE MERGER AND THE DISTRIBUTION ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE STOCKHOLDERS OF THE COMPANY. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED (INCLUDING SHARES THAT REMAIN SUBJECT TO GUARANTEED DELIVERY PROCEDURES) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "SHARES"), OF THE COMPANY WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN BENEFICIALLY OWNED BY PARENT, PURCHASER AND ITS AFFILIATES OR COMPASS INTERIM, INC. (INCLUDING THE SHARES (THE "SERIES A CONVERTED SHARES") INTO WHICH THE SHARES OF SERIES A PREFERRED STOCK OF THE COMPANY TO BE ACQUIRED BY PURCHASER PURSUANT TO THE SERIES A PREFERRED STOCK PURCHASE AGREEMENT (AS DEFINED HEREIN) ARE CONVERTIBLE), CONSTITUTES AT LEAST TWO-THIRDS OF THE SUM OF THE TOTAL NUMBER OF SHARES THEN OUTSTANDING PLUS THE NUMBER OF SERIES A CONVERTED SHARES AND REPRESENTS AT LEAST TWO-THIRDS OF THE VOTING POWER OF ALL SHARES OF CAPITAL STOCK OF THE COMPANY THAT WOULD BE ENTITLED TO VOTE ON THE MERGER. SEE SECTION 15 FOR OTHER CONDITIONS TO THE OFFER. IMPORTANT Any stockholder desiring to tender Shares should either (1) complete and sign the Letter of Transmittal (or facsimile thereof) in accordance with the instructions in the Letter of Transmittal and deliver it to the Depositary with the certificate(s) representing tendered Shares and all other required documents or tender such Shares pursuant to the procedures for book-entry transfer set forth in Section 3 herein or (2) request his or her broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him or her. A stockholder having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if he or she desires to tender such Shares. Any stockholder who desires to tender Shares and whose certificates representing such Shares are not immediately available or who cannot comply with the procedures for book-entry transfer on a timely basis may tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3 herein. Questions and requests for assistance or additional copies of this Offer to Purchase, the Letter of Transmittal and other Tender Offer Materials may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the other tender offer materials may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. The Depositary for the Offer is: The Bank of New York The Information Agent for the Offer is: MacKenzie Partners, Inc. May 29, 1997 TABLE OF CONTENTS
Section Page 1. Terms of the Offer; Expiration Date....................................................................... 4 2. Acceptance for Payment and Payment........................................................................ 5 3. Procedure for Tendering Shares............................................................................ 5 4. Withdrawal Rights......................................................................................... 7 5. Certain Tax Considerations................................................................................ 8 6. Price Range of Shares; Dividends.......................................................................... 9 7. Certain Information Concerning the Company................................................................ 9 8. Certain Information Concerning the Purchaser and Parent................................................... 12 9. Source and Amounts of Funds............................................................................... 14 10. Background of the Offer; the Merger Agreement; the Distribution; the Tax Allocation Agreement; the Post-Closing Covenants Agreement.......................................................................... 15 11. Purpose of the Offer, the Merger and the Distribution; Plans for the Company.............................. 29 12. Effect of the Offer on the Market for the Shares; Stock Exchange Listing; Registration under the Exchange Act....................................................................................................... 29 13. Dividends and Distributions............................................................................... 30 14. Extension of Tender Period; Amendment; Termination........................................................ 31 15. Certain Conditions to the Offer........................................................................... 32 16. Certain Legal Matters; Regulatory Approvals............................................................... 34 17. Fees and Expenses......................................................................................... 36 18. Miscellaneous............................................................................................. 36 Schedule I -- Directors and Executive Officers of Parent and the Purchaser Exhibit A -- Agreement and Plan of Merger
To the Holders of Common Stock of DAKA INTERNATIONAL, INC. INTRODUCTION Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales (the "Parent"), hereby offers to purchase all outstanding shares of common stock (the "Common Stock"), par value $.01 per share, of DAKA International, Inc., a Delaware corporation (the "Company") (collectively, the "Shares"), at a purchase price of $7.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. The Purchaser will pay all charges and expenses of The Bank of New York (the "Depositary") and MacKenzie Partners, Inc. (the "Information Agent") incurred in connection with the Offer. See Section 17. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED (INCLUDING SHARES THAT REMAIN SUBJECT TO GUARANTEED DELIVERY PROCEDURES) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) A NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN BENEFICIALLY OWNED BY PARENT, PURCHASER AND ITS AFFILIATES OR COMPASS INTERIM (INCLUDING THE SHARES (THE "SERIES A CONVERTED SHARES") INTO WHICH THE SHARES OF SERIES A PREFERRED STOCK OF THE COMPANY TO BE ACQUIRED BY PURCHASER PURSUANT TO THE SERIES A PREFERRED STOCK PURCHASE AGREEMENT (AS DEFINED HEREIN) ARE CONVERTIBLE), CONSTITUTES AT LEAST TWO-THIRDS OF THE SUM OF THE TOTAL NUMBER OF SHARES THEN OUTSTANDING PLUS THE NUMBER OF SERIES A CONVERTED SHARES AND REPRESENTS AT LEAST TWO-THIRDS OF THE VOTING POWER OF ALL SHARES OF CAPITAL STOCK OF THE COMPANY THAT WOULD BE ENTITLED TO VOTE ON THE MERGER (THE "MINIMUM CONDITION"). SEE SECTION 15 FOR OTHER CONDITIONS TO THE OFFER. THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS" OR THE "BOARD") HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE DISTRIBUTION (EACH AS DEFINED BELOW), DETERMINED THAT THE OFFER, THE MERGER AND THE DISTRIBUTION ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS ACCEPTANCE OF THE OFFER BY THE STOCKHOLDERS OF THE COMPANY. The Company is a diversified foodservice and restaurant company operating in the contract foodservice management industry and the restaurant industry. The Offer is one of a series of steps agreed between Parent and the Purchaser and the Company which are intended to result in the Purchaser's acquisition of the Company's contract foodservice management business and the retention of the Company's restaurant and related business by the Company's stockholders. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of May 27, 1997 (the "Merger Agreement"), among Parent, Purchaser, Compass Interim, Inc., a Delaware corporation and a direct, wholly owned subsidiary of the Purchaser ("Compass Interim") and the Company. The Merger Agreement provides, among other things, that upon the terms and subject to the conditions therein, as soon as practicable after the Offer Closing Time (as hereinafter defined), Compass Interim will be merged with and into the Company (the "Merger"), with the Company being the corporation surviving the Merger (the "Surviving Corporation"). Each outstanding Share (other than Dissenting Shares (as hereinafter defined)) not owned by Parent, the Purchaser, the Company or any of their subsidiaries will be converted into and represent the right to receive $7.50 in cash or any higher price that may be paid per Share in the Offer, without interest (the "Merger Price"). See Section 10. Immediately prior to the Offer Closing Time, the Company will undertake a series of transactions to transfer certain assets related to its restaurant businesses, including the Fuddruckers and Champps restaurant chains, to Unique Casual Restaurants, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of the Company ("New International"), and distribute (the "Distribution") all of the issued and outstanding shares of 2 common stock, par value $.01 per share (the "New International Shares") of New International to the holders of Shares on a record date to be determined by the Board of Directors of the Company (the "Distribution Record Date"), pursuant to a Reorganization Agreement, dated as of May 27, 1997, among the Company, Daka, Inc. ("Daka"), New International, Parent and the Purchaser (the "Reorganization Agreement"). Because the Purchaser will not accept Shares for payment pursuant to the Offer until the Distribution Record Date has occurred, a record holder of Shares who tenders Shares pursuant to the Offer (and who does not subsequently withdraw and sell such Shares) will be the record holder thereof on the Distribution Record Date. Accordingly, in the event that Shares are accepted for payment pursuant to the Offer, such record holders will be entitled to receive, in respect of each Share tendered, (i) $7.50 net in cash from the Purchaser and (ii) one New International Share from the Company. As a result of the Distribution, New International will own and operate all the businesses of the Company and its subsidiaries, other than the food catering, contract catering and vending business currently operated by the Company and its wholly owned subsidiary Daka and certain other assets and liabilities (the "Foodservice Business"). After the Distribution, the Company will continue to own only the Foodservice Business. Accordingly, upon consummation of the Offer and the Merger, Parent will have acquired only the Foodservice Business. Consummation of the Offer is conditioned upon, among other things, the Distribution Record Date having been set (the "Distribution Condition"). The Distribution Record Date is not expected to occur before Tuesday, June 24. The Merger is conditioned upon, among other things, the Distribution having been consummated in all material respects. The distribution of the New International Shares pursuant to the Distribution is conditioned, among other things, upon the Purchaser having accepted for payment Shares tendered pursuant to the Offer. In the Merger Agreement, the Purchaser has agreed to extend the Offer until the first business day following the Distribution Record Date; provided that in the event certain conditions to the Offer are not satisfied, Purchaser has agreed to extend the period of time the Offer is open until such conditions are satisfied or until July 31, 1997, whichever is earlier. The Company has advised Parent and the Purchaser that, prior to the time that notice of the Distribution Record Date is given and at least 10 days prior to the Expiration Date (as defined below), it will file with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form 10 (the "Form 10") and to distribute to holders of Shares the information statement contained in the Form 10 (the "Information Statement") with respect to the business, operations and management of New International. See Section 10. Once the conditions to the Offer, including the Minimum Condition, are satisfied and the Purchaser accepts the Shares tendered for payment pursuant to the Offer, the Distribution will be consummated and the Merger will occur as soon as practicable thereafter. If following the Offer the Purchaser holds a number of Shares that satisfies the Minimum Condition but which is less than 90% of all of the outstanding Shares, then in accordance with Section 251 of the General Corporation Law of the State of Delaware (the "GCL"), the Merger Agreement will be submitted for approval at a special meeting of the stockholders of the Company. As a result of the Minimum Condition and the Purchaser's beneficial ownership of two-thirds or more of all of the outstanding Shares, the Purchaser, acting alone, would be able to approve the Merger Agreement at such meeting. If following the Offer the Purchaser holds 90% or more of the outstanding Shares, the Purchaser intends to cause the Merger to occur as a short-form merger (without the need for a stockholders' meeting) in accordance with the terms of Section 253 of the GCL. See Short-Form Merger, Section 16. In either case, each Share remaining outstanding after the Offer Closing Time and not owned by Parent, the Purchaser, the Company or any of their subsidiaries (other than Shares as to which the holders thereof have properly demanded dissenters' appraisal rights) will become the right to receive cash in the amount of the Merger Price. Bear Stearns & Co. Inc. ("Bear Stearns"), financial advisor to the Company, has delivered to the Board of Directors of the Company its written opinion that as of the date of such opinion, the shares of New International Common Stock to be received in the Distribution and the consideration to be received by the holders of Shares in the Offer and the Merger, taken together, are fair from a financial point of view to such holders. A copy of such opinion is included with the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders concurrently herewith, and stockholders are urged to read the opinion in its entirety for a description of the assumptions made, factors considered and procedures followed by Bear Stearns. Separately, Parent, the Purchaser, the Company, First Chicago Equity Corporation, an Illinois corporation ("FCEC"), Cross Creek Partners I, an Illinois general partnership ("Cross Creek") and the other beneficial holders of all of the issued and outstanding shares of Series A Preferred Stock, par value $.01 per share, of the 3 Company (the "Series A Preferred Stock") (collectively, the "Series A Preferred Stockholders"), have entered into a certain Stock Purchase Agreement, dated as of May 26, 1997 (the "Series A Preferred Stock Purchase Agreement"), pursuant to which the Purchaser has agreed to purchase, and the Series A Preferred Stockholders have agreed to sell, all issued and outstanding shares of Series A Preferred Stock and all of the warrants exercisable for Shares upon redemption of the Series A Preferred Stock (the "Warrants") at a cash purchase price equal to the product of the Offer Price multiplied by the number of Shares into which such shares of Series A Preferred Stock are convertible as of the Offer Closing Time. The sale is scheduled to close as soon as practicable following the Offer Closing Time and is contingent upon the consummation of the Offer in accordance with its terms. The Series A Preferred Stockholders will receive no consideration in the Offer or in the Merger. According to the Company, as of April 30, 1997, there were 11,148,302 Shares outstanding, and 264,701 Shares issuable upon conversion of the Series A Preferred Stock. Also according to the Company, as of April 30, 1997, the only shares of capital stock of the Company that would have been entitled to vote on a transaction such as the Merger were the 11,148,302 Shares then outstanding and the 264,701 votes represented by the 11,911.545 shares of Series A Preferred Stock then outstanding. As a result, the Purchaser believes that the Minimum Condition would be satisfied if at least 7,343,968 Shares are validly tendered and not withdrawn prior to the Expiration Date. This Offer to Purchase and the related Letter of Transmittal contain important information and should be read in their entirety before any decision is made with respect to the Offer. 1. Terms of the Offer; Expiration Date. Upon the terms and subject to the conditions of the Offer, the Purchaser will accept for payment and pay for all Shares that have been validly tendered prior to the Expiration Date and not withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Wednesday, June 25, 1997, unless and until the Purchaser, as provided below, shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" means the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. Pursuant to the Merger Agreement, the Purchaser will extend the period of time during which the Offer is open if the Offer would otherwise expire prior to the first business day following the Distribution Record Date; provided that in the event certain conditions to the Offer are not satisfied, Purchaser has agreed to extend the period of time the Offer is open until such conditions are satisfied or until July 31, 1997, whichever is earlier. The Purchaser will not otherwise extend the period of time during which the Offer is open without the prior written consent of the Company, unless any of the conditions described in Section 15 shall not have been satisfied, or unless Purchaser reasonably determines that such extension is necessary to comply with any legal or regulatory requirements relating to the Offer. The Offer is subject to certain significant conditions set forth in Section 15, including satisfaction of the Minimum Condition, the Distribution Condition and the expiration or termination of the waiting periods applicable to the Purchaser's acquisition of Shares pursuant to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the Exon-Florio Amendment to the Defense Production Act (the "Exon-Florio Amendment"). If any such condition is not satisfied, the Purchaser may, subject to the terms of the Merger Agreement, (i) terminate the Offer and return all tendered Shares to tendering stockholders, (ii) extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all such Shares until the expiration of the Offer as so extended, (iii) other than as described in Section 15, waive such condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all Shares validly tendered and not withdrawn by the Expiration Date or (iv) delay acceptance for payment of or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer. In the Merger Agreement, the Purchaser has agreed, subject to the conditions in Section 15 and its rights under the Offer, to accept for payment Shares as promptly as practicable following the Distribution Record Date. For a description of the Purchaser's right to extend the period of time during which the Offer is open, and to amend, delay or terminate the Offer, see Section 14. The Company has provided or will provide the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 4 2. Acceptance for Payment and Payment. Upon the terms and subject to the conditions of the Offer, the Purchaser will accept for payment and pay for all Shares validly tendered and not properly withdrawn by the Expiration Date at the earliest possible time on such date (the "Offer Closing Time") as promptly as practicable following the Distribution Record Date. For a description of the Purchaser's right to terminate the Offer and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see Section 14. Subject to satisfaction of the Conditions of the Offer, the closing of the Offer (the "Offer Closing") will take place immediately prior to the Offer Closing Time, and the date on which the Offer Closing occurs is referred to as the "Offer Closing Date." The parties to the Merger Agreement have agreed to use reasonable efforts to cause the Offer Closing to occur on or before June 28, 1997 or, if not reasonably practicable, then as soon as practicable thereafter. For purposes of the Offer, the Purchaser shall be deemed to have accepted for payment tendered Shares when, as and if the Purchaser gives oral or written notice to the Depositary of its acceptance of the tenders of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payments from the Purchaser and transmitting such payments to tendering stockholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in Section 3)), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents. For a description of the procedure for tendering Shares pursuant to the Offer, see Section 3. Accordingly, payment may be made to tendering stockholders at different times if delivery of the Shares and other required documents occur at different times. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER ON THE CONSIDERATION PAID FOR SHARES PURSUANT TO THE OFFER, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT. If the Purchaser increases the consideration to be paid for Shares pursuant to the Offer, the Purchaser will pay such increased consideration for all Shares purchased pursuant to the Offer. If any tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained at one of the Book-Entry Transfer Facilities), without expense to the tendering stockholder, as promptly as practicable following the expiration or termination of the Offer. 3. Procedure for Tendering Shares. To tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (i) certificates for the Shares to be tendered must be received by the Depositary at one of such addresses or (ii) such Shares must be delivered pursuant to the procedures for book-entry transfer described below (and a confirmation of such delivery received by the Depositary including an Agent's Message (as defined below) if the tendering stockholder has not delivered a Letter of Transmittal), in each case prior to the Expiration Date, or (b) the guaranteed delivery procedure described below must be complied with. The term "Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to and received by the Depositary and forming a part of a book-entry confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares which are the subject of such book-entry confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. The Depositary will establish an account with respect to the Shares at each of The Depository Trust Company and Philadelphia Depository Trust Company (collectively referred to as the "Book-Entry Transfer Facilities") for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the system of any Book-Entry Transfer Facility may make delivery of Shares by causing such Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. However, although delivery of Shares may be effected through book-entry transfer, the Letter of Transmittal (or facsimile thereof) properly completed and duly executed together with any required signature guarantees or an Agent's Message and any other required documents 5 must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the guaranteed delivery procedure described below must be complied with. Delivery of the Letter of Transmittal and any other required documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates evidencing such Shares are not immediately available or such stockholder cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered if all of the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchaser is received by the Depositary (as provided below) by the Expiration Date; and (iii) the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantee or an Agent's Message and any other documents required by the Letter of Transmittal, are received by the Depositary within three Nasdaq Stock Market trading days after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. The method of delivery of Share certificates and all other required documents, including through Book-Entry Transfer Facilities, is at the option and risk of the tendering stockholder and the delivery will be deemed made only when actually received by the Depositary. If certificates for Shares are sent by mail, registered mail with return receipt requested, properly insured, is recommended. Under the federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payments made to certain stockholders pursuant to the Offer. In order to avoid such backup withholding, each tendering stockholder must provide the Depositary with such stockholder's correct taxpayer identification number and certify that such stockholder is not subject to such backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal (see Instruction 10 of the Letter of Transmittal) or by filing a Form W-9 with the Depositary prior to any such payments. If the stockholder is a nonresident alien or foreign entity not subject to back-up withholding, the stockholder must provide the Depositary a completed Form W-8 Certificate of Foreign Status prior to receipt of any payments. By executing a Letter of Transmittal, a tendering stockholder irrevocably appoints designees of the Purchaser as such stockholder's proxies in the manner set forth in the Letter of Transmittal to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and any and all other Shares or other securities issued or issuable in respect of such Shares on or after May 27, 1997, other than any New International Shares distributed in respect of the Shares in connection with the Distribution). All such proxies shall be irrevocable and coupled with an interest in the tendered Shares. Such appointment is effective only upon the acceptance for payment of such Shares by the Purchaser. Upon such acceptance for payment, all prior proxies and consents granted by such stockholder with respect to such Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given nor subsequent written consents executed by such stockholder (and, if given or executed, will be deemed ineffective). Such 6 designees of the Purchaser will be empowered to exercise all voting and other rights of such stockholder as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the Company's stockholders, by written consent or otherwise. The Purchaser reserves the right to require that, in order for Shares to be validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser is able to exercise full voting rights with respect to such Shares and other securities (including voting at any meeting of stockholders then scheduled or acting by written consent without a meeting). The Company has advised Parent and the Purchaser that it expects that commencing on and after the Distribution Record Date and up to the date New International Shares are distributed pursuant to the Distribution, the Shares will trade on The Nasdaq Stock Market with due bills attached. These due bills will entitle a purchaser of a Share to receive one New International Share upon the distribution thereof. Stockholders of the Company need not tender their due bills in order for their Shares to be accepted for exchange, and the Purchaser will not accept any due bills pursuant to the Offer. A tender of Shares pursuant to any one of the procedures described above will constitute the tendering stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering stockholder's representation and warranty that such stockholder has the full power and authority to tender and assign the Shares tendered. The Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. The Purchaser reserves the absolute right to reject any or all tenders of Shares determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any defect or irregularity in any tender of Shares. No tender of Shares will be deemed to have been properly made until all defects and irregularities relating thereto have been cured or waived. The Purchaser's interpretation of the terms and conditions of the Offer in this regard will be final and binding. None of the Purchaser, Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in tenders or incur any liability for failure to give any such notification. 4. Withdrawal Rights. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after July 27, 1997 unless theretofore accepted for payment as provided in this Offer to Purchase. To be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn and the name of the registered holder of the Shares, if different from that of the person who tendered such Shares. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution) signatures guaranteed by an Eligible Institution must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. None of the Purchaser, Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. 7 5. Certain Tax Considerations. The following summary addresses the material federal income tax consequences to holders of Shares who sell their Shares in the Offer. The summary does not address all aspects of federal income taxation that may be relevant to particular holders of Shares and thus, for example, may not be applicable to holders of Shares who are not citizens or residents of the United States or holders of Shares who are employees and who acquired their Shares pursuant to the exercise of incentive stock options; nor does this summary address the effect of any applicable foreign, state, local or other tax laws. The discussion assumes that each holder of Shares holds such Shares as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). Stockholders are urged to consult their own tax advisors as to the precise federal, state, local, foreign and other tax consequences of the proposed transactions. Tax Consequences of Receipt of Cash and New International Shares. Assuming that the Purchaser accepts the Offer and the Distribution and the Merger are consummated, stockholders who hold their Shares of record on the Distribution Record Date, and who also tender their Shares in the Offer or have such Shares exchanged for the Merger Price upon consummation of the Merger, will be deemed for income tax purposes to have received for each such Share consideration consisting of (i) one New International Share and (ii) $7.50 in cash. Stockholders who hold their Shares of record on the Distribution Record Date, and who sell such Shares after the date as of which the Distribution shall be effected (the "Distribution Date") other than pursuant to the Offer or the Merger, will be deemed for income tax purposes to have received consideration consisting of (i) one New International Share and (ii) the proceeds from the sale of their Shares. In each of the above-mentioned cases, the receipt of such consideration will be a taxable transaction for federal income tax purposes, and may also be a taxable transaction under applicable state, local, foreign and other tax laws. The foregoing transactions should be treated as a single integrated transaction in which a holder of Shares receives such consideration in exchange for such holder's Shares and in complete termination of such holder's interest in the Company. In such case, a holder of Shares will recognize gain or loss equal to the difference between (i) the sum of the amount of cash plus the fair market value of the New International Shares received (which fair market value likely will equal the average trading value per New International Share on the first few Nasdaq trading days following the Offer Closing Date) and (ii) such holder's adjusted tax basis for such holder's Shares. Such gain or loss will be capital gain or loss and will be long-term capital gain (or loss) if, on the date of the exchange, the stockholder has held his Shares for more than one year. If a holder of Shares owns more than one block of stock and such blocks were acquired at different times, the holding period must be determined for each block. However, there can be no assurance that the Internal Revenue Service (the "IRS") will not contend that only the cash was received as a payment for the outstanding Shares, and that the receipt of New International Shares instead should be taxable to the recipient as a distribution from the Company under Section 301 of the Code. If the IRS were to make such contention and prevail (i) the cash received by a holder of Shares would still be treated as received in exchange for such holder's Shares and (ii) the Distribution, in an amount equal to the fair market value of the distributed New International Shares, would be taxable as a dividend to the holders of Shares to the extent of the Company's current and accumulated earnings and profits. The amount of the Distribution in excess of such earnings and profits would first be treated as a non-taxable return of capital to the extent of each holder's basis in such Shares, and such holder's tax basis in such Shares would be reduced accordingly (but not below zero), and thereafter as a capital gain from the sale or exchange of Shares. For purposes of Section 301 of the Code, if a holder owns more than one block of Shares, the consideration received must be allocated ratably among the blocks in the proportion that the number of Shares in a particular block bears to the total number of Shares held by the holder. With respect to corporate stockholders, to the extent, if any, that the receipt of New International Shares was treated as a dividend under the foregoing rules, such dividend generally should be eligible for the 70% "dividends received deduction." A corporate stockholder's ability to use the dividends received deduction, however, is subject to a number of limitations, including those relating to "debt financed portfolio stock" under Section 246A of the Code and the 46-day holding period requirement of Section 246(c). Moreover, even if the dividends received deduction were fully available, any such dividend might constitute an "extraordinary dividend" subject to the provisions of Section 1059 of the Code, which generally requires a corporate stockholder which has not held stock for a period of two years prior to the dividend announcement date to reduce its basis for (thereby increasing its gain on a subsequent or contemporaneous sale of) such stock by the portion of the dividend which is untaxed by reason of the dividends received deduction. 8 Regardless of whether the receipt of the New International Shares is treated as a taxable exchange or a distribution under Section 301 of the Code, a holder's tax basis in the New International Shares generally will be equal to the fair market value of the New International Shares on the Distribution Date. Dissenters. The Purchaser believes that a holder of Shares who does not sell such holder's Shares in the Offer or the Merger and perfects such holder's dissenters' rights probably would recognize capital gain or loss at the Merger Effective Time (as defined under "Merger Agreement") equal to the difference between the amount realized, including the fair market value of the New International Shares, by such holder and such holder's basis in such holder's Shares. Withholding. Unless a stockholder complies with certain reporting and/or certification procedures or is an exempt recipient under applicable provisions of the Code (and regulations promulgated thereunder), such stockholder may be subject to a "backup" withholding tax of 31% with respect to the amount received in the Offer, the Merger or as a result of the exercise of the holder's dissenters rights. Stockholders should contact their brokers to ensure compliance with such procedures. Foreign stockholders should consult with their tax advisors regarding withholding taxes in general. THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED HEREIN FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH HOLDER OF SHARES IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER, THE MERGER AND THE DISTRIBUTION. 6. Price Range of Shares; Dividends. The Shares are listed and traded on The Nasdaq Stock Market as a National Market security (the "Nasdaq National Market") under the symbol "DKAI". The following table sets forth, for the periods indicated, the reported high and low sales prices per share for the Shares on the Nasdaq National Market as published in financial sources:
High Low Year Ended July 1, 1995: First Quarter........................................................ $15.50 $13.50 Second Quarter....................................................... $16.25 $12.88 Third Quarter........................................................ $18.00 $14.50 Fourth Quarter....................................................... $23.88 $17.00 Year Ended June 29, 1996: First Quarter........................................................ $33.75 $23.00 Second Quarter....................................................... $33.63 $22.75 Third Quarter........................................................ $27.50 $19.88 Fourth Quarter....................................................... $33.00 $22.75 Year Ending June 28, 1997: First Quarter........................................................ $23.25 $ 8.75 Second Quarter....................................................... $10.38 $ 8.25 Third Quarter........................................................ $ 9.98 $ 6.13 Fourth Quarter (through May 27)...................................... $12.38 $ 5.88
The Company has never paid cash dividends on shares of its Common Stock. In addition, throughout the periods indicated above, the terms of the Company's line-of-credit agreement have prohibited the payment of dividends on the Company's Common Stock. The closing sales price of the Shares as reported by the Nasdaq National Market was $11.25 per share on May 27, 1997, the last full day of trading prior to the first public announcement of the Offer. Stockholders are urged to obtain a current market quotation for the shares. 7. Certain Information Concerning the Company. The Company is a Delaware corporation and its principal executive offices are located at One Corporate Place, 55 Ferncroft Road, Danvers, Massachusetts 01923. The Company principally operates though the following wholly owned subsidiaries: (i) Daka, Inc., a Delaware corporation ("Daka"); (ii) Fuddruckers, Inc., a Texas corporation ("Fuddruckers"); (iii) Champps Entertainment, Inc., a Minnesota corporation ("Champps"); (iv) Casual Dining Ventures, Inc., a Delaware corporation ("CDV"); (v) 9 The Great Bagel and Coffee Company, a Delaware corporation ("GBC"); (vi) French Quarter Coffee Co., a Delaware corporation ("French Quarter"); (vii) La Salsa Holding Co., a California corporation ("La Salsa"); Pulseback, Inc., a Vermont corporation ("Pulseback"); and (viii) Specialty Concepts, Inc., a Delaware corporation ("SCI"). The Company is a diversified foodservice and restaurant company operating in the contract foodservice management industry and the restaurant industry. Daka provides contract foodservice management at a variety of schools and colleges, corporate offices, factories, healthcare facilities, museums and government offices. Fuddruckers owns, operates and franchises Fuddruckers restaurants, which specialize in moderately-priced, casual dining for families and adults. Champps owns, licenses and franchises Champps Americana restaurants, which specialize in providing an upper-scale, casual theme dining experience to a broad customer base, including business professionals, families and adults. GBC owns, operates and franchises a dining concept that features fresh-baked bagels and distinctive cream cheeses, gourmet coffees and sandwiches in a cafe setting. Although GBC's operating results are included within the Company's reported foodservice financial information in the Company's Annual Report on Form 10-K for the year ended June 29, 1996 (the "Company 10-K"), GBC is not part of the Foodservice Business to be acquired by Parent and the Purchaser and all of the Foodservice Business financial information contained in this Offer to Purchase excludes GBC's operating results. In the fiscal year ended June 29, 1996, the foodservice segment generated 55.5% of the Company's total revenues and 57.3% of its operating profit, while the restaurant segment (including GBC) generated 44.5% of the Company's total revenues and 42.7% of its operating profit. The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be described in periodic statements distributed to the Company's stockholders and filed with the Commission. These reports, proxy statements and other information, including the Company 10-K and the Schedule 14D-9, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: the New York Regional Office, 13th Floor, 7 World Trade Center, Suite 1300, New York, New York 10048; and the Chicago Regional Office, Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is an electronic filer pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval ("EDGAR") System. Accordingly, the aforementioned reports and other information may be obtained by searching the Key Word "Daka" in the "EDGAR Archives" at the Commission's Web site on the World Wide Web (address: http://www.sec.gov). Finally, such material may be inspected and copied at the offices of the National Association of Securities Dealers, Inc., Nasdaq Reports Section, 1735 K Street, NW, Washington, DC 20006-1506, because the Shares are listed on The Nasdaq Stock Market as a National Market security. The above information concerning the Company and the information contained herein regarding the Distribution have been taken from or based upon the Company 10-K and other publicly available documents on file with the Commission, other publicly available information and information provided by the Company. Although neither the Purchaser nor Parent has any knowledge that would indicate that such information is untrue, neither the Purchaser nor Parent takes any responsibility for, or makes any representation with respect to, the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but which are unknown to the Purchaser or Parent. A copy of this Offer to Purchase, and certain of the agreements referred to herein, are attached as exhibits to the Purchaser's Tender Offer Statement on Schedule 14D-1, dated May 29, 1997 (the "Schedule 14D-1"), which has been filed with the Commission. The Schedule 14D-1 and the exhibits thereto, along with such other documents as may be filed by the Purchaser with the Commission, may be examined and copied from the offices of the Commission in the manner set forth in the fourth paragraph of this Section 7. 10 The summary unaudited data for the Foodservice Business (the "Foodservice Business Financial Data") in the following table has been provided to Parent and the Purchaser by the Company. The Company has advised Parent and the Purchaser that the Foodservice Business Financial Data has been derived from the consolidated financial statements of the Company. This financial data is presented in considerably less detail than complete financial statements and does not include all of the disclosures required by generally accepted accounting principles. Neither Parent nor the Purchaser assumes any responsibility for the accuracy of the Foodservice Business Financial Data. FOODSERVICE BUSINESS Summary Financial Information(1) (In Thousands) (Unaudited)
Fiscal Years Ended July 2, 1994 July 1, 1995 June 29, 1996 Revenues....................................... $156,469 $197,107 $ 221,068 Costs and Expenses............................. 131,372 169,231 192,621 Operating Income Before Overheads.............. 25,097 27,876 28,447 Income Before Taxes............................ 9,007 10,754 8,058 Net Income..................................... $ 5,404 $ 6,452 $ 4,834 As of Fiscal Year Ended July 2, 1994 July 1, 1995 June 29, 1996 Current Assets................................. $ 30,607 $ 34,966 $ 38,996 Noncurrent Assets.............................. 18,828 36,443 40,117 Current Liabilities............................ 23,579 25,775 21,009 Noncurrent Liabilities......................... $ 44,647 $ 68,434 $ 95,294
1 Basis of Presentation. The accompanying combined summary financial information includes the combined financial information of the Foodservice Business (i.e. Daka, Inc. and its consolidated subsidiaries) but excludes such information for GBC. The accompanying summary financial information is historical in nature and does not represent the income and expenses, assets and liabilities actually acquired by the Purchaser (as noted in the Reorganization Agreement (as described herein)). 11 8. Certain Information Concerning the Purchaser and Parent. Parent is a public limited company incorporated under the laws of England and Wales, is one of the world's two largest foodservice companies, is one of the top 150 UK quoted companies, as ranked by market capitalization of approximately (pounds)2.2 billion as of April 30, 1997, and employs approximately 120,000 people worldwide. Parent's foodservice operations include food catering, contract catering and vending. Parent is organized geographically into the UK, Continental Europe and the Rest of the World and the US and also by industry sector within each of these divisions. The industry sectors are: Business and Industry, Education, Healthcare, Travel, Sports and Events, Vending, Executive Dining, Shopping and Leisure, and Corrections. The principal executive offices of Parent are located at Cowley House, Guildford Street, Chertsey, Surrey, England KT16 9BA, and its telephone number at that location is 44-1932-573000. Parent owns 100% of the outstanding capital stock of Compass Overseas Holdings, Ltd. ("Compass Overseas"). Compass Overseas is a company incorporated under the laws of England and Wales and a wholly owned subsidiary of Parent. Compass Overseas is a holding company whose holdings include Parent's interests in United States subsidiaries. Compass Overseas' principal executive offices are located at Cowley House, Guildford Street, Chertsey, Surrey, England KT16 9BA, and its telephone number at that location is 44-1932 573000. Compass Overseas owns 100% of the outstanding capital stock of the Purchaser. The Purchaser is a Delaware corporation and a wholly owned indirect subsidiary of Parent. Purchaser holds Parent's investments in Parent's US subsidiaries. Because the Purchaser is a holding company with no distinct operations and because the Purchaser's financial information is consolidated with that of Parent, no meaningful financial information regarding the Purchaser is available. The principal executive offices of the Purchaser are located at 2400 Yorkmont Road, Charlotte, North Carolina 28217, and its telephone number at that location is (704) 329-4000. The name, citizenship, business address, principal occupation or employment and five-year employment history of each of the directors and executive officers of the Purchaser and Parent are set forth in Schedule I hereto. 12 Set forth below is a summary of certain consolidated financial information with respect to Parent and its consolidated subsidiaries excerpted or derived from the information contained in Parent's Annual Reports to Shareholders for the fiscal years ended October 2, 1994, October 1, 1995 and September 29, 1996. The following consolidated financial information of Compass Group PLC has been prepared on the basis of accounting principles generally accepted in the United Kingdom ("UK GAAP"), which differ in certain material respects from generally accepted accounting principles in the United States of America ("US GAAP"). Such differences include, but are not limited to, the accounting for goodwill and other intangibles, which are written off against retained earnings under UK GAAP, but are required to be recorded as an asset and amortized as a reduction of earnings over their estimated useful lives, not to exceed 40 years, for purposes of US GAAP. At September 29, 1996, shareholders' equity (deficit) had been reduced by the write-off of accumulated goodwill of (pounds)1,568.8 million. COMPASS GROUP PLC Selected Summary Consolidated Financial Information
As of and for the six months ended (1) As of and for the fiscal year ended (1) March 1996 March March 1997 1994 1995 1996 (2) 1996 1997 (2) (pounds) (pounds) (pounds) $ (pounds) (pounds) $ (in millions except per share data) Profit and loss data (3) Turnover.......................... 917.9 1,505.8 2,651.9 4,325.2 1,242.9 1,717.5 2,801.2 Net Income (4).................... 39.4 54.0 99.4 162.1 54.5 41.1 67.0 Earnings per share (4)............ 0.192 0.226 0.316 0.515 0.173 0.129 0.210 Dividends per share............... 0.0675 0.0760 0.0860 0.1403 0.0275 0.0310 0.0506 Balance sheet data (3) Total assets...................... 467.5 720.5 807.1 1,316.4 618.5 782.0 1,275.4 Long-term debt.................... 249.5 516.1 535.8 873.9 371.8 530.2 864.8 Shareholders' equity (deficit).... (143.9) (488.9) (557.7) (909.6) (445.0) (520.1) (848.3)
(1) Compass' operations are all considered to fall into one class of business, namely foodservice. (2) Amounts in US dollars have been translated solely for the convenience of the reader, at an exchange rate of $1.6310:(pounds)1, Noon Buying Rate at May 23, 1997. (3) The Consolidated Financial Statements have been prepared in accordance with UK GAAP. (4) Net Income and Earnings per share for fiscal years ended 1994, 1995 and 1996 and the six months ended March 1996 include the results of the Healthcare Division which was disposed of at a profit on December 11, 1996. Furthermore, the fiscal year ended 1996 included an exceptional restructuring cost. Certain profit and loss data excluding the exceptional profit on disposal and the restructuring charge are as follows:
As of and for the six As of and for the fiscal year months ended ended March March March 1994 1995 1996 1996 1996 1997 1997 (pounds) (pounds) (pounds) $ (pounds) (pounds) $ (in millions except per share data) Net Income...................................... 39.4 54.0 83.5 136.2 34.5 41.1 67.0 Earnings per share.............................. 0.192 0.226 0.265 0.432 0.110 0.129 0.210
13 Separately, Parent, the Purchaser, the Company, and the Series A Preferred Stockholders have entered into the Series A Preferred Stock Purchase Agreement, pursuant to which the Purchaser has agreed to purchase, and the Series A Preferred Stockholders have agreed to sell, all issued and outstanding shares of Series A Preferred Stock and the Warrants at a purchase price equal to the product of the Offer Price multiplied by the number of Shares into which such shares of Series A Preferred Stock are convertible as of the Offer Closing Time. The sale is scheduled to occur as soon as practicable following the Offer Closing Time and is contingent upon the consummation of the Offer in accordance with its terms. The purchase price is to be paid in cash in an amount calculated in accordance with the Series A Preferred Stock Purchase Agreement. The Series A Preferred Stockholders will receive no consideration in the Offer or in the Merger. Except as set forth in this Offer to Purchase, none of Parent, Compass Overseas, the Purchaser or any of their affiliates (collectively the "Purchaser Entities"), or, to the best knowledge of any of the Purchaser Entities, any of the persons listed on Schedule I, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, none of the Purchaser Entities, or, to the best knowledge of any of the Purchaser Entities, any of the persons listed on Schedule I, has had, since June 27, 1993, any business relationships or transactions with the Company or any of its executive officers, directors or affiliates that would require reporting under the rules of the Commission. Except as set forth in this Offer to Purchase, since June 27, 1993, there have been no contacts, negotiations or transactions between the Purchaser Entities, or their respective subsidiaries or, to the best knowledge of any of the Purchaser Entities, any of the persons listed on Schedule I, and the Company or its affiliates, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, election of directors or a sale or other transfer of a material amount of assets. Except for the Series A Preferred Stock Purchase Agreement, none of the Purchaser Entities or, to the best knowledge of any of the Purchaser Entities, any of the persons listed on Schedule I, beneficially owns any Shares or has effected any transactions in the Shares in the past 60 days. 9. Source and Amounts of Funds. The total amount of funds required by the Purchaser to acquire all outstanding Shares pursuant to the Offer and the Merger, to consummate the transactions contemplated by the Merger Agreement, and to pay fees and expenses related to the Offer and the Merger is estimated to be approximately $199 million (the "Total Funds Amount"). The Purchaser plans to obtain all funds needed for the Offer and the Merger through loans from Parent or an existing or newly formed subsidiary of Parent (the "Funding Subsidiary") which will be funded from cash accounts and Parent's available lines of credit or credit facilities to be established by Parent or the Funding Subsidiary prior to the Offer Closing Time. No final decisions have been made by Parent concerning the source of funds to be used for purchase of the Shares. However, the Offer is not conditioned on obtaining financing, and Parent has available under existing lines of credit amounts in excess of the Total Funds Amount. Moreover, a Funding Subsidiary may be used to provide the Total Funds Amount only if a credit facility is established and in place prior to the Offer Closing Time; otherwise, Parent will provide the Total Funds Amount. Parent anticipates that any indebtedness incurred to fund the Offer and the Merger will be repaid from a variety of sources, which may include, but may not be limited to, funds generated internally by Parent and its affiliates (or in the case of indebtedness incurred by Funding Subsidiary, by Funding Subsidiary and its affiliates), bank refinancing, and the public or private sale of debt securities. Decisions concerning the method of repayment will be made based on Parent's review from time to time of the feasibility of particular actions and on prevailing interest rates and market conditions. 14 10. Background of the Offer; the Merger Agreement; the Distribution; the Tax Allocation Agreement; the Post-Closing Covenants Agreement. BACKGROUND OF THE OFFER Among the elements of Parent's announced business strategy are a focus on specific industry sectors and an intent to expand internationally through acquisitions. In implementing that strategy, Parent began to focus on the large and diverse United States foodservice market. Parent made its first significant expansion into the United States market with the acquisition of Canteen Corporation in 1994, and Parent has made a number of acquisitions since that date. The acquisition of the Company's education foodservice operations developed as a logical means to enhance Parent's business internationally in this specific industry sector. From February through December 1995, representatives of Patricof & Co. Capital Corp. ("Patricof") pursued general infrequent contacts and discussions with the Company concerning its strategy for its foodservice business. Patricof also talked with Michael Bailey, the Chief Executive Officer of Parent's US Division, together with other senior officers of Parent's US Division, to discuss Parent's strategy in the United States, as well as possible acquisition candidates (including the Company) that Patricof believed would fit within that strategy. In December 1995, Parent engaged Patricof to act as its financial advisor with respect to certain foodservice acquisitions. In December 1996, Bear Stearns, acting on behalf of the Company, contacted Parent as one of several potentially interested parties for the purpose of further evaluating a possible acquisition of the Foodservice Business of the Company. The Company and Parent entered into a Confidentiality Agreement relating to, among other things, the information to be provided by the Company and limiting the ability of Parent for an agreed period to acquire voting securities or assets of, solicit proxies or make a public announcement of a proposal for any extraordinary transaction with respect to the Company. Parent subsequently obtained various financial and other information regarding the Company in general and its foodservice business in particular. Following Parent's review of certain financial and other information regarding the Foodservice Business and other due diligence, and various discussions between the Company and Parent and their respective financial and legal advisors, Mr. Bailey, Mr. Baumhauer and various other members of their respective management teams met on several occasions to discuss the terms of a possible acquisition of the Foodservice Business by Parent. Thereafter, throughout March, April and May 1997, Parent and the Company and their respective legal advisors negotiated the terms of a possible transaction. On May 21, 1997 the Board met to formally consider the proposed transaction. At this meeting, representatives of Bear Stearns gave a presentation analyzing the financial terms of the proposed transaction, New International and the proposed Distribution and delivered the written fairness opinion of Bear Stearns. The Company's legal counsel summarized for the Board the legal aspects of the proposed transaction. The Board deliberated as to the transaction and its merits and effects. After consideration of the presentations made by Bear Stearns, management and legal counsel, at a subsequent meeting on May 22, 1997 the Board unanimously (i) approved the Merger Agreement, the Reorganization Agreement, the Tax Allocation Agreement and the Post-Closing Covenants Agreement and the transactions contemplated thereby, (ii) determined that the Offer, the Merger and the Distribution, taken as a whole, are fair to and in the best interest of the stockholders of the Company and (iii) determined to recommend acceptance of the Offer and approval and adoption of the Merger Agreement and the Merger by the stockholders of the Company. On May 27, 1997, the parties thereto executed and delivered the Merger Agreement and the Ancillary Agreements. THE MERGER AGREEMENT The following is a summary of certain provisions of the Merger Agreement. A copy of the Merger Agreement (with certain Exhibits omitted) is attached hereto as Exhibit A and is incorporated herein by reference. Such summary is qualified in its entirety by reference to the Merger Agreement. Capitalized terms used in this Offer to Purchase not otherwise defined herein shall have the meanings assigned thereto in the Merger Agreement. The Offer. The Merger Agreement provides for the making of the Offer by the Purchaser. The Purchaser has agreed to accept for payment and pay for all Shares tendered pursuant to the Offer as soon as practicable following the Distribution Record Date. The Distribution Record Date is not expected to occur before June 24, 1997 the fourth week of June. Subject only to the conditions described in paragraph (d) of Section 15, the Purchaser has agreed to extend the period of time the Offer is open until the first business day following the Distribution Record Date. The obligation of Purchaser to accept for payment and pay for Shares tendered pursuant to the Offer is 15 subject to the satisfaction of the Distribution Condition, the Minimum Condition and certain other conditions that are described in Section 15. The Purchaser has agreed that, without the written consent of the Company, no amendment to the Offer may be made which changes the form of consideration to be paid or decreases the price per Share or the number of Shares sought in the Offer or which imposes conditions to the Offer in addition to the Distribution Condition, the Minimum Condition and the other conditions described in Section 15 or broadens the scope of such conditions, and no other amendment may be made in the terms or conditions of the Offer which is adverse to holders of Shares. The Merger. The Merger Agreement provides that, following the purchase of Shares pursuant to the Offer, and the satisfaction or waiver of the other conditions to the Merger, Compass Interim will be merged with and into the Company. The Merger Agreement provides that the Merger will become effective and the Merger Effective Time will occur as soon as practicable following the Distribution, upon the filing of certificates of merger or other appropriate documents (in any such case, the "Certificate of Merger") with the Delaware Secretary of State or at such other time as agreed to by the Company and the Purchaser (the "Merger Effective Time"). The Merger Agreement provides that the closing of the Merger (the "Merger Closing") will take place within five business days after the satisfaction or waiver of the conditions to the Merger or such other date established by Purchaser and approved by the directors of the Company. The parties have agreed to use reasonable best efforts to cause the Merger Closing to occur immediately after the Offer Closing Time. Otherwise Purchaser has agreed to use reasonable best efforts to cause the Merger Closing to occur as soon as practicable after the Offer Closing. The date of the Merger Closing is referred to in the Merger Agreement as the "Merger Closing Date." At the Merger Effective Time, (i) except as provided in (ii) below, each Share issued and outstanding immediately prior to the Merger Effective Time will be converted into the right to receive $7.50 in cash, or any higher price paid per Share in the Offer, without interest (the "Merger Price"); (ii) (a) each Share held in the treasury of the Company or held by any wholly owned subsidiary of the Company (but not any Benefit Plan (as defined in the Merger Agreement)) and each Share held by Purchaser, Compass Interim or any wholly owned subsidiary of Parent, excluding, in each case, any such shares held by the Company, Purchaser or any of their wholly owned subsidiaries in a fiduciary, custodial or similar capacity immediately prior to the Merger Effective Time will be canceled and retired and cease to exist; (b) each Share held by any holder who has not voted in favor of the Merger or consented thereto in writing and who, has delivered a written demand for appraisal of such Shares and perfected such appraisal rights, all in accordance with Section 262 of the GCL will not be converted into or be exchangeable for the right to receive the Merger Price (the "Dissenting Shares"); and (iii) each share of common stock of the Purchaser issued and outstanding immediately prior to the Effective Date will be converted into and exchangeable for one share of common stock of the Surviving Corporation. Reservation of Right to Revise Transaction Structure. Pursuant to the Merger Agreement, the Parent may at any time change the method of effecting the Merger to provide for a merger of a wholly owned subsidiary other than Compass Interim with the Company and make conforming changes to the Offer; provided, however, that no such change shall (a) alter or change the amount or the kind of the consideration to be received by the holders of Shares as provided in the Merger Agreement, or (b) adversely affect the tax treatment to the Company's stockholders as a result of receiving such consideration (in the opinion of Parent's outside counsel). In the event Parent determines to exercise its right to substitute a different wholly owned subsidiary for Compass Interim under the Merger Agreement, the Merger Agreement shall promptly be amended to add such subsidiary as a party thereto, and all references in the Merger Agreement to Compass Interim shall be deemed references to such subsidiary. Approval of Company Stockholders. If required by applicable law in order to consummate the Merger, the Company will duly call, give notice of, convene and hold a special meeting (the "Special Meeting") of its stockholders as soon as practicable following the consummation of the Offer for the purpose of considering and taking action upon the Merger Agreement and the Merger. In addition to receiving notice of such Special Meeting, stockholders would receive a Proxy Statement (the "Proxy Statement"), soliciting the vote of the stockholders of the Company with respect to the Merger Agreement and the Merger at the Special Meeting. Section 253 of the GCL would permit the Merger to occur without a vote of the Company's stockholders (a "short-form merger") if the Purchaser were to acquire at least 90% of all of the outstanding Shares in the Offer. If the Purchaser acquires 90% or more of the outstanding Shares in the Offer, the Purchaser intends to cause the Merger to occur as a short-form merger. Representations and Warranties. The Merger Agreement includes representations and warranties by the Company and Daka to Parent, Purchaser and Compass Interim as to (a) the corporate organization, standing and power of the Company and Daka, (b) the Company's capitalization, (c) the authorization of the Merger Agreement and the Ancillary Agreements and the approval of the Offer, the Merger and the Merger Agreement by the 16 Company's Board of Directors in a manner sufficient to render inapplicable to the Offer, the Merger, and the transactions contemplated by the Merger Agreement and the Ancillary Agreements Section 203 of the GCL and any applicable provisions in the Company's Certificate of Incorporation or Bylaws, (d) noncontravention of laws and agreements and the absence of the need (except as specified) for governmental consents, (e) the filing of all required reports, schedules, forms, statements and other documents with the Commission, (f) the accuracy of the Company's financial statements and filings with the Commission, (g) the accuracy of information included in the Schedule 14D-9, the Form 10 and the Information Statement or supplied by the Company for inclusion in the Tender Offer Statement on Schedule 14D-1 with respect to the Offer, the accompanying offer to purchase related letter of transmittal letter (together with any supplements or amendments thereto, collectively the "Offer Documents"), (h) the conduct of the Foodservice Business in the ordinary course and the absence of any material adverse change with respect to the Company or Daka or any event that could reasonably be expected to have a material adverse effect on the Company or Daka taken as a whole, (i) pending or threatened litigation, (j) the Company's compliance with applicable laws, (k) brokers and finders employed by the Company, (l) the nature of the Foodservice Business, (m) material contracts of the Company and Daka, (n) certain matters relating to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and certain employment and labor relations matters, (o) certain matters relating to intellectual property, (p) certain matters relating to taxes, (q) certain matters related to insurance policies, (r) the accuracy of the Foodservice Business Financial Statements (as defined in the Merger Agreement), (s) certain matters relating to the outstanding indebtedness of the Company and its subsidiaries, (t) certain matters relating to environmental matters, and (u) various other matters relating to the Company, Daka and the Foodservice Business. The Merger Agreement also includes representations and warranties by Parent, Purchaser and Compass Interim to the Company, as to (a) the corporate organization, standing and power of Parent, Purchaser and Compass Interim, (b) the authorization of the Merger Agreement and the Ancillary Agreements to which Parent, Purchaser and Compass Interim are parties, (c) noncontravention of laws and agreements and the absence of the need (except as specified) for governmental consents, (d) the accuracy of information included in the Offer Documents or supplied by the Parent for inclusion in the Information Statement and certain filings with the Commission, (e) Parent's access to sufficient funds to complete the Offer, (f) the absence of Parent's receipt of written notice from any Federal or state governmental agency or authority indicating that such agency or authority would oppose or refuse to grant or issue its consent or approval, if required, with respect to the transactions contemplated by the Merger Agreement or the Ancillary Agreements, (g) the absence of any required action by the ordinary shareholders of Parent to approve the Merger Agreement or the Ancillary Agreements and the transactions contemplated thereby, and (h) brokers and finders employed by Parent. Business of International Pending the Merger. The Merger Agreement provides that, during the period from the date of the Merger Agreement and continuing until the Offer Closing Time, except for the Contribution (as defined under "THE DISTRIBUTION -- The Reorganization Agreement"), the Distribution and the other transactions expressly provided for in the Reorganization Agreement and the Tax Allocation Agreement, dated May 27, 1997, by and among the Company, New International and Parent (the "Tax Allocation Agreement"), as expressly contemplated or permitted by the Merger Agreement, or to the extent that Parent otherwise consents in writing (which consent shall not be unreasonably withheld), the Company and Daka will conduct the Foodservice Business in the ordinary course, consistent with past practice including, without limitation, using reasonable efforts to preserve beneficial relationships between the Foodservice Business and its suppliers, employees and customers. The Merger Agreement also includes limitations, prohibitions and other provisions relating to the conduct of the business of the Company and its subsidiaries during this period with respect to (a) capital projects, (b) contracts and agreements outside the ordinary course of business, (c) sales incentive programs, (d) changes in or issuances, repurchases or redemption of capital stock, (e) charter or by-law amendments, (f) acquisitions and dispositions, (g) levels of indebtedness as of the Merger Effective Time, (h) adoption or amendment of benefit plans or arrangements, (i) actions relating to employment agreements of certain employees of the Company, (j) changes in accounting principles, policies or procedures, (k) incurrence of liens, (l) nonwaiver of existing standstill and confidentiality agreements, (m) defense of pending litigation, (n) increases in the amount of deferred tax liabilities, or decreases in the amount of deferred assets of the Company or its subsidiaries other than in the ordinary course of business consistent with past practice, and (o) provision to Parent and its officers, employees and advisors reasonable access, during the period prior to the Offer Closing Time, to the Company's properties, books, records, reports and personnel relating to the Foodservice Business. No Solicitation of Third Party Acquisition Proposals. Pursuant to the Merger Agreement, neither the Company nor any of its directors, officers or employees will, and the Company will use its best efforts to ensure that none of its representatives will, directly or indirectly, solicit, initiate or encourage any inquiries or proposals from 17 or with any person (other than the Parent and its subsidiaries) or such person's directors, officers, employees, representatives and agents that constitute, or could reasonably be expected to lead to a Third Party Acquisition. A "Third Party Acquisition" means (i) the acquisition by any person of more than 20% of the total assets of the Foodservice Business, (ii) the acquisition by any person of 20% or more of (A) the Shares or (B) the total number of votes that may be cast in the election of directors of the Company at any meeting of stockholders of the Company assuming all the Shares and all other securities of the Company, if any, entitled to vote generally in the election of directors were present and voted at such meeting, or (iii) any merger, consolidation or other combination of the Company or Daka with any person; provided that "Third Party Acquisition" does not include any transactions which relate solely to the business to be owned by New International and its subsidiaries following the Distribution and which would not have a material adverse effect on the consummation of the Offer, the Merger, the Distribution or the transactions contemplated by the Merger Agreement. The Company may furnish or cause to be furnished information and may participate in such discussions and negotiations directly or through its representatives if another person or group makes an offer or proposal which, based upon the identity of the person making such offer or proposal and the terms thereof, and the availability of adequate financing therefor, the Company's Board of Directors believes, in the good faith exercise of its business judgment and based upon advice of its outside legal and financial advisors, could reasonably be expected to be consummated and represents a transaction more favorable to its stockholders than the transactions contemplated by the Merger Agreement (a "Higher Offer"). Subject to compliance by the Company's Board of Directors with their fiduciary duty, the Company will notify Parent as soon as practicable if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with it, which notice will provide the identity of the third party or parties and the terms of any such proposal or proposals. The Company's Board of Directors may fail to recommend or fail to continue to recommend the Offer or the Merger Agreement in connection with any vote of its stockholders, or withdraw, modify, or change any such recommendation, or recommend or enter into an agreement regarding a Higher Offer, if the Company's Board of Directors, after receiving the advice of its outside counsel, determines in good faith that making such recommendation, or the failure to recommend any other offer or proposal, or the failure to so withdraw, modify, or change its recommendation, or the failure to recommend or enter into an agreement regarding a Higher Offer, could constitute a breach of the Directors' fiduciary duties under applicable law. In such event, notwithstanding anything contained in the Merger Agreement to the contrary, any such failure to recommend, withdrawal, modification, or change of recommendation or recommendation of such other offer or proposal, or the entering by the Company into an agreement with respect to a Higher Offer (provided that the Company will have provided Parent notice of its intention to so enter, the terms of the Higher Offer and the identity of the other party thereto), will not constitute a breach of the Merger Agreement by the Company. Notwithstanding the foregoing, the Company will not enter into an agreement with a third party with respect to, or take any action to approve such transaction under any antitakeover provision of the Company's certificate of incorporation or state law in connection with, any Third Party Acquisition unless and until the Merger Agreement is terminated in accordance with the provisions contained therein. Certain Covenants of Parent and Purchaser. Under the Merger Agreement, Parent has agreed to limitations, prohibitions and other provisions applicable during the period from the date of the Merger Agreement and continuing until the Offer Closing Time relating to the provision of certain information to the Company (or its counsel) regarding filings with any Governmental Entity in connection with the Merger Agreement and the transactions contemplated thereby. Parent and Purchaser have agreed that each will and each will cause the Surviving Corporation to, treat the Distribution for purposes of all federal and state taxes as an integrated transaction with the Offer and the Merger and thus report the Distribution as a constructive redemption of a number of Shares equal in value to the value of the New International Shares distributed in the Distribution. Parent has agreed further that for a period of three years after the Offer Closing Time, it will not modify the rights of certain non-executive directors of the Company to indemnification and will cause the Company and the Surviving Corporation to include in their Certificate of Incorporation and Bylaws provisions with respect to the right of directors and officers to indemnification substantially similar to such provisions in the Certificate of Incorporation and Bylaws of the Company as of the date of the Merger Agreement. Certain Other Covenants, Agreements and Actions. Subject to the terms and conditions of the Merger Agreement, the Company has agreed to use its reasonable best efforts to comply promptly with all legal and regulatory requirements which may be imposed on itself or its Subsidiaries with respect to the Offer, the Contribution, the Distribution and the Merger and the transactions contemplated by the Merger Agreement and to obtain any consent, authorization, order or approval of, or any exemption by, and to satisfy any condition or requirement imposed by, any governmental entity or other public or private third party, required to be obtained, made or 18 satisfied by the Company or any of its Subsidiaries in connection with the Contribution, the Distribution or the Merger or the taking of any action contemplated thereby or by the Merger Agreement or the Ancillary Agreements. Likewise, Parent has agreed to use its reasonable best efforts to comply promptly with all legal and regulatory requirements which may be imposed on itself or its subsidiaries with respect to the Offer, the Merger and transactions contemplated thereby and by the Merger Agreement and to obtain any consent, authorization, order or approval of, or any exemption by, and to satisfy any condition or requirement imposed by, any governmental entity or other public or private third party, required to be obtained, made or satisfied by the Parent or any of its Subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by the Merger Agreement or the Ancillary Agreements. The Company and Daka will deliver to the Parent certified Board of Directors resolutions authorizing each of the Contribution, the Distribution and the Merger, and the transactions contemplated thereby, and reflecting its determination that the consummation of such transactions will not violate applicable insolvency laws. Indebtedness. In the Merger Agreement, the Company has agreed to take such action as may be necessary so that, as of the Offer Closing Time, the Company and Daka, taken as a whole, shall not have any indebtedness other than: (A) the Funded Debt (as defined below), and (B) indebtedness incurred pursuant to a written agreement that provides that such indebtedness will be assumed by New International or a subsidiary of New International at or prior to the Offer Closing Time and that, upon such assumption, the Company and Daka shall have no obligation or liability in respect of such indebtedness. The term "Funded Debt" means the amount of indebtedness outstanding plus any accrued but unpaid interest and fees under the terms of the Third Amended and Restated Credit Agreement dated as of October 15, 1996 among the Company, subsidiary guarantors, the banks party thereto and The Chase Manhattan Bank, as Agent, as amended through the date of the Merger Agreement (the "Credit Facility"), together with the amount of indebtedness outstanding (consisting of market to market exposure) plus all other amounts due under any Interest Rate Protection Agreement (as defined in the Credit Facility) which aggregate amount shall not exceed $110,000,000. Simultaneously with the Offer Closing Time, Purchaser shall, or shall cause the Company to, repay the Funded Debt and shall use its reasonable best efforts to cause the lenders under the Credit Facility to deliver to New International such documents or instruments necessary to release or terminate all liens on assets of the Company, New International or their respective subsidiaries securing the Funded Debt. The parties must have receipt of reasonably satisfactory evidence to Parent of the amount of Funded Debt outstanding at the Offer Closing Date (as defined in the Merger Agreement) and confirmation that such Funded Debt (as adjusted in accordance with the terms of the Merger Agreement) has been repaid pursuant to Parent's wire transfer to The Chase Manhattan Bank, as Agent for the Company's lenders, simultaneous with the Offer Closing and that all obligations or liabilities of the Company and Daka, and all liens related to the Acquired Assets (as defined in the Merger Agreement), have been satisfied or released in full. Stock Option and Stock Purchase Plans. Pursuant to the Merger Agreement, the Company will make all adjustments and take all steps set forth in the Reorganization Agreement with respect to outstanding options ("International Options") to acquire Shares which are held by any employee or consultant or former employee or consultant or director or former director of the Company or any of its subsidiaries as a result of the Distribution and other transactions contemplated by the Merger Agreement and the Reorganization Agreement. After taking into account all such adjustments to such International Options and the other matters set forth in the Reorganization Agreement, all International Options which are outstanding immediately prior to Purchaser's acceptance for payment and payment for Shares pursuant to the Offer shall, regardless of whether such International Options are vested and exercisable be canceled as of the Offer Closing Time and the holders thereof shall be entitled to receive from New International, for each share subject to such International Option, an amount in cash equal to the positive difference between the Offer Price and the per share exercise price of such International Option, less all applicable withholding taxes, which amount shall be payable by New International not later than 30 days after the Offer Closing Time. In addition, the Company will make all adjustments and take all steps set forth in the Reorganization Agreement with respect to the DAKA International Employee Stock Purchase Plan (the "Stock Purchase Plan") regarding Shares purchasable by participating employees of the Company or its subsidiaries (the "Participating Employees") under the Stock Purchase Plan with respect to such Offering (the "Purchasable Shares"). In lieu of receiving Purchasable Shares, the Participating Employees will be entitled to receive from New International, for each Purchasable Share, in addition to the New International Common Stock in the Distribution as provided above, an amount in cash equal to the positive difference between the Offer Price and the per share purchase price of such Purchasable Share under the Stock Purchase Plan, less all applicable withholding taxes, which 19 amount shall be payable by New International not later than 30 days after the Offer Closing Time, whereafter all rights of Participating Employees under the Stock Purchase Plan shall terminate. As a result of the foregoing actions, no persons holding International Options or interests in the Stock Purchase Plan will receive any consideration in the Offer or the Merger. In addition, the Company will use its reasonable best efforts to ensure that neither the Company nor any of its subsidiaries is or will be bound by any options, warrants, rights or agreements which would entitle any person, other than Parent, Purchaser, Compass Interim or the Company or any of their respective subsidiaries, to beneficially own, or receive any payments in respect of, any capital stock of the Company or the Surviving Corporation (other than as provided in the Merger Agreement or in the Ancillary Agreements). Fees and Expenses. Except as provided in the Merger Agreement with respect to termination of the Merger Agreement under certain circumstances, all fees and expenses incurred in connection with the Merger, the Contribution, the Distribution, the Merger Agreement, the Reorganization Agreement and the transactions contemplated by the Merger Agreement and the Ancillary Agreements will be paid by the party incurring such fees or expenses, whether or not the Merger is consummated. In accordance with the foregoing sentence, the Company agrees to pay the fees and expenses of Bear Stearns, and Parent agrees to pay the fees and expenses of Patricof, NationsBanc Capital Markets, Inc. ("NCMI"), the Information Agent and the Depositary, as well as the filing fees for the HSR Filing. Notwithstanding the foregoing, the Purchaser and New International have agreed to share equally any transfer taxes, other than transfer taxes imposed on any holder of Shares, imposed in connection with or as a result of the Merger. Conditions. The respective obligation of each party to the Merger Agreement to effect the Merger is subject to the satisfaction or waiver on or prior to the Merger Closing Date of a number of conditions, including the following: (a) the Merger Agreement shall have been adopted by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with applicable law, if required by applicable law, (b) no statute, rule, regulation, order, decree, or injunction shall have been enacted, entered, promulgated or enforced by any court or governmental authority which prohibits or restricts the consummation of the Merger, (c) the Offer shall have been consummated, (d) the Distribution shall have become effective in accordance with the terms of the Reorganization Agreement and each of the agreements contemplated thereby, (e) no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, the Contribution or the Distribution shall be in effect and no such litigation or legal action shall have been threatened or shall be pending. No action, suit or other proceeding shall be pending by any governmental entity that, if successful, would restrict or prohibit the consummation of the Merger, the Contribution or the Distribution; provided, however, that the Company will not unreasonably withhold its waiver of the condition set forth in this sentence upon Parent's request in the event such an action, suit or other proceeding is pending with respect to the Merger alone. In the event that Parent or the Company terminates the Merger Agreement as a result of certain acts or omissions by the Board of Directors of the Company, as described in the Merger Agreement, and, at the time of termination there has been made a proposal relating to a Third Party Acquisition that has become public and, within 12 months following such termination, the Company or Daka enter into a definitive agreement with respect to (a) the sale of the Foodservice Business, (b) the sale of substantially all of the assets of the Company or Daka, or (c) the merger of the Company or Daka with or into any other entity, then the Company or Daka will promptly pay to Parent an amount equal to the sum of (i) $5,800,000 and (ii) the fees and expenses actually incurred by Parent in connection with the negotiation and preparation of the Merger Agreement and the Ancillary Agreements to which Parent is a party, the performance of Parent's covenants therein, and the transactions contemplated thereby, including, without limitation, all fees and disbursements of Parent's financial advisors, legal counsel, accountants and other advisors, up to a maximum of an additional $2,000,000. Offer Closing Date Payments. The Merger Agreement provides that at the Offer Closing, the Company shall deliver to Compass in cash or cash equivalents an amount equal to (i) $1,500,000, plus (ii) $7.50 multiplied by the sum of (A) the number of outstanding Shares and (B) the outstanding Shares into which the Series A Preferred Stock is convertible, minus $85,000,000, which amount is expected to be an aggregate of approximately $2,100,000. In addition, Parent shall deliver to New International any amount by which the aggregate of all principal, accrued but unpaid interest and fees outstanding under the Credit Facility is less than $110,000,000. 20 THE DISTRIBUTION The Reorganization Agreement The Reorganization Agreement contains the basic terms of the Distribution. The following is a summary of certain provisions of the Reorganization Agreement. A copy of the Distribution Agreement is attached as an exhibit to the Schedule 14D-1 and is incorporated herein by reference. The Reorganization Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. The following summary is qualified in its entirety by reference to the Reorganization Agreement. Contribution and Distribution. New International, which is a wholly owned subsidiary of the Company, was recently organized for the purpose of consummating the Contribution, the Distribution and the Merger, and the other transactions described therein. Immediately prior to the Distribution and the Offer Closing Time , the Company will contribute certain assets and equity interests in CDV, Champps, French Quarter, Fuddruckers, GBC and other subsidiaries other than Daka (the "New International Group") to New International (the "Contribution"). Immediately thereafter, and effective as of the Offer Closing Time, the Company will accomplish the Distribution by distributing on a pro rata basis all of the issued and outstanding New International Shares to the holders of the Shares. Consummation of the Contribution and the Distribution is a condition to the Merger. Terms of the Reorganization Agreement. The Reorganization Agreement provides that immediately prior to the Offer Closing Time, the Company, Daka and Daka's subsidiaries (the "International Group") will contribute to New International all of the assets and properties, (the "New International Assets"), used or held by any member of either the New International Group or the International Group immediately prior to the Offer Closing Time, excluding the specifically identified foodservice assets to be acquired by Parent in the Merger (the "Foodservice Assets"). The Foodservice Assets, which are listed in a schedule attached to the Reorganization Agreement, will consist principally of the assets that are used primarily in or held primarily for the use in or otherwise necessary for the operation, as presently conducted, of the Foodservice Business, excluding all accounts receivable and obligations. At the same time, New International will assume all of the Assumed Daka Liabilities (as defined in the Reorganization Agreement). Notwithstanding the foregoing, the Reorganization Agreement provides that the Contribution will not result in the assignment of any lease, license agreement, contract, agreement, sales order, purchase order, open bid or other commitment or asset if an assignment or attempted assignment of the same without the consent of the other party or parties thereto would constitute a breach thereof or in any way impair the rights of the New International Group or the International Group thereunder. In the event any attempted assignment is deemed ineffective for the reasons set forth in the preceding sentence, the Reorganization Agreement describes certain alternative methods by which the parties will attempt to place New International in substantially the same position as if the assignment had occurred. The Reorganization Agreement provides for certain adjustments to reflect that the income and expenses attributable to the operation of the Foodservice Business on or before the Offer Closing Time shall be for the account of New International and the income and expenses attributable to the operation of the Foodservice Business after the Offer Closing Time shall be for the account of the Purchaser. Immediately prior to the Offer Closing Time, the Company will cause New International to exchange the existing shares of New International Common Stock owned by the Company for a total number of shares of New International Common Stock equal to the total number of Shares outstanding as of the Distribution Record Date. In the Distribution, the Company will distribute on a pro rata basis all of the issued and outstanding New International Shares to the holders of the Shares. Not later than 10 business days prior to the Offer Closing Date, the Company and New International shall prepare and file with the Commission and mail to the holders of the equity securities of the Company, the Information Statement setting forth appropriate disclosure concerning New International and its subsidiaries, the New International Assets, the Contribution, the Distribution and certain other matters. The Company and New International shall also prepare and the Company shall file with the Commission, the Form 10 which shall include or incorporate by reference the Information Statement, and the Company shall use reasonable efforts to cause the Form 10 to be declared effective under the Exchange Act. Furthermore, the Company and New International shall take all such actions as may be necessary or appropriate under state securities laws in connection with the transactions set forth in the Reorganization Agreement, and the Company and New International will prepare, and New International will file and seek to make effective, an application to permit listing of the New International Common Stock on The Nasdaq Stock Market. The purpose and effect of the Contribution is to facilitate the Merger by separating the assets and liabilities of the restaurant business (the "Restaurant Business") currently operated by the Company, together with shares of 21 its subsidiaries not engaged in the Foodservice Business, and to transfer such assets and liabilities to New International. Accordingly, the Foodservice Business of the Company, will constitute certain of the businesses, assets and liabilities of the Company at the time of the Merger. In connection with all determinations to be made with respect to transfers of assets to New International pursuant to the Contribution and the assumption of liabilities by New International in relation to the Contribution, the Reorganization Agreement provides that the following principles will be applied with respect to the allocation of items between the New International Business and the International Business (each as defined in the Reorganization Agreement): (a) All accrued operating income and operating expense items of the Foodservice Business will be adjusted and allocated between New International and the Company to the extent necessary to reflect the principle that all such income and expenses attributable to the operation of the Foodservice Business on or before the Offer Closing Time shall be for the account of New International and all such income and expenses attributable to the operation of the Foodservice Business after the Offer Closing Time shall be for the account of the Company; (b) All expenses that relate to services, facilities, personnel or other matters provided for in the Transition Agreement (as defined in the Post-Closing Covenants Agreement) shall be allocated in accordance with such agreement without regard to generally accepted accounting principles or other criteria; and (c) To the extent not inconsistent with the express provisions of the Reorganization Agreement, the allocation provided in clause (a) above shall be made in accordance with GAAP (as defined in the Post-Closing Covenants Agreement). The Distribution will be effective as of the Offer Closing Time. Immediately before the Offer Closing Time, the Company will distribute all outstanding New International Shares to holders of record of International Common Stock on the Distribution Record Date on the basis of one share of New International Common Stock for each share of International Common Stock outstanding on the Distribution Record Date. All shares of New International Common Stock issued in the Distribution will be duly authorized, validly issued, fully paid and nonassessable. Under the Reorganization Agreement, prior to the Offer Closing Time, New International has agreed to amend or otherwise modify all insurance policies and related insuring agreements pertaining to the Foodservice Assets (the "Insurance Policies") to reflect that all reimbursement, premium payments or other obligations and assets, as applicable, of the Company based on occurrences prior to the Offer Closing Time will become obligations of New International under such Insurance Policies as of the Offer Closing Time; New International also has agreed to pay all required premiums and other payment or reimbursement obligations arising under such Insurance Policies and will be responsible for all correspondence with the insurance companies and will provide assistance to the insurance companies with the administration of any and all claims under the Insurance Policies and to cause each of the Company and Daka to remain as named insureds without cost to such entities under the Insurance Policies. Employee Benefits and Labor Matters. In general, the Reorganization Agreement requires the Company to amend its employee benefit and executive compensation plans to remove the Company as sponsor and named fiduciary and substitute New International in its place prior to the Offer Closing Time. Also prior to the Offer Closing Time, Parent is required to establish new welfare benefit plans, or amend existing welfare benefit plans, in order to make available to eligible Foodservice Employees approximately the same benefits as were available to them (with the same vesting or service credit status, where applicable) prior to the Offer Closing Time. Foodservice Employees may be permitted to roll over their Company retirement plan account balances into one or more Compass retirement plans, subject to their terms. Except as otherwise noted in the Reorganization Agreement, the Company shall cause one or more members of the New International Group to assume and be solely responsible for or cause its insurance carriers or agents to be solely responsible for, all liabilities for welfare benefit claims incurred on or prior to the Closing Date under the Company Welfare Plans. The Reorganization Agreement provides that New International and New International Group shall be responsible for any retiree medical, life insurance or other benefits that are now or may hereafter become payable with respect to any former employee of the Company or one of its affiliates who retired from the New International Group or the International Group prior to the Offer Closing Time and who met the eligibility requirements for such benefits at that time. The Foodservice Employees who retire from the Company or Parent after the Offer Closing Time shall not be entitled to retiree medical and life insurance benefits from either the International Welfare Plans or the New Welfare Plans. 22 Effective as of the Offer Closing Time, New International will adopt (and the Company, as sole shareholder of New International, will approve) a stock option and restricted stock plan (the "New International Stock Plan") for the benefit of employees of New International, Foodservice Employees and non-employee directors of New International. Options to acquire Shares which have been granted to New International employees, non-employee directors and employees and former employees of the Company pursuant to the Company Plans (as defined in the Reorganization Agreement) will, pursuant to the equitable adjustment provisions of the applicable plan under which such options were granted and effective as of the Distribution Date, be adjusted so as to provide the optionholder with the right to acquire Shares at a price adjusted to reflect the Distribution. In addition, and as part of the adjustment of options under the Company Plans, optionholders under the Company Plans shall receive an option under the New International Stock Plan which shall entitle such option holder to purchase a number of shares of New International Common Stock. Both options will have an exercise price determined in accordance with the terms of the Reorganization Agreement. In addition, the Company shall cause the employee stock purchase plan to end on the business day immediately preceding the Record Date and to deem all Shares purchasable by participating employees as issued and outstanding for purposes of the Distribution. Furthermore, the Company will take the necessary actions to transfer ownership of life insurance policies on the lives of its executives (other than Allen R. Maxwell) to New International, and New International will assume all liability for earned or accrued vacation pay and banked or earned/accrued sick leave pay accrued by Foodservice employees and New International Employees through the Offer Closing Time. Vacation pay and sick leave for Foodservice employees after the Offer Closing Time will be provided under Parent's vacation and sick leave policies. The New International Group shall assume and be solely responsible for all liabilities and obligations whatsoever in connection with claims for severance pay benefits without regard to when such claims are made under the terms of the Daka International, Inc. Severance Pay Program or any of the severance plans sponsored by any member of the International Group prior to the Offer Closing Time, including, without limitation, any individuals who, in connection with the Distribution, cease to be employees of the International Group, whether or not such individuals are offered or accept employment with either Group. The Company will be responsible for the payment of severance pay benefits payable pursuant to any New Welfare Plan that may be established after the Offer Closing Time to provide severance pay benefits to Foodservice Employees at the time of their termination. Under the Reorganization Agreement, as of the Offer Closing Time, the Company and the International Group shall retain and be responsible only for the collective bargaining agreements listed in the Reorganization Agreement, and only to the extent such agreements relate to the terms and conditions of employment of the Foodservice Employees. New International and the New International Group shall assume and be solely responsible for all liabilities or claims made or arising under any collective bargaining agreement covering the terms and conditions of either group relating to any period of time on or before the Offer Closing Time. Also under the Reorganization Agreement, New International and the New International Group generally shall be responsible for claims or proceedings against the Company or Daka relating to alleged violation of any legal requirement pertaining to labor relations or employee matters to the extent that the allegations relate to any period prior to the Offer Closing Time and for withdrawal liabilities in connection with any multiemployer plan beyond certain threshold amounts decided in the Reorganization Agreement. Employment Matters. Pursuant to the Reorganization Agreement, Parent has agreed to cause the Company or Daka to offer to retain all Foodservice Employees (as defined in the Reorganization Agreement) as of 12:01 a.m. on the Offer Closing Date. Notwithstanding the foregoing, nothing contained in the Reorganization Agreement is to be construed as obligating Purchaser, the Surviving Corporation or any of its affiliates (i) to offer employment after the Offer Closing Time to any employee whose employment with the Company or Daka terminates for any reason prior to the Offer Closing Time, (ii) to offer any term or condition of employment (including base salary and other benefits) except as specifically provided in the Reorganization Agreement or to maintain any such term or condition for any period following the Offer Closing Time or (iii) to recall any employee who does not have recall rights. License of Certain Intellectual Property. New International and Parent have agreed to enter into certain license agreements on terms and conditions reasonably acceptable to them, to be effective upon the Offer Closing Time, pursuant to which New International will grant Parent and Daka exclusive, royalty free licenses to use certain proprietary marks, trade dress and systems in connection with the operation of the Foodservice Business. Conditions of the Contribution and the Distribution. The obligations of the Company to consummate the Contribution and Distribution are subject to the fulfillment of each of the following conditions: (i) in the case of 23 the Distribution, the transactions accomplishing the Contribution must have been consummated; (ii) Parent, Purchaser and Compass Interim shall have performed in all material respects all obligations required to be performed by it under the Reorganization Agreement at or prior to the Offer Closing Date, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent to such effect; (iii) the Company shall have received opinions of Smith Helms Mulliss & Moore, L.L.P. and Freshfields, each dated the Closing Date, in substantially the forms attached as Exhibits to the Reorganization Agreement; (iv) simultaneously with the Offer Closing, Parent shall have paid to The Chase Manhattan Bank, N.A. on behalf of the Company all Funded Debt under the Credit Facility and secured a release of all liens with respect to Funded Debt; (v) no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Contribution or the Distribution shall be in effect, no such litigation or legal action shall have been threatened or shall be pending, and no action, suit or other proceeding shall be pending by any governmental entity that, if successful, would restrict or prohibit the consummation of the Contribution or the Distribution; (vi) any applicable waiting periods under the HSR Act or the Exon-Florio Amendment will have expired or been terminated; (vii) the Form 10 will have been declared effective by the Commission; (viii) the Purchaser will have accepted for payment pursuant to the Offer a number of validly tendered shares which satisfies the Minimum Condition; (ix) the representations and warranties of Parent contained in the Merger Agreement will be true and correct in all material respects; (x) the non-contravention of laws; (xi) the absence of a Material Adverse Change or any event that could reasonably be expected to result in a Material Adverse Change; (xii) Allen R. Maxwell will not have indicated that he does not intend to abide by the terms of his employment agreement. Under applicable law, the Contribution and the Distribution would constitute a "fraudulent transfer" if (i) the Company is insolvent at the Offer Closing Time or the time of Distribution, (ii) the Contribution or the Distribution would render the Company insolvent, (iii) the Contribution or the Distribution would leave the Company engaged in a business or transaction for which its remaining assets constituted unreasonably small capital or (iv) the Company intended to incur or believed it would incur debts beyond its ability to pay as such debts mature. Generally, an entity is considered insolvent if it is unable to pay its debts as they come due or if the fair value of its assets is less than the amount of its actual and expected liabilities. In addition, under Section 170 of the GCL (which is applicable to the Distribution), a corporation generally may make distributions to its stockholders only out of its surplus (net assets minus statutory capital) and not out of statutory capital. If a court in a lawsuit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy, were to find that, at the time the Company effects the Contribution and the Distribution, the Company (i) was insolvent, (ii) was rendered insolvent by reason of such transaction, (iii) was engaged in a business or transaction for which the Company's remaining assets constituted unreasonably small capital or (iv) intended to incur or believed it would incur debts beyond its ability to pay as such debts matured, such court could void the Contribution and the Distribution as a fraudulent conveyance and require that the Company's stockholders return the New International Shares to the Company or to a fund for the benefit of the Company's creditors. Amendment. The Reorganization Agreement provides that the parties thereto may modify or amend the Reorganization Agreement only by written agreement executed and delivered by duly authorized officers of the respective parties. THE TAX ALLOCATION AGREEMENT The following is a summary of certain provisions of the Tax Allocation Agreement. A copy of the Tax Allocation Agreement is included as an exhibit to the Schedule 14D-1 and is incorporated herein by reference. The Tax Allocation Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. The following summary is qualified in its entirety by reference to the Tax Allocation Agreement. The Company, New International and Parent have entered into the Tax Allocation Agreement which sets forth each party's rights and obligations with respect to payments and refunds, if any, of Federal, state, local or foreign taxes for periods before and after the Merger and related matters such as the filing of tax returns and the conduct of audits and other tax proceedings. In general, under the Tax Allocation Agreement, New International will be responsible for all tax liabilities of the International Group and the New International Group for periods (or portions of periods) ending on or before the effective date of the Distribution and will have the benefit of any tax refunds, tax credits or loss carryforwards arising in such pre-Distribution periods. For periods (or portions of periods) beginning after the 24 effective date of the Distribution, in general, New International will be responsible for tax liabilities of the New International Group, and the Company will be responsible for tax liabilities of the International Group. THE POST-CLOSING COVENANTS AGREEMENT The Post-Closing Covenants Agreement includes significant undertakings on the part of New International with respect to its operations after the Offer Closing Time and potential liability and payments due to the Company after the Offer Closing Time. While the amount of payments, if any, which might be payable to the Company by New International under the Post-Closing Covenants Agreement cannot be quantified at this time, the aggregate amount of such payments could have a material effect on the financial condition of New International. The following is a summary of certain provisions of the Post-Closing Covenants Agreement. A copy of the Post-Closing Covenants Agreement is included as an exhibit to the Schedule 14D-1 and is incorporated herein by reference. The Post-Closing Covenants Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. The following summary is qualified in its entirety by reference to the Post-Closing Covenants Agreement. Indemnification by New International. The Post-Closing Covenants Agreement provides that except as otherwise specifically provided in the Merger Agreement or any Ancillary Agreement, and subject to certain provisions of the Post-Closing Covenants Agreement, New International, will indemnify, defend and hold harmless Parent, each affiliate and subsidiary of Parent, (including, after the Offer Closing Time, the Company and Daka and any subsidiary of Daka), (the "Compass Indemnitees") from and against, and pay or reimburse the Compass Indemnitees for, all losses, liabilities, damages, deficiencies, obligations, fines, expenses, claims, demands, actions, suits, proceedings, judgments or settlements, including certain interest and penalties, out-of-pocket expenses and reasonable attorneys' and accountants' fees and expenses incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of such Compass Indemnitee's rights under the Post-closing Covenants Agreement, suffered by such Compass Indemnitee ("Indemnifiable Losses"), as incurred relating to or arising from (i) the New International Assets or the New International Liabilities, including without limitation the Special Liabilities, as defined below (including the failure by New International or any of its subsidiaries to pay, perform or otherwise discharge such New International Liabilities in accordance with their terms), whether such Indemnifiable Losses relate to or arise from events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted before, at or after the Offer Closing Time; (ii) a claim by any person who is not New International or an affiliate of New International (other than the Company or Daka) (collectively, the "New International Indemnitees") or the Compass Indemnitees (a "Third Party Claim") that there is any untrue statement or alleged untrue statement of a material fact contained in any of the Schedule 14D-1, the Schedule 14D-9, the Form 10, the Information Statement, the Proxy Statement or any other document filed or required to be filed with the SEC in connection with the transactions contemplated by the Merger Agreement, the Reorganization Agreement or any preliminary or final form thereof or any amendment or supplement thereto (the "Filings"), or any omission or alleged omission to state therein 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; but only (a) in the case of the Schedule 14D-1 or Proxy Statement with respect to information provided by New International, the Company or Daka in writing relating to New International, the Company or Daka, as the case may be, contained in or omitted from such Filings or (b) in the case of the Proxy Statement, information that is derived from filings made by the Company with the Commission prior to the Offer Closing Time; (iii) the breach by New International or any of its subsidiaries of any agreement or covenant or from an inaccuracy in any representation or warranty of the Company or Daka contained in the Merger Agreement or an Ancillary Agreement which does not by its express terms expire at the Offer Closing Time; (iv) any civil action or any action by a governmental entity where such Indemnifiable Losses relate to or arise from events, occurrences, actions, omissions, facts or circumstances occurring or existing prior to the Offer Closing Time and relating to the Company, including, but not limited to, the Special Liabilities (as defined in the Post-Closing Covenants Agreement) relating to certain claims and litigation pending as of or relating to a time period prior to the Offer Closing Time, as well as claims and actions relating to or arising from actions or omissions occuring prior to the Offer Closing Time by the Company, Daka or their affiliates in connection with the performance of the transactions contemplated by the Merger Agreement or the Ancillary Agreements or any other matter set forth in the Post-Closing Covenants Agreement; (v) any actual or alleged criminal violation of any law, rule or regulation of any governmental entity ("Criminal Matters") by the Company or any of its subsidiaries, including Daka, or any director, officer, employee or agent of the Company or any of its subsidiaries, including Daka, occurring or alleged to 25 have occurred prior to the Offer Closing Time or any Criminal Matters by New International or any of its subsidiaries, or any director, officer, employee or agent of New International or any of its subsidiaries occurring or alleged to have occurred prior to or after the Offer Closing Time; (vi) any claim that the execution, delivery or performance by New International, the Company or Daka of each of the Merger Agreement or the Ancillary Agreements to which it is or will be a party or the consummation of the transactions contemplated thereby results in a violation or breach of, or constitutes a default or impermissible transfer under, or gives rise to any right of termination, first refusal or consent under or gives rise to any right of amendment, cancellation or acceleration of any material benefit under, any Material Contract other than a Customer Contract (each as defined in the Post-Closing Covenants Agreement); (vii) (a) the Benefit Plans or Multiemployer Plans sponsored or contributed to by any member of the International Group, but only with regard to events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted either prior to the Offer Closing Time or in connection with or as a result of the consummation of certain transactions contemplated by the Merger Agreement, the Reorganization Agreement or any Ancillary Agreement, (b) the employment of any Foodservice Employee during the period ending at the Offer Closing Time, or (c) the employment or termination of any New International Employee whether before, on or after the Offer Closing Time; (viii) the collection of Trade Receivables or the payment of Obligations (each as defined in the Post-Closing Covenants Agreement), provided, that New International shall have no obligation to indemnify for Indemnifiable Losses that are finally determined to have resulted primarily from the gross negligence or willful misconduct of Parent or its subsidiaries; (ix) the Series A Preferred Stock Purchase Agreement other than monetary obligations thereunder relating to the purchase of the Series A Preferred Stock; (x) the repayment by Parent or its subsidiaries of any bonus or similar payments paid to the Company or Daka prior to the Offer Closing Time under the purchasing contracts set forth in the Post-Closing Covenants Agreement on a prorated basis, based on the number of months such purchasing contract was in effect prior to and after the Offer Closing Time; or (xi) the Headquarters Lease (as defined in the Post-Closing Covenants Agreement), except Compass' obligations as sublessee. Indemnification by Parent and Purchaser. The Post-Closing Covenants Agreement provides that except as otherwise specifically provided in the Merger Agreement or any Ancillary Agreement, and subject to certain provisions of the Post-Closing Covenants Agreement, Parent and the Purchaser (jointly and severally) will indemnify, defend and hold harmless the New International Indemnitees from and against, and reimburse the New International Indemnitees for, all Indemnifiable Losses, as incurred, relating to or arising from (i) the Foodservice Assets, the obligations and liabilities of the Company and Daka other than the New International Liabilities or the conduct of the Foodservice Business where such Indemnifiable Losses relate to or arise from events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted after the Offer Closing Time; (ii) a Third Party Claim that there is any untrue statement or alleged untrue statement of a material fact contained in any of the Filings, or any omission or alleged omission to state therein 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; but only in the case of the Schedule 14D-9, Form 10, Information Statement or Proxy Statement with respect to information provided by Parent or its subsidiaries (excluding the Company and Daka prior to the Offer Closing Time) in writing relating to Parent or its subsidiaries contained in or omitted from such Filings; (iii) the breach by Parent or its subsidiaries (other than the Company or Daka) of any agreement or covenant, or from an inaccuracy in any representation or warranty of Parent or its subsidiaries (other than the Company or Daka) contained in an Ancillary Agreement (other than an agreement or covenant assumed by New International pursuant to the Merger Agreement or an Ancillary Agreement) which does not by its express terms expire at the Offer Closing Time; (iv) any actual or alleged criminal matters by Parent or any of its subsidiaries, including the Company or Daka or any director, officer, employee or agent of Parent or any of its subsidiaries, including the Company or Daka after the Offer Closing Time, occurring or alleged to have occurred prior to or after the Offer Closing Time, but, in the case of the Company or Daka, only where such matters do not relate to a pattern or course of conduct commencing prior to the Offer Closing Time; (v) the employment of any Foodservice Employee, but only with regard to events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted after the Offer Closing Time; (vi) the collection of trade receivables or the payment of obligations by Parent or its subsidiaries pursuant to the terms of the Post-Closing Covenants Agreement, but only in the event that such Indemnifiable Losses are finally determined to have resulted primarily from the gross negligence or willful misconduct of Parent or its subsidiaries; or (vii) the repayments by New International of any bonus or similar payments paid to Compass or its subsidiaries after the Offer Closing Time under the purchasing contracts set forth in the Post-Closing Covenants Agreement on a prorated basis, based on the number of months such purchasing contract was in effect prior to and after the Offer Closing Time. 26 Limitation on Indemnification Obligations. The Post-Closing Covenants Agreement provides that neither New International nor Parent will have any liability for indemnification for Indemnifiable Losses unless the aggregate of all Indemnifiable Losses for which it would be liable, but for certain limitations described therein, exceeds on a cumulative pre-tax basis $250,000 (the "Basket Amount") and then only the amount by which such Indemnifiable Losses exceed the Basket Amount; provided that the Basket Amount will not apply to amounts paid in connection with the Special Liabilities (which amounts shall be paid in their entirety). In no event shall New International have a right of contribution against the Company or Daka in connection with Indemnitees of the Company and Daka found in the Post-Closing Covenants Agreement, the Merger Agreement or any of the Ancillary Agreements. Insurance. Except as otherwise specifically provided in the Merger Agreement, the Reorganization Agreement or any other Ancillary Agreement, with respect to any loss, liability or damage relating to the Foodservice Assets arising out of events occurring prior to the Offer Closing Time, New International will assert any such claims under the Insurance Policies with respect to such loss, liability or damage in accordance with the terms thereof. Upon the request of New International, Parent will use reasonable best efforts to assist New International in resolving any such claims under the Insurance Policies with respect to such loss, liability or damage. Notwithstanding the foregoing, New International shall have full responsibility to assert any claim with respect to the Foodservice Assets arising out of events occurring prior to the Offer Closing Time and New International assumes full responsibility for all costs, payment obligations and reimbursement obligations relating to such claims. Reorganization Expenses. The Post-Closing Covenants Agreement provides that, except as otherwise expressly provided in the Ancillary Agreements, New International will be responsible for and agree to pay such expenses which are agreed in the Merger Agreement to be the responsibility of the Company or Daka but only to the extent they were incurred before the Offer Closing Time; provided that the Company may, prior to the Offer Closing Time, pay any such expenses that would otherwise be or become the responsibility of New International. Covenant Not to Compete. In the Post-Closing Covenants Agreement, New International agrees that, for a period of five years following the Offer Closing Time, neither it nor any of its subsidiaries will directly or indirectly, either individually or as an agent, partner, shareholder, investor, consultant or in any other capacity, (i) participate or engage in, or assist others in participating or engaging in, the business of providing contract catering, contract food and vending services to business and industry, educational institutions, healthcare, museums or other similar leisure facilities in the continental United States but excluding the foodservice provided at retail outlets such as cinemas, theaters, stores, shopping centers and the like (the "Restricted Business"); provided, however, that New International without violating the Post-Closing Covenants Agreement, may own a passive investment of in the aggregate not more than 2% of the issued and outstanding stock of a publicly held corporation, partnership or other entity engaged in the business of providing foodservice or vending services; (ii) influence or attempt to influence any customer of Parent, Purchaser, the Company or Daka to divert its business from Parent, the Company or Daka to any person then engaged in any aspect of the Restricted Business in competition with Parent, the Company or Daka; or (iii) solicit or hire any of the Foodservice Employees, either during the term of such person's employment by Parent, the Company or Daka or within 12 months after such person's employment has ceased for any reason, to work for New International or any person in any aspect of Foodservice (including vending service) in competition with Parent, the Company or Daka; provided the foregoing shall not apply to Foodservice Employees (i) terminated by Parent, the Company or Daka after the Effective Time or (ii) who have been employed by Persons other than Parent, the Company or Daka for at least six months prior to being hired by New International or its Subsidiaries. Net Worth. The Post-Closing Covenants Agreement provides that for a period ending on the later of three years following the Offer Closing Time or the resolution of all claims for indemnification under the Post-Closing Covenants Agreement, New International and its subsidiaries, on a consolidated basis, will maintain at all times a net worth (determined in accordance with generally accepted accounting principles, consistently applied) of not less than $50,000,000 (the "Minimum Net Worth"). During the same three-year period, New International will provide to Parent, within 45 days following the end of each of New International's fiscal quarters, a certificate of the Chief Financial Officer of New International certifying New International's continuing compliance with such covenant. If New International fails to meet the Minimum Net Worth, it shall immediately provide alternative secured collateral for such claims for indemnification in a form reasonably satisfactory to Parent. 27 Duty to Defend. Under the Post-Closing Covenants Agreement, New International covenants and agrees that it will vigorously and in good faith defend the Compass Indemnitees in any proceeding or claim of which it has assumed (or is required to assume the defense) pursuant to the Post-Closing Covenants Agreement, including but not limited to the Special Liabilities (as defined in the Post-Closing Covenants Agreement) and any Third Party Claim. If New International determines to settle any claim, including but not limited to the Special Liabilities or any Third Party Claim, the Compass Indemnitees shall have no duty or obligation to contribute to any settlement, and the failure of any Compass Indemnitee to so contribute shall in no way excuse or discharge the obligations of New International under the Post-Closing Covenants Agreement. Guaranty by Champps and Fuddruckers. Pursuant to the terms of the Post-Closing Covenants Agreement, each of Champps and Fuddruckers, jointly and severally, continuously and unconditionally guarantees to Parent and its subsidiaries the full and prompt payment and performance of all obligations of New International under the Ancillary Agreements, whenever the same, or any part thereof, shall become due and payable in accordance with the terms of the Ancillary Agreements (the "Guaranty"). Notwithstanding the foregoing, the Guaranty is limited to those obligations of New International that become due for payment or for which performance shall have begun and as to which New International has been properly put on notice of a potential claim of Indemnifiable Loss on or before December 31, 1998. In addition, Champps and Fuddruckers each agree that Parent or its subsidiaries may at any time and from time to time without notice to Champps or Fuddruckers renew, amend, modify or extend the time of payment or performance of any obligations guaranteed under the Post-Closing Covenants Agreement as Parent may deem advisable without discharging, releasing or in any manner affecting the liability of Champps or Fuddruckers thereunder. Finally, the Post-Closing Covenants Agreement provides that the Guaranty is a guaranty of payment and performance and not of collection, and each of Champps and Fuddruckers waives any right it may have to require that any action be brought against New International or to require that resort be had to any security. Trade Receivables and Obligations. The Reorganization Agreement provides that the Trade Receivables and the Obligations (as each is defined in the Post-Closing Covenants Agreement) have been assigned and transferred to New International. In the Post-Closing Covenants Agreement, New International appoints Daka as its agent, after the Offer Closing Time for the purposes of collection of the Trade Receivables and payment of the Obligations and authorizes Daka to pay the Obligations and to collect Trade Receivables. The obligation of Daka to pay such Obligations shall be limited to the actual amount of Trade Receivables collected by Daka. After the close of the eighth week after the Offer Closing Time, Parent will remit to New International certain amounts of collected Trade Receivables in excess of the sum of (x) the aggregate amount of Obligations actually paid by Daka, plus (y) any adjustments determined pursuant to the Closing Date Financial Statements, (as defined in the Post-Closing Convenants Agreement) to be owed by New International to Parent. Thereafter, Parent will remit any such net amount to New International not later than the first business day following the end of each succeeding two-week period; provided, however, that Parent's obligation to remit any such excess Trade Receivables to New International will be subject to a right of setoff granted to Parent in connection with the "Post-Closing Payments" provisions summarized below. Post-Closing Payments. The Post-Closing Covenants Agreement provides for post-closing payments in the following circumstances: (i) if the value of the Foodservice Current Assets (as defined in the Post-Closing Covenants Agreement and determined from the audited financial statements for the Foodservice Business) is less than $10,000,000, then New International will pay to Parent an amount equal to such shortfall; (ii) if the product of $7.50 times the sum of (A) the total number of issued and outstanding Shares as of the Offer Closing Time plus (B) the total number of Shares into which all shares of Series A Preferred Stock issued and outstanding as of the Offer Closing Time are convertible is greater than the sum of (x) $85,000,000 plus (y) the amount paid by New International to Parent pursuant to Section 6.7(a)(ii) of the Merger Agreement, then New International will pay Parent the amount of such positive difference; and (iii) in the event that there are lost customer contracts or new customer contracts during the twelve months immediately preceding the Offer Closing Date, New International and Parent each agree to pay the other, as appropriate, by wire transfer, an additional Managed Volume/Profit Adjustment calculated in accordance with the Post-Closing Covenants Agreement. To the extent there is any amount owing from New International to Parent for Post-Closing Payments relating to any Foodservice Current Asset shortfall, outstanding Share value calculation or Managed Volume/Profitability Adjustment, Parent will have a right of set-off against any amounts owing to New International with respect to Parent's obligation to remit excess Trade Receivables as summarized above. 28 Transitional Arrangements. New International, the Company and Parent have agreed to enter into a Transition Agreement to be effective upon consummation of the Merger with respect to certain transitional arrangements (the "Transition Agreement"). The Transition Agreement will address, among other things, the allocation of employees; overhead support services; the sublease by Parent of a portion of the Company's headquarters office facilities; information support services; licensed software; representations and covenants as to the nature and extent of New International's software resources and the software necessary for the conduct of the Foodservice Business; accounting and payroll business practices; division of headquarters assets; and records retention issues. 11. Purpose of the Offer, the Merger and the Distribution; Plans for the Company. The purpose of the Offer, the Merger and the Distribution is for the Purchaser to acquire control of the entire equity interest of the Foodservice Business. Consummation of the Offer will provide the Purchaser with at least a two-thirds equity interest in the Company. As described above, as a result of the Distribution, the Company will continue to own only the Foodservice Business. The Merger will allow the Purchaser to acquire all outstanding Shares not tendered and purchased pursuant to the Offer. The acquisition of the entire equity interest in the Foodservice Business has been structured as a cash tender offer followed by the Distribution and a cash merger in order to provide a prompt and orderly transfer of ownership of the Foodservice Business from the public stockholders to Parent and to provide stockholders with cash and New International Shares for all their Shares. The purchase of Shares pursuant to the Offer will increase the likelihood that the Merger will be effected. Except as noted in this Offer to Purchase, neither Parent nor the Purchaser has any present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation, relocation of operations, or sale or transfer of assets, involving the Company or any of its subsidiaries, or any material changes in the Company's corporate structure or business or the composition of its management or personnel. 12. Effect of the Offer on the Market for the Shares; Stock Exchange Listing; Registration under the Exchange Act. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and may reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by stockholders other than the Purchaser. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer price. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of The Nasdaq Stock Market for continued listing and may, therefore, be delisted from such stock market. The Nasdaq Stock Market's published guidelines require that an issuer have at least 200,000 publicly held shares (exclusive of holdings of officers, directors or beneficial owners of more than 10%), held either by at least 400 beneficial shareholders or 300 beneficial shareholders of round lots, with a market value of at least $1 million and must have net tangible assets of at least either $1 million, $2 million or $4 million depending on profitability levels during the issuer's four most recent fiscal years. If these standards are not met, shares of an issuer might nevertheless continue to be included in The Nasdaq Stock Market with quotations published in The Nasdaq Stock Market's "Additional List" or in one of the "Local Lists," but if the number of beneficial holders were to fall below 300, or if the number of publicly held shares were to fall below 100,000 or there were not at least two registered and active market makers for the shares, the NASD's rules provide that such shares would no longer be "qualified" for reporting by The Nasdaq Stock Market. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NASD for continued inclusion in The Nasdaq Stock Market or in any other tier of The Nasdaq Stock Market, and the shares are no longer included in The Nasdaq National Market or in any other tier of The Nasdaq Stock Market, the market for the Shares could be adversely affected. If The Nasdaq Stock Market were to delist the Shares, it is possible that the Shares would trade in the over-the-counter market and that price quotations for the Shares would be reported through other sources. The extent of the public market for the Shares and availability of such quotations would, however, depend upon such factors as the number of holders and/or the aggregate market value of the publicly held Shares at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act, as described below, and other factors. 29 The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated if the Shares are not listed on a national securities exchange and there are fewer than 300 holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16 (b), the requirement of furnishing a proxy or information statement in connection with stockholder action and the related requirement of an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or eligible for listing on a securities exchange or Nasdaq reporting. It is the current intention of Parent to deregister the Shares after consummation of the Offer if the requirements for termination of registration are met. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, shareholders of the Company may have certain rights under the GCL to dissent and demand appraisal of, and payment in cash for the fair value of, the Shares. Such rights, if the statutory procedures are complied with, could lead to a judicial determination of the fair value (excluding any element of value arising form accomplishment or expectation of the Merger) required to be paid in cash to such dissenting holders for their Shares. Any such judicial determination of the fair value of Shares could be based upon considerations other than or in addition to the price paid in the Offer and the market value of the Shares, including asset values and the investment value of the Shares. The value so determined could be more or less than the purchase price per Share pursuant to the Offer or the consideration per Share to be paid in the Merger. The foregoing summary of the rights of dissenting shareholders does not purport to be a complete statement of the procedures to be followed by shareholders desiring to exercise their dissenters' rights. The preservation and exercise of dissenters' rights are conditioned on strict adherence to the applicable provisions of Delaware law. In addition, the Merger will have to comply with other applicable procedural and substantive requirements of Delaware law, including any duties to minority shareholders imposed upon a controlling or, if applicable, majority shareholder. The Commission has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger or another business combination following the purchase of Shares pursuant to the Offer in which Purchaser seeks to acquire the remaining Shares not held by it. Purchaser believes, however, that if the Merger is consummated within one year of the purchase of Shares pursuant to the Offer, Rule 13e-3 will not be applicable to the Merger. Purchaser believes that if the Merger is not consummated within one year of its purchase of Shares pursuant to the Offer, Rule 13e-3 may be applicable to the Merger. Rule 13e-3 requires, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction be filed with the Commission and disclosed to stockholders prior to consummation of the transaction. 13. Dividends and Distributions. If, on or after the date of the Merger Agreement, the Company should (i) split, combine or otherwise change the Shares or its capitalization, (ii) issue or sell any additional securities of the Company or otherwise cause an increase in the number of outstanding securities of the Company (except for Shares issuable upon the exercise of employee stock options outstanding on the date of the Merger Agreement) or (iii) acquire currently outstanding Shares or otherwise cause a reduction in the number of outstanding Shares, then, without prejudice to the Purchaser's rights under Sections 1 and 15, the Purchaser, in its sole discretion, subject to the terms of the Merger Agreement, may make such adjustments as it deems appropriate in the purchase price and other terms of the Offer. 30 If, on or after the date of the Merger Agreement, the Company should declare or pay any dividend on the Shares or make any distribution (including, without limitation, cash dividends, the issuance of additional Shares pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to the Shares, other than New International Shares payable or distributable in respect of the Shares in connection with the Distribution, that is payable or distributable to stockholders of record on a date prior to the transfer to the name of the Purchaser or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to the Purchaser's rights under Sections 1 and 15, any such dividend, distribution or right to be received by the tendering stockholders will be received and held by the tendering stockholders for the account of the Purchaser and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance and subject to applicable law, the Purchaser will be entitled to all rights and privileges as owner of any such dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. 14. Extension of Tender Period; Amendment; Termination. The Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, regardless of whether or not any of the events set forth in Section 15 shall have occurred or shall have been determined by the Purchaser to have occurred, subject to the terms of the Merger Agreement and applicable rules of the Commission, (i) to extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or notice of such extension to the Depositary and (ii) to amend the Offer in any respect by giving oral or written notice of such amendment to the Depositary. In the Merger Agreement, Parent and the Purchaser have agreed not to extend the Expiration Date beyond the initial Expiration Date without the prior written consent of the Company unless one or more of the conditions set forth in Section 15 shall not be satisfied or unless Parent reasonably determines that such extension is necessary to comply with any legal or regulatory requirements relating to the Offer. Purchaser has also agreed in the Merger Agreement, subject to the terms and conditions thereof, to extend the Expiration Date if the Offer would otherwise expire prior to (i) the Distribution Record Date, (ii) the expiration or termination of any applicable waiting period under the HSR Act or the Exon-Florio Amendment or (iii) the satisfaction of the Minimum Condition. In no event, however, will the Purchaser extend the Expiration Date beyond July 31, 1997. In the Merger Agreement, the Purchaser expressly reserves the right to amend the terms or conditions of the Offer; provided, that without the consent of the Company, the Purchaser will not amend the terms or conditions of the Offer to change the form of consideration to be paid or decrease the price per Share payable in the Offer, the number of Shares sought in the Offer or to impose conditions to the Offer in addition to those set forth in Section 15, broaden the scope of the conditions set forth in Section 15 or to amend any other term of the Offer in any manner adverse to the holders of Shares. The rights reserved by the Purchaser in this paragraph are in addition to the Purchaser's rights to terminate the Offer pursuant to Section 15. Any extension, amendment or termination will be followed as promptly as practicable by public announcement thereof, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rules 14d-4(c) and 14e-1(d) under the Exchange Act. Any reduction in the purchase price pursuant to the Merger Agreement will be considered an amendment to the Offer, and will be followed by the appropriate announcement. Without limiting the obligation of the Purchaser under such Rules or the manner in which the Purchaser may choose to make any public announcement, the Purchaser currently intends to make announcements by issuing a release to the Dow Jones News Service or the Reuters News Service. The Purchaser also reserves the right, in its sole discretion, subject to the terms of the Merger Agreement, in the event any of the conditions specified in Section 15 shall not have been satisfied and so long as Shares have not theretofore been accepted for payment, to delay (except as otherwise required by applicable law) acceptance for payment of or payment for Shares or to terminate the Offer and not accept for payment or pay for Shares. If the Purchaser extends the Offer, or if the Purchaser (whether before or after its acceptance for payment of Shares) is delayed in its purchase of or payment for Shares or is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may retain tendered shares on behalf of the Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 4. However, the ability of the Purchaser to delay the payment for Shares which the Purchaser has accepted for payment is limited by Rule 14e-1(c) under the 31 Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including the Minimum Condition), the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information. With respect to a change in price or a change in percentage of securities sought, a minimum ten- business-day period is generally required to allow for adequate dissemination to stockholders and investor response. If prior to the Expiration Date, the Purchaser should decide to increase the price per Share being offered in the Offer, such increase will be applicable to all stockholders whose Shares are accepted for payment pursuant to the Offer. As used in this Offer to Purchase, "business day" means any day other than Saturday, Sunday or a federal holiday and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York City time as computed in accordance with Rule 14d-l under the Exchange Act. 15. Certain Conditions to the Offer. Notwithstanding any other provision of the Offer, the Purchaser shall not be required to purchase any Shares tendered, and may terminate the Offer, if (i) immediately prior to the expiration of the Offer (as extended in accordance with the terms of the Offer), (a) any applicable waiting periods under the HSR Act or the Exon-Florio Amendment shall not have expired or been terminated, (b) the Distribution Condition shall not have been satisfied, (c) the Minimum Condition shall not have been satisfied, or (ii) prior to the acceptance for payment of Shares, any of the following events shall occur: (a) any of the representations or warranties of the Company contained in the Merger Agreement shall not have been true and correct at the date when made or (except for those representations and warranties made as of a particular date which need only be true and correct as of such date) shall cease to be true and correct at any time prior to consummation of the Offer, (i) where the Company has delivered to Parent a certificate (the "Company Bring-Down Certificate") dated as of the Offer Closing Date that (x) updates any section of the Disclosure Schedule previously delivered to Parent pursuant to the Merger Agreement so long as such updated schedules taken as a whole do not constitute a Material Adverse Change (as defined in the Merger Agreement) compared to the original schedules, or (y) sets forth events or conditions that have occurred since the date of the Merger Agreement which, if they had occurred or been in existence as of the date of the Merger Agreement would be required to be disclosed, so long as such events or conditions taken as a whole do not constitute a Material Adverse Change or (ii) where the failure to be so true and correct would not have a Material Adverse Effect (as defined in the Merger Agreement) on the Company and Daka, taken as a whole, and Parent shall not have received a certificate signed on behalf of the Company by the Chief Financial Officer to such effect; or (b) any of the representations or warranties of the Company contained in Sections 4.2(b), (c), (d), (e), (p) and (s) of the Merger Agreement shall not have been true and correct at the date when made or (except for those representations and warranties made as of a particular date which need only be true and correct as of such date) shall cease to be true and correct at any time prior to consummation of the Offer, and Parent shall not have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer to such effect; or (c) the Company shall have breached any of its covenants or agreements contained in the Merger Agreement or any Ancillary Agreement, provided, however, that if any such breach is curable by the Company or Daka through the exercise of best efforts within five business days and so long as the Company or Daka continue to use such best efforts, Purchaser may not terminate the Offer until such five business day period has expired without the breach being cured, except for any such breaches that, individually or in the aggregate, would not have a Material Adverse Effect on the the Company and Daka as a whole; or (d) there shall be any statute, rule, regulation, decree, order or injunction promulgated, enacted, entered or enforced, or any legal or administrative proceeding initiated by any United States federal or state government, governmental authority or court (other than the routine application to the Offer, the Merger or the Distribution of waiting periods under the HSR Act, the Exon-Florio Amendment or review by the Commission of the Schedule 14D-1, Schedule 14D-9 or Form 10), which would (i) prohibit the Purchaser from consummating the Offer or the Merger, (ii) prohibit New International from consummating the Distribution 32 or (iii) have a Material Adverse Effect on the Company and Daka as a whole (provided that the provisions of this clause (iii) shall only apply in the event of any statute, rule, regulation, decree, order or injunction (A) which is enacted or entered into following the date of the Merger Agreement and (B) the substantive provisions of which were initially proposed for enactment following the date of the Merger Agreement); or (e) there shall have occurred (i) any general suspension of trading in securities on the New York Stock Exchange, Inc. or Nasdaq, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, or (iii) a commencement of a war or armed hostilities involving the United States, which in the case of any of the foregoing clauses (i), (ii) or (iii) would have a Material Adverse Effect on the Company and Daka taken as a whole; or (f) either the Merger Agreement or the Reorganization Agreement shall have been terminated in accordance with its terms; or (g) The Company shall have failed to enter into license agreements for each of the "French Quarter Coffee," "Leo's Deli"and "Good Natured Cafe" names and marks, as provided in the Reorganization Agreement; or (h) Parent shall not have received an opinion dated the Closing Date of Goodwin, Procter & Hoar LLP, counsel to the Company, in substantially the form attached to the Merger Agreement; or (i) there shall have been a Material Adverse Change (as defined in the Merger Agreement), or an event shall have occurred which could reasonably be expected to result in a Material Adverse Change; or (j) Parent shall not have received all consents or releases related to the Foodservice Business or otherwise, necessary or appropriate to effect the Contribution, the Distribution and the Merger and to release the Company, Daka, Parent, Purchaser and Compass Interim and the assets of the Foodservice Business from any obligation or liability, including, without limitation, the Indebtedness (as defined in the Merger Agreement) except as may be otherwise expressly permitted in the Merger Agreement or in the Ancillary Agreements; or (k) any approval by a governmental entity in connection with the transactions contemplated by the Merger Agreement and by the Ancillary Agreements, including without limitation any approval under the HSR Act or the Exon-Florio Amendment shall contain a requirement for the sale or disposition of assets or conditions or limitations in connection with Parent's acquisition of the Foodservice Business or operation of its existing business and operations or the Foodservice Business after the Offer Closing Time; or (l) Allen R. Maxwell shall have indicated to the Company, Daka or Parent that he does not intend to abide by the terms of his Employment Agreement with the Company and Daka; or (m) the Distribution shall not have become effective in accordance with the terms of the Reorganization Agreement and each of the agreements contemplated thereby; or (n) New International shall fail to have delivered to Parent indemnification agreements in substantially the form attached as an exhibit to the Reorganization Agreement concerning each executive officer and director of New International; or (o) Parent shall be unable to pay in full the aggregate amount of principal, accrued but unpaid interest and fees due under the Credit Facility or such amount shall exceed $110,000,000; or (p) releases of claims and indemnification rights in forms reasonably satisfactory to Parent from each of the officers and inside directors of the Company shall not have been delivered to Parent; or (q) letters of resignation from certain executive officers and directors of the Company shall not have been delivered to Parent; or (r) the Company shall not have paid to Parent the amounts set forth in Section 6.7 of the Merger Agreement, net of any amounts due from Parent thereunder; or (s) New International shall have failed to enter into the Transition Agreement as provided in the Post-Closing Convenants Agreement; or (t) the Company shall have failed to have assigned or transferred to New International the Headquarters Lease (as defined in the Post-Closing Covenants Agreement). 33 The foregoing conditions are for the sole benefit of Parent and may be asserted by Parent regardless of the circumstances giving rise to such conditions, or may be waived by Parent in whole or in part at any time and from time to time in its sole discretion; provided that the conditions set forth in clauses (i)(a), (b), (c) and (ii)(d) above may be waived only by mutual consent of the Purchaser and the Company. No assurance can be given that all of these considerable conditions to the consummation of the Offer will be fulfilled or waived by Parent or that the Offer will be consummated. 16. Certain Legal Matters; Regulatory Approvals. Except as described in this Section 16, based on a review of publicly available filings by the Company with the Commission and other publicly available information concerning the Company, neither Parent nor the Purchaser is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the acquisition of Shares by the Purchaser or Parent pursuant to the Offer, the Merger or otherwise or of any approval or other action by any governmental, administrative or regulatory agency or authority, domestic or foreign, that would be required prior to the acquisition of Shares by the Purchaser or Parent pursuant to the Offer, the Merger or otherwise. Should any such approval or other action be required, Parent and the Purchaser currently contemplate that it will be sought. While the Purchaser does not currently intend to delay the acceptance for payment of Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company or the Purchaser Entities or that certain parts of the business of the Company or Parent might not have to be disposed of in the event that such approvals were not obtained or any other actions were not taken. The Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 16. See Section 15. State Takeover Statutes. The Company is incorporated under the laws of the State of Delaware. Section 203 of the GCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined as any beneficial owner of 15% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its prior approval to either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder." The Company has represented in the Merger Agreement that it properly elected that Section 203 of the GCL be inapplicable to the Offer, the Merger and the transactions contemplated in the Merger Agreement and the Ancillary Agreements. At a meeting on May 22, 1997, the Board of Directors approved the Merger Agreement, the Merger, the Offer and the Purchaser's purchase of Shares pursuant to the Offer. Accordingly, the provisions of Section 203 of the GCL have been satisfied with respect to the Offer and the Merger and such provisions will not delay the consummation of the Merger. A number of other states have adopted "takeover" statutes that purport to apply to attempts to acquire corporations that are incorporated in such states, or whose business operations have substantial economic effects in such states, or which have substantial assets, security holders, employees, principal executive offices or places of business in such states. In Edgar v. MITE Corporation, the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Act, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquirer from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable under certain conditions, including, in particular, that the corporation has a substantial number of stockholders in the state and is incorporated there. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted "takeover" statutes. The Purchaser does not know whether any of these statutes will, by their terms, apply to the Offer, and has not complied with any such statutes other than that adopted by the State of Delaware. To the extent that certain provisions of these statutes purport to apply to the Offer, the Purchaser believes that there are reasonable bases for contesting such statutes. If any person should seek to apply any state takeover statute, the Purchaser would take such action as then appears desirable, which action may include challenging the validity or applicability of any such statute in appropriate court proceedings. If it is asserted that one or more takeover statutes apply to the Offer, and it is not determined by an appropriate 34 court that such statute or statutes do not apply or are invalid as applied to the Offer, the Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities, and the Purchaser might be unable to purchase or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer. In such case, the Purchaser may not be obligated to accept for payment or pay for Shares tendered. See Section 15. Antitrust. Under the HSR Act, certain acquisitions may not be consummated unless information has been furnished to the Federal Trade Commission ("FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") and certain waiting period requirements have been satisfied. The Offer and the acquisition of Shares pursuant to the Merger Agreement are subject to the HSR Act. On or about May 29, 1997 Parent filed a Notification and Report Form with respect to the Offer. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares under the Offer may not be consummated until the expiration of a 15-calendar-day waiting period following the filing by Parent. Accordingly, the waiting period with respect to the Offer will expire at 11:59 p.m., New York City time, on or about June 13, 1997, unless Parent receives a request for additional information or documentary material, or the Antitrust Division and the FTC terminate the waiting period prior thereto. If, within such 15-day waiting period, either the Antitrust Division or the FTC requests additional information or material from Parent concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Parent. The Purchaser will not accept for payment Shares tendered pursuant to the Offer unless and until the waiting period requirements imposed by the HSR Act with respect to the Offer have been satisfied. See Section 15. No separate HSR Act waiting period requirements with respect to the Merger Agreement will apply, so long as the 15-day waiting period expires or is terminated. Thus, all Shares may be acquired pursuant to the Offer at the close of the 15-day waiting period or on the tenth calendar day after the date of substantial compliance with a request for additional information (assuming all other conditions to the Offer have been satisfied or waived in accordance with the provisions thereof). The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the Purchaser's acquisition of Shares pursuant to the Offer and the Merger Agreement. At any time before or after the Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or otherwise or seeking divestiture of Shares acquired by the Purchaser or divestiture of substantial assets of Parent or its subsidiaries. Private parties and state attorneys general may also bring legal action under the Antitrust Laws under certain circumstances. Based upon an examination of publicly available information relating to the businesses in which Parent and the Company are engaged, Parent and the Purchaser believe that the acquisition of Shares by the Purchaser will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer or other acquisition of Shares by the Purchaser on antitrust grounds will not be made or, if such a challenge is made, of the result. See Section 15 for certain conditions to the Offer, including conditions with respect to litigation and certain governmental actions. Exon-Florio. Section 721 of the Defense Production Act of 1950, as amended (the "Exon-Florio Amendment"), empowers the President of the United States to prohibit or suspend an acquisition of, or investment in, a United States company by a foreign person if the President finds, after investigation, credible evidence that the foreign person might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate and appropriate authority to protect the national security. Any 35 determination that an investigation is called for must be made within 30 days of notice of the proposed transaction. In the event such a determination is made, any such investigation must be completed within 45 days of such determination. Thereafter, any decision to take action must be announced within 15 days of completion of the investigation. Authority under the Exon-Florio Amendment has been delegated to the Chairman of the Committee on Foreign Investment in the United States ("CFIUS"). On or about May 29, 1997, Parent and the Company jointly notified CFIUS in writing of the transactions described herein and provided CFIUS with the necessary information. Accordingly, the waiting period with respect to the Offer will expire at 11:59 p.m., New York City Time, on or about June 28, 1997, unless Parent receives a request for additional information or notice of further investigation by CFIUS. Parent does not believe that such transactions threaten to impair the national security of the United States and does not anticipate that an investigation will be initiated. Commission Approval of Information Statement. The Company intends to file the Information Statement with the Commission as part of a registration statement of the New International Shares under the Exchange Act. Margin Rules. The Purchaser and Parent believe that the requirements of the margin regulations promulgated by the Federal Reserve Board are not applicable to the financing of the Offer and the Merger. 17. Fees and Expenses. Parent and the Purchaser have engaged NCMI and Patricof to act as financial advisors to Parent in connection with the Merger and the Offer. As compensation for their services as financial advisors, Parent will pay each of NCMI and Patricof a transaction fee upon consummation of the Merger. Purchaser also has agreed to reimburse NCMI and Patricof for their expenses, including reasonable counsel fees, and to indemnify them against certain liabilities and expenses, including certain liabilities under the Federal securities laws. The Purchaser has retained MacKenzie Partners, Inc. to act as the Information Agent and The Bank of New York to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, facsimile, telegraph and personal interview and may request brokers, dealers, commercial banks, trust companies and other nominees to forward the Offer material to beneficial owners. The Information Agent and Depositary each will receive reasonable and customary compensation for their services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the Federal securities laws. The Depositary has not been retained to make solicitations or recommendations in connection with the Offer. Neither the Purchaser nor Parent will pay any fees or commissions to any broker or dealer or other persons for soliciting tenders of Shares pursuant to the Offer (other than the fees of the Information Agent). Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchaser for reasonable expenses incurred by them in forwarding material to their customers. 18. Miscellaneous. The Purchaser is not aware of any jurisdiction in which the making of the Offer is not in compliance with applicable law. If the Purchaser becomes aware of any jurisdiction in which the making of the Offer would not be in compliance with applicable law, the Purchaser will make a good faith effort to comply with any such law. If, after good faith effort, the Purchaser cannot comply with any such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in such jurisdiction. In those jurisdictions where securities or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. No person has been authorized to give any information or make any representation on behalf of the Purchaser or Parent not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule 14D-l and any amendments thereto, including exhibits, may be inspected and copies may be obtained at the same places and in the same manner as set forth in Section 7 (except they will not be available at the regional offices of the Commission). COMPASS HOLDINGS, INC. May 29, 1997 36 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER 1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The name, business address, present principal occupation or employment and five-year employment history of each director and executive officer of Parent and certain other information are set forth below. Unless otherwise indicated below, the address of each director and officer is c/o Compass Group PLC, Cowley House, Guildford Street, Chertsey, Surrey, England KT16 9BA. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Parent. Unless otherwise indicated below, the directors and officers listed below are citizens of the United Kingdom. Directors are identified by a single asterisk.
Name Positions and Offices Principal Occupation and Business Experience (Age at 4/30/97) Held with Parent During Past Five Years; Outside Directorships John M. Thomson* Non-executive Chairman Non-executive chairman of Parent since March (69) 1994; Vice Chairman of J. Bibby & Sons PLC, a UK-based industrial corporation, c/o J. Bibby & Sons, 16 Stratford Place, London W1N 9AF; Mr. Thomson is Non-executive Chairman of Wellington Underwriting PLC and Non-executive Director of Thames Water PLC. Michael J. Bailey* Director, Chief Executive Director of Parent since 1995 and Chief (48) Officer, US Division Executive Officer of Parent's US Division since 1994, c/o Compass Holdings, Inc., 2400 Yorkmont Road, Charlotte, North Carolina 28217. From 1993 to 1994, Mr. Bailey was Managing Director in charge of Parent's branded concept division. Prior to 1993, Mr. Bailey was President of the US catering division of Gardner Merchant Limited, a UK foodservices company, c/o 153 Second Avenue, Waltham, Massachusetts 02154. Denis P. Cassidy* Non-executive Director Non-executive Director of Parent since June (64) 1994; Chairman of Ferguson International Holdings PLC, a UK-based paper, packaging and printing company, c/o Ferguson International Holdings, 210 Regent Street, London W1R 6AH. Mr. Cassidy is also Non-executive Chairman of H Liberty Public Limited Company and Oliver Group PLC and is a Non-executive Director of Seeboard PLC. Peter E. B. Cawdron* Non-executive Director Non-executive Director since 1993; Group (53) Strategy Development Director for Grand Metropolitan PLC, a UK-based retail food and beverage corporation, c/o Grand Metropolitan PLC, 8 Henrietta Place, London W1M 9AG. Alain F. Dupuis* Executive Director; President Executive Director and President of Eurest (52) of Eurest International International subsidiary of Parent since Division Parent's acquisition of Eurest in 1995. Prior to 1995, Mr. Dupuis was President of the Eurest International division of the Accor Group, a French hotel corporation, c/o Accor, 189/193, Boulevard Malesherbes, 75838, Paris, Cedex 17. Mr. Dupuis is a citizen of Belgium. Andrew Lynch* Group Finance Director Group Finance Director of Parent since 1997. (40) Prior to 1997, Mr. Lynch was Finance Director of Parent's UK Division.
I-1
Name Positions and Offices Principal Occupation and Business Experience (Age at 4/30/97) Held with Parent During Past Five Years; Outside Directorships Francis H. Mackay * Chief Executive and Deputy Chief Executive and Deputy Chairman of Parent (52) Chairman since 1991 and 1994, respectively; Non-executive Director of Centrica PLC, Healthcall PLC and Allied Carpets Group PLC. Roger J. Matthews* Managing Executive Director Managing Executive Director of Parent since (42) 1997. Prior to 1997, Mr. Matthews was Executive Director of Group Finance. John Du Monceau* Non-executive Director Non-executive Director of Parent since 1995; (58) Executive Vice President of the Accor Group, a French hotel corporation, c/o Accor, 189/193, Boulevard Malesherbes, 75838, Paris, Cedex 17. Mr. DuMonceau is a citizen of Belgium. Ronald M. Morley Secretary Secretary of Parent since 1989. (44) Gerard Pelisson* Non-executive Director Non-executive Director of Parent since 1995; (65) Co-chairman of the Accor Group, a French hotel corporation, c/o Accor, 2 Rue De La Mare-Neuve, 91022 Evry Cedex, Paris. Friedrich L. R. Ternofsky* Executive Director; Chief Chief Executive Officer of Parent's UK and (53) Executive Officer of UK and Scandinavian Operations since 1995. From 1993 Scandinavian Catering to 1995, Mr. Ternofsky was Executive Director Division of Parent's European Catering Division. Prior to 1993, Mr. Ternofsky was Managing Director and Chief Operating Officer of Scott's Hospitality Limited, the UK division of a Canadian hotel corporation, c/o Scott's Hospitality, Slough, Berkshire, SL3 8PT England. Mr. Ternofsky was appointed as an Executive Director to Parent's board of directors in June of 1993, having been a Non-executive Director since 1987.
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER.
Name Position and Offices Principal Occupation and Business Experience (Age at 4/30/97) Held with Purchaser During Past Five Years; Outside Directorships Michael J. Bailey* Director, President and Chief See above. (48) Executive Officer Francis H. Mackay * Director See above. (52) Roger J. Matthews* Director See above. (42) Mary H. Kercher Vice President, General Counsel Vice President, General Counsel and Secretary of (35) and Secretary Parent's US Division since 1997, c/o 2400 Yorkmont Road, Charlotte, North Carolina 28217. From 1994 to 1997, Ms. Kercher was Assistant General Counsel and Assistant Secretary of Parent's US Division. Prior to 1994, Ms. Kercher was Assistant General Counsel of Canteen Corporation, a subsidiary of Flagstar Corporation, a US foodservices company, c/o Flagstar Corporation, 203 E. Main Street, Spartanburg, South Carolina 29319.
I-2 Exhibit A AGREEMENT AND PLAN OF MERGER by and among COMPASS GROUP PLC, COMPASS HOLDINGS, INC., COMPASS INTERIM, INC., and DAKA INTERNATIONAL, INC. MAY 27, 1997 A-1 TABLE OF CONTENTS ARTICLE I THE OFFER Section 1.1 The Offer.................................................................................... 2 Section 1.2 Actions of International..................................................................... 3 Section 1.3 Stockholder Lists............................................................................ 3 Section 1.4 Series A Preferred Stock..................................................................... 3 Section 1.5 Stock Option and Stock Purchase Plans........................................................ 4 Section 1.6 Offer Closing................................................................................ 5 Section 1.7 Repayment of Funded Debt, Release of Liens................................................... 5
ARTICLE II THE MERGER Section 2.1 The Merger................................................................................... 5 Section 2.2 Merger Closing............................................................................... 5 Section 2.3 Merger Effective Time........................................................................ 6 Section 2.4 Stockholders' Meeting........................................................................ 6 Section 2.5 Effects of the Merger........................................................................ 6 Section 2.6 Certificate of Incorporation and Bylaws...................................................... 7 Section 2.7 Directors.................................................................................... 7 Section 2.8 Officers..................................................................................... 7 Section 2.9 Reservation of Right to Revise Transaction Structure......................................... 7
ARTICLE III EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES Section 3.1 Effect on Capital Stock...................................................................... 7 (a) Conversion of Shares..................................................................... 7 (b) Shares of Series A Preferred Stock....................................................... 8 Section 3.2 Dissenting Shares; Exchange of Certificates.................................................. 8 (a) Dissenting Shares of International Common Stock.......................................... 8 (b) Exchange of Shares of International Common Stock......................................... 9 (c) Termination of Exchange Fund............................................................. 9 (d) No Liability............................................................................. 10 (e) Withholding Rights....................................................................... 10 (f) Transfer Taxes........................................................................... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Certain Definitions.......................................................................... 10 Section 4.2 Representations and Warranties of International.............................................. 11 (a) Organization, Standing, Corporate Power and Subsidiaries................................. 11 (b) Capital Structure........................................................................ 11 (c) Authority; Noncontravention.............................................................. 12 (d) Reports.................................................................................. 14 (e) Schedule 14D-9; Offer Documents; Form 10; Information Statement.......................... 15 (f) Absence of Certain Changes or Events..................................................... 15 (g) Litigation............................................................................... 15 (h) Compliance with Applicable Laws.......................................................... 16 (i) Brokers or Finders....................................................................... 16
A-2 (j) The Foodservice Business................................................................. 16 (k) Material Contracts....................................................................... 17 (l) Benefit Plans, Employment and Labor Relations............................................ 19 (m) Absence of Certain Business Practices.................................................... 23 (n) Intellectual Property.................................................................... 24 (o) Taxes.................................................................................... 25 (p) Insurance Policies....................................................................... 26 (q) Actions Affecting Recent Acquisitions.................................................... 26 (r) Foodservice Business Financial Statements................................................ 26 (s) Indebtedness............................................................................. 26 (t) Properties............................................................................... 27 (u) Real Property............................................................................ 27 (v) Environmental Matters.................................................................... 28 (w) Fraudulent Conveyance; Solvency.......................................................... 28 Section 4.3 Representations and Warranties of Compass, Compass Holdings and Compass Interim.............. 29 (a) Organization, Standing and Corporate Power............................................... 29 (b) Authority; Noncontravention.............................................................. 29 (c) Schedule 14D-1; Offer Documents; Form 10; Information Statement.......................... 30 (d) Sufficient Funds......................................................................... 31 (e) Consummation of Transactions............................................................. 31 (f) Voting Requirements...................................................................... 31 (g) Brokers or Finders....................................................................... 31
ARTICLE V COVENANTS Section 5.1 Covenants of International and Daka.......................................................... 31 (a) Ordinary Course.......................................................................... 31 (b) Changes in Stock......................................................................... 32 (c) Governing Documents...................................................................... 33 (d) No Acquisitions.......................................................................... 33 (e) No Dispositions.......................................................................... 33 (f) Indebtedness............................................................................. 33 (g) Benefit Plans; Collective Bargaining Agreements.......................................... 34 (h) Employee Agreements...................................................................... 34 (i) [Reserved]............................................................................... 34 (j) Accounting Policies and Procedures....................................................... 34 (k) Liens.................................................................................... 34 (l) Deferred Tax Assets and Liabilities...................................................... 34 (m) Exclusivity.............................................................................. 35 (n) Confidentiality and Standstill Agreements................................................ 36 (o) Pending Actions.......................................................................... 36 (p) Access to Information; Confidentiality................................................... 36 (q) Corporate Records........................................................................ 37 (r) No Agreement to Prohibited Actions....................................................... 37 Section 5.2 Mutual Covenants............................................................................. 37
ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Fees and Expenses............................................................................ 39 Section 6.2 Ancillary Agreements......................................................................... 39 Section 6.3 Composition of the Board of Directors; Section 14(f)......................................... 40 Section 6.4 Certain Prior Actions........................................................................ 41
A-3 Section 6.5 Tax Treatment................................................................................ 42 Section 6.6 Indemnification of Officers and Directors.................................................... 42 Section 6.7 Offer Closing Date Payments.................................................................. 42 Section 6.8 Non-Waiver of Conditions..................................................................... 42
ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation to Effect the Merger................................... 43 (a) Shareholder Approval..................................................................... 43 (b) No Prohibition........................................................................... 43 (c) Consummation of the Offer................................................................ 43 (d) Consummation of the Distribution......................................................... 43 (e) No Injunctions, Litigation or Restraints................................................. 43
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination.................................................................................. 43 Section 8.2 Effect of Termination........................................................................ 44 Section 8.3 Amendment.................................................................................... 45 Section 8.4 Extension; Waiver............................................................................ 45
ARTICLE IX GENERAL PROVISIONS Section 9.1 Survival of Representations and Warranties................................................... 46 Section 9.2 Notices...................................................................................... 46 Section 9.3 Interpretation............................................................................... 47 Section 9.4 Counterparts................................................................................. 47 Section 9.5 Entire Agreement; No Third-party Beneficiaries............................................... 47 Section 9.6 Governing Law................................................................................ 47 Section 9.7 Assignment................................................................................... 47 Section 9.8 Enforcement.................................................................................. 47 (a) Specific Performance..................................................................... 47 (b) Jurisdiction............................................................................. 48
ARTICLE X DEFINITIONS Section 10.1 General...................................................................................... 48 Section 10.2 Certain Definitions.......................................................................... 51
LIST OF EXHIBITS: Exhibit 1.1(a) Conditions of the Offer Exhibit 1.1(a)(i) Form of Goodwin, Procter & Hoar, LLP Legal Opinion..........................[Omitted] Exhibit 2.6(a) Certificate of Incorporation of the Surviving Corporation...................[Omitted]
A-4 AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger is dated as of May 27, 1997 (the "Agreement"), by and among COMPASS GROUP PLC, a public limited company incorporated in England and Wales ("Compass"), COMPASS HOLDINGS, INC., a Delaware corporation ("Compass Holdings"), COMPASS INTERIM, INC., a Delaware corporation ("Compass Interim") and DAKA INTERNATIONAL, INC., a Delaware corporation ("International"). RECITALS: WHEREAS, the Board of Directors of Compass has approved a tender offer whereby Compass Holdings will offer to purchase for cash (the "Offer") any and all of the common stock, par value $.01 per share, of International (the "International Common Stock"), subject only to the conditions set forth in Exhibit 1.1(a) attached hereto (the "Offer Conditions"); WHEREAS, the Board of Directors of International has approved a plan of contribution and distribution as described in the Reorganization Agreement (as defined below) pursuant to which, prior to expiration of the Offer, (a) all of the assets and liabilities of the restaurant business (the "Restaurant Business") currently operated by International and certain other assets and liabilities of International or its wholly owned subsidiary, Daka, Inc., a Massachusetts corporation ("Daka"), together with the shares of the subsidiaries of International not engaged in the food catering, contract catering and vending (together, "foodservice") business, will be contributed (the "Contribution") to Unique Casual Restaurants, Inc., a Delaware corporation and a wholly owned subsidiary of International ("UCRI"), and (b) all of the stock of UCRI (the "UCRI Common Stock") will be distributed on a pro rata basis to International's stockholders as provided in the Reorganization Agreement (the "Distribution"); WHEREAS, following the Contribution and the Distribution, International and Daka will own the assets and perform the customer and certain other obligations of the foodservice business currently operated by International and Daka (the "Foodservice Business"); WHEREAS, Compass Holdings is an indirect, wholly owned subsidiary of Compass, and Compass Interim is a direct, wholly owned subsidiary of Compass Holdings; and WHEREAS, the respective Boards of Directors of Compass, Compass Holdings, Compass Interim and International have determined that, following the Contribution and Distribution, the merger of Compass Interim with and into International (the "Merger") with International as the surviving corporation (the "Surviving Corporation") would be advantageous and beneficial to their respective corporations and stockholders; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained in this Agreement, the parties hereto agree as follows: ARTICLE I THE OFFER Section 1.1 The Offer. (a) Subject to this Agreement not having been terminated in accordance with the provisions of Article VIII hereof, Compass Holdings shall, and Compass shall cause Compass Holdings to, as promptly as practicable, but in no event later than five business days from the date of the public announcement of the terms of this Agreement, commence the Offer, subject to the Offer Conditions, at a price of not less than $7.50 per share (the "Offer Price"), net to the seller in cash. Compass Holdings shall (i) subject only to the Offer Conditions, accept for payment and pay for all shares of International Common Stock tendered pursuant to the terms of the Offer at the earliest possible time on the date (the "Offer Closing Time") as promptly as practicable following the record date (the "Record Date") established by International's Board of Directors for eligibility for receipt of the Distribution, and (ii) subject only to the conditions set forth in paragraph (ii) of the Offer Conditions, extend the period of time the Offer is open until the first business day following the Record Date; provided that in event the conditions set forth in Section (i) of Exhibit 1.1(a) are not satisfied, Compass Holdings shall extend the period of time the Offer is open until the time such conditions are satisfied or until July 31, 1997, whichever is earlier. Subject to the provisions set forth herein and in the Reorganization Agreement, International's Board of Directors shall A-5 establish such Record Date and the Distribution Date (as defined in the Reorganization Agreement) at the earliest reasonably practicable date and as soon as practicable after having been notified by Compass of the Offer Closing Time. Compass will not, nor will it permit any of its Affiliates to, tender into the Offer any shares of International Common Stock beneficially owned by it, nor subject to the preceding sentence, will Compass or Compass Holdings extend the expiration date of the Offer beyond the twentieth business day following commencement thereof without the prior written consent of International unless one or more of the Offer Conditions shall not be satisfied or unless Compass Holdings reasonably determines that such extension is necessary to comply with any legal or regulatory requirement relating to the Offer. Compass Holdings expressly reserves the right to amend the terms or conditions of the Offer, provided that no amendment may be made which changes the form of consideration to be paid or decreases the price per share or the number of shares of International Common Stock sought in the Offer or which imposes conditions to the Offer in addition to the Offer Conditions or broadens the scope of such conditions, and no other amendment may be made in the terms or conditions of the Offer which is adverse to the holders of International Common Stock. International agrees that no shares of International Common Stock held by International or any Subsidiary of International will be tendered pursuant to the Offer. Notwithstanding anything to the contrary contained in this Agreement, Compass Holdings shall not be required to commence the Offer in any foreign country where the commencement of the Offer, in Compass Holdings' reasonable opinion, would violate the applicable law of such jurisdiction. (b) On the date of the commencement of the Offer, Compass Holdings shall file with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer which will contain an offer to purchase and form of the related letter of transmittal (together with any supplements or amendments thereto, collectively the "Offer Documents"). International and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents prior to the filing of such Offer Documents with the SEC. Compass Holdings agrees to provide International and its counsel in writing with any comments Compass Holdings and its counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt thereof. Section 1.2 Actions of International. International hereby approves of and consents to the Offer and represents that its Board of Directors has unanimously (i) determined that the Offer, on the terms and conditions set forth herein (including the Offer Conditions), the Distribution and the Merger are fair to the stockholders of International and are in the best interests of the stockholders of International and (ii) resolved to recommend acceptance of the Offer by the stockholders of International and, if required by applicable law, the approval and adoption of this Agreement by the stockholders of International. International further represents that Bear Stearns & Co., Inc. has delivered to the Board of Directors of International its opinion that, taken together, the shares of UCRI Common Stock to be received in the Distribution and the consideration to be received by the holders of shares of International Common Stock in the Offer and the Merger are fair from a financial point of view to such holders. International hereby agrees to file a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") containing such recommendations with the SEC (and the information required by Section 14(f) of the Exchange Act, hereinafter defined, if Compass Holdings shall have furnished such information to International in a timely manner) and to mail such Schedule 14D-9 to the stockholders of International immediately following the commencement of the Offer. International agrees to provide Compass Holdings and its counsel in writing with any comments International may receive from the SEC or its staff with respect to such Schedule 14D-9 promptly after receipt thereof. Section 1.3 Stockholder Lists. In connection with the Offer, International will promptly furnish Compass Holdings with mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of International Common Stock as of a recent date and shall furnish Compass Holdings with such information and assistance as Compass Holdings or its agents may reasonably request in communicating the Offer to the record and beneficial holders of shares of International Common Stock. Subject to the requirements of applicable law or regulation, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Compass Holdings and its Affiliates and associates shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, shall return to International the originals and all copies of such information then in their possession. A-6 Section 1.4 Series A Preferred Stock. Each of Compass, Compass Holdings, International, First Chicago Equity Corporation, an Illinois corporation ("FCEC"), Cross Creek Partners I, an Illinois general partnership ("Cross Creek") and the other beneficial holders of all of the issued and outstanding shares of Series A Preferred Stock, par value $.01 per share, of International (the "Series A Preferred Stock") (collectively, the "Series A Preferred Stockholders"), have entered into a certain Stock Purchase Agreement, dated as of the date hereof (the "Series A Preferred Stock Purchase Agreement"), pursuant to which Compass Holdings has agreed to purchase, and the Series A Preferred Stockholders have agreed to sell, all issued and outstanding shares of Series A Preferred Stock and all of warrants exercisable for shares of International Common Stock upon redemption of the Series A Preferred Stock (the "Warrants") at a purchase price equal to the product of the Offer Price by the number of shares of International Common Stock into which such shares of Series A Preferred Stock are convertible as of the Offer Closing Time. The sale will occur as soon as practicable following the Offer Closing Time and is contingent upon the consummation of the Offer in accordance with its terms and the purchase price shall be paid in cash in an amount calculated in accordance with the Series A Preferred Stock Purchase Agreement. The Series A Preferred Stockholders will receive no consideration in the Offer or in the Merger. In the Series A Preferred Stock Purchase Agreement, International agreed to distribute to the Series A Preferred Stockholders the number of shares of UCRI Common Stock to which they would be entitled if they converted the Series A Preferred Stock into Common Stock immediately prior to the Record Date and UCRI agreed to pay to the Series A Preferred Stockholders any and all dividends accrued and unpaid with respect to the Series A Preferred Stock as of the Offer Closing Date. Section 1.5 Stock Option and Stock Purchase Plans. (a) International shall make all adjustments and take all steps set forth in Section 7.4 of the Reorganization Agreement with respect to outstanding options ("International Options") to acquire shares of International Common Stock which are held by any employee or consultant or former employee or consultant or director or former director of International or any of its Subsidiaries as a result of the Distribution and other transactions contemplated hereby and thereby. After taking into account all such adjustments to such International Options and the other matters set forth in Section 7.4 of the Reorganization Agreement, all International Options which are outstanding immediately prior to Compass Holdings' acceptance for payment and payment for shares of International Common Stock pursuant to the Offer shall, regardless of whether such International Options are vested and exercisable (including, without limitation, obtaining any required consents from holders of the International Options to all of the matters contemplated by this Section) shall be cancelled as of the Offer Closing Time and the holders thereof shall be entitled to receive from UCRI, for each share of International Common Stock subject to such International Option, an amount in cash equal to the positive difference between the Offer Price and the per share exercise price of such International Option, less all applicable withholding taxes, which amount shall be payable by UCRI not later than 30 days after the Offer Closing Time. (b) International shall make all adjustments and take all steps set forth in Section 7.4 of the Reorganization Agreement with respect to the DAKA International Employee Stock Purchase Plan (the "Stock Purchase Plan") regarding the shares of International Common Stock purchasable by participating employees of International or its Subsidiaries (the "Participating Employees") under the Stock Purchase Plan with respect to such Offering (the "Purchasable Shares"). In lieu of receiving Purchasable Shares the Participating Employees shall be entitled to receive from UCRI, for each Purchasable Share of International Common Stock, in addition to the UCRI Common Stock in the Distribution as provided in Section 7.4 of the Reorganization Agreement, an amount in cash equal to the positive difference between the Offer Price and the per share purchase price of such Purchasable Share under the Stock Purchase Plan, less all applicable withholding taxes, which amount shall be payable by UCRI not later than 30 days after the Offer Closing Time, whereafter all rights of Participating Employees under the Stock Purchase Plan shall terminate. (c) International shall use its reasonable best efforts to ensure that neither International nor any of its Subsidiaries is or will be bound by any options, warrants, rights or agreements which would entitle any person, other than Compass, Compass Holdings, Compass Interim or International or any of their respective Subsidiaries, to beneficially own, or receive any payments in respect of, any capital stock of International or the Surviving Corporation (other than as provided in this Agreement or in the Ancillary Agreements). Section 1.6 Offer Closing. The closing of the Offer (the "Offer Closing") will take place immediately prior to the Offer Closing Time upon the satisfaction or waiver of the Offer Conditions at the offices of Smith Helms A-7 Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, or on such other date or at such other place as is agreed to in writing by the parties hereto. The parties agree to use reasonable efforts to cause the Offer Closing to occur on or before June 28, 1997 or, if not reasonably practicable, then as soon as practicable thereafter. The date of the Offer Closing is referred to herein as the "Offer Closing Date." Section 1.7 Repayment of Funded Debt, Release of Liens. Simultaneously with the Offer Closing Time, Compass Holdings shall, or shall cause International to, repay the Funded Debt (as defined in Section 5.1(f) (ii) hereof) in accordance with the document referenced in Section 6.4(b)(ii) hereof and International shall use its reasonable best efforts to cause the lenders under the Credit Facility to deliver to UCRI and to Compass Holdings, as appropriate, such documents or instruments referenced in Section 6.4(b)(ii) hereof necessary to release or terminate all Liens on assets of International, UCRI or their respective Subsidiaries securing the Funded Debt. ARTICLE II THE MERGER Section 2.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the "DGCL"), Compass Interim shall be merged with and into International as soon as practicable after the Offering Closing Time. Following the Merger, the separate corporate existence of Compass Interim shall cease, and International shall continue as the Surviving Corporation and shall succeed to and assume all the rights and obligations of Compass Interim in accordance with the DGCL. Section 2.2 Merger Closing. The closing of the Merger (the "Merger Closing") will take place within five business days after the satisfaction or waiver of the conditions set forth in Article VII, at the offices of Smith Helms Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, or on such other date or at such other place as established by Compass Holdings and approved by the Independent Directors as provided in Section 6.3 hereof. If a sufficient number of shares of International Common Stock is acquired by Compass Holdings pursuant to the Offer such that a stockholders' meeting pursuant to Section 2.4 hereof is not required to consummate the Merger, Compass Holdings shall use reasonable best efforts to cause the Merger Closing to occur immediately after the Offer Closing Time. Otherwise Compass Holdings agrees to use reasonable best efforts to cause the Merger Closing to occur as soon as practicable after the Offer Closing Time. The date of the Merger Closing is referred to herein as the "Merger Closing Date." Section 2.3 Merger Effective Time. On the Merger Closing Date, the parties shall file certificates of merger or other appropriate documents (in any such case, the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL, and shall make all other filings or recordings required under the DGCL. The Merger shall become effective immediately following the Distribution upon the filing of the Certificate of Merger with the Delaware Secretary of State or at such other time as shall be specified in the Certificate of Merger by agreement of International and Compass Holdings (the time the Merger becomes effective being the "Merger Effective Time"). Section 2.4 Stockholders' Meeting. If required by applicable law in order to consummate the Merger, International, acting through its Board of Directors, shall, in accordance with applicable law, its Certificate of Incorporation and Bylaws and the rules and regulations of the National Association of Securities Dealers: (a) duly call, give notice of, convene and hold a special meeting of its stockholders as soon as practicable following the consummation of the Offer for the purpose of considering and taking action upon this Agreement and the Merger; (b) subject to its fiduciary duties under applicable laws as advised by counsel, include in the Proxy Statement (as defined in Section 4.2(e) hereof) the recommendation of its Board of Directors referred to in Section 1.2 hereof; and (c) use its best efforts to (i) obtain and furnish the information required to be included by it in the Proxy Statement, and, after consultation with Compass Holdings, respond promptly to any comments made by the SEC with respect to the Proxy Statement and any preliminary version thereof and cause the Proxy Statement to be mailed to its stockholders following the Offer Closing Time and (ii) obtain the necessary approvals of this Agreement by its stockholders. A-8 Compass Holdings will vote, or cause to be voted, all shares of International Common Stock owned by it or its subsidiaries in favor of approval and adoption of this Agreement and the Merger. Section 2.5 Effects of the Merger. The Merger shall have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Merger Effective Time, all the properties, rights, privileges, powers and franchises of Compass Interim and International shall vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of Compass Interim and International shall become the debts, liabilities and duties of the Surviving Corporation. Section 2.6 Certificate of Incorporation and Bylaws. (a) The Certificate of Incorporation of International shall be amended at the Merger Effective Time to read in its entirety as set forth in Exhibit 2.6(a) attached hereto and as so amended shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The Bylaws of Compass Interim as in effect at the Merger Effective Time shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. Section 2.7 Directors. The directors of Compass Interim at the Merger Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 2.8 Officers. The officers of Compass Interim at the Offer Closing Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 2.9 Reservation of Right to Revise Transaction Structure. Compass may at any time change the method of effecting the Merger to provide for a merger of a wholly owned Subsidiary (as defined in Section 10.2(f), herein) other than Compass Interim with International and make conforming changes to the Offer; provided, however, that no such change shall (a) alter or change the amount or the kind of the consideration to be received by the holders of International Common Stock as provided in this Agreement; or (b) adversely affect the tax treatment to International stockholders as a result of receiving such consideration (in the opinion of Compass' outside counsel). In the event Compass determines to exercise its right to substitute a different wholly owned subsidiary for Compass Interim hereunder, the Merger Agreement shall promptly be amended to add such subsidiary as a party hereto, and all references in the Agreement to Compass Interim shall be deemed references to such subsidiary. ARTICLE III EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES Section 3.1 Effect on Capital Stock. (a) Conversion of Shares. At the Merger Effective Time: (i) Each share of International Common Stock issued and outstanding immediately prior to the Merger Effective Time (other than shares to be cancelled pursuant to Section 3.1(a)(ii) and Dissenting Shares (as hereafter defined)), shall, at the Merger Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive $7.50 in cash per share of International Common Stock in the Offer (the "Merger Price"), payable to the holder thereof, without interest, upon the surrender of the certificate formerly representing such share. (ii) Each share of International Common Stock that is owned by International or by any wholly owned subsidiary of International (but not any Benefit Plan (as defined in Section 4.2(l)(i)) of International or any of its subsidiaries) and each share of International Common Stock that is owned by Compass Holdings, Compass Interim or any other wholly owned subsidiary of Compass, excluding, in each case, any such shares held by International, Compass Holdings or any of their wholly owned subsidiaries in a fiduciary, custodial or similar capacity immediately prior to the Merger Effective Time shall, at the Merger Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. A-9 (iii) Each share of common stock, par value $0.01 per share, of Compass Interim issued and outstanding immediately prior to the Merger Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and exchangeable for one share of common stock of the Surviving Corporation. (b) Shares of Series A Preferred Stock. Each share of Series A Preferred Stock shall be cancelled and retired by International and shall cease to exist at the Merger Effective Time, as provided in the Series A Preferred Stock Purchase Agreement. Holders of Series A Preferred Stock shall receive no consideration in the Merger by virtue of the cancellation of such shares as provided herein so long as all outstanding shares of Series A Preferred Stock were purchased by Compass or any of its Affiliates at the Offer Closing Time. Section 3.2 Dissenting Shares; Exchange of Certificates. (a) Dissenting Shares of International Common Stock. Notwithstanding anything in this Agreement to the contrary, shares of International Common Stock which are issued and outstanding immediately prior to the Merger Effective Time and which are held by stockholders who have not voted such shares of International Common Stock in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares of International Common Stock in the manner provided by Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be converted into or be exchangeable for the right to receive the consideration provided for in Section 3.1 of this Agreement, unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost such holder's right to appraisal and payment under the DGCL. If such holder shall have so failed to perfect or shall have effectively withdrawn or lost such right, such holder's shares of International Common Stock shall thereupon be deemed to have been converted into and to have become exchangeable for, at the Merger Effective Time, the right to receive the consideration provided for in Section 3.1(a) of this Agreement, without any interest thereon. (b) Exchange of Shares of International Common Stock. (i) Prior to the Merger Effective Time, Compass shall designate a bank or trust company to act as exchange agent in the Merger (the "Exchange Agent"). Immediately prior to the Merger Effective Time, Compass will deposit with the Exchange Agent the funds necessary to make the payments contemplated by Section 3.1 on a timely basis (the "Exchange Fund"). (ii) Promptly after the Merger Effective Time, the Exchange Agent shall mail to each record holder, as of the Merger Effective Time, of an outstanding certificate or certificates which immediately prior to the Merger Effective Time represented shares of International Common Stock (the "Certificates") a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Exchange Agent of a Certificate, together with such letter of transmittal duly executed, and any other required documents, the holder of such Certificate shall be entitled to receive in exchange therefor the consideration set forth in Section 3.1(a) hereof, and such Certificate shall forthwith be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. If payment is to be made to a person other than the person in whose name the Certificate surrendered is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 3.2, each Certificate (other than Certificates representing shares of International Common Stock to be cancelled pursuant to Section 3.1(a)(ii) and Dissenting Shares) shall represent for all purposes only the right to receive the consideration set forth in Section 3.1(a) hereof, without any interest thereon. (iii) After the Merger Effective Time there shall be no transfers on the stock transfer books of the Surviving Corporation of the shares of International Common Stock which were outstanding immediately prior to the Merger Effective Time. If, after the Merger Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for the consideration provided in this Article III and in accordance with the procedures set forth in this Article III. A-10 (c) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates for one year after the Merger Effective Time shall be delivered to the Surviving Corporation immediately, upon demand, and any holders of the Certificates who have not theretofore complied with this Article III shall thereafter look only to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) for exchange for the consideration provided in this Article III in accordance with the procedures set forth in this Article III. (d) No Liability. None of Compass, Compass Holdings, Compass Interim, International, the Surviving Corporation or the Exchange Agent shall be liable to any person in respect of any payments from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (e) Withholding Rights. The Surviving Corporation will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of International Common Stock such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of Tax (as defined in the Tax Allocation Agreement) law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of International Common Stock in respect of which such deduction and withholding was made. (f) Transfer Taxes. Compass Holdings will pay or cause to be paid any Transfer Taxes (as defined in the Tax Allocation Agreement), other than Transfer Taxes imposed on any holder of International Common Stock, imposed in connection with or as a result of the Merger. Notwithstanding the foregoing, Compass Holdings shall receive reimbursement from UCRI for 50% of any such Transfer Taxes which reimbursement shall be paid to Compass Holdings no later than five business days after UCRI receives notice of any such payment. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Certain Definitions. As used in Section 4.2 herein, unless specifically provided otherwise, any reference to International shall assume that the Contribution and the Distribution had occurred immediately prior to the date hereof on the terms and conditions set forth in the Reorganization Agreement and therefore, unless otherwise expressly stated or the context otherwise clearly requires otherwise, relate only to the Foodservice Business. As used in this Agreement, any reference to any event, change or effect having a material adverse effect on or with respect to an entity (or group of entities taken as a whole if so specified) means such event, change or effect would be reasonably expected to be materially adverse to the business, properties, assets, results of operations or consolidated financial condition of such entity (or, if with respect thereto, of such group of entities taken as a whole) or on the ability of such entity or group of entities to consummate the transactions contemplated hereby, including the Contribution, the Distribution and the Merger (a "Material Adverse Effect"). As used in this Agreement, any reference to any event, change or effect having a Material Adverse Effect on or with respect to International at any time prior to the Offer Closing Time means such event, change or effect would be reasonably expected to be materially adverse to: (i) the business, properties, assets, results of operations or consolidated financial condition of International and its Subsidiaries taken as a whole or (ii) the business, properties, assets, results of operations or consolidated financial condition of the Foodservice Business; or (iii) the ability of International to consummate the transactions contemplated hereby, including the Contribution, the Distribution and the Merger. Section 4.2 Representations and Warranties of International. In addition to the representations and warranties contained in Section 1.2 herein, International represents and warrants to Compass, Compass Holdings and Compass Interim as follows: (a) Organization, Standing, Corporate Power and Subsidiaries. Each of International and Daka is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation 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. Each of International and Daka is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have a material adverse effect on International and Daka, A-11 taken as a whole. A list of each jurisdiction in which International or Daka is qualified is included in Schedule 4.2(a) of the Disclosure Schedule. True, accurate and complete copies of the Certificate of Incorporation and Bylaws of International and of Daka, as in effect on the date hereof, including all amendments thereto, have heretofore been delivered to Compass. International has made available to legal counsel for Compass true, accurate and complete copies of the minute books of International and Daka, and such minute books contain minutes of all meetings of the boards of directors (and all committees thereof) and stockholders of International or Daka, as appropriate. The capitalization and the state, country or other jurisdiction of incorporation of Daka and any Subsidiaries of Daka is accurately described and identified on Schedule 4.2(a) to the Disclosure Schedule. (b) Capital Structure. (i) The authorized capital stock of International consists of 30,000,000 shares of International Common Stock and 1,000,000 shares of Series A Preferred Stock. At the close of business on April 30, 1997, (i) 11,148,302 shares of International Common Stock were issued and outstanding, (ii) no shares of International Common Stock were held by International in its treasury, (iii) 1,250,000 shares of International Common Stock were reserved for issuance pursuant to the Benefit Plans and International had commitments to issue up to 768,949 shares of International Common Stock under the Benefit Plans, exclusive of shares issuable under the 1996 Employee Stock Purchase Plan with respect to the offering period beginning April 1, 1997, (iv) 11,911.565 shares of Series A Preferred Stock were issued and outstanding, and (v) contingent warrants to purchase 264,701 shares of International Common Stock (the "International Warrants") were issued and outstanding. Except as set forth above, at the close of business on April 30, 1997, no shares of capital stock or other voting securities of International were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of International are, and all shares which may be issued pursuant to the Benefit Plans will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are not any bonds, debentures, notes or other indebtedness of International having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of International may vote. Except as set forth above or as provided in Section 1.5 hereof, there are not, and immediately prior to the Offer Closing Time there will not be, any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which International is a party or by which it is bound obligating International to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of International or of Daka or obligating International or Daka to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Except regarding the Series A Preferred Stock and the International Warrants or as provided in Section 1.5 hereof, there are not any outstanding contractual obligations of International or its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of International or its Subsidiaries. International has delivered to Compass a complete and correct copy of the Series A Preferred Stock Purchase Agreement, as amended and supplemented to the date of this Agreement. (ii) The authorized capital stock of Daka consists of 12,000,000 shares of common stock, $.01 par value, of which 100 shares are issued and outstanding, which shares were duly authorized, validly issued, fully paid and nonassessable. All of the outstanding capital stock of Daka is owned by International. There are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which International or Daka is a party or by which either of them is bound authorizing or obligating the issuance or sale of additional shares of capital stock of Daka. At the Offer Closing Time, International will own all right, title and interest in and to all capital stock and all rights with respect to all capital stock of Daka and will not otherwise, directly or indirectly, own or have the right to acquire any capital stock or other equity interest in any other corporation, partnership, joint venture or other entity. (iii) As of the Offer Closing Time, the authorized capital stock of UCRI will consist of 30,000,000 shares of UCRI Common Stock and 5,000,000 shares of preferred stock, par value $.01 per share. All of the outstanding capital stock of UCRI is, and until immediately prior to the Distribution will be, owned by International. (c) Authority; Noncontravention. (i) Each of International and Daka has, and, in the case of any Ancillary Agreements (as defined in Section 10.2(b)), to which it is a party executed at a later time, will have, the requisite corporate power and A-12 authority (subject to the approvals described in the next sentence) to enter into this Agreement and the Ancillary Agreements, as the case may be, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation by International and Daka of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of International and Daka, other than, with respect to the Merger, if required by applicable law after the Offer Closing Time, the approval and adoption of this Agreement by the affirmative vote of the holders of International Common Stock representing not less than two-thirds of the outstanding shares of capital stock of International entitled to vote thereon (such holders of such shares, the "Requisite Stockholders"), and formal declaration of the Distribution by International's Board of Directors (which will occur prior to the Offer Closing Date). The Board of Directors of International has approved the Offer, the Merger (subject to approval by the Requisite Stockholders if required), this Agreement and the Ancillary Agreements, and such approval is sufficient to render the provisions of Section 203 of the DGCL and any applicable provisions of International's Certificate of Incorporation or Bylaws inapplicable to the Offer, the Merger, and the transactions contemplated by this Agreement and the Ancillary Agreements. This Agreement has been duly executed and delivered by International and, assuming this Agreement constitutes a valid and binding obligation of the other parties thereto constitutes a valid and binding obligation of International, enforceable against International in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or other similar laws relating to creditors' rights and general principles of equity. Each of the Ancillary Agreements has been duly executed and delivered by each of International, Daka or UCRI, as the case may be, and constitutes, or upon such execution and delivery will constitute, a valid and binding obligation of each of International, Daka or UCRI, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or other similar laws relating to creditors' rights and general principles of equity. (ii) None of the execution and delivery of this Agreement and the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby and compliance with the provisions of this Agreement and the Ancillary Agreements by International, Daka or UCRI will conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a benefit under, or result in the creation of any adverse claim, restriction on voting or transfer, pledge, claim, lien, charge, encumbrance or security interest of any kind or nature whatsoever (collectively, "Liens") upon any of the properties or assets of International and/or Daka (i) under either of their respective Certificates of Incorporation or Bylaws, (ii) except as set forth on Schedule 4.2(c)(ii) to the Disclosure Schedule, under any Material Contract (as defined in Section 4.2(k)) to which International and/or Daka is a party or by which International and/or Daka or any of their respective assets are bound, or (iii) subject to the governmental filings and other matters referred to in the following sentence, under any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to International and/or Daka, or any of their respective properties or assets, other than any such conflicts, violations, defaults, rights, losses or Liens (x) that in the aggregate would not (A) have a Material Adverse Effect on International and Daka, taken as a whole, (B) materially impair the ability of International to perform its obligations under this Agreement or any of the Ancillary Agreements to which International is a party, or (C) prevent the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements, or (y) which become applicable as a result of the business or activities in which Compass, Compass Holdings or Compass Interim are or proposed to be engaged (other than the business or activities of the Foodservice Business, considered independently of the ownership thereof by Compass, Compass Holdings and Compass Interim) or as a result of other facts or circumstances specific to Compass, Compass Holdings or Compass Interim. No consent, approval, order or authorization of, or registration, declaration or filing with, any Federal, state or local government or any court, administrative agency or commission or other governmental authority or agency, or self-regulatory organization, domestic or foreign (a "Governmental Entity"), is required by or with respect to either International or Daka in connection with the execution and delivery of this Agreement and any of the Ancillary Agreements to which it is a party or the consummation by International or Daka of the transactions contemplated hereby or thereby, except for (i) the filing with the SEC of such reports and filings under the Securities Exchange Act of 1934, as amended, and all rules and regulations thereunder (the "Exchange Act") and the Securities Act of 1933 and all rules and regulations thereunder (the "Securities Act") as may be required in connection with A-13 this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, (ii) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which International or Daka is qualified to do business, (iii) expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iv) expiration of the waiting period under the Exon-Florio Amendment to the Defense Production Act as currently in effect (the "Exon-Florio Amendment") (v) such filings and approvals as may be required under any "takeover" or "blue sky" laws of certain states and as disclosed in Schedule 4.2(c) of the Disclosure Schedule, (vi) such applicable liquor license or permit transfers or amendments as may be required by applicable law, (vii) such other consents, approvals, orders, authorizations, registrations, declarations and filings, the absence of which could not reasonably be expected to have a Material Adverse Effect on International and Daka, taken as a whole, and (viii) such consents, approvals, orders, authorizations, registrations, declarations or filings which become applicable as a result of the business or activities in which Compass, Compass Holdings or Compass Interim are or propose to be engaged (other than the business or activities of the Foodservice Business, considered independently of the ownership thereof by Compass, Compass Holdings and Compass Interim) or as a result of other facts or circumstances specific to Compass, Compass Holdings or Compass Interim. (d) Reports. (i) International has filed all reports, schedules, forms, statements and other documents required by the Exchange Act or the Securities Act with the SEC since July 2, 1994 (the "International SEC Documents"). As of their respective dates, (x) the International SEC Documents complied in all material respects as to form with the requirements of the Securities Act or the Exchange Act, as the case may be, and (y) none of the International SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (ii) As of their respective dates, the financial statements of International included in the International SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with generally accepted accounting principles (except as permitted by Form 10-Q of the SEC in the case of unaudited statements) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented the consolidated financial position of International and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods covered thereby (subject, in the case of unaudited statements, to normal year-end audit adjustments). (e) Schedule 14D-9; Offer Documents; Form 10; Information Statement. None of the information included in the Schedule 14D-9, the Form 10 or the Information Statement (as those terms are defined in the Reorganization Agreement), or supplied by International in writing for inclusion in the Offer Documents, including any amendments thereto, will be false or misleading with respect to any material fact or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9, the Form 10 and the Information Statement, including any amendments thereto, will comply in all material respects with the Exchange Act. Notwithstanding the foregoing, neither International nor Daka makes any representation or warranty with respect to any information supplied by Compass, Compass Holdings or Compass Interim or any of their respective affiliates or representatives in writing for inclusion in the Schedule 14D-9, Form 10 or the Information Statement. (f) Absence of Certain Changes or Events. On the date of this Agreement, except as disclosed in the International SEC Documents filed and publicly available prior to the date of this Agreement or the Offer Closing Time, except as disclosed in the International SEC Documents filed and publicly available before the Offer Closing Time or in the International Bring Down Certificate (as defined in the Offer Conditions), since March 29, 1997, each of International and Daka and its Subsidiaries has conducted the Foodservice Business only in the ordinary course, consistent with past practice, and there has not been (i) any Material Adverse Change with respect to International or Daka or any event that could reasonably be expected to have a Material Adverse Effect on International or Daka taken as a whole, (ii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock except as provided in Section 1.5 hereof, (iii) any damage, destruction or A-14 physical loss, whether or not covered by insurance, that has had or could reasonably be expected to have a Material Adverse Effect on International and Daka taken as a whole, (iv) any material change in accounting methods, principles or practices by International, except insofar as may have been required (in the opinion of International's independent accountants) by a change in generally accepted accounting principles, (v) except as permitted or contemplated hereby or by the Ancillary Agreements, any acquisition or any sale or disposition of any material assets or properties by International, except in the ordinary course of business, consistent with past practice, or (vi) any entry into any agreement, arrangement or commitment to take any of the actions set forth in this Section 4.2(f). (g) Litigation. Schedule 4.2(g) of the Disclosure Schedule sets forth, as of the date hereof, (i) each suit, action, investigation or proceeding that seeks damages of more than $25,000, except for matters relating to claims handled by International's or Daka's insurance carriers in the ordinary course of business, and (ii) each criminal investigation, in each case pending or, to the Knowledge of International, expressly threatened, against International or Daka before any Governmental Entity or arbitrator. Except as disclosed in the International SEC Documents, there is no claim, investigation, suit, action or proceeding pending or, to the Knowledge of International, expressly threatened, against International or Daka before or by any Governmental Entity or arbitrator (including any related to the suspension, debarment or similar preclusion of International or Daka from doing business with a Governmental Entity) that, individually or in the aggregate, could reasonably be expected to (x) have a Material Adverse Effect on International and Daka taken as a whole, (y) materially impair the ability of International, Daka or UCRI to perform any obligation under this Agreement or any of the Ancillary Agreements or (z) prevent or materially delay the consummation of any or all of the transactions contemplated hereby or thereby. There are no unpaid judgments, injunctions, orders, arbitration decisions or awards, or, except as set forth in Schedule 4.2(g) of the Disclosure Schedule, other judicial or administrative mandates outstanding against International or Daka. (h) Compliance with Applicable Laws. Schedule 4.2(h) of the Disclosure Schedule sets forth, as of the date hereof, all alcoholic beverage licenses and licenses issued, granted or otherwise made available to International or Daka by any Governmental Entity in connection with the Foodservice Business. International or Daka holds all permits, licenses, variances, exemptions, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities which individually or in the aggregate are material to the operation of the Foodservice Business (the "Foodservice Business Permits"). All Foodservice Business Permits are in full force and effect in all material respects, neither International nor Daka has received any written or oral notice or indication that any of the Foodservice Business Permits is under review or consideration for the potential cancellation, revocation or nonrenewal thereof, and neither International nor Daka has Knowledge of any event or condition that could reasonably be expected to lead to any such cancellation, revocation or nonrenewal. International and Daka are in compliance with the terms of the Foodservice Business Permits, except where the failure so to comply would not have a Material Adverse Effect on International and Daka taken as a whole. The business of International and Daka is not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for violations, if any, that individually or in the aggregate do not, and could not reasonably be expected to, have a Material Adverse Effect on International and Daka taken as a whole. (i) Brokers or Finders. No broker, investment banker, financial advisor or other person, other than Bear Stearns & Co., Inc., the fees and expenses of which will be paid by UCRI in accordance with Section 3.4 of the Post-Closing Covenants Agreement, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement and the Ancillary Agreements based upon arrangements made by or on behalf of International or Daka. (j) The Foodservice Business. (i) The Foodservice Assets (as defined in the Reorganization Agreement) are all the assets used by International and Daka to operate the Foodservice Business and are sufficient to permit International and Daka collectively to operate the Foodservice Business from and after the Offer Closing Time in substantially the same manner as currently conducted; provided, that the parties acknowledge that the Foodservice Assets do not include certain assets as described in the Reorganization Agreement. (ii) At the Offer Closing Time, except as contemplated by the Ancillary Agreements and the agreements specifically contemplated thereby, neither UCRI nor any of its Subsidiaries will use in the conduct of its business or own or have rights to use any material assets or property, whether tangible, intangible or A-15 mixed, which have also been heretofore used in the conduct of the business of the Foodservice Business. At the Offer Closing Time, neither UCRI nor any of its Subsidiaries will be a party to any contract, agreement, arrangement or understanding with International (other than the Ancillary Agreements and the agreements specifically contemplated thereby) relating to the Foodservice Business or pursuant to which International may have any obligation or liability. After the Offer Closing Time, International, the Surviving Corporation, Daka and Compass and its other Subsidiaries will not have any liability whatsoever, direct or indirect, contingent or otherwise, in any way relating to the business, operations, indebtedness, assets or liabilities of UCRI or any of its Subsidiaries, except as expressly contemplated by the Ancillary Agreements and the agreements specifically contemplated thereby. (k) Material Contracts. (i) On the date of this Agreement and at the Offer Closing Time; (A) each Material Contract (as defined below), together with all modifications and amendments thereto, is the valid and binding obligation of International or Daka, as the case may be, in full force and effect, enforceable against such party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other laws of general application affecting creditors' rights generally and by equitable principles, other than Customer Contracts as to which notice of termination has been given but as to which International has no Knowledge; (B) neither International nor Daka is in breach or default under any Material Contract, except for such breaches or defaults that do not, and will not with the passage of time or the giving of notice, or both, individually or in the aggregate, have a Material Adverse Effect on International and Daka taken as a whole and, to the Knowledge of International, no other party is in material default thereunder; (C) neither International nor Daka has received any written or oral notice of any event or condition that constitutes, or with the passage of time would constitute, a material default by International or Daka under any Material Contract, which event or condition would reasonably be expected to have a Material Adverse Effect on International and Daka taken as a whole; and (D) neither International nor Daka has received written notice or other notice or advice of termination, cancellation, nonrenewal or adverse price adjustment of any Material Contract other than a Customer Contract. (ii) Schedule 4.2(k) of the Disclosure Schedule contains a true a complete list of all Material Contracts, including a list of each Customer Contract. (iii) True and complete copies of each Material Contract have been made available to Compass. (iv) As used herein, the term "Material Contract," shall mean any contract, agreement, arrangement or understanding to which International or Daka is a party or by which International or Daka or any of their respective assets are bound with respect to the Foodservice Business, that is or contains any of the following: (A) a contract to provide contract food and contract catering services (excluding immaterial vending services contracts) to customers of International or Daka as to which International or Daka was a party at any time since June 29, 1996 ("Customer Contracts"); (B) a contract of employment that is other than at will or any arrangement binding on International or Daka providing any employee with termination benefits other than those available under International's or Daka's generally applicable severance policy; (C) a contract with any labor union or association; (D) a contract with any affiliate of International or Daka (including, without limitation, UCRI and its Subsidiaries); (E) a contract containing a covenant binding International or Daka not to compete relating to the operations of the Foodservice Business; A-16 (F) a loan or similar agreement relating to the borrowing of money of any other Person in excess of $5,000; (G) any lease or sublease relating to Real Property (as defined in Section 4.2(u) herein); (H) any contract not fully performed, including without limitation contracts for the purchase of any commodity, material, services or equipment, or fixed assets, for a price in excess of $50,000 in the aggregate over the life of the contract which does not permit International or Daka to terminate the contract upon less than 90 days' notice or expressly requires it to pay liquidated damages of more than $5,000 upon early termination; (I) any license agreement (as licensor or licensee) or any franchise agreement (as franchisor or franchisee); (J) any vehicle master lease or other personal property master lease; (K) any contract that obligates International or Daka to obtain all or a substantial portion of its requirements of any goods or services from, or supply all or a substantial portion of the requirements for any goods or services of, any other person. (l) Benefit Plans, Employment and Labor Relations. (i) Schedule 4.2(l) of the Disclosure Schedule contains an accurate and complete list of all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and all other plans, agreements, policies or arrangements relating to stock options, stock purchases, compensation, deferred compensation, severance, and other employee benefits, in each case maintained or contributed to as of the date of this Agreement by International or Daka for the benefit of any current or former employees, officers or directors of International or Daka or for which International or Daka is or could be liable, as a result of its status as an ERISA Affiliate (as defined below) (collectively, the "Benefit Plans"). Benefit Plans shall not include any "multiemployer plan" as described in Section 37(A) of ERISA (a "Multiemployer Plan"). Each Multiemployer Plan is so noted in Schedule 4.2(l) of the Disclosure Schedule. Each Benefit Plan has been duly authorized by all necessary corporate action by International or any participating Subsidiary or ERISA Affiliate. International has delivered to Compass true, complete and correct copies of (A) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof); (B) the three most recent annual reports on Form 5500 filed with the Internal Revenue Service (the "IRS") with respect to each Benefit Plan (if any such report was required); (C) the most recent summary plan description for each Benefit Plan for which such summary plan description is required; (D) each trust agreement or group annuity contract relating to any Benefit Plan; (E) all collective bargaining agreements pursuant to which contributions to any Benefit Plan have been made or obligations incurred or are being made or are owed by International or Daka; (F) all personnel, payroll and employment manuals and policies; (G) all insurance policies purchased by or to provide benefits under any Benefit Plan; (H) all contracts with third-party administrators, actuaries, investment managers, consultants and other independent contractors that relate to any Benefit Plan, and all reports submitted within the three years preceding the date of this Agreement by any such third parties with respect to any such Benefit Plan; and (I) copies of all notices that were given by International or Daka or any Benefit Plan to the IRS or the United States Department of Labor (the "DOL") or any participant or beneficiary pursuant to any statute (including without limitation notifications pursuant to Section 601 et seq. of ERISA and Section 4980B of the Code), and copies of all notices that were given by the IRS, the DOL or the Pension Benefit Guaranty Corporation ("PBGC") to International or Daka or any Benefit Plan, in each case within the three years preceding the date of this Agreement (other than benefit statements to participants in the Benefit Plans). International shall update Schedule 4.2(l) of the Disclosure Schedule and the information shall be made available to Compass through the Offer Closing Time. "ERISA Affiliate" means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same "controlled group" as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA, at any time. A-17 (ii) The Benefit Plans are on the date hereof in compliance with the applicable provisions of ERISA and the Code, the rules and regulations promulgated thereunder, all other applicable laws and the terms of all applicable collective bargaining agreements. There are no investigations by any federal or state entity, or other claims (except routine claims for benefits payable under the Benefit Plans), suits or proceedings against or with respect to which any Benefit Plan is a party or asserting any rights to or claims for benefits under any Benefit Plan that would give rise to any liability that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on International or Daka taken as a whole. There are no involuntary termination proceedings which have been instituted against any Pension Plan. (iii) Each of International and Daka has performed all of its material obligations under all Benefit Plans and has made appropriate entries in its financial records and statements prepared in accordance with generally accepted accounting practices for all obligations and liabilities under such Benefit Plans that have accrued but are not yet due. Each Pension Plan that is intended to be a tax-qualified plan is the subject of either a (A) favorable determination letter from the IRS received in the preceding two years from the date hereof, or (B) pending determination letter request (a "Determination Letter Request") filed with the IRS within the remedial amendment period described under Section 401(b) of the Code, in each case to the effect that such Pension Plan is qualified under Section 401(a) of the Code, subject to the customary reservations as to the Pension Plan's operational compliance with Code requirements. No such determination letter on any Pension Plan has been revoked, and the IRS has not issued written notice of its intent to revoke the qualified status of any such Pension Plan. No event has occurred and no circumstance exists that would reasonably be expected to result in the disqualification of such Pension Plan or, with respect to each Determination Letter Request, would reasonably be expected to cause the IRS not to issue a favorable determination letter. International has delivered to Compass Holdings a copy of the most recent determination letter received with respect to each Pension Plan for which a letter has been issued, as well as any Determination Letter Request still pending. (iv) No statement, either written or oral, has been made by International or Daka to any individual with regard to any Benefit Plan that was not in accordance with the respective Benefit Plan and that could have material adverse economic consequences to the Surviving Corporation or Compass Holdings. (v) Each Benefit Plan is and has been administered, and International and Daka, with respect to all Benefit Plans are, in compliance in all material respects with ERISA, the Code and other applicable laws and with applicable collective bargaining agreements. This statement specifically means, but is not limited to, the following matters: (A) No transaction prohibited by Section 406 of ERISA and no "prohibited transaction" under Section 4975 of the Code have occurred with respect to any Benefit Plan. (B) International and Daka have had no liability to the PBGC with respect to any plan or have any liability under Sections 502 or 4071(c) of ERISA. All filings required by ERISA and the Code as to each Benefit Plan have been timely filed, and all notices and disclosures to participants under such Benefit Plans required by either ERISA or the Code have been timely provided. (vi) Each of the following statements is true and correct regarding each Benefit Plan: (A) No event or circumstance specific to International or Daka (as opposed to general economic or industry events that impact International or Daka as members of an affected group or class of business enterprises), except for ordinary course matters such as workers compensation adjustments, has occurred or exists that could result in a material increase in premium costs of any Benefit Plan that are insured, or material increase in benefit costs of such Benefit Plans that are self-insured. (B) Except for any Multiemployer Plan, no Benefit Plan must report to the PBGC. (C) Neither International nor Daka has received any notice from any Multiemployer Plan that it is in reorganization or is insolvent, that increased contributions may be required to avoid a reduction in plan benefits or to avoid the imposition of any excise tax, or that such Multiemployer Plan intends to terminate or has terminated. To the Knowledge (as defined in 10.2(c) herein, of International and/or A-18 Daka, no Multiemployer Plan listed in Schedule 4.2(l) to the Disclosure Schedule to which International or Daka contributes or has contributed is a party to any pending merger or asset or liability transfer or is subject to any proceeding brought by the PBGC. (D) Except to the extent required under Section 601 et seq. of ERISA and Section 4980B of the Code, neither International nor Daka provides health or welfare benefits for any retired or former employee or is obligated to provide health or welfare benefits to any active employee or beneficiary following such employee's retirement or other termination of service. (E) International or Daka has the right to modify and terminate benefits to retirees (other than benefits provided under Pension Plans) with respect to both retired and active employees. Each Benefit Plan has complied with the provisions of Section 601 et seq. of ERISA and Section 4980B of the Code. (vii) Except as set forth on Schedule 4.2(l) of the Disclosure Schedule, neither International nor Daka now sponsors, maintains, contributes to or has an obligation to contribute to, and has not at any time since January 1, 1990, sponsored, maintained, contributed to, or been obligated to contribute to, any single employer, multiple employer or Multiemployer Plan subject to the provisions of Section 302 or Title IV of ERISA or Sections 412 or 4971 of the Code. Other than with respect to the Multiemployer Plans set forth on Schedule 4.2(l) to the Disclosure Schedule, no liability currently exists, and under no circumstances could International or any of its ERISA Affiliates incur a liability pursuant to the provisions of Title I, II or IV of ERISA or Section 412, 4971 or 4980B of the Code that could become a liability of the Surviving Corporation or Compass Holdings after the Offer and the Merger. Without limiting the generality of the foregoing, neither International nor any of its ERISA Affiliates has engaged in any transaction described in Section 4069 or Section 4204 of ERISA for the purpose of evading liability under subtitle D of Title IV of ERISA. Neither International nor Daka has incurred a "complete withdrawal" or a "partial withdrawal" (as such terms are defined in Section 4203 and Section 4205, respectively, of ERISA) with respect to any Multiemployer Plan (within the meaning of Section 4001(a)(3) of ERISA) that has led to or could lead to the imposition of a material withdrawal liability under Section 4201 of ERISA that remains unpaid as of the date hereof. (viii) Neither International nor Daka has incurred any material liability, nor has any event occurred that could reasonably result in any material liability, under Title I or Title IV of ERISA (other than to a Pension Plan for contributions not yet due or to the PBGC for payment of premiums not yet due) or under Section 412 or Chapter 43 of the Code that has not been fully paid as of the date hereof. (ix) Except as set forth in Schedule 4.2(l) of the Disclosure Schedule, neither International nor Daka is a party to, or bound by, any contract with any labor union or association, including, without limitation, any collective bargaining, labor or similar agreement. Neither the execution and delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby or thereby will (A) constitute a breach or default under any such agreement, (B) give rise to any right to terminate, amend or modify any such agreement or (C) create any withdrawal liability. Except as set forth in Section 4.2(l) of the Disclosure Schedule, since January 1, 1996, there has not been, and there is not currently, pending or existing and there is not and has not been threatened (A) any strike, slow-down, picketing, work stoppage or formal employee grievance or arbitration process; (B) any proceeding against International or Daka relating to the alleged violation of any legal requirement pertaining to labor relations or employment matters, including any charge, claim or action or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, the DOL or any other federal or state governmental body, any organizational activity or other labor or unemployment dispute against International, Daka or the Surviving Corporation; (C) any application for certification of a collective bargaining agent; or (D) any formal or to the Knowledge of International or Daka other organizational activity by International's or Daka's employees. To the Knowledge of International or Daka, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by International or Daka, and no such action is contemplated by International or Daka. International and Daka are in compliance with all applicable laws relating to employment and employment practices, terms and conditions of employment, wages and hours, nondiscrimination, employee leave, hours, benefits, the payment of social security taxes, and occupational health, and is not engaged in any unfair A-19 labor practice except where the failure to so comply or the result of such unfair labor practice, as the case may be, would not have a Material Adverse Effect on International or Daka taken as a whole. (x) As of the date of this Agreement, there are no employees who have been laid off from facilities of International or Daka and who have recall rights under any collective bargaining agreement. (xi) Except as disclosed in the International SEC Documents, since the date of the most recent audited financial statements included in the International SEC Documents, there has not been any adoption of or amendment in any collective bargaining agreement or any Benefit Plan other than any adoption or amendment of a Benefit Plan permitted under Section 5.1(g). (m) Absence of Certain Business Practices. Since July 2, 1994, neither International or Daka, nor, to the Knowledge of International or Daka (other than solely as a result of the Knowledge of any individual who engages in such conduct), any officer, employee or agent thereof, or any other person acting on either of their behalf, has, directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the Foodservice Business (or assist International or Daka in connection with any actual or proposed transaction relating to the Foodservice Business) (i) which subjected or might have subjected International or Daka to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) which if not given, might have had a Material Adverse Effect on International and Daka taken as a whole, (iii) which if not continued in the future, might have a Material Adverse Effect on International and Daka taken as a whole, or subject International or Daka to suit or penalty in any private or governmental litigation, (iv) which, in case of a payment made directly or indirectly to an official or employee of any government or of an agency or instrumentality of any government, constitutes an illegal bribe or kickback (or, if made to an official or employee of a foreign government, is unlawful under the Foreign Corrupt Practices Act of 1977) or, in the case of a payment made directly or indirectly to a person other than an official or employee of a government or of an agency or instrumentality of a government, constitutes an illegal bribe, illegal kickback or other illegal payment under any law of the United States or under the law of any state which subjects the payor to a criminal penalty or the loss of a license or privilege to engage in a trade or business or the termination of a Customer Contract. (n) Intellectual Property. (i) For purposes of this Agreement, "Intellectual Property" shall mean all of the following (in whatever form or medium) that are owned by or licensed to International or Daka, whether domestic or foreign, and are used in the conduct of the Foodservice Business as conducted currently: patents, trademarks, service marks and copyrights (whether registered or unregistered); applications for patents and for registration of trademarks, service marks and copyrights; trade secrets and trade names; know how, research and other technical information; and invention disclosures to be filed or awaiting filing determinations; but not including any commercially available "off-the-shelf" software licenses, the loss of which would not have a Material Adverse Effect on International or Daka, taken as a whole. (ii) Schedule 4.2(n) of the Disclosure Schedule sets forth a complete list of all Intellectual Property applications and registrations therefor which are unexpired or uncancelled as of the date hereof. Except for such matters that individually or in the aggregate have not had and could not reasonably be expected to have a Material Adverse Effect on International and Daka taken as a whole, (A) the Intellectual Property owned by International or Daka is valid and enforceable, free and clear of all Liens; (B) International or Daka has taken all reasonable actions necessary to maintain and protect its rights to the Intellectual Property; (C) there has been no claim made against International or Daka asserting the invalidity, misuse, unregistrability or unenforceability of any of the Intellectual Property or challenging its right to use or ownership of any of the Intellectual Property; (D) neither International nor Daka has any Knowledge of any infringement or misappropriation of any of the owned Intellectual Property; (E) to the Knowledge of International or Daka, the conduct of the Foodservice Business has not infringed or misappropriated and does not infringe or misappropriate any intellectual property or proprietary right of any other entity; (F) no loss of any of the Intellectual Property is pending or to the Knowledge of International or Daka threatened; (G) the owned Intellectual Property, and to the Knowledge of International and Daka the licensed Intellectual Property, as it is currently used in the Foodservice Business, is sufficient to operate the Foodservice Business as it is currently conducted; (H) the consummation of the transactions contemplated by this Agreement will not alter, impair A-20 or extinguish any of the Intellectual Property; (I) International has not licensed or in any other way authorized any other party to use the Intellectual Property; and (J) to the Knowledge of International or Daka, each of the agreements under which International or Daka licenses any Intellectual Property is a valid and binding obligation of the licensor, enforceable in accordance with its terms. (o) Taxes. Except as disclosed in Schedule 4.2(o) of the Disclosure Schedule: (i) No material Liens for Taxes exist with respect to any of the assets or properties of any of International or Daka, except for statutory liens for Taxes not yet due or payable or that are being contested in good faith. (ii) All material Tax Returns (as defined in the Tax Allocation Agreement) required to be filed by or on behalf of International or Daka, or any consolidated, combined, affiliated or unitary group of which International or Daka is or has ever been a member (together the "International Affiliated Group"), have been timely filed or requests for extensions have been timely filed and any such extensions have been granted and have not expired. (iii) Each such Tax Return was complete and correct in all material respects. (iv) All material Taxes with respect to taxable periods for which International or Daka is or might otherwise be liable (together "Relevant Taxes") have been paid in full, or reserves therefor have been established in accordance with generally accepted accounting principles on the balance sheets contained in the International SEC Documents, and on a basis consistent with past practice. (v) All Federal income Tax Returns filed by or on behalf of the International Affiliated Group have been examined by and settled with the IRS, or the statute of limitations with respect to the relevant Tax liability has expired, for all taxable periods through and including the period ended July 1, 1995. (vi) All Taxes due with respect to any completed and settled audit, examination or deficiency litigation with any Taxing Authority (as defined in the Tax Allocation Agreement) have been paid in full. (vii) There is no audit, examination, deficiency or refund litigation pending with respect to any material Relevant Taxes, and no Taxing Authority has given written notice of the commencement of any audit, examination or deficiency litigation, with respect to any material Relevant Taxes. (viii) Neither International nor Daka is a party to a tax allocation agreement other than the Tax Allocation Agreement. (ix) Neither International nor Daka shall be required to include in a taxable period ending after the date on which the Offer Closing Time occurs, a material amount of taxable income attributable to income that economically accrued in a prior taxable period as a result of Section 481 of the Code or any comparable provision of state or local Tax law. (x) (A) No person has made with respect to International or Daka, or with respect to any property held by International or Daka, any consent under Section 341 of the Code and (B) neither International nor Daka is a party to any lease made pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect prior to the date of enactment of the Tax Equity and Fiscal Responsibility Act of 1982. (xi) Neither International or Daka, nor any member of any controlled group (within the meaning of Section 993(a)(3) of the Code) that includes International or Daka, nor any of their respective officers, directors, employees or independent contractors acting on their behalf, has in any tax year ended after July 1, 1995, participated in or cooperated with an international boycott (within the meaning of Section 999(b)(3) of the Code). (xii) Neither International nor any of its Subsidiaries has waived any statute of limitation in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (p) Insurance Policies. Insurance policy numbers 485-31-39 and 485-31-40, each issued by National Union Fire Insurance Company of Pittsburgh, PA, are in full force and effect, all premiums have been paid in full, there are no factual or legal grounds for the cancellation of either policy and no contractual agreements exist between International and the carrier which would effect or modify the availability of such coverages. A-21 (q) Actions Affecting Recent Acquisitions. Schedule 4.2(q) of the Disclosure Schedule is a true and complete list of all Tax-free transactions within the meaning of Section 368 of the Code in which International or its Subsidiaries was or is a party since June 27, 1992. International and its Subsidiaries have complied in all material respects with all of the terms and obligations of all such agreements and International has not taken, and has not permitted any of its Subsidiaries to take, any action that would disqualify those acquisitions as tax-free transactions within the meaning of Section 368 of the Code. (r) Foodservice Business Financial Statements. Attached to Schedule 4.2(r) of the Disclosure Schedule is the unaudited statement of assets and liabilities as of March 29, 1997 (the "Foodservice Proforma Balance Sheet"), both actual and a pro forma basis after giving effect to the Contribution and Distribution. Also attached to Schedule 4.2(r) of the Disclosure Schedule is the unaudited actual Foodservice Segment Income for the period June 30, 1996 through March 29, 1997 for the Foodservice Business. (Collectively, Schedule 4.2(r) represents the "Foodservice Business Financial Statements"). The Foodservice Business Financial Statements were prepared in accordance with generally accepted accounting principles and such procedures as are set forth on Schedule 4.2(r) of the Disclosure Schedule, consistently applied, fairly present the financial condition and results of operations of the Foodservice Business as of March 29, 1997 and for the nine months then ended. (s) Indebtedness. Set forth on the Foodservice Business Balance Sheet or on Schedule 4.2(s) to the Disclosure Schedule is a complete and correct record of all outstanding indebtedness for borrowed money or any other obligation evidenced by a promissory note or other instrument or guarantee or letter of credit or a capitalized lease or a swap, cap or collar agreement or similar hedging arrangement to mitigate risks of interest rates or commodity prices for which International or Daka or any of its Subsidiaries is the account party or otherwise obligated ("Indebtedness") as of March 29, 1997. Since March 29, 1997, there has been no material change in the amount, interest rates, sinking funds, installment payments or maturities of such Indebtedness. International has delivered to Compass a complete and correct copy of the Credit Facility (as defined in Section 5.1(f)(ii)), as amended and supplemented to the date of this Agreement. (t) Properties. (i) Except (A) as may be reflected in the Foodservice Business Balance Sheet, (B) for any Lien for current taxes not yet delinquent, (C) for Liens with respect to Funded Debt (as defined in Section 5.1(f)(ii), hereof) to be released as of the Offer Closing Time pursuant to Section 6.4(b) (ii) hereof, (D) for Liens set forth in Schedule 4.2(t) to the Disclosure Schedule and (E) for such other Liens as do not materially affect the value of the property reflected in the Foodservice Business Balance Sheet or acquired since the date of the Foodservice Business Balance Sheet and which do not, individually or in the aggregate, materially interfere with or impair the present and continued use of such property, International or Daka has good title, free and clear of any Liens, to all of the property reflected in the Foodservice Business Balance Sheet, and all property acquired since the date of the Foodservice Business Balance Sheet, except such property as has been disposed of (or, in the case of receivables, collected or paid) in the ordinary course of business consistent with past practice. (ii) As of the date of the Foodservice Business Balance Sheet, all the material tangible Foodservice Assets were in generally good working condition (normal wear and tear excepted) and were suitable in all material respects for the purposes for which they were being used except where the loss of such assets would not have a Material Adverse Effect on International and Daka taken as a whole. (u) Real Property. (i) Neither International nor Daka owns any real property. Schedule 4.2(u) of the Disclosure Schedule, consisting of a report prepared from the accounting records, sets forth all real property leased or used by International or Daka in connection with the Foodservice Business (the "Real Property"). (ii) Except as set forth on Schedule 4.2(k) of the Disclosure Schedule, neither International nor Daka is a party to any lease of Real Property. (iii) All buildings and improvements located on the Real Property are in generally good operating condition and repair, ordinary wear and tear excepted, and do not violate any zoning or building regulations or ordinances where located, except for violations that do not materially impair the use of the Real Property, A-22 except where such condition or violation would not have a Material Adverse Effect on International and Daka taken as a whole. (iv) True, correct and complete copies of title reports, surveys and leases in International's or Daka's possession relating to the Real Property have been furnished or made available to Compass. (v) None of the Real Property, or any portion thereof, is currently condemned, requisitioned or otherwise taken by any public authority, and, to International's Knowledge, no such condemnation, requisition or taking is threatened. (v) Environmental Matters. (i) Except as set forth in Schedule 4.2 (v) of the Disclosure Schedule, (A) International and Daka, with respect to the Foodservice Business and the Real Property, are in material compliance with all applicable laws and regulations for the protection of the environment and are subject to no continuing agreements, orders or judgments with respect to compliance with environmental protection laws; (B) International and Daka, with respect to the Foodservice Business and the Real Property, have received no notices of unremedied violations from any Governmental Entity, and there are no governmental investigations or audits, whether pending, threatened or otherwise with respect thereto, the violation of which could result in the imposition of a fine, penalty, liability, cost or expense; and (C) International and Daka, with respect to the Foodservice Business, have obtained or have made or will, before Closing, make application and pay for all permits, licenses, orders and approvals of governmental or administrative authorities which either are required by applicable environmental protection laws or regulations to permit it to carry on the Foodservice Business in substantially the same manner as currently conducted, or which are applicable to the Real Property, and International and Daka are in material compliance with the requirements set out in such permits, licenses, orders and approvals. (ii) Neither International nor Daka in the operation of the Foodservice Business has used, stored, disposed or released any Hazardous Material (as defined in the Post-Closing Covenant Agreement), except such substances as are normally used in the conduct of the Foodservice Business, and then in such quantities as are appropriate to the Foodservice Business and in compliance in all material respects with Environmental Laws (as defined in the Post-Closing Covenants Agreement). (w) Fraudulent Conveyance; Solvency. (i) The transactions contemplated by this Agreement and the Ancillary Agreements have not been undertaken by International or its Subsidiaries with an intent to hinder, delay or defraud any creditors of International or its Subsidiaries. Based on the assumption that (A) the Funded Debt (as defined in Section 5.1(f) (ii) will be repaid in full simultaneously with the Offer Closing Time and (B) Compass intends to provide International and Daka after the Offer Closing Time with sufficient capital with which to conduct the Foodservice Business as such business is now conducted and is proposed by Compass to be conducted, International and Daka (X) will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured and (Y) will not have unreasonably small capital with which to conduct their business after the Offer Closing Time. (ii) (A) The fair value of the assets of UCRI and its Subsidiaries will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of UCRI and its Subsidiaries, (B) the present fair salable value of the property of UCRI and its Subsidiaries will be greater than the amount that will be required to satisfy any probable liability of UCRI and its Subsidiaries on its debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (C) UCRI and its Subsidiaries will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (D) UCRI and its Subsidiaries will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such business is now conducted and is proposed to be conducted, in each case, following the Offer Closing Time. (iii) UCRI does not intend to incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by it and the timing and amounts of cash to be payable on or in respect of its Indebtedness. A-23 Section 4.3 Representations and Warranties of Compass, Compass Holdings and Compass Interim. Each of Compass, Compass Holdings and Compass Interim represents and warrants to International as follows: (a) Organization, Standing and Corporate Power. Compass is a public limited liability company duly incorporated and registered under the laws of England and Wales. Each of Compass Holdings and Compass Interim is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Compass, Compass Holdings and Compass Interim has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of Compass, Compass Holdings and Compass Interim is duly qualified or licensed to do business and is validly existing or in good standing, as appropriate, in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and validly existing or in good standing, as appropriate, would not in the aggregate have a Material Adverse Effect on Compass and its Subsidiaries taken as a whole. True, accurate and complete copies of Compass' Memorandum and Articles of Association, as in effect on the date hereof, including all amendments thereto, have heretofore been made available to International. (b) Authority; Noncontravention. Each of Compass, Compass Holdings and Compass Interim has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of each of Compass, Compass Holdings and Compass Interim. This Agreement has been duly executed and delivered by each of Compass, Compass Holdings and Compass Interim and, assuming this Agreement constitutes a valid and binding obligation of International, constitutes a valid and binding obligation of each of Compass, Compass Holdings and Compass Interim, enforceable against it in accordance with its terms. None of the execution and delivery of this Agreement, the Ancillary Agreements to which Compass, Compass Holdings or Compass Interim is a party or the consummation of the transactions contemplated hereby and thereby (at the time of each such consummation) and compliance with the provisions of this Agreement or such Ancillary Agreements will conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of Compass, Compass Holdings or Compass Interim under, (i) the memorandum and articles of association of Compass or the certificate of incorporation or bylaws of Compass Holdings or Compass Interim , (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license to which Compass or any of its Subsidiaries is a party or by which Compass or any of its subsidiaries or any of their respective assets are bound or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Compass, or any of its Subsidiaries or their respective properties or assets other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a Material Adverse Effect on Compass and its Subsidiaries taken as a whole, (y) materially impair the ability of Compass to perform its obligations under this Agreement or the Ancillary Agreements to which it is a party or (z) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement or such Ancillary Agreements to which it is party. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Compass or any Subsidiary of Compass in connection with the execution and delivery of this Agreement and any of the Ancillary Agreements to which it is a party, or the consummation by Compass or any of its Subsidiaries of any of the transactions contemplated hereby and thereby, except for (i) the filing with the SEC such reports and filings under the Securities Act and the Exchange Act, as applicable, as may be required in connection with this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby (ii) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which International is qualified to do business, (iii) expiration of the waiting period under the HSR Act, (iv) expiration of the waiting period under the Exon-Florio Amendment, (v) such filings and approvals as may be required under any "takeover" or "blue sky" laws of certain states, and (vi) such other consents, approvals, orders, authorizations, registrations, declarations and filings, the failure of which to obtain or make could not reasonably be expected to have a Material Adverse Effect on Compass and its Subsidiaries taken as a whole. A-24 (c) Schedule 14D-1; Offer Documents; Form 10; Information Statement. None of the information included in the Offer Documents and none of the information supplied by Compass for inclusion in the Schedule 14D-9, the Form 10 or the Information Statement, including any amendments thereto, will be false or misleading with respect to any material fact or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Except for information supplied by International in writing for inclusion in the Offer Documents will comply in all material respects with the Exchange Act. Notwithstanding the foregoing, Compass makes no representation or warranty with respect to any information supplied by International or Daka or any of their respective affiliates or representatives in writing for inclusion in the Schedule 14D-1 or the Offer Documents. (d) Sufficient Funds. Compass Holdings has, or will have prior to the satisfaction of the Offer Conditions, sufficient funds available to purchase all shares of International Common Stock on a fully diluted basis at the Offer Price and the Merger Price. (e) Consummation of Transactions. As of the date of this Agreement, Compass has not received written notice from any Federal or state governmental agency or authority indicating that such agency or authority would oppose or refuse to grant or issue its consent or approval, if required, with respect to the transactions contemplated by this Agreement or the Ancillary Agreements. (f) Voting Requirements. No action by the ordinary shareholders of Compass is required to approve this Agreement or the Ancillary Agreements and the transactions contemplated hereby or thereby. (g) Brokers or Finders. No broker, investment banker, financial advisor or other person, other than Patricof & Co. Capital Corp. and NationsBanc Capital Markets, Inc., the fees and expenses of which will be paid by Compass, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Compass. ARTICLE V COVENANTS Section 5.1 Covenants of International and Daka. During the period from the date of this Agreement and continuing until the Offer Closing Time, International, on behalf of International and its Subsidiaries, agrees that, except for the Contribution, the Distribution and the other transactions expressly provided for in the Ancillary Agreements or any other agreements contemplated thereby or as contemplated or permitted by this Agreement (including, without limitation, Section 5.1(m)), or to the extent that Compass shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed): (a) Ordinary Course. International and Daka shall conduct the Foodservice Business in the ordinary course, consistent with past practice (including without limitation, not taking any actions out of the ordinary course to generate cash, such as delaying payables or accelerating receivables) using reasonable efforts to preserve beneficial relationships between the Foodservice Business and its suppliers, employees and customers. Without limiting the generality of the foregoing, except with the prior written consent of Compass (which consent shall not be unreasonably withheld or delayed), International and Daka will, with respect to the Foodservice Business: (i) not commence or commit to any capital projects having an individual cost of $50,000 or more, or with an aggregate cost for all such projects of $250,000 or more, other than as required under the terms of any Customer Contracts; (ii) not enter into any contracts or agreements relating to or obligating the Foodservice Business that involve amounts in excess of $50,000 individually or $250,000 in the aggregate other than (A) Customer Contracts or (B) in the ordinary course of the Foodservice Business unless such contracts or agreements are cancelable on 30 days or less notice without penalty or premium; (iii) maintain overall sales incentive programs for all of International's and Daka's Foodservice Business handled by salesmen that will provide compensation to salesmen at a rate that is at least equal to those maintained by International or Daka during the comparable period during the last fiscal year; and A-25 (iv) not enter into any amendment to the Credit Facility (as defined in Section 5.1(f) (ii) herein). (b) Changes in Stock. (i) Other than as contemplated by Section 1.5 hereof, or with respect to any Subsidiary which is not engaged in the Foodservice Business, International shall not, nor shall International permit Daka to, issue, transfer or sell, or authorize or propose or agree to the issuance, transfer or sale by International or Daka of, any shares of its capital stock of any class or other equity interests or any securities convertible into, or any rights, warrants, calls, subscriptions, options or other rights or agreements, commitments or understandings to acquire, any such shares, equity interests or convertible securities, other than the issuance of shares of International Common Stock (i) upon the exercise of stock options outstanding as of the date of this Agreement pursuant to any Benefit Plan, or (ii) to make any payment under any Benefit Plan that is required as of the date of this Agreement to be made in the form of shares of International Common Stock. (ii) Other than with respect to any Subsidiary which is not engaged in the Foodservice Business, International shall not (A) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (B) other than in connection with the exercise of stock options outstanding as of the date of this Agreement under any Benefit Plan, repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire, any shares of capital stock of International or any of its subsidiaries. (iii) Compass Holdings shall, subject to the terms and conditions of the Series A Preferred Stock Purchase Agreement, purchase all of the outstanding shares of Series A Preferred Stock and all of the International Warrants simultaneously with the Offer Closing Time. (c) Governing Documents. International shall not, nor shall it permit Daka to, amend or propose to amend its Articles of Incorporation (or, if applicable, its Certificate of Incorporation or other charter document) or Bylaws. (d) No Acquisitions. Except as provided in Schedule 5.1(d) to the Disclosure Schedule, International shall not, nor shall it permit Daka to, (i) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or substantial portion of the assets of, or by any other manner, any business or any corporation or other business organization that would be directly or indirectly acquired by Compass in the Merger or that would create liabilities or obligations that would be binding upon Compass or its Subsidiaries, including Daka or the Surviving Corporation following the Offer Closing Time, or (ii) except as provided in the Reorganization Agreement, make any other investment in any Person (whether by means of loan, capital contribution, purchase of capital stock, obligations or other securities, purchase of all or any integral part of the business of the person or any commitment or option to make an investment or otherwise) which acquisition would be directly or indirectly acquired by Compass in the Merger or that would create liabilities or obligations that would be binding upon Compass or its Subsidiaries, including Daka or the Surviving Corporation following the Offer Closing Time other than pursuant to Customer Contracts in the ordinary course of business. (e) No Dispositions. International shall not, nor shall it permit any of its Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or agree to sell, lease, license, encumber or otherwise dispose of, any of the assets of the Foodservice Business (including, without limitation, any Real Property, inventory, equipment or Intellectual Property) other than (except with respect to Intellectual Property) in the ordinary course of business consistent with past practice and the sale or other disposition of obsolete equipment. (f) Indebtedness. (i) International shall take such action as may be necessary so that, as of the Offer Closing Time, International and Daka, taken as a whole, shall not have any Indebtedness other than: (A) the Funded Debt (as defined below), and (B) Indebtedness incurred pursuant to a written agreement that provides that such Indebtedness will be assumed by UCRI or a Subsidiary of UCRI at or prior to the Offer Closing Time and that, upon such assumption, International and Daka shall have no obligation or liability in respect of such Indebtedness. (ii) The term "Funded Debt" means the amount of Indebtedness outstanding plus any accrued but unpaid interest and fees under the terms of the Third Amended and Restated Credit Agreement dated as of A-26 October 15, 1996 among International, Subsidiary Guarantors, the Banks Party Thereto and The Chase Manhattan Bank, as Agent, as amended through the date hereof (the "Credit Facility"), together with the amount of Indebtedness outstanding (consisting of market to market exposure) plus all other amounts due under any Interest Rate Protection Agreement (as defined in the Credit Facility) which aggregate amount shall not exceed $110,000,000. (g) Benefit Plans; Collective Bargaining Agreements. Except as contemplated by the Reorganization Agreement or Section 1.5 hereof, International shall not, nor shall it permit Daka to: (i) except to the extent required by law, adopt any Benefit Plan or amend any Benefit Plan to the extent such adoption or amendment (x) would create or increase any liability or obligation on the part of International or Daka that will not either (A) be fully performed or satisfied prior to the Offer Closing Time or (B) be assumed by UCRI pursuant to the Reorganization Agreement with no remaining obligation on the part of International or Daka, or (y) would increase the number of shares of International Common Stock (if any) to be issued under such Benefit Plan; (ii) except for normal increases in the ordinary course of business consistent with past practice, increase the base salary of any employee of the Foodservice Business; or (iii) enter into or modify in any material respect any collective bargaining agreement governing employees of the Foodservice Business except as required for good faith bargaining in connection with new or expiring Customer Contracts. (h) Employee Agreements. Prior to the Distribution, each of International and Daka shall use its best efforts to assign to UCRI or terminate all employment agreements with officers of International or Daka who are not Foodservice Employees (the "Employment Agreements") and all severance agreements with officers of International or Daka who are not Foodservice Employees (the "Severance Agreements"). The parties hereto acknowledge and agree that, regardless of whether such Employment Agreements and Severance Agreements are so assigned or terminated, all liabilities and obligations under or arising from such Employment Agreements and Severance Agreements shall be deemed to be "UCRI Liabilities" as such term is defined in the Reorganization Agreement, with respect to which UCRI shall indemnify Compass, International and Daka as provided therein. (i) [Reserved]. (j) Accounting Policies and Procedures. International will not and will not permit Daka to change any of its accounting principles, policies or procedures, except such changes as may be required, in the opinion of International's independent accountants, by generally accepted accounting principles or changes that in the opinion of said accountants are not material to International's consolidated financial statements and would not be material if applicable to the Foodservice Business Financial Statements (as to which changes and opinion International shall promptly notify Compass). (k) Liens. International shall not, and shall not permit Daka to, create, incur or assume any Lien on the Foodservice Assets (as defined in the Reorganization Agreement), except for Liens created, incurred or assumed in the ordinary course of business consistent with the past practices of International and its subsidiaries, which Liens would not have a Material Adverse Effect on International and Daka taken as a whole. (l) Deferred Tax Assets and Liabilities. Prior to the Offer Closing Time, International will not, and will not permit any of its Subsidiaries to, take any action that would increase the amount of deferred Tax liabilities, or decrease the amount of deferred Tax assets, of International or its Subsidiaries (as determined for financial accounting purposes), other than an action in the ordinary course of business consistent with past practice or as required by applicable law or as contemplated by the Reorganization Agreement. (m) Exclusivity. (i) Neither International nor any of its directors, officers or employees shall, and International shall use its best efforts to ensure that none of its agents, advisors or representatives (collectively, "Representatives"), shall, directly or indirectly, solicit, initiate or encourage any inquiries or proposals from or with any Person (other than Compass and its Subsidiaries) or such Person's directors, officers, employees, representatives and agents that constitute, or would reasonably be expected to lead to a Third Party Acquisition. For purposes of this Agreement, a "Third Party Acquisition" shall mean (A) the acquisition by any Person of more than 20% of the total assets of the Foodservice Business, (B) the acquisition by any Person of 20% or more of (x) the International Common Stock or (y) the total number of votes that may be cast in the election of directors of International at any meeting of stockholders of International assuming all shares of International Common Stock and all other securities of International, if any, entitled to vote generally in the election of A-27 directors were present and voted at such meeting, or (C) any merger, consolidation or other combination of International or Daka with any Person; provided, however, that the term "Third Party Acquisition" shall not include any transactions which relate solely to the businesses to be owned by UCRI and its Subsidiaries following the Distribution and which would not have a Material Adverse Effect on the consummation of the Offer, the Merger, the Distribution or the transactions contemplated hereby, including the obligations of UCRI under the Post-Closing Covenants Agreement. International has, prior to the execution of this Agreement, ceased or caused to be terminated any discussions or negotiations with any parties other than Compass and its Subsidiaries conducted prior to the date hereof with respect to any Third Party Acquisition. (ii) Notwithstanding the foregoing or any other provision of this Agreement, International may furnish or cause to be furnished information (pursuant to confidentiality arrangements no less favorable to International than the Confidentiality Agreement (as hereinafter defined), unless already in existence on the date hereof) and may participate in such discussions and negotiations directly or through its representatives if another Person or group makes an offer or proposal which International's Board of Directors believes, in the good faith exercise of its business judgment and based upon advice of its outside legal and financial advisors, could reasonably be expected to be consummated and represents a transaction more favorable to its stockholders than the transactions contemplated by this Agreement (a "Higher Offer"). (iii) Unless the Board of Directors of International determines in good faith, after receiving advice of its outside legal counsel, that doing so could reasonably be expected to be a breach of the directors' fiduciary duties, International shall notify Compass as soon as practicable (x) if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with it, (y) of the identity of the third party or parties and (z) of the terms of any such proposal or proposals. International's Board of Directors may fail to recommend or fail to continue to recommend the Offer, or this Agreement in connection with any vote of its stockholders, or withdraw, modify, or change any such recommendation, or recommend or enter into an agreement regarding a Higher Offer, if International's Board of Directors, after receiving advice of its outside counsel, determines in good faith that making such recommendation, or the failure to recommend any other offer or proposal, or the failure to so withdraw, modify, or change its recommendation, or the failure to recommend or enter into an agreement regarding a Higher Offer, could constitute a breach of the directors' fiduciary duties under applicable law. In such event, notwithstanding anything contained in this Agreement to the contrary, any such failure to recommend, withdrawal, modification, or change of recommendation or recommendation of such other offer or proposal, or the entering by International into an agreement with respect to a Higher Offer (provided that International shall have provided Compass notice of its intention to so enter, the terms of the Higher Offer and the identity of the other party thereto), shall not constitute a breach of this Agreement by International. Notwithstanding the foregoing, International shall not enter into an agreement with a third party with respect to, or take any action to approve such transaction under any antitakeover provision of International's certificate of incorporation or state law in connection with, any Third Party Acquisition unless and until this Agreement is terminated in accordance with the provisions of Article VIII. (n) Confidentiality and Standstill Agreements. International will not amend, waive or modify any provision of any confidentiality or standstill agreement entered into with any other party in connection with such party's interest in acquiring International or the Foodservice Business or any substantial portion of the Foodservice Business, except in connection with any action permitted to be taken by International pursuant to Section 5.1(m). (o) Pending Actions. International will continue to defend in the ordinary course, consistent with past practice, the litigation and other proceedings set forth in Schedule 4.2(g) to the Disclosure Schedule, including resolving any such litigation and other proceedings as can be resolved prior to the Offer Closing Time on a commercially reasonable basis and consistent with past practice. (p) Access to Information; Confidentiality. (i) International shall, and shall cause its Subsidiaries to, afford to Compass and its officers, employees, accountants, counsel, financial advisors and other representatives of Compass, reasonable access during the period prior to the Offer Closing Time to all its properties, books, contracts, commitments, personnel and records relating to the Foodservice Business. During the period prior to the Offer Closing Time, International shall, and shall cause its Subsidiaries to, furnish promptly to Compass (A) a copy of each report, A-28 schedule, registration statement and other document filed by it during such period pursuant to the requirements of Section 13(a) and 15(d) of the Exchange Act, (B) each press release issued by it, and (C) all other information relating to the Foodservice Business as Compass may reasonably request. (ii) Except as required by law, each of International and Compass will hold, and will cause its respective officers, employees, accountants, counsel, financial advisors and other representatives and affiliates to hold, any nonpublic information in confidence in accordance with the confidentiality agreement, dated January 2, 1997 (the "Confidentiality Agreement"), between Compass and International. (q) Corporate Records. International shall deliver to, or make available to, Compass all certificates of incorporation and authority, minute books, corporate stock records and corporate seals of International and Daka and all other books and records, account records, tax records and other business records related to International, Daka or the Foodservice Business. (r) No Agreement to Prohibited Actions. International will not, and will not permit any of its Subsidiaries to, agree or commit to take any action that is prohibited under this Section 5.1. Section 5.2 Mutual Covenants. (a) International and Compass shall promptly advise the other party of any change or event having, or which, insofar as can reasonably be foreseen, could reasonably be expected to have, a Material Adverse Effect on such party and its Subsidiaries taken as a whole. (b) (i) Subject to the terms and conditions herein provided, the parties hereto agree to use their reasonable best 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 contemplated by this Agreement and the Ancillary Agreements and to cooperate with each other in connection with the foregoing, including, but not limited to, (A) defending all lawsuits or other legal proceedings challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby, (B) attempting to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby, and (C) effecting all necessary filings and submissions of information requested by governmental authorities. (ii) Without limiting the foregoing, the parties hereto shall, as soon as reasonably practicable, make all requisite filings with each Governmental Entity in connection with the transactions contemplated hereby and the Ancillary Agreements, including under the HSR Act and the Exon-Florio Amendment, and shall promptly make any further filings requested pursuant thereto or which may be necessary to consummate the transactions contemplated herein. Each party shall furnish to the other, upon request, such information as shall reasonably be required in connection with the preparation of the requesting party's filings under the HSR Act and the Exon-Florio Amendment. (iii) Each of Compass and International shall promptly provide to the other (or its counsel) copies of all filings (other than those filings, or portions thereof, which the other party has no reasonable interest in obtaining in connection with the Offer, the Merger or the transactions contemplated hereby) made with any Federal, state or foreign Governmental Entity in connection with this Agreement and the transactions contemplated hereby. (iv) Notwithstanding the foregoing or any other provision of this Agreement, (A) neither International nor any of its Subsidiaries will, without Compass' prior written consent, agree or commit to any divestiture, hold-separate order or other restriction relating to the Foodservice Business and (B) neither Compass nor any of its Subsidiaries will be required to agree or commit to any divestiture, hold-separate order or other restriction relating to the Foodservice Business or to any of its existing businesses or any other governmental order or obligation that otherwise imposes any conditions or limitations in connection with Compass' acquisition of the Foodservice Business or its operation of its existing business and operations or the Foodservice Business after the Offer Closing Time. (c) Compass and International shall cooperate in connection with efforts to secure a renewal or extension of the Smithsonian Contract prior to the Offer Closing Time on terms reasonably satisfactory to Compass. A-29 (d) Following the date hereof and prior to the Offer Closing Time, each of International and Compass shall designate a senior officer (the "International Representative" and the "Compass Representative", respectively) to consult with each other with respect to major business decisions to be made concerning the operation of the Foodservice Business. Such consultation shall be made on as frequent a basis as may be reasonably requested by Compass. The parties hereto acknowledge and agree that the agreements set forth in this Section 5.2(d) shall be subject to any restrictions or limitations under applicable law. (e) (i) Each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements including, without limitation, taking all reasonable actions to achieve the successful completion of the Offer, cooperating in the preparation and filing of the Offer Documents, the Schedule 14D-1, the Schedule 14D-9, the Form 10, the Information Statement and the Proxy Statement and any amendments to any thereof, and executing any additional instruments necessary to consummate the transactions contemplated hereby. In case at any time after the Offer Closing Time any further action is necessary to carry out the purposes of this Agreement, the proper officers and directors of each party hereto shall use their best efforts to take all such necessary action. (ii) Subject to the terms and conditions hereof, each of the parties hereto (A) shall use reasonable best efforts to comply promptly with all legal and regulatory requirements which may be imposed on itself or its Subsidiaries with respect to the Offer, the Merger and the transactions contemplated thereby and by this Agreement and (B) will, and will cause its Subsidiaries to, promptly use its reasonable best efforts to obtain any consent, authorization, order or approval of, or any exemption by, and to satisfy any condition or requirement imposed by, any Governmental Entity or other public or private third party, required to be obtained, made or satisfied by itself or any of its Subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement or the Ancillary Agreements. Each of International and Compass will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their respective subsidiaries in connection with the Contribution, the Distribution or the Merger. (f) Until the Offer Closing Time, Compass and International will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement and the Ancillary Agreements, including the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Fees and Expenses. Except as provided in Section 8.2(c), all fees and expenses incurred in connection with the Merger, the Contribution, the Distribution, this Agreement, the Offer and the transactions contemplated by this Agreement and the Ancillary Agreements shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated. In accordance with the foregoing sentence, International agrees to pay the fees and expenses of Bear Stearns & Co., Inc. and Compass Holdings agrees to pay the fees and expenses of Patricof & Co. Capital Corp., NationsBanc Capital Markets, Inc., The Bank of New York, as Offer Depositary, Mackenzie Partners, Inc., as Offer Information Agent, and the filing fee for the HSR Filing. Section 6.2 Ancillary Agreements. (a) Simultaneously with the execution of this Agreement, International and certain of its Subsidiaries are entering into the Reorganization Agreement, the Tax Allocation Agreement and the Post-Closing Covenants Agreement. From and after the Offer Closing Time, Compass shall cause the Surviving Corporation to perform any and all obligations and agreements of International set forth herein or in the Ancillary Agreements or in any other agreement contemplated herein or therein. A-30 (b) Each of Compass, Compass Holdings and Compass Interim accept and agree that, subject to the provisions of the Reorganization Agreement, the form of certificate of incorporation and Bylaws of UCRI adopted in contemplation of the Distribution shall be as agreed to by International and UCRI in their sole discretion; provided, that nothing in the certificate of incorporation and Bylaws shall adversely affect or otherwise limit UCRI's ability to perform its obligations under the Ancillary Agreements or the other agreements contemplated by the Reorganization Agreement. (c) In no event shall Compass, Compass Holdings or Compass Interim or any of their Subsidiaries be entitled to receive any shares of UCRI Common Stock as a distribution with respect to shares of International Common Stock purchased upon consummation of the Offer. If, for any reason, any shares of UCRI Common Stock distributed in the Distribution are received by Compass, Compass Holdings, or Compass Interim or any of their Subsidiaries with respect to shares of International Common Stock acquired by Compass Interim in the Offer, then Compass, Compass Holdings or Compass Interim shall convey, on behalf of International, such shares of UCRI Common Stock to the stockholders of International who would have otherwise received such shares of UCRI Common Stock pursuant to the Reorganization Agreement; provided, that the foregoing provisions shall not apply with respect to shares of International Common Stock held by Compass or any of its Subsidiaries prior to the date hereof. Section 6.3 Composition of the Board of Directors; Section 14(f). In the event that Compass Holdings acquires at least two-thirds of the International Common Stock outstanding pursuant to the Offer, Compass Holdings shall be entitled to designate for appointment or election to International's Board of Directors, upon written notice to International, such number of persons so that the designees of Compass Holdings constitute the same percentage (but in no event less than five) of International's Board of Directors (rounded up to the next whole number) as the percentage of International Common Stock acquired in connection with the Offer. Prior to the Offer Closing Time, the Board of Directors of International will obtain the resignation of such number of directors as is necessary to enable such number of Compass Holdings' designees to be so elected and will take all action required to appoint or elect such individuals to such positions. In connection therewith, International will mail to its stockholders the information required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder unless such information has previously been provided to such stockholders in the Schedule 14D-9. Compass Holdings will provide to International in writing, and be solely responsible for, any information with respect to such companies and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f - 1. In the event that Compass Holdings'designees are elected to the Board of Directors of International, until the Merger Effective Time, such Board of Directors shall have at least two directors who are directors on the date hereof (the "Independent Directors"), provided that, in such event, if the number of Independent Directors shall be reduced below two for any reason whatsoever, any remaining Independent Directors (or Independent Director, if there is only one remaining) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of this Agreement or, if no Independent Director then remains, the other directors shall designate two persons to fill such vacancies who shall not be stockholders, affiliates or associates of Compass, Compass Holdings or Compass Interim and such persons shall be deemed to be Independent Directors for purposes of this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event that Compass Holdings' designees are elected to the Board of Directors of International after the acceptance for payment of shares of International Common Stock pursuant to the Offer and prior to the Merger Effective Time, the affirmative vote of a majority of the Independent Directors shall be required to (a) amend or terminate this Agreement by International, (b) exercise or waive any of International's rights, benefits or remedies hereunder, (c) extend the time for performance of Compass', Compass Holdings' or Compass Interim's respective obligations hereunder, (d) take any other action by the Board of Directors of International under or in connection with this Agreement or any of the transactions contemplated hereby or by any of the Ancillary Agreements, or (e) approve any other action by International which could adversely affect the interests of the stockholders of International (other than Compass, Compass Holdings or Compass Interim and their affiliates) with respect to the transactions contemplated hereby. Section 6.4 Certain Prior Actions. (a) The following agreements have been executed and delivered by the applicable parties thereto to be effective at the Offer Closing Time: (i) The Reorganization Agreement; A-31 (ii) The Tax Allocation Agreement; (iii) The Post-Closing Covenants Agreement; (iv) The Transition Agreement; (v) Employment Agreement between International, Daka and Allen R. Maxwell; and (vi) The Series A Preferred Stock Purchase Agreement. (b) The following documents have been delivered by International to Compass: (i) A Certificate of International's chief executive officer delivered to Compass to the effect that International has taken all necessary action to render inapplicable to the Offer, the Merger, the Distribution and the other transactions contemplated by this Agreement and the Ancillary Agreements (i) any "fair price," "moratorium," "control share acquisition" or similar antitakeover statute or regulation enacted under any applicable state or federal law in the United States; or (ii) any antitakeover provision in its Certificate of Incorporation, Bylaws or other governing corporate documents. (ii) Evidence reasonably satisfactory to Compass that (x) the remittance by Compass to The Chase Manhattan Bank of the Funded Debt in immediately available funds by wire transfer simultaneously with the Closing will result in the payment in full of the Funded Debt and all other liabilities and Indebtedness of International under the Credit Facility and the termination of the Credit Facility and all related promissory notes, security instruments and loan documents and (y) immediately upon such remittance the lenders under the Credit Facility or under other Indebtedness shall deliver to Compass or UCRI, as applicable, originally signed UCC-3 terminations or releases, United States Patent and Trademark filings and all other instruments as determined by Compass or UCRI, as applicable, to be necessary or advisable to release or terminate, or evidence the release or termination, of all Liens on the assets and properties of International, UCRI and their respective Subsidiaries, whether such Liens secure or are intended to secure the Funded Debt, the Credit Facility or any other Indebtedness. Simultaneously with the Closing, all letters of credit outstanding under the Credit Facility shall be returned in their original form by the beneficiary of each letter of credit. (iii) A certified copy of resolutions of the Board of Directors of International and Daka authorizing the Contribution, the Distribution, the Merger, and the transactions contemplated thereby, including the execution and delivery of the Merger Agreement and the Ancillary Agreements. Section 6.5 Tax Treatment. Compass and Compass Holdings each shall, and shall cause the Surviving Corporation to, treat the Distribution for purposes of all federal and state taxes as an integrated transaction with the Offer and the Merger and will report the Distribution as a distribution in redemption of International Common Stock subject to the provisions of Sections 302 and 311 of the Code. Section 6.6 Indemnification of Officers and Directors. For a period of 3 years after the Offer Closing Time, Compass will not modify the rights of Joe O'Donnell, Erline Belton, Alan D. Schwartz or E. L. Cox to indemnification and shall cause International and the Surviving Corporation to maintain substantially similar provisions in such respect as set forth in the Certificate of Incorporation and Bylaws of International as of the date hereof. Notwithstanding anything to the contrary provided herein, an indemnified party shall use its best efforts to obtain indemnification from any source other than International or Daka from which it may be entitled thereto, including without limitation, any indemnification agreements between UCRI and such indemnified party, before seeking indemnification from International or Daka. Nothing contained in this Section shall limit any lawful rights to indemnification existing independently of this Section. Section 6.7 Offer Closing Date Payments. (a) At the Offer Closing, International shall deliver to Compass in cash or cash equivalent an amount equal to (i) $1,500,000, plus (ii) $7.50 multiplied by the sum of (A) the number of outstanding shares of International Common Stock and (B) the outstanding shares of International Common Stock into which the Series A Preferred Stock is convertible, minus $85,000,000. A-32 (b) At the Offer Closing, Compass shall deliver to UCRI in cash or cash equivalent any amount by which the Funded Debt outstanding at the Offer Closing Time is less than $110,000,000. Section 6.8 Non-Waiver of Conditions. If International refuses to effect the Distribution because one or more of the conditions to International's obligation to consummate the Distribution has not been satisfied or waived, then Compass Holdings shall not waive the Offer Condition set forth in paragraph (ii)(m) of Exhibit 1.1(a), shall terminate the Offer and shall not accept for payment or pay for any shares of International Common Stock validly tendered. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Merger Closing Date of the following conditions: (a) Shareholder Approval. This Agreement and the Merger shall have been adopted and approved by the affirmative vote of the stockholders of International by the requisite vote in accordance with applicable law, if required by applicable law as provided in Section 2.4 hereof; (b) No Prohibition. No statute, rule, regulation, order, decree, or injunction shall have been enacted, entered, promulgated or enforced by any court or governmental authority which prohibits or restricts the consummation of the Merger. (c) Consummation of the Offer. The Offer shall have been consummated. (d) Consummation of the Distribution. The Distribution shall have become effective in accordance with the terms of the Reorganization Agreement and each of the agreements contemplated thereby. (e) No Injunctions, Litigation or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, the Contribution or the Distribution shall be in effect and no such litigation or legal action other than the Venturino Claim shall have been threatened or shall be pending. No action, suit or other proceeding shall be pending by any Governmental Entity that, if successful, would restrict or prohibit the consummation of the Merger, the Contribution or the Distribution; provided, however, that International will not unreasonably withhold its waiver of the condition set forth in this sentence upon Compass' request in the event such an action, suit or other proceeding is pending with respect to the Merger alone. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination. This Agreement may be terminated at any time prior to the Offer Closing Time, notwithstanding any approval of this Agreement by the stockholders of International: (a) by mutual written consent of Compass and International; or (b) by either Compass or International: (i) if there has been a failure to perform an obligation or satisfy a condition precedent (regardless of materiality) or a material breach of this Agreement by a party and such breach has not been waived by the other party, provided that only the non-breaching party may so terminate; (ii) if the Offer shall expire or have been terminated in accordance with its terms without any shares of International Common Stock being purchased thereunder, or Compass Holdings shall not have accepted for payment or paid for shares of International Common Stock validly tendered pursuant to the Offer (as a result of the Offer Condition not being satisfied or waived by Compass Holdings in accordance with Article I hereof) prior to July 31, 1997, unless the failure to consummate the Offer is the result of a willful and material breach by the party seeking to terminate this Agreement; A-33 (iii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Offer and such order, decree, ruling or other action shall have become final and nonappealable; or (c) by Compass if (i) the Board of Directors of International shall have withdrawn, or modified or changed, in a manner adverse to Compass, its approval or recommendation of the transactions contemplated by this Agreement and the Ancillary Agreements or shall have recommended another offer or proposal with respect to a Third Party Acquisition, or (ii) a Third Party Acquisition has occurred or any person shall have entered into a definitive agreement with International with respect to a Third Party Acquisition; or (d) by International if International's Board of Directors shall have failed to recommend to its stockholders the approval of the transactions contemplated by this Agreement and the Ancillary Agreements or shall have withdrawn, modified or changed such recommendation, in a manner permitted by Section 5.1(m)(iii), or shall have taken any other action permitted by Section 5.1(m)(iii). Section 8.2 Effect of Termination. (a) In the event of termination of this Agreement by either International or Compass as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of the parties hereto, other than the provisions of Section 4.2(i), Section 4.3(g), Section 5.1(p), Section 6.1, this Section 8.2 and Sections 9.2 through 9.8 and except to the extent that such termination results from the willful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement, the Ancillary Agreements, or any agreement contemplated hereby or thereby. (b) If the transactions contemplated by this Agreement are terminated as provided herein: (i) Compass shall return all documents and other material received from International or its representatives relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to International; and (ii) all confidential information received by Compass with respect to the businesses of International shall be treated in accordance with the Confidentiality Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement. (c) In the event that: (i) Compass terminates this Agreement pursuant to Section 8.1(c), or (ii) International terminates this Agreement pursuant to Section 8.1(d) and, at the time of termination there shall have been made a proposal relating to a Third Party Acquisition that has become public and, within 12 months following such termination, International or Daka shall enter into a definitive agreement with respect to (X) the sale of the Foodservice Business, (Y) the sale of substantially all of the assets of International or Daka, or (Z) the merger of International or Daka with or into any other entity, or International or Daka shall recommend any other Third Party Acquisition to its stockholders, then International or Daka shall promptly pay to Compass (by wire transfer to an account designated by Compass for this purpose) an amount equal to the sum of (i) $5,800,000 and (ii) notwithstanding the provisions of Section 6.4, the fees and expenses actually incurred by Compass in connection with the negotiation and preparation of this Agreement and the Ancillary Agreements to which Compass is a party, the performance of Compass' covenants herein and therein, and the transactions contemplated hereby and thereby, including, without limitation, all fees and disbursements of Compass' financial advisors, legal counsel, accountants and other advisors, up to a maximum of an additional $2,000,000, provided, however, that in no event shall International or Daka collectively be required to pay either of the amounts set forth in this Section 8.2(c) (i) or (ii) more than once. Section 8.3 Amendment. Except as provided in Section 6.3 hereof, this Agreement may be amended by the parties at any time before or after any required approval of matters presented in connection with the Merger by the stockholders of International; provided, however, that after any such approval, there shall be made no amendment that by law requires further approval by such stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. Section 8.4 Extension; Waiver. At any time prior to the Offer Closing Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered A-34 pursuant to this Agreement, or (c) subject to the proviso of Section 8.3, waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. ARTICLE IX GENERAL PROVISIONS Section 9.1 Survival of Representations and Warranties. (a) Except as set forth below, all representations and warranties in this Agreement, the Ancillary Agreements and any other certificate or document delivered pursuant hereto or thereto will survive the Offer Closing Time until 5:00 p.m. on December 31, 1998; provided, however that, any representation and warranty by a party that relates to any obligation to be performed by such party under this Agreement or an Ancillary Agreement shall survive until the one year anniversary of the final and complete performance of such obligation. (b) The representations and warranties contained herein shall survive as to any Tax covered thereby for so long as any statute of limitations for such Tax remains open, in whole or in part, including without limitation by reason of waiver of such statute of limitations. (c) The representations and warranties contained in Section 4.2(b)(ii) and (l) shall survive for a period of five years after the Offer Closing Time. (d) The representations and warranties contained in Sections 4.2(m), (p) and (v) shall survive without limitation after the Offer Closing Time. (e) Neither this Section 9.1 nor any of the Ancillary Agreements shall limit any covenant or agreement of the parties which by its terms contemplates performance after the Offer Closing Time. Section 9.2 Notices. Any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been duly given (a) on the first business day occurring on or after the date of transmission if transmitted by facsimile (upon confirmation of receipt by journal or report generated by the facsimile machine of the party giving such notice), (b) on the first business day occurring on or after the date of delivery if delivered personally, or (c) on the first business day following the date of dispatch if dispatched by Federal Express or other next-day courier service. All notices hereunder shall be given as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) if to Compass, Compass Holdings or Compass Interim, to: Compass Group USA, Inc. 2400 Yorkmont Road Charlotte, North Carolina 28217 Attention: General Counsel (b) if to International or Daka, to: Daka International, Inc. One Corporate Place 55 Ferncroft Road Danvers, Massachusetts 01923-4001 Attention: General Counsel Section 9.3 Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. A-35 Section 9.4 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 9.5 Entire Agreement; No Third-party Beneficiaries. This Agreement, the Ancillary Agreements and the agreements referred to herein and therein or required to be delivered in connection with the transactions contemplated by the Ancillary Agreements constitute the entire agreement, and supersede all prior agreements (other than the Confidentiality Agreement) and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and is not intended to confer upon any person other than the parties hereto or thereto any rights or remedies. Section 9.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. EACH OF THE PARTIES HERETO AGREES (a) THAT THIS AGREEMENT INVOLVES AT LEAST $100,000.00 AND (b) THAT THIS AGREEMENT HAS BEEN ENTERED INTO BY THE PARTIES HERETO IN EXPRESS RELIANCE UPON 6 DEL. C. (section mark) 2708. Section 9.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and permitted assigns. Section 9.8 Enforcement. (a) Specific Performance. The parties 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. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. Any requirements for the securing or posting of any bond with respect to such remedy are hereby waived by each of the parties hereto. (b) Jurisdiction. Each of the parties hereto irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the Commonwealth of Massachusetts and of the United States of America located in the Commonwealth of Massachusetts (the "Massachusetts Courts") for any litigation arising out or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Massachusetts Courts and agrees not to plead or claim in any Massachusetts Court that such litigation brought therein has been brought in any inconvenient forum. Each of the parties hereto agrees, (a) to the extent such party is not otherwise subject to service of process in the Commonwealth of Massachusetts, to appoint and maintain an agent in the Commonwealth of Massachusetts as such party's agent for acceptance of legal process. and (b) that service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service. Service made pursuant to (a) or (b) above shall have the same legal force and effect as if served upon such party personally within the Commonwealth of Massachusetts. For purposes of implementing the parties' agreement to appoint and maintain an agent for service of process in the Commonwealth of Massachusetts, each such party does hereby appoint CT Corporation System, 2 Oliver Street, Boston, Massachusetts 02109, as such agent. A-36 ARTICLE X DEFINITIONS Section 10.1 General. The following terms are defined in the Sections of this Agreement indicated below:
Term Section Location Exhibit A Converted Shares............................................................................... 1.1(a)(d) Affiliate........................................................................................ 10.2(a) Agreement........................................................................................ Introduction Ancillary Agreements............................................................................. 10.2(b) Benefit Plans.................................................................................... 4.2(l)(i) Certificate of Merger............................................................................ 2.3 Certificates..................................................................................... 3.2(b)(ii) Compass.......................................................................................... Introduction Compass Holdings................................................................................. Introduction Compass Interim.................................................................................. Introduction Compass Representative........................................................................... 5.2(d) Confidentiality Agreement........................................................................ 5.1(p)(ii) Contribution..................................................................................... Recitals Credit Facility.................................................................................. 5.1(f)(ii) Cross Creek...................................................................................... 1.4 Customer Contracts............................................................................... 4.2(k)(iv)(A) Daka............................................................................................. Recitals Determination Letter Request..................................................................... 4.2(l)(iii) DGCL............................................................................................. 2.1 Dissenting Shares................................................................................ 3.2(a) Distribution..................................................................................... Recitals DOL.............................................................................................. 4.2(l)(i) Employment Agreements............................................................................ 5.1(h) ERISA............................................................................................ 4.2(l)(i) ERISA Affiliate.................................................................................. 4.2(l)(i) Exchange Act..................................................................................... 4.2(c)(ii) Exchange Agent................................................................................... 3.2(b)(i) Exchange Fund.................................................................................... 3.2(b)(i) Exon-Florio Amendment............................................................................ 4.2(c)(ii) FCEC............................................................................................. 1.4 Foodservice Business............................................................................. Recitals Foodservice Business Balance Sheet............................................................... 4.2(r) Foodservice Business Financial Statements........................................................ 4.2(r) Foodservice Business Permits..................................................................... 4.2(h) Funded Debt...................................................................................... 5.1(f)(ii) Governmental Entity.............................................................................. 4.2(c)(ii) Hazardous Material............................................................................... 4.2(v)(ii) Higher Offer..................................................................................... 5.1(m)(ii) HSR Act.......................................................................................... 4.2(c)(ii) Indebtedness..................................................................................... 4.2(s) Independent Directors............................................................................ 6.3 Intellectual Property............................................................................ 4.2(n)(i) International.................................................................................... Introduction International Affiliated Group................................................................... 4.2(o)(ii) Exhibit International Bring Down Certificate............................................................. 1.1(a)(i) International Common Stock....................................................................... Recitals Exhibit International Filings............................................................................ 1.1(a)(ii)
A-37 International Options............................................................................ 1.5(a) Exhibit International Preferred Stock.................................................................... 1.1(a)(i)2 International Representative..................................................................... 5.2(d) International SEC Documents...................................................................... 4.2(d)(i) International Warrants........................................................................... 4.2(b)(i) IRS.............................................................................................. 4.2(l)(i) Knowledge........................................................................................ 10.2(c) Liens............................................................................................ 4.2(c)(ii) Massachusetts Courts............................................................................. 9.8(b) Material Adverse Change.......................................................................... 10.2(d) Material Adverse Effect.......................................................................... 4.1 Material Contract................................................................................ 4.2(k)(iv) Merger........................................................................................... Recitals Merger Closing................................................................................... 2.2 Merger Closing Date.............................................................................. 2.2 Merger Effective Time............................................................................ 2.3 Merger Price..................................................................................... 3.1(a)(i) Exhibit Minimum Shares................................................................................... 1.1(a)(i)(c) Multiemployer Plan............................................................................... 4.2(l)(i) Offer............................................................................................ Recitals Offer Closing.................................................................................... 1.6 Offer Closing Date............................................................................... 1.6 Offer Closing Time............................................................................... 1.1(a) Offer Conditions................................................................................. Recitals Offer Documents.................................................................................. 1.1(b) Offer Price...................................................................................... 1.1(a) Exhibit Options.......................................................................................... 1.1(a)(ii) Participating Employee........................................................................... 1.5(b) PBGC............................................................................................. 4.2(l)(i) Pension Plans.................................................................................... 4.2(l)(i) Person........................................................................................... 10.2(e) Post-Closing Convenants Agreement................................................................ 10.2(f) Purchasable Shares............................................................................... 1.5(b) Record Date...................................................................................... 1.1(a)(i) Real Property.................................................................................... 4.2(u)(i) Relevant Taxes................................................................................... 4.2(o)(iv) Reorganization Agreement......................................................................... 10.2(g) Representatives.................................................................................. 5.1(m)(i) Requisite Stockholders........................................................................... 4.2(c)(i) Restaurant Business.............................................................................. Recitals Schedule 14D-9................................................................................... 1.2 SEC.............................................................................................. 1.1(b) Securities Act................................................................................... 4.2(c)(ii) Series A Preferred Stock......................................................................... 1.4 Series A Preferred Stockholders.................................................................. 1.4 Series A Preferred Stock Purchase Agreement...................................................... 1.4 Severance Agreements............................................................................. 5.1(h) Subsidiary....................................................................................... 10.2(i) Surviving Corporation............................................................................ Recitals Tax Allocation Agreement......................................................................... 10.2(h) Third Party Acquisition.......................................................................... 5.1(m)(i) UCRI............................................................................................. Recitals
A-38 UCRI Common Stock................................................................................ Recitals UCRI Liabilities................................................................................. 5.1(h) Warrants......................................................................................... 1.4
Section 10.2 Certain Definitions. In addition to the foregoing, for purposes of this Agreement: (a) an "Affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person. (b) "Ancillary Agreements" means the Reorganization Agreement, the Tax Allocation Agreement, the Post-Closing Covenants Agreement, and the Transition Agreement referred to in Section 3.2 of the Post-Closing Covenants Agreement. (c) "Knowledge" means the actual knowledge of any director, officer or employee at the district manager level or above of the applicable party. (d) "Material Adverse Change" with respect to International or Daka means the occurrence of any of the following events: (i) any events, actions or occurrences which would result in a Managed Volume/Profit Adjustment (as defined in Section 5.3 of the Post-Closing Covenants Agreement) in an amount in excess of $19,500,000; or (ii) any claim, investigation, suit, action or proceeding pending or, to the Knowledge of International, expressly threatened, against International or Daka before or by any court, Governmental Entity or arbitrator (including any related to the suspension, debarment or similar preclusion of International or Daka from doing business with a Governmental Entity) other than the Venturino Claim that, individually or in the aggregate, could reasonably be expected to (A) have a Material Adverse Effect on International and Daka, taken as a whole, (B) materially impair the ability of International, Daka or UCRI to perform any obligation under this Agreement or any Ancillary Agreement or (Z) prevent or materially delay or alter the consummation of any or all of the transactions contemplated hereby or by the Ancillary Agreements. (e) "Person" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (f) the "Post-Closing Convenants Agreements" means that certain Post-Closing Convenants Agreement dated as of the date hereof, by and among Daka International, Inc., Daka, Inc., Champps Entertainment, Inc., Fuddruckers, Inc., UCRI, Inc., Compass Group PLC and Compass Holdings, Inc. (g) the "Reorganization Agreement" means that certain Reorganization Agreement dated as of the date hereof, by and among Daka International, Inc., Daka, Inc., UCRI, Inc., Compass Group PLC and Compass Holdings, Inc. (h) the "Tax Allocation Agreement" means that certain Tax Allocation Agreement dated as of the date hereof, by and among Daka International, Inc., UCRI, Inc. and Compass Group PLC. (i) a "Subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. A-39 IN WITNESS WHEREOF, Compass, Compass Holdings, Compass Interim and International have each caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. COMPASS GROUP PLC By: /s/ Michael J. Bailey Michael J. Bailey Director COMPASS HOLDINGS, INC. By: /s/ Michael J. Bailey Michael J. Bailey Director COMPASS INTERIM, INC. By: /s/ Michael J. Bailey Michael J. Bailey President DAKA INTERNATIONAL, INC. By: /s/ Donald C. Moore Donald C. Moore Senior Vice-President A-40 EXHIBIT 1.1(a)(i) CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, Compass Holdings shall not be required to purchase any shares of International Common Stock tendered, and may terminate the Offer, if (i) immediately prior to the expiration of the Offer (as extended in accordance with the terms of the Offer), (a) any applicable waiting period under the HSR Act or the Exon-Florio Amendment shall not have expired or been terminated, (b) the Record Date shall not have been set by International's Board of Directors, or (c) the number of shares of International Common Stock validly tendered (including for this purpose shares that remain subject to guaranteed delivery procedures) and not withdrawn when added to the shares of International Common Stock then beneficially owned by Compass, Compass Holdings and its Affiliates or Compass Interim, including the shares of International Common Stock into which the shares of Series A Preferred Stock acquired by Compass Holdings pursuant to the Series A Preferred Stock Purchase Agreement are convertible (the "A Converted Shares"), shall not constitute at least two-thirds of the sum of the shares of International Common Stock then outstanding and the A Converted Shares and represent at least two-thirds of the voting power of all shares of capital stock of International that would be entitled to vote with respect to the Merger (the "Minimum Shares"), or (ii) prior to the acceptance for payment of shares of International Common Stock, any of the following events shall occur: (a) any of the representations or warranties of International contained in the Merger Agreement shall not have been true and correct at the date when made or (except for those representations and warranties made as of a particular date which need only be true and correct as of such date) shall cease to be true and correct at any time prior to consummation of the Offer, except (i) where International has delivered to Compass a certificate (the "International Bring-Down Certificate") dated as of the Offer Closing Date that (x) updates any section of the Disclosure Schedule previously delivered to Compass pursuant to the Merger Agreement so long as such updated schedules taken as a whole do not constitute a Material Adverse Change (as defined in the Merger Agreement) compared to the original schedules, or (y) sets forth events or conditions that have occurred since the date of the Merger Agreement which, if they had occurred or been in existence as of the date of the Merger Agreement, would be required to be disclosed, so long as such events or conditions taken as a whole do not constitute a Material Adverse Change or (ii) where the failure to be so true and correct would not have a Material Adverse Effect on International and Daka, taken as a whole, and Compass shall not have received a certificate signed on behalf of International by the chief executive officer and the chief financial officer to such effect; or (b) any of the representations or warranties of International contained in Sections 4.2(b), (c), (d), (e), (p) and (s) the Merger Agreement shall not have been true and correct at the date when made or (except for those representations and warranties made as of a particular date which need only be true and correct as of such date) shall cease to be true and correct at any time prior to consummation of the Offer, and Compass shall not have received a certificate signed on behalf of International by the chief executive officer and the chief financial officer to such effect; or (c) International shall have breached any of its covenants or agreements contained in the Merger Agreement or any Ancillary Agreements, provided, however, that if any such breach is curable by International or Daka through the exercise of best efforts within five business days and so long as International or Daka continue to use such best efforts, Compass Holdings may not terminate the Offer until such five business day period has expired without the breach being cured; or (d) there shall be any statute, rule, regulation, decree, order or injunction promulgated, enacted, entered or enforced, or any legal or administrative proceeding initiated by any United States federal or state government, governmental authority or court (other than the routine application to the Offer, the Merger or the Distribution of waiting periods under the HSR Act, the Exon-Florio Amendment or review by the SEC of A-41 the Schedule 14D-1, Schedule 14D-9 or Form 10) which would (i) prohibit Compass Holdings from consummating the Offer or the Merger, (ii) prohibit New International from consummating the Distribution, or (iii) have a Material Adverse Effect on International and Daka as a whole (provided that the provisions of this clause (iii) shall only apply in the event of any statute, rule, regulation, decree, order or injunction (A) which is enacted or entered into following the date of the Merger Agreement and (B) the substantive provisions of which were initially proposed for enactment following the date of the Merger Agreement); or (e) there shall have occurred (i) any general suspension of trading in securities on the New York Stock Exchange, Inc. or NASDAQ, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, or (iii) a commencement of a war or armed hostilities involving the United States, which in the case of any of the foregoing clauses (i), (ii) or (iii) would have a material adverse effect on International and Daka taken as a whole; or (f) either the Merger Agreement or the Reorganization Agreement shall have been terminated in accordance with its terms. (g) International shall have failed to enter into license agreements for each of the "French Quarter Coffee", "Leo's Deli" and "Good Natured Cafe" names and marks, as provided in Section 5.2(d) of the Reorganization Agreement. (h) Compass shall not have received an opinion dated the Closing Date of Goodwin, Procter & Hoar LLP, counsel to International, in substantially the form of Exhibit 1.1(a)(i). (i) There shall have been a Material Adverse Change, or an event shall have occurred which could reasonably be expected to result in a Material Adverse Change. (j) Compass shall not have received all consents or releases related to the Foodservice Business or otherwise, necessary or appropriate to effect the Contribution, the Distribution and the Merger and to release International, Daka, Compass, Compass Holdings and Compass Interim and the assets of the Foodservice Business from any obligations or liability, including, without limitation, the Indebtedness, except as may be otherwise expressly set forth herein or in the Ancillary Agreements. (k) Any approval by a Governmental Entity in connection with the transactions contemplated hereby and by the Ancillary Agreements, including without limitation any approval under the HSR Act or the Exon-Florio Amendment shall contain a requirement for the sale or disposition of assets or conditions or limitations in connection with Compass' acquisition of the Foodservice Business or operation of its existing business and operations or the Foodservice Business after the Offer Closing Time. (l) Allen R. Maxwell shall have indicated to International, Daka or Compass that he does not intend to abide by the terms of the Employment Agreement between International, Daka and Allen R. Maxwell. (m) The Distribution shall not have become effective in accordance with the terms of the Reorganization Agreement and each of the agreements contemplated thereby. (n) UCRI shall fail to have delivered to Compass Indemnification Agreements in substantially the form attached as Exhibit 5.1(b) to the Reorganization Agreement concerning each executive officer and director of UCRI. (o) Compass shall be unable to pay in full the aggregate amount of principle, accrued but unpaid interest and fees due under the Credit Facility or such amount shall exceed $110,000,000. (p) Releases of claims and indemnification rights in forms reasonably satisfactory to Compass from each of William H. Baumhauer, Allen R. Maxwell, Charles W. Redepenning, Jr., David G. Parker, Louis A. Kaucic, Donald Moore and Dean P. Vlahos shall not have been delivered to Compass. (q) Letters of resignation from each executive officer and director of International, except Erline Belton and Joseph O'Donnell, shall not have been delivered to Compass. (r) International shall not have paid to Compass the amounts set forth in Section 6.7 net of any amounts due from Compass thereunder. A-42 (s) UCRI shall have failed to enter into a Transition Agreement as provided in Section 3.2 of the Post-Closing Convenants Agreement, including Exhibit 3.2 thereof. (t) International shall have failed to have assigned or transferred to New International the Headquarters Lease (as defined in the Post-Closing Convenants Agreement). The foregoing conditions are for the sole benefit of Compass and may be asserted by Compass regardless of the circumstances giving rise to such conditions, or may be waived by Compass in whole or in part at any time and from time to time in its sole discretion; provided that the conditions set forth in clauses (i)(A), (B) and (C), or (ii)(e) above may be waived or modified only by mutual consent of Compass Holdings and International. A-43 Facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each shareholder of the Company or his or her broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: The Bank of New York
By Mail: By Facsimile Transmission: By Hand or Overnight Courier: Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department P.O. Box 11248 (212) 815-6213 101 Barclay Street Church Street Station Receive and Deliver Window New York, New York 10286-1248 New York, New York 10286
For Information by Telephone: (800) 507-9357 Any questions or requests for assistance or additional copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or other tender offer materials may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: (logo of MACKENZIE PARTNERS, INC.) 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 EX-20 3 EXHIBIT (A)(2) EXHIBIT (A)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF DAKA INTERNATIONAL, INC. PURSUANT TO THE OFFER TO PURCHASE DATED MAY 29, 1997 BY COMPASS HOLDINGS, INC. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF COMPASS GROUP PLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS EXTENDED. COMPASS HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE). The Depositary: THE BANK OF NEW YORK
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER: The Bank of New York (For Eligible Institutions Only) The Bank of New York Tender & Exchange Department (212) 815-6213 Tender & Exchange Department P.O. Box 11248 101 Barclay Street Church Street Station Receive and Deliver Window New York, New York 10286-1248 New York, New York 10286
FOR INFORMATION BY TELEPHONE: (800) 507-9357
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or if delivery is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC"), which are hereinafter collectively referred to as the "Book-Entry Transfer Facilities," pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders whose certificates are not immediately available or who cannot deliver their certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) or who cannot comply with the book-entry transfer procedures on a timely basis must tender their Shares (as defined below) according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH DTC OR PDTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution Check Box of Book-Entry Transfer Facility (check one): [ ] DTC [ ] PDTC Account Number Transaction Code Number [ ]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s) Window Ticket Number (if any) Date of Execution of Notice of Guaranteed Delivery Name of Institution that Guaranteed Delivery Check Box of Book-Entry Transfer Facility if Delivered by Book-Entry Transfer (check one): [ ] DTC [ ] PDTC Account Number (if delivered by Book-Entry Transfer) Transaction Code Number BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON CERTIFICATE(S)) DESCRIPTION OF SHARES TENDERED CERTIFICATE(S) TENDERED (ATTACH ADDITIONAL LIST IF NECESSARY) TOTAL NUMBER OF SHARES CERTIFICATE NUMBER(S)* REPRESENTED BY CERTIFICATE(S)** NUMBER OF SHARES TENDERED** Total Shares.................................................................... * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by any certificates delivered to the Depositary are being tendered. See Instruction 4.
2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales ("Parent"), the above-described shares of common stock (the "Common Stock"), par value $.01 per share, of DAKA International, Inc., a Delaware corporation (the "Company") (the "Shares") at $7.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 29, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offer to Purchase, constitute the "Offer"). Subject to and effective upon acceptance for payment of the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby (and any and all other Shares or other securities or property issued or issuable in respect thereof on or after May 27, 1997, other than the shares of Unique Casual Restaurants, Inc. (the "New International Shares") distributed in respect of the Shares in connection with the Distribution (as such terms are defined in the Offer to Purchase)) (such other Shares, securities or property other than the New International Shares being referred to herein as the "Other Securities") and irrevocably appoints the Depositary the true and lawful agent and attorney-in- fact of the undersigned with respect to such Shares (and any such Other Securities) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and any such Other Securities), or transfer ownership of such Shares on the account books maintained by either of the Book-Entry Transfer Facilities (and any such Other Securities), together in any such case with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser, upon receipt by the Depositary, as the undersigned's agent, of the purchase price (adjusted, if appropriate, as provided in the Offer to Purchase), (b) present such Shares (and any such Other Securities) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any such Other Securities), all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints Mary H. Kercher and Timothy E. Flemming, and each of them or any other designees of the Purchaser, the attorneys and proxies of the undersigned, each with full power of substitution, to exercise such voting and other rights as each such attorney and proxy or his substitute shall, in his sole discretion, deem proper, and otherwise act (including pursuant to written consent) with respect to all of the Shares tendered hereby which have been accepted for payment by the Purchaser prior to the time of such vote or action (and any and all Other Securities issued or issuable in respect thereof on or after May 27, 1997), which the undersigned is entitled to vote at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting), or written consent in lieu of such meeting, or otherwise. This proxy is coupled with an interest in the Shares tendered hereby and is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke all prior proxies granted by the undersigned with respect to such Shares (and any such Other Securities) and no subsequent proxies may be given (and if given will be deemed not to be effective) with respect thereto by the undersigned. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser is able to exercise full voting and other rights of a record holder or beneficial holder, including rights in respect of acting by written consent, with respect to such Shares and Other Securities. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any and all Other Securities issued or issuable in respect thereof on or after May 27, 1997), and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned, upon request, will execute and deliver any signature guarantees or additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and any and all such Other Securities). In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any such 3 Other Securities issued to the undersigned on or after May 27, 1997, in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance or appropriate assurance thereof, the Purchaser shall be entitled to all rights and privileges as owner of any such Other Securities and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any certificates for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or return any certificates for Shares not purchased (together with accompanying documents as appropriate) in the name(s) of, and deliver said check and/or return such certificates to, the person or persons so indicated. Stockholders tendering Shares by book-entry transfer may request that any Shares not accepted for payment be returned by crediting such account maintained at DTC or PDTC as such stockholder may designate by making an appropriate entry under "Special Payment Instructions." The undersigned recognizes that the Purchaser has no obligation pursuant to the Special Payment Instructions to transfer any Shares from the name of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. 4 SPECIAL PAYMENT INSTRUCTIONS (See Instructions 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not purchased and/or the check for the purchase price of Shares purchased are to be issued in the name of someone other than the undersigned, or if Shares tendered by book-entry transfer which are not purchased are to be returned by credit to an account at one of the Book-Entry Transfer Facilities. Issue: [ ] Check [ ] Share Certificate(s) to: Name (Please Print) Address (Include Zip Code) TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN) [ ] Credit unpurchased Shares tendered by book-entry transfer to the account set forth below: Credit Appropriate Box: [ ] DTC [ ] PDTC (Account Number)
SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not purchased and/or the check for the purchase price of Shares purchased are to be sent to someone other than the undersigned or to the undersigned at an address other than that appearing under "Description of Shares Tendered." Mail: [ ] Check [ ] Share Certificate(s) to: Name (Please Print) Address (Include Zip Code) TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
5 IMPORTANT STOCKHOLDERS SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE) X (Signature(s) of Owner(s)) (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or any other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Dated , 1997 Name(s) (Please Print) Capacity (full title) Address (Include Zip Code) Area Code and Telephone Number Tax Identification or Social Security Number (See Substitute Form W-9 Below) GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5) Authorized Signature Name (Please Print) Name of Firm Address (Include Zip Code) Area Code and Telephone Number Dated , 1997
6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Signatures on all Letters of Transmittal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "Eligible Institution"), unless (i) this Letter of Transmittal is signed by the registered holder(s) of Shares (which term, for the purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) and such holder(s) has (have) not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on this Letter of Transmittal or (ii) such shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by stockholders either if certificates for Shares are to be forwarded herewith or if a tender of Shares is to be made pursuant to the procedures for delivery by book-entry transfer set forth in Section 3 of the Offer to Purchase. Certificates for all physically tendered Shares, or confirmation ("Book-Entry Confirmation") of any book-entry transfer into the Depositary's account at DTC or PDTC of Shares delivered by book-entry transfer as well as a properly completed and duly executed Letter of Transmittal, must be received by the Depositary, at one of the addresses set forth herein prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose certificates are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, must be received by the Depositary (as provided in (iii) below) prior to the Expiration Date and (iii) the certificates for all physically tendered Shares (or Book-Entry Confirmation with respect to such Shares), as well as a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq Stock Market trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH EITHER BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry transfer.) If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change 7 whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or any person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Purchaser of such person's authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares evidenced by certificates listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or purchased are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares, evidenced by certificates listed and transmitted hereby, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the Purchaser will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or purchased are to be registered in the name of, any person other than the registered holder(s), or if certificates for tendered shares are registered in the name of any person other than the person(s) signing this letter of transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check is to be issued in the name of and/or certificates for Shares not tendered or not purchased are to be returned to a person other than the signer of this Letter of Transmittal or if a check is to be sent and/or such certificates are to be returned to someone other than the signer above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such stockholder designates under "Special Delivery Instructions". If no such instructions are given, any such Share not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 8. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may be directed to, or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from, the Information Agent at the telephone numbers and addresses set forth below. Stockholders may also contact their broker, dealer, commercial bank or trust company. 9. WAIVER OF CONDITIONS. Except as otherwise provided in the Offer to Purchase, the Purchaser reserves the right in its sole discretion to waive in whole or in part at any time or from time to time any of the specified conditions of the Offer or any defect or irregularity in tender with regard to any Shares tendered. 10. SUBSTITUTE FORM W-9. The tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN"), generally the stockholder's social security or employer identification number, on Substitute Form W-9, which is provided under "Important Tax Information" below, and to certify whether he or she is subject to backup withholding of federal income tax. If a tendering stockholder is subject to backup withholding, he or she must cross out item (2) of the Certification Box on Substitute Form W-9. Failure to provide the information on Substitute Form W-9 may subject the tendering stockholder to 31% federal income tax withholding on the payment of the purchase price. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, he or she should write "Applied For" in the space provided for the TIN in Part I, sign and date the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer Identification Number. If 8 "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of payments for surrendered Shares thereafter until a TIN is provided to the Depositary. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF) TOGETHER WITH CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION UNDER FEDERAL TAX LAW, A STOCKHOLDER WHOSE TENDERED SHARES ARE ACCEPTED FOR PAYMENT IS REQUIRED TO PROVIDE THE DEPOSITARY (AS PAYER) WITH SUCH STOCKHOLDER'S CORRECT TIN ON SUBSTITUTE FORM W-9 BELOW. IF SUCH STOCKHOLDER IS AN INDIVIDUAL, THE TIN IS HIS SOCIAL SECURITY NUMBER. IF THE DEPOSITARY IS NOT PROVIDED WITH THE CORRECT TIN, THE STOCKHOLDER MAY BE SUBJECT TO A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE. IN ADDITION, PAYMENTS THAT ARE MADE TO SUCH STOCKHOLDER WITH RESPECT TO SHARES PURCHASED PURSUANT TO THE OFFER MAY BE SUBJECT TO BACKUP WITHHOLDING. CERTAIN STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT RECIPIENT, THAT STOCKHOLDER MUST SUBMIT A STATEMENT, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS. SUCH STATEMENTS CAN BE OBTAINED FROM THE DEPOSITARY. SEE THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL INSTRUCTIONS. IF BACKUP WITHHOLDING APPLIES, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO THE STOCKHOLDER. BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX. RATHER, THE TAX LIABILITY OF PERSONS SUBJECT TO BACKUP WITHHOLDING WILL BE REDUCED BY THE AMOUNT OF TAX WITHHELD. IF WITHHOLDING RESULTS IN AN OVERPAYMENT OF TAXES, A REFUND MAY BE OBTAINED. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his correct TIN by completing the Substitute Form W-9 contained herein certifying that the TIN provided on the Substitute Form W- 9 is correct (or that such stockholder is awaiting a TIN) and that (1) the stockholder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of failure to report all interest or dividends, or (2) the Internal Revenue Service has notified the stockholder that he or she is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, he or she should write "Applied For" in the space provided for the TIN in Part I, sign and date the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the purchase price until a TIN is provided to the Depositary. 9 PAYER'S NAME: THE BANK OF NEW YORK, AS DEPOSITARY SUBSTITUTE FORM W-9 PART I -- PLEASE PROVIDE YOUR TIN TIN IN THE BOX AT RIGHT AND CERTIFY Social Security Number BY SIGNING AND DATING BELOW: OR Employer Identification Number Department of the Treasury Internal Revenue Service. PART 2 -- For Payees NOT subject to backup withholding, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as instructed therein. OR Payee's Request for CERTIFICATION -- Under the penalties of perjury, I certify that: Taxpayer (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and Identification Number (TIN) (2) I am not subject to backup withholding because either I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me P that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) Signature Date , 1997 Sign Here (arrow) Name:
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under the penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Officer, or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. Signature(s) Date
10 (DO NOT WRITE IN SPACES BELOW)
DATE RECEIVED ACCEPTED BY CHECKED BY
SHARES SHARES SHARES CHECK AMOUNT SHARES CERTIFICATE SURRENDERED TENDERED ACCEPTED NUMBER OF CHECK RETURNED NUMBER
DELIVERY PREPARED BY CHECKED BY DATE
The Information Agent for the Offer is: (logo of MACKENZIE PARTNERS, INC.) 156 Fifth Avenue New York, NY 10010 (212) 929-5500 (Call Collect) or CALL TOLL-FREE (800) 322-2885 11 EX-20 4 EXHIBIT (A)(3) EXHIBIT (A)(3) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DAKA INTERNATIONAL, INC. AT $7.50 NET PER SHARE BY COMPASS HOLDINGS, INC. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF COMPASS GROUP PLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE). May 29, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales ("Parent"), to act as Information Agent in connection with its offer to purchase all outstanding shares of common stock, par value $.01 per share (the "Shares"), of DAKA International, Inc., a Delaware corporation (the "Company"), at $7.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase, dated May 29, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), copies of which are enclosed herewith. The Offer is being made in connection with the Agreement and Plan of Merger, dated as of May 27, 1997, among Parent, Purchaser, Compass Interim, Inc. and the Company. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED (INCLUDING SHARES THAT REMAIN SUBJECT TO GUARANTEED DELIVERY PROCEDURES) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN BENEFICIALLY OWNED BY PARENT, PURCHASER AND ITS AFFILIATES OR COMPASS INTERIM, INC. (INCLUDING THE SHARES (THE "SERIES A CONVERTED SHARES") INTO WHICH THE SHARES OF SERIES A PREFERRED STOCK OF THE COMPANY TO BE ACQUIRED BY PURCHASER PURSUANT TO THE SERIES A PREFERRED STOCK AGREEMENT (AS DEFINED IN THE OFFER TO PURCHASE) ARE CONVERTIBLE), CONSTITUTES AT LEAST TWO-THIRDS OF THE SUM OF THE TOTAL NUMBER OF SHARES THEN OUTSTANDING PLUS THE NUMBER OF SERIES A CONVERTED SHARES AND REPRESENTS AT LEAST TWO-THIRDS OF THE VOTING POWER OF ALL SHARES OF CAPITAL STOCK OF THE COMPANY THAT WOULD BE ENTITLED TO VOTE ON THE MERGER (AS DEFINED IN THE OFFER TO PURCHASE). For your information and for forwarding to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase, dated May 29, 1997; 2. Letter of Transmittal for your use and for the information of your clients, together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (as defined in the Offer to Purchase) or if the procedures for book-entry transfer cannot be completed on a timely basis; 4. A form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; and 5. Return envelope addressed to The Bank of New York, as Depositary. Your attention is directed to the following: 1. The tender price is $7.50 per Share, net to the seller in cash. 2. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER, THE DISTRIBUTION AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT, THE OFFER, THE DISTRIBUTION AND THE MERGER, AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Wednesday, June 25, 1997, unless the Offer is extended. 4. The Offer is being made for all of the outstanding Shares. The Offer is conditioned upon, among other things, there being validly tendered (including Shares that remain subject to guaranteed delivery procedures) and not withdrawn prior to the expiration of the Offer a number of Shares which, when added to the number of Shares then beneficially owned by Parent, Purchaser and its affiliates or Compass Interim, Inc. (including the Shares (the "Series A Converted Shares") into which the shares of Series A Preferred Stock of the Company to be acquired by Purchaser pursuant to the Series A Preferred Stock Agreement (as defined in the Offer to Purchase) are convertible), constitutes at least two-thirds of sum of the total number of Shares then outstanding plus the number of Series A Converted Shares and represents at least two-thirds of the voting power of all shares of capital stock of the Company that would be entitled to vote on the Merger (as defined in the Offer to Purchase). 5. Shareholders who tender Shares will not be obligated to pay brokerage fees, commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. The Company has advised Parent and the Purchaser that, prior to the time notice of the Distribution Record Date is given and at least ten days prior to the Expiration Date, it will distribute to holders of Shares an information statement ("the Information Statement") with respect to the business, operations and management of Unique Casual Restaurants, Inc. a newly formed Delaware corporation and a wholly owned subsidiary of the Company ("the Information Statement"). See Section 10 of the Offer to Purchase. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will be deemed to have accepted for payment, and will pay for, all Shares validly tendered and not properly withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) when, as and if the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment pursuant to the Offer. Payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase)), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (unless, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) is utilized) and any other documents required by the Letter of Transmittal. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal, with any required signature guarantees and any other required documents, should be sent to the Depositary, and certificates representing the tendered Shares should be delivered, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender their Shares, but it is impracticable for them to deliver their certificates on or prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. The Purchaser will not pay any fees or commissions to any broker or dealer or other person (other than the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. The Purchaser will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. The Purchaser will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE). Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained by contacting the undersigned at (800) 322-2885 or (212) 929-5500 (call collect). Very truly yours, MACKENZIE PARTNERS, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE PURCHASER, THE COMPANY, ANY AFFILIATE OF THE COMPANY, COMPASS GROUP PLC, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. EX-20 5 EXHIBIT (A)(4) EXHIBIT (A)(4) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DAKA INTERNATIONAL, INC. AT $7.50 NET PER SHARE BY COMPASS HOLDINGS, INC. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF COMPASS GROUP PLC THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. COMPASS HOLDINGS, INC. HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED IN THE OFFER TO PURCHASE). May 29, 1997 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated May 29, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") and other materials relating to the Offer by Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales (the "Parent"), to purchase all outstanding shares of common stock, par value $.01 per share (the "Shares"), of DAKA International, Inc., a Delaware corporation (the "Company"), at $7.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. This material is being sent to you as the beneficial owner of Shares held by us for your account but not registered in your name. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS LETTER IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $7.50 per Share, net to the seller in cash, without interest. 2. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Wednesday, June 25, 1997, unless the Offer is extended. Compass Holdings, Inc. has agreed to extend the Offer until the first business day following the Distribution Record Date (as defined in the Offer to Purchase). 3. The Offer is being made as part of a series of transactions that are expected to result in (i) the distribution to the stockholders of the Company of shares of stock in a new corporation that will own the restaurant business and all other businesses of the Company other than its foodservice business and (ii) the acquisition of the Company's foodservice business by the Purchaser pursuant to the Offer and the Merger (as defined in the Offer to Purchase). 4. The Board of Directors of the Company has unanimously approved the Offer, the Merger and the Distribution, determined that the Offer, the Merger and the Distribution are fair to the stockholders of the Company and are in the best interests of the stockholders of the Company, and recommends acceptance of the Offer and approval and adoption of the Merger Agreement by the stockholders of the Company. 5. The Offer is conditioned upon, among other things, there being validly tendered (including Shares that remain subject to guaranteed delivery procedures) and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) a number of Shares which, when added to the number of Shares then beneficially owned by Parent, Purchaser and its affiliates or Compass Interim, Inc. (including the Shares (the "Series A Converted Shares") into which the shares of Series A Preferred Stock of the Company to be acquired by Purchaser pursuant to the Series A Preferred Stock Agreement (as defined in the Offer to Purchase) are convertible), constitutes at least two-thirds of the sum of the total number of Shares then outstanding plus the number of Series A Convertible Shares and represents at least two-thirds of the voting power of all shares of capital stock of the Company that would be entitled to vote on the Merger (as defined in the Offer to Purchase). 6. Any stock transfer taxes applicable to the sale of Shares to the Purchaser pursuant to the Offer will be paid by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. The Company has advised Parent and the Purchaser that, prior to the time notice of the Distribution Record Date is given and at least ten days prior to the Expiration Date, it expects to distribute to holders of Shares an information statement ("the Information Statement") with respect to the business, operations and management of Unique Casual Restaurants, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of the Company. See Section 10 of the Offer to Purchase. The Offer is being made to all holders of Shares. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by or one or more registered brokers or dealers licensed under the laws of such jurisdictions. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing and returning to us the instruction form set forth below. Please forward your instructions to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the instruction form set forth below. 2 INSTRUCTIONS WITH RESPECT TO OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DAKA INTERNATIONAL, INC. BY COMPASS HOLDINGS, INC. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF COMPASS GROUP PLC The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated May 29, 1997, and the related Letter of Transmittal, in connection with the offer by Compass Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales, to purchase for cash all outstanding shares of common stock, par value $.01 per share (the "Shares"), of DAKA International, Inc., a Delaware corporation. This will instruct you to tender the number of Shares indicated below (or if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered: Shares* Signature(s) Dated: , 1997 Please Print Name(s) Please Print Address(es) Area Code and Telephone Number(s) Tax, Identification, or Social Security Number(s) * I (We) understand that if I (we) sign this instruction form without indicating a lesser number of Shares in the space above, all Shares held by you for my (our) account will be tendered. 3 EX-20 6 EXHIBIT (A)(5) EXHIBIT (A)(5) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF DAKA INTERNATIONAL, INC. This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if the certificates representing shares of common stock, par value $.01 per share, of DAKA International, Inc. (the "Shares") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or if time will not permit all required documents to reach the Depositary at or prior to the expiration of the Offer. Such form may be delivered by hand or transmitted by telegram, facsimile transmission, telex or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: THE BANK OF NEW YORK
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER: Tender & Exchange Department (For Eligible Institutions Only) Tender & Exchange Department P.O. Box 11248 (212) 815-6213 101 Barclay Street Church Street Station Receive and Deliver Window New York, New York 10286-1248 FOR INFORMATION BY TELEPHONE: New York, New York 10286 (800) 507-9357
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Compass Holdings, Inc. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 29, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares indicated below pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares: Share Certificate Numbers (if available): If Shares will be delivered by book-entry transfer, check one box: [ ] The Depository Trust Company [ ] Philadelphia Depository Trust Company Account Number Dated: , 1997 Name(s) of Record Holder(s): Please Type or Print Address(es) Zip Code Area Code and Telephone Number: Signature(s) Dated: , 1997 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States (each, an "Eligible Institution"), hereby guarantees that either the certificates representing the Shares tendered hereby in proper form for transfer, or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (pursuant to guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase), together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantee and any other required documents, will be received by the Depositary at one of its addresses set forth above within three (3) Nasdaq Stock Market trading days after the date of execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: Address: Zip Code Area Code and Telephone Number: Authorized Signature Name: Please Type or Print Title: Dated: , 1997 NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES FOR SHARES ARE TO BE DELIVERED WITH THE LETTER OF TRANSMITTAL. 2 EX-20 7 EXHIBIT (A)(6) EXHIBIT (A)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security numbers have nine digits separated by two hyphens: I.E. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: I.E., 00-00000000. The table below will help determine the number to give the payer.
GIVE THE GIVE THE TAXPAYER TAXPAYER IDENTIFICATION IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF -- FOR THIS TYPE OF ACCOUNT: NUMBER OF --
1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, the first individual on the account(1) 3. Husband and wife The actual owner of the (joint account) account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of guardian The ward, minor, or or committee for a designated incompetent(3) ward, minor or incompetent person(3) 7. a. The usual revocable savings The grantor-trustee(1) trust account (grantor is also trustee) b. So-called trust account that The actual owner(1) is not a legal or valid trust under State law 8. Sole proprietorship account The owner(4) 9. A valid trust, estate or pension The legal entity (Do not trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number or employer identification number (4) Show your individual name. You may also enter your business name. You may use your social security number or employer identification number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: (Bullet) A corporation. (Bullet) A financial institution. (Bullet) An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. (Bullet) The United States or any agency or instrumentality thereof. (Bullet) A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. (Bullet) A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. (Bullet) An international organization or any agency or instrumentality thereof. (Bullet) A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. (Bullet) A real estate investment trust. (Bullet) A common trust fund operated by a bank under section 584(a) of the Code. (Bullet) An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). (Bullet) An entity registered at all times under the Investment Company Act of 1940. (Bullet) A foreign central bank of issue. (Bullet) A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: (Bullet) Payments to nonresident aliens subject to withholding under section 1441 of the Code. (Bullet) Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. (Bullet) Payments of patronage dividends where the amount received is not paid in money. (Bullet) Payments made by certain foreign organizations. (Bullet) Payments made to an appropriate nominee. (Bullet) Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: (Bullet) Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. (Bullet) Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). (Bullet) Payments described in section 6049(b)(5) of the Code to nonresident aliens. (Bullet) Payments on tax-free covenant bonds under section 1451 of the Code. (Bullet) Payments made by certain foreign organizations. (Bullet) Payments of mortgage interest to you. (Bullet) Payments made to an appropriate nominee. Exempt payees described above should file substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND INTEREST PAYMENTS -- If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 20% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying certifications or affirmations may be subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-20 8 EXHIBIT (A)(7) EXHIBIT (A)(7) THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SHARES. THE OFFER IS MADE SOLELY BY THE OFFER TO PURCHASE, DATED MAY 29, 1997, AND THE RELATED LETTER OF TRANSMITTAL AND IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. IN THOSE JURISDICTIONS WHERE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF THE PURCHASER BY ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTIONS. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DAKA INTERNATIONAL, INC. AT $7.50 NET PER SHARE BY COMPASS HOLDINGS, INC. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF COMPASS GROUP PLC Compass Holdings, Inc., a Delaware corporation (the "Purchaser") and an indirect wholly owned subsidiary of Compass Group PLC, a public limited company incorporated in England and Wales ("Parent"), is offering to purchase all outstanding shares of common stock, par value $.01 per share (the "Shares"), of Daka International, Inc., a Delaware corporation (the "Company"), at $7.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 29, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 25, 1997, UNLESS THE OFFER IS EXTENDED. THE PURCHASER HAS AGREED TO EXTEND THE OFFER UNTIL THE FIRST BUSINESS DAY FOLLOWING THE DISTRIBUTION RECORD DATE (AS DEFINED BELOW). THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE EXPECTED TO RESULT IN (A) THE DISTRIBUTION TO THE COMPANY'S STOCKHOLDERS OF SHARES OF STOCK IN A NEW ENTITY THAT WILL OWN ALL THE BUSINESSES OF THE COMPANY, INCLUDING THE FUDDRUCKERS AND CHAMPPS RESTAURANT CHAINS, OTHER THAN ITS FOODSERVICE BUSINESS (AS DEFINED BELOW) AND (B) THE ACQUISITION OF THE COMPANY'S FOODSERVICE BUSINESS BY PARENT PURSUANT TO THE OFFER AND MERGER DESCRIBED HEREIN. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of May 27, 1997 ( the "Merger Agreement"), among Parent, the Purchaser, Compass Interim, Inc., a Delaware corporation and a wholly owned subsidiary of the Purchaser, ("Compass Interim"), and the Company. The Merger Agreement provides that, among other things, the Purchaser will make the Offer and that following the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with relevant provisions of the Delaware General Corporation Law, Compass Interim will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation and will be a wholly owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than, with certain exceptions described in the Merger Agreement, Shares held by the Company as treasury stock or by any subsidiary of the Company or by Parent, the Purchaser or any other subsidiary of Parent and other than Shares held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Section 262 of the Delaware General Corporation Law) will be converted into the right to receive cash without interest in an amount equal to the price per Share paid pursuant to the Offer. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE DISTRIBUTION, DETERMINED THAT THE OFFER, THE MERGER AND THE DISTRIBUTION ARE FAIR TO THE STOCKHOLDERS OF THE COMPANY AND ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS ACCEPTANCE OF THE OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF THE COMPANY. The Offer is conditioned upon, among other things, there being validly tendered (including Shares that remain subject to guaranteed delivery procedures) and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) a number of Shares which, when added to the number of Shares then beneficially owned by Parent, Purchaser and its affiliates or Compass Interim (including the Shares (the "Series A Converted Shares") into which the shares of Series A Preferred Stock of the Company to be acquired pursuant to the Series A Preferred Stock Purchase Agreement (as defined in the Offer to Purchase) are convertible), constitutes at least two-thirds of the sum of the total number of Shares then outstanding plus the number of Series A Converted Shares and represents at least two-thirds of the voting power of all shares of capital stock of the Company that would be entitled to vote on the Merger (the "Minimum Condition"). Effective as of the closing of the Offer, the Company will distribute (the "Distribution") common stock (the "UCRI Shares") of Unique Casual Restaurants, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of the Company ("UCRI"), to the holders of Shares on a record date to be determined by the Board of Directors of the Company (the "Distribution Record Date"), pursuant to a Reorganization Agreement, dated as of May 27, 1997, among the Company, Daka, Inc., UCRI, Parent and Purchaser (the "Reorganization Agreement"). Because the Purchaser will not accept Shares for payment pursuant to the Offer until the Distribution Record Date has occurred, a record holder of Shares who tenders Shares pursuant to the Offer (and who does not subsequently withdraw and sell such Shares) will be the record holder thereof on the Distribution Record Date. Accordingly, in the event that Shares are accepted for payment pursuant to the Offer, such record holders will be entitled to receive, in respect of each Share tendered, $7.50 net in cash from the Purchaser and one UCRI Share from the Company. As a result of the Distribution, UCRI will own and operate all the businesses of the Company and its subsidiaries, including the Fuddruckers and Champps restaurant chains, other than the food catering, contract catering and vending business as conducted by the Company and its wholly owned Daka, Inc. subsidiary and certain other assets and liabilities (the "Foodservice Business"). After the Distribution, the Company will continue to own only the Foodservice Business and, accordingly, upon consummation of the Offer and the Merger, Parent will have acquired only the Foodservice Business. Consummation of the Offer is conditioned upon, among other things, the Distribution Record Date having been set (the "Distribution Condition"). The Distribution Record Date is not expected to occur before June 24, 1997. The Merger is conditioned upon, among other things, the Distribution having been consummated in all material respects. The distribution of the UCRI Shares pursuant to the Distribution is conditioned upon the Purchaser having accepted for payment Shares tendered pursuant to the Offer. In the Merger Agreement, the Purchaser has agreed to extend the Offer until immediately after the Distribution Record Date. The Company has advised Parent and the Purchaser that, prior to the time notice of the Distribution Record Date is given and at least ten days prior to the Expiration Date (as defined below), it will distribute to holders of Shares an information statement with respect to the business, operations and management of UCRI (the "Information Statement"). See Section 10. The Offer is subject to certain conditions set forth in the Offer to Purchase. If any such condition is not satisfied, the Purchaser may (i) terminate the Offer and return all tendered Shares to tendering stockholders, (ii) subject to the terms of the Merger Agreement, extend the Offer and, subject to withdrawal rights as set forth below, retain all such Shares until the expiration of the Offer as so extended, (iii) subject to the terms of the Merger Agreement, waive such condition and, subject to any requirement to extend the time during which the Offer is open, purchase all Shares validly tendered and not withdrawn prior to the Expiration Date or (iv) delay acceptance for payment of or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer. The Purchaser reserves the right, at any time or from time to time in accordance with the terms of the Merger Agreement, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to The Bank of New York (the "Depositary"). Any such extension will be followed as promptly as practicable by public announcement thereof no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled date on which the Offer was to expire. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. For purposes of the Offer, the Purchaser shall be deemed to have accepted for payment tendered Shares when, as and if the Purchaser gives oral or written notice to the Depositary of its acceptance of the tenders of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase)), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn at any time after July 27, 1997 unless theretofore accepted for payment as provided in the Offer to Purchase. To be effective, a written, telegraphic, or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth in the Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution (as defined in the Offer to Purchase)) signatures guaranteed by an Eligible Institution must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn, or, in the case of Shares tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities to be credited with the withdrawn Shares. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has agreed to provide the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Requests for copies of the Offer to Purchase, the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below, and copies will be furnished promptly at the Purchaser's expense. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. THE INFORMATION AGENT FOR THE OFFER IS: (logo of MACKENZIE PARTNERS, INC.) 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or CALL TOLL-FREE (800) 322-2885 May 29, 1997 EX-20 9 EXHIBIT (A)(8) EXHIBIT (A)(8) FOR RELEASE: MAY 27, 1997 CONTACT: GINGER SMITH (704) 329-4018 COMPASS GROUP PLC ANNOUNCES INTENT TO PURCHASE CONTRACT FOODSERVICE, CATERING AND VENDING OPERATIONS FROM DAKA INTERNATIONAL, INC. MAY 27, 1997 (CHARLOTTE, NC) . . . Compass Group PLC, the world's leading contract foodservice management company, is pleased to announce that Compass Holdings, Inc. has entered into a definitive agreement with Daka International for Compass Group to acquire the contract foodservice business of Daka International. The acquisition will be accomplished through a series of steps in which Daka International will spin off its restaurant business to its shareholders and a cash tender offer by Compass Group for all of the shares of common stock of Daka International. Compass Group will not acquire the non-foodservice business of Daka International. Following completion of the tender offer, Compass Group will take steps to merge Daka International with one of its subsidiaries. The transaction has an estimated total cash value of $195 million, approximately $85 million of which will be paid to Daka International's stockholders through a cash tender offer of $7.50 per share, and $110 million of which will be used to repay Daka International debt. Daka International stockholders will also receive shares of a new company that will own all of Daka International's non-foodservice business. The acquisition is subject to federal regulatory clearance, acceptance of the tender offer by a minimum of two-thirds of International's shareholders, and certain other conditions. Compass Group plans to finance the acquisition with funds from established cash sources. The Bank of New York is Depository in the tender offer and MacKenzie Partners, Inc. is the Information Agent. On announcing the acquisition, Mike Bailey, president and CEO, Compass Group, USA Division said, "After following Daka's progress over the past 20 years, I am convinced that this partnership will truly enhance our position in the US education foodservice market -- a sector we see as having extraordinary growth opportunities in the future." Bill Baumhauer, Chairman and CEO of Daka International said, "Although the sale of our foodservice division was a difficult decision to make, we are pleased to be able to have our clients and associates team-up with Compass Group. I am confident that the standards of excellence that we strived for at Daka will continue with Compass Group." According to Bailey, Allen Maxwell, president and COO of Daka International, will remain president of Daka and become a member of the Compass Group USA Division board following the acquisition. "We are truly delighted to have Allen join us. Together we will progress with our stated business strategy of further development in the education market, and continue our efforts in strategic business segmentation." "This creates an ideal situation for Daka," says Maxwell. "By combining our resources and talents with Compass Group we are now in position to become the industry leader in educational food service. I have admired and respected Mike Bailey for many years and consider this partnership a "win-win" for our client, customers, and employees," says Maxwell. Compass Group, incorporated in England and Wales, is one of the world's largest foodservice companies and employs over 120,000 people worldwide. Daka International, headquartered in Danvers, Massachusetts, is a diversified foodservice and restaurant company operating in the contract foodservice management industry and the restaurant industry. Daka, Inc. operates approximately 310 contracts in 710 locations in 34 states across the US and employs approximately 9,700 people. For more information contact Ginger Smith, director of marketing and communications, Compass Group, USA Division at (704) 329-4018. # # # EX-20 10 EXHIBIT (C)(2) EXHIBIT (C)(2) REORGANIZATION AGREEMENT BY AND AMONG DAKA INTERNATIONAL, INC. DAKA, INC. UNIQUE CASUAL RESTAURANTS, INC. COMPASS GROUP PLC AND COMPASS HOLDINGS, INC. MAY 27, 1997 TABLE OF CONTENTS
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ARTICLE I DEFINITIONS Section 1.1 General......................................................................................... 2 Section 1.2 References to Time.............................................................................. 5
ARTICLE II CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES Section 2.1 Contribution.................................................................................... 5 Section 2.2 Transfer and Assumption......................................................................... 6 Section 2.3 Nonassignable Contracts......................................................................... 6 Section 2.4 Pro-Ration of Items as of the Offer Closing Date................................................ 7
ARTICLE III RECAPITALIZATION OF UCRI; THE DISTRIBUTION Section 3.1 UCRI Capitalization............................................................................. 7 Section 3.2 Recapitalization of UCRI........................................................................ 7 Section 3.3 Effectiveness of the Distribution............................................................... 7 Section 3.4 Mechanics of the Distribution................................................................... 7 Section 3.5 Cooperation..................................................................................... 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Representations and Warranties of UCRI.......................................................... 9 Section 4.2 Representations and Warranties of International and Daka........................................ 9
ARTICLE V CERTAIN ADDITIONAL COVENANTS Section 5.1 UCRI Board...................................................................................... 10 Section 5.2 Contractual Arrangements........................................................................ 10 Section 5.3 Intercompany Services........................................................................... 11 Section 5.4 Insurance....................................................................................... 11
ARTICLE VI ACCESS TO INFORMATION Section 6.1 Provision of Corporate Records.................................................................. 11 Section 6.2 Access to Information........................................................................... 12 Section 6.3 Retention of Records............................................................................ 13 Section 6.4 Confidentiality................................................................................. 13 Section 6.5 Reimbursement................................................................................... 14
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ARTICLE VII EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS Section 7.1 Employment Matters.............................................................................. 14 Section 7.2 Daka Savings Plan............................................................................... 14 Section 7.3 Welfare Plans................................................................................... 14 Section 7.4 Stock Options and Employee Stock Purchase Plan.................................................. 16 (a) Employee and Director Stock Options......................................................... 16 (b) Adjustment of International Options......................................................... 16 Section 7.5 Transfer to UCRI of Corporate-Owned Life Insurance Policies..................................... 17 Section 7.6 Vacation Pay and Sick Leave Pay................................................................. 17 Section 7.7 Change of Plan Sponsor.......................................................................... 17 Section 7.8 Severance Pay................................................................................... 18 Section 7.9 Collective Bargaining Agreements; Labor Relations Matters; Withdrawal Liability................. 18 Section 7.10 Preservation of Rights to Amend or Terminate Benefit Plans...................................... 19 Section 7.11 Other Liabilities............................................................................... 19 Section 7.12 Compliance...................................................................................... 19
ARTICLE VIII TAX MATTERS Section 8.1 Tax Matters..................................................................................... 20
ARTICLE IX CONDITIONS Section 9.1 Conditions to Obligations of International...................................................... 20
ARTICLE X GENERAL PROVISIONS Section 10.1 Further Assurances.............................................................................. 21 Section 10.2 Survival of Agreements.......................................................................... 22 Section 10.3 Entire Agreement................................................................................ 22 Section 10.4 Expenses........................................................................................ 22 Section 10.5 Governing Law................................................................................... 22 Section 10.6 Notices......................................................................................... 22 Section 10.7 Amendment and Modification...................................................................... 23 Section 10.8 Successors and Assigns; No Third-Party Beneficiaries............................................ 23 Section 10.9 Enforcement..................................................................................... 23 (a) Specific Performance........................................................................ 23 (b) Jurisdiction................................................................................ 23 Section 10.10 Counterparts.................................................................................... 23 Section 10.11 Interpretation.................................................................................. 23 Section 10.12 Termination..................................................................................... 24
ii List of Schedules: Schedule 1.1(a) List of Foodservice Assets Schedule 1.1(b) List of Foodservice Employees Schedule 7.6 List of Benefit Plans Schedule 7.8 List of Collective Bargaining Agreements retained by International and the International Affiliated Group List of Exhibits: Exhibit 5.1(b) Form of Indemnification Agreement Exhibit 9.1(c)(i) Form of Smith Helms Mulliss & Moore, L.L.P. Legal Opinion Exhibit Form of Freshfields Legal Opinion 9.1(c)(ii)
iii REORGANIZATION AGREEMENT This Reorganization Agreement (the "Agreement") is dated as of May 27, 1997, by and among DAKA INTERNATIONAL, INC., a Delaware corporation ("International"), DAKA, INC., a Massachusetts corporation ("Daka"), UNIQUE CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), COMPASS GROUP PLC, a public limited company incorporated in England and Wales ("Compass") and COMPASS HOLDINGS, INC., a Delaware corporation ("Compass Holdings"). RECITALS: WHEREAS, International owns all of the issued and outstanding capital stock of Daka and all of the issued and outstanding capital stock of UCRI; and WHEREAS, the Boards of Directors of International and Daka each have approved, and International has entered into, an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement") by and among International, Compass, Compass Holdings and Compass Interim, Inc., a Delaware corporation ("Compass Interim"), pursuant to which this Agreement and certain other related agreements will be executed to accomplish the following transactions: (i) Compass Holdings will offer to purchase for cash all of the shares of International Common Stock subject only to the Offer Conditions set forth in Exhibit 1.1(a) of the Merger Agreement (the "Offer"); (ii) Immediately prior to the Distribution (as defined below), (a) Daka will distribute certain assets to International as dividends; (b) International will assume certain liabilities of Daka; (c) International will contribute certain assets to UCRI as capital contributions; and (d) UCRI will assume certain liabilities of International (the transactions described in clauses (a), (b), (c) and (d) above are referred to collectively as the "Contribution"); (iii) International will distribute on a pro rata basis (the "Distribution") all of the issued and outstanding shares of $.01 par value common stock, of UCRI (the "UCRI Common Stock") to the holders of $.01 par value common stock of International (the "International Common Stock"); and (iv) Compass Interim will merge with and into International (the "Merger"). WHEREAS, the purpose of the Contribution and the Distribution is to make possible the Merger by divesting International and Daka of businesses and operations to be conducted by UCRI and the Restaurant Subsidiaries (as defined below), which Compass is unwilling to acquire; WHEREAS, for Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is intended to be and is adopted as a plan of reorganization thereunder; WHEREAS, the parties hereto have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Contribution, the Distribution and the other transactions contemplated hereby and to set forth other agreements and the relationship of the parties following the Contribution, the Distribution, and such other transactions; NOW THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained in this Agreement, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 GENERAL. Capitalized terms used in this Agreement not otherwise defined herein shall have the meanings assigned thereto in the Merger Agreement. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Action" means any action, claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or any arbitration or other tribunal. "Assignment and Assumption Agreement" has the meaning set forth in Section 5.2 of this Agreement. "Assumed Daka Liabilities" means, collectively, all Liabilities of Daka, including but not limited to those Liabilities of Daka reflected within the financial ledgers of Daka denoted as companies 11 and 14, except the Foodservice Liabilities. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions located in the Commonwealth of Massachusetts are obligated by law or executive order to close. "CDV" means Casual Dining Ventures, Inc., a Delaware corporation. "Champps" means Champps Entertainment, Inc., a Minnesota corporation. "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. "Collective Bargaining Agreement" means those collective bargaining and other labor agreements listed on Schedule 4.2(k)(iv)(C). "Contributed Assets" means, collectively, all of those assets and properties, tangible or intangible, of any kind and description of International other than the Foodservice Assets (including but not limited to the Distributed Assets and the stock of the Restaurant Subsidiaries "Daka Bill of Sale" has the meaning set forth in Section 5.2(a) of this Agreement. "Distributed Assets" means all of the assets and properties, tangible or intangible of any kind and description of Daka other than Foodservice Assets. "Foodservice Assets" means all of the assets and properties, tangible and intangible, listed on Schedule 1.1(a). "Foodservice Employee" means (i) any individual who at the Offer Closing Time is an officer or employee of any member of either Group and who is set forth on Schedule 1.1(b) hereof (which Schedule will be updated by mutual agreement of UCRI and Compass prior to the Offer Closing Time), and (ii) all employees of Daka as of the Offer Closing Time, a list of whom shall be provided by International to Compass prior to the Offer Closing Time pursuant to Section 7.1(b) excluding any employee of International or Daka located at each such company's headquarters in Danvers, Massachusetts unless included on Schedule 1.1(b). Schedule 1.1(b) and the list provided under Section 7.1(b) shall include a list of officers or employees actively at work and a list of individuals not actively at work but on (i) approved leave (including, without limitation, leaves of absence granted by reason of family leave, medical leave, short-term disability leave, and maternity or paternity leave, in all cases which began before the Offer Closing Time) who may become Foodservice Employees upon their written notice to International that they are available to work or (ii) layoff (with recall rights) from active employment, other than any individual who, as of the Offer Closing Time, has been determined to be permanently disabled under existing Benefit Plans of International. "Foodservice Liabilities" means the following liabilities: (i) the Funded Debt (as defined in Section 5.1(f) (ii) of the Merger Agreement), (ii) all obligations of performance or payment relating to or arising after the Offer Closing Time from the Foodservice Assets and the conduct of the Foodservice Business (as defined in the preamble to the Merger Agreement) to be performed or paid by the terms thereof after the Offer Closing Time, except for each of those purchase contracts between International and Coca-Cola, Lamb Weston and Bunge, (iii) all Liabilities relating to the employment of all Foodservice Employees after the Offer Closing Time, and (iv) the monetary obligations of Compass under the Series A Preferred Stock Purchase Agreement (as defined in the Merger Agreement). "French Quarter" means French Quarter Coffee Co., a Delaware corporation. "Fuddruckers" means Fuddruckers, Inc., a Texas corporation. "Great Bagel" means The Great Bagel and Coffee Company, a Delaware corporation. "Group" means the UCRI Group or the International Group. "Information" has the meaning set forth in Section 6.2 of this Agreement. "Information Statement" means the information statement to be sent to the holders of International Common Stock in connection with the Distribution. "Intellectual Property Agreement" means those agreements pursuant to which International and UCRI are providing for the right of Daka to use the "French Quarter Coffee," "Good Natured Cafe" and "Leo's Deli" names and marks. 2 "International Bill of Sale" has the meaning set forth in Section 5.2(b) of this Agreement. "International Board" means the Board of Directors of International and their duly elected or appointed successors. "International Business" means any business conducted by any member of the International Group immediately following the Offer Closing Time. "International Documents" has the meaning set forth in Section 4.2(b) of this Agreement. "International Group" means International, Daka and Daka's Subsidiaries. "International Options" has the meaning set forth in Section 7.4 of this Agreement. "La Salsa" means La Salsa Holding Co., a California corporation. "Liabilities" means collectively claims, debts, liabilities, royalties, license fees, losses, costs, expenses, deficiencies, litigation proceedings, taxes, levies, imposts, duties, deficiencies, assessments, attorneys' fees, charges, allegations, demands, damages, judgments or obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown and whether or not the same would properly be reflected on a balance sheet, including all costs and expenses relating thereto. "Pulseback" means Pulseback, Inc., a Vermont corporation. "Qualified Plan" means a Benefit Plan which is an employee pension benefit plan (within the meaning of Section 3(2) of ERISA) and which constitutes or is intended in good faith to constitute a qualified plan under Section 401(a) of the Code. "Record Date" means the date to be determined by the International Board, as the record date for determining shareholders of International Common Stock entitled to receive the Distribution. "Restaurant Subsidiaries" means, collectively, CDV, Champps, French Quarter, Fuddruckers, Great Bagel, Pulseback, Specialty Concepts, and La Salsa and their Subsidiaries. "Specialty Concepts" means Specialty Concepts, Inc., a Delaware corporation. "UCRI Assets" means all of the assets and properties, tangible and intangible, of any kind, nature and scope, used or held by any member of either Group immediately prior to the Offer Closing Time, except for the Foodservice Assets. "UCRI Business" means all businesses and activities conducted by any member of either Group immediately prior to the Offer Closing Time, except for the Foodservice Business. "UCRI Documents" has the meaning set forth in Section 4.1(b) of this Agreement. "UCRI Employee" means any individual who at any time is or was an officer or employee of any member of either Group, other than an Foodservice Employee. "UCRI Group" means UCRI and all other Subsidiaries of UCRI. "UCRI Liabilities" means (i) all Liabilities of either Group as of the Offer Closing Time except the Foodservice Liabilities, (ii) all Liabilities relating to or arising from the UCRI Business, (iii) all Liabilities relating to the employment of all employees of either Group prior to the Offer Closing Time, and (iv) all Assumed Daka Liabilities. "Welfare Plan" means any Benefit Plan, which is not a Qualified Plan and which provides medical, health, dental, disability, accident, life insurance, death, dependent care or other welfare benefits, including any post-employment non-cash benefits or retiree medical benefits. SECTION 1.2 REFERENCES TO TIME. All references to times of the day in this Agreement shall refer to Boston, Massachusetts time. 3 ARTICLE II CONTRIBUTION AND ASSUMPTION OF ASSETS AND LIABILITIES SECTION 2.1 CONTRIBUTION. Subject to the terms and conditions of this Agreement, International and UCRI shall cause, immediately prior to the Distribution: (a) all of Daka's right, title and interest in the Distributed Assets to be conveyed, assigned, transferred and delivered to International as a dividend; (b) all of Daka's duties, obligations and responsibilities under the Assumed Daka Liabilities to be assumed by International; (c) all of International's equity interests in the Restaurant Subsidiaries and any other direct Subsidiaries of International other than Daka to be conveyed, assigned, transferred and delivered to UCRI as a capital contribution; (d) all of International's right, title and interest in the Contributed Assets to be conveyed, assigned, transferred and delivered to UCRI as a capital contribution; (e) all of the UCRI Liabilities and duties, obligations and responsibilities thereunder to be assumed by UCRI or its Subsidiaries. SECTION 2.2 TRANSFER AND ASSUMPTION. (a) In connection with the conveyance, assignment, transfer and delivery of the assets and properties and the assumption of the Liabilities as contemplated by this Article II, (i) International and UCRI shall execute or cause to be executed by the appropriate parties and delivered to the appropriate parties such deeds, bills of sale, stock powers, certificates of title, assignments of leases and contracts and other instruments of conveyance, assignment, transfer and delivery necessary to evidence such conveyance, assignment, transfer and delivery and (ii) International and UCRI will execute and deliver such instruments of assumption as and to the extent necessary to evidence such assumption. (b) Each of the parties shall use its best efforts prior to, as of and after the Offer Closing Time to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Article II. SECTION 2.3 NONASSIGNABLE CONTRACTS. Anything contained herein to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any lease, license agreement, contract, agreement, sales order, purchase order, open bid or other commitment or asset if an assignment or attempted assignment of the same without the consent of the other party or parties thereto would constitute a breach thereof or in any way impair the rights of either Group thereunder. International shall, prior to the Contribution, use its reasonable best efforts to obtain all consents and waivers and to resolve all impracticalities of assignments or transfers necessary to convey to UCRI and the Restaurant Subsidiaries the assets discussed in Section 2.1. If any such consent is not obtained or if an attempted assignment would be ineffective or would impair either Group's rights under any such lease, license agreement, contract, agreement, sales order, purchase order, open bid or other commitment or asset so that UCRI or the Restaurant Subsidiaries would not receive such rights, then (i) International shall use its reasonable best efforts to provide or cause to be provided to UCRI or the appropriate Restaurant Subsidiary, to the extent permitted by law, the benefits of any such lease, license agreement, contract, agreement, sales order, purchase order, open bid or other commitment or asset, and shall pay or cause to be paid to UCRI or the appropriate Restaurant Subsidiary when received all moneys received by the International Group with respect to any such lease, license agreement, contract, agreement, sales order, purchase order, open bid or other commitment or asset and (ii) in consideration thereof, UCRI or the appropriate Restaurant Subsidiary shall pay, perform and discharge on behalf of the International Group all of the International Group's debts, liabilities, obligations and commitments thereunder in a timely manner and in accordance with the terms thereof. In addition, International shall take such other actions as may be reasonably requested by UCRI in order to place UCRI, insofar as reasonably possible, in the same position as if such lease, license agreement, contract, agreement, sales order, purchase order, open bid or other commitment or Asset had been transferred as contemplated hereby and so all the benefits and burdens relating thereto shall inure to the UCRI Group. If and when such consents and approvals are obtained, the transfer of the applicable Asset shall be effected in accordance with the terms of this Agreement. 4 SECTION 2.4 PRO-RATION OF ITEMS AS OF THE OFFER CLOSING DATE. In connection with all determinations to be made pursuant to this Agreement, the following principles shall be applied with respect to the allocation of items between the UCRI Business and the International Business: (a) All accrued operating income and operating expense items of the Foodservice Business shall be adjusted and allocated between UCRI and International to the extent necessary to reflect the principle that all such income and expenses attributable to the operation of the Foodservice Business on or before the Offer Closing Time shall be for the account of UCRI and all such income and expenses attributable to the operation of the Foodservice Business after the Offer Closing Time shall be for the account of International; (b) All expenses that relate to services, facilities, personnel or other matters provided for in the Transition Agreement as defined in the Post-Closing Covenants Agreement shall be allocated in accordance with such agreement without regard to generally accepted accounting principles or other criteria; and (c) to the extent not inconsistent with the express provisions of this Agreement, the allocation provided in clause (a) above shall be made in accordance with GAAP (as defined in the Post-Closing Covenants Agreement). ARTICLE III RECAPITALIZATION OF UCRI; THE DISTRIBUTION SECTION 3.1 UCRI CAPITALIZATION. The authorized number of shares of capital shares of capital stock of UCRI is 35,000,000 shares, consisting of 5,000,000 shares of Preferred Stock, $.01 par value, and 30,000,000 shares of UCRI Common Stock. The current equity capitalization of UCRI consists of 1,000 issued and outstanding shares of UCRI Common Stock (the "Existing UCRI Common Stock"), all of which is owned beneficially and of record by International. SECTION 3.2 RECAPITALIZATION OF UCRI. Immediately prior to the Offer Closing Time, International shall cause UCRI to exchange the Existing UCRI Common Stock owned by International for a total number of shares of UCRI Common Stock equal to the total number of shares of International Common Stock outstanding as of the Record Date. SECTION 3.3 EFFECTIVENESS OF THE DISTRIBUTION. The Distribution shall be effective as of the Offer Closing Time. SECTION 3.4 MECHANICS OF THE DISTRIBUTION. Immediately before the Offer Closing Time, International shall distribute all outstanding shares of UCRI Common Stock to holders of record of International Common Stock on the Record Date on the basis of one share of UCRI Common Stock for each share of International Common Stock outstanding on the Record Date. All shares of UCRI Common Stock issued in the Distribution shall be duly authorized, validly issued, fully paid and nonassessable. SECTION 3.5 COOPERATION. (a) As promptly as practicable after the date hereof and not later than 10 business days prior to the Offer Closing Time: (i) International and UCRI shall prepare, and International shall file with the SEC and mail to the holders of the equity securities of the International, the Information Statement, which shall set forth appropriate disclosure concerning UCRI and its Subsidiaries, the UCRI Assets, the Contribution, the Distribution and certain other matters. International and UCRI shall also prepare, and International shall file with the SEC, the Form 10 which shall include or incorporate by reference the Information Statement and International and UCRI shall use reasonable efforts to cause the Form 10 to be declared effective under the Exchange Act. (ii) International and UCRI shall cooperate in preparing, filing with the SEC and causing to become effective any registration statements or amendments thereto which are appropriate to reflect the establishment of, or amendments to, any employee benefit and other plans contemplated by this Agreement. (iii) International and UCRI shall take all such action as may be necessary or appropriate under state securities or "Blue Sky " laws in connection with the transactions contemplated by this Agreement. (iv) International and UCRI shall prepare, and UCRI shall file and seek to make effective, an application to permit listing of the UCRI Common Stock on the Nasdaq National Market. 5 (b) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its best efforts prior to, as of and after the Offer Closing Time to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its best efforts to obtain the consents and approvals, to enter into any amendatory agreements and to make the filings and applications necessary or desirable to have been obtained, entered into or made in order to consummate the transactions contemplated by this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF UCRI. UCRI hereby represents and warrants to International, Daka and Compass as follows: (a) ORGANIZATION, STANDING AND POWER. UCRI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. UCRI has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (b) AUTHORITY. UCRI has all requisite power and authority to execute this Agreement and the Ancillary Agreements to which it is or will be party (collectively, the "UCRI Documents") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other UCRI Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of UCRI. This Agreement has been duly executed and delivered by UCRI, and each of the other UCRI Documents will be duly executed and delivered by UCRI at or prior to the Offer Closing Time, and when so executed and delivered will constitute, a legal, valid and binding obligation of UCRI enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or similar laws relating to creditors' rights and general principles of equity. (c) NO CONFLICT. The execution, delivery and performance by UCRI of this Agreement and by UCRI of the other UCRI Documents will not contravene, violate, result in a breach of or constitute a default under (i) any provision of applicable law or of the articles of incorporation or bylaws of UCRI or any other member of the UCRI Group or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to UCRI or any other member of the UCRI Group or any of their properties or Assets. (d) APPROVALS. No consent, approval, order, authorization of, or registration, declaration or filing with, any governmental entity is required in connection with the making or performance by UCRI of this Agreement or the other UCRI Documents, except as set forth in the Merger Agreement. SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF INTERNATIONAL AND DAKA. Each of International and Daka, jointly and severally, hereby represents and warrants to UCRI as follows: (a) ORGANIZATION, STANDING AND POWER. Each of International and Daka is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation. Each of International and Daka has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (b) AUTHORITY. Each of International and Daka has all requisite power and authority to execute this Agreement and the Ancillary Agreements to which it is or will be party (collectively, the "International Documents") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other International Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of International or Daka, as appropriate. This Agreement has been duly executed and delivered by each of International and Daka, and each of the other International Documents will be duly executed and delivered by International and/or Daka, as appropriate, at or prior to the Offer Closing Time, and when so executed and delivered will constitute, a legal, valid and binding obligation of International and/or Daka enforceable against International and/or Daka in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance, or similar laws relating to creditors' rights and general principles of equity. 6 (c) NO CONFLICT. The execution, delivery and performance by International and Daka of this Agreement and by International and Daka of the other International Documents will not contravene, violate, result in a breach of or constitute a default under (i) any provision of applicable law or of the articles of incorporation or bylaws of International or Daka or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to International or Daka or any of their properties or assets. (d) APPROVALS. No consent, approval, order, authorization of, or registration, declaration or filing with, any governmental entity is required in connection with the making or performance by International or Daka of this Agreement or the other International Documents, except as set forth in the Merger Agreement. ARTICLE V CERTAIN ADDITIONAL COVENANTS SECTION 5.1 UCRI BOARD. Prior to the Offer Closing Time, International shall (a) take such actions as are necessary such that UCRI's Board of Directors is comprised of those individuals named as directors in the Information Statement and (b) execute for the benefit of all directors and officers named in Schedule 5.1(b) an indemnification agreement substantially in the form of Exhibit 5.1(b) hereto. SECTION 5.2 CONTRACTUAL ARRANGEMENTS. At the Closing, effective immediately prior to the Offer Closing Time, (a) Daka shall execute and deliver to International a Bill of Sale, in a form mutually reasonably agreed to between UCRI and Compass (the "Daka Bill of Sale"); (b) International shall execute and deliver to UCRI a Bill of Sale, in a form mutually reasonably agreed to between UCRI and Compass (the "International Bill of Sale"); (c) UCRI, International and Daka shall enter into an Assignment and Assumption Agreement in a form mutually reasonably agreed to between UCRI and Compass regarding the UCRI Assets and the UCRI Liabilities (the "Assignment and Assumption Agreement"); (d) UCRI, International, Daka and Compass shall enter into license agreements in forms mutually reasonably agreed to among them with regard to the use, without charge, by Compass or its Subsidiaries of the "French Quarter Coffee," "Good Natured Cafe" and "Leo's Deli" names and marks. SECTION 5.3 INTERCOMPANY SERVICES. All intercompany services provided by the UCRI Group to the International Group or by the International Group to the UCRI Group shall terminate as of the Offer Closing Time unless otherwise provided in any Ancillary Agreement or any other agreement contemplated thereby or hereby. SECTION 5.4 INSURANCE. (a) Prior to the Offer Closing Time, UCRI will amend or otherwise modify all insurance policies and related insuring agreements pertaining to the Foodservice Assets (the "Insurance Policies") to reflect that all reimbursement, premium payment or other obligations and assets, as applicable, of International based on occurrences prior to the Offer Closing Time will become obligations of UCRI under the Insurance Policies as of the Offer Closing Time. UCRI will pay all required premiums and other payment or reimbursement obligations arising under the Insurance Policies and will be responsible for all correspondence with the insurance companies and will provide assistance to the insurance companies with the administration of any and all claims under the Insurance Policies. (b) Notwithstanding the provisions of subparagraph (a) above, UCRI shall cause each of International and Daka to remain as named insureds without cost to such entities under the Insurance Policies. ARTICLE VI ACCESS TO INFORMATION SECTION 6.1 PROVISION OF CORPORATE RECORDS. (a) Prior to or as promptly as practicable after the Offer Closing Time, International shall deliver to UCRI all corporate books and records of the UCRI Group as well as copies or, to the extent not detrimental 7 in the reasonable opinion of International to the interests of International, originals, of all books, records and data relating exclusively to the UCRI Assets, the UCRI Business, or the UCRI Liabilities, including, but not limited to, all books, records and data relating to the purchase of materials, supplies and services, financial results, sale of products, records of the UCRI Employees, commercial data, research done by or for UCRI, catalogues, brochures, training and other manuals, sales literature, advertising and other sales and promotional materials, maintenance records and drawings, all active agreements, active litigation files and government filings. To the extent that originals of such books, records and data are provided to UCRI, UCRI shall provide International copies thereof as reasonably requested in writing by International. Notwithstanding the above, International shall provide copies of customer information, invoices and credit information only to the extent reasonably requested in writing by UCRI, and International shall provide such copies of all books, records and data only to the extent that such action is not prohibited by the terms of any agreements pertaining to such information or is not prohibited by law. International or UCRI agrees to advise Compass of any such contractual or legal prohibitions and to indemnify Compass pursuant to Article II of the Post-Closing Covenants Agreement for any Indemnifiable Losses incurred by Compass as a result thereof. After the Offer Closing Time, all books, records and copies so delivered shall be the property of UCRI. Notwithstanding the above, International shall not be required to make copies, other than pursuant to Section 6.2 of this Agreement, of any portion of any books, records or data to the extent such portion relates exclusively to the Foodservice Assets, the Foodservice Business or to Foodservice Liabilities. (b) Prior to or as promptly as practicable after the Offer Closing Time, UCRI shall deliver to International all corporate books and records of International Group as well as copies or, to the extent not detrimental in the reasonable opinion of UCRI to the interests of UCRI, originals, of all books, records and data relating exclusively to the Foodservice Assets; the Foodservice Business, or the Foodservice Liabilities, including, but not limited to, all books, records and data relating to the purchase of materials, supplies and services, financial results, sale of products, records of the Foodservice Employees, commercial data, research done by or for International, catalogues, brochures, training and other manuals, sales literature, advertising and other sales and promotional materials, maintenance records and drawings, all active agreements, active litigation files and government filings. To the extent that originals of such books, records and data are provided to International, International shall provide UCRI copies thereof as reasonably requested in writing by UCRI. Notwithstanding the above, UCRI shall provide copies of customer information, invoices and credit information only to the extent reasonably requested in writing by International, and UCRI shall provide such copies of all books, records and data only to the extent that such action is not prohibited by the terms of any agreements pertaining to such information or is not prohibited by law. From and after the Offer Closing Time, all books, records and copies so delivered shall be the property of International. Notwithstanding the above, UCRI shall not be required to make copies, other than pursuant to Section 6.2 of this Agreement, of any portion of any books, records or data to the extent such portion relates exclusively to the UCRI Assets, the UCRI Business or to UCRI Liabilities. SECTION 6.2 ACCESS TO INFORMATION. After the Offer Closing Time, each of International and UCRI shall afford to the other and to the other's agents, employees, accountants, counsel and other designated representatives, reasonable access and duplicating rights during normal business hours to all records, books, contracts, instruments, computer and other information ("Information") within such party's (including all Subsidiaries') possession relating to such other party's businesses, assets or liabilities, insofar as such access is reasonably required by such other party. Without limiting the foregoing, such Information may be requested under this Section for audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations. SECTION 6.3 RETENTION OF RECORDS. Except as otherwise required by law or agreed in writing, or as otherwise provided in the Tax Allocation Agreement, each of International and UCRI shall retain, for a period of at least one year following the Offer Closing Time, all significant Information in such party's possession or under its control relating to the business, assets or liabilities of the other party and, after the expiration of such one-year period, prior to destroying or disposing of any of such Information, (a) the party proposing to dispose of or destroy any such Information shall provide no less than 30 days prior written notice to the other party, specifying the Information proposed to be destroyed or disposed of, and (b) if, prior to the scheduled date for such destruction or disposal, the other party requests in writing that any of the Information proposed to be destroyed or disposed of be delivered to such other party, the party proposing to dispose of or destroy such Information promptly shall arrange for the delivery of the requested Information to a location specified by, and at the expense of, the requesting party. 8 SECTION 6.4 CONFIDENTIALITY. (a) Except as required by law or regulation, each Group will hold, and will cause its respective officers, employees, accountants, counsel, financial advisors and other representatives and affiliates to hold, any nonpublic information in confidence in accordance with the Confidentiality Agreement, dated January 2, 1997, between Compass and International. (b) After the Offer Closing Time, each Group shall hold, in strict confidence, all Information obtained from the other Group prior to the Offer Closing Time or furnished to it pursuant to this Agreement or any other agreement referred to herein which relates to or concerns the business conducted by such other Group, and such Information shall not be used by it to the detriment of the other Group, or disclosed by it or its agents, officers, employees or directors without the prior written consent of such other Group unless and to the extent that (a) disclosure is compelled by judicial or administrative process or, in the opinion of such Group's counsel, by other requirements of law, or (b) such Group can show that such Information was (i) available to such Group on a nonconfidential basis prior to its disclosure by the other Group, (ii) in the public domain through no fault of such Group, (iii) lawfully acquired by such Group from other sources after the time that it was furnished to such Group pursuant to this Agreement or any other agreement referred to herein, or (iv) independently developed by such Group. Notwithstanding the foregoing, each Group shall be deemed to have satisfied its obligations of confidentiality under this Section with respect to any Information concerning or supplied by the other Group if it exercises substantially the same care with regard to such Information as it takes to preserve confidentiality for its own similar Information. SECTION 6.5 REIMBURSEMENT. Each member of any Group providing Information pursuant to Sections 6.2 or 6.3 to any member of the other Group shall be entitled to receive from the recipient, upon presentation of an invoice therefor, payment of all out-of-pocket costs and expenses as may reasonably be incurred in providing such Information. ARTICLE VII EMPLOYMENT; EMPLOYEE BENEFITS; LABOR MATTERS SECTION 7.1 EMPLOYMENT MATTERS. (a) Compass Holdings agrees to cause International or Daka to offer to retain all Foodservice Employees as of 12:01 a.m. on the Offer Closing Date. Notwithstanding the foregoing, nothing contained herein shall be construed as obligating Compass Holdings, International or any of its affiliates (i) to offer employment after the Offer Closing Date to any employee whose employment with International or Daka terminates for any reason prior to the Offer Closing Date, (ii) to offer any term or condition of employment (including base salary and other benefits) except as provided by this Article or to maintain any such term or condition for any period following the Offer Closing Date, or (iii) to recall any employee who does not have recall rights. (b) Prior to the Offer Closing Time, International shall furnish Compass or Compass Holdings with (i) a list of all officers or employees of Daka as of the Offer Closing Time and (ii) information as to (x) the rate of base salary in effect for each Foodservice Employee immediately before the Offer Closing Time, (y) each Foodservice Employee's position with International immediately before the Offer Closing Time and (z) each Foodservice Employee's prior service with International or Daka as of the Offer Closing Time. SECTION 7.2 DAKA SAVINGS PLAN. International shall take, or cause to be taken, all actions necessary and appropriate to amend the Daka Savings and Retirement Plan (the "Daka Savings Plan") to remove International as sponsor and named fiduciary and shall name UCRI as sponsor and named fiduciary of the Daka Savings Plan prior to the Offer Closing Time. International shall also take such actions as necessary to fully vest as of the Offer Closing Time each participant who is an Foodservice Employee in his or her account balance under the Daka Savings Plan. SECTION 7.3 WELFARE PLANS. (a) International shall take, or cause to be taken, all actions necessary and appropriate to amend each and every Welfare Plan covering its employees ("International Welfare Plans") to remove International as sponsor and named fiduciary and shall name UCRI as sponsor and named fiduciary of each such Benefit Plan prior to the Offer Closing Time. Compass shall take, or cause to be taken, all actions necessary and appropriate to cause either (i) its existing welfare benefit plans to be amended, or (ii) new welfare benefit plans to be 9 adopted which will cover the Foodservice Employees who were covered by the International Welfare Plans as of the Offer Closing Time (and their dependents as appropriate) immediately following the Offer Closing Time (the "New Welfare Plans"). Compass shall cause the New Welfare Plans to provide benefits similar to the benefits available to the eligible Foodservice Employees under the International Welfare Plans on the date immediately preceding the Offer Closing Time including waiving any pre-existing condition requirement unless such requirement applied to such Foodservice Employee under the International Welfare Plans. Compass shall also cause the New Welfare Plans, to the extent applicable, to credit such Foodservice Employees with the term of service credited to such employees as of the Offer Closing Time under the terms of the applicable International Welfare Plan. Compass will cause the Foodservice Employees to receive credit for payments made under any of the International Welfare Plans during the plan year in which the Offer Closing Time occurs for purposes of satisfying the applicable deductibles, employee co-payments and maximum out-of-pocket limits of the applicable New Welfare Plans during the plan year in which the Offer Closing Time occurs. (b) Except as otherwise noted in this Section 7.3, International shall cause one or more members of the UCRI Group to assume and be solely responsible for, or cause its insurance carriers or agents to be responsible for, all liabilities for welfare benefit claims incurred prior to the Offer Closing Time under the International Welfare Plans. For purposes of this Section 7.3, disability claims are incurred on the date on which the disability is incurred or, in the case of a disability which is not incurred on a single, identifiable date, the date on which the disability was diagnosed; medical and dental services are incurred when an individual is provided with medical or dental care; death benefit claims are incurred at the time of death of the insured, all notwithstanding any other provision of any welfare benefit plan to the contrary. At the Offer Closing Time, the Foodservice Employees will cease participation in the International Welfare Plans, except to the extent (i) that a Foodservice Employee or a covered dependent of a Foodservice Employee is hospitalized or otherwise not actively at work and on approved leave as of the Offer Closing Time, in which case such individual shall continue to be covered under the appropriate International Welfare Plan until the individual is discharged from the hospital or returns from approved leave or (ii) they elect continued coverage under such plans pursuant to COBRA or other provisions of the International Welfare Plans. UCRI shall be responsible for all qualifying events under COBRA and COBRA claims incurred under the International Welfare Plans prior to the Offer Closing Time or as a result of the consummation of the transactions contemplated by this Agreement or the Merger Agreement. (c) UCRI and UCRI Group shall be responsible for any retiree medical, life insurance or other benefits that are now or may hereafter become payable with respect to any former employee of International or one of its Affiliates who retired from the UCRI Group or the International Group prior to the Offer Closing Time and who met the eligibility requirements for such benefits at that time. The Foodservice Employees who retire from International or Compass after the Offer Closing Time shall not be entitled to retiree medical and life insurance benefits from either the International Welfare Plans or the New Welfare Plans. SECTION 7.4 STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN. (a) EMPLOYEE AND DIRECTOR STOCK OPTIONS. Effective as of the Offer Closing Time, UCRI shall adopt (and International, as sole shareholder of UCRI, shall approve) a stock option and restricted stock plan (the "UCRI Stock Plan") for the benefit of employees of UCRI, Foodservice Employees and non-employee directors of UCRI (including those non-employee directors of International who, following the Distribution, will become non-employee directors of UCRI (the "Non-Employee Directors")), which plan shall permit the adjustments contemplated in Section 7.4(b) hereof and shall be administered so as to qualify under Rule 16b-3 promulgated under the Exchange Act. Options to acquire International Common Stock, regardless of whether such options have vested in the individual holding such option, which have been granted to UCRI Employees, Non-Employee Directors, Foodservice Employees and former employees of International (other than UCRI Employees) pursuant to International's 1994 Equity Incentive Plan, the 1988 Incentive Stock Option Plan, the 1988 Nonqualified Stock Option Plan or the Senior Executive Stock Option Plan (collectively, the "International Plans") and which have not been exercised immediately prior to the Distribution (collectively, the "International Options") shall, pursuant to the equitable adjustment provisions of the applicable plan under which such options were granted and effective as of the Offer Closing Time, be treated as provided in this Section 7.4. 10 (b) ADJUSTMENT OF INTERNATIONAL OPTIONS. Each (X) International Option not intending to qualify as an "incentive stock option" under Section 422 of the Code (a "Nonqualified Stock Option") granted pursuant to any of the International Plans and held by a UCRI Employee, Foodservice Employee or Non-Employee Director , and (Y) International Option intending to qualify as an "incentive stock option" under Section 422 of the Code (an "Incentive Stock Option") granted pursuant to any of the International Plans and held by a UCRI Employee or a Foodservice Employee , shall be adjusted to provide the option holder with an adjusted Nonqualified Stock Option from the relevant International Plan and a Nonqualified Stock Option from the UCRI Stock Plan, by the following procedure (i) the option holder shall receive an adjusted International Option under the relevant International Plan for the number of shares of International Common Stock relating to the Nonqualified Stock Option or Incentive Stock Option but at an exercise price per share to be determined as described hereinafter, and (ii) the option holder also shall receive an option under the UCRI Stock Plan to acquire shares of UCRI Common Stock (a "UCRI Option"), in an amount equal to the number of shares of International Common Stock relating to the Nonqualified Stock Option or Incentive Stock Option at an exercise price per share to be determined as described hereinafter. The exercise price per share of each International Option which becomes an adjusted Nonqualified Stock Option under the relevant International Plan shall be equal to the quotient obtained by dividing (w) the exercise price per share of such Nonqualified Stock Option or Incentive Stock Option prior to adjustment (the "Pre-Adjustment Exercise Price") by (x) the International Plan Adjustment Factor (as hereinafter defined), and the exercise price per share of each Nonqualified Stock Option which, as a result of the adjustments in this Section 7.4(b), provides the option holder with an option under the UCRI Stock Plan to purchase UCRI Common Stock, shall be equal to the quotient obtained by dividing (y) the Pre-Adjustment Exercise Price by (z) the UCRI Stock Plan Adjustment Factor (as hereinafter defined). In each case the resulting exercise price per share shall be rounded up or down to the nearest cent. The "International Plan Adjustment Factor " shall mean an amount equal to the quotient obtained by dividing (1) the sum of (A) the Offer Price (as defined in the Merger Agreement), plus (B) the per share fair market value of UCRI Common Stock, determined based on the average closing price of the UCRI Common Stock over the three-consecutive-day trading period immediately following the Offer Closing Time (such per share fair market value being referred to as the "UCRI Value"), by (2) the Offer Price. The "UCRI Stock Plan Adjustment Factor" shall mean an amount equal to the quotient obtained by dividing (1) the sum of (A) the Offer Price plus (B) the UCRI Value, by (2) the UCRI Value. Each International Option which becomes an adjusted Nonqualified Stock Option under the relevant International Plan as a result of the adjustments in this Section 7.4(b) shall remain subject to the same terms and conditions as such Nonqualified Stock Option or Incentive Stock Option prior to such adjustment, except that all International Options which prior to the adjustments in this Section 7.4(b) were Incentive Stock Options shall be Nonqualified Stock Options after such adjustment. (c) DISPOSITION OF INTERNATIONAL OPTIONS. Following the adjustments described in Section 7.4(b), all International Options shall be cancelled and the option holders shall receive payment from UCRI for the value of each option holders' International Options as provided in Section 1.5 of the Merger Agreement. (d) EMPLOYEE STOCK PURCHASE PLAN. Prior to the Offer Closing Time, International shall take all actions necessary or appropriate under the DAKA International Employee Stock Purchase Plan (the "Stock Purchase Plan") to (i) cause the Offering (as that term is defined in the Stock Purchase Plan) beginning on April 1, 1997 to end on the business day immediately preceding the Record Date, (ii) permit no additional Offerings under the Stock Purchase Plan to occur after the Record Date and (iii) cause all shares of International Common Stock purchasable by participating employees of International or its Subsidiaries (the "Participating Employees") under the Stock Purchase Plan with respect to such Offering (the "Purchasable Shares") to be deemed issued and outstanding for purposes of the Distribution as of the Record Date, whereby such participating employees will receive shares of UCRI as if they had held the Purchasable Shares on the Record Date. No Purchasable Shares will actually be issued by International to the Participating Employees and in lieu thereof the Participating Employees shall be entitled to receive from International, for each Purchasable Share of International Common Stock, cash payment from UCRI of the amount provided in Section 1.5 of the Merger Agreement. SECTION 7.5 TRANSFER TO UCRI OF CORPORATE-OWNED LIFE INSURANCE POLICIES. International shall take, or cause to be taken, all actions necessary and appropriate to transfer ownership of any life insurance policies on the lives of its executives (other than Allen R. Maxwell) owned by International to UCRI. Section 7.6 Vacation Pay and Sick Leave 11 Pay. UCRI shall assume all liability for earned or accrued vacation pay and banked or earned/accrued sick leave pay accrued by Foodservice Employees and UCRI Employees through the Offer Closing Time. Vacation pay and sick leave for Foodservice Employees after the Offer Closing Time will be provided pursuant to Compass' vacation and sick leave policies. SECTION 7.7 CHANGE OF PLAN SPONSOR. Prior to the Offer Closing Time, International shall take such action as necessary to remove International or Daka as sponsor and, if applicable, named fiduciary of the Benefit Plans listed in Schedule 7.7, and name UCRI sponsor and named fiduciary of such Benefit Plans. SECTION 7.8 SEVERANCE PAY. (a) The cessation of employment by individuals who, in connection with the Distribution, cease to be employees of the International Group and become employees of the UCRI Group, shall not be deemed a severance of employment from either Group for purposes of any Benefit Plan that provides for the payment of severance, salary continuation or similar benefits. International, UCRI and Compass agree that none of the transactions contemplated by this Agreement or the Merger Agreement shall result in or be deemed a severance of employment from either Group for purposes of any Benefit Plan other than the DAKA Savings Plan that provides for payment of severance, salary continuation or similar benefits and International shall take, or cause to be taken, all action necessary and appropriate to amend the Daka International, Inc. Severance Program for Eligible Associates (and any other similar Benefit Plan) as may be necessary to assure compliance with this Section. (b) UCRI and the UCRI Group shall assume and be solely responsible for all liabilities and obligations whatsoever in connection with claims for severance pay benefits without regard to when such claims are made under the terms of the Daka International, Inc. Severance Pay Program for Eligible Associates or any other severance plan or policy sponsored by any member of the International Group prior to the Offering Closing Time, including, without limitation, claims made by any individuals who, in connection with the Distribution, cease to be employees of the International Group, whether or not such individuals are offered or accept employment with either Group. International shall be responsible for the payment of severance pay benefits payable pursuant to any New Welfare Plan that may be established after the Offer Closing Time to provide severance pay benefits to Foodservice Employees at the time of their termination. SECTION 7.9 COLLECTIVE BARGAINING AGREEMENTS; LABOR RELATIONS MATTERS; WITHDRAWAL LIABILITY. (a) As of the Offer Closing Time, International and the International Group shall retain and be responsible only for the Collective Bargaining Agreements, and only to the extent such agreements relate to the terms and conditions of employment of the Foodservice Employees. UCRI and UCRI Group shall assume and be solely responsible for all liabilities or claims made or arising under any collective bargaining agreement covering the terms and conditions of any employee of either Group relating to any period of time prior to the Offer Closing Time, including, but not limited to, any back pay or benefits due for periods prior to the Offer Closing Time as a result of good faith bargaining without regard to when such agreement is reached. (b) As of the Offer Closing Time, UCRI and the UCRI Group shall assume and be solely responsible for any and all claims or proceedings against International or Daka relating to the alleged violation of any legal requirement pertaining to labor relations or employment matters, including but not limited to any charge, claim or action or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, the DOL or any other federal or state body, any organizational activity or other labor or unemployment dispute against International or Daka without regard to when such charge, claim or action or complaint is brought or filed to the extent that the allegations relate to any period prior to the Offer Closing Time. (c) As of the Offer Closing Time, UCRI and the UCRI Group shall assume and be solely responsible for that portion of any withdrawal liabilities arising at any time prior to and within five years following the Offer Closing Time in connection with a Multiemployer Plan to which International or Daka is required to contribute pursuant to the terms of a Collective Bargaining Agreement listed on Schedule 7.9, which portion is equal to the greater of (A) the "potential withdrawal liability" disclosed in Schedule 4.2(l) of the Disclosure Schedule under Section 4.2(l) (i) of the Merger Agreement, if any amount is disclosed, and (B) an amount that bears the same proportion to the total withdrawal liability as the number of Foodservice Employees covered by such Multiemployer Plan at the Offer Closing Time bears to the total number of International or Daka 12 employees covered by such Multiemployer Plan on the date of notification by such plan of such withdrawal liability. SECTION 7.10 PRESERVATION OF RIGHTS TO AMEND OR TERMINATE BENEFIT PLANS. Subject to the provisions of this Article, no provision of this Agreement, including the agreement of International or UCRI that it or any member of the International Group or the UCRI Group will make a contribution or payment to or under any Benefit Plan herein referred to for any period or the agreement of Compass to permit participation in or provide similar benefits to Foodservice Employees, shall be construed as a limitation on the right of International or UCRI, or any member of the International Group or the UCRI Group, or of Compass, to amend such Benefit Plan or terminate its participation therein or change the level or value of benefits provided thereunder, and no provision of this Agreement shall be construed to create a right in any employee or former employee or beneficiary of such employee or former employee under a Benefit Plan which such employee or former employee or beneficiary would not otherwise have under the terms of the Benefit Plan itself. Notwithstanding the above, however, International and UCRI each agree that it shall not make or cause to be made any amendments to any Benefit Plan, nor shall it terminate any Benefit Plan, in a manner which would violate the covenants set forth in this Agreement, except as may be required to comply with applicable law, but subject to the provisions of this Article. SECTION 7.11 OTHER LIABILITIES. As of the Offer Closing Time, UCRI shall assume and be solely responsible for all earned salaries, wages, bonuses, severance payments or other current or deferred compensation retirement, welfare or fringe benefits of all UCRI Employees, regardless of whether earned or accrued before or after the Offer Closing Time and of all Foodservice Employees to the extent earned or accrued prior to the Offer Closing Time. SECTION 7.12 COMPLIANCE. Notwithstanding anything to the contrary in this Article, to the extent any actions of the parties contemplated in this Article are determined prior to the Distribution to violate law or result in unintended tax liability for Foodservice Employees or UCRI Employees, such action may be modified to avoid such violation of law or unintended tax liability. ARTICLE VIII TAX MATTERS SECTION 8.1 TAX MATTERS. Notwithstanding anything to the contrary in this Agreement, liabilities of the parties for Taxes (as defined in the Tax Allocation Agreement) are subject to the terms of the Tax Allocation Agreement. ARTICLE IX CONDITIONS SECTION 9.1 CONDITIONS TO OBLIGATIONS OF INTERNATIONAL. The obligations of International to consummate the Contribution and the Distribution hereunder shall be subject to the fulfillment of each of the following conditions: (a) All of the transactions contemplated by Article II shall have been consummated. (b) Compass, Compass Holdings and Compass Interim shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and International shall have received a certificate signed on behalf of Compass by the chief executive officer and the chief financial officer of Compass to such effect. (c) International shall have received opinions of Smith Helms Mulliss & Moore, L.L.P. and Freshfields, each dated the Closing Date, in substantially the forms of EXHIBIT 9.1(C)(I) and EXHIBIT 9.1(C)(II), respectively. (d) Simultaneously with the Offer Closing, Compass shall have paid to The Chase Manhattan Bank on behalf of International all Funded Debt under the Credit Facility and secured a release of all Liens with respect to Funded Debt. (e) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Contribution or the Distribution shall be in effect and no such litigation or legal action shall have been threatened or shall be pending. No action, suit or other proceeding shall be pending by any Governmental Entity that, if successful, would restrict or prohibit the consummation of the Contribution or the Distribution. 13 (f) Any applicable waiting periods under the HSR Act or the Exon-Florio Amendment shall have expired or been terminated. (g) The Form 10 shall have been declared effective by the Securities and Exchange Commission. (h) Compass Holdings shall have accepted for payment pursuant to the Offer a number of validly tendered shares of International Common Stock which, when added to the shares of International Common Stock then beneficially owned by Compass, Compass Holdings and its affiliates or Compass Interim, constitutes two-thirds of the shares of International Common Stock then outstanding and represents two-thirds of the voting power of the shares of International Common Stock then outstanding on a fully diluted basis on the date of purchase. (i) The representations and warranties of Compass contained in the Merger Agreement shall be true and correct in all material respects. (j) No statute, rule, regulation, decree, order or injunction shall have been promulgated, enacted, entered, or enforced or any legal or administrative proceeding initiated by any United States federal or state government, governmental authority or court which would prohibit the consummation of the Contribution, the Distribution, the Offer, or the Merger. (k) There shall not have been a Material Adverse Change (as defined in the Merger Agreement) or any event that could reasonably be expected to result in a Material Adverse Change. (l) Allen Maxwell shall have entered into an employment agreement with International and Daka in form and substance satisfactory to Compass and Allen Maxwell shall not have indicated to International, Daka or Compass that he does not intend to abide by the terms of such agreement. (m) Compass shall have paid to International the amount due under Section 6.7(b) of the Merger Agreement. ARTICLE X GENERAL PROVISIONS SECTION 10.1 FURTHER ASSURANCES. Each party hereto shall cooperate reasonably with the other parties, and execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any governmental or regulatory authority or any other Person under any permit, license, agreement, indenture or other instrument, and take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and the transfers of assets and Liabilities and the other transactions contemplated hereby or in any of the Ancillary Agreements. SECTION 10.2 SURVIVAL OF AGREEMENTS. All covenants and agreements of the parties hereto contained in this Agreement shall survive the Offer Closing Time. SECTION 10.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, the Merger Agreement and the Ancillary Agreements shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof, superseding all previous negotiations, commitments and writings with respect to such subject matter. SECTION 10.4 EXPENSES. All fees and expenses incurred in connection with the Merger, the Distribution, this Agreement, the Merger Agreement and the transactions contemplated by this Agreement, the Merger Agreement and the Ancillary Agreements shall be paid in accordance with Section 6.1 of the Merger Agreement and Section 3.4 of the Post-Closing Covenants Agreement, whether or not the Distribution is consummated. SECTION 10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES, AS TO ALL MATTERS, INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES. 14 SECTION 10.6 NOTICES. Any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been duly given (a) on the first business day occurring on or after the date of transmission if transmitted by facsimile (upon confirmation of receipt by journal or report generated by the facsimile machine of the party giving such notice), (b) on the first business day occurring on or after the date of delivery if delivered personally, or (c) on the first business day following the date of dispatch if dispatched by Federal Express or other next-day courier service. All notices hereunder shall be given as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: If to a member of the International Group or Compass: Compass Group USA, Inc. 2400 Yorkmont Road Charlotte, North Carolina 28217 Attention: General Counsel If to a member of the UCRI Group: Daka International, Inc. One Corporate Place 55 Ferncroft Road Danvers, Massachusetts 01923-4001 Attention: General Counsel SECTION 10.7 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or supplemented, and rights hereunder may be waived, only by a written agreement signed by International, UCRI, Daka and Compass. No waiver of any term, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of, or right or remedy under, this Agreement. SECTION 10.8 SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of each party hereto and each of their respective successors and permitted assigns, which shall include the entity resulting from the Merger, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned by (i) the UCRI Group without the prior written consent of Compass or the International Group (which consent shall not be unreasonably withheld) and (ii) the International Group or Compass, as the case may be, without the prior written consent of the UCRI Group (which consent shall not be unreasonably withheld). This Agreement is solely for the benefit of each Group and is not intended to confer upon any other Person any rights or remedies hereunder. The covenants and agreements of UCRI and its Subsidiaries contained herein are an inducement to Compass and International to enter into the Merger and may be endorsed by either entity following the Contribution and Distribution and the Merger. SECTION 10.9 ENFORCEMENT. (a) SPECIFIC PERFORMANCE. The parties 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. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. (b) JURISDICTION. To the extent a court action is authorized above, the parties hereby consent to the jurisdiction of the United States District Court of Delaware. Each of the parties waives personal service to any and all process upon them and each consent that all such service of process be made by certified mail directed to them at their address shown in Section 10.6 hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. SECTION 10.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 10.11 INTERPRETATION. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of 15 contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 10.12 TERMINATION. In the event the Merger Agreement is terminated, notwithstanding any provision hereof, this Agreement may be terminated and the Distribution abandoned at any time prior to the Offer Closing Time by and in the sole discretion of the International Board without the approval of any other party hereto or of International's shareholders. In the event of such termination, no party hereto shall have any Liability to any Person by reason of this Agreement. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. DAKA INTERNATIONAL, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT UNIQUE CASUAL RESTAURANTS, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT DAKA, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT COMPASS GROUP PLC By: /s/ MICHAEL J. BAILEY MICHAEL J. BAILEY DIRECTOR COMPASS HOLDINGS, INC. By: /s/ MICHAEL J. BAILEY MICHAEL J. BAILEY DIRECTOR 17 EX-20 11 EXHIBIT (C)(3) EXHIBIT (C)(3) TAX ALLOCATION AGREEMENT BY AND AMONG DAKA INTERNATIONAL, INC. UNIQUE CASUAL RESTAURANTS, INC. AND COMPASS GROUP PLC MAY 27, 1997 TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS 1.1 Definitions..................................................................................... 1
ARTICLE II FILING OF TAX RETURNS 2.1 Preparation of Tax Returns...................................................................... 5 2.2 Pre-Distribution Tax Returns.................................................................... 5 2.3 Post-Distribution Tax Returns................................................................... 6
ARTICLE III PAYMENT OF TAXES 3.1 Allocation of Tax Liabilities................................................................... 6 3.2 Tax Refunds, Carrybacks and Carryforwards....................................................... 7
ARTICLE IV ALLOCATION AND CALCULATION OF TAXES 4.1 Straddle Period Taxes........................................................................... 8 4.2 Calculations and Determinations................................................................. 9 4.3 Principles of Determination..................................................................... 10
ARTICLE V TAX INDEMNIFICATION; TAX CONTESTS 5.1 Indemnification................................................................................. 10 5.2 Notice of Indemnity............................................................................. 12 5.3 Tax Contests.................................................................................... 12 5.4 Timing Adjustments.............................................................................. 13 5.5 Gross up for Taxes.............................................................................. 13 5.6 Right to Offset................................................................................. 14
ARTICLE VI COOPERATION AND EXCHANGE OF INFORMATION 6.1 Cooperation and Exchange of Information......................................................... 14 6.2 Record Retention................................................................................ 14
ARTICLE VII GENERAL PROVISIONS 7.1 Further Assurances.............................................................................. 15 7.2 Entire Agreement................................................................................ 15 7.3 Governing Law................................................................................... 15 7.4 Notices......................................................................................... 15 7.5 Amendment and Modification...................................................................... 16 7.6 Assignment...................................................................................... 16 7.7 No Third Party Beneficiaries.................................................................... 16 7.8 Enforcement..................................................................................... 16 7.9 Counterparts.................................................................................... 17 7.10 Interpretation.................................................................................. 17 7.11 Severability.................................................................................... 17 7.12 Termination..................................................................................... 17 7.13 Agent........................................................................................... 18
i TAX ALLOCATION AGREEMENT This TAX ALLOCATION AGREEMENT (the "Agreement") is dated as of May 27, 1997, among DAKA INTERNATIONAL, INC., a Delaware corporation ("International"), UNIQUE CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), and COMPASS GROUP PLC, a public limited company incorporated in England and Wales ("Compass"). RECITALS WHEREAS, International, Compass, Compass Holdings, Inc., a Delaware corporation ("Compass Holdings"), and Compass Interim, Inc., a wholly owned subsidiary of Compass Holdings ("Compass Interim"), have entered into an Agreement and Plan of Merger dated as of May 27, 1997 (the "Merger Agreement"), providing for the Offer and the Merger (each as defined in the Merger Agreement) of Compass Interim with and into International; WHEREAS, International, Daka, Compass and Compass Holdings have entered into a Reorganization Agreement dated as of the date hereof (the "Reorganization Agreement"); WHEREAS, the execution and delivery of this Agreement by the parties hereto is a condition to the obligations of the parties to the Merger Agreement to consummate the Offer; WHEREAS, the execution and delivery of this Agreement by the parties hereto is a condition to the obligations of the parties to the Reorganization Agreement to consummate the Contribution and the Distribution (each as defined in the Reorganization Agreement); and WHEREAS, Compass and International, on behalf of each of them and the International Group (as defined herein) and UCRI, on behalf of itself and the UCRI Group (as defined herein), wish to provide for the allocation between the International Group and the UCRI Group of all responsibilities, liabilities and benefits relating to or affecting Taxes (as hereinafter defined) paid or payable by either of them for all taxable periods, whether beginning before, on or after the Closing Date (as hereinafter defined) and to provide for certain other matters; NOW, THEREFORE, in consideration of the premises and of the respective representations, warranties, covenants and agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to such terms in the Merger Agreement or the Reorganization Agreement, as the case may be. As used in this Agreement, the following terms shall have the following respective meanings: "Actually Realized" or "Actually Realizes" means, with respect to any Tax Refund, the earlier of (i) the date on which the relevant party receives a payment from a Taxing Authority, (ii) if the relevant party may elect to apply a payment against any liability to the Taxing Authority, the date on which the party would receive the payment in the absence of such election, or (iii) the date on which the relevant party makes a payment to a Taxing Authority (or, if earlier, the date on which such payment is due), the amount of which is reduced by the Tax Refund or any portion thereof (including any deemed payment the amount of which has been netted to zero). With respect to any Taxes, Income Tax Benefit or Income Tax Detriment, "Actually Realized" or "Actually Realizes" means the date on which the relevant party makes a payment to a Taxing Authority (or, if earlier, the date on which such payment is due), the amount of which is increased or decreased (or netted to zero) by the effect of such item, or, if the effect of the item is to increase or decrease the amount of a Tax Refund, the date determined as if the item were a Tax Refund. "Affiliated Group" means the Affiliated group of which International is the common parent. "Carryforward Item" means any tax credit or loss carryforward of the International Group or the UCRI Group, or any of their members, arising in the Tax Indemnification Period. "Closing Date" means the date on which the Distribution occurs or is deemed to occur for Federal Income Tax purposes. Solely for purposes of this Agreement, the Distribution shall be deemed effective as of the close of business on the Closing Date. "Combined Taxes" means all Taxes due with respect to any combined, consolidated or unitary state, local or foreign corporate Tax liability for all Pre-Distribution Taxable Periods and Straddle Periods with respect to Joint Tax Returns. "Group" means either the International Group or the UCRI Group, as the context provides. "Income Tax Benefit" means for any taxable period the excess of (i) the hypothetical Income Tax liability of the taxpayer for the taxable period calculated as if the Timing Difference, Reverse Timing Difference or Carryforward Item, as the case may be, had not occurred or not been available but with all other facts unchanged, over (ii) the actual Income Tax liability of the taxpayer for the taxable period, taking into account the Timing Difference, Reverse Timing Difference or Carryforward Item, as the case may be (treating an Income Tax Refund as a negative Income Tax liability for purposes of such calculation). "Income Tax Detriment" means for any taxable period the excess of (i) the actual Income Tax liability of the taxpayer for the taxable period, calculated taking into account the Timing Difference or Reverse Timing Difference, as the case may be, over (ii) the hypothetical Income Tax liability of the taxpayer for the taxable period, calculated as if the Timing Difference or Reverse Timing Difference, as the case may be, had not occurred but with all other facts unchanged (treating an Income Tax Refund as a negative Income Tax liability for purposes of such calculation). "Income Taxes" means any Tax based upon, measured by, or calculated with respect to (i) net income or profits (including, but not limited to, any capital gains, minimum Tax and any Tax on items of Tax preference, but not including sales, use, real property gains, real or personal property, gross or net receipts, transfer or similar Taxes) or (ii) multiple bases (including, but not limited to, corporate franchise, doing business or occupation Taxes) if one or more of the bases upon which such Tax may be based upon, measured by, or calculated with respect to, is described in clause (i) above. "Indemnitee" has the meaning set forth in Section 5.2. "Indemnitor" has the meaning set forth in Section 5.2. "Indemnity Issue" has the meaning set forth in Section 5.2. "International Group" means International, Daka and Daka's Subsidiaries. "International Tax Item" means a Tax Item that is attributable to the International Group and is not a UCRI Tax Item. "Joint Tax Return" means any Tax Return that includes a member of the International Group and a member of the UCRI Group. "UCRI Group" means UCRI and all other Subsidiaries of UCRI, determined immediately after the Distribution and the Merger. "UCRI Tax Item" means a Tax Item solely attributable to the UCRI Group. "Non-Filing Party" means the group or member of a group which is included in any Tax Return but is not the Responsible Party or a member of the Responsible Party's group with respect to such Tax Return. "Other Taxes" has the meaning set forth in Section 3.1(c). "Post-Distribution Taxable Period" means a taxable period beginning after the Closing Date. "Post-Tax Indemnification Period" means any Post-Distribution Taxable Period and that portion, beginning on the day after the Closing Date, of any Straddle Period. "Pre-Distribution Taxable Period" means a taxable period ending on (and including) or before the Closing Date. "Responsible Party" means the party responsible for the filing of a Tax Return as determined under Section 2.2. "Reverse Timing Difference" means an increase in income, gain or recapture, or a decrease in deduction, loss or credit, as calculated for Income Tax purposes, of the taxpayer for the Tax Indemnification Period coupled with an increase in deduction, loss or credit, or a decrease in income, gain or recapture, of the taxpayer for any Post-Tax Indemnification Period. "Straddle Period" means a taxable period that includes but does not end on the Closing Date. 2 "Tax" or "Taxes" means all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federal or other body, and without limiting the generality of the foregoing, shall include income, sales, use, ad valorem, gross receipts, license, value added, franchise, transfer, recording, withholding, payroll, wage withholding, employment, excise, occupation, unemployment insurance, social security, business license, business organization, stamp, environmental, premium and property taxes, together with any related interest (including the actual interest that would have accrued if there were no netting of Taxes), penalties and additions to any such tax, or additional amounts imposed by any Taxing Authority (domestic or foreign) upon the International Group, the UCRI Group, Compass or any of their respective members or divisions or branches or Affiliates. "Tax Audit Proceeding" means any audit or other examination, judicial or administrative proceeding relating to liability for or refunds or adjustments with respect to Taxes. "Tax Deficiency" means a net increase in Taxes payable as a result of a Tax Audit Proceeding or an amendment of a Tax Return or an event having a similar effect. "Tax Indemnification Period" means any Pre-Distribution Taxable Period and that portion, ending on the Closing Date, of any Straddle Period. "Tax Item" means any item of income, gain, loss, deduction, credit, provisions for reserves, recapture of credits or any other item which is taken into account in determining taxable income or is otherwise taken into account in determining Taxes paid or payable, including an adjustment under Section 481 of the Code resulting from a change in accounting method. "Tax Records" has the meaning set forth in Section 6.3. "Tax Refund" means a refund of Taxes (including a reduction in Taxes as a result of any credit or any offset against Taxes or Tax Items) reduced (but not below zero) by any net increase in Taxes Actually Realized by the recipient (or its Affiliate) thereof as a result of the receipt thereof. "Tax Return" means any return, filing, questionnaire, information return or other document required to be filed, including requests for extensions of time, filings made with respect to estimated tax payments, claims for refund and amended returns that may be filed, for any period with any Taxing Authority (whether domestic or foreign) in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing). "Taxing Authority" means any governmental or quasi-governmental body exercising any Taxing authority or Tax regulatory authority. "Timing Difference" means an increase in income, gain or recapture, or a decrease in deduction, loss or credit, as calculated for Income Tax purposes, of the taxpayer for any Post-Tax Indemnification Period coupled with an increase in deduction, loss or credit, or a decrease in income, gain or recapture, of the taxpayer for the Tax Indemnification Period. "Transfer Taxes" means all transfer, documentary, sales, use, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes and real property transfer gains Taxes) and related amounts (including any penalties, interest and additions to Tax) arising as a result of or otherwise incurred in connection with any of the transactions contemplated by the Merger Agreement or the Ancillary Agreements. ARTICLE II FILING OF TAX RETURNS 2.1 PREPARATION OF TAX RETURNS. All Tax Returns described in Section 2.2 hereof filed after the date of this Agreement, in the absence of a controlling change in law or circumstances, shall be prepared on a basis consistent with the elections, accounting methods, conventions and principles of taxation used for the most recent taxable periods for which Tax Returns involving similar Tax Items have been filed and in a manner that does not unreasonably accelerate deductions or defer income between Tax Indemnification Periods and Post-Tax Indemnification Periods. Notwithstanding the foregoing, either Group may prepare Tax Returns inconsistent with such elections, accounting methods, conventions and principles to the extent that such Tax Returns would not increase the economic burden of or a reduction in Tax attributes of the other party. 3 2.2 PRE-DISTRIBUTION TAX RETURNS. (a) CONSOLIDATED FEDERAL TAX RETURNS. Subject to the provisions of Section 4.2, the Affiliated Group consolidated Federal Tax Returns (including amendments thereto) required to be filed or actually filed for any Pre-Distribution Taxable Period after the date hereof shall be prepared and filed or caused to be prepared and filed by UCRI. (b) OTHER PRE-DISTRIBUTION TAXABLE PERIOD AND STRADDLE PERIOD TAX RETURNS. Subject to the provisions of Section 4.2: (i) All Tax Returns (including amendments thereto) other than those described in Section 2.2(a), 2.2(b)(ii), and 2.2(b)(iii), which include a member of the Affiliated Group that are required to be filed or are actually filed for a Pre-Distribution Taxable Period shall be prepared and filed or caused to be prepared and filed by UCRI; (ii) All Tax Returns (including amendments thereto) other than those described in Section 2.2(a) and 2.2(b)(i), which include, after the Closing Date, a member of the International Group that are required to be filed or are actually filed for a Straddle Period shall be prepared and filed or caused to be prepared and filed by International; (iii) All Tax Returns (including amendments thereto) other than those described in Section 2.2(a) and 2.2(b)(ii), which include a member of the UCRI Group that are required to be filed or are actually filed for a Straddle Period shall be prepared and filed or caused to be prepared and filed by UCRI; and (iv) In the event that the Non-Filing Party reasonably determines that the Responsible Party will not be able to timely file any Tax Return and that such inability of the Responsible Party is not attributable to the failure of the Non-Filing Party to perform under this Agreement, the Non-Filing Party may, after giving the Responsible Party written notice, prepare and file or cause to be prepared and filed such Tax Return. If the Non-Filing Party elects to file any such Tax Return, the Non-Filing Party shall be deemed to be the Responsible Party for purposes of this Agreement other than this Section 2.2(b)(iv). 2.3 POST-DISTRIBUTION TAX RETURNS. All Tax Returns for all Post-Distribution Taxable Periods shall be the responsibility of the UCRI Group if such Tax Returns relate to a member or members of the UCRI Group or their respective assets or businesses, and shall be the responsibility of the International Group if such Tax Returns relate to a member or members of the International Group or their respective assets or businesses. ARTICLE III PAYMENT OF TAXES 3.1 ALLOCATION OF TAX LIABILITIES. (a) CONSOLIDATED FEDERAL TAX LIABILITIES. UCRI shall pay or cause to be paid, on a timely basis, all Taxes due with respect to the consolidated Federal Tax liability for all Pre-Distribution Taxable Periods of the Affiliated Group. (b) OTHER TAXES. Except as otherwise provided in this Agreement, the Responsible Party shall pay or cause to be paid, on a timely basis, all Other Taxes. In the event that UCRI is the Non-Filing Party, UCRI hereby assumes and agrees to pay directly to or at the direction of International, at least two days prior to the date payment (including estimated payment) thereof is due, those Other Taxes for all Pre-Distribution Taxable Periods and the portion, ending on the Closing Date, of any Straddle Period which have not been paid on or before the Closing Date. The Non-Filing Party hereby assumes and agrees to pay directly or at the direction of the Responsible Party, at least two days prior to the date payment (including estimated payments) thereof is due, the Non-Filing Party's allocable share of those Other Taxes for the portion, commencing on the day after the Closing Date, of any Straddle Period which have not been paid on or before the Closing Date. (c) POST-DISTRIBUTION TAXES. Except as provided otherwise in this Agreement, all Taxes for all Post-Distribution Taxable Periods shall be paid or caused to be paid by the party responsible under this Agreement for filing the Tax Return pursuant to which such Taxes are due or, if no such Tax Returns are due, by the party liable for such Taxes. 3.2 TAX REFUNDS, CARRYBACKS AND CARRYFORWARDS. (a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as otherwise provided in this Agreement, International shall be entitled to retain the portion of all Tax Refunds of Taxes of which the International Group bears the economic 4 burden under the terms of this Agreement, and UCRI shall be entitled to receive within ten days after Actually Realized by the International Group, the portion of all Tax Refunds of Taxes of which the UCRI Group bears the economic burden under the terms of this Agreement. Notwithstanding the foregoing, all Tax Refunds resulting from the carryback of any International Tax Item arising in a Post-Tax Indemnification Period to a Tax Indemnification Period (determined in a manner analogous to the determination of an Income Tax Benefit) shall be for the account and benefit of the International Group. (b) CARRYBACKS. Except as otherwise provided in this Agreement, any Tax Refund resulting from the carryback of any UCRI Tax Item arising in a Post-Tax Indemnification Period to a Tax Indemnification Period (determined in a manner analogous to the determination of an Income Tax Benefit) shall be for the account of UCRI, and International shall pay over to UCRI any such Tax Refund within ten days after it is Actually Realized by International or any member of the International Group (including for this purpose Compass and its Affiliates). (c) CARRYFORWARDS. Except as otherwise provided in this Agreement, International shall pay over to UCRI the amount of the Income Tax Benefit associated with any Carryforward Item within ten days after such Income Tax Benefit is Actually Realized by International or any member of the International Group (including for this purpose Compass and its Affiliates) (d) REFUND CLAIMS. (i) UCRI shall file or cause to be filed, and International shall reasonably cooperate with UCRI in connection with, any claims for Tax Refund to which UCRI is entitled pursuant to this Section 3.2 or any other provision of this Agreement. UCRI shall reimburse International for any reasonable out-of-pocket costs and expenses incurred by any member of the International Group in connection with such cooperation. (ii) International shall be permitted to file at International's sole expense, and UCRI shall reasonably cooperate with International in connection with, any claims for Tax Refund to which International is entitled pursuant to this Section 3.2 or any other provision of this Agreement. International shall reimburse UCRI for any reasonable out-of-pocket costs and expenses incurred by any member of the UCRI Group in connection with such cooperation. (iii) Any claim for a Tax Refund, other than Tax Refunds which are attributable solely to a member of the UCRI Group, to which UCRI is entitled under this Agreement shall be subject to the International Group's consent (such consent not to be unreasonably withheld or delayed), to be exercised in a manner analogous to that set forth in Section 4.2. (iv) Any claim for a Tax Refund, other than Tax Refunds which are attributable solely to a member of the International Group, to which the International Group is entitled under this Agreement shall be subject to the UCRI Group's consent (such consent not to be unreasonably withheld or delayed), to be exercised in a manner analogous to that set forth in Section 4.2. ARTICLE IV ALLOCATION AND CALCULATION OF TAXES 4.1 STRADDLE PERIOD TAXES. In the case of any Straddle Period: (a) the periodic Taxes of the International Group and the UCRI Group that are not based on income or receipts (e.g., property Taxes) for the portion, ending on the Closing Date, of any Straddle Period shall be computed based on the ratio of the number of days in such portion of the Straddle Period and the number of days in the entire taxable period; (b) Taxes of the International Group and the UCRI Group for the portion, ending on the Closing Date, of any Straddle Period (other than Taxes described in Section 4.1(a) above) shall be computed as if such taxable period ended as of the close of business on the Closing Date, and, in the case of any Taxes of the International Group and the UCRI Group attributable to the ownership by any member of the International Group and the UCRI Group of any equity interest in any partnership or other "flowthrough" entity, as if a taxable period of such partnership or other "flowthrough" entity ended as of the close of business on the Closing Date; and 5 (c) with respect to any Joint Tax Return for the portion, beginning on the day after the Closing Date, of a Straddle Period, the allocation of Tax liability between the International Group, on the one hand, and the UCRI Group, on the other hand, shall be determined in a manner analogous to that set forth in Treasury Regulation Section 1.1552-1(a)(2). 4.2 CALCULATIONS AND DETERMINATIONS. (a) All calculations and determinations, including the preparation of Tax Returns, required to be made pursuant to this Agreement, shall be made in good faith by the Responsible Party on a basis consistent with prior years and in a manner that does not unreasonably accelerate or defer deductions or income between Tax Indemnification Periods and Post-Tax Indemnification Periods. The Responsible Party will prepare and submit to the Non-Filing Party preliminary drafts of any calculations (including calculations of the amount for which the Non-Filing Party will be liable under this Agreement) no later than 90 days prior to the due date (taking into account any extensions). Notwithstanding the foregoing, in the event that the first day of such 90 day period is less than 45 days after the close of the Taxable Period, such time period shall be reduced to the number of days remaining prior to the due date of such Tax Return after subtracting 45 days after the close of the Taxable Period. Such calculations and Returns determinations shall be subject to the written approval of the Non-Filing Party, which approval shall not be unreasonably withheld or delayed. If the Non-Filing Party's written approval of such calculations and determinations is withheld, the Non-Filing Party shall so notify the Responsible Party by the later of (i) the date that is 65 days prior to the date on which the applicable Tax Returns are to be filed or (ii) the date that is 10 days after the Non-Filing Party receives preliminary drafts of such calculations or determinations. Notwithstanding the foregoing, no party shall be required to submit to the other any calculations, determinations or Tax Returns with respect to Post-Distribution Taxable Periods. (b) Whenever the Non-Filing Party is required to make any calculations or determinations in support of the calculations and determinations referred to in Section 4.2(a), the Non-Filing Party shall, and shall cause each appropriate member of its group to, prepare and submit to the Responsible Party, at the Responsible Party's expense, no later than 120 days prior to the due date (taking into account any extensions), preliminary drafts of any material calculations (including calculations of the amount for which the Non-Filing Party will be liable under this Agreement) or determinations and such other information as the Responsible Party shall reasonably request, and if requested by the Responsible Party, access (during reasonable business hours and upon reasonable advance notice) to copies of the relevant portions of any Tax Returns, reports or other statements. Notwithstanding the foregoing, in the event that the first day of such 120 day period is less than 45 days after the close of the Taxable Period, such time period shall be reduced to the number of days remaining prior to the due date of such Tax Return after subtracting 45 days after the close of the Taxable Period. (c) If International and UCRI are unable to agree upon any such calculations and determinations in the manner set forth in this Section 4.2, such dispute shall be submitted to Deloitte & Touche, L.L.P., Charlotte, North Carolina, no later than 60 days prior to the date on which the applicable Tax Returns are to be filed. Deloitte & Touche, L.L.P. shall then determine a resolution to such dispute and shall notify International and UCRI of its resolution no later than 45 days prior to the date on which the applicable Tax Returns are to be filed. In the event that International or UCRI are unable to accept any resolution determined by Deloitte & Touche, L.L.P., the party that does not accept Deloitte & Touche, L.L.P.'s determination may select another nationally recognized accounting firm to make such determination and such nationally recognized accounting firm shall notify International and New International of its resolution no later than 30 days prior to the date on which the applicable Tax Returns are to be filed. In the event that the resolutions of Deloitte & Touche, L.L.P. and the nationally recognized accounting firm do not agree, a third mutually acceptable nationally recognized accounting firm, jointly selected by Deloitte & Touche, L.L.P. and the second accounting firm, shall make the final resolution, which resolution shall be final and binding on International and UCRI, and shall notify International and UCRI of its resolution no later than two weeks prior to the date on which the applicable Tax Returns are to be filed. The determinations of the accounting firms shall be in accordance with tax practices normally used in similar matters and similar industries. The fees of the accounting firms incurred in resolving the dispute shall be shared equally by International and UCRI. 4.3 PRINCIPLES OF DETERMINATION. In implementing this Agreement, except as otherwise specifically provided, the parties shall make any adjustments that are necessary to ensure that, with respect to Taxes for Straddle Periods or Pre- Distribution Taxable Periods, payments and reimbursements between the parties reflect the principles that International is to bear responsibility for Taxes for International Group (and any Affiliates) that are attributable to the portion, after the Closing Date, of any Straddle Period (calculated by treating the day after the Closing Date as the first day of a 6 taxable period), and that UCRI is to bear responsibility for all other Taxes for Straddle Periods and Pre-Distribution Taxable Periods. ARTICLE V TAX INDEMNIFICATION; TAX CONTESTS 5.1 INDEMNIFICATION. (a) UCRI INDEMNIFICATION. Except as otherwise provided in Section 5.1(b), UCRI and the UCRI Group shall be liable for and shall indemnify, defend and hold harmless the members of the International Group and Compass and each of their respective Affiliates and representatives from and against (A) all Taxes of the International Group and the UCRI Group for Pre-Distribution Taxable Periods, (B) all Taxes of the International Group and the UCRI Group for the portion, ending on the Closing Date, of any Straddle Period, (C) all Taxes of the UCRI Group for the portion, beginning on the day after the Closing Date (calculated by treating the day after the Closing Date as the first day of a taxable period), of any Straddle Period, (D) all Taxes of the UCRI Group for Post-Distribution Taxable Periods, (E) all liability (as a result of Treasury Regulation Section 1.1502-6(a) or otherwise) for Income Taxes of any person (other than a member of the International Group or of the UCRI Group or any of Compass or its Affiliates) which is or has ever been Affiliated with any member of the UCRI Group or with which any member of the UCRI Group joins or has ever joined (or is or has ever been required to join) in filing any consolidated, combined or unitary Tax Return for any Pre-Distribution Taxable Period or Straddle Period, (F) all liability (as a result of Treasury Regulation Section 1.1502-6(a) or otherwise) for Income Taxes of any person (other than a member of the International Group or of the UCRI Group) which has been on or before the Closing Date Affiliated with any member of the International Group or with which any member of the International Group joins or has joined on or before the Closing Date in filing any consolidated, combined or unitary Tax Return for any Pre-Distribution Taxable Period or Straddle Period, (G) any Transfer Taxes imposed in connection with or as a result of the Contribution and/or the Distribution, and one-half of any Transfer Taxes imposed in connection with or as a result of the Merger, (H) all Taxes for any taxable period (whether beginning before, on or after the Closing Date) that would not have been payable but for the breach by any member of the UCRI Group of any representation, warranty or obligation under this Agreement, (I) all Taxes for any taxable period (whether beginning before, on or after the Closing Date) that would not have been payable but for the inaccuracy of the representations and warranties contained in clauses (ix) or (xii) of Section 4.2(o) of the Merger Agreement or the breach of the covenant contained in Section 5.1(l) of the Merger Agreement, (J) all liability for Taxes resulting from the Contribution or Distribution and (K) all liability for any reasonable legal, accounting, appraisal, consulting or similar fees and expenses relating to the foregoing. (b) INTERNATIONAL AND COMPASS INDEMNIFICATION. Except as otherwise provided in Section 5.1(a), International and Compass shall be liable for and shall indemnify, defend and hold harmless the members of UCRI Group and each of their respective Affiliates and representatives from and against (A) all Taxes of International Group (which, for purposes of all clauses of this Section 5.1(b), shall include Compass and its Affiliates) for Post-Distribution Taxable Periods, (B) all Taxes of International Group for the portion, beginning on the day after the Closing Date (calculated by treating the day after the Closing Date as the first day of a taxable period), of any Straddle Period, (C) all Taxes for any taxable period (whether beginning before, on or after the Closing Date) that would not have been payable but for the breach by any member of International Group of any representation, warranty or obligation under this Agreement, (D) all liability for any reasonable legal, accounting, appraisal, consulting or similar fees and expenses relating to the foregoing, and (E) one-half of any Transfer Taxes imposed in connection with or as a result of the Merger. (c) PAYMENTS. Any indemnity payment required to be made pursuant to this Section 5.1 shall be paid within 30 days after the indemnified party makes written demand upon the indemnifying party, but in no case earlier than five business days prior to the date on which the relevant Taxes are required to be paid (or would be required to be paid if no such Taxes are due) to the relevant Taxing Authority (including estimated Tax payments). 5.2 NOTICE OF INDEMNITY. Whenever a party hereto (hereinafter an "Indemnitee") becomes aware of the existence of an issue raised by any Taxing Authority which could reasonably be expected to result in a determination that would increase the liability for any Tax of the other party hereto or any member of such party's Group for any Post-Tax Indemnification Period (in the case of International Group) or for any Tax Indemnification Period (in the case of the UCRI Group) or require a payment hereunder to the other party (hereinafter an "Indemnity Issue"), the Indemnitee shall in good faith promptly give notice to such other party (hereinafter the "Indemnitor") of such Indemnity Issue. The 7 failure of any Indemnitee to give such notice shall not relieve any Indemnitor of its obligations under this Agreement except to the extent such Indemnitor or its Affiliate is actually prejudiced by such failure to give notice. 5.3 TAX CONTESTS. The Indemnitor and its representatives, at the Indemnitor's expense, shall be entitled to participate (A) in all conferences, meetings or proceedings with any Taxing Authority, the subject matter of which is or includes an Indemnity Issue and (B) in all appearances before any court, the subject matter of which is or includes an Indemnity Issue. The Responsible Party for the Tax Return with respect to which there could be an increase in liability for any Tax or with respect to which a payment could be required hereunder shall have the right to decide as between the parties hereto how such matter is to be dealt with and finally resolved with the appropriate Taxing Authority and shall control all audits and similar proceedings. If no Tax Return is or was required to be filed in respect of an Indemnity Issue, the Indemnitor shall be treated as the Responsible Party with respect thereto. The Responsible Party agrees to cooperate in the settlement of any Indemnity Issue with the other party and to take such other party's interests into account. If the Indemnitor is not the Responsible Party, such cooperation may include permitting the Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise resolve any Indemnity Issue. If UCRI is the Responsible Party and if the Taxes at issue in the aggregate may equal or exceed $25,000 (computed taking into account reasonably anticipated future year Tax costs on a present value basis), (i) UCRI shall not settle any such Indemnity Issue without the prior written consent of Compass, which consent shall not be unreasonably withheld, (ii) Compass, and counsel of its own choosing, shall have the right to participate fully, at its own expense, in all aspects of the defense of such Indemnity Issue, (iii) UCRI shall inform Compass, reasonably promptly in advance, of the date, time and place of all administrative and judicial meetings, conferences, hearings and other proceedings relating to such Indemnity Issue, (iv) Compass shall, at its own expense, be entitled to have its representatives (including counsel, accountants and consultants) attend and participate in any such administrative and judicial meetings, conferences, hearings and other proceedings relating to such Indemnity Issue, (v) UCRI shall provide to Compass all information, document requests and responses, proposed notices of deficiency, notices of deficiency, revenue agent's reports, protests, petitions and any other documents relating to such Indemnity Issue promptly upon receipt from, or in advance of submission to (as the case may be), the relevant Taxing Authority or courts and (vi) UCRI shall not file or submit any protests, briefs, responses, petitions or other documents relating to such Indemnity Issue with such relevant Taxing Authority or courts without the prior written consent of Compass, which consent shall not be unreasonably withheld or delayed, provided that UCRI may make such filing or submission if required to comply with any deadline imposed by law (including by order of a court or administrative authority) if UCRI has made commercially reasonable efforts to obtain such prior consent. 5.4 TIMING ADJUSTMENTS. (a) TIMING DIFFERENCES. If a Tax Audit Proceeding, an amendment of a Tax Return, or any payment adjustment described in Section 2.6 of the Post-Closing Covenants Agreement results in a Timing Difference, and such Timing Difference results in a decrease in an indemnity obligation UCRI has or would otherwise have under Section 5.1 and/or an increase in the amount of a Tax Refund to which UCRI is entitled to under Section 3.2, then in each Post-Tax Indemnification Period in which International Group Actually Realizes an Income Tax Detriment, UCRI shall pay to International an amount equal to such Income Tax Detriment; provided, however, that the aggregate payments which UCRI shall be required to make under this Section 5.4(a) with respect to any Timing Difference shall not exceed the aggregate amount of the Income Tax Benefits realized by the UCRI Group for all taxable periods. UCRI shall make all such payments within ten days after International notifies UCRI that the relevant Income Tax Detriment has been Actually Realized. (b) REVERSE TIMING DIFFERENCES. If a Tax Audit proceeding, an amendment of a Tax Return or any payment adjustment described in Section 2.6 of the Post-Closing Covenants Agreement results in a Reverse Timing Difference, and such Reverse Timing Difference results in an increase in an indemnity obligation of UCRI under Section 5.1 and/or a decrease in the amount of a Tax Refund to which UCRI is or would otherwise be entitled to under Section 3.2, then in each Post-Tax Indemnification Period in which International Group Actually Realizes an Income Tax Benefit, International shall pay to UCRI within ten days after International has Actually Realized such Income Tax Benefit an amount equal to such Income Tax Benefit; provided, however, that the aggregate payments which International shall be required to make under this Section 5.4(b) which respect to any Reverse Timing Difference shall not exceed the aggregate amount of the Income Tax Detriments realized by the UCRI Group for all taxable periods and by the International Group for all Tax Indemnification Periods as a result of such Reverse Timing Difference. 5.5 GROSS UP FOR TAXES. It is the intention of the parties that payments and asset transfers made pursuant to this Agreement are to be treated as relating back to the Contribution as an adjustment to the assets and liabilities contributed 8 thereunder, and the parties shall not take any position inconsistent with such intention before any Taxing Authority, unless, with respect to any payment, any party receives an opinion of counsel to the effect that there is no substantial authority for such position or unless a final determination (as defined in Section 1313 of the Code), with respect to the recipient party, causes any such payment not to be so treated. To the extent that any Taxing Authority makes such a final determination, any amount received by the Indemnitee, to the extent that it is treated as an item of income or gain for federal income tax purposes and is not offset by the amount of any tax benefit allowed to the Indemnitee for the payment or incurrence of any liability from which the Indemnity Issue arises, shall be increased by 40%. For purposes of this Section 5.5, the Indemnity Issue amount shall not, in any case, include the gross-up determined under this Section 5.5. 5.6 RIGHT TO OFFSET. Any party making a payment under this Agreement shall have the right to reduce any such payment by any amounts owed to it by the other party to this Agreement pursuant to the Merger Agreement or any other Ancillary Agreement. ARTICLE VI COOPERATION AND EXCHANGE OF INFORMATION 6.1 COOPERATION AND EXCHANGE OF INFORMATION. (a) Each party hereto, on behalf of itself and its Affiliates, agrees to provide the other party hereto with such cooperation and information as such other party shall reasonably request in connection with the preparation or filing of any Tax Return or claim for Tax Refund not inconsistent with this Agreement or in conducting any audit or other proceeding in respect to Taxes or to carry out the provisions of this Agreement. (b) To the extent necessary to carry out the purposes of this Agreement and subject to the other provisions of this Agreement, such cooperation and information shall include without limitation the designation of an officer of International for the purpose of (i) signing Tax Returns, cashing refund checks, pursuing refund claims, (ii) attending meetings with Taxing Authorities, (iii) defending audits and (iv) promptly forwarding copies of appropriate notices and forms or other communications received from or sent to any Taxing Authority which relate to the Tax Indemnification Period and providing copies of all relevant Tax Returns for the Tax Indemnification Period, together with accompanying schedules and related workpapers, documents relating to rulings or other determinations by Taxing Authorities, including without limitation, foreign Taxing Authorities, and records concerning the ownership and Tax basis of property, which either party may possess. Such officer shall have the authority, subject to the rights of UCRI under this Agreement and at UCRI's direction, to execute powers of attorney (including Form 2848) on behalf of each member of the Affiliated Group with respect to Tax Returns and Taxes for the Tax Indemnification Period. The services of such officer shall not be unreasonably withheld. (c) Each party to this Agreement shall make, or shall cause its Affiliates to make, their employees and facilities available on a mutually convenient basis to provide an explanation of any documents or information provided hereunder. 6.2 RECORD RETENTION. Notwithstanding Section 6.3 of the Reorganization Agreement, International and UCRI agree to (i) retain all Tax Returns, related schedules and workpapers, and all material records and other documents as required under Section 6001 of the Code and the regulations promulgated thereunder relating thereto ("Tax Records") existing on the date hereof or created through the Closing Date, for 10 years from the Closing Date and (ii) allow the other parties to this Agreement and their representatives (and representatives of any of its Affiliates), at times and dates reasonably acceptable to the retaining party, to inspect, review and make copies of such records, and have access to such employees, as International and UCRI may reasonably deem necessary or appropriate from time to time, such activities to be conducted during normal business hours and without disruption to either of its businesses. At the end of the 10-year period described in clause (i), International or UCRI, as the case may be, shall transfer such records (or cause such records to be transferred) to the other party (at such other party's sole expense), unless such other party notifies International or UCRI, as the case may be, within 90 days prior to the expiration of the 10-year period, that such other party does not desire to receive such Tax Records, in which case International or UCRI, as the case may be, may destroy or otherwise dispose of such undesired documents. Notwithstanding the foregoing, International and UCRI may mutually agree in writing that such records and other documents may be destroyed or otherwise disposed of before the end of the 10-year period. 9 ARTICLE VII GENERAL PROVISIONS 7.1 FURTHER ASSURANCES. Each party hereto shall cooperate reasonably with the other parties, and execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any governmental or regulatory authority or any other Person under any permit, license, agreement, indenture or other instrument, and take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and the other transactions contemplated hereby or in any of the Ancillary Agreements. 7.2 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, the Merger Agreement and the Ancillary Agreements shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof, superseding all previous negotiations, commitments and writings with respect to such subject matter. 7.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 7.4 NOTICES. Any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been duly given (a) on the first business day occurring on or after the date of transmission if transmitted by facsimile (upon confirmation of receipt by journal or report generated by the facsimile machine of the party giving such notice), (b) on the first business day occurring on or after the date of delivery if delivered personally, or (c) on the first business day following the date of dispatch if dispatched by Federal Express or other next-day courier service. All notices hereunder shall be given as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) if to Compass or International after the Closing Date, to Compass Group USA, Inc. 2400 Yorkmont Road Charlotte, North Carolina 28217 Attention: General Counsel (b) if to UCRI or International before the Closing Date, to Daka International, Inc. One Corporate Place 55 Ferncroft Road Danvers, Massachusetts 01923-4001 Attention: General Counsel 7.5 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or supplemented, and rights hereunder may be waived, only by a written agreement signed by duly authorized officers of the respective parties. No waiver of any term, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of, or right or remedy under, this Agreement. 7.6 ASSIGNMENT. No party to this Agreement shall convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the express written consent of the other parties hereto in their sole and absolute discretion, except that any party hereto may assign any of its rights hereunder to a successor to all or any part of its business. Except as aforesaid, any such conveyance, assignment or transfer without the express written consent of the other parties shall be void ab initio. No assignment of this Agreement shall relieve the assigning party of its obligations hereunder. 7.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement is intended to confer upon any person or entity other than the parties hereto and their respective successors and permitted assigns, any benefit, right or remedies. 10 7.8 ENFORCEMENT. (a) The parties 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. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. (b) Except for claims barred by the applicable statute of limitations (which may not be pursued by the parties in any judicial, arbitral or other forum), any and all disputes between the parties that arise out of or relate to this Agreement or any other agreement between the parties entered into in connection herewith or the transactions contemplated hereby or thereby, and which cannot be amicably settled, shall be determined solely and exclusively by arbitration administered by the American Arbitration Association ("AAA") under its commercial arbitration rules for such disputes at its office in Boston, Massachusetts. The parties expressly, unconditionally and irrevocably waive any right to recision, repudiation or any similar remedy in any legal action hereunder. The arbitration panel (the "Panel") shall be formed of three arbitrators approved by the AAA, one to be appointed by Compass, one to be appointed by UCRI, and the third to be appointed by the first two or, in the event of failure to agree within 30 days, by the President of the AAA. Judgment on the award rendered by the Panel may be entered in any court having jurisdiction thereof. (c) To the extent a court action is authorized above, the parties hereby consent to the jurisdiction of the United States District Court of Massachusetts. Each of the parties waives personal service to any and all process upon them and each consent that all such service of process be made by certified mail directed to them at their address shown in Section 7.4 hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. 7.9 COUNTERPARTS. For the convenience of the parties, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 7.10 INTERPRETATION. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7.11 SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon any such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties. 7.12 TERMINATION. In the event the Merger Agreement is terminated, notwithstanding any provision hereof, this Agreement may be terminated and the Distribution abandoned at any time prior to the Closing Date by and in the sole discretion of the International Board without the approval of any other party hereto or of International's shareholders. In the event of such termination, no party hereto shall have any Liability to any Person by reason of this Agreement. 7.13 AGENT. Any consent rights of members of the UCRI Group under this Agreement shall be exercised by UCRI on behalf of the UCRI Group, and any notices given by International Group to UCRI shall be deemed to be given to each member of the UCRI Group. Any consent rights of International Group under this Agreement shall be exercised by Compass on behalf of International Group, and any notices given by UCRI to Compass shall be deemed to be given to each member of International Group. 11 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written. DAKA INTERNATIONAL, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT UNIQUE CASUAL RESTAURANTS, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT COMPASS GROUP PLC By: /s/ MICHAEL J. BAILEY MICHAEL J. BAILEY DIRECTOR 12 EX-20 12 EXHIBIT (C)(4) EXHIBIT (C)(4) POST-CLOSING COVENANTS AGREEMENT BY AND AMONG DAKA INTERNATIONAL, INC. DAKA, INC. UNIQUE CASUAL RESTAURANTS, INC. CHAMPPS ENTERTAINMENT, INC. FUDDRUCKERS, INC. COMPASS GROUP PLC AND COMPASS HOLDINGS, INC. MAY 27, 1997 TABLE OF CONTENTS
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ARTICLE I DEFINITIONS Section 1.1 Definitions..................................................................................... 2
ARTICLE II INDEMNIFICATION Section 2.1 Indemnification by UCRI......................................................................... 3 Section 2.2 Indemnification by Compass and Compass Holdings................................................. 5 Section 2.3 Procedures Relating to Indemnification.......................................................... 7 Section 2.4 Certain Limitations............................................................................. 8 Section 2.5 Absence of Contribution......................................................................... 10 Section 2.6 Gross up for Taxes.............................................................................. 10 Section 2.7 Exclusivity of Tax Allocation Agreement......................................................... 10
ARTICLE III OTHER AGREEMENTS Section 3.1 Transfer Taxes.................................................................................. 10 Section 3.2 Transition Matters.............................................................................. 10 Section 3.3 Insurance....................................................................................... 10 Section 3.4 Expenses........................................................................................ 11 Section 3.5 Covenant Not to Compete......................................................................... 11 Section 3.6 Performance by UCRI of Certain Merger Agreement Covenants; Further Assurances................... 12 Section 3.7 Surety Bonds.................................................................................... 12 Section 3.8 Net Worth....................................................................................... 12 Section 3.9 Duty to Defend.................................................................................. 12 Section 3.10 Guaranty by Champps and Fuddruckers............................................................. 13 Section 3.11 Pending Litigation.............................................................................. 13
ARTICLE IV TRADE RECEIVABLES AND OBLIGATIONS Section 4.1 Authorization................................................................................... 13 Section 4.2 Collection of Trade Receivables................................................................. 14 Section 4.3 Payment of Obligations.......................................................................... 14 Section 4.4 Settlement Payments............................................................................. 15 Section 4.5 Reporting....................................................................................... 15 Section 4.6 Billing......................................................................................... 15 Section 4.7 Right of Setoff................................................................................. 15 Section 4.8 Termination of Compass' Obligations............................................................. 16
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ARTICLE V POST-CLOSING PAYMENTS Section 5.1 Definitions..................................................................................... 16 Section 5.2 Balance Sheet Adjustments....................................................................... 19 Section 5.3 Managed Volume/Profitability Adjustment......................................................... 20 Section 5.4 Determination of Adjustments.................................................................... 21
ARTICLE VI MISCELLANEOUS AND GENERAL Section 6.1 Modification or Amendment....................................................................... 22 Section 6.2 Waiver; Remedies................................................................................ 22 Section 6.3 Counterparts.................................................................................... 22 Section 6.4 Governing Law................................................................................... 22 Section 6.5 Notices......................................................................................... 22 Section 6.6 Entire Agreement................................................................................ 23 Section 6.7 Certain Obligations............................................................................. 23 Section 6.8 Assignment...................................................................................... 23 Section 6.9 Severability.................................................................................... 23 Section 6.10 No Third Party Beneficiaries.................................................................... 23 Section 6.11 Enforcement..................................................................................... 24
List of Schedules: Schedule 4.2 Trade Receivables Schedule 4.3(a) Types of Obligations Schedule 5.1(a) Customer Contract Contribution Calculation Methodology Schedule 5.1(b) Nonrecurring Item Intangible Assets Schedule 5.3(a) Calculation of Foodservice Segment Income as of March 29, 1997
ii POST-CLOSING COVENANTS AGREEMENT THIS POST-CLOSING COVENANTS AGREEMENT is dated as of May 27, 1997 (the "Agreement"), among DAKA INTERNATIONAL, INC., a Delaware corporation ("International"), DAKA, INC., a Massachusetts corporation ("Daka"), CHAMPPS ENTERTAINMENT, INC., a Minnesota corporation ("Champps"), FUDDRUCKERS, INC., a Texas corporation ("Fuddruckers"), UNIQUE CASUAL RESTAURANTS, INC., a Delaware corporation ("UCRI"), COMPASS GROUP PLC, a public limited company incorporated in England and Wales ("Compass"), and COMPASS HOLDINGS, INC., a Delaware corporation ("Compass Holdings"). RECITALS: WHEREAS, International, Compass, Compass Holdings and Compass Interim, Inc., a Delaware corporation ("Compass Interim"), have entered into an Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement"), providing for the Merger (as defined in the Merger Agreement) of Compass Interim with and into International; WHEREAS, each of the respective Boards of Directors of International and Compass has approved a tender offer whereby Compass Holdings will offer to purchase for cash any and all of the common stock, par value $.01 per share, of International (the "International Common Stock") subject only to the conditions set forth in Exhibit 1.1(a) to the Merger Agreement (the "Offer"); WHEREAS, International, Daka, UCRI, Compass and Compass Holdings have entered into a Reorganization Agreement dated as of the date hereof (the "Reorganization Agreement"), pursuant to which (a) UCRI or its Subsidiaries will acquire from International or Daka the UCRI Assets (as defined in the Reorganization Agreement) and will assume the UCRI Liabilities (as defined in the Reorganization Agreement) (the "Contribution"), and (b) all of the issued and outstanding shares of common stock, par value $.01 per share, of UCRI (the "UCRI Common Stock") will be distributed on a pro rata basis to International's stockholders (the "Distribution"); WHEREAS, Champps and Fuddruckers will become the principal restaurant subsidiaries of UCRI and as such will have a direct economic interest and financial benefits from the transactions described in the Merger Agreement and desire to induce Compass, Compass Holdings and Compass Interim to enter into the Merger Agreement and Offer; WHEREAS, the parties to this Agreement have determined that it is necessary and desirable to set forth certain agreements that will govern certain matters that may arise following the Offer, the Contribution, the Distribution and the Merger. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to such terms in the Merger Agreement or the Reorganization Agreement, as the case may be. The following terms are defined in the Sections of this Agreement indicated below:
TERM SECTION LOCATION AAA.............................................................................. 6.11(b) Basket Amount.................................................................... 2.4(d) Calculation Memorandum........................................................... 5.2(e) Champps.......................................................................... Introduction Closing Date Financial Statements................................................ 5.1(b) Closing Date Current Asset Shortfall............................................. 5.1(a) Compass Indemnities.............................................................. 2.1 Criminal Matters................................................................. 2.1(e) Differential..................................................................... 5.2(b) Filings.......................................................................... 2.1(b) Foodservice Current Assets....................................................... 5.1(a) French Quarter Rebates........................................................... 5.2(a)(viii) Fuddruckers...................................................................... Introduction GAAP............................................................................. 5.1
TERM SECTION LOCATION Headquarters Lease............................................................... 2.1(k) Indemnifiable Losses............................................................. 2.1 Indemnitee....................................................................... 2.3(a) Lost Customer Contract Managed Volume............................................ 5.2(a)(ii) Lost Customer Contract Profit.................................................... 5.2(a)(iii) Lost Customer Contracts.......................................................... 5.2(a)(i) Managed Volume/Profit Adjustment................................................. 5.2(d) Managed Volume Differential...................................................... 5.2(c) Minimum Net Worth................................................................ 3.9(a) New Customer Contract............................................................ 5.2(a)(iv) New Customer Contract Managed Volume............................................. 5.2(a)(v) New Customer Contract Profit..................................................... 5.2(a)(vi) Nonrecurring Items............................................................... 5.2(a)(vii) Obligations...................................................................... 4.3(a) Panel............................................................................ 6.11(b) Profit Differential.............................................................. 5.2(b) Restricted Business.............................................................. 3.6(a) Smithsonian Contract Adjustment.................................................. 5.3 Special Liabilities.............................................................. 2.1(d) Special Liability Claim.......................................................... 2.3(b) Termination Date................................................................. 4.8 Third Party Claim................................................................ 2.1(b) Trade Receivables................................................................ 4.2(a) Transition Agreement............................................................. 3.2 UCRI Indemnitees................................................................. 2.1(b) UCRI Obligations................................................................. 3.8 Venturino Claim.................................................................. 2.1(d)
ARTICLE II INDEMNIFICATION SECTION 2.1 INDEMNIFICATION BY UCRI. Except as otherwise specifically provided in the Merger Agreement or an Ancillary Agreement and subject to the provisions of this Article II and Article V, UCRI hereby agrees to indemnify, defend and hold harmless Compass, each Affiliate of Compass, including any of its Subsidiaries (including, after the Offer Closing Time, International, Daka and any Subsidiary of Daka) (the "Compass Indemnitees") from and against, and pay or reimburse the Compass Indemnitees for, all losses, liabilities, damages (including punitive damages), deficiencies, obligations, fines, taxes, expenses, claims, claims for benefits, demands, actions, suits, proceedings, judgments or settlements, whether or not (except as provided in Section 2.1(b)) resulting from Third Party Claims (as defined in Section 2.1(b) herein), including interest and penalties recovered by a third party with respect thereto and out-of-pocket expenses and reasonable attorneys' and accountants' fees and expenses incurred in the investigation or defense thereof or in asserting, preserving or enforcing any of the rights hereunder ("Indemnifiable Losses"), as incurred: (a) relating to or arising from the UCRI Assets or the UCRI Liabilities (as defined in the Reorganization Agreement), including without limitation the Special Liabilities, as defined below (including the failure by UCRI or any of its Subsidiaries to pay, perform or otherwise discharge such UCRI Liabilities in accordance with their terms), whether such Indemnifiable Losses relate to or arise from events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted before, at or after the Offer Closing Time; (b) relating to or arising from a claim by any Person who is not UCRI or an Affiliate of UCRI (other than International or Daka) (collectively, the "UCRI Indemnitees") or one of the Compass Indemnitees (a "Third Party Claim") that there is any untrue statement or alleged untrue statement of a material fact contained in any of the Schedule 14D-1, Schedule 14D-9, the Form 10, the Information Statement, the Proxy Statement or any other document filed or required to be filed with the SEC in connection with the transactions contemplated by the 2 Merger Agreement or Reorganization Agreement, or any preliminary or final form thereof or any amendment or supplement thereto (the "Filings"), or any omission or alleged omission to state therein 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; but only (i) in the case of the Schedule 14D-1 with respect to information provided by UCRI, International or Daka in writing relating to UCRI, International or Daka, as the case may be, contained in or omitted from such Filings or (ii) in the case of the Proxy Statement, information that is derived from filings made by International with the SEC prior to the Offer Closing Time; (c) relating to or arising from the breach by UCRI or any of its Subsidiaries of any agreement or covenant or from an inaccuracy in any representation or warranty of International or Daka contained in the Merger Agreement or an Ancillary Agreement which does not by its express terms expire at the Offer Closing Time; (d) (i) any civil Action or (ii) any action by a Governmental Entity where such Indemnifiable Losses relate to or arise from events, occurrences, actions, omissions, facts or circumstances occurring or existing prior to the Offer Closing Time and relating to International, including, but not limited to, (w) Rita Venturino et al. v. Daka International, Inc. and William H. Baumhauer, Civil Action No. 96-12109-GAO (D. Mass.) (the "Venturino Claim"), including all claims for relief asserted in the Venturino Claim, any amended complaint or any action which is consolidated with the Venturino Claim, and including any claims similar to the Venturino Claim (as amended), including but not limited to any civil actions in state or federal court or claims in arbitration, brought by shareholders who purchased or sold securities within the class period described in the Venturino Claim, whether individually or as a group by reason of "opting out" of or being excluded from the Venturino Claim or by reason of the Venturino Claim not being certified or being decertified as a class action, (x) any other class or individual securities action relating to a time period prior to the Offer Closing Time, (y) any claim or action relating to or arising from any events, occurrences, actions, omissions, facts or circumstances occurring prior to the Offer Closing Time by International, Daka or their Affiliates in connection with the performance of the transactions contemplated by the Merger Agreements or Ancillary Agreements, or (z) relating to or arising from any matter set forth on Schedule 4.2(g) to the Disclosure Schedule (collectively, the "Special Liabilities"); (e) relating to or arising from any actual or alleged criminal violation of any law, rule or regulation of any Governmental Entity ("Criminal Matters") by International or any of its Subsidiaries, including Daka, or any director, officer, employee or agent of International or any of its Subsidiaries, including Daka, occurring or alleged to have occurred prior to the Offer Closing Time or any Criminal Matters by UCRI or any of its Subsidiaries, or any director, officer, employee or agent of UCRI or any of its Subsidiaries occurring or alleged to have occurred prior to or after the Offer Closing Time; (f) relating to or arising from any claim that the execution, delivery or performance by UCRI, International or Daka of each of the Merger Agreement or the Ancillary Agreements to which it is or will be a party or the consummation of the transactions contemplated thereby results in a violation or breach of, or constitutes a default or impermissible transfer under, or gives rise to any right of termination, first refusal or consent under or gives rise to any right of amendment, cancellation or acceleration of any material benefit under, any Material Contract other than a Customer Contract; (g) relating to or arising from (i) the Benefit Plans or Multiemployer Plans sponsored or contributed to by any member of the International Affiliated Group, but only with regard to events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted (A) prior to the Offer Closing Time, (B) in connection with or as a result of the consummation of the transactions contemplated by the Merger Agreement or any Ancillary Agreement including but not limited to Section 1.5 of the Merger Agreement or Section 7.4 of the Reorganization Agreement or (C) with respect to Multiemployer Plans to the extent provided in Section 7.9 of the Reorganization Agreement, (ii) the employment of any Foodservice Employee prior to the Offer Closing Time, (iii) the employment or termination of any UCRI Employee whether before, on or after the Offer Closing Time; (h) relating to or arising from the collection of Trade Receivables or the payment of Obligations (each as defined below) pursuant to Article IV; provided, that UCRI shall have no obligation to indemnify under this Section 2.1(h) for Indemnifiable Losses that are finally determined to have resulted primarily from the gross negligence or willful misconduct of Compass or its Subsidiaries; 3 (i) relating to or arising from the Stock Purchase Agreement dated as of May 26, 1997, by and among Compass, Compass Holdings, International, and the Stockholders named therein other than monetary obligations thereunder relating to the purchase of the Series A Preferred Stock; (j) relating to or arising from the repayment by Compass or its Subsidiaries of any bonus or similar payments paid to International or Daka prior to the Offer Closing Time required under the various purchasing contracts set forth on Schedule 4.2(k)(iv)(H) or 4.2(k)(iv)(K) of the Disclosure Schedule; provided, that UCRI shall be liable only for a prorated portion of any such repayments based on the proportion of the total period over which the relevant parameter for calculating such bonus or payment under the terms of the relevant contract is calculated represented by the portion of such period ending as of the Offer Closing Time; or (k) relating to or arising from that lease agreement to which International is lessee and relating to the real property located at One Corporate Place, 55 Ferncroft Place, Danvers, Massachusetts (the "Headquarters Lease"), except for Compass' rental payment obligations as sublessee to UCRI pursuant to the Transition Agreement (as defined in Section 3.2). SECTION 2.2 INDEMNIFICATION BY COMPASS AND COMPASS HOLDINGS. Except as otherwise specifically provided in the Merger Agreement or any Ancillary Agreement and subject to the provisions of this Article II, Compass and Compass Holdings (jointly and severally) shall indemnify, defend and hold harmless the UCRI Indemnitees from and against, and pay or reimburse the UCRI Indemnitees for, all Indemnifiable Losses, as incurred: (a) relating to or arising from the Food service Assets, Foodservice Liabilities or the conduct of the Foodservice Business where such Indemnifiable Losses relate to or arise from events, occurrences, actions, omissions, facts or circumstances occurring, existing and asserted after the Offer Closing Time; (b) relating to or arising from a Third Party Claim that there is any untrue statement or alleged untrue statement of a material fact contained in any of the Filings, or any omission or alleged omission to state therein 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; but only in the case of the Schedule 14D-9, Form 10, Information Statement or Proxy Statement with respect to information provided by Compass or its Subsidiaries (excluding International and Daka prior to the Offer Closing Time) in writing relating to Compass or its Subsidiaries contained in or omitted from such Filings; (c) relating to or arising from the breach by Compass or its Subsidiaries (other than International or Daka) of any agreement or covenant, or from an inaccuracy in any representation or warranty of Compass or its Subsidiaries (other than International or Daka) contained in the Merger Agreement or an Ancillary Agreement (other than an agreement or covenant assumed by UCRI pursuant to an Ancillary Agreement) which does not by its express terms expire at the Offer Closing Time; (d) relating to or arising from any actual or alleged Criminal Matters by Compass or any of its Subsidiaries, including International or Daka, or any director, officer, employee or agent of Compass or any of its Subsidiaries, including International or Daka, after the Offer Closing Time, occurring or alleged to have occurred prior to or after the Offer Closing Time, but, in the case of International or Daka, only where such matters do not relate to a pattern or course of conduct commencing prior to the Offer Closing Time; (e) relating to or arising from the employment of any Foodservice Employee, but only with regard to events, occurrences, actions, omissions, facts or circumstances occurring, existing or asserted after the Offer Closing Time; (f) relating to or arising from the collection of Trade Receivables or the payment of Obligations by Compass or its Subsidiaries pursuant to Article IV, but only in the event that such Indemnifiable Losses are finally determined to have resulted primarily from the gross negligence or willful misconduct of Compass or its subsidiaries; or (g) relating to or arising from the repayment by UCRI of any bonus or similar payments paid to Compass or its Subsidiaries after the Offer Closing Time required under the various purchasing contracts set forth on Schedule 4.2(k)(iv)(H) or 4.2(k)(iv)(K) of the Disclosure Schedule; provided, that Compass or its Subsidiaries shall be liable only for a prorated portion of any such repayments based on the proportion of the total period over which the relevant parameter for calculating such bonus or payment under the terms of the relevant contract is calculated represented by the portion of such period beginning as of the Offer Closing Time. 4 SECTION 2.3 PROCEDURES RELATING TO INDEMNIFICATION. (a) In order for a Compass Indemnitee or a UCRI Indemnitee (together, the "Indemnitees") to be entitled to any indemnification provided for under this Agreement in respect of, arising out of or involving a Third Party Claim, such Indemnitee must notify the party who may become obligated to provide indemnification hereunder (the "indemnifying party") in writing, and in reasonable detail, of the Third Party Claim reasonably promptly, and in any event within 20 business days after receipt by such Indemnitee of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure (except that the indemnifying party shall not be liable for any expenses incurred during the period in which the Indemnitee failed to give such notice); and provided further, however, that with respect to any matter for which UCRI is the indemnifying party, UCRI shall be deemed to have received notice with respect to all matters by or against Compass or any of its Subsidiaries notice of which was actually received by an officer of International prior to the Offer Closing Time. After any required notification (if applicable), the Indemnitee shall deliver to the indemnifying party, promptly after the Indemnitee's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim. (b) If a Third Party Claim is against an Indemnitee, the indemnifying party will be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof (at the expense of the indemnifying party) with counsel selected by the indemnifying party and reasonably satisfactory to the Indemnitee; provided, however, that in case of a claim made by any person against an Indemnitee relating to a Special Liability (a "Special Liability Claim"), UCRI (at UCRI's expense) shall assume the defense thereof with defense counsel selected by UCRI. Should the indemnifying party so elect (or, in the case of a Special Liability Claim, be obligated) to assume the defense of a Third Party Claim, the indemnifying party will not be liable to the Indemnitee for any legal expenses subsequently incurred (or, in the case of a Special Liability Claim, incurred) by the Indemnitee in connection with the defense thereof. If the indemnifying party assumes (or, in the case of a Special Liability Claim, is obligated to assume) such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense, and the indemnifying party shall promptly, at its expense, provide to the Indemnitee copies of all relevant filings, correspondence, memoranda and related documents. The indemnifying party shall be liable for the fees and expenses of counsel employed by the Indemnitee for any period during which the indemnifying party has not assumed (or, in the case of a Special Liability Claim, is in breach of its obligation to assume) the defense thereof (other than during any period in which the Indemnitee shall have failed to give notice of the Third Party Claim as provided above) or in the event that there has been a breach of the terms of the insurance policies related to any Special Liability Claims and as to which Compass or its Subsidiaries is a beneficiary. If the indemnifying party chooses (or, in the case of a Special Liability Claim, is obligated) to defend or prosecute a Third Party Claim, all the parties hereto shall cooperate in the defense or prosecution thereof, which cooperation shall include the retention in accordance with the Reorganization Agreement and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. If the indemnifying party chooses (or, in the case of a Special Liability Claim, is obligated) to defend or prosecute any Third Party Claim, the Indemnitee will agree to any settlement, compromise or discharge of such Third Party Claim which the indemnifying party may recommend and which by its terms obligates the indemnifying party to pay the full amount of liability in connection with such Third Party Claim; provided, however, that, without the Indemnitee's consent, the indemnifying party shall not consent to entry of any judgment or enter into any settlement (w) that provides for injunctive or other nonmonetary relief having a material adverse effect on the Foodservice Business, (x) that involves a Criminal Matter or (y) that involves an allegation of conduct which could result in the suspension or debarment of the Indemnitee from contracting with any Governmental Entity. UCRI shall reimburse Compass on a monthly basis for any reasonable out-of-pocket expenses actually incurred by Compass or its Subsidiaries in providing support or other resources at UCRI's request relating to any Special Liability Claim in an amount equal to Compass' costs thereof. (c) In order for an Indemnitee to be entitled to any indemnification provided for under this Agreement in respect of a claim that does not involve a Third Party Claim, the Indemnitee shall deliver notice of such claim with reasonable promptness to the indemnifying party. The failure by any Indemnitee so to notify the indemnifying 5 party shall not relieve the indemnifying party from any liability which it may have to such Indemnitee under this Agreement, except to the extent that the indemnifying party shall have been actually prejudiced by such failure. If the Indemnitee has provided the indemnifying party two such notices not less than 30 days apart and the indemnifying party does not notify the Indemnitee prior to the expiration of a 30-calendar-day period following its receipt of the second such notice that the indemnifying party disputes its liability to the Indemnitee under this Agreement, such claim specified by the Indemnitee in such notice shall be automatically submitted for arbitration pursuant to Section 6.11(b) hereof. If the indemnifying party has timely disputed its liability with respect to such claim, as provided above, the indemnifying party and the Indemnitee shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be resolved by arbitration as provided in Section 6.11. SECTION 2.4 CERTAIN LIMITATIONS. (a) The amount of any Indemnifiable Losses or other liability for which indemnification is provided under this Agreement shall be net of any amounts actually recovered by the Indemnitee from third parties (including, without limitation, amounts actually recovered under insurance policies) with respect to such Indemnifiable Losses or other liability. Any indemnifying party hereunder shall be subrogated to the rights of the Indemnitee upon payment in full of the amount of the relevant Indemnifiable Loss. An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto. If any Indemnitee recovers an amount from a third party in respect of an Indemnifiable Loss for which indemnification is provided in this Agreement after the full amount of such Indemnifiable Loss has been paid by an indemnifying party or after an indemnifying party has made a partial payment of such Indemnifiable Loss and the amount received from the third party exceeds the remaining unpaid balance of such Indemnifiable Loss, then the Indemnitee shall promptly remit to the indemnifying party the excess (if any) of (i) the sum of the amount theretofore paid by the indemnifying party in respect of such Indemnifiable Loss plus the amount received from the third party in respect thereof, less (ii) the full amount of such Indemnifiable Loss or other liability. (b) The amount of any Indemnifiable Losses or other Liability for which indemnification is provided under this Agreement or any other amounts payable or reimbursable by one party to another under this Agreement shall be increased or decreased to take account of any net Tax (as defined in the Tax Allocation Agreement) cost or any net Tax benefit in a manner analogous to that described in Section 5.5 of the Tax Allocation Agreement. (c) Notwithstanding any other provisions of the Merger Agreement or any of the Ancillary Agreements, the Compass Indemnitees shall not have any right to make claims for indemnification pursuant to Section 2.1 with respect to (i) any matter which is the basis of an adjustment pursuant to Article V hereof, it being understood that such adjustments constitute the Compass Indemnitees' sole recourse and remedy with respect to such matters to the exclusion of this Article II, or (ii) breaches of representations and warranties in the Merger Agreement after the period for which such representations or warranties survive pursuant to Section 9.1 of the Merger Agreement. (d) (i) Neither UCRI nor Compass shall have any liability under Section 2.1 or Section 2.2, respectively, unless the aggregate of all Indemnifiable Losses for which UCRI or Compass would, but for this Section 2.4, be liable under Section 2.1 or Section 2.2, respectively, exceeds on a cumulative pre-tax basis an amount equal to $250,000 (the "Basket Amount"), and then only the amount by which such Indemnifiable Losses exceed the Basket Amount; provided that the Basket Amount shall not apply to amounts paid in connection with the Venturino Claim (which amounts shall be paid in their entirety). (ii) No Indemnifiable Losses actually paid by UCRI or Compass pursuant to any provision other than Section 2.1 or Section 2.2, respectively, or in connection with the Venturino Claim, shall be deemed to be an Indemnifiable Loss for purposes of determining whether the aggregate amount of Indemnifiable Losses exceeds the Basket Amount. Neither UCRI nor Compass shall have any liability under Section 2.1 or Section 2.2, respectively, with respect to the breach of or inaccuracy in any representation or warranty unless notice of any such breach or inaccuracy is given pursuant to Section 2.3 prior to the expiration of the survival period provided in the Merger Agreement for the relevant representation or warranty. SECTION 2.5 ABSENCE OF CONTRIBUTION. In no event shall UCRI have a right of contribution against International or Daka in connection with the indemnities of International and Daka found in this Article II, the Merger Agreement or any of the Ancillary Agreements. 6 SECTION 2.6 GROSS UP FOR TAXES. It is the intention of the parties to this Agreement that payments and asset transfers made by the parties to each other after the Offer Closing Time pursuant to the Post-Closing Covenants Agreement are to be treated as relating back to the Contribution as an adjustment to the assets and liabilities contributed thereunder, and the parties shall take positions consistent with such intention with any Taxing Authority (as defined in the Tax Allocation Agreement), unless with respect to any payment any party receives an opinion of counsel to the effect that there is no substantial authority for such a position or unless a final determination (as defined in Section 1313 of the Code) with respect to the recipient party causes any such payment not to be so treated. To the extent that any Taxing Authority makes such a final determination, any amount received by the Indemnitee, to the extent that it is treated as an item of income or gain for federal income tax purposes and is not offset by the amount of any tax benefit allowed to the Indemnitee for the payment or incurrence of any liability from which the payment arises, shall be increased by 40%. For purposes of this Section 2.6, the Indemnifiable Loss amount shall not, in any case, include the gross-up determined in this Section 2.6. SECTION 2.7 EXCLUSIVITY OF TAX ALLOCATION AGREEMENT. Notwithstanding anything in this Agreement, the Merger Agreement or the Reorganization Agreement to the contrary, the Tax Allocation Agreement shall be the exclusive agreement among the parties with respect to all Tax matters, including indemnification in respect of Tax matters and including Timing Adjustments in Section 5.4 of the Tax Allocation Agreement. SECTION 2.8 EXCLUSIVITY OF THIS ARTICLE. The indemnification rights of the parties provided in this Article II constitute the exclusive remedy of the parties with respect to all matters described in this Article II. ARTICLE III OTHER AGREEMENTS SECTION 3.1 TRANSFER TAXES. UCRI and Compass shall comply with Section 3.2(f) of the Merger Agreement. SECTION 3.2 TRANSITION MATTERS. UCRI and Compass shall prior to the Offer Closing Time enter into a Transition Agreement in a mutually agreeable form which addresses the matters set forth in EXHIBIT 3.2. SECTION 3.3 INSURANCE. (a) UCRI will abide by the terms of the Insurance Policies and will fulfill its obligations as provided in Section 5.4 of the Reorganization Agreement. (b) Except as otherwise specifically provided in the Merger Agreement, the Reorganization Agreement or any other Ancillary Agreement, with respect to any loss, liability or damage relating to the Foodservice Assets arising out of events occurring prior to the Offer Closing Time, UCRI will assert any such claims under the Insurance Policies with respect to such loss, liability or damage in accordance with the terms thereof. Upon the request of UCRI, Compass will use reasonable best efforts to assist UCRI in resolving any such claims under the Insurance Policies with respect to such loss, liability or damage. Notwithstanding the foregoing sentence, UCRI shall have full responsibility to assert any claim with respect to the Foodservice Assets arising out of events occurring prior to the Offer Closing Time and UCRI assumes full responsibility for all costs, payment obligations and reimbursement obligations relating to such claims. SECTION 3.4 EXPENSES. Except as otherwise expressly provided in the Ancillary Agreements, UCRI shall be responsible for and agree to pay such expenses which, as provided in Section 6.1 of the Merger Agreement, are the responsibility of International or Daka, but only to the extent they were incurred before the Offer Closing Time; provided that International may, prior to the Offer Closing Time, pay any such expenses that would otherwise be or become otherwise the responsibility of UCRI. SECTION 3.5 COVENANT NOT TO COMPETE. In consideration of the payment of the Merger Consideration (as defined in the Merger Agreement) and the parties' respective representations, warranties, covenants and agreements contained in the Merger Agreement and the Ancillary Agreements, UCRI agrees that, for a period of five years following the Offer Closing Time, neither it nor any of its Subsidiaries will directly or indirectly, either individually or as an agent, partner, shareholder, investor, consultant or in any other capacity: (a) Participate or engage in, or assist others in participating or engaging in, the business of providing contract catering, contract food and vending services to business and industry, educational institutions, airports, healthcare, museums or other similar leisure facilities in the continental United States but excluding the foodservice provided 7 at retail outlets such as cinemas, theaters, stores, shopping centers and the like (the "Restricted Business"); PROVIDED, HOWEVER, that UCRI without violating this Section 3.6, may own a passive investment of in the aggregate not more than 2% of the issued and outstanding stock of a publicly held corporation, partnership or other entity engaged in the business of providing food service or vending services; (b) Influence or attempt to influence any customer of Compass, Compass Holdings, International or Daka to divert its business from Compass, International or Daka to any Person then engaged in any aspect of the Restricted Business in competition with Compass, International or Daka; or (c) Solicit or hire any of the Foodservice Employees at the district manager level or above, either during the term of such person's employment by Compass, International or Daka or within 12 months after such person's employment has ceased for any reason, to work for UCRI or any Person in any aspect of Foodservice (including vending service) in competition with Compass, International or Daka; provided, that this subsection (c) shall not apply to Foodservice Employees (i) terminated by Compass, International or Daka after the Offer Closing Time or (ii) who have been employed by Persons other than Compass, International or Daka for at least six months prior to being hired by UCRI or its Subsidiaries. SECTION 3.6 PERFORMANCE BY UCRI OF CERTAIN MERGER AGREEMENT COVENANTS; FURTHER ASSURANCES. The parties hereto agree that UCRI, as successor to International and Daka subsequent to the Contribution, will perform in all respects the covenants applicable to International or Daka in the Merger Agreement and will receive in all respects the benefits applicable to International or Daka thereunder. SECTION 3.7 SURETY BONDS. UCRI represents it has no surety bonds relating to any UCRI Asset, the UCRI Business or any UCRI Liability. SECTION 3.8 NET WORTH. (a) For a period ending on the later of three years following the Offer Closing Time or the resolution of all claims for indemnification under Section 2.1, UCRI and its Subsidiaries, on a consolidated basis, will maintain at all times a net worth (determined in accordance with generally accepted accounting principles, consistently applied) of not less than $50,000,000 (the "Minimum Net Worth"). (b) During the foregoing period, UCRI will provide to Compass, within 45 days following the end of each of UCRI's fiscal quarters, a certificate of the Chief Financial Officer of UCRI certifying UCRI's continuing compliance with the foregoing covenant. (c) In the event that UCRI shall fail to meet the Minimum Net Worth, it shall immediately provide alternate secured collateral for any such claims for indemnification in a form reasonably satisfactory to Compass. SECTION 3.9 DUTY TO DEFEND. (a) UCRI covenants and agrees that it will vigorously and in good faith defend the Compass Indemnitees in any proceeding or claim of which it has assumed the defense (or is required to assume the defense) pursuant to Section 2.1 or Section 2.3, including but not limited to the Special Liabilities and any Third Party Claim. (b) In the event that UCRI determines to settle any claim, including but not limited to the Special Liabilities or any Third Party Claim, the Compass Indemnitees shall have no duty or obligation to contribute to any settlement, and the failure of any Compass Indemnitee to contribute to any settlement shall in no way excuse or discharge the duties and obligations of UCRI pursuant to Section 2.1 or Section 2.3. SECTION 3.10 GUARANTY BY CHAMPPS AND FUDDRUCKERS. (a) Each of Champps and Fuddruckers hereby, jointly and severally, continuously and unconditionally guarantees to Compass and its Subsidiaries the full and prompt payment and performance of all obligations of UCRI under the Ancillary Agreements, including, without limitation, any and all amounts owed or to be owed under Article II or Article V hereof, whenever the same, or any part thereof, shall become due and payable in accordance with the terms of the Ancillary Agreements (the "Guaranty"). (b) Notwithstanding the foregoing Section 3.10(a), the Guaranty shall be limited to those obligations of UCRI that become due for payment or for which performance shall have begun and as to which UCRI has been properly put on notice of a potential claim of Indemnifiable Loss on or before December 31, 1998. 8 (c) Champps and Fuddruckers each hereby agree that Compass or its Subsidiaries may at any time and from time to time without notice to Champps or Fuddruckers renew, amend, modify or extend the time of payment or performance of any obligations guaranteed by this Section 3.10 one or more times and grant and allow such indulgences or compromises in connection therewith as it may deem advisable without discharging, releasing or in any manner affecting the liability of Champps or Fuddruckers under this Section 3.10. (d) Champps and Fuddruckers agree that this is a Guaranty of payment and performance and not of collection, and each hereby waives any right it may have to require that any action be brought against UCRI or to require that resort be had to any security. SECTION 3.11 PENDING LITIGATION. In defending and reaching resolution of the pending litigation, the Company will consider International's name, existing goodwill, and reputation in the foodservice industry. ARTICLE IV TRADE RECEIVABLES AND OBLIGATIONS SECTION 4.1 AUTHORIZATION. Under the terms of the Reorganization Agreement, the Trade Receivables (as defined below) and the Obligations (as defined below) have been assigned and transferred to UCRI. UCRI hereby appoints Daka as its agent, after the Offer Closing Time, for purposes of collection of the Trade Receivables and payment of the Obligations, with the power and authority to act in the name and on behalf of UCRI as fully as UCRI may act on its own behalf. UCRI hereby authorizes and directs Daka to pay the Obligations and to collect the Trade Receivables, as described in this Article IV. SECTION 4.2 COLLECTION OF TRADE RECEIVABLES. (a) Commencing at the Offer Closing Time and continuing thereafter for a period of not more than four months, Daka will use prompt, diligent and reasonable efforts, in the same manner as its regular collection practices for its own trade receivables, to collect those trade receivables owned by UCRI and to be set forth on a schedule to be delivered to Daka by UCRI at the Offer Closing Time (the "Trade Receivables"). The existing Daka credit manager will be made available by UCRI on a basis reasonably acceptable to it to Compass during the first eight weeks following the Offer Closing Time and will be given access to the necessary records and International personnel to ensure that such regular collection practices are followed. Compass shall assign adequate personnel to the collection of Trade Receivables. (b) Notwithstanding anything to the contrary contained herein, Daka shall have no obligation to institute any action or other litigation before any court, agency, arbitrator or tribunal to collect, or enforce any rights of UCRI with respect to the Trade Receivables. In each instance where the institution of an action or lawsuit is appropriate, Daka will allow UCRI to collect such Trade Receivables and to pursue any such remedies. Daka shall not, without UCRI's prior written consent, compromise or settle for less than full face value any of the Trade Receivables unless Daka pays UCRI the full amount of any deficiency. (c) Daka acknowledges that UCRI is prepared to assist Daka with special collection efforts for selected Trade Receivables. In the event that Daka, in its reasonable discretion, requests such efforts, UCRI shall to the extent it deems such efforts appropriate make its personnel available therefor; provided, that Daka shall have no obligation to undertake any such special collection efforts. In the event UCRI offers assistance to Daka with respect to the collection of the Trade Receivables, Daka shall (i) grant UCRI access to relevant personnel and records and (ii) to the extent Daka deems appropriate, if any, allow UCRI to communicate directly with any customer. (d) Subject to the following sentences, any payment received from any customer shall be applied to the invoice specified by the customer or, if a payment amount equals an invoice amount for such customer, then to that invoice. If the customer shall fail to specify the invoice to which such payment shall be applied and payment does not equal an invoice, then the payment shall be applied to the oldest invoice existing for such customer. If an older invoice is outstanding for a customer but the customer specifies that a payment should be applied to a newer invoice, then Daka shall be obligated to do one of the following: (i) apply the payment to the older receivable for the benefit of UCRI or (ii) turn over the older receivable to UCRI so as to permit UCRI to pursue collection and all available remedies. 9 SECTION 4.3 PAYMENT OF OBLIGATIONS. (a) Commencing at the Offer Closing Time and continuing thereafter for a period of not more than four months, Daka shall pay from the collected Trade Receivables those obligations of UCRI to be set forth on a schedule to be delivered to Daka by UCRI at the Offer Closing Time (the "Obligations"), but which schedule shall consist only of the types of obligations set forth on Schedule 4.3(a) hereto (the "Obligations"). The obligation of Daka to pay Obligations shall be limited to the actual amount of Trade Receivables collected by it. (b) UCRI may elect to provide to Daka from time to time a schedule setting forth the priority and timing of proposed payments of the Obligations. If such schedule has been provided, Daka will follow that schedule unless it determines that adherence to the schedule will have a material adverse effect on its ability to operate the Foodservice Business in the ordinary course or impair the credit of Daka. (c) The amount of accrued but unpaid vacation and sick leave pay reflected in the Closing Date Financial Statements (which amount shall be a UCRI Liability (as defined in the Reorganization Agreement)) shall be paid by UCRI to Compass as provided in Section 4.4(b), whereupon Compass shall release UCRI from any further liability or obligation in connection therewith. SECTION 4.4 SETTLEMENT PAYMENTS. (a) For the period commencing as of the Offer Closing Time and ending eight weeks thereafter, Compass shall have no obligation to remit any collected Trade Receivables to UCRI. (b) Not later than the Business Day next following the last day of the eighth week after the Offer Closing Time, Compass shall remit to UCRI the amount, if any, by which the aggregate of the collected Trade Receivables exceeds the aggregate amount of the Obligations actually paid by Daka plus any adjustments determined in good faith and derived from the Closing Date Financial Statements by Compass pursuant to Section 5.4(a) (but prior to any final resolution by arbitration pursuant to Section 5.4(b)). Thereafter, Compass shall remit any such net amount to UCRI not later than the Business Day next following the end of each succeeding two-week period. SECTION 4.5 REPORTING. On or before the fifth business day after the end of each two-week period during the period which Daka is acting as UCRI's agent hereunder, Daka shall produce a report showing all collections of Trade Receivables and payments of Obligations during the relevant two-week period and on a cumulative basis since the Offer Closing Time. SECTION 4.6 BILLING. Daka will separately bill each customer for goods and services provided through the Offer Closing Time promptly after the Offer Closing Time in accordance with prior practice, which amount shall be part of the Trade Receivables. SECTION 4.7 RIGHT OF SETOFF. In addition to, but without duplication of, its rights pursuant to Section 4.4(b), Compass shall have the right to setoff against (a) any amounts owing to UCRI under Section 4.4 and (b) any obligation to turn over outstanding Trade Receivables under Section 4.8(a) (i) any or all amounts which have been finally determined to be actually due from UCRI to Compass pursuant to Article V (including Section 5.4(b) thereof). SECTION 4.8 TERMINATION OF COMPASS' OBLIGATIONS. (a) Notwithstanding anything contained herein to the contrary, not later than the fifth Business Day following the date that is four months after the Closing Date (the "Termination Date"), (i) Daka shall turn over all outstanding Trade Receivables and Obligations to UCRI for collection or payment by UCRI, at which time all of Daka's and Compass' obligations under this Article IV shall cease except the obligation to make payments as provided under Sections 4.4, and the obligations under Section 4.8(b) and (ii) UCRI shall remit promptly to Compass the amount, if any, by which the aggregate of the Obligations paid by Daka exceeds the Trade Receivables collected by Daka through the Termination Date. (b) For the 12-month period following the Termination Date, Compass agrees to make available to UCRI, at no cost, on a mutually convenient basis, copies of such records and information (and access to such employees as may be reasonably necessary to explain such records and information) as UCRI may reasonably request in connection with its collection of the Trade Receivables or payment of the Obligations; provided, that UCRI shall reimburse Compass for any reasonable out-of-pocket expenses actually incurred by Compass or its Subsidiaries in providing such records, information or employees in an amount equal to Compass' actual costs thereof within five business days following receipt by UCRI from Compass of notice thereof. 10 ARTICLE V POST-CLOSING PAYMENTS SECTION 5.1 DEFINITIONS. When used in this Article V, the following terms have the following meaning: "APPLIED PERCENTAGE" means the difference of (i) the percentage calculated by dividing (A) the sum of (x) excess allocations to the extent actually reflected in the Closing Date Financial Statements and (y) purchasing rebates to the extent actually reflected in the Closing Date Financial Statements by (B) the Total Foodservice Managed Volume minus (ii) 2% (see Schedule 5.3(a) for illustration purposes). "CLOSING DATE FINANCIAL STATEMENTS" means the financial statements prepared in accordance with Section 5.4 in accordance with GAAP (as defined below) with respect to the Foodservice Business for the period beginning on June 30, 1996 and ending on the earlier of June 28, 1997 or the Offer Closing Time, which financial statements shall be prepared as if the Offer Closing Time were the end of a fiscal year (with usual year-end accruals or expenses). "CUSTOMER CONTRACT CONTRIBUTION" means (i) with respect to any foodservice contract that is a so-called "profit and loss" contract, the difference between total revenues and direct operating costs (excluding general and administrative fees), in each case determined in accordance with GAAP and (ii) with respect to any foodservice contract that is a so-called "management fee" contract, the sum of management fees and support fees, minus any costs incurred in connection with any guaranteed budgeted subsidy, in each case determined in accordance with GAAP. Schedule 5.1(a) sets forth the methodology to be used in determining "Customer Contract Contribution" with respect to a typical contract based on Daka's customary profit and loss statement for contract administration and internal financial reporting purposes. The parties understand and acknowledge that for purposes of calculating any Profit Differential pursuant to Section 5.3(a) hereof, Customer Contract Contribution with respect to a particular contract may be a positive or a negative amount and will be counted in both cases. "FRENCH QUARTER COFFEE REBATE" means an amount calculated by multiplying (A) the total rebates with respect to French Quarter Coffee purchases actually reflected in the Closing Date Financial Statements by (B) a fraction the numerator of which is the actual usage of French Quarter Coffee by the Foodservice Business and the denominator of which is the total usage of French Quarter Coffee by International and all Subsidiaries (including the Restaurant Business) during the period covered by the Closing Date Financial Statements. "GAAP" means generally accepted accounting principles consistently applied and, to the extent consistent with generally accepted accounting principles, International's past policies and practices with respect to its historical consolidated financial statements and the Foodservice Business Financial Statements (as defined in the Merger Agreement); provided, however, that the scope of materiality will be adjusted to reflect the relative size of the Foodservice Business compared to International prior to the Distribution. "INVENTORY" means all inventories, supplies and materials of any kind used or held for use in the Foodservice Business, including food, paper supplies, packaging materials, small wares, and the like, but excluding all inventory that, under the terms of the applicable Customer Contract, is owned by the college, university, school, academy or business to which food services are provided. Inventory shall be valued at its book value determined in accordance with GAAP (as defined above). "LOST CUSTOMER CONTRACT" means any Customer Contract which is terminated or cancelled between June 29, 1996 and the Offer Closing Time, or as to which during such period any officer of International or Daka at the level of Regional Vice-President or above has received written or oral notice that (i) the customer party thereto plans or intends to terminate or cancel such Customer Contract, or (ii) one or more separate locations under such contract will be eliminated (whereupon all amounts calculated by reference to a Lost Customer Contract will be prorated to reflect only such eliminated locations); provided that the term Lost Customer Contract shall not include (A) any Customer Contract where the customer party thereto enters into a foodservice contract with or awards a foodservice contract to Compass or any of its Affiliates after May 1, 1997, or (B) the Customer Contracts with the Smithsonian Institute with respect to the Museum of Natural History and Museum of American History in Washington, D.C. "LOST CUSTOMER CONTRACT MANAGED VOLUME" means the Managed Volume with respect to the relevant Lost Customer Contract to the extent actually reflected in the Closing Date Financial Statements. 11 "LOST CUSTOMER CONTRACT PROFIT" means the algebraic sum of (a) the Customer Contract Contribution with respect to the relevant Lost Customer Contract to the extent actually reflected in the Closing Date Financial Statements and (b) the product of the Applied Percentage multiplied by the Lost Customer Contract Managed Volume. The parties acknowledge and understand that for purposes of calculating any Profit Differential pursuant to Section 5.3(a) hereof, Lost Customer Contract Profit may be a positive or a negative amount and will be counted in both cases. "MANAGED VOLUME" means the total revenues, determined in accordance with GAAP, from the particular contract, arrangement or other agreement relating to the Foodservice Business to which reference is made (for those accounts operated on a management fee basis, the amount of total revenues shall be calculated as if such account had been operated on a profit and loss basis), plus any subsidy paid to the contract foodservice provider or payable by any party under any such contract, arrangement or agreement. "NEW CUSTOMER CONTRACT" means any foodservice contract that is or would be included in the list of Customer Contracts delivered pursuant to the Merger Agreement if in effect as of the date hereof which (i) is entered into by Daka or International between June 29, 1996 and the Offer Closing Date, or (ii) as to which during such period any officer of Daka or International at the level of Regional Vice-President or above has received written or oral notice that (A) the relevant customer has awarded the contract to or intends to enter into such contract with Daka or International or (B) one or more separate locations will be added under such contract (whereupon the amount calculated as a New Customer Contract will be prorated to reflect only such new locations). "NEW CUSTOMER CONTRACT MANAGED VOLUME" means the projected annualized Managed Volume with respect to the relevant New Customer Contract for the first 12 months of operation as mutually agreed between International and Compass (but if not agreed, then subject to arbitration pursuant to Section 6.11) and determined on the basis of the bid package submitted by Daka or International and, if available, the actual terms, conditions and schedules of the actual New Customer Contract, net of the Managed Volume with respect to such New Customer Contract to the extent actually reflected in the Closing Date Financial Statements. "NEW CUSTOMER CONTRACT PROFIT" means the algebraic sum of (a) the projected annualized Customer Contract Contribution with respect to the relevant New Customer Contract for the first 12 months of operation as mutually agreed between International and Compass (but if not agreed, then subject to arbitration pursuant to Section 6.11) and determined on the basis of the bid package submitted by Daka or International and, if available, the actual terms, conditions and schedules of the actual New Customer Contract, net of the Customer Contract Contribution with respect to such New Customer Contract to the extent actually reflected in the Closing Date Financial Statements and (b) the product of the Applied Percentage multiplied by the New Customer Contract Managed Volume (adjusted to the extent the Applied Percentage has already been reflected in the bid package). "NONRECURRING ITEMS" means the net algebraic sum of (A) International's amortization expense for those intangible assets described on Schedule 5.1(b) as reflected in the Closing Date Financial Statements, plus (B) any expenditures actually reflected in the Closing Date Financial Statements where the nature of the relevant transaction, entry or reported item is deemed either infrequent, extraordinary or nonrecurring or is outside the ordinary course of the Foodservice Business as historically conducted by International and Daka (such as, for example, litigation settlements paid in excess of reserves, if any, which relate to an incident which arose in a prior year) minus (C) any income actually reflected in the Closing Financial Statements that cannot be replicated in future periods in the ordinary course of the Foodservice Business as historically conducted by International and Daka (such as, for example, reduction in cost of sales resulting from duplicate payments arising prior to June 30, 1996). Nonrecurring Items will exclude normal fluctuations in the Foodservice Business, such as school enrollment or closure for renovations, and Lost Customer Contracts. With respect to (B) and (C) above, any such item will be excluded unless such item individually exceeds $50,000. "OPERATING CASH" means all cash on hand at individual sites where the Foodservice Business is conducted, including, without limitation, cash held in registers, petty cash and the like, but excluding all cash held in bank accounts or at financial institutions and checks, negotiable instruments, credit card receivables and the like. "PREPAID EXPENSES" means all prepaid expenses relating to the Foodservice Business as reflected in the Closing Date Financial Statements. "TOTAL FOODSERVICE MANAGED VOLUME" means the total managed volume of the Foodservice Business as reflected in the Closing Date Financial Statements. Attached hereto as Schedule 5.3(a) is the calculation of such amount as of March 29, 1997 for illustration purposes. 12 "TOTAL FOODSERVICE SEGMENT MEASURE" means the total segment income for the Foodservice Business as reflected in the Closing Date Financial Statements. Attached hereto as Schedule 5.3(a) is the calculation of such amount as of March 29, 1997 for illustration purposes. SECTION 5.2 BALANCE SHEET ADJUSTMENTS. (a) To appropriately adjust the Contribution, the sum of the following shall be determined as of the Offer Closing Time: (i) Inventory (based on a physical count completed within two business days after the Offer Closing Time but subject to audit by Deloitte & Touche, LLP), (ii) Operating Cash (based on an actual counting and reconciliation completed within two business days after the Offer Closing Time) and (iii) Prepaid Expenses (the sum of (i), (ii) and (iii); the "Foodservice Current Assets"). If the Foodservice Current Assets are less than $10,000,000, then UCRI shall pay to Compass as provided in Section 5.4 an amount equal to such shortfall, if any. (b) To appropriately adjust the aggregate Offer Price and Merger Price, the following shall be determined: (i) the product of $7.50 times the sum of (A) the total number of issued and outstanding shares of International Common Stock as of the Offer Closing Time plus (B) the total number of shares of International Common Stock into which all shares of Series A Preferred Stock issued and outstanding as of the Offer Closing Time are convertible, minus (ii) the sum of (A) $85,000,000 plus (B) the amount paid by International to Compass pursuant to Section 6.7(a) (ii) of the Merger Agreement. UCRI shall pay to Compass as provided in Section 5.4 such amount, if any. SECTION 5.3 MANAGED VOLUME/PROFITABILITY ADJUSTMENT. (a) The Profit Differential shall be calculated as follows: (i) Determine the Total Foodservice Segment Income; (ii) Subtract the aggregate Lost Customer Contract Profit of all Lost Customer Contracts; (iii) Add the aggregate New Customer Contract Profit for all New Customer Contracts; (iv) Add the French Quarter Coffee Rebate; (v) Add or subtract, as appropriate, the Nonrecurring Items; and (vi) Subtract $20,500,000 from the amount calculated in (i) through (v) (whether a positive or a negative amount, the "Profit Differential"); (b) The Managed Volume Differential shall be calculated as follows: (i) Determine the Total Foodservice Managed Volume; (ii) Subtract the aggregate Lost Customer Contract Managed Volume for all Lost Customer Contracts; (iii) Add the aggregate New Customer Contract Managed Volume for all New Customer Contracts; and (iv) Subtract $289,300,000 from the amount calculated in (i) through (iii) (whether a positive or a negative amount, the "Managed Volume Differential"); (c) The Managed Volume/Profit Adjustment shall be calculated as follows: (i) Divide the Managed Volume Differential by $289,300,000 and multiply the resulting fraction by 50%; (ii) Divide the Profit Differential by $20,500,000 and multiply the resulting fraction by 50%; and (iii) Add (algebraically) the results of (i) and (ii) and multiply that fraction by $195,000,000 (the "Managed Volume/Profit Adjustment"). (d) Not later than five business days after the Managed Volume/Profit Adjustment is finally determined pursuant to Section 5.4, the parties shall cause the Managed Volume/Profit Adjustment to be paid as follows: (i) If the Managed Volume/Profit Adjustment is a negative number, then UCRI shall pay such amount to Compass; 13 (ii) If the Managed Volume/Profit Adjustment is a positive number, then Compass shall pay such amount to UCRI. SECTION 5.4 DETERMINATION OF ADJUSTMENTS. (a) As soon as practicable and in any event not later than 40 days after the Offer Closing Date, Compass shall deliver to UCRI unaudited Closing Date Financial Statements and an itemized list (the "Proposed Adjustment List") setting forth all amounts calculated pursuant to Sections 5.2 and 5.3, with a brief explanation in reasonable detail thereof. Such list shall show the net amount credited to or charged against the account of UCRI (the "Proposed Adjustment Amount"). International shall give UCRI access to relevant records, workpapers and accounting personnel. Subject to the dispute resolution provisions set forth below, if the Proposed Adjustment Amount is a credit to the account of UCRI, Compass shall pay such amount in cash to UCRI; if the Proposed Adjustment Amount is a charge to the account of UCRI, UCRI shall pay such amount in cash to Compass. Except as provided otherwise below, payment of the Proposed Adjustment Amount shall be made in cash not later than five business days following the delivery of the Proposed Adjustment List. (b) Not later than 10 days following the delivery of the unaudited Closing Date Financial Statements and the Proposed Adjustment List, UCRI may furnish Compass with written notification of any dispute concerning any items shown thereon or omitted therefrom together with a brief explanation in reasonable detail in support of UCRI's position in respect thereof. UCRI and Compass shall consult to resolve any such dispute for a period of 10 days following the notification thereof. If such 10-day consultation period expires and the dispute has not been resolved, Compass and International shall submit the unaudited Closing Date Financial Statements to the Boston office of Deloitte & Touche, LLP, for audit and the Proposed Adjustment List for review. Deloitte & Touche, LLP, shall deliver the audited Closing Date Financial Statements, its calculation of the final adjustment amount based thereon (the "Final Adjustment Amount") (together with a brief explanation of the basis thereof) to UCRI and Compass not later than 45 days following its receipt of the unaudited Closing Date Financial Statements and the Proposed Adjustment List. The Final Adjustment Amount shall be paid in cash by the party required to pay the same within five business days after the delivery of a copy of such report to UCRI and Compass. (c) The Proposed Adjustment List (to the extent not disputed within the specified period by UCRI), any mutually agreed written settlement of any dispute concerning the Proposed Adjustment List, or any determination of disputed items and specification of the Final Adjustment Amount and the audited Closing Date Financial Statements shall be final, conclusive and binding on the parties hereto for purposes of determining the adjustment amount to be paid pursuant to this Article V, if any. (d) Compass Holdings and New International shall each pay 50% of the fees and expenses of Deloitte & Touche, LLP in connection with the audit of the Closing Date Financial Statements. ARTICLE VI MISCELLANEOUS AND GENERAL SECTION 6.1 MODIFICATION OR AMENDMENT. The parties hereto may modify or amend this Agreement only by written agreement executed and delivered by duly authorized officers of the respective parties. SECTION 6.2 WAIVER; REMEDIES. No delay on the part of any party hereto in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder, nor will any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. No waiver will be effective hereunder unless it is in writing. Unless otherwise provided, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which the parties may otherwise have at law or in equity. SECTION 6.3 COUNTERPARTS. For the convenience of the parties, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 14 SECTION 6.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. SECTION 6.5 NOTICES. Any notice, request, instruction or other communication to be given hereunder by any party to any other shall be in writing and shall be deemed to have been duly given (i) on the date of delivery if delivered personally, or by telecopy or telefacsimile, upon confirmation of receipt, (ii) on the first business day following the date of dispatch if delivered by Federal Express or other nationally reputable next-day courier service, or (iii) on the third business day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) If to UCRI: New Daka International, Inc. One Corporate Place 55 Ferncroft Place Danvers, Massachusetts 09123-4001 Attention: General Counsel (b) If to Compass, International or Daka: Compass Group USA, Inc. 2400 Yorkmont Road Charlotte, North Carolina 28217 Attention: General Counsel SECTION 6.6 ENTIRE AGREEMENT. The Merger Agreement, the Ancillary Agreements and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, among the parties, with respect to the subject matter hereof and thereof. SECTION 6.7 CERTAIN OBLIGATIONS. Whenever this Agreement requires any of the Subsidiaries of any party to take any action, this Agreement will be deemed to include an undertaking on the part of such party to cause such Subsidiary to take such action. SECTION 6.8 ASSIGNMENT. No party to this Agreement shall convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the express written consent of the other parties hereto in their sole and absolute discretion, except that any party hereto may assign any of its rights hereunder to a successor to all or any part of its business. Except as aforesaid, any such conveyance, assignment or transfer without the express written consent of the other parties shall be void ab initio. No assignment of this Agreement shall relieve the assigning party of its obligations hereunder. SECTION 6.9 SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon any such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties. SECTION 6.10 NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement is intended to confer upon any person or entity other than the parties hereto and their respective successors and permitted assigns, any benefit, right or remedies. SECTION 6.11 ENFORCEMENT. 15 (a) The parties 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. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. (b) Except for claims barred by the applicable statute of limitations (which may not be pursued by the parties in any judicial, arbitral or other forum), any and all disputes between the parties that arise out of or relate to this Agreement or any other agreement between the parties entered into in connection herewith or the transactions contemplated hereby or thereby, and which cannot be amicably settled, shall be determined solely and exclusively by arbitration administered by the American Arbitration Association ("AAA") under its commercial arbitration rules for such disputes at its office in Boston, Massachusetts. The parties expressly, unconditionally and irrevocably waive any right to recision, repudiation or any similar remedy in any legal action hereunder. The arbitration panel (the "Panel") shall be formed of three arbitrators approved by the AAA, one to be appointed by Compass, one to be appointed by UCRI, and the third to be appointed by the first two or, in the event of failure to agree within 30 days, by the President of the AAA. Judgment on the award rendered by the Panel may be entered in any court having jurisdiction thereof. (c) To the extent a court action is authorized above, the parties hereby consent to the jurisdiction of the United States District Court of Delaware. Each of the parties waives personal service to any and all process upon them and each consent that all such service of process be made by certified mail directed to them at their address shown in Section 6.5 hereof. THE PARTIES WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written. DAKA INTERNATIONAL, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT UNIQUE CASUAL RESTAURANTS, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT DAKA, INC. By: /s/ DONALD C. MOORE DONALD C. MOORE SENIOR VICE PRESIDENT CHAMPPS ENTERTAINMENT, INC. By: /s/ DONALD C. MOORE TITLE: SENIOR VP FUDDRUCKERS, INC. By: /s/ DONALD C. MOORE TITLE: SENIOR VP 16 COMPASS GROUP PLC By: /s/ MICHAEL J. BAILEY MICHAEL J. BAILEY DIRECTOR COMPASS HOLDINGS, INC. By: /s/ MICHAEL J. BAILEY MICHAEL J. BAILEY CHIEF EXECUTIVE OFFICER 17 EX-20 13 EXHIBIT (C)(5) Exhibit (c)(5) STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 26, 1997, is between DAKA International, Inc., a Delaware corporation ("International"), Compass Group PLC, a public limited company incorporated in England and Wales ("Compass"), Compass Holdings, Inc., a Delaware corporation ("Compass Holdings" or "Purchaser"), First Chicago Equity Corporation (f/k/a First Capital Corporation of Chicago) an Illinois corporation ("FCEC"), Cross Creek Partners I, an Illinois general partnership ("Cross Creek") and certain other parties signatory hereto (collectively with FCEC and Cross Creek, the "Stockholders" and each a "Stockholder"). RECITALS WHEREAS, International and the Stockholders entered into a Preferred Stock Purchase Agreement dated as of October 23, 1991 and amended on December 19, 1991 (the "Preferred Stock Purchase Agreement"), pursuant to which International issued and sold to the Stockholders, and the Stockholders purchased from International, shares of Series A Preferred Stock, par value $.01 per share, of International (the "International Preferred Stock") and warrants (the "Warrants") exercisable for shares of Common Stock, par value $.01 per share, of International (the "International Common Stock") upon redemption of the International Preferred Stock; WHEREAS, the Board of Directors of Compass has approved a tender offer pursuant to which Compass Holdings will offer to purchase for cash (the "Offer") any and all of the International Common Stock, subject to the terms and conditions contained in an Agreement and Plan of Merger (the "Merger Agreement") to be entered into by and among Compass, Compass Holdings, International and certain other parties; WHEREAS, the Board of Directors of International has approved a plan of contribution and distribution pursuant to a Reorganization Agreement (the "Reorganization Agreement") to be entered into by and among International, Daka, Inc., a wholly owned subsidiary of International ("Daka"), a newly formed, wholly owned subsidiary of International ("New International"), Compass and Compass Holdings, pursuant to which, prior to consummation of the Offer, (a) all of the assets and liabilities of the restaurant business currently operated by International and certain other assets and liabilities (other than in each case any funded indebtedness) of International, together with the shares of its subsidiaries not engaged in the food catering, contract catering and vending business, will be contributed to New International (the "Contribution"), and (b) all of the Common Stock, par value $.01 per share, of New International (the "New International Common Stock") will be distributed on a pro rata basis to the holders of International Common Stock, including the holders of International Preferred Stock on an as-converted basis (the "Distribution"); WHEREAS, as of the date hereof, the Stockholders beneficially own 11,911.545 shares of International Preferred Stock (the "Stockholder Shares") and Warrants to purchase 264,701 shares of International Common Stock upon redemption of the Stockholder Shares (the "Stockholder Warrants"); and WHEREAS, as a condition to the willingness of Compass to enter into the Merger Agreement and make the Offer, and of International, Daka and New International to enter into the Reorganization Agreement and effect the Contribution and Distribution, Compass Holdings has agreed to purchase from the Stockholders, and the Stockholders have agreed to sell to Compass Holdings, all of the Stockholder Shares and all of the Stockholder Warrants on the terms and conditions provided for herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound, Purchaser and the Stockholders hereby agree as follows: ARTICLE 1. PURCHASE AND SALE 1.1 Purchase and Sale of Stockholder Shares. (a) On the Closing Date (as hereinafter defined) and subject to the terms and conditions set forth herein, (i) the Stockholders shall transfer, assign and deliver to Purchaser, and Purchaser shall purchase from the Stockholders, all of the Stockholder Shares and all of the Stockholder Warrants then beneficially owned by the Stockholders, and (ii) Purchaser shall pay or cause to be paid to the Stockholders in exchange therefor cash in an aggregate amount (the "Purchase Price") equal to the total number of shares of Conversion Stock (which, as defined in the Certificate of Designation, Preferences and Rights of Preferred Stock establishing and designating the International Preferred Stock (the "Certificate of Designation"), equals 264,701 as of the date hereof and is subject to adjustment as provided therein) into which the Stockholder Shares are convertible as of the Closing Date, multiplied by the Offer Price (which, as defined in the Merger Agreement, equals $7.50 and is subject to increase (but not decrease) as provided therein). (b) On the business day immediately preceding the Offer Closing Date (as defined in the Merger Agreement), International shall pay or cause to be paid and shall deliver or cause to be delivered to the Stockholders all accrued and unpaid dividends on the International Preferred Stock, including, without limitation, any and all accrued and unpaid cash dividends and stock dividends payable in shares of International Common Stock calculated through the Closing Date (collectively, the "Accrued Dividends"); provided, however, that any accrued and unpaid stock dividends relating to the Distribution shall be paid, and International shall deliver or cause to be delivered to the Stockholders certificates therefor, on the payment date established by the Board of Directors of the Company for such dividends. 2 1.2 Dividends. The parties acknowledge that, in accordance with Section 1D of the Certificate of Designation, the Stockholders are entitled to receive from International on an as-converted basis any and all dividends (whether payable in cash, securities or other property) declared upon the International Common Stock (whether payable in cash, securities or other property, a "Common Stock Dividend")), provided that the record date for any such Common Stock Dividend is a date prior to the Closing Date, including, without limitation, the dividend to be declared by International in connection with the Distribution. Purchaser and International acknowledge and agree that the record date (the "Record Date") for the dividend to be declared by International in connection with the Distribution shall be a date prior to the Closing and that the Stockholders shall be entitled to receive shares of New International Common Stock in connection therewith on account of their shares of International Preferred Stock on an as-converted basis. International represents and warrants to the Stockholders that its Board of Directors has fixed the Record Date as the close of business on June 24, 1997; provided, however, that the Board of Directors of International reserves the right to change the Record Date to a date after (but not before) June 24, 1997, subject to the terms and conditions of the Reorganization Agreement and the Merger Agreement. International agrees that in the event that its Board of Directors (or authorized committee thereof) resolves to change the Record Date, International shall provide the Stockholders with notice of such change on the date on which International's Board of Directors (or authorized committee thereof) so resolves. 1.3 Closing. Subject to the terms and conditions of this Agreement, the closing of the purchase and sale of the Stockholder Shares (the "Closing") shall take place (a) at the offices of Smith Helms Mulliss & Moore, L.L.P., 214 North Church Street, Charlotte, North Carolina, on the day immediately following the day on which Compass Holdings accepts for payment and pays for shares of International Common Stock pursuant to the Offer, or (b) at such other time, date or place as the parties hereto may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." At the Closing, Purchaser shall pay the Purchase Price to the Stockholders (by wire transfer of immediately available funds to one or more accounts designated in writing by the Stockholders) and, subject to the proviso of Section 1.1(b), on the business day immediately preceding the Offer Closing Date International shall pay or cause to be paid and deliver or cause to be delivered to the Stockholders all Accrued Dividends to the same accounts, against, in the case of the Purchase Price, delivery to Purchaser of (i) certificates for the Stockholder Shares so purchased, duly endorsed or accompanied by stock powers duly executed in blank, and (ii) properly completed assignments in the form of Exhibit II to the Daka International, Inc. Stock Purchase Warrant dated January 17, 1992. 1.4 Waiver. Each of the Stockholders agrees that upon the Closing, each of the Stockholders shall be deemed to have waived all rights or claims of any nature whatsoever which any such Stockholder had or may have had under the Preferred Stock Purchase Agreement. 3 1.5 Conversion of Preferred Stock. Notwithstanding anything to the contrary provided herein, the Stockholders may sell or otherwise transfer any of the Stockholder Shares or Stockholder Warrants prior to the earlier of the Closing or the termination of this Agreement only (A) upon the conversion of such Stockholder Shares into shares of International Common Stock at the election of the Stockholders, or (B) in connection with the sale of such shares of International Common Stock issued to the Stockholders upon such conversion in a transaction pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). In the event that any Stockholder converts any Stockholder Shares pursuant to this Section 1.5, International shall deliver or cause to be delivered to such Stockholder, within two (2) days following notice of conversion of such Stockholder Shares and delivery to International of the certificates representing such Stockholder Shares, certificates for the number of Conversion Shares into which such Stockholder Shares are then convertible, and such certificates shall not bear any restrictive legend. Each of the Stockholders (i) represents that as of the date hereof it is not, and covenants that as of any date on which such Stockholder sells or transfers Stockholder Shares pursuant to this Section 1.5 it shall not be, an "affiliate" (as that term is defined in Rule 144 promulgated under the Securities Act) of International and represents that it has not been, and covenants that as of any date on which such Stockholder sells or transfers Stockholder Shares pursuant to this Section 1.5 it will not have been, an affiliate of International during the preceding three months, and (ii) represents that a period of two (2) years has elapsed since the later of the date such Stockholder Shares were acquired from International or from an affiliate of International, as calculated as described in Rule 144(d) promulgated under the Securities Act. ARTICLE 2. REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of Compass and Compass Holdings. Each of Compass and Compass Holdings hereby represent and warrant to the Stockholders as follows: (a) Organization and Good Standing. Compass is a public limited company duly incorporated and registered under the laws of England and Wales. Compass Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Power and Authorization. Each of Compass and Compass Holdings has the legal right, power and authority to enter into and perform its obligations under this Agreement and the other agreements and documents required to be delivered by it hereunder. The execution, delivery and performance by Compass and Compass Holdings of this Agreement and the Merger Agreement have been duly authorized by all necessary corporate action on the part of each of Compass and Compass Holdings. This Agreement and the Merger Agreement constitute the legal, valid and binding obligation of each of Compass and Compass Holdings, enforceable against it in accordance with its terms. 4 (c) Consents and Approvals; No Violation. Neither the execution and delivery of this Agreement by Compass and Compass Holdings nor consummation of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Memorandum and Articles of Association of Compass or the certificate of incorporation or bylaws of Compass Holdings, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Compass, any of its Subsidiaries or any of their respective assets. (d) No Brokers. Neither Compass nor any of its Subsidiaries has entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of such entity or the Stockholders to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or consummation of the transactions contemplated hereby, except that Compass has engaged Patricof & Co. Capital Corp. and NationsBanc Capital Markets, Inc. as its financial advisors in connection with the transactions contemplated by the Merger Agreement and is responsible for all fees, commissions, and like payments arising from such engagements, and International has engaged Bear Stearns & Co., Inc. as its financial advisor in connection with the transactions contemplated by the Merger Agreement and is responsible for all fees, commissions, and like payments arising from such engagement. Other than the foregoing arrangements, neither Compass nor Compass Holdings is aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or consummation of the transactions contemplated hereby, and each of Compass and Compass Holdings shall indemnify and hold each of the Stockholders harmless against any such claim. 2.2 Representations and Warranties of Stockholders. Each Stockholder hereby severally (and not jointly with respect to the other Stockholders) represents and warrants to Compass and Compass Holdings as follows: (a) Ownership of Shares. As of the date of this Agreement and, except to the extent of any conversion, sale or transfer of any Stockholder Shares in accordance with Section 1.5, as of the Closing Date, such Stockholder owns or shall own of record or beneficially the Stockholder Shares and the Stockholder Warrants set forth on Exhibit A opposite such Stockholder's name and such shares and warrants constitute all of the shares of International Preferred Stock and warrants to purchase shares of International Common Stock upon redemption of Stockholder Shares, respectively, owned of record or beneficially by such Stockholder. Such Stockholder will not sell or transfer any Stockholder Shares or Stockholder Warrants prior to the earlier of the Closing or the termination of this Agreement (except as provided in Section 1.5). Upon transfer and delivery by such Stockholder to Purchaser of the Stockholder Shares and the Stockholder Warrants owned by such Stockholder pursuant to this 5 Agreement, Purchaser shall acquire ownership of such shares and warrants, free and clear of all adverse claims (other than any created by or through Purchaser). (b) Organization and Good Standing. Each of FCEC and Cross Creek is duly organized, validly existing and in good standing under the laws of the State of Illinois. (c) Power and Authorization. Such Stockholder has full legal right, power and authority to enter into and perform its obligations under this Agreement and the other agreements and documents required to be delivered by it hereunder. The execution, delivery and performance by such Stockholder of this Agreement have been duly authorized by all necessary action on the part of such Stockholder. This Agreement constitutes the legal, valid and binding obligation of such Stockholder, enforceable against it in accordance with its terms. (d) Consents and Approvals: No Violation. Neither the execution and delivery of this Agreement by such Stockholder nor consummation by such Stockholder of the transactions contemplated hereby will conflict with any of the organizational documents of such Stockholder. (e) No Brokers. Such Stockholder has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of such entity or Purchaser to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or consummation of the transactions contemplated hereby, and such Stockholder shall indemnify and hold each of Compass and Compass Holdings harmless against any such claim. ARTICLE 3. CONDITIONS PRECEDENT 3.1 Mutual Condition. The obligations of the parties hereto to enter into and consummate the transactions contemplated hereby are subject to the acceptance for payment and payment by Purchaser of shares of International Common Stock pursuant to the Offer. 3.2 Certain Conditions Precedent to Purchaser's Obligations. The obligations of Purchaser to enter into and consummate the transactions contemplated hereby are further subject to the fulfillment (or waiver in writing by Purchaser in its sole discretion) on or prior to the Closing Date of the conditions that: (a) the representations and warranties of the Stockholders contained in this Agreement shall be true and correct on and as of the date hereof and in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date (except to the extent of any changes or developments expressly contemplated by the terms of this Agreement); and 6 (b) the Stockholders shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Stockholders on or prior to the Closing Date. 3.3 Certain Conditions Precedent to the Stockholders' Obligations. The obligations of the Stockholders to enter into and complete the transactions contemplated hereby are further subject to the fulfillment (or waiver in writing by the Stockholders in its sole discretion) on or prior to the Closing Date of the conditions that: (a) the representations and warranties of Compass and Compass Holdings contained in this Agreement shall be true and correct on and as of the date hereof and in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date; (b) Each of Compass and Compass Holdings shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the Closing Date; and (c) The Stockholders shall be entitled to receive shares of New International Common Stock pursuant to the Distribution as contemplated by Section 1.2. (d) International shall have caused to be delivered to the Stockholders a letter from Goodwin, Procter & Hoar LLP permitting the Stockholders to rely on the opinion of Goodwin, Procter & Hoar LLP delivered to Compass pursuant to the Merger Agreement to the effect that registration of the Distribution is not required under Section 5 of the Securities Act, as such opinion relates to the shares of New International Common Stock to be issued to the Stockholders pursuant to the Distribution. ARTICLE 4. MISCELLANEOUS 4.1 Further Action. The parties hereto shall, subject to the fulfillment at or before the Closing Date of each of the conditions of performance set forth herein or the waiver thereof, perform such further acts and execute such documents as may reasonably be required to effect the transactions contemplated hereby, in any case at the expense of the requesting party. 4.2 Parties in Interest; Assignment. Except as provided in Section 2.2(a), none of the parties to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other parties hereto. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 7 4.3 Entire Agreement; Amendments; Waiver. This Agreement contains the entire understanding between the parties hereto with respect to its specific subject matter. This Agreement may be amended only by written instrument duly executed by the parties hereto. No party may waive any term, provision, covenant or restriction of this Agreement except by a duly signed writing referring to the specific provision to be waived. 4.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be delivered personally or transmitted by telex, fax or telegram, to the respective parties as follows: (a) If to the Stockholders: First Chicago Equity Corporation Three First National Plaza, Suite 1210 Chicago, IL 60670 Attn: Eric C. Larson Cross Creek Partners I c/o First Chicago Equity Corporation Three First National Plaza, Suite 1210 Chicago, IL 60670 Attn: Eric C. Larson with a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attn: Ted H. Zook, Esq. (b) If to Compass or Compass Holdings: Compass Group USA, Inc. 2400 Yorkmont Road Charlotte, NC 28271 Attn: General Counsel 8 (c) If to International: DAKA International, Inc. One Corporate Place 55 Ferncroft Road Danvers, MA 01923 Attn: General Counsel with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Attn: Ettore A. Santucci, P.C. or to such other address as any party may have furnished to the others in writing. 4.5 Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Delaware. 4.7 Termination. (a) This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing: (i) by Purchaser, International or the Stockholders, if the Merger Agreement shall have been terminated; (ii) by mutual consent of Purchaser, International and the Stockholders; (iii) by the Stockholders, if any of Compass or Compass Holdings has failed to perform in any material respect any of its respective obligations required to be performed by it under this Agreement unless failure to so perform has been caused by or results from a breach of this Agreement by the Stockholders; (iv) by Purchaser, if any of the Stockholders shall have failed to perform in any material respect any of the obligations required to be performed by it under this Agreement unless failure to so perform has been caused by or results from a breach of this Agreement by any of Compass or Compass Holdings; (v) by Purchaser or the Stockholders, if the Closing does not occur 9 on or prior to July 31, 1997; (vi) by the Stockholders, if the Stockholders have sold or transferred all of the Stockholder Shares pursuant to Section 1.5 hereof; or (vii) by the Stockholders, if the Merger Agreement is not entered into by the parties thereto within three business days after the date of this Agreement. (b) A party terminating this Agreement pursuant to Section 4.7 shall give written notice thereof to each other party hereto, whereupon this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action by any party; provided, however, that if such termination is by Purchaser pursuant to Section 4.7(a)(iv) or if such termination is by the Stockholders pursuant to Section 4.7(a)(iii), nothing herein shall affect the non-breaching party's or parties' right to damages on account of such other party's or parties' breach. 4.8 Remedies. The Stockholders acknowledge that the Stockholder Shares are unique and that Purchaser will not have an adequate remedy at law if the Stockholders fail to perform any of their obligations hereunder, and the Stockholders agree that Purchaser shall have the right, in addition to any other right it has, to specific performance or equitable relief by way of injunction if the Stockholders fail to perform any of their obligations hereunder. 4.9 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same document. The article and section headings contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 4.10 Expenses. Each of the parties hereto shall pay the fees and expenses it incurs in connection with this Agreement, other than as a result of the breach hereof by any other party hereto, except that the parties acknowledge that International shall pay to the Stockholders at the Closing (or promptly upon written demand by the Stockholders if the Closing does not occur for any reason other than breach of this Agreement by the Stockholders) an amount of cash equal to the Stockholders' documented out-of-pocket fees and expenses (including legal fees and expenses) actually incurred by them in connection with this Agreement. International shall cause New International to become jointly and severally obligated with International under this Section 4.10 and shall provide the Stockholders with written evidence thereof promptly upon demand. The provisions of this Section 4.10 shall survive any termination of this Agreement pursuant to Section 4.7. 4.11 Certain Definitions. For purposes of the Agreement: 10 (a) "beneficially owned" shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act, as such Rule is in effect on the date hereof. (b) "business day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York. (c) As used in this Agreement, the word "Subsidiary" or "Subsidiaries" when used with respect to any party means any corporation, partnership, joint venture, business trust or other entity, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization. (d) As used in this Agreement, the word "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, a limited liability company, any unincorporated organization or any other entity. (e) As used in this Agreement, the word "affiliate" shall have the meaning set forth in Rule 144 of the Securities Act. 11 {Signature Page to Stock Purchase Agreement} IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written. DAKA INTERNATIONAL, INC. By: /s/ Donald C. Moore __________________________ Name: Donald C. Moore Title: Sr. VP COMPASS GROUP, PLC By: /s/ Michael J. Bailey ___________________________ Name: Michael J. Bailey Title: Director COMPASS HOLDINGS, INC. By: /s/ Michael J. Bailey __________________________ Name: Michael J. Bailey Title: Chief Executive Officer FIRST CHICAGO EQUITY CORPORATION By: /s/ Timothy A. Dugan __________________________ Name: Timothy A. Dugan Title: Attorney-In-Fact CROSS CREEK PARTNERS I By: /s/ Timothy A. Dugan __________________________ Name: Timothy A. Dugan Title: General Partner * ------------------------------ John G. Schreiber 12 ** ------------------------------ Jennifer C. Schreiber Trust ** ------------------------------ Heather E. Schreiber Trust ** ------------------------------ Amy D. Schreiber Trust ** ------------------------------ Michael D. Schreiber Trust ** ------------------------------ Matthew D. Schreiber Trust ** ------------------------------ Nicholas J. Schreiber Trust ** ------------------------------ Molly E. Schreiber Trust ** ------------------------------ Kaitlin E. Schreiber Trust * /s/ T. A. Dugan ------------------------------ by: First Chicago Equity Corporation by: Timothy A. Dugan pursuant to a Power of Attorney dated May 23, 1997 ** /s/ T. A. Dugan ------------------------------ by: First Chicago Equity Corporation by: Timothy A. Dugan pursuant to a Power of Attorney dated May 23, 1997 13 EXHIBIT A
Stockholder Stockholder Shares Stockholder Warrants FCEC 9,926.400 220,587.000 Cross Creek 1,323.415 29,409.000 John G. Schreiber 330.865 7,352.556 (c/o Mayer, Brown & Platt) Jennifer C. Schreiber Trust 41.425 920.556 (c/o Mayer, Brown & Platt) Heather E. Schreiber Trust 41.425 920.556 (c/o Mayer, Brown & Platt) Amy D. Schreiber Trust 41.425 920.556 (c/o Mayer, Brown & Platt) Michael D. Schreiber Trust 41.470 921.556 (c/o Mayer, Brown & Platt) Matthew D. Schreiber Trust 41.280 917.333 (c/o Mayer, Brown & Platt) Nicholas J. Schreiber Trust 41.280 917.333 (c/o Mayer, Brown & Platt) Molly E. Schreiber Trust 41.280 917.333 (c/o Mayer, Brown & Platt) Kaitlin E. Schreiber Trust 41.280 917.333 (c/o Mayer, Brown & Platt)
14 EX-20 14 EXHIBIT (C)(6) EXHIBIT (C)(6) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of the 23rd day of May, 1997 by and among COMPASS GROUP USA, INC. ("Compass US"), DAKA INTERNATIONAL, INC., a Delaware corporation ("International") and DAKA, INC., a Massachusetts corporation ("Daka" and, collectively with International, the "Employer"), and ALLEN R. MAXWELL (the "Executive") (collectively defined and referred to as the "Parties"); WITNESSETH: WHEREAS, Compass Holdings, Inc. ("Compass Holdings"), the parent of Compass US has been engaged in extensive negotiations to acquire the foodservice business, contracts, customers and certain other assets of International and its wholly owned subsidiary, Daka (collectively defined and referred to as the "Business"); and WHEREAS, the Executive has served as the President of Daka and International for more than eight years and is highly knowledgeable about the Business and, in particular, the educational segment of the foodservice industry; and WHEREAS, the Executive currently holds a significant number of shares of stock and options to acquire shares of stock in International and, as such, will directly and substantially benefit from the acquisition by Compass Holdings of the Business; and WHEREAS, Compass Holdings will not acquire the Business without engaging the services of the Executive pursuant to this Agreement and the Executive's agreement to the covenant not to compete and confidentiality provisions contained herein; and WHEREAS, the Employer desires to employ the Executive and the Executive desires to be employed to provide services to the Employer, all on the terms and subject to the conditions as hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Parties agree as follows: 1. EMPLOYMENT. The Employer agrees to employ the Executive during the Employment Term (as defined in Section 4) and the Executive hereby accepts such employment and agrees to serve the Employer subject to the general supervision and direction of the Board of Directors of the Employer and the Chief Executive Officer of Compass US (the "Compass CEO"). 2. DUTIES. During the Employment Term, the Executive shall be elected as president of Daka and shall perform the services and duties required of such position, or such other services, duties and positions as the Board of Directors of the Employer or the Compass CEO may from time to time designate commensurate with the position of president, shall devote the Executive's full time and best efforts to the business affairs of the Employer, and shall not become engaged as an employee or otherwise in any other business or commercial activities, provided that the Executive may, if approved by the Board of Directors of the Employer or the Compass CEO, devote reasonable time and attention to serving as a member of the Board of Directors of New International, Inc. In addition the Executive shall be an officer and a member of senior management of Compass US. 3. THE ACQUISITION. This Agreement is contingent upon the acquisition (the "Acquisition") by Compass Holdings of International and Daka under the terms of an Agreement and Plan of Merger by and among Compass Group PLC, Compass Holdings, Compass Interim, Inc. and International (the "Acquisition Agreement"). If the Acquisition does not occur, this Agreement shall be void and unenforceable by either party. If the Acquisition does occur, this Agreement shall be binding upon the Executive and the Employer pursuant to the terms of this Agreement. Moreover, except as set forth in this Agreement, neither party may cancel or terminate this Agreement prior to the Acquisition without the express written consent of the other party, Compass Group PLC, Compass Holdings and Compass Interim, Inc, it being expressly understood that the Employer, Compass Group PLC, Compass Holdings, Compass Interim, Inc. and International are relying upon this Agreement, in significant part, to complete the Acquisition. 4. EMPLOYMENT TERM. Subject to the prior termination of the Executive pursuant to Section 7 below, the Executive shall be employed by Compass US and the Employer for an initial term beginning on the Effective Time of the Acquisition (as defined in the Acquisition Agreement) and continuing for a period of approximately 27 months after the Effective Time and ending September 30, 1999 (the "Initial Period"). Thereafter, such employment will be for a period beginning on the day after the Initial Period and continuing for a term which does not end until the Agreement is terminated pursuant to Section 7 below (the "Final Period"). The Executive's total term of employment with the Employer during the Initial Period and the Final Period, if and as applicable, is collectively defined and referred to under this Agreement as the "Employment Term." 5. COMPENSATION. a. BASE COMPENSATION. During the Employment Term, the Employer will pay the Executive an annual base salary as compensation for the Executive's services hereunder of $280,000 (the "Annual Base Salary"), payable in biweekly installments, less applicable deductions required by law. The Annual Base Salary may be reviewed from time to time by the Employer and may be increased at the Employer's discretion. b. COMPANY CAR. During the Employment Term and at the election of the Executive at the outset of this Agreement, the Employer shall grant the Executive an $800 monthly car allowance for use as the Executive may deem appropriate, payable by the Employer to the Executive in biweekly installments, less applicable deductions required by law. c. OTHER BENEFITS. The Employer will provide to the Executive those benefits customarily provided by Compass US to other Compass US officers holding similar positions, including vacation, pension, profit sharing and other retirement plans, and all group health, hospitalization and permanent disability plans or other employee welfare benefit plans. d. BONUS. For his services rendered during the Initial Term, the Executive will also be eligible to receive a bonus as outlined in Schedule A. 6. REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. Upon submission of proper vouchers, the Employer shall pay or reimburse the Executive for all normal and reasonable business expenses, including travel expenses, incurred by the Executive during the Employment Term in accordance with the Employer's policy then in effect concerning the same. The Employer shall also reimburse the Executive for necessary and reasonable moving expenses incurred by the Executive during the Employment Term in accordance with the Employer's relocation policy in effect, in the event the Employer requests that the Executive relocate during the Employment Term. 7. TERMINATION. a. The Employment Term shall terminate immediately upon the occurrence of any of the following events: (i) immediately upon the voluntary retirement or death of the Executive; (ii) upon the effective date of Resignation by the Executive (as defined below); (iii) upon the sixtieth day following notice given by the Employer of Termination Without Cause (as defined below); or (iv) upon the close of business on the date the Employer gives the Executive notice of Termination for Just Cause (as defined below); or (v) upon the Permanent Disability of the Executive (as defined below). b. For the purposes of this Agreement: (1) "Resignation by the Executive" shall mean any voluntary termination or resignation by the Executive. During the Initial Period, the Executive is required to give at least 180 days advance written notice of Resignation to the Employer, and the Employer is entitled, upon receiving such notice, to accept such Resignation any time prior to the Resignation date proposed by the Executive. After the Initial Period, such notice period shall be 60 days. The effective date of the Resignation shall be the Resignation date proposed by the Executive, or such other earlier date designated by the Employer. (2) "Termination Without Cause" shall mean any termination of the employment of the Executive by the Employer for any reason other than termination due to the retirement or death of the Executive, "Permanent Disability" or "Termination for Just Cause." (3) "Termination for Just Cause" shall mean termination of the employment of the Executive as the result of: (i) an act or acts by the Executive, or any omission by the Executive, constituting a felony, and the Executive has entered a guilty plea, a plea of nolo contendere, or confession to or has been convicted of such felony; or (ii) any act of fraud or dishonesty by the Executive in connection with the Executive's employment with the Employer; or (iii) the breach of any fiduciary duty by the Executive to the Employer, including the duty of loyalty; or (iv) the breach of any provision of this Agreement by the Executive; or (v) the refusal of the Executive to follow specific lawful instructions given by the Board of Directors of the Employer or the Compass CEO. 2 (4) "Permanent Disability" shall mean the Executive is unable, with or without a reasonable accommodation, to perform the essential functions and duties of the Executive's job with the Employer by reason of a physical or mental disability, impairment or condition which has continued for more than 180 consecutive days. The Executive agrees to submit such medical evidence to the Employer regarding such disability, impairment or condition as is reasonably requested by the Employer. c. Except for the payment of any earned but unpaid salary and/or accrued bonus due at the time of termination of the Employment Term and the Executive's general right to elect certain coverage continuation under COBRA, and except for any payments which may be due as set forth below, the Executive shall not be entitled to receive any additional compensation and/or benefits of any kind from the Employer hereunder upon the termination of the Employment Term: (1) If termination of the Employment Term is due to the death of the Executive, the Executive's estate or legal representative shall be paid the Executive's Compensation Package (which shall be the sum of those amounts payable under Sections 5a, 5b and 5c) in monthly installments for a period of 12 months commencing immediately upon the death of the Executive, less applicable deductions required by law. (2) If termination of the Employment Term occurs at any time during the Initial Period due to Termination Without Cause by the Employer, then provided the Executive complies with and continues to comply with Section 8 of this Agreement and enters into a mutually acceptable release of any and all claims Executive has against the Employer, then the Executive shall be paid severance equal to: (a) the Executive's Compensation Package through the remainder of the Initial Period, payable in the same manner and at the same time as the Executive's Compensation Package was paid by the Employer prior to Termination Without Cause, less applicable deductions required by law; and (b) one and one-half times the amount of the Executive's Compensation Package then in effect, payable over an 18-month period beginning after the end of the Initial Period in biweekly installments when payroll is normally distributed, less applicable deductions required by law. (3) If termination of the Employment Term occurs at any time after the Initial Period due to Termination Without Cause by the Employer, then provided the Executive complies with and continues to comply with Section 8 of this Agreement and enters into a mutually acceptable release of any and all claims Executive has against the Employer, then the Executive shall be paid severance equal to: one and one-half times the amount of the Executive's Compensation Package then in effect, payable over an 18-month period beginning after the date of Termination Without Cause in biweekly installments when payroll is normally distributed, less applicable deductions required by law. (4) Except as set forth herein, if the Executive resigns his employment with the Employer, the Executive is not entitled to any additional compensation or benefits from the Employer. If, however, the Employer decides to substantially and materially change the duties and responsibilities of the Executive, whether or not such change would result in a reduction in the Executive's Compensation Package, the Executive shall have the option in lieu of such change of responsibilities to resign prior to the effective date of such change. In that case, the Executive shall be paid severance equal to one and one-half times the Compensation Package then in effect payable over an 18-month period beginning after the date of the Executive's resignation, less applicable deductions required by law, provided that the Executive complies with and continues to comply with Section 8 of this Agreement and enters into a mutually acceptable release of any and all claims Executive has against the Employer. If the Executive accepts the change of responsibilities, this Agreement shall continue in effect. 8. PROTECTED INFORMATION; PROHIBITED SOLICITATION; NON-COMPETITION. a. The Executive acknowledges and agrees that all Confidential Information (as defined below), including this Agreement, that comes into the Executive's possession while an employee of the Employer, whether prepared by the Employer or others, is and shall remain the property of the Employer. "Confidential Information" means: (1) all information regarding any Employer customer, including but not limited to customer lists, contracts, information, requirements, billing histories, needs, products or services provided by the Employer to such customers; or (2) all financial information concerning the Employer, including but not limited to financial statements, balance sheets, profit and loss statements, earnings, commissions and salaries 3 paid to employees, sales data and projections, cost analyses and similar information; or (3) all sources and methods of supply to the Employer, including but not limited to contracts and similar information; or (4) all plans and projections for business opportunities for new or developing business of the Employer; or (5) all software, drawings, specifications, models and marketing techniques; or (6) all information relating the Employer's products, prices, costs, research and development activities, customers, product performance, financial data and operating results, personnel matters and other confidential processes, designs, patents, ideas, machinery, plans, know-how and trade secrets; or (7) any of the information described in subsections 1-6 that the Employer obtains from another party or entity and that the Employer treats or designates as confidential information, whether such information is owned or was developed by the Employer. b. The Executive acknowledges and agrees that during his employment with the Employer, the Executive shall not use any Confidential Information for any purpose other than to carry out assigned duties as an employee of the Employer. The Executive further acknowledges and agrees that: (1) Upon termination of his employment with the Employer for any reason, the Executive shall return and make available to the Employer prior to the last date of his employment the originals and all copies of any and all documentary Confidential Information and any other Employer reports, documents or data in his possession; (2) With respect to Confidential Information which is not a trade secret under applicable law, the Executive shall not, either during or within years after his employment with the Employer, misappropriate, use or disclose to anyone any such Confidential Information, except to the extent that such disclosure is required by law or court order or is authorized by written Employer policy or in writing by the Board of Directors of the Employer; (3) With respect to Confidential Information which is a trade secret under applicable law, the Executive shall not, either during or within 5 years after his employment with the Employer, misappropriate, use or disclose to anyone any such Confidential Information, except to the extent that such disclosure is authorized by written Employer policy or in writing by the Board of Directors of the Employer; and (4) During his employment with the Employer, the Executive shall have an affirmative duty to preserve the confidentiality and safe keeping of all Employer documents and Confidential Information, however stored or maintained. c. The Executive hereby agrees that for a period of three years following his last day of employment by the Employer, the Executive shall not, without the written consent of the Employer, knowingly solicit or hire for employment or as an independent contractor any other employee of the Employer or any employee of an affiliate of the Employer, or knowingly solicit, entice or persuade any such employee to leave the services of the Employer or such affiliate for any reason. d. The Executive further agrees that, in order to avoid impairment of the goodwill transferred by International, Daka and the Executive pursuant to the Acquisition Agreement, the Executive will not: (1) For a period of 10 years following the Executive's last day of employment by the Employer (regardless of the reason for the end of the employment relationship), engage in any Competitive Activity (as defined below) within the Territory (as defined below) with any customer of the Employer or International with whom the Employer or International have a contract or agreement to furnish foodservices or vending products as of the Effective Time of the Acquisition (as defined in the Acquisition Agreement); and/or (2) For a minimum period of six and a half years and for a maximum period equal to the amount of time during which the Executive is entitled to receive severance pay from the Employer pursuant to Section 7.c. above plus five additional calendar years, whichever is greater, following the Executive's last day of employment by the Employer (regardless of the reason for the end of the employment relationship), engage in any Competitive Activity (as defined below) within the Territory with any customer of the Employer with whom the Employer has a contract or agreement to furnish foodservices or vending products at the time of the end of the Executive's employment by the Employer; and/or (3) For a period of 18 months or the period equal to the amount of time during which the Executive is entitled to receive severance pay from the Employer pursuant to Section 7.c. above, whichever is greater, following the Executive's last day of employment by the Employer (regardless of the reason for the end of 4 the employment relationship), engage in any Competitive Activity (as defined below) within the Territory; and/or (4) For a period of 18 months or the period equal to the amount of time during which the Executive is entitled to receive severance pay from the Employer pursuant to Section 7.c. above, whichever is greater, following the Executive's last day of employment by the Employer (regardless of the reason for the end of the employment relationship), enter into any relationship whatsoever, alone or in a partnership, or as an officer, director (other than as a member of the board of directors of New International, Inc.), employee, stockholder (beneficially owning the stock or options to acquire stock totaling more than five percent of the outstanding shares) of any corporation, or entity, or otherwise acquire or agree to acquire a significant present or future equity or other proprietorship interests, whether as a stockholder, partner, proprietor, or otherwise, with any enterprise, business or division thereof, which is engaged in Competitive Activity with the Employer within the Territory. In construing Section 8d(3) and 8d(4), the reference to 18 months shall be changed to 60 months, but only for those individual food service accounts with an annual managed volume greater than $1,000,000 for any 12 month period. The phrase "annual managed volume" for an account shall mean the sum of gross sales or revenues at that location plus any customer subsidies or other payments. "Competitive Activity" means providing contract foodservice and vending business to customers and in a manner like that engaged in by the Employer during the Employment Term. "Territory" means the geographic territory in which Executive has conducted or supervised business for the Employer during the Employment Term, which includes the states of New York, New Jersey, Connecticut, Florida, Wisconsin and California and the Commonwealths of Massachusetts and Virginia. The Executive further agrees that, except with the express written consent of the Board of Directors of the Employer or the Compass CEO, the Executive will not engage in any Competitive Activity individually or with any entity or individual other than the Employer during his employment by the Employer. e. The Parties agree that the running of the period of the confidentiality agreement and covenant not to compete set forth above with respect to the Executive shall be suspended during any period of time that the Executive is in violation of any provision of the confidentiality agreement and/or covenant not to compete or any period of time required for arbitration or litigation to enforce any such provisions. Moreover, the Parties agree that the provisions of such confidentiality agreement and covenant not to compete shall continue in force and in effect throughout the period of such suspension, if any. f. The Executive acknowledges and agrees that the restrictions placed upon him by this Section 8 are reasonable, given the nature of Executive's position, and that there is sufficient consideration promised Executive pursuant to this Agreement and the Acquisition Agreement to support these restrictions. Specifically, the Executive acknowledges that the length of the covenant not to compete is reasonable and that the definitions of "Confidential Information", "Competitive Activity" and "Territory" are reasonable. g. The Executive acknowledges that all of the provisions of this Section 8 are fair and necessary to protect the interest of the Employer. Accordingly, the Executive agrees not to contest the validity or enforceability of this Section of the Agreement and agrees that if any court should deem any provision of this section to be unenforceable, the remaining provisions will nonetheless be enforceable according to their terms. Further, if any provision or subsection is held to be over broad as written, the Executive agrees that a court should view the above provisions and subsections as separable and uphold those separable provisions and subsections deemed to be reasonable. h. The Parties agree that the restrictions of this Section 8 shall survive the Executive's last day of employment by the Employer and shall be in addition to any restrictions imposed upon the Executive by statute or at common law. The Parties further acknowledge and agree that the restrictions of this Section 8 shall continue to be enforceable regardless of whether there is a subsequent dispute between the Parties concerning any alleged breach of this Agreement. 9. CONSIDERATION. Executive acknowledges that the consideration to Executive in this Agreement is valuable consideration for the Executive's covenants and obligations in this Agreement and is in addition to any consideration currently due to Executive from the Employer. 5 10. INJUNCTIVE AND OTHER RELIEF. The Executive hereby expressly acknowledges that any breach or threatened breach by the Executive of any of the terms set forth in Sections 2 and 8 of this Agreement may result in significant and continuing injury to the Employer, the monetary value of which may be impossible to establish. Accordingly, the Parties agree that in the event of any breach of Section 8 of this Agreement by the Executive, the Employer may pursue actual damages from the Executive, or in its discretion, may be entitled to seek an injunction, without bond, restraining any breach or threatened breach of Sections 2 or 8 of this Agreement, and costs and attorneys' fees relating to any such proceedings or any other legal action to enforce those sections of the Agreement, but nothing herein shall be construed as preventing the Employer from pursuing other remedies available to it for such breach or threatened breach. Moreover, in the event the Executive breaches Section 8 of this Agreement or challenges the duration, scope or enforceability of Section 8, and to the extent that the Employer is paying severance to the Executive, the Employer's obligation to continue making any severance payment shall cease and the Employer shall be entitled to recover of the Executive any severance payment previously made to the Executive by the Employer. The provisions of Section 8 and this Section 10 shall survive the Employment Term. 11. PARTIES BENEFITED; ASSIGNMENTS. This Agreement shall be binding upon the Executive, the heirs and personal representative or representatives of the Executive and upon the Employer and its successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by the Executive. 12. NOTICES. Any notice required or permitted by this Agreement shall be in writing, sent by personal delivery, or by registered or certified mail, return receipt requested, addressed to the Chief Executive Officer of Compass Holdings and/or Compass Group USA, Inc. and the Employer at its then principal office, or to the Executive at the Executive's then current work or home address, as the case may be, or to such other address or addressees as any party hereto may from time to time specify in writing for the purpose of a notice given to the other Parties in compliance with this Section 12. Notices shall be deemed given when received. 13. GOVERNING LAW AND VENUE. This Agreement takes effect on the date provided in Section 18 upon acceptance and execution by the Employer in North Carolina and shall be governed by, construed and enforced in accordance with the laws of the State of North Carolina without regard to conflict of law principles. 14. ARBITRATION OF DISPUTES. Except for claims barred by the applicable statute of limitations and except for claims for injunctive relief which the Employer may elect to pursue in state or federal court, the Executive and Employer agree that any and all disputes between them, and any claim by either party that cannot be amicably settled, shall be determined solely and exclusively by arbitration in accordance with the Employment Dispute Resolution Rules then pertaining of the American Arbitration Association, or any successor thereto, at its office nearest Employer's principal place of business, unless the Parties otherwise agree in writing. The arbitration shall be conducted by three arbitrators. Judgment upon an award by the majority of the arbitrators shall be binding, and shall be entered in a court of competent jurisdiction. 15. RELEASE. Except for the express obligations of the Employer under this Agreement, Executive hereby releases and forever discharges the Employer, its present or former parents, subsidiaries and affiliates, and their respective officers, employees, agents, directors, successors and assigns from all claims or actions of any kind available to the Executive. This general release and waiver shall further include, but not be limited to, all claims or actions arising out of, or relating in any way to, the Executive's employment and severance of Executive's employment with the Employer, including any claim for compensation or employee benefits, any non-pending claim for workers' compensation (Executive is acknowledging that Executive is currently able to work without any physical or mental limitations, except for any pending workers' compensation claim filed by Executive), or any claim of discrimination under any state, federal, or local law or regulation, or any claim for wrongful termination, breach of contract, breach of covenant of good faith and fair dealing, negligent or intentional infliction of emotional distress, misrepresentation, or defamation. If the Executive files, maintains, or participates in any claim or action, in any court or agency, based wholly or partially upon a claim or action Executive has released or waived under this Agreement, Executive agrees to pay all expenses and costs (including reasonable attorneys' fees) incurred by the Employer and those associated with the Employer in defense of such claim or action. 16. MISCELLANEOUS. This Agreement contains the entire agreement of the Parties relating to the subject matter hereof. This Agreement supersedes any prior written or oral agreements or understandings between the Parties relating to the employment of Executive, the compensation or benefits promised to Executive or any other agreement or understanding relating in any way to the subject matter in this Agreement. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the Parties hereto. A waiver of the breach of any term or 6 condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provision to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. The compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax or other laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive's estate or legal representative. The headings in this Agreement are inserted to convenience of reference only and shall not be part of or control or affect the meaning of any provision hereof. 17. TERMINATION OF PRIOR CONTRACTS. The Executive hereby acknowledges and agrees that all prior and/or existing employment contracts or other agreements between the Employer and the Executive other than this Agreement, whether oral or written, including an agreement dated as of October 1, 1996, as amended, are hereby terminated as of the effective time of the Acquisition, and the Executive acknowledges that he is not entitled to any wages, pay, compensation, consideration or benefits of any kind from the Employer, except as set forth herein. 18. EFFECTIVENESS OF CONTRACT. This Agreement has been executed by the Parties in contemplation of and contingent upon the completion of the Acquisition under the terms of the Acquisition Agreement. The provisions of Section 8 shall become effective immediately, and the balance of the Agreement shall automatically become effective, without any further action of the undersigned required, upon the Effective Time of the Acquisition (as defined in the Acquisition Agreement). In the event that the Acquisition does not occur or the Acquisition Agreement is terminated for any reason, this Agreement shall have no force or effect and shall automatically be extinguished and terminated as a result of the termination of the Acquisition Agreement. 7 IN WITNESS WHEREOf the Parties have duly executed and delivered this Agreement as of the day and year first above written. EMPLOYER: DAKA INTERNATIONAL, INC. By: /s/ WILLIAM H. BAUMHAUER Chief Executive Officer DAKA, INC. By: /s/ ALLEN R. MAXWELL Chief Executive Officer COMPASS GROUP USA, INC. By: /s/ MICHAEL J. BAILEY Chief Executive Officer EXECUTIVE: /s/ ALLEN R. MAXWELL (SEAL) Allen R. Maxwell 8 SCHEDULE A COMPUTATION OF BONUS FOR THE INITIAL PERIOD (1) The Executive will not be eligible to receive a bonus for Fiscal Year 1997 which ends September 30, 1997. (2) On or within ninety 90 days of the end of the Fiscal Year (as defined below) ending in 1998 and in 1999 during the Employment Term, the Employer will make available to the Executive an annual bonus as additional incentive compensation (the "Annual Bonus") in the amount of 50% of the Executive's Annual Base Salary, the eligibility criteria for which shall be mutually developed with the Executive subject to the final discretion of the Compass CEO (the "Bonus Amount"). Such determination will be based in part on the Executive meeting certain financial and other targets as may be set by the Compass CEO. (3) Assuming that an Annual Bonus is awarded to the Executive by the Employer for a particular Fiscal Year, the Executive shall be entitled to receive 50% of the Bonus Amount in a lump sum cash payment, less applicable deductions required by law, payable by the Employer to the Executive on or within 90 days of the end of the applicable Fiscal Year (as defined below). (4) Assuming that an Annual Bonus is awarded to the Executive by the Employer for a particular Fiscal Year, the Executive shall be entitled to receive the remaining 50% of the Bonus Amount (the "Deferred Bonus") as follows: (a) In the event that the Executive remains employed by the Employer through a minimum of one calendar year following the date the applicable Annual Bonus was awarded to the Executive by the Employer, the Deferred Bonus shall be paid by the delivery to the Executive of an amount of Compass Group PLC stock with a value based upon the midpoint between the closing price of such shares on each of the first and last day of the applicable Fiscal Year [as reported for Compass Group PLC ADR's trading on the New York Stock Exchange (the "NYSE") or if not actively traded on the NYSE, as reported on the London Stock Exchange] and using the weighted average "Late New York Trading" exchange rate for the fiscal year (as reported in THE WALL STREET JOURNAL) on each measurement date. The actual amount paid shall be the share equivalent of twice the dollar amount of the Deferred Bonus, less applicable deductions required by law and shall be delivered by the Employer to the Executive on or within 90 calendar days following the end of the Fiscal Year following the Fiscal Year for which the applicable Annual Bonus was awarded to the Executive. (b) In the event that the Executive does not remain employed by the Employer through a minimum of one calendar year following the date the applicable Annual Bonus was awarded to the Executive because of death or disability, the Deferred Bonus shall be paid to the Executive in a lump sum cash payment without interest, less applicable deductions required by law, payable by the Employer to the Executive on or within 90 calendar days following the date of death or disability. If the Executive is not employed by the Employer for such one year period, the Deferred Bonus will be subject to forfeiture at the Employer's discretion. (5) In order for the Executive to be eligible to receive an Annual Bonus, the Executive must be employed by the Employer on the date such Annual Bonus is to be awarded to the Executive by the Employer as set forth above. If the Executive is Terminated without cause, and at the time of his termination, he was meeting all performance goals and it is clear that the Executive otherwise would be entitled to an Annual Bonus hereunder, then he will receive a prorated cash Annual Bonus based upon the number of whole months actually worked. "Fiscal Year" means the end of each 12-month Employer accounting period ending on or about the end of September of each calendar year. 9 EX-20 15 EXHIBIT (G) EXHIBIT G COMPASS GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS COMPASS GROUP PLC INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS PAGE COMPASS GROUP PLC Report of Independent Auditors......................................................................................... F-1 Consolidated Profit and Loss Account for the fifty-two week periods ended September 29, 1996 and October 1, 1995 and the fifty-three week period ended October 2, 1994.................................................................... F-2 Consolidated Statement of Total Recognized Gains and Losses and Reconciliation of Movements in Consolidated Shareholders' Deficit for the fifty-two week periods ended September 29, 1996 and October 1, 1995 and the fifty-three week period ended October 2, 1994.................................................................................... F-3 Consolidated Balance Sheet at September 29, 1996 and October 1, 1995................................................... F-4 Company Balance Sheet at September 29, 1996 and October 1, 1995........................................................ F-5 Consolidated Cash Flow Statement for the fifty-two week periods ended September 29, 1996 and October 1, 1995 and the fifty-three week period ended October 2, 1994........................................................................ F-6 Notes to the Consolidated Cash Flow Statement.......................................................................... F-7 Notes to the Financial Statements...................................................................................... F-9 UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS COMPASS GROUP PLC Unaudited Interim Consolidated Profit and Loss Account for the 26 week periods ended March 30, 1997 and March 31, 1996................................................................................................................. F-35 Unaudited Interim Consolidated Balance Sheet at 30 March 1997 and 31 March 1996........................................ F-36 Unaudited Interim Consolidated Cash Flow Statement for the 26 week periods ended March 30, 1997 and March 31, 1996..... F-37 Notes to the Unaudited Interim Consolidated Cash Flow Statement........................................................ F-38 Notes to the Unaudited Interim Consolidated Financial Statements....................................................... F-39
REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COMPASS GROUP PLC We have audited the accompanying consolidated balance sheets of Compass Group PLC and its subsidiaries ("the company") as of September 29, 1996 and October 1, 1995 and the related consolidated profit and loss account, and statements of total recognized gains and losses, changes in consolidated shareholders' deficit and cash flows for the 52 week periods ended September 29, 1996 and October 1, 1995 and the 53 week period ended October 2, 1994. These consolidated financial statements are the responsibility of the management of the company. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United Kingdom and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of the company at September 29, 1996 and October 1, 1995 and the results of its operations and cash flows for the 52 week periods ended September 29, 1996 and October 1, 1995 and the 53 week period ended October 2, 1994 in conformity with accounting principles generally accepted in the United Kingdom. DELOITTE & TOUCHE Chartered Accountants and Registered Auditors London, England December 10, 1996 F-1 COMPASS GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT
52 WEEK 52 WEEK PERIOD PERIOD EXCEPTIONAL ENDED ENDED BEFORE ITEMS SEP 29 OCT 1 EXCEPTIONAL (NOTE 1996 1995 ITEMS 5) TOTAL TOTAL TURNOVER NOTES (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Continuing operations............................. 2,522.6 - 2,522.6 1,436.1 Acquisitions...................................... 114.3 - 114.3 - 2,636.9 - 2,636.9 1,436.1 Discontinued operations........................... 15.0 - 15.0 69.7 TOTAL TURNOVER.................................... 2 2,651.9 - 2,651.9 1,505.8 OPERATING COSTS................................... 3 (2,515.1) (6.7) (2,521.8) (1,414.6) OPERATING PROFIT Continuing operations............................. 129.7 - 129.7 75.4 Acquisitions...................................... 3.9 (6.7) (2.8) - 133.6 (6.7) 126.9 75.4 Discontinued operations........................... 3.2 - 3.2 15.8 OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY UNDERTAKINGS.................................... 136.8 (6.7) 130.1 91.2 Share of profits of associated undertakings....... 7.0 - 7.0 - TOTAL OPERATING PROFIT............................ 2 143.8 (6.7) 137.1 91.2 DISCONTINUED OPERATIONS Sale of healthcare division....................... 5 - 20.0 20.0 - PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST..... 143.8 13.3 157.1 91.2 Interest receivable and similar income............ 7.4 - 7.4 1.2 Interest payable and similar charges.............. 6 (36.9) - (36.9) (19.2) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION..... 114.3 13.3 127.6 73.2 Tax on profit on ordinary activities.............. 7 (29.6) 2.6 (27.0) (18.8) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION...... 84.7 15.9 100.6 54.4 Equity minority interests......................... (1.2) - (1.2) (0.4) PROFIT FOR THE FINANCIAL PERIOD................... 83.5 15.9 99.4 54.0 Dividends......................................... 8 (27.3) - (27.3) (22.0) PROFIT FOR THE PERIOD RETAINED.................... 18 56.2 15.9 72.1 32.0 EARNINGS PER SHARE................................ 9 31.6p 22.6p EARNINGS PER SHARE -- ADJUSTED.................... 9 26.5p 22.6p 53 WEEK PERIOD ENDED OCT 2 1994 TURNOVER TOTAL (POUNDS)M Continuing operations............................. 851.2 Acquisitions...................................... - 851.2 Discontinued operations........................... 66.7 TOTAL TURNOVER.................................... 917.9 OPERATING COSTS................................... (855.1) OPERATING PROFIT Continuing operations............................. 48.4 Acquisitions...................................... - 48.4 Discontinued operations........................... 14.4 OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY UNDERTAKINGS.................................... 62.8 Share of profits of associated undertakings....... - TOTAL OPERATING PROFIT............................ 62.8 DISCONTINUED OPERATIONS Sale of healthcare division....................... - PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST..... 62.8 Interest receivable and similar income............ 1.2 Interest payable and similar charges.............. (8.3) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION..... 55.7 Tax on profit on ordinary activities.............. (16.1) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION...... 39.6 Equity minority interests......................... (0.2) PROFIT FOR THE FINANCIAL PERIOD................... 39.4 Dividends......................................... (15.0) PROFIT FOR THE PERIOD RETAINED.................... 24.4 EARNINGS PER SHARE................................ 19.2p EARNINGS PER SHARE -- ADJUSTED.................... 19.2p
See accompanying notes to consolidated financial statements. F-2 CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M Profit for the financial period.................................................... 99.4 54.0 39.4 Unrealized surplus on revaluation of properties.................................... - - 4.5 Currency translation differences on foreign currency net investments............... 3.9 3.7 4.1 Total gains and losses recognised in the period.................................... 103.3 57.7 48.0
NOTE OF HISTORICAL COST PROFITS AND LOSSES There is no material difference between the reported operating profit and the equivalent historical cost amount. On an historical cost basis, the exceptional profit on disposal of the healthcare division would have been approximately (pounds)25.0m higher, giving a profit on ordinary activities before taxation of (pounds)152.6m in 1996. RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' DEFICIT
52 52 53 WEEK WEEK WEEK PERIOD PERIOD PERIOD ENDED ENDED ENDED SEP 29 OCT 1 OCT 2 1996 1995 1994 (POUNDS)M (POUNDS)M (POUNDS)M Profit for the financial period.................................................... 99.4 54.0 39.4 Dividends......................................................................... (27.3) (22.0) (15.0) 72.1 32.0 24.4 Other recognised gains and losses relating to the period (net).................... 3.9 3.7 8.6 New share capital subscribed...................................................... 10.7 307.9 151.5 Shares to be issued............................................................... 68.3 21.2 - Goodwill arising on acquisitions.................................................. (235.9) (709.8) (368.7) Goodwill transferred on disposal of business...................................... 12.1 - - Net increase in shareholders' deficit............................................. (68.8) (345.0) (184.2) Opening shareholders' deficit..................................................... (488.9) (143.9) 40.3 Closing shareholders' deficit..................................................... (557.7) (488.9) (143.9)
See accompanying notes to consolidated financial statements. F-3 COMPASS GROUP PLC CONSOLIDATED BALANCE SHEET
SEP 29 OCT 1 1996 1995 FIXED ASSETS NOTES (POUNDS)M (POUNDS)M Tangible assets, net.................................................................. 10 256.1 295.6 Investments........................................................................... 11 14.1 15.6 270.2 311.2 CURRENT ASSETS Stocks................................................................................ 12 73.0 50.5 Debtors: amounts falling due within one year, net..................................... 13 323.4 248.8 amounts falling due after more than one year, net............................. 13 50.3 28.1 Cash at bank and in hand.............................................................. 90.2 81.9 536.9 409.3 CREDITORS: amounts falling due within one year........................................ 14 (708.1) (562.5) NET CURRENT LIABILITIES............................................................... (171.2) (153.2) TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 99.0 158.0 CREDITORS: amounts falling due after more than one year............................... 15 (584.5) (580.2) PROVISIONS FOR LIABILITIES AND CHARGES................................................ 16 (69.2) (64.2) EQUITY MINORITY INTERESTS............................................................. (3.0) (2.5) NET LIABILITIES....................................................................... 2 (557.7) (488.9) CAPITAL AND RESERVES Called up share capital............................................................... 17 15.9 15.5 Shares to be issued (including premium)............................................... 17 68.3 21.2 Share premium account................................................................. 18 680.8 649.3 Revaluation reserve................................................................... 18 - 25.0 Other reserve: goodwill............................................................... 18 (1,568.8) (1,345.0) Profit and loss account............................................................... 18 246.1 145.1 TOTAL EQUITY SHAREHOLDERS' DEFICIT.................................................... (557.7) (488.9)
See accompanying notes to consolidated financial statements. F-4 COMPASS GROUP PLC COMPANY BALANCE SHEET
SEP 29 OCT 1 1996 1995 FIXED ASSETS NOTES (POUNDS)M (POUNDS)M Tangible assets, net.................................................................. 10 9.9 8.1 Investments........................................................................... 11 1,781.0 1,608.8 1,790.9 1,616.9 CURRENT ASSETS Debtors: amounts falling due within one year, net..................................... 13 17.8 37.8 amounts falling due after more than one year, net............................. 13 20.0 16.1 Cash at bank and in hand.............................................................. 15.1 5.0 52.9 58.9 CREDITORS: amounts falling due within one year........................................ 14 (262.9) (124.5) NET CURRENT LIABILITIES............................................................... (210.0) (65.6) TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 1,580.9 1,551.3 CREDITORS: amounts falling due after more than one year............................... 15 (524.2) (537.6) NET ASSETS............................................................................ 1,056.7 1,013.7 CAPITAL AND RESERVES Called up share capital............................................................... 17 15.9 15.5 Shares to be issued (including premium)............................................... 17 68.3 21.2 Share premium account................................................................. 18 680.8 649.3 Profit and loss account............................................................... 18 291.7 327.7 TOTAL EQUITY SHAREHOLDERS' FUNDS...................................................... 1,056.7 1,013.7
See accompanying notes to consolidated financial statements. F-5 COMPASS GROUP PLC CONSOLIDATED CASH FLOW STATEMENT
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M NET CASH INFLOW FROM OPERATING ACTIVITIES (note I)..... 177.8 120.1 94.2 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received...................................... 7.8 1.2 1.2 Interest paid.......................................... (29.4) (19.1) (8.3) Dividends paid......................................... (24.9) (16.7) (12.0) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE............................. (46.5) (34.6) (19.1) TAXATION UK corporation tax paid................................ (4.6) (7.8) (11.6) Overseas tax paid...................................... (18.1) (10.6) (3.9) TOTAL TAX PAID......................................... (22.7) (18.4) (15.5) FREE CASH FLOW......................................... 108.6 67.1 59.6 INVESTING ACTIVITIES Purchase of tangible fixed assets...................... (70.2) (57.0) (38.3) Purchase of investments................................ - (4.4) (3.7) Purchase of businesses (note VII)...................... (177.2) (236.0) (354.8) Sale of business (note VII)............................ 163.8 - - Sale of tangible fixed assets.......................... 4.7 2.8 2.4 NET CASH OUTFLOW FROM INVESTING ACTIVITIES............. (78.9) (294.6) (394.4) NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING (note V).... 29.7 (227.5) (334.8) FINANCING (note IV) Issue of ordinary share capital........................ (1.8) (1.9) (151.5) Decrease/(increase) in loans........................... 3.9 (263.7) (189.7) Capital element of finance lease rentals............... 5.2 4.6 0.4 NET CASH OUTFLOW/(INFLOW) FROM FINANCING 7.3 (261.0) (340.8) INCREASE IN CASH AND CASH EQUIVALENTS (note II)........ 22.4 33.5 6.0 29.7 (227.5) (334.8)
See accompanying notes to consolidated financial statements. F-6 COMPASS GROUP PLC NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M I. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES: Operating profit................................................................. 130.1 91.2 62.8 Depreciation..................................................................... 45.8 38.7 21.9 Loss on disposal of fixed assets................................................. - 0.2 0.3 Increase in stocks............................................................... (5.0) (1.4) (1.8) (Increase)/decrease in debtors................................................... (19.2) (4.5) 3.3 Increase/(decrease) in creditors and provisions.................................. 26.1 (4.1) 7.7 Net cash inflow from operating activities........................................ 177.8 120.1 94.2 II. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE PERIOD: Balance at beginning of period................................................... 65.3 30.7 24.2 Net cash inflow in period before adjustments for the effect of foreign exchange rate change................................................................... 22.4 33.5 6.0 Effect of foreign exchange rate change........................................... 2.4 1.1 0.5 Balance at end of period......................................................... 90.1 65.3 30.7
CHANGE IN CHANGE IN SEP 29 1996 OCT 1 1995 PERIOD OCT 2 1994 PERIOD (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M III. ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN ON THE BALANCE SHEET: Cash at bank and in hand...................................... 90.2 81.9 8.3 52.8 29.1 Bank overdrafts............................................... (0.1) (16.6) 16.5 (22.1) 5.5 90.1 65.3 24.8 30.7 34.6
SHARE CAPITAL OBLIGATIONS (INCLUDING UNDER FINANCE PREMIUM) LOANS LEASES (POUNDS)M (POUNDS)M (POUNDS)M IV. ANALYSIS OF CHANGES IN FINANCING DURING THE PERIOD: Balance at October 3 1994............................................................. 356.9 244.1 9.3 Cash flows from financing............................................................. 1.9 263.7 - Issue of shares for non-cash consideration............................................ 327.2 - - Inception of finance lease contracts.................................................. - - 5.6 Arising on acquisition................................................................ - 3.8 4.0 Capital element of finance lease rentals.............................................. - - (4.6) Effect of foreign exchange rate change................................................ - (4.6) - Balance at October 1 1995............................................................. 686.0 507.0 14.3 Cash flows from financing............................................................. 1.8 (3.9) - Issue of shares for non-cash consideration............................................ 77.2 - - Inception of finance lease contracts.................................................. - - 4.4 Arising on acquisition................................................................ - 29.4 9.0 Capital element of finance lease rentals.............................................. - - (5.2) Balance at September 29 1996.......................................................... 765.0 532.5 22.5
F-7 COMPASS GROUP PLC NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT-CONTINUED
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M V. ANALYSIS OF CHANGES IN NET BORROWINGS: Opening net borrowings at beginning of period.................................... 441.7 213.4 34.3 Net cash (inflow)/outflow before financing....................................... (29.7) 227.5 334.8 Capital element of finance lease rentals......................................... 5.2 4.6 0.4 Arising on acquisition........................................................... 29.4 3.8 - Issue of ordinary share capital.................................................. (1.8) (1.9) (151.5) Effect of foreign exchange rate change........................................... (2.4) (5.7) (4.6) Closing net borrowings at end of period.......................................... 442.4 441.7 213.4 Net borrowings comprise loans and overdrafts less cash and cash equivalents.
52 WEEK 52 WEEK 53 WEEK 52 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 SEP 29 1996 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M PURCHASES PURCHASES PURCHASES DISPOSALS VI. PURCHASE AND DISPOSAL OF BUSINESSES: Net assets acquired/(disposed of): Tangible fixed assets.............................................. 70.1 28.8 81.9 (129.7) Investment in associates........................................... 0.3 3.4 - - Stocks............................................................. 19.6 16.3 21.0 (2.1) Debtors............................................................ 83.8 135.2 52.3 (10.0) Cash............................................................... 26.7 37.5 - (3.2) Bank overdrafts/loans.............................................. (11.5) (6.1) (13.2) - Creditors.......................................................... (133.3) (211.5) (130.6) 10.5 Provisions......................................................... (4.9) (9.8) (45.3) - Tax................................................................ 1.1 (21.2) (2.4) - Minority interests................................................. (0.5) (1.6) 2.8 - Share of net assets already owned at date of acquisition........... (4.7) - - - 46.7 (29.0) (33.5) (134.5) Profit on disposal and costs and liabilities retained.............. - - - (32.2) Goodwill acquired/(disposed of).................................... 243.0 709.8 368.7 (12.1) 289.7 680.8 335.2 (178.8) Satisfied by: Cash payable/(receivable).......................................... 162.5 268.7 331.3 (170.8) Shares and shares to be issued..................................... 77.2 327.2 - - Deferred consideration............................................. 31.6 84.9 3.9 - Loan notes......................................................... 18.4 - - - Deferred consideration receivable.................................. - - - (8.0) 289.7 680.8 335.2 (178.8) VII. ANALYSIS OF NET OUTFLOW OF CASH AND CASH EQUIVALENTS IN RESPECT OF THE PURCHASE AND DISPOSAL OF SUBSIDIARY UNDERTAKINGS: Cash consideration paid/(received net of liabilities settled)...... 162.5 268.7 331.3 (167.0) Cash (acquired)/disposed of........................................ (26.7) (37.5) - 3.2 Overdrafts acquired................................................ 0.5 2.3 13.2 - 136.3 233.5 344.5 (163.8) Deferred consideration and costs relating to previous acquisitions.................................................... 40.9 2.5 10.3 - 177.2 236.0 354.8 (163.8)
There were no disposals of businesses in the 52 week period ended October 1 1995 or in the 53 week period ended October 2 1994. F-8 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS 1 ACCOUNTING POLICIES The financial statements have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("UK GAAP") and are presented under the historical cost convention as modified by the revaluation of land and buildings. The particular policies adopted are described below. Amounts are expressed in pounds sterling. In preparing these financial statements, certain reclassifications and changes in presentation have been made to the financial statements presented in the Compass Group PLC Annual Reports in order to conform more closely with accounting presentation and disclosure requirements applicable in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and assets 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. (A) ACCOUNTING CONVENTION The financial statements are prepared under the historical cost convention as modified by the revaluation of certain tangible fixed assets. (B) CONSOLIDATION The consolidated financial statements include the financial statements of Compass Group PLC and its subsidiary undertakings ("subsidiary companies") and associated undertakings drawn up to 29 September 1996. In accordance with local statutory requirements, the results of certain overseas companies have been drawn up to 30 September 1996. (C) GOODWILL Purchased goodwill is written off direct to reserves in the period in which it arises. (D) FOREIGN CURRENCIES The assets and liabilities of foreign subsidiary companies are translated into sterling at the rates of exchange ruling at the period end. Gains and losses resulting from the realignment of opening foreign currency balances to the period end rates and on inter-company long term loans are treated as movements on reserves. The results of foreign subsidiary companies are translated into sterling at the average rates of exchange for the accounting period. Gains or losses resulting from the translation of these results from the average rates to the period end rates are treated as movements on reserves. All other exchange differences are dealt with through the profit and loss account. (E) STOCKS Stocks are valued at the lower of cost and net realisable value. (F) DEFERRED EXPENDITURE Expenditure incurred during the rebranding or development of catering outlets prior to commencement of trading is carried forward within prepayments and written off over a period of between one and five years so as to properly match costs and revenues. (G) TURNOVER Turnover represents the invoiced value, excluding value added tax, of goods and services supplied to third parties. (H) TANGIBLE FIXED ASSETS AND DEPRECIATION Fixed assets are carried at cost or professional valuation less depreciation, which is provided on their book values at rates calculated to write down each asset to its residual value over its estimated remaining useful life on a straight line basis, within the following ranges: F-9 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 1 ACCOUNTING POLICIES -- Continued -- Freehold buildings: 2% per annum -- Long term leasehold property: 2% per annum -- Short term leasehold property: the life of the lease -- Plant and machinery: 10% to 25% per annum -- Fixtures and fittings: 10% to 25% per annum -- Freehold land is not depreciated (I) INVESTMENTS IN SUBSIDIARY COMPANIES Investments held as fixed assets are stated at cost, less any provision for permanent diminution in value. (J) PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS Pension costs and other post-retirement benefits, which are periodically calculated by professionally qualified actuaries, are charged against profits so that the expected costs of providing pensions are recognised during the period in which benefit is derived from the employee's services. (K) DEFERRED TAX Deferred tax is provided at the anticipated tax rates on timing differences arising from the inclusion of items of income and expenditure in tax computations in periods different from those in which they are included in the financial statements to the extent that it is probable that a liability or asset will crystallize in the future. (L) LEASES Assets held under finance leases and hire purchase contracts are capitalised at their fair value on the inception of the leases and depreciated over their estimated useful lives. The finance charges are allocated over the period of the lease in proportion to the capital amount outstanding. Rental costs under operating leases are charged to the profit and loss account in equal annual amounts over the period of the leases. F-10 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 2 TURNOVER, OPERATING PROFIT AND NET LIABILITIES
52 WEEK 52 WEEK CONTINUING DISCONTINUED PERIOD ENDED CONTINUING DISCONTINUED PERIOD ENDED CONTINUING OPERATIONS ACQUISITIONS OPERATIONS SEP 29 1996 OPERATIONS OPERATIONS OCT 1 1995 OPERATIONS (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M TURNOVER Catering.......... 2,522.6 114.3 - 2,636.9 1,436.1 - 1,436.1 851.2 Healthcare........ - - 15.0 15.0 - 69.7 69.7 - 2,522.6 114.3 15.0 2,651.9 1,436.1 69.7 1,505.8 851.2 Geographical analysis: -- United Kingdom......... 579.8 7.9 15.0 602.7 494.2 69.7 563.9 456.1 -- Continental Europe and the rest of the world........... 1,179.4 98.0 - 1,277.4 244.9 - 244.9 196.5 -- North America......... 763.4 8.4 - 771.8 697.0 - 697.0 198.6 2,522.6 114.3 15.0 2,651.9 1,436.1 69.7 1,505.8 851.2 OPERATING PROFIT Catering* **...... 136.7 (2.8) - 133.9 75.4 - 75.4 48.4 Healthcare........ - - 3.2 3.2 - 15.8 15.8 - 136.7 (2.8) 3.2 137.1 75.4 15.8 91.2 48.4 Geographical analysis: -- United Kingdom......... 40.4 0.2 3.2 43.8 35.2 15.8 51.0 31.0 -- Continental Europe and the rest of the world*.......... 64.0 3.8 - 67.8 13.1 - 13.1 10.8 -- North America**....... 32.3 (6.8) - 25.5 27.1 - 27.1 6.6 136.7 (2.8) 3.2 137.1 75.4 15.8 91.2 48.4 53 WEEK DISCONTINUED PERIOD ENDED OPERATIONS OCT 2 1994 (POUNDS)M (POUNDS)M TURNOVER Catering.......... - 851.2 Healthcare........ 66.7 66.7 66.7 917.9 Geographical analysis: -- United Kingdom......... 66.7 522.8 -- Continental Europe and the rest of the world........... - 196.5 -- North America......... - 198.6 66.7 917.9 OPERATING PROFIT Catering* **...... - 48.4 Healthcare........ 14.4 14.4 14.4 62.8 Geographical analysis: -- United Kingdom......... 14.4 45.4 -- Continental Europe and the rest of the world*.......... - 10.8 -- North America**....... - 6.6 14.4 62.8
* Including (pounds)7.0 million for associates in 1996 (1995: (pounds)nil; 1994: (pounds)nil) ** Including (pounds)6.7 million for exceptional restructuring costs in 1996 (1995: (pounds)nil; 1994: (pounds)nil) F-11 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 2 TURNOVER, OPERATING PROFIT AND NET LIABILITIES -- Continued
52 WEEK 52 WEEK PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M NET LIABILITIES Continuing operations: Catering -- United Kingdom................................................................................ (41.8) (37.9) -- Continental Europe and the rest of the world.................................................. (58.0) (92.6) -- North America................................................................................. (15.5) (45.5) (115.3) (176.0) Discontinued operations: Healthcare -- United Kingdom................................................................................ - 128.8 (115.3) (47.2) Loans and overdrafts less cash and cash equivalents............................................... (442.4) (441.7) (557.7) (488.9)
3 OPERATING COSTS
53 WEEK PERIOD ENDED 52 WEEK PERIOD ENDED SEP 29 1996 52 WEEK PERIOD ENDED OCT 1 1995 OCT 2 1994 CONTINUING ACQUISITIONS DISCONTINUED TOTAL CONTINUING DISCONTINUED TOTAL CONTINUING (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Movement in stocks of finished goods and work in progress................... (2.3) - - (2.3) (2.5) - (2.5) (3.0) Raw materials and consumables................ 1,030.9 39.7 1.9 1,072.5 586.8 8.1 594.9 342.1 Other external charges....... 290.8 30.3 4.7 325.8 177.5 19.8 197.3 99.4 Staff costs.................. 1,029.4 45.4 5.2 1,080.0 563.9 22.3 586.2 345.4 Depreciation of tangible fixed assets -- owned assets........... 39.8 1.3 - 41.1 30.9 3.7 34.6 18.1 -- leased assets.......... 4.3 0.4 - 4.7 4.1 - 4.1 0.8 2,392.9 117.1 11.8 2,521.8 1,360.7 53.9 1,414.6 802.8 Other external charges include: Property lease rentals....... 9.6 10.0 Concession rentals........... 94.1 71.5 Fees paid to the auditors: Auditors' remuneration....... 1.2 0.7 Taxation..................... 0.4 0.2 Other fees................... 0.2 0.1 1.8 1.0 53 WEEK PERIOD ENDED OCT 2 1994 DISCONTINUED TOTAL (POUNDS)M (POUNDS)M Movement in stocks of finished goods and work in progress................... - (3.0) Raw materials and consumables................ 7.4 349.5 Other external charges....... 21.0 120.4 Staff costs.................. 20.9 366.3 Depreciation of tangible fixed assets -- owned assets........... 3.0 21.1 -- leased assets.......... - 0.8 52.3 855.1 Other external charges include: Property lease rentals....... 5.4 Concession rentals........... 37.2 Fees paid to the auditors: Auditors' remuneration....... 0.6 Taxation..................... 0.2 Other fees................... 0.1 0.9
Further fees of (pounds)0.3m (1995: (pounds)0.9m; 1994: (pounds)0.6m) have also been paid to Deloitte & Touche in respect of acquisitions of subsidiary companies where costs have been charged as part of the cost of acquisition. As permitted by Section 230 of the Companies Act 1985, the profit and loss account for the parent company is not presented as part of these accounts. The consolidated profit for the period includes a loss of (pounds)8.7m for the 52 week period to September 29 1996 and profits of (pounds)329.7m and (pounds)11.1m for the 52 week period to October 1 1995 and for the 53 week period to October 2 1994 respectively which are dealt with in the accounts of the parent company. F-12 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 4 DIRECTORS AND EMPLOYEES DIRECTORS' EMOLUMENTS The gross emoluments of directors, including incentive compensation but excluding pension and National Insurance contributions, were in the bands shown below.
NUMBER OF DIRECTORS 1996 1995 1994 (pounds) 0-(pounds) 5,000 1 4* 1 (pounds) 15,001-(pounds) 20,000 - - 1 (pounds) 20,001-(pounds) 25,000 1 1 - (pounds) 25,001-(pounds) 30,000 1 1 - (pounds) 35,001-(pounds) 40,000 1 - - (pounds) 45,001-(pounds) 50,000 - 1 - (pounds) 50,001-(pounds) 55,000 1 - - (pounds)115,001-(pounds)120,000 1* - - (pounds)150,001-(pounds)155,000 - 1 - (pounds)190,001-(pounds)195,000 - - 1 (pounds)230,001-(pounds)235,000 - - 1 (pounds)270,001-(pounds)275,000 - - 1 (pounds)280,001-(pounds)285,000 - - 1 (pounds)295,001-(pounds)300,000 - 1 - (pounds)310,001-(pounds)315,000 1 - - (pounds)315,001-(pounds)320,000 1 - - (pounds)320,001-(pounds)325,000 1 - - (pounds)325,001-(pounds)330,000 - 1 - (pounds)330,001-(pounds)335,000 1 1 - (pounds)345,001-(pounds)350,000 1 - - (pounds)555,001-(pounds)560,000 1 1 -
* Directors for part of the period only. EMPLOYEES
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 NUMBER NUMBER NUMBER The average number of employees, including part time employees, was: United Kingdom: Catering........................................................................... 35,651 27,864 23,853 Healthcare......................................................................... - 1,550 1,582 35,651 29,414 25,435 Overseas........................................................................... 72,192 25,860 11,057 107,843 55,274 36,492 The aggregate remuneration of all employees comprised: (POUNDS)M (POUNDS)M (POUNDS)M Wages and salaries................................................................. 886.2 485.3 318.5 Social security costs.............................................................. 178.6 89.6 39.7 Other pension costs................................................................ 15.2 11.3 8.1 1,080.0 586.2 366.3
F-13 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 4 DIRECTORS AND EMPLOYEES -- Continued
52 WEEK 52 WEEK PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 REMUNERATION AND SHARE OPTION INFORMATION (POUNDS)000 (POUNDS)000 The aggregate emoluments of the directors of Compass Group PLC were as follows: Salary............................................................................................ 1,822 1,244 Incentive compensation............................................................................ 634 536 2,456 1,780 Pension and National Insurance contributions...................................................... 251 307 2,707* 2,087
* This includes three directors for a full year, who were only directors for a part of the 52 week period ended October 1 1995. The aggregate remuneration of the individual directors of Compass Group PLC was as follows:
CASH 52 WEEK INCENTIVE LONG TERM PERIOD ENDED SALARY BENEFITS COMPENSATION SUB-TOTAL INCENTIVE SEP 29 1996 (POUNDS)000 (POUNDS)000 (POUNDS)000 (POUNDS)000 (POUNDS)000 (POUNDS)000 EXECUTIVE F H Mackay*.............................. 360 37 54 451 105 556 M J Bailey............................... 220 23 33 276 71 347 C D Bucknall............................. 195 28 29 252 61 313 A F Dupuis............................... 205 16 31 252 70 322 J R Greenwood............................ 109 9 - 118 - 118 (resigned July 19 1996) R J Matthews............................. 215 22 32 269 63 332 F L Ternofsky............................ 215 20 32 267 53 320 NON-EXECUTIVE D P Cassidy.............................. 25 - - 25 - 25 P E B Cawdron............................ 30 - - 30 - 30 J Du Monceau............................. 38 - - 38 - 38 J M Thomson**............................ 55 - - 55 - 55 Total.................................... 1,667 155 211 2,033 423 2,456 52 WEEK PERIOD ENDED OCT 1 1995 (POUNDS)000 EXECUTIVE F H Mackay*.............................. 559 M J Bailey............................... 3 C D Bucknall............................. 299 A F Dupuis............................... 3 J R Greenwood............................ 151 (resigned July 19 1996) R J Matthews............................. 335 F L Ternofsky............................ 329 NON-EXECUTIVE D P Cassidy.............................. 22 P E B Cawdron............................ 28 J Du Monceau............................. 1 J M Thomson**............................ 50 Total.................................... 1,780
* Highest paid director ** Chairman The National Insurance contributions of the Chairman were (pounds)nil (1995; (pounds)nil) and the National Insurance and pension contributions of the highest paid director were (pounds)87,128 (1995: (pounds)101,820). The Chairman was not granted any options under the employee share option schemes to subscribe for shares (1995: nil) while the highest paid director was granted options to subscribe for 102,240 shares (1995: 100,000 shares). During the 52 week period ended October 1 1996, a long-term incentive bonus scheme was introduced for the executive directors. The incentive is based on specific performance targets for a three year period, starting in 1994/95, and is partly payable in cash and partly by the Company allocating shares to the individual via the Company's ESOP. The cash incentive compensation shown above was paid in December 1996 and is based on targets relating to 1995/96. The shares are part of a long term share ownership plan, which would involve the executive in keeping his entitlement for at least five years in order to be able to obtain the maximum shares available. Financial targets to be met include earnings per share target, profit before taxation target and profit before interest for divisional directors. The non-executive directors do not participate in the incentive scheme. G Pelisson served as a non-executive director during the period but received no remuneration. F-14 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 4 DIRECTORS AND EMPLOYEES -- Continued The maximum number of shares to be allocated to the directors under the scheme are as follows:
BENEFITS AS AT ARISING IN AS AT OCT 1 1995 THE YEAR SEP 29 1996 F H Mackay............................................................................... 39,840 21,350 61,190 M J Bailey............................................................................... 23,950 14,450 38,400 C D Bucknall............................................................................. 16,960 12,400 29,360 A F Dupuis............................................................................... - 14,250 14,250 R J Matthews............................................................................. 23,950 12,800 36,750 F L Ternofsky............................................................................ 23,150 10,800 33,950
DIRECTORS' INTERESTS IN THE SHARES OF COMPASS GROUP PLC The interests, as defined by the Companies Act 1985, of the directors, their spouses and minor children in the ordinary shares of 5p each of the Company were as follows:
OPTIONS OVER SHARES SHARES GRANTED EXERCISED OCT 1 1995 SEP 29 1996 OCT 1 1995 DURING YEAR DURING YEAR J M Thomson................................... 5,263 5,263 - - - F H Mackay.................................... 644,945 644,945 1,156,838 102,240 8,816* M J Bailey.................................... - - 170,806 60,000 - C D Bucknall.................................. 878,966 878,966 577,608 63,733 - D P Cassidy................................... - 5,208 - - - P E B Cawdron................................. 1,300 1,300 - - - A F Dupuis.................................... - 716,504 - 60,000 - R J Matthews.................................. 2,768 2,768 591,716 60,000 - J Du Monceau.................................. - 206,903 - - - F L Ternofsky................................. 11,973 11,973 350,207 63,733 - SEP 29 1996 J M Thomson................................... - F H Mackay.................................... 1,250,262 M J Bailey.................................... 230,806 C D Bucknall.................................. 641,341 D P Cassidy................................... - P E B Cawdron................................. - A F Dupuis.................................... 60,000 R J Matthews.................................. 651,716 J Du Monceau.................................. - F L Ternofsky................................. 413,940
G Pelisson had no interest in shares or options over shares during the period. * The exercise price was (pounds)1.23 per share and the market value at the date of exercise was (pounds)5.42 per share. At September 29 1996 Messers Mackay, Bailey, Bucknall, Dupuis, Matthews and Ternofsky had a technical interest in 3,940,230 shares held by the Group's Employee Share Trust. At October 1 1995, Messrs Mackay, Bailey, Bucknall, Dupuis, Matthews and Ternofsky had a similar technical interest in 4,248,169 shares. There were no interests in loan stock at either date. In addition, the ESOP is entitled to acquire 3,740,000 shares under a call arrangement entered into with NatWest Securities on May 17 1996 at a price of (pounds)5.28 and these directors are also regarded as having an interest in these shares for UK Companies Act purposes. The mid-market price of the shares at October 1 1995 and September 29 1996 was (pounds)4.24 and (pounds)5.59 respectively. The share price fluctuated between (pounds)4.24 per share and (pounds)6.16 per share in the 52 week period ended September 29 1996. F-15 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 4 DIRECTORS AND EMPLOYEES -- Continued An analysis of options held by directors at September 29 1996 is set out below.
OPTION PRICE (PENCE) EXERCIZABLE M J BAILEY C D BUCKNALL A F DUPUIS F H MACKAY R J MATTHEWS F L TERNOFSKY UNDER THE EXECUTIVE SHARE OPTION SCHEME 157.25p May 24 1992-May 24 1999 - - - 99,877 - - 160.38p Jul 3 1993-Jul 3 2000 - - - 177,562 59,926 - 183.36p Jul 1 1994-Jul 1 2001 - - - 37,731 22,195 - 184.73p Dec 20 1994-Dec 20 2001 - 221,954 - 66,585 46,610 - 191.94p Jan 15 1995-Jan 15 1999 - - - 77,682 53,267 - 189.23p Aug 5 1995-Aug 5 1999 - 110,977 - 166,465 122,074 - 239.27p May 20 1996-May 20 2000 - 105,530 - 211,060 116,083 - 231.21p May 24 1996-May 24 2003 31,659 - - - - - 241.16p Jun 30 1996-Jun 30 2003 - - - - - 211,060 291.86p Apr 28 1997-Apr 28 2004 79,147 79,147 - 211,060 105,530 79,147 388.00p Jul 12 1998-Jul 12 2002 60,000 60,000 - 100,000 60,000 60,000 528.00p* May 16 1999-May 16 2003 60,000 60,000 60,000 100,000 60,000 60,000 230,806 637,608 60,000 1,248,022 645,685 410,207 UNDER THE SAYE OPTION SCHEME 286.00p Sep 1 2000-Mar 31 2003 - - - - 6,031 - 462.00p* Sep 1 2001-Mar 31 2004 - 3,733 - 2,240 - 3,733 - 3,733 - 2,240 6,031 3,733 OPTION PRICE (PENCE) TOTAL UNDER THE EXECUTIVE SHARE OPTION SCHEME 157.25p 99,877 160.38p 237,488 183.36p 59,926 184.73p 335,149 191.94p 130,949 189.23p 399,516 239.27p 432,673 231.21p 31,659 241.16p 211,060 291.86p 554,031 388.00p 340,000 528.00p* 400,000 3,232,328 UNDER THE SAYE OPTION SCHEME 286.00p 6,031 462.00p* 9,706 15,737
* Options granted during the year PENSIONS Directors' pensions are based on salary only, with bonuses and other benefits excluded. All executive directors are members of the Compass Group PLC Final Salary Pension Scheme apart from A F Dupuis. The non-executive directors are not members of any Compass Group PLC pension scheme. DIRECTORS' SERVICE CONTRACTS Each of the executive directors has a service agreement with Compass Group PLC. All of these service agreements have rolling notice periods of two years. This has been considered by the Remuneration Committee and it has been decided to retain these notice periods on the basis that it is appropriate to the nature of the Company's business. The non-executive directors do not have service agreements with Compass Group PLC. DIRECTORS' INTERESTS IN CONTRACTS No contract subsisted during or at the end of the financial year in which any director of the Company has or had a material interest. 5 EXCEPTIONAL ITEMS
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M Exceptional operating costs -- continuing operations Restructuring costs arising from Service America acquisition....................... (6.7) - - Exceptional profit -- discontinued operations Profit on disposal of healthcare division.......................................... 20.0 - -
F-16 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 5 EXCEPTIONAL ITEMS -- Continued During the period ended September 29, 1996 the Group disposed of its interest in Compass Healthcare Limited, which constituted the Group's healthcare division, for (pounds)178.8m at a profit of (pounds)20.0m. The profit is after deducting goodwill of (pounds)12.1m which was previously written off directly to reserves. No tax is expected to arise on the profit on disposal. 6 INTEREST PAYABLE AND SIMILAR CHARGES
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M Bank loans and overdrafts.......................................................... 28.4 12.0 8.3 Other loans........................................................................ 8.5 7.2 - 36.9 19.2 8.3
7 TAX ON PROFIT ON ORDINARY ACTIVITIES
52 WEEK 52 WEEK 53 WEEK PERIOD ENDED PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 OCT 2 1994 (POUNDS)M (POUNDS)M (POUNDS)M United Kingdom: Corporation tax.................................................................... 3.7 9.3 10.9 Deferred tax....................................................................... 1.5 (3.4) 3.1 Adjustments in respect of prior years.............................................. - (0.1) (1.3) 5.2 5.8 12.7 Overseas: Tax payable........................................................................ 23.2 11.9 5.0 Deferred tax....................................................................... (4.3) 1.1 (1.6) Tax on share of profits of associated undertakings................................. 2.8 - - Adjustments in respect of prior years.............................................. 2.7 - - 24.4 13.0 3.4 Total tax charge before exceptional items.......................................... 29.6 18.8 16.1 Exceptional items: Overseas tax....................................................................... (2.6) - - 27.0 18.8 16.1
United Kingdom corporation tax has been charged at 33% (1995: 33%; 1994: 33%). The Group tax charge is reduced below this rate since tax is charged at a lower effective rate on overseas earnings. 8 DIVIDENDS
52 WEEK 52 WEEK PERIOD ENDED PERIOD ENDED SEP 29 1996 OCT 1 1995 PER SHARE (POUNDS)M PER SHARE (POUNDS)M PER SHARE Dividends on ordinary shares of 5p each Interim......................................... 2.75p 8.7 2.45p 5.8 2.19p Final........................................... 5.85p 18.6 5.15p 16.2 4.56p 8.60p 27.3 7.60p 22.0 6.75p 53 WEEK PERIOD ENDED OCT 2 1994 (POUNDS)M Dividends on ordinary shares of 5p each Interim......................................... 4.2 Final........................................... 10.8 15.0
F-17 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 8 DIVIDENDS -- Continued The interim dividend per share for 1994 has been adjusted to take account of the bonus element of the June 1994 rights issue. 9 EARNINGS PER SHARE The calculation of earnings per share has been based on profit after taxation and minority interests of (pounds)99.4m (1995: (pounds)54.0m; 1994: (pounds)39.4m) and a weighted average number of 314,514,772 shares (1995: 238,364,632 shares; 1994: 205,020,012 shares). The calculation of adjusted earnings per share has been based on profit after taxation and minority interests of (pounds)83.5m, after adjusting for the profit on sale of business and exceptional restructuring costs net of tax, and a weighted average number of 314,514,772 shares. The adjusted earnings per share figure has been disclosed as it is considered to give a more comparable indication of the underlying trading performance. No material dilution of earnings per share would arise if all outstanding share options were exercised and the shares to be issued in relation to the acquisition of Service America and PFM had been issued at the respective dates of acquisition. 10 TANGIBLE FIXED ASSETS
FREEHOLD LONG SHORT PLANT FIXTURES LAND AND LEASEHOLD LEASEHOLD AND AND BUILDINGS PROPERTY PROPERTY MACHINERY FITTINGS TOTAL (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M GROUP COST OR VALUATION At October 2 1995.......................................... 133.6 15.3 4.0 148.5 128.6 430.0 Currency adjustment........................................ (0.1) (0.2) 0.1 0.7 (2.0) (1.5) Additions.................................................. 6.7 0.1 1.9 37.2 24.3 70.2 Businesses acquired........................................ 17.5 - 1.3 63.6 14.9 97.3 Disposals.................................................. (0.9) - (0.2) (6.9) (8.3) (16.3) Businesses disposed of..................................... (102.6) (12.1) (0.2) (10.1) (20.1) (145.1) Transfer between categories................................ 0.3 - - 12.7 (13.0) - At September 29 1996....................................... 54.5 3.1 6.9 245.7 124.4 434.6 DEPRECIATION At October 2 1995.......................................... 4.5 0.5 0.7 63.8 64.9 134.4 Currency adjustment........................................ (0.1) - - (0.2) (1.6) (1.9) Charge for the 52 week period.............................. 1.3 0.1 0.7 29.6 14.1 45.8 Businesses acquired........................................ 2.2 (0.1) 0.4 16.0 8.7 27.2 Disposals.................................................. (0.1) - - (5.2) (6.3) (11.6) Businesses disposed of..................................... (0.9) - (0.1) (3.7) (10.7) (15.4) Transfer between categories................................ - - 0.1 6.6 (6.7) - At September 29 1996....................................... 6.9 0.5 1.8 106.9 62.4 178.5 NET BOOK VALUE At September 29 1996....................................... 47.6 2.6 5.1 138.8 62.0 256.1 At October 1 1995.......................................... 129.1 14.8 3.3 84.7 63.7 295.6
F-18 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 10 TANGIBLE FIXED ASSETS -- Continued The total cost or valuation for freehold land and buildings and long and short leasehold property comprises:
SHORT FREEHOLD LAND AND LEASEHOLD BUILDINGS LONG LEASEHOLD PROPERTY PROPERTY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 SEP 29 1996 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M At 1994 valuation............................... 2.7 96.6 - 12.1 - At cost......................................... 51.8 37.0 3.1 3.2 6.9 Total........................................... 54.5 133.6 3.1 15.3 6.9 SHORT LEASEHOLD PROPERTY OCT 1 1995 (POUNDS)M At 1994 valuation............................... - At cost......................................... 4.0 Total........................................... 4.0
Historical cost figures for freehold land and buildings and long and short leasehold property, being the original cost to the Group and the related depreciation, are:
SHORT FREEHOLD LAND AND LEASEHOLD BUILDINGS LONG LEASEHOLD PROPERTY PROPERTY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 SEP 29 1996 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Historical cost................................. 56.6 116.6 3.1 10.7 6.9 Depreciation.................................... (7.1) (7.7) (0.5) (0.7) (1.8) 49.5 108.9 2.6 10.0 5.1 SHORT LEASEHOLD PROPERTY OCT 1 1995 (POUNDS)M Historical cost................................. 4.0 Depreciation.................................... (0.7) 3.3
No capitalised interest is included in the current period figures. The prior period figures include (pounds)1.6m of interest capitalised of which (pounds)0.2m was capitalised during that period. Tax relief at 33% had been claimed on all interest capitalised. One freehold property in Birmingham was revalued by Freeth Melhuish on October 2 1994 on the basis of open market value for existing use at (pounds)0.7m and one freehold property in Hammersmith was valued by Conrad Ritblat Sinclair Goldsmiths, Chartered Surveyors, on October 2 1994 at (pounds)2.0m on the basis of open market value for existing use. The net book value of the Group's tangible fixed assets includes in respect of assets held under finance leases, freehold buildings and long and short leasehold property (pounds)8.4m (1995: (pounds)0.2m), plant and machinery (pounds)12.6m (1995: (pounds)9.4m) and fixtures and fittings (pounds)0.4m (1995: (pounds)0.3m).
FREEHOLD LAND AND PLANT AND FIXTURES AND BUILDINGS MACHINERY FITTINGS TOTAL (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M COMPANY COST At October 2 1995.................................................... 7.3 0.5 0.7 8.5 Additions............................................................ - 0.3 1.9 2.2 Disposals............................................................ - - (0.3) (0.3) At September 29 1996................................................. 7.3 0.8 2.3 10.4 DEPRECIATION At October 2 1995.................................................... - 0.1 0.3 0.4 Charge for the 52 week period........................................ 0.1 0.2 0.1 0.4 Disposals............................................................ - - (0.3) (0.3) At September 29 1996................................................. 0.1 0.3 0.1 0.5 NET BOOK VALUE At September 29 1996................................................. 7.2 0.5 2.2 9.9 At October 1 1995.................................................... 7.3 0.4 0.4 8.1
F-19 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 11 INVESTMENTS HELD AS FIXED ASSETS
GROUP COMPANY INVESTMENT IN ASSOCIATED OWN SUBSIDIARY COMPANIES COMPANIES SHARES TOTAL SHARES LOANS (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M COST At October 2 1995............................................ 3.3 12.3 15.6 1,066.3 542.5 Additions.................................................... 0.5 1.1 1.6 188.0 115.4 Eurest France -- share of net assets owned at acquisition (note 19).................................................. (4.7) - (4.7) - - Disposals.................................................... - (1.4) (1.4) (37.5) - Share of retained profits less losses........................ 4.2 - 4.2 - - Other movements.............................................. (1.2) - (1.2) (1.5) - Repaid....................................................... - - - - (92.2) At September 29 1996......................................... 2.1 12.0 14.1 1,215.3 565.7 COMPANY TOTAL (POUNDS)M COST At October 2 1995............................................ 1,608.8 Additions.................................................... 303.4 Eurest France -- share of net assets owned at acquisition (note 19).................................................. - Disposals.................................................... (37.5) Share of retained profits less losses........................ - Other movements.............................................. (1.5) Repaid....................................................... (92.2) At September 29 1996......................................... 1,781.0
Own shares represent the shares in Compass Group PLC held by the Compass Group Employee Share Trust. These shares are listed on a recognised investment exchange, and their market value at September 29 1996 was (pounds)22.0m (1995: (pounds)18.0m). The nominal value held at September 29 1996 was (pounds)0.2m (1995: (pounds)0.2m). The dividends on these shares of (pounds)0.3m (1995: (pounds)0.2m) are included in interest receivable and similar income. F-20 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 11 INVESTMENTS HELD AS FIXED ASSETS -- Continued Principal subsidiary companies are:
Percentage interest Country of registration or incorporation Principal activities held at Sep 29 1996 ENGLAND AND WALES Compass Contract Services (U.K.) Ltd. Provision of food services to commerce, industry, 100 and the retail world Chartwells Ltd. Provision of food services to the education market 100 Bateman Catering Ltd. Provision of food services to the healthcare market 100 Compass Services (U.K.) Ltd. Provision of food services to commerce, industry, 100 and the retail world Compass Group (U.K.) Ltd. Holding company 100 Travellers Fare Ltd. Provision of food services at railway stations 100 Letheby & Christopher Ltd. Sports and events catering 100 Compass Overseas Holdings Ltd. Holding company 100 Compass Overseas Holdings No. 2 Ltd. Holding company 100 Scandinavian Service Partner Restaurants Ltd. Provision of airport terminal catering services 100 New Famous Foods Ltd. Provision of branded catering options 100 Payne & Gunter Ltd. Sports and events catering 100 CONTINENTAL EUROPE Scandinavian Service Partner A/S, Denmark Holding company 100 Copenhagen Airport Restaurants A/S, Denmark Provision of airport terminal catering services 100 Scandinavian Service Partner Provision of food services to commerce and industry 100 Virksomhedsrestauranter A/S, Denmark Scandinavian Service Partner Hospital Catering A/S, Provision of hospital catering services 100 Denmark Scandinavian Service Partner Restaurants AB, Sweden Provision of airport terminal catering services 100 Scandinavian Service Partner Foretagsrestauranger Provision of food services to commerce and industry 100 AB, Sweden Scandinavian Service Partner Hospital Catering AB, Provision of hospital catering services 100 Sweden Scandinavian Service Partner Restaurants A/S, Provision of airport terminal catering services 100 Norway Scandinavian Service Partner Offshore & Industrial Provision of food services to commerce and industry 100 Catering A/S, Norway Bergen Supply A/S, Norway Catering supplier 100 Scandinavian Service Partner S.A., Spain Provision of airport terminal catering services 100 Eindhoven Catering Services Beheer B.V., Holland Provision of food services to commerce and industry 100 Scandinavian Service Partner Ireland Limited Provision of airport terminal catering services 100 Scandinavian Service Partner S.A., France Provision of airport terminal catering services 100 Service Partner Restaurants B.V., Holland Provision of airport terminal catering services 100 Eurest France S.A. Provision of food services to commerce and industry 100 Eurest Deutschland GmbH, Germany Provision of food services to commerce and industry 100 Eurest Nederland B.V., Holland Provision of food services to commerce and industry 100 Eurest Belgilux, Belgium Provision of food services to commerce and industry 100 Eurest S.A., Spain Provision of in-flight catering services 100 Eurest Colectividades, S.A., Spain Provision of food services to commerce and industry 100 Socersa, Spain Provision of food services to commerce and industry 100 Eurest Luxembourg S.A., Luxembourg Provision of food services to commerce and industry 100 Eurest Portugal S.A., Portugal Provision of food services to commerce and industry 100 Eurest Restaurations Betriebsgesellschaft Mbh, Provision of food services to commerce and industry 100 Austria Eurest Suisse S.A., Switzerland Provision of food services to commerce and industry 100 Eurest SPOL s.r.o., Czech Republic Provision of food services to commerce and industry 100 Eurest International B.V., Holland Holding company 100 USA Compass Group USA, Inc. Provision of food and vending services to commerce 100 and industry Compass Holdings Inc. Holding company 100 Consolidated Coin Caterers Corporation Provision of food and vending services to commerce 100 and industry Statewide Services Inc. Provision of site support services 80 Flik International Inc. Provision of food services to commerce 100 IM Vending Inc. Owns trademarks 100 Professional Food-Service Management, Inc. Provision of food services to the education market 100
All companies operate principally in their country of incorporation. F-21 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 12 STOCKS
SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M GROUP Food and beverage stocks............................................................................ 61.6 42.6 Other stocks........................................................................................ 11.4 7.9 73.0 50.5
13 DEBTORS
GROUP COMPANY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Amounts falling due within one year Trade debtors............................................................. 290.3 218.5 0.2 0.1 Amounts owed by subsidiary companies...................................... - - 13.2 36.9 Corporation tax recoverable............................................... - - 3.2 - Other debtors............................................................. 29.8 26.5 0.5 0.6 Prepayments and accrued income............................................ 13.8 10.7 0.7 0.2 Provision for doubtful accounts........................................... (10.5) (6.9) - - 323.4 248.8 17.8 37.8 Amounts falling due after more than one year Other debtors............................................................. 27.0 6.0 19.4 11.9 Deferred tax.............................................................. 27.3 22.1 4.6 4.2 Provision for doubtful accounts........................................... (4.0) - (4.0) - 50.3 28.1 20.0 16.1
PROVIDED UNPROVIDED SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M DEFERRED TAX ANALYSIS GROUP Capital allowances in excess of depreciation.............................. (2.2) (2.0) (0.2) (6.7) Gain deferred by rollover relief.......................................... - - - (1.5) Other timing differences.................................................. 7.2 4.0 1.7 0.5 Overseas deferred tax..................................................... 17.7 16.1 46.9 35.9 22.7 18.1 48.4 28.2 Unrelieved advance corporation tax........................................ 4.6 4.0 - - 27.3 22.1 48.4 28.2
Deferred tax has been provided throughout the Group in accordance with the accounting policy shown in note 1 [K.]. No provision has been made for potential tax liabilities which might arise in the event of the distribution of unappropriated profits or reserves of overseas subsidiary companies as there is no current intention to distribute such reserves.
PROVIDED UNPROVIDED SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M COMPANY Timing differences........................................................ - 0.2 - - Unrelieved advance corporation tax........................................ 4.6 4.0 - - 4.6 4.2 - -
F-22 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 13 DEBTORS -- Continued
GROUP COMPANY (POUNDS)M (POUNDS)M The movements on deferred tax are as follows: At October 2 1995.......................................................................................... 22.1 4.2 Arising from acquisitions.................................................................................. 1.3 - Credited/(charged) to profit and loss account.............................................................. 0.7 (0.2) Currency adjustment........................................................................................ (0.2) - Other movements............................................................................................ 3.4 0.6 At September 29 1996....................................................................................... 27.3 4.6
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Loan notes................................................................ 6.4 - 6.4 - Bank loans................................................................ 6.9 1.4 4.3 - Bank overdrafts........................................................... 0.1 16.6 - - Obligations under finance leases.......................................... 5.9 3.8 - - Trade creditors........................................................... 229.4 173.8 4.2 5.9 Amounts owed to subsidiary companies...................................... - - 159.2 51.8 Corporation tax payable................................................... 17.7 20.2 - 2.2 Overseas tax.............................................................. 35.4 37.4 - - Other tax and social security costs....................................... 77.2 75.9 0.1 0.2 Other creditors........................................................... 104.1 85.8 1.9 1.1 Deferred consideration.................................................... 55.1 46.8 50.0 43.4 Accruals and deferred income.............................................. 151.3 84.6 18.2 3.7 Proposed dividend......................................................... 18.6 16.2 18.6 16.2 708.1 562.5 262.9 124.5
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
GROUP COMPANY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Loan notes................................................................ 280.6 94.5 275.8 94.5 Bank loans................................................................ 238.6 411.1 225.7 404.6 Obligations under finance leases.......................................... 16.6 10.5 - - Other creditors........................................................... 25.7 21.1 - - Deferred consideration.................................................... 23.0 43.0 22.7 38.5 584.5 580.2 524.2 537.6
F-23 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR -- Continued Repayments of the balances as at September 29 1996 fall due as follows:
OBLIGATIONS UNDER LOAN BANK FINANCE OTHER SEP 29 1996 NOTES LOANS LEASES CREDITORS TOTAL (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M GROUP Between one and two years.................................. 11.1 1.3 4.6 11.3 28.3 Between two and five years................................. 56.1 229.6 6.9 32.3 324.9 In more than five years.................................... 213.4 7.7 5.1 5.1 231.3 280.6 238.6 16.6 48.7 584.5 OCT 1 1995 TOTAL (POUNDS)M GROUP Between one and two years.................................. 298.6 Between two and five years................................. 224.0 In more than five years.................................... 57.6 580.2
LOAN BANK OTHER SEP 29 1996 OCT 1 1995 NOTES LOANS CREDITORS TOTAL TOTAL (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M COMPANY Between one and two years........................................... 6.8 - - 6.8 286.5 Between two and five years.......................................... 56.0 225.7 22.7 304.4 196.9 In more than five years............................................. 213.0 - - 213.0 54.2 275.8 225.7 22.7 524.2 537.6
GROUP COMPANY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Bank loans: Repayable otherwise than by instalments within 5 years.................... 245.5 412.4 230.0 404.6 Repayable by instalments after 5 years.................................... - 0.1 - - 245.5 412.5 230.0 404.6 Less: amounts falling due within one year................................. (6.9) (1.4) (4.3) - Amounts falling due after more than one year.............................. 238.6 411.1 225.7 404.6
The Group has fixed term, fixed interest private placements totalling US$420m at interest rates between 7.55% and 8.015%. Of this amount 41% has been swapped to floating rates based on US Libor plus a margin. US$334m ((pounds)213.4m) is repayable in instalments in six to fifteen years. 16 PROVISIONS FOR LIABILITIES AND CHARGES
GROUP ACTUARIALLY FAIR DETERMINED VALUE PROVISIONS OTHER TOTAL (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M At October 2 1995.................................................................. 7.9 44.5 11.8 64.2 Arising from acquisitions.......................................................... - 4.9 - 4.9 Expenditure in the period.......................................................... (0.5) (2.1) (0.5) (3.1) (Credited)/charged to profit and loss account...................................... (0.2) 0.9 0.7 1.4 Reclassification from current liabilities.......................................... - 1.0 0.8 1.8 Currency adjustment................................................................ 0.1 0.4 (0.5) - At September 29 1996............................................................... 7.3 49.6 12.3 69.2
Actuarially determined provisions are in respect of the long term proportion of liabilities for self-insured schemes and concessionary benefits for present and former employees. F-24 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 17 CALLED UP SHARE CAPITAL
SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M Ordinary shares of 5p each authorised 500,000,000 (1995 -- 500,000,000)......................... 25.0 25.0 Allotted and fully paid 317,188,887 (1995 -- 309,831,285)....................................... 15.9 15.5
NUMBER OF CONSIDERATION SHARES (POUNDS)M Ordinary shares of 5p each allotted as at October 2 1995........................................ 309,831,285 Ordinary shares issued during the 52 week period ended September 29 1996 fully paid: Eurest International acquisition................................................................ 4,910,460 21.2 P F M acquisition............................................................................... 1,604,113 8.9 Share options................................................................................... 843,029 1.8 Total ordinary shares of 5p each allotted and fully paid during the 52 week period ended September 29 1996............................................................................... 7,357,602 31.9 Ordinary shares of 5p each allotted as at September 29 1996..................................... 317,188,887
Shares to be issued represents 12,221,047 shares (value (pounds)68.3m) which at September 29 1996 remained to be issued in respect of the acquisitions of PFM and Service America (1995: 4,910,460 shares (value (pounds)21.2m) in respect of the Eurest International acquisition). SHARE OPTION SCHEMES At September 29 1996, employees held options for a total of 14,388,569 ordinary shares of 5p each under all of the Company's share option schemes analysed as follows. Under the Company's employee share option schemes for directors and senior executives at September 29 1996, employees held options for 10,107,107 ordinary shares of 5p each as follows:
NUMBER OPTION PRICE OF SHARES PER SHARE EXERCISABLE 17,311 1.23p Dec 16 1990 -- Dec 16 1997 8,655 1.23p Jul 22 1991 -- Jul 22 1998 22,194 157.25p May 24 1992 -- Jun 16 1998 322,924 157.25p May 24 1992 -- May 24 1999 469,418 160.38p Jul 3 1993 -- Jul 3 2000 87,669 183.36p Jul 1 1994 -- Jul 1 2001 335,149 184.73p Dec 20 1994 -- Dec 20 2001 189,212 191.94p* Jan 15 1995 -- Jan 15 1999 790,150 189.23p* Aug 5 1995 -- Aug 5 1999 506,544 239.27p* May 20 1996 -- May 20 2000 690,163 231.21p May 24 1996 -- May 24 2003 211,060 241.16p Jun 30 1996 -- Jun 30 2003 768,772 291.86p Apr 28 1997 -- Apr 28 2001 923,386 291.86p* Apr 28 1997 -- Apr 28 2004 337,000 325.00p* Jun 27 1997 -- Jun 27 2001 10,000 338.00p Jan 4 1998 -- Jan 4 2005 1,536,500 388.00p* Jul 12 1998 -- Jul 12 2002 80,000 492.00p* Feb 23 1999 -- Feb 23 2003 2,801,000 528.00p* May 16 1999 -- May 16 2003
* These options will not involve the issue of new shares. F-25 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 17 CALLED UP SHARE CAPITAL -- Continued Under the Company's SAYE option scheme at September 29 1996, employees held options for 4,281,462 ordinary shares of 5p each as follows:
NUMBER OPTION PRICE OF SHARES PER SHARE EXERCISABLE 45,418 143.28p Sep 1 1994 -- Mar 31 1997 52,582 122.53p Sep 1 1995 -- Mar 31 1998 81,679 155.88p Sep 1 1996 -- Mar 31 1999 344,496 186.96p Sep 1 1997 -- Mar 31 2000 630,292 194.26p Sep 1 1998 -- Mar 31 2001 862,627 248.00p Sep 1 1999 -- Mar 31 2002 657,499 286.00p Sep 1 2000 -- Mar 31 2003 406,660 294.00p May 18 2000 1,200,209 462.00p Sep 1 2001 -- Mar 31 2004
18 RESERVES
CONSOLIDATED SHARE PROFIT AND PREMIUM REVALUATION LOSS ACCOUNT RESERVE GOODWILL ACCOUNT (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M GROUP At October 2 1995............................................................ 649.3 25.0 (1,345.0) 145.1 Foreign exchange translation differences..................................... - - - 3.9 Premium on ordinary shares issued net of expenses............................ 29.8 - - - Retained profit for the period............................................... - - - 72.1 Options exercised............................................................ 1.7 - - - Transfer on disposal of healthcare division.................................. - (25.0) 12.1 25.0 Goodwill arising on acquisition of businesses................................ - - (235.9) - At September 29 1996......................................................... 680.8 - (1,568.8) 246.1
GOODWILL The consolidated goodwill represents the excess of the consideration for the operations acquired over the fair value of the net assets acquired. The goodwill has been written off to shareholders' equity and is maintained as a separate negative reserve.
SHARE PROFIT AND PREMIUM LOSS ACCOUNT ACCOUNT (POUNDS)M (POUNDS)M COMPANY At October 2 1995....................................................................................... 649.3 327.7 Premium on ordinary shares issued net of expenses....................................................... 29.8 - Retained loss for the period............................................................................ - (36.0) Options exercised....................................................................................... 1.7 - At September 29 1996.................................................................................... 680.8 291.7
F-26 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 19 ACQUISITIONS 52 WEEK PERIOD ENDED SEPTEMBER 29 1996:
FAIR VALUE CONSIDERATION OF ASSETS AND COSTS ACQUIRED GOODWILL (POUNDS)M (POUNDS)M (POUNDS)M Eurest France........................................................................... 156.0 7.0 149.0 Service America......................................................................... 89.4 34.3 55.1 PFM..................................................................................... 17.3 (1.0) 18.3 Other acquisitions in the period........................................................ 27.0 6.4 20.6 Total acquisitions in the period........................................................ 289.7 46.7 243.0 Adjustments in respect of Eurest International.......................................... (2.4) Other prior period adjustments.......................................................... (4.7) 235.9
Other prior period adjustments relate to acquisitions made in 1994/5 and deferred consideration relating to earlier acquisitions. Acquisitions did not make a material contribution to Group cash flows in the period. All acquisitions were accounted for under the acquisitions method of accounting. A EUREST FRANCE On June 20 1996 the Group acquired an additional 33.5% of the issued share capital of Financiere Eurest SA and its subsidiary undertakings (Eurest France) for (pounds)73.6m. On August 29 1996 the Group acquired the remaining 33.2% of the issued share capital of Financiere Eurest SA and its subsidiary undertakings for (pounds)82.4m including costs. Of the total purchase price, (pounds)7.6m was deferred until April 1 1997 and (pounds)22.7m until October 1 1998. Adjustments have been made to reflect the provisional fair value of assets acquired as follows:
ACCOUNTING NET ASSETS FAIR VALUE POLICY ACQUIRED ADJUSTMENTS REALIGNMENT (POUNDS)M (POUNDS)M (POUNDS)M Goodwill and intangible fixed assets...................................... 21.8 - (21.8) Tangible fixed assets..................................................... 11.1 - 7.4 Stocks.................................................................... 7.5 - - Debtors................................................................... 62.4 - - Cash...................................................................... 18.3 - - Bank loans................................................................ (10.0) - - Creditors................................................................. (73.0) (1.0) (8.0) Provisions................................................................ - - (3.1) Tax....................................................................... - 0.3 (0.2) Share of net assets already owned at the date of acquisition.............. (4.7) - - 33.4 (0.7) (25.7) FAIR VALUE TO THE GROUP (POUNDS)M Goodwill and intangible fixed assets...................................... - Tangible fixed assets..................................................... 18.5 Stocks.................................................................... 7.5 Debtors................................................................... 62.4 Cash...................................................................... 18.3 Bank loans................................................................ (10.0) Creditors................................................................. (82.0) Provisions................................................................ (3.1) Tax....................................................................... 0.1 Share of net assets already owned at the date of acquisition.............. (4.7) 7.0
Adjustments for accounting policy realignment principally relate to writing off of goodwill, recognizing post-retirement benefits and adjusting for the effect of leases required to be treated as finance leases under UK GAAP. The results of Eurest France for the year ended February 28 1996 showed a profit before tax on ordinary activities of (pounds)17.6m. The results from March 1 1996 to June 20 1996 showed a profit before tax on ordinary activities of (pounds)5.7m. B SERVICE AMERICA On the last day of the period the Group acquired the dining and vending assets of Service America Corporation for (pounds)89.4m including costs and the settlement of certain liabilities retained by the vendors. Of the total purchase price part was F-27 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 19 ACQUISITIONS -- Continued satisfied by 12,025,920 shares to be issued in four tranches at 6 monthly intervals commencing March 1997, part by the payment of (pounds)8.4m ($13.1m) in cash, and the balance by the issue of (pounds)12.8m ($20.0m) of loan notes bearing interest at 6.5%. The loan notes are repayable in equal instalments in September 1997 and September 1998. Adjustments have been made to reflect the provisional fair value of assets acquired as follows:
ACCOUNTING NET ASSETS FAIR VALUE POLICY ACQUIRED ADJUSTMENTS REALIGNMENT (POUNDS)M (POUNDS)M (POUNDS)M Tangible fixed assets..................................................... 54.8 (4.1) (10.7) Stocks.................................................................... 10.5 - - Debtors................................................................... 10.3 (0.4) - Cash...................................................................... 6.0 - - Creditors................................................................. (18.5) (8.6) (5.0) 63.1 (13.1) (15.7) FAIR VALUE TO THE GROUP (POUNDS)M Tangible fixed assets..................................................... 40.0 Stocks.................................................................... 10.5 Debtors................................................................... 9.9 Cash...................................................................... 6.0 Creditors................................................................. (32.1) 34.3
A provision for integrating the operations of Service America into the USA division of (pounds)6.7m has been charged to the Group's profit and loss account in the period. Adjustments for accounting policy realignment and fair value adjustments in respect of tangible fixed assets relate to the restatement of vending machines and other assets acquired to their estimated market value. The adjustments to creditors relate to liabilities for staff holiday pay, and other liabilities not previously recognized by Service America Corporation. The results of Service America for the year ended March 30 1996 showed a loss before tax on ordinary activities of (pounds)8.3m. The results from March 31 1996 to September 29 1996 showed a loss on ordinary activities before tax of (pounds)4.5m. C PFM On August 2 1996 the Group acquired the whole of the issued share capital of Professional Food-Service Management Inc. (PFM) for (pounds)17.3m including costs. Of the total purchase price part was satisfied by cash (pounds)5.9m ($9.3m), part by the issue of 1,604,113 shares, part by the issue of (pounds)1.6m ($2.5m) of interest bearing loan notes, and in addition deferred consideration in cash and shares of up to $2m is payable 2 years after completion subject to certain performance conditions. Adjustments have been made to reflect the provisional fair value of assets acquired as follows:
ACCOUNTING NET ASSETS FAIR VALUE POLICY ACQUIRED ADJUSTMENTS REALIGNMENT (POUNDS)M (POUNDS)M (POUNDS)M Tangible fixed assets..................................................... 4.2 - - Stocks.................................................................... 1.1 - - Debtors................................................................... 4.5 - - Cash...................................................................... 2.2 - - Bank loans................................................................ (1.0) - - Creditors................................................................. (9.0) (1.5) - Provisions................................................................ (1.2) (0.6) - Tax....................................................................... 1.3 - (1.0) 2.1 (2.1) (1.0) FAIR VALUE TO THE GROUP (POUNDS)M Tangible fixed assets..................................................... 4.2 Stocks.................................................................... 1.1 Debtors................................................................... 4.5 Cash...................................................................... 2.2 Bank loans................................................................ (1.0) Creditors................................................................. (10.5) Provisions................................................................ (1.8) Tax....................................................................... 0.3 (1.0)
D OTHER ACQUISITIONS Other assets acquired during the period are shown below, relating to businesses in the inflight, sports & events and healthcare catering market sectors. F-28 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 19 ACQUISITIONS -- Continued Adjustments have been made to reflect the provisional fair value of assets acquired as follows:
ACCOUNTING NET ASSETS FAIR VALUE POLICY ACQUIRED ADJUSTMENTS REALIGNMENT (POUNDS)M (POUNDS)M (POUNDS)M Intangible fixed assets................................................... 0.2 - (0.2) Tangible fixed assets..................................................... 7.8 - (0.4) Investment in associates.................................................. 0.3 - - Stocks.................................................................... 0.5 - - Debtors................................................................... 8.1 (1.1) - Cash...................................................................... 0.2 - - Bank overdrafts/loans..................................................... (0.5) - - Creditors................................................................. (8.5) (0.2) - Tax....................................................................... (0.1) - 0.8 Minority interest......................................................... (0.3) 0.1 (0.3) 7.7 (1.2) (0.1) FAIR VALUE TO THE GROUP (POUNDS)M Intangible fixed assets................................................... - Tangible fixed assets..................................................... 7.4 Investment in associates.................................................. 0.3 Stocks.................................................................... 0.5 Debtors................................................................... 7.0 Cash...................................................................... 0.2 Bank overdrafts/loans..................................................... (0.5) Creditors................................................................. (8.7) Tax....................................................................... 0.7 Minority interest......................................................... (0.5) 6.4
52 WEEK PERIOD ENDED OCTOBER 1 1995:
FAIR VALUE OF CONSIDERATION ASSETS AND COSTS ACQUIRED GOODWILL (POUNDS)M (POUNDS)M (POUNDS)M Eurest Group.......................................................................... 662.1 (14.9) 677.0 Other acquisitions in the period...................................................... 18.7 (5.2) 23.9 Prior period acquisitions............................................................. - (8.9) 8.9 680.8 (29.0) 709.8
Prior period acquisitions relate to those made in 1993/4 and the adjustments to the fair value of assets acquired principally relate to reorganization, relocation and unrecorded liabilities. Acquisitions did not make a material contribution to Group profits or cash flows in the period. All acquisitions were accounted for under the acquisitions method of accounting. Adjustments have been made to reflect the provisional fair value of assets acquired during the period as follows: E EUREST INTERNATIONAL On September 25 1995 the Group acquired the whole of the issued share capital of Efthor Holding B.V., certain other companies and their respective subsidiary undertakings and minority shareholdings, which together comprise the Eurest Group, for (pounds)662.1m including costs. Of the total purchase price, up to (pounds)11.3m was deferred until November 1995, up to (pounds)6.4m until March 31 1996, up to (pounds)19.4m until June 24 1996, up to (pounds)38.9m until October 2 1995, and up to (pounds)4.4m until certain conditions are satisfied. F-29 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 19 ACQUISITIONS -- Continued
NET TANGIBLE ACCOUNTING ASSETS FAIR VALUE POLICY FAIR VALUE TO ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Tangible fixed assets................................................. 28.7 - (1.0) 27.7 Investment in associates.............................................. 3.4 - - 3.4 Stocks................................................................ 15.9 - - 15.9 Debtors............................................................... 129.8 - - 129.8 Bank loans............................................................ (3.5) - - (3.5) Bank overdrafts....................................................... (1.7) - - (1.7) Cash.................................................................. 36.4 - - 36.4 Creditors............................................................. (177.5) (12.8)* - (190.3) Provisions............................................................ (5.9) - (3.9) (9.8) Tax................................................................... (15.3) (5.9) - (21.2) Minority interests.................................................... (1.6) - - (1.6) 8.7 (18.7) (4.9) (14.9)
*THIS ITEM IS PRINCIPALLY PROVISIONS FOR REORGANIZATION, RELOCATION AND UNRECORDED LIABILITIES. The results of Eurest International for the year ended December 31 1994 show profit before tax on ordinary activities of (pounds)31.0m. Equivalent figures extracted from the unaudited management accounts for January 1 1995 to the date of acquisition show profit before tax on ordinary activities of (pounds)31.3m. F OTHER ACQUISITIONS Other assets acquired during the period are shown below. They principally relate to the acquisition of Flik International which was acquired in May 1995 for (pounds)14.5m, of which (pounds)4.5m is deferred until 1997, and Stavanger Catering A/S in June 1995 for (pounds)4.2m.
NET TANGIBLE ACCOUNTING ASSETS FAIR VALUE POLICY FAIR VALUE TO ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Tangible fixed assets................................................. 1.1 - - 1.1 Intangible fixed assets............................................... 0.8 - (0.8) - Stocks................................................................ 0.4 - - 0.4 Debtors............................................................... 5.4 - - 5.4 Bank loans............................................................ (0.3) - - (0.3) Bank overdrafts....................................................... (0.6) - - (0.6) Cash.................................................................. 1.1 - - 1.1 Creditors............................................................. (5.9) (6.4)* - (12.3) 2.0 (6.4) (0.8) (5.2)
*THIS ITEM IS PRINCIPALLY PROVISIONS FOR REORGANIZATION AND UNRECORDED LIABILITIES. F-30 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 19 ACQUISITIONS -- Continued 53 WEEK PERIOD ENDED OCTOBER 2 1994:
FAIR VALUE OF CONSIDERATION ASSETS AND COSTS ACQUIRED GOODWILL (POUNDS)M (POUNDS)M (POUNDS)M Canteen Corporation................................................................... 311.7 (25.5) 337.2 Other acquisitions in the period...................................................... 23.5 (1.8) 25.3 Prior period acquisitions............................................................. - (6.2) 6.2 335.2 (33.5) 368.7
Prior period acquisitions relate to those made in 1993, and the adjustments to the fair value of assets acquired principally relate to surplus property costs. All acquisitions were accounted for under the acquisition method of accounting. Adjustments have been made to reflect the provisional fair value of assets acquired in 1994 as follows: G CANTEEN CORPORATION On June 17 1994 the Group acquired the whole of the issued share capital of IM Vending Inc, the holding company of Canteen Corporation and its subsidiaries, together "Canteen", for (pounds)311.7m including costs.
NET TANGIBLE ACCOUNTING ASSETS FAIR VALUE POLICY FAIR VALUE TO ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Tangible fixed assets............................................. 78.1 (0.5) - 77.6 Intangible assets................................................. 5.3 - (5.3) - Stocks............................................................ 19.8 (0.1) - 19.7 Debtors........................................................... 46.3 - - 46.3 Bank overdrafts................................................... (12.7) - - (12.7) Creditors......................................................... (104.5) (6.8)* - (111.3) Provisions........................................................ (35.7) (6.1)* - (41.8) Taxation.......................................................... (0.1) (3.2) - (3.3) (3.5) (16.7) (5.3) (25.5)
*THESE ITEMS ARE PRINCIPALLY PROVISIONS FOR REORGANIZATION, RELOCATION AND UNRECORDED LIABILITIES. The results of Canteen for the year ended December 25 1993 show profits before tax on ordinary activities before non-recurring expenses of US$35.2m. Equivalent figures extracted from the unaudited management accounts for December 26 1993 to the date of the acquisition show profits before tax on ordinary activities of US$13.3m. H OTHER ACQUISITIONS Other assets acquired during the period are shown below. They principally relate to the acquisition of Eindhoven Catering Services Beheer B.V., (Holland) which was acquired in June 1994 for (pounds)7.5m, Compagnie de Restauration et de Service Aeroportuaires (France) which was acquired in May 1994 for (pounds)10.5m, Chestermark which was acquired in November 1993 for (pounds)3.4m, and Roux Fine Dining Ltd which was acquired in December 1993 for (pounds)1.0m. Consideration stated above includes costs. F-31 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 19 ACQUISITIONS -- Continued
NET TANGIBLE ACCOUNTING ASSETS FAIR VALUE POLICY FAIR VALUE TO ACQUIRED ADJUSTMENTS REALIGNMENT THE GROUP (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Tangible fixed assets............................................ 5.7 (1.4) - 4.3 Intangible fixed assets.......................................... 6.9 - (6.9) - Stocks........................................................... 1.3 - - 1.3 Debtors.......................................................... 6.1 (0.1) - 6.0 Bank overdrafts.................................................. (0.5) - - (0.5) Creditors........................................................ (7.9) (2.4)* - (10.3) Provisions....................................................... - (2.7) - (2.7) Taxation......................................................... (0.2) 0.5 - 0.3 Minority interest................................................ (0.2) - - (0.2) 11.2 (6.1) (6.9) (1.8)
*THIS ITEM IS PRINCIPALLY PROVISIONS FOR REORGANIZATION AND UNRECORDED LIABILITIES. 20 PENSIONS The Group operates a number of defined contribution and defined benefit plans covering the majority of the workforce. The pension cost of these plans for the period was (pounds)15.2m (1995: (pounds)11.3m; 1994: (pounds)8.1m) of which (pounds)9.5m (1995: (pounds)5.9m; 1994: (pounds)3.3m) relates to overseas plans. Within the UK there are two main plans: (i) Compass Group Money Purchase Pension Plan, which is a defined contributions arrangement. (ii) Compass Group Final Salary Pension Plan, which is a defined benefits arrangement. This is operated on a prefunded basis. The funding policy is to contribute such variable amounts, on the advice of the Actuary, as achieves a 100% funding level on a projected salary basis. Actuarial assessments covering expense and contributions are carried out by independent qualified actuaries. In overseas countries the Group provides pension arrangements in accordance with statutory requirements and local customs and practices. In Denmark, the Netherlands and Ireland the Group operates insured benefit pension plans where the Group contributions represent the insurance companies' assessment of the annual cost of the benefits earned in that year. In the United States the main plan is a defined benefit plan. The funding policy, in accordance with Government guidelines, is to contribute such variable amounts, on the advice of the Actuary, as achieves a 100% funding level on a projected salary basis. In other countries Group employees participate primarily in state arrangements to which the Group makes the appropriate contributions. The pension cost of the Final Salary Pension Plan for the period to September 29 1996 has been assessed in accordance with the advice of professionally qualified consulting actuaries based in the UK on an actuarial valuation at April 6 1995. This was made using the projected unit method and the most significant actuarial assumptions adopted for determining pension costs and contributions were as follows:
UK (i) Rate of return on investments................................................................................ 9.5% p.a. (ii) Rate of increase in pensionable pay......................................................................... 7.5% p.a. (iii) Rate of increase in pension................................................................................. 4.0% p.a.
In the UK assets were valued having regard to the notional income which they would produce assuming that UK equity dividends increase in future at the rate of 5 per cent per annum. F-32 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 20 PENSIONS -- Continued The results of the valuation in the UK showed that the value of the assets at April 6 1995 represented 112% of the value of the accrued benefits after allowing for expected future increases in pensionable pay and pensions. The market value of the plan's assets was (pounds)65.8m as at April 6 1995. In the USA the market value of the plan's assets was US$72.9m as at January 1 1995 and based on a review at that date, the value of the assets represented 98% of the accrued benefits after allowing for expected future increases in pensionable pay and pensions. There have been no material changes to the pension arrangements since the valuation and review dates. The assets of the plans are held in separate funds administered by trustees and are independent of the Group's finances. At the balance sheet date, outstanding employer and employee contributions amount to (pounds)1.5m and (pounds)0.4m respectively. The pension cost charged to the profit and loss account is such as to spread the cost of pensions over the working lives with the Group of employees who are members of the plans. 21 CONTINGENT LIABILITIES
GROUP COMPANY SEP 29 1996 OCT 1 1995 SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Performance bonds and guarantees of indemnities and overdrafts of subsidiary and associated undertakings.................................... 52.5 44.9 10.6 8.2
22 CAPITAL COMMITMENTS
SEP 29 1996 OCT 1 1995 (POUNDS)M (POUNDS)M Contracted for but not provided for in the accounts................................................. 2.3 4.5
23 OPERATING LEASE COMMITMENTS At September 29 1996 the Group was committed to making the following payments during the next 52 week period in respect of operating leases:
LAND AND BUILDINGS CONCESSIONS OTHER (POUNDS)M (POUNDS)M (POUNDS)M Leases which expire: Within 1 year.................................................................. 0.6 11.6 1.5 Within 2 to 5 years............................................................ 2.9 10.8 4.7 After 5 years.................................................................. 2.1 8.6 0.3 5.6 31.0 6.5
24 FIVE YEAR SUMMARY
1992 1993 1994 1995 1996 (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M Turnover.................................................................. 345.1 497.0 917.9 1,505.8 2,651.9 Operating profit.......................................................... 36.9 46.8 62.8 91.2 137.1 Profit on ordinary activities before taxation............................. 31.8 41.5 55.7 73.2 127.6 Profit on ordinary activities after taxation.............................. 21.2 27.9 39.6 54.4 100.6
1992 1993 1994 1995 1996 PENCE PENCE PENCE PENCE PENCE Earnings per share.............................................................. 14.1 17.0 19.2 22.6 31.6 Adjusted earnings per share..................................................... 15.7 17.0 19.2 22.6 26.5 Net dividends per share......................................................... 5.55 6.06 6.75 7.60 8.60
F-33 COMPASS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED 24 FIVE YEAR SUMMARY -- Continued Earnings per share and net dividends per share have been adjusted for the bonus element of the rights issues during 1993 and 1994 and the capitalisation issue during 1994. Adjusted earnings per share has been calculated after adjusting for abortive acquisition costs in 1992 and for profits on disposal of business and exceptional restructuring costs in 1996. F-34 COMPASS GROUP PLC UNAUDITED INTERIM CONSOLIDATED PROFIT AND LOSS ACCOUNT
26 WEEK PERIOD ENDED BEFORE MARCH 30 1997 EXCEPTIONAL ITEM EXCEPTIONAL ITEM UNAUDITED UNAUDITED UNAUDITED NOTES (POUNDS)M (POUNDS)M (POUNDS)M TURNOVER Continuing operations............................... 1,717.5 1,227.9 - Discontinued operations............................. - 15.0 - TOTAL TURNOVER...................................... 1 1,717.5 1,242.9 - OPERATING COSTS (1,642.6) (1,184.0) - Exceptional item -- continuing operations........... - - - OPERATING PROFIT Continuing operations............................... 74.9 55.7 - Discontinued operations............................. - 3.2 - OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY UNDERTAKINGS........................................ 74.9 58.9 - Share of profits of associated undertakings 0.5 4.5 - TOTAL OPERATING PROFIT 1 75.4 63.4 - DISCONTINUED OPERATIONS Sale of healthcare division......................... 2 - - 20.0 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST....... 75.4 63.4 20.0 Interest receivable and similar income 1.5 3.2 - Interest payable and similar charges (20.5) (18.8) - PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION....... 56.4 47.8 20.0 Tax on profit on ordinary activities................ 3 (15.0) (12.7) - PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION........ 41.4 35.1 20.0 Equity minority interests........................... (0.3) (0.6) - PROFIT FOR THE FINANCIAL PERIOD..................... 41.1 34.5 20.0 Dividends........................................... 4 (9.9) (8.7) - PROFIT FOR THE PERIOD RETAINED...................... 6 31.2 25.8 20.0 EARNINGS PER SHARE.................................. 12.9p EARNINGS PER SHARE - ADJUSTED....................... 12.9p 11.0p 26 WEEK MARCH 31 1996 TOTAL UNAUDITED (POUNDS)M TURNOVER Continuing operations............................... 1,227.9 Discontinued operations............................. 15.0 TOTAL TURNOVER...................................... 1,242.9 OPERATING COSTS (1,184.0) Exceptional item -- continuing operations........... - OPERATING PROFIT Continuing operations............................... 55.7 Discontinued operations............................. 3.2 OPERATING PROFIT OF THE COMPANY AND ITS SUBSIDIARY UNDERTAKINGS........................................ 58.9 Share of profits of associated undertakings 4.5 TOTAL OPERATING PROFIT 63.4 DISCONTINUED OPERATIONS Sale of healthcare division......................... 20.0 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST....... 83.4 Interest receivable and similar income 3.2 Interest payable and similar charges (18.8) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION....... 67.8 Tax on profit on ordinary activities................ (12.7) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION........ 55.1 Equity minority interests........................... (0.6) PROFIT FOR THE FINANCIAL PERIOD..................... 54.5 Dividends........................................... (8.7) PROFIT FOR THE PERIOD RETAINED...................... 45.8 EARNINGS PER SHARE.................................. 17.3p EARNINGS PER SHARE - ADJUSTED.......................
The calculation of earnings per share was based on profit after taxation and minority interests of (pounds)41.1m (1996: (pounds)54.5m) and a weighted average number of 317,365,264 shares (1996: 314,821,474 shares). The calculation of adjusted earnings per share for the 26 week period ended March 31 1996 was based on profit after taxation and minority interests of (pounds)34.5m. See accompanying notes to unaudited interim consolidated financial statements. F-35 COMPASS GROUP PLC UNAUDITED INTERIM CONSOLIDATED BALANCE SHEET
MARCH 30 1997 MARCH 31 1996 UNAUDITED UNAUDITED NOTES (POUNDS)M (POUNDS)M FIXED ASSETS Tangible assets, net.................................................................. 254.8 179.4 Investments........................................................................... 16.0 18.6 270.8 198.0 CURRENT ASSETS Stocks................................................................................ 68.3 52.2 Debtors: amounts falling due within one year, net..................................... 339.4 262.7 amounts falling due after more than one year, net............................. 54.8 40.5 Cash at bank and in hand.............................................................. 48.7 65.1 511.2 420.5 CREDITORS: amounts falling due within one year........................................ (639.8) (598.5) NET CURRENT LIABILITIES............................................................... (128.6) (178.0) TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 142.2 20.0 CREDITORS: amounts falling due after more than one year............................... (592.9) (396.7) PROVISIONS FOR LIABILITIES AND CHARGES................................................ 5 (66.3) (65.2) EQUITY MINORITY INTERESTS............................................................. (3.1) (3.1) NET LIABILITIES....................................................................... (520.1) (445.0) CAPITAL AND RESERVES Called up share capital............................................................... 15.9 15.7 Shares to be issued (including premium)............................................... 68.3 - Share premium account................................................................. 6 681.5 670.6 Other reserve: goodwill............................................................... 6 (1,597.6) (1,339.8) Profit and loss account............................................................... 6 311.8 208.5 TOTAL EQUITY SHAREHOLDERS' DEFICIT.................................................... (520.1) (445.0)
See accompanying notes to unaudited interim consolidated financial statements. F-36 COMPASS GROUP PLC UNAUDITED INTERIM CONSOLIDATED CASH FLOW STATEMENT
26 WEEK 26 WEEK PERIOD ENDED PERIOD ENDED MARCH 30 1997 MARCH 31 1996 UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M NET CASH INFLOW FROM OPERATING ACTIVITIES (Note 1)................................... 80.2 69.2 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received............................................... 1.3 3.2 Interest paid................................................... (18.8) (13.0) Interest element of finance lease rental payments............... (0.8) (0.4) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE......................................................... (18.3) (10.2) TAXATION UK corporation tax paid......................................... (2.2) (1.5) Overseas tax paid............................................... (13.5) (7.0) TOTAL TAX PAID.................................................. (15.7) (8.5) FREE CASH FLOW.................................................. 46.2 50.5 CAPITAL EXPENDITURE Purchase of tangible fixed assets............................... (42.5) (33.7) Sale of tangible fixed assets................................... 1.4 2.6 TOTAL CAPITAL EXPENDITURE....................................... (41.1) (31.1) ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings and investment in associated undertakings.................................................... (62.1) (22.1) Sale of subsidiary undertaking.................................. - 163.8 TOTAL ACQUISITIONS AND DISPOSALS................................ (62.1) 141.7 EQUITY DIVIDENDS PAID........................................... (18.9) (16.2) NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES............. (122.1) 94.4 NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING...................... (75.9) 144.9 FINANCING Issue of ordinary share capital................................. 0.7 0.3 Debt due within a year: (Decrease)/increase in bank loans and loan notes...................................................... (2.3) 1.4 Debt due beyond a year: Increase/(decrease) in bank loans and loan notes...................................................... 44.6 (152.7) Capital element of finance lease rentals........................ (3.8) (2.4) NET CASH INFLOW/(OUTFLOW) FROM FINANCING........................ 39.2 (153.4) (DECREASE)/INCREASE IN CASH IN THE PERIOD....................... (36.7) (8.5) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Note II) Decrease in cash in the period.................................. (36.7) (8.5) Cash (inflow)/outflow from increase in debt and lease finance............................................... (38.5) 153.7 Change in net debt resulting from cash flows.................... (75.2) 145.2 New finance leases.............................................. (2.8) (1.2) Effect of foreign exchange rate change.......................... 43.5 (5.6) MOVEMENT IN NET DEBT IN THE PERIOD.............................. (34.5) 138.4 OPENING NET DEBT................................................ (464.9) (456.0) CLOSING NET DEBT................................................ (499.4) (317.6)
See accompanying notes to unaudited interim consolidated financial statements. F-37 COMPASS GROUP PLC NOTES TO THE UNAUDITED INTERIM CONSOLIDATED CASH FLOW STATEMENT
26 WEEK 26 WEEK PERIOD ENDED PERIOD ENDED MARCH 30 1997 MARCH 31 1996 UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M I RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES: Operating profit........................................................................ 74.9 58.9 Depreciation............................................................................ 30.9 22.0 Decrease/(increase) in stocks........................................................... 0.4 (3.8) Increase in debtors..................................................................... (37.9) (26.8) Increase in creditors and provisions.................................................... 11.9 18.9 Net cash inflow from operating activities............................................... 80.2 69.2
OTHER EXCHANGE NON-CASH SEP 29 1996 CASH FLOW MOVEMENTS CHANGES MARCH 30 1997 AUDITED UNAUDITED UNAUDITED UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M II ANALYSIS OF NET DEBT: Cash at bank and in hand.............................. 90.2 (34.9) (6.6) - 48.7 Overdrafts............................................ (0.1) (1.8) 0.5 - (1.4) 90.1 (36.7) (6.1) - 47.3 Debt due within 1 year................................ (13.3) 2.3 0.5 - (10.5) Debt due after 1 year................................. (519.2) (44.6) 47.7 - (516.1) Finance leases........................................ (22.5) 3.8 1.4 (2.8) (20.1) (555.0) (38.5) 49.6 (2.8) (546.7) Total................................................. (464.9) (75.2) 43.5 (2.8) (499.4)
26 WEEK 26 WEEK PERIOD ENDED PERIOD ENDED MARCH 30 1997 MARCH 31 1996 UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M III ANALYSIS OF CHANGES IN LOANS AND OVERDRAFTS LESS LIQUID RESOURCES: Opening net borrowings.................................................................. (442.4) (441.7) Net cash (outflow)/inflow before financing.............................................. (75.9) 144.9 Capital element of finance lease rentals................................................ (3.8) (2.4) Issue of ordinary share capital......................................................... 0.7 0.3 Effect of foreign exchange rate change.................................................. 42.1 (5.6) Closing net borrowings.................................................................. (479.3) (304.5)
Closing net borrowings shown above exclude finance leases at March 30 1997 of (pounds)20.1m (March 31 1996: (pounds)13.1m). F-38 COMPASS GROUP PLC NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
26 WEEK 26 WEEK PERIOD ENDED PERIOD ENDED MARCH 30 1997 MARCH 31 1996 UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M 1 TURNOVER AND OPERATING PROFIT TURNOVER Catering...................................................................................... 1,717.5 1,227.9 Discontinued operations: Healthcare.................................................................................... - 15.0 1,717.5 1,242.9 Geographical analysis: -- United Kingdom............................................................................ 308.2 267.8 -- Continental Europe and the rest of the world.............................................. 812.6 589.8 -- North America............................................................................. 596.7 370.3 Discontinued operations: -- United Kingdom............................................................................ - 15.0 1,717.5 1,242.9 OPERATING PROFIT Catering*..................................................................................... 75.4 60.2 Discontinued operations: Healthcare.................................................................................... - 3.2 75.4 63.4 Geographical analysis: -- United Kingdom............................................................................ 19.7 17.3 -- Continental Europe and the rest of the world*............................................. 37.9 28.1 -- North America............................................................................. 17.8 14.8 Discontinued operations: -- United Kingdom............................................................................ - 3.2 75.4 63.4
* Including (pounds)0.5m for associates in 1997 (1996: (pounds)4.5m). 2 EXCEPTIONAL ITEM During the 26 week period ended March 31 1996 the Group disposed of its interest in Compass Healthcare Limited, which constituted the Group's healthcare division, for (pounds)178.8m at a profit of (pounds)20.0m. F-39 COMPASS GROUP PLC NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
26 WEEK 26 WEEK PERIOD ENDED PERIOD ENDED MARCH 30 1997 MARCH 31 1996 UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M 3 TAX ON PROFIT ON ORDINARY ACTIVITIES United Kingdom: Corporation tax............................................................................... 4.1 1.2 Deferred tax.................................................................................. 0.8 (1.1) 4.9 0.1 Overseas: Tax payable................................................................................... 12.4 11.4 Deferred tax.................................................................................. (2.3) - Tax on share of profits of associated undertakings............................................ 0.2 1.2 Adjustments in respect of prior years......................................................... (0.2) - 10.1 12.6 Total tax charge.............................................................................. 15.0 12.7
26 WEEK PERIOD 26 WEEK ENDED PERIOD ENDED MARCH 31 MARCH 30 1997 1996 UNAUDITED UNAUDITED PER PER SHARE (POUNDS)M SHARE 4 DIVIDENDS Dividends on ordinary shares of 5p each Interim..................................................................................... 3.10p 9.9 2.75p Final....................................................................................... - - - 3.10p 9.9 2.75p 26 WEEK PERIOD ENDED MARCH 31 1996 UNAUDITED (POUNDS)M 4 DIVIDENDS Dividends on ordinary shares of 5p each Interim..................................................................................... 8.7 Final....................................................................................... - 8.7
UNAUDITED ACTUARIALLY FAIR DETERMINED VALUE PROVISIONS OTHER TOTAL (POUNDS)M (POUNDS)M (POUNDS)M (POUNDS)M 5 PROVISIONS FOR LIABILITIES AND CHARGES At September 30 1996....................................................................... 7.3 49.6 12.3 69.2 Arising from acquisitions.................................................................. - - 0.6 0.6 Expenditure in the period.................................................................. - (0.5) - (0.5) Charged to profit and loss account......................................................... - 0.6 - 0.6 Reclassification from/(to) current liabilities............................................. 0.5 (1.3) - (0.8) Currency adjustment........................................................................ (0.1) (2.1) (0.6) (2.8) At March 30 1997........................................................................... 7.7 46.3 12.3 66.3
Actuarially determined provisions are in respect of the long term proportion of liabilities for self-insured schemes and concessionary benefits for present and former employees. F-40 COMPASS GROUP PLC NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED SHARE PROFIT & PREMIUM LOSS ACCOUNT GOODWILL ACCOUNT UNAUDITED UNAUDITED UNAUDITED (POUNDS)M (POUNDS)M (POUNDS)M 6 RESERVES At September 30 1996.................................................................... 680.8 (1,568.8) 246.1 Foreign exchange translation differences................................................ - - 34.5 Retained profit for the period.......................................................... - - 31.2 Options exercised....................................................................... 0.7 - - Goodwill arising on acquisition of business............................................. - (28.8) - At March 30 1997........................................................................ 681.5 (1,597.6) 311.8
WEIGHTED AVERAGE CLOSING RATE RATE 7 EXCHANGE RATES Exchange rates for major currencies used during the period after taking into account the Group's hedging arrangements were: Belgian Franc............................................................................................. 47.27 56.41 Danish Krone.............................................................................................. 8.87 10.42 Dutch Guilder............................................................................................. 2.57 3.07 French Franc.............................................................................................. 7.77 9.21 German Mark............................................................................................... 2.30 2.73 Luxembourg Franc.......................................................................................... 47.27 56.41 Norwegian Krone........................................................................................... 9.90 10.81 Portuguese Escudo......................................................................................... 236.25 275.47 Spanish Peseta............................................................................................ 191.48 231.62 Swedish Krona............................................................................................. 10.31 12.35 Swiss Franc............................................................................................... 1.87 2.37 US Dollar................................................................................................. 1.51 1.63
8 SUBSEQUENT EVENT Subsequent to the announcement of the Group's interim results, a cash tender offer totalling US $197 million has been made for the entire common stock of Daka International, Inc. F-41 -----END PRIVACY-ENHANCED MESSAGE-----