[PRANDIUM LETTERHEAD]
November 7, 2001
MacKay Xxxxxxx Financial Corporation
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx X. Xxxxxx, CFA
Re: Prandium Restructuring
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Gentlemen:
Reference is made (i) to that certain Note Agreement, dated as of
August 12, 1997, by and between FRI-MRD Corporation (the "Company") and each
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Purchaser of the 15% Senior Discount Notes (the "Senior Discount Notes") of the
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Company due January 24, 2002, as amended, and (ii) to that certain Note
Agreement, dated as of June 9, 1998, between the Company and each Purchaser of
the 14% Senior Secured Discount Notes (the "Senior Secured Discount Notes,"
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together with the Senior Discount Notes, the "Notes") of the Company due January
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24, 2002, as amended (together, the "Note Agreements"). Capitalized terms used
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herein and not otherwise defined have the meanings ascribed to them in the Note
Agreements.
This letter agreement (this "Letter of Intent") confirms our mutual
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intentions regarding restructuring (the "Restructuring") the capital structure
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of the Company and Prandium, Inc. ("Prandium") for the purpose of restructuring
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the indebtedness of the Company to the Majority Holders under the Notes on the
terms set forth on the term sheet attached hereto as Exhibit A (the "Term
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Sheet"). This Letter of Intent and the Term Sheet set forth the terms of our
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mutual understanding and will serve as the basis for definitive agreements
related to the Restructuring (collectively, the "Definitive Agreements") to be
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negotiated in good faith by the parties.
1. Definitive Agreements. The parties will in good faith use their best
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efforts to implement the Restructuring contemplated by the Term Sheet.
However, each party acknowledges that the terms described on the Term Sheet
only constitute a statement of our mutual intentions with respect to the
terms of the Restructuring and acknowledge that the Term Sheet does not
contain all matters upon which agreement must be reached in order to
consummate a Restructuring and, therefore, this Letter of Intent and the
Term Sheet do not constitute a binding commitment with respect to the
Restructuring itself.
2. Representations and Warranties.
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(a) MacKay Xxxxxxx Financial Corporation ("MacKay") represents and warrants
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that it is the representative of a majority of the Purchasers (the
"Majority Holders") of each of (i) the issued and outstanding Senior
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Discount Notes and (ii) the issued and outstanding Senior Secured
Discount Notes and that it is agreeing to the matters set forth herein
on their behalf. Further, XxxXxx represents and warrants that it (i)
has the requisite authority to execute and deliver this Letter of
Intent and to perform its obligations hereunder; (ii) the execution and
delivery of this Letter of Intent and the performance by it of its
obligations hereunder have been
duly authorized by its governing body, and no other proceedings on its
part are necessary for the execution and delivery of this Letter of
Intent and the performance of its obligations provided for herein; and
(iii) this Letter of Intent has been duly executed and delivered by it,
and assuming this Letter of Intent is a binding obligation of the other
parties, this Letter of Intent constitutes a valid and binding
obligation of it enforceable against it in accordance with its terms.
(b) Each of Prandium and the Company represents and warrants, jointly and
severally, that (i) it has the requisite authority to execute and
deliver this Letter of Intent and to perform its obligations hereunder;
(ii) the execution and delivery of this Letter of Intent and the
performance by it of its obligations hereunder have been duly
authorized by its governing body, and no other proceedings on its part
are necessary for the execution and delivery of this Letter of Intent
and the performance of its obligations provided for herein; and (iii)
this Letter of Intent has been duly executed and delivered by it, and
assuming this Letter of Intent is a binding obligation of the other
parties, this Letter of Intent constitutes a valid and binding
obligation of it enforceable against it in accordance with its terms.
3. Standstill Agreement. MacKay hereby agrees to refrain from taking any
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enforcement action under the Notes or the Note Agreements as long as (i)
Prandium and the Company are in compliance with the terms of the Letter of
Intent and Term Sheet, (ii) since the date of this Letter of Intent,
neither Prandium nor the Company has suffered a material adverse change and
(iii) other than as specifically contemplated by this Letter of Intent and
Term Sheet, each of Prandium and the Company are being operated in the
ordinary course consistent with prior practice.
4. Confidentiality. The letter agreement, dated as of February 15, 2001, by
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and among the parties hereto shall remain in full force and effect
notwithstanding the execution and delivery of this Letter of Intent.
5. Effect of Agreement. Each of the parties hereto acknowledges that this
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Letter of Intent specifies our agreement regarding the material terms and
conditions to our respective obligations to proceed in good faith to
consummate a restructuring. However, the parties further acknowledge that
the Term Sheet is an expression of intent only and is not legally binding
upon any of the parties hereto. Furthermore, the parties agree that the
implementation of the Hamlet Sale Procedure (as defined in the Term Sheet)
shall begin immediately upon execution of this Letter of Intent.
6. Governing Law. The Note Agreements and the notes are governed by, and
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construed in accordance with, the laws of the State of New York.
Accordingly, the parties to this Letter of Intent hereby acknowledge and
agree that this Letter of Intent is also governed by New York law.
Furthermore, in order to avoid any confusion or misunderstanding, each of
us also agrees that this Letter of Intent may only be amended in writing.
7. Assignment and Transfer of Notes. This Agreement shall be binding upon and
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inure to the benefit of the parties hereto and their respective successors
and assigns. Except as provided herein, this Letter of Intent shall not be
assignable by any party hereto without the prior written consent of the
other party hereto. On behalf of the Majority Purchasers, XxxXxx agrees
that prior to any sale of the Notes to any party other than a Majority
Purchaser and as a condition thereto, each Majority Purchaser shall cause
any such
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transferee to agree in writing to be bound by the terms and conditions of
this Letter of Intent.
8. Third Party Beneficiaries. This Letter of Intent is solely for the benefit
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of the parties hereto and is not intended to create any rights in any third
parties other than permitted assignees.
9. Counterparts. This Letter of Intent may be executed in one or more
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counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
If this Letter of Intent accurately reflects our understanding, please
so indicate by signing and returning the enclosed copy.
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Very truly yours,
PRANDIUM, INC.
By: /s/ X.X. Xxxxxxx, Xx.
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Name: X.X. Xxxxxxx, Xx.
Title: EVP/CFO
FRI-MRD CORPORATION
By: /s/ X.X. Xxxxxxx, Xx.
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Name: X.X. Xxxxxxx, Xx.
Title: President
ACCEPTED AND AGREED TO AS
OF THE DATE FIRST WRITTEN ABOVE
MACKAY XXXXXXX FINANCIAL CORPORATION
By: /s/ Xxxxxx X. Xxxxxx XXX
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Name: Xxxxxx X. Xxxxxx XXX
Title: Managing Director
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Exhibit A Confidential
Proposed Terms and Conditions for Restructuring of FRI-MRD Corporation's $75MM
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15% Senior Discount Notes dated 8/12/97 (the "15% Notes") and $24MM 14% Senior
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Secured Discount Notes dated 6/9/98 (the "14% Secured Notes") in Connection with
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Prandium Restructuring
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Borrower: FRI-MRD Corporation.
Facilities: The 15% Notes and the 14% Secured Notes (collectively, the
"Facilities") will be amended and restated to include the terms and
changes outlined herein. Except as contemplated herein, the
Facilities will remain unchanged. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in
the Note Agreements.
Final Maturity: January 31, 2005.
Interest Rate: Interest rate is 12%; no cash interest payments required.
Collateral: The 14% Secured Notes will continue to be secured by the existing
collateral (or by any segregated proceeds received by Borrower in
accordance with this term sheet) until the Hamlet Prepayment, after
which time any 14% Secured Notes remaining outstanding will be
unsecured.
The 15% Notes will continue to be unsecured.
Scheduled Amortization: None.
Call Premium: None.
Prepayments: Prepayments of the Facilities will be allowed at any time under
terms outlined under Prepayment Discount section below.
Prepayment Discount: All prepayments will reduce the remaining principal balance, and
interest accrued thereon, of the Facilities as follows:
From the Closing Date up to and including December 31, 2002, by
133.33% of the actual prepayment amount;
From January 1, 2003 up to and including December 31, 2003, by
117.65% of the actual prepayment amount;
From January 1, 2004 up to and including September 30, 2004, by
111.11% of the actual prepayment amount; and
From October 1, 2004 up to and including January 31, 2005, by
100.00% of the actual prepayment amount.
Page 1 of 6
Exhibit A Confidential
Application of Payments Principal payments and prepayments will be applied pro-rata between
Among Facilities: the Facilities, except for prepayments from net proceeds from the
sale of the stock or substantially all of the assets of The Hamlet
Group, Inc. ("Hamlet"). See the section entitled "Hamlet
Prepayment" below.
Xxxxxx Prepayment Net proceeds from the sale of Hamlet will be applied as a
prepayment (the "Hamlet Prepayment"), upon the Closing Date, first
to reduce principal under the 14% Secured Notes until paid in full;
any excess will be applied to the 15% Notes. The holders of the
Facilities shall consent to a sale of Hamlet prior to the
confirmation of the Plan of Reorganization (as defined) provided
such sale is consummated in accordance with the terms set forth in
this term sheet and on terms otherwise reasonably acceptable to the
holders of the Facilities and further provided that any proceeds
therefrom received prior to the Closing are segregated by Borrower
in accordance with the first paragraph of the section entitled
"Segregation of Cash" below.
Sale of Hamlet: Borrower will market and sell the stock and/or assets of Hamlet in
an orderly fashion (the "Hamlet Sale Procedure"). The following
performance milestones will be put in place:
1. Execute an agreement for sale of stock and/or assets of
Hamlet no later than October 31, 2001(or within such longer
time period as MacKay Xxxxxxx Financial Corporation ("MacKay
Xxxxxxx") may agree);
2. Consummate the sale no later than 90 days after the execution
of such agreement (or within such longer time period as MacKay
Xxxxxxx may agree).
Sale of Hamlet may only be for all cash.
Failure to meet any milestone will result in a covenant breach.
The milestones may be waived in the sole discretion of the holders
of a majority of the outstanding indebtedness under each of the
Facilities.
Proceeds from the sale of Hamlet will be applied as described in
the Section entitled "Applications of Payments Among Facilities".
Sale of Anaheim Property: Borrower will be allowed to sell the contiguous sites at 0000 X.
Xxxxx Xxxxxxx Xxxx. and 0000 X. Xxxxxxx Xxxxxx xx Xxxxxxx, XX (the
"Anaheim Property") and retain 100% of the net proceeds up to $4.3
million and 25% of the net proceeds in excess of $4.3 million,
subject to the Section entitled "Segregation of Cash". As soon as
possible following any such sale, Borrower will use 75% of any net
proceeds in excess of $4.3 million to prepay the Facilities in
accordance with this term sheet (the "Anaheim Excess Proceeds").
Page 2 of 6
Exhibit A Confidential
Accrued Interest: At the Closing Date, upon compliance with all the terms and
conditions set forth in this Term Sheet (including the payment of
the Cash Prepayment (as defined below) and the interest accrued
thereon), interest calculated with respect to the Facilities prior
to the Closing Date will be waived.
Cash Prepayment: In addition to the Hamlet Prepayment and the payment of any Anaheim
Excess Proceeds, at the Closing Date, Borrower will pay to holders
of the Facilities $30 million in cash to be applied as a prepayment
(the "Cash Prepayment") to principal outstanding under the
Facilities in accordance with this term sheet.
Segregation of Cash: Upon receipt of any net proceeds from the sale of Hamlet, Xxxxxxxx
shall segregate such proceeds received in connection with such sale
for the purpose of making the Hamlet Prepayment at the Closing and
the 14% Secured Notes shall be collateralized by such segregated
proceeds until the Hamlet Prepayment is made.
Within three business days of the mutual execution of the letter of
intent, Borrower shall segregate $14 million in cash or cash
equivalents (the "Initial Segregated Amount") for the purpose of
making the Cash Prepayment at the Closing. As of the date of this
term sheet, Borrower has provided approximately $12 million in cash
or cash equivalents to Foothill in order to cash collateralize
letters of credit outstanding under the Foothill facility.
Xxxxxxxx agrees to segregate any cash or cash equivalents returned
to Borrower by Foothill prior to the Closing (the "Foothill
Segregated Amount") for the purpose of making the Cash Prepayment
at the Closing. In addition, Xxxxxxxx agrees to segregate up to $4
million of the net proceeds (the "Anaheim Segregated Amount,"
together with the Initial Segregated Amount and the Foothill
Segregated Amounted, the "Segregated Amount"), received from the
sale of the Anaheim Property no later than three business days
after the closing of such transaction for the purpose of making the
Cash Prepayment at the Closing. Xxxxxxxx agrees that it shall not
use such Segregated Amount for any purpose other than making the
Cash Prepayment. Xxxxxxxx agrees to pay to the holders of the
Facilities at the Closing Date an aggregate amount of interest in
cash calculated at an annual rate of 4.5% on the $30 million Cash
Prepayment accruing from the date of filing the Chapter 11 case to
the Closing Date. Borrower shall not allow any person or persons,
including the holders of the Facilities, other than Foothill but
only to the extent provided under the current Foothill facility) to
hold a security interest in the segregated Cash Prepayment.
Financial Covenants: No change.
Additional Covenants: The amended and restated Facilities dated as of the Closing Date
will contain the following additional covenants:
Page 3 of 6
Exhibit A Confidential
From and after the Closing, Borrower and its subsidiaries will not
incur Indebtedness other than Maximum Permitted Indebtedness. For
the purposes of this term sheet, "Maximum Permitted Indebtedness"
means, subject to the Capital Expenditures Limitations set forth
below and to any other limitations agreed upon by MacKay Xxxxxxx
and Borrower: (i) Indebtedness evidenced by the Facilities; (ii)
Indebtedness under the senior secured credit facility to be entered
into with Hilco Capital LP (as it may be amended, restated or
replaced, the "Hilco Credit Facility") not to exceed $14 million at
any one time; (iii) Indebtedness of Borrower and its subsidiaries
outstanding as of April 1, 2001; (iv) Indebtedness relating to
insurance premium financing or in respect of workers' compensation
claims, in each case as incurred in the ordinary course of
business; (v) Indebtedness relating to Borrower's and its
subsidiaries' controlled disbursement accounts or in respect of
overdrafts of zero balance bank accounts, in each case as incurred
in the ordinary course of business; (vi) Indebtedness in respect of
Capitalized Lease Obligations or purchase money financings
(including the purchase price of inventory) if such Indebtedness is
secured only by the applicable asset; (vii) Indebtedness between
Borrower and a subsidiary or between Borrower's subsidiaries;
(viii) Indebtedness represented by surety and performance bonds and
similar obligations, in each case as incurred in the ordinary
course of business; (ix) Hedging Obligations of Borrower or its
subsidiaries incurred in the ordinary course of business; and (x)
Indebtedness issued or incurred in connection with the renewal,
expansion, refinancing or refunding of Indebtedness permitted by
the preceding clauses (i) through (ix); provided that any expansion
of such Indebtedness would otherwise satisfy the conditions of one
of the other clauses (i) through (ix).
From and after the Closing, to the extent permitted by the Hilco
Credit Facility, Borrower will agree to prepay the Facilities on a
pro rata basis with the net cash proceeds of any disposition of
assets (subject to de minimis carve outs and other than proceeds
received from the sale of Hamlet or the Anaheim Property) as
follows: (1) 50% of the first $3 million of proceeds; and (ii)
100% of the proceeds thereafter.
From and after the Closing, Borrower will not, and will not permit
its subsidiaries to, make capital expenditures in excess of (each
instance, a "Capital Expenditures Limitation"): (i) $11 million
for the period from January 1, 2002 up to and including December
31, 2002; (ii) $11 million for the period from January 1, 2003 up
to and including December 31, 2003; and (iii) $15 million for the
period from January 1, 2004 through the maturity date. A carry
forward allowance will be included to adjust for spending patterns
of capital expenditures.
From and after the Closing, Borrower will not, and will not permit
its subsidiaries to, make any Restricted Payments
Page 4 of 6
Exhibit A Confidential
except that Borrower and its subsidiaries may make Restricted Payments
equal to the sum of (i) an amount not in excess of the Federal, state,
local and foreign taxes and assessments payable by Prandium and its
subsidiaries (determined on a consolidated basis) for such year, plus
(ii) the aggregate amount of all general corporate, operating and
administrative expenses incurred by Prandium (including, without
limitation, any such expenses incurred on behalf of its subsidiaries)
in the ordinary course of business consistent with past practice.
Waiver of Defaults: All existing and prior defaults under the Facilities to be waived.
Legal Fees: On or before the date of this term sheet, borrower will reimburse
MacKay Xxxxxxx for reasonable legal costs incurred up to and
including July 31, 2001. At the Closing Date borrower to reimburse
XxxXxx-Xxxxxxx for reasonable legal costs incurred after July 31,
2001 through the Closing Date.
Conditions to Closing: 1) The Hilco Credit Facility must be entered into under terms
substantially the same as described in the term sheet dated as of
August 10, 2001, but including:
. Minimum facility availability of up to $14 million;
. No requirement to cash collateralize L/Cs in excess of $1
million;
. Maturity date no earlier than 1 year from Closing Date;
. No minimum cash balance required as a condition to partial or
full repayment of the Facilities;
. Other financial covenants and terms reasonably acceptable to
Borrower.
2) Restructuring of the debt and equity of Prandium, Inc. on
terms reasonably satisfactory to Prandium, Inc. and MacKay Xxxxxxx.
3) Confirmation of a plan of reorganization (the "Plan of Reorganization")
under the Bankruptcy Code as a pre-negotiated or pre-packaged Chapter 11
that incorporates the terms outlined in this Term Sheet, including
entering into the Hilco Credit Facility with terms described above and
restructuring of the existing debt and equity of Prandium, Inc., on
terms reasonably satisfactory to Prandium, Inc. and XxxXxx-Xxxxxxx.
4) XxxXxx-Xxxxxxx must consent to the terms of the Hilco Credit
Facility and the sale of Hamlet.
Closing Date: The effective date of the Chapter 11 bankruptcy plan described in
Conditions to Closing.
Page 5 of 6
Exhibit A Confidential
Governing Law New York
Projected Dates: Borrower will use its commercially reasonable efforts to file the
Plan of Reorganization under the Bankruptcy Code as a
pre-negotiated or pre-packaged Chapter 11 on or before 60 days from
the date of the Letter of Intent and will use its commercially
reasonable efforts to have such Plan of Reorganization confirmed
under the Bankruptcy Code on or before February 28, 2002.
Page 6 of 6
