Exhibit 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into as of the 3rd
day of September, 2004 by and between AFC ENTERPRISES, INC., a Minnesota
corporation ("AFC"), and FOCUS BRANDS INC., a Delaware corporation ("BUYER").
RECITALS
AFC owns all of the issued and outstanding capital stock of Cinnabon
International, Inc., a Delaware corporation (the "COMPANY"). Buyer desires to
purchase and AFC desires to sell all of the issued and outstanding shares of
capital stock of the Company, all on the terms and conditions set forth in this
Agreement.
WITNESSETH:
In consideration of the mutual promises, representations and
warranties, covenants, payments and actions herein provided, the parties hereto,
each intending to be legally bound hereby, do agree as follows:
1. DEFINITIONS
For convenience, certain terms used in this Agreement are listed in
alphabetical order and defined or referred to below (such terms as well as any
other terms defined elsewhere in this Agreement shall be equally applicable to
both singular and plural forms of the terms defined).
"ACCEPTANCE NOTICE" is defined in Section 5.5(b).
"ACCOUNTS RECEIVABLE" is defined in Section 3.9.
"ACQUISITION DATE" means October 12, 1998, the date of AFC's
acquisition of the Shares.
"AFC AFFILIATED GROUP" means the Affiliated Group of which AFC, the
Company and the Subsidiary are currently members.
"AFC FINANCIAL STATEMENTS" is defined in Section 3.5.
"AFC'S KNOWLEDGE" or words of like import means the actual knowledge of
the following persons or such knowledge that the following persons should
reasonably be expected to have within the scope of their employment with the
Company, the Subsidiary or AFC as the case may be: Xxxxx Xxxxxxx, Xxxxxx Xxxxxx,
Xxxxx Xxxx, Xxx Xxxxx, Xxxxx Xxxxxx, Xxxx Xxxxx and Xxxxxx Xxxxxxx, and
additionally, solely for purposes of Sections 3.14 (Benefit Plans), 3.16
(Compliance with Court Orders and Regulations), 3.17 (Legal Proceedings), 3.18
(Contracts and Commitments), 3.21 (Intellectual Property), 3.24 (Franchise,
License
and Development Agreements), 3.25 (Advertising Funds), 3.26 (Franchise
Registration/UFOC) and 3.27 (SBC License), Xxxxxx "Xxxxx" Xxxxx, Xxxxx
Xxxxxxxxx, Xxxx Xxxxx, Xxxxxxxxx Xxxxxxx, D'Xxxxx Xxxxxx and Xxxxx XxXxxxxxx.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504 of the Code or any comparable or analogous group under state, local
or foreign law.
"AGREEMENT" means this Agreement and the exhibits and schedules hereto.
"ALTERNATIVE TRANSACTION" is defined in Section 5.3.
"ASSETS" means all of the assets, properties, business, goodwill and
rights of every kind and description, real and personal, tangible and
intangible, wherever situated belonging to the Company or the Subsidiary.
"BASE WORKING CAPITAL" means Eight Hundred Ten Thousand Dollars
($810,000).
"BENEFIT PLANS" is defined in Section 3.14.
"BUSINESS" means the existing business, operations, facilities and
other Assets, financial condition, results of operations, finances, markets,
products, competitive positions, raw materials and other supplies, and customers
and customer relations of the Company and the Subsidiary.
"BUSINESS CONDITION" means the Business and Assets of the Company and
the Subsidiary, taken as a whole.
"CASH" is defined in Section 2.8.
"CASH NOTICE" is defined in Section 2.8.
"CALL OPTION" is defined in Section 3.27(b).
"CI AD FUND" is defined in Section 3.25(b)(i).
"CI DIVISION" means that portion of the Business relating to the
operation of the Company-Owned Bakeries and the franchising and licensing of the
CI System and the Company Intellectual Property or any component thereof.
"CI SYSTEM" means the unique and distinctive system for the development
and operation of retail bakeries or restaurants specializing in the sale of
specialty baked goods (including without limitation, proprietary cinnamon rolls)
under the Company Intellectual Property developed and owned by the Company or
the Subsidiary.
"CLOSING" and "CLOSING DATE" are defined in Section 2.5.
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"CLOSING DATE BALANCE SHEET" is defined in Section 2.7(a).
"CLOSING WORKING CAPITAL" is defined in Section 2.7(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the common stock, $0.01 par value per share, of
the Company.
"COMPANY INTELLECTUAL PROPERTY" means any Intellectual Property that is
owned by the Company or the Subsidiary. Company Intellectual Property does not
include any Intellectual Property licensed to the Company and/or the Subsidiary.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by or filed in the name of the Company and/or the
Subsidiary.
"COMPANY MATERIAL ADVERSE CHANGE" means any change in the Business
Condition that has or is reasonably expected to have a Company Material Adverse
Effect; provided, however, none of the following shall be deemed, in and of
itself, to be a Company Material Adverse Change: (x) a change that primarily
results from economic or political conditions or events affecting the United
States economy or world economy; (y) a change that results from the announcement
or pendency of this Agreement and the Transactions; or (z) a change that results
directly from action taken by a party to this Agreement.
"COMPANY MATERIAL ADVERSE EFFECT" means any change, event, violation,
inaccuracy or circumstance the effect of which is both material and adverse to
(a) the Business Condition or (b) the ability of AFC or the Company and the
Subsidiary to perform any of its material obligations under this Agreement;
provided, however, none of the following shall be deemed, in and of itself, to
be a Company Material Adverse Effect: (x) a change that primarily results from
economic or political conditions or events affecting the United States economy
or world economy; (y) a change that results from the announcement or pendency of
this Agreement and the Transactions; or (z) a change that results directly from
action taken by a party to this Agreement.
"COMPANY-OWNED BAKERIES" means bakeries or restaurants owned by the
Company or the Subsidiary using any components of the CI System or the Company
Intellectual Property.
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality
Agreement, dated April 26, 2004, between Xxxxx Capital, an affiliate of the
Buyer, and AFC.
"CONTRACT" means any written or oral contract, agreement, lease,
instrument or other commitment (including Franchise Agreements) that is binding
on any Person or its property under applicable law, other than its charter or
bylaws.
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"COURT ORDER" means any judgment, decree, injunction, order or ruling
of any Governmental Authority that is binding on any Person or its property
under applicable law.
"CURRENT SUBSIDIARY FINANCIAL STATEMENTS" is defined in Section 3.5.
"DAMAGES" is defined in Section 10.2.
"DEFICIT" is defined in Section 2.6.
"DISCLOSURE SCHEDULE" means the written information delivered to Buyer
simultaneously with AFC's execution of this Agreement.
"EFFECTIVE TIME" is defined in Section 2.4.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable Federal
or state securities law. The term Encumbrance shall not include any Permitted
Encumbrance.
"ENVIRONMENTAL LAWS" is defined in Section 3.8(c)(i).
"ERISA" is defined in Section 3.14.
"EXCESS" is defined in Section 2.6.
"EXCLUDED ITEMS" is defined in Section 3.5.
"EXCLUDED LIABILITIES" means (a) all liabilities, whether now existing
or hereafter arising, known or unknown, that the Company or any Subsidiary may
have based on or arising out of any franchise agreement, lease, sublease or
other agreement or understanding now or hereafter existing between the Company
or any Subsidiary and Latrelle's SA/Austin, Top Bon or LFG Group, LLC, (b) the
liabilities and obligations of the Company or the Subsidiary requiring the
payment of monies arising out of and specifically identified in the following
agreements: (1) Settlement Agreement dated June 27, 2003 by and between the
Subsidiary, the Company, AFC, JRM, JRM Group LLC, Xxxxxxx Xxxxx and Xxxxxx Xxx;
(2) Settlement Agreement dated July 1, 2004 by and between the Subsidiary, the
Company, AFC, JRM, JRM Group LLC, Xxxxxxx Xxxxx and Xxxxxx Xxx; (3) Settlement
Agreement dated June 10, 2004 by and between the Subsidiary, Sunnybons, LLC,
Xxxxx Buns, LLC, HJM Enterprises, LLC and Xxxxxx X. Xxxxx; (4) Settlement
Agreement dated July 21, 2003 by and between the Subsidiary, Top Bon, LLC,
Xxxxxxx Xxxxxx and Xxxx Xxxxxx; (5) Settlement Agreement dated March 7, 2004 by
and between the Subsidiary, Xxxx X. Xxxxxxxxx, Inc., Vancouver Gold's Inc.,
Xxxxxx X. Xxxxxxxxx, Xxxx X. Xxxxxxxxx and Xxxxxxx X. Xxxxxxxxx, (6) Settlement
Agreement dated December 29, 2003 by and between the Subsidiary, Sanabon, Inc.
and Emerald Foods, Inc., (7) Settlement Agreement dated
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December 30, 2003, but effective as of December 1, 2003, by and between
Cinnabon, Inc. and LFG Group, LLC, (8) Settlement Agreement dated June 29, 2004,
but effective as of June 21, 2004, by and between Cinnabon, Inc., Sunnybons,
LLC, Xxxxx Buns, LLC and Xxxxxx X. Xxxxx, (c) all amounts payable by the Company
or the Subsidiary to AFC or to any Affiliate of AFC, other than amounts payable
by the Company to the Subsidiary or by the Subsidiary to the Company; (d) all
amounts payable in connection with the deferred compensation arrangements
disclosed in Section 3.18(a)(viii) of the Disclosure Schedule; (e) any and all
obligations pursuant to any vehicle lease to which the Company or the Subsidiary
is a party (it being understood that AFC shall cause the Company or Subsidiary
to transfer any of such vehicle leases and the leased vehicles to AFC or its
designee prior to Closing); and (f) for the avoidance of doubt, all amounts
payable in connection with the lease defaults identified in Section 3.8(a) of
the Disclosure Schedule as XX#00, XX#000, XX#000, XX#000 and CI#258.
"FINAL CLOSING DATE BALANCE SHEET" is defined in Section 2.7(a).
"FINAL DETERMINATION" means (i) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment, decree
or other order has become final after all allowable appeals by either party have
been exhausted or the time for filing such appeal has expired, (ii) a closing
agreement entered into under Section 7121 of the Code, or any other settlement
entered into in connection with an administrative or judicial proceeding, or
(iii) the expiration of the time for instituting a claim for refund, or if such
a claim was filed, the expiration of the time for instituting suit with respect
thereto.
"FINAL NET WORKING CAPITAL" is defined in Section 2.7(a).
"FINANCIAL STATEMENTS" is defined in Section 3.5.
"FIRM" is defined in Section 2.7(a).
"FRANCHISE AGREEMENTS" shall mean the franchise agreements with respect
to the Company and the Subsidiary (including franchise agreements, license
agreements, satellite agreements, franchise development agreements, area
development agreements, development incentive agreements together with all
ancillary agreements) under which Company and/or the Subsidiary has or may grant
any person the right to establish and operate a franchise (including, without
limitation, a franchise for Franchised Bakeries and SBC International Cafes).
For purposes hereof, the International Contracts shall be deemed Franchise
Agreements.
"FRANCHISE REGULATIONS" means any Regulation relating to the
relationship between franchisor and franchisees or to the offer, sale,
termination, non-renewal or transfer of franchises, master franchises, area and
developers, subfranchises, business, business opportunities, or seller-assisted
marketing plans.
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"FRANCHISED BAKERIES" means bakeries or restaurants operated by
Franchisees of the Subsidiary using any components of the CI System or any
components of the Company Intellectual Property.
"FRANCHISEES" or "LICENSEES" means any Person (i) who has been granted
the right to operate Franchised Bakeries or to use any components of the CI
System or any components of the Company Intellectual Property pursuant to a
Franchise Agreement; or (ii) has been granted rights to operate an SBC
International Cafe pursuant to International Contracts.
"FRANCHISES" is defined in Section 3.24(d).
"GAAP" means generally accepted accounting principles in the United
States as in effect on any applicable date.
"GOVERNMENTAL AUTHORITY" means any (a) nation, state, county, city,
town, village, district, or other jurisdiction of any nature; (b) federal,
state, local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"IMMIGRATION LAWS" is defined in Section 3.28(d).
"INDEMNIFIED PERSONS" is defined in Section 10.2(a).
"INTELLECTUAL PROPERTY" means any or all of the following and all
rights arising out of or associated therewith: all United States, international
and foreign patents, trademarks, trade names, service marks, trade dress, logos,
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, Internet
domain names, copyrights and any renewal rights therefor, mask works,
schematics, technology, manufacturing processes, unique sources of supply or
sources not generally known, supplier lists, training and operations manuals,
trade secrets, know-how, moral rights, computer software programs or
applications (in both source and object code form), technical documentation for
computer software programs or applications, registrations and applications for
any of the foregoing and all other tangible or intangible proprietary
information or materials that are or have been used in (including in the
development of) the Business and/or in any product or process (including ideas,
research and development, know-how, formulas, recipes, compositions, marketing
processes and techniques, technical data, designs, drawings, business and
marketing plans and cost information) (i) currently being manufactured or
marketed by the Company and/or the Subsidiary, or (ii) currently under
development for possible future manufacturing or marketing or other use by the
Company and/or the Subsidiary, all other proprietary rights, and all copies and
tangible embodiments thereof (in whatever medium), and any other similar
intellectual property rights actually used in connection with the Business.
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"INTERNATIONAL CONTRACT" has the meaning ascribed to it in the SBC
License Agreement.
"INTERNATIONAL TERRITORIES" has the meaning ascribed to it in the SBC
License Agreement.
"JRM" means JRM Bakeries, LLC.
"LIABILITY" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"MASTER LICENSOR" means, collectively, Seattle Coffee Company and SBC.
"MATERIAL" or "MATERIALLY" means material or materially to the Business
Condition.
"MATERIALS OF ENVIRONMENTAL CONCERN" is defined in Section 3.8(c)(i).
"XXXXX BUNS" means Xxxxx Buns, LLC.
"OBJECTION NOTICE" is defined in Section 2.7(a).
"ORDINARY COURSE OF BUSINESS" means as to any action taken by the
Company or the Subsidiary that (a) such action is consistent with its past
practices and is taken in the ordinary course of its normal day-to-day
operations; and (b) such action is not required to be authorized by its board of
directors.
"PERMITTED ENCUMBRANCES" means: (a) liens imposed by law for taxes,
assessments or governmental charges or claims that are not yet due or are being
properly contested; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlords' and other like liens imposed by law, arising in the
Ordinary Course of Business and securing obligations that are not overdue by
more than 30 days or are being properly contested; (c) pledges and deposits made
in the Ordinary Course of Business in compliance with workers' compensation,
unemployment insurance and other social security laws or regulations; (d)
deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety, indemnity and appeal bonds, performance and return-of-money
and fiduciary bonds and other obligations of a like nature, in each case in the
Ordinary Course of Business; (e) easements, zoning restrictions, rights-of-way,
licenses, covenants, conditions, minor defects, encroachments or irregularities
in title and similar encumbrances on or affecting any Premises that do not
secure any monetary obligations and do not materially interfere with the
ordinary conduct of business of the Company or the Subsidiary at any Premises
subject to such liens; (f) leases or subleases identified in the Disclosure
Schedule; (g) any (i) interest or title of a lessor or sublessor under any
lease, (ii) restriction or encumbrance that the interest or title of such lessor
or sublessor may be subject to, or (iii) subordination of the interest of the
lessee or sublessee under such lease to any restriction or encumbrance referred
to in the
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preceding clause (ii); (h) liens on goods held by suppliers arising in the
Ordinary Course of Business for sums not yet delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor and as long as such lien remains
unperfected; (i) liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (j) rights of franchisees under franchise agreements in
keeping with the Subsidiary's historical business practices; (k) with respect to
any Premises in which the Company or the Subsidiary owns a leasehold estate, any
defect or encumbrance caused by or arising out of the failure to record the
lease or a memorandum thereof in the applicable real property records in the
county where such Premises is located; and (l) the effect of any moratorium,
eminent domain or condemnation proceedings; provided that the term "Permitted
Encumbrances" shall not include any lien securing indebtedness for money
borrowed by the Company or the Subsidiary.
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"POLICIES" is defined in Section 5.10.
"PREMISES" is defined in Section 3.8(a).
"PRE-CLOSING TAX PERIOD" is defined in Section 10.2(b).
"PRIME RATE" is defined in Section 2.7(b).
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Authority or arbitrator.
"PROPRIETARY RIGHT CLAIM" is defined in Section 3.21(f).
"PTO" is defined in Section 3.21(c).
"PURCHASE PRICE" is defined in Section 2.2.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks and service marks,
applications to register trademarks and service marks, intent-to-use
applications, or other registrations or applications related to trademarks and
service marks; (iii) registered copyrights and applications for copyright
registration; (iv) domain name registrations; and (v) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded with any federal,
state, local or foreign government or other public body.
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"REGULATION" means any statute, law, ordinance, regulation, order or
rule of any Governmental Authority, including, without limitation, those
covering environmental, energy, safety, health, transportation, bribery,
recordkeeping, zoning, employment, labor, immigration, anti-discrimination,
antitrust, wage and hour, and price and wage control matters.
"REPRESENTATIVE" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"RETAINED EMPLOYMENT LIABILITIES" means those liabilities to be paid or
retained by AFC as provided in Appendix A hereto.
"SBC" means Seattle's Best Coffee, LLC, a Washington corporation and
the original franchisor under the International Contracts.
"SBC DIVISION" means that portion of the Business operating pursuant to
the SBC License.
"SBC INTERNATIONAL AD FUND" is defined in Section 3.25(b)(ii).
"SBC INTERNATIONAL CAFE" means a Cafe as defined in the Master License
Agreement.
"SBC LICENSE" means that certain Master License Agreement dated as of
July 13, 2003, between the Subsidiary, as Licensee, and the Master Licensor, as
Licensor, as amended by First Amendment thereto, dated as of July 13, 2003.
"SBC LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property
licensed by the Subsidiary pursuant to the SBC License.
"SECURED LENDER" means the lender parties to that certain Credit
Agreement, dated as of May 23, 2002, as amended, among AFC, as Borrower, such
Lender Parties, X.X. Xxxxxx Securities, Inc., as Joint Bookrunner and Co-Lease
Arranger, Credit Lyonnais New York Branch, as Co-Documentation Agent, Fleet
National Bank, Inc. as Co-Documentation Agent, and SunTrust Bank, as Co-Document
Agent.
"SHARES" means all of the issued and outstanding shares of stock of the
Company.
"SMS" is defined in Section 5.6.
"SMS AGREEMENT" is defined in Section 5.6.
"STRADDLE PERIOD" is defined in Section 10.2(b).
"SUBSIDIARY" means Cinnabon, Inc., a Washington corporation.
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"SUBSIDIARY BALANCE SHEET" and "SUBSIDIARY BALANCE SHEET DATE" are
defined in Section 3.5.
"SUNNYBONS" means Sunnybons, LLC.
"SUPPLIERS" is defined in Section 3.24(g).
"TAXES" means all Federal, state, county, local or foreign taxes,
charges, fees, levies, imposts, duties, or other assessments (whether imposed
directly or through withholding or otherwise), including income, gross receipts,
excise, employment, sales, use, transfer, recording, license, payroll,
franchise, severance, documentary, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duty, capital
stock, paid-up capital, profits, Social Security, single business and
unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
any governmental authority, including any interest, additions imposed thereon or
with respect thereto, or penalties applicable thereto, and including liability
for the Taxes of any other person under Treas. Reg. 1.1502-6 (or any similar
provision of state, local, or foreign law) as a transferee or successor, by
contract, or otherwise.
"TAX INDEMNITY" is defined in Section10.2(b).
"TAX RETURNS" means all Federal, state, local, and foreign tax returns,
declarations, statements, reports, schedules, forms, notices, information
returns, or other document or information filed with or submitted to, or
required to be filed with or submitted to any taxing authority in connection
with the determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement of compliance
with any legal requirement relating to any Tax (including any amended Tax
Return).
"TERRITORIAL RIGHTS" is defined in Section 3.24(f).
"TOP BON" means Top Bon, LLC.
"TRANSACTIONS" means the transactions contemplated by this Agreement.
"TRANSITION SERVICES AGREEMENT" is defined in Section 5.8.
"TREAS. REG." means the Federal income tax regulations from time to
time promulgated under the Code by the Internal Revenue Service and the Treasury
Department and "PROP. REG." means the Federal income tax regulations proposed
from time to time for promulgation under the Code by the Internal Revenue
Service and the Treasury Department.
"UFOC" means the Company's and the Subsidiary's franchise offering
circular(s) or disclosure document(s) or similar document(s) used by the Company
and the Subsidiary to
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offer and sell franchises in the United States and throughout the world for
Franchised Bakeries and/or SBC International Cafes.
"WORKING CAPITAL" means, as of any date of determination, the amount
that is equal to the difference between (a) the sum of the following current
assets of the Company and the Subsidiary as of such date of determination: trade
accounts receivable, vendor accounts receivable, inventory and other current
assets (excluding cash and cash equivalents, accounts receivable from officers
and Current Deferred Tax Assets) and (b) the sum of the following current
liabilities of the Company and the Subsidiary as of such date of determination:
accounts payable (including outstanding checks not yet presented for payment)
and other current liabilities (excluding the current portion of long-term debt
and accrued interest, the marketing fund liability, accrued property taxes and
Current Deferred Tax Liabilities), but excluding any current liabilities that
are to be paid by AFC as herein provided or with respect to which AFC is
obligated to indemnify Buyer as herein provided. For purposes of this definition
of "Working Capital" the terms "Current Deferred Tax Assets" and "Current
Deferred Tax Liabilities" shall have the meanings ascribed to them in GAAP.
2. TERMS OF PURCHASE AND SALE OF SHARES
2.1 ACQUISITION OF SHARES. Subject to the terms and conditions
hereinafter set forth, on the Closing Date, Buyer shall purchase from AFC, and
AFC shall sell, assign, transfer, set over and deliver to Buyer all of AFC's
right, title and interest in and to all of the Shares.
2.2 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") to
be paid by Buyer for all of the Shares shall equal Thirty Million Two Hundred
Fifty Thousand Dollars ($30,250,000) adjusted at Closing as provided in section
2.6 below (such amount, as adjusted, the "CLOSING PAYMENT"), plus the amount by
which Final Working Capital is more than Base Working Capital, or minus the
amount by which Final Working Capital is less than Base Working Capital. The
Closing Payment shall be paid at Closing by wire transfer to the account
designated by AFC.
2.3 DELIVERY OF SHARES. At the Closing, AFC shall deliver to Buyer
all certificates representing the Shares, duly endorsed to Buyer, free and clear
of any and all Encumbrances.
2.4 EFFECTIVE TIME. The Closing shall be effective as of 12:01
a.m. on the Closing Date (the "EFFECTIVE TIME").
2.5 CLOSING. On the third business day following the satisfaction
or waiver of the conditions specified in Sections 7 and 8 hereof, but in any
event not later than November 1, 2004, a closing (the "CLOSING") will be held at
the offices of Xxxxxx & Bird LLP, Atlanta, Georgia (or such other date and place
as the parties may agree). The date on which the Closing occurs is hereinafter
referred to as the "CLOSING DATE." At the Closing, there shall be delivered the
documents referred to in Sections 7 and 8.
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2.6 WORKING CAPITAL ADJUSTMENT. Not later than three (3) business
days prior to the Closing Date, AFC and the Buyer shall agree on an estimate of
the Company's Working Capital as of the Effective Time (the "ESTIMATED WORKING
CAPITAL"), which shall be calculated and presented in the same manner as set
forth on Exhibit 2.6. If the Estimated Working Capital is less than the Base
Working Capital (the "Deficit"), the Purchase Price shall be reduced by the
amount of the Deficit; and if the Estimated Working Capital exceeds the Base
Working Capital (the "Excess"), the Purchase Price shall be increased by the
amount of the Excess.
2.7 POST CLOSING ADJUSTMENT.
(a) Within sixty (60) calendar days after the Closing
Date, the Buyer will conduct a review of the Working Capital as of the Effective
Time (the "CLOSING WORKING CAPITAL") and will prepare and deliver to AFC a
balance sheet of the Company as of the Effective Time (the "CLOSING DATE BALANCE
SHEET") and a computation of the Closing Working Capital shown thereon. Buyer
will make available to AFC all records and work papers used in preparing the
Closing Date Balance Sheet. If AFC disagrees with the computation of the Closing
Working Capital or the items reflected on the Closing Date Balance Sheet, AFC
may, within thirty (30) calendar days after receipt of the Closing Date Balance
Sheet, deliver a notice (an "OBJECTION NOTICE") to Buyer setting forth AFC's
calculation of the Working Capital as of the Closing Date. If AFC does not
deliver an Objection Notice within such thirty (30) calendar day period, then
the Closing Working Capital as shown on the Closing Date Balance Sheet shall be
deemed to be finally determined. If AFC timely delivers an Objection Notice to
Buyer, AFC and Buyer will use reasonable efforts to resolve any disagreement as
to the computation of the Closing Working Capital as soon as practicable, but if
they can not reach a final resolution within thirty (30) calendar days after
Buyer has received the Objection Notice, Buyer and AFC will jointly retain an
independent accounting firm of recognized national standing (the "FIRM") to
resolve their disagreement. If Buyer and AFC are unable to agree on the choice
of the Firm, then the Firm will be an independent accounting firm of recognized
national standing selected by lot (after excluding one firm designated by Buyer
and one firm designated by AFC). Buyer and AFC will direct the Firm to render a
determination within thirty (30) calendar days of its retention and Buyer and
AFC and their Representatives will cooperate with the Firm during its
engagement. The Firm will consider only those items and amounts in the Closing
Date Balance Sheet set forth in the Objection Notice which Buyer and AFC are
unable to resolve. In resolving any disputed item, the Firm may not assign a
value to any item greater than the greatest value for such item claimed by
either party or less than the smallest value for such item claimed by either
party. The Firm's determination will be based on such review as the Firm deems
necessary to make its determination, and on the definition of the Working
Capital included herein. The determination of the Closing Working Capital by the
Firm will be conclusive and binding upon the Buyer and AFC. Buyer and AFC shall
bear the costs and expenses of the Firm based on the percentage which the
portion of the contested amount not awarded to each party bears to the amount
actually contested by or on behalf of such party. The Closing Working Capital,
as finally determined pursuant to this Section 2.7(a), is referred to herein as
the "FINAL NET WORKING CAPITAL." The balance sheet
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that reflects the computation of the Final Net Working Capital is referred to
herein as the "FINAL CLOSING DATE BALANCE SHEET."
(b) If the Final Net Working Capital exceeds the
Estimated Working Capital, Buyer shall, within five (5) business days after the
determination thereof, pay to AFC an amount equal to the amount by which (i) the
Final Net Working Capital exceeds (ii) the Estimated Working Capital, together
with interest on such excess from the Closing Date to and including the date of
payment at an interest rate equal to the "Prime Rate" as listed in The Wall
Street Journal on the Closing Date (the "PRIME RATE"). Such payment shall be
made by wire transfer or delivery of other immediately available funds in United
States Dollars to AFC in cash, by cashier's or certified check, or by wire
transfer of immediately available funds to an account designated by AFC.
(c) If the Final Net Working Capital is less than the
Estimated Working Capital, AFC shall, within five (5) business days after the
determination thereof, pay to Buyer an amount equal to the amount by which (i)
the Estimated Working Capital exceeds (ii) the Final Net Working Capital,
together with interest on such excess from the Closing Date to and including the
date of payment at an interest rate equal to the Prime Rate. Such payment will
be made in cash, by cashier's or certified check, or by wire transfer of
immediately available funds to an account designated by the Buyer.
(d) If, pursuant to Section 2.7(a) above, a dispute
exists as to the final determination of the Closing Working Capital, the Buyer
and AFC shall promptly pay to the other, as appropriate in accordance with
Sections 2.7(b) and 2.7(c), such amounts as are not in dispute, pending final
determination of such dispute pursuant to Section 2.7(a).
2.8 CASH BALANCE. Not later than ten (10) days following the
Closing Date, Buyer shall notify AFC in writing of the aggregate amount of cash
and cash equivalents of the Company and the Subsidiary (the "CASH") on hand or
on deposit as of the Effective Time (the "CASH NOTICE"). Not later than five (5)
days following its receipt of the Cash Notice, AFC shall pay to the Company the
amount, if any, by which the Cash is less than the amount set forth on Exhibit
2.8, as the same may be amended as provided in Section 5.10.
2.9 EMPLOYEE AND EMPLOYEE BENEFIT MATTERS. From and after the
Closing, the parties hereto shall comply with the provisions set forth in
APPENDIX A hereto, which APPENDIX A is incorporated herein by reference and made
a part of this Agreement.
2.10 TAX MATTERS.
(a) TAX SHARING AGREEMENTS. Any tax sharing, allocation,
indemnity or similar agreement or arrangement (whether or not written) with
respect to or involving the Company or the Subsidiary shall be terminated as of
the Closing Date and will have no further effect for any taxable year (whether
the current year, a future year, or a past year).
(b) TAX RETURNS FOR PERIODS THROUGH THE CLOSING DATE. AFC
will include the income of the Company and the Subsidiary (including any
deferred income
- 13 -
triggered into income by Treas. Reg. Section 1.1502-13 and Treas. Reg. Section
1.1502-14 and any excess loss accounts taken into income under Treas. Reg.
Section 1.1502-19) on the AFC consolidated, unitary or combined income Tax
Returns for all periods through the Closing Date and will pay any income Taxes
attributable to such income and will prepare and timely file (or cause to be
prepared and timely filed) all such income Tax Returns. The Company and the
Subsidiary will furnish Tax information to AFC for inclusion in AFC's
consolidated, unitary or combined income Tax Return for the period which
includes the Closing Date in accordance with the Company's and Subsidiary's past
custom and practice. AFC will allow Buyer an opportunity to review and comment
upon such Tax Returns (including any amended Tax Returns) prior to filing to the
extent that they relate to the Company and the Subsidiary. AFC will take no
position on such Tax Returns that relates to the Company and the Subsidiary that
would adversely affect the Company or the Subsidiary after the Closing Date
unless such position would be reasonable in the case of a person or entity that
owned the Company and the Subsidiary both before and after the Closing Date. The
income of the Company and the Subsidiary will be apportioned to the period up to
and including the Closing Date and the period after the Closing Date by closing
the books of the Company and the Subsidiary as of the end of the day upon which
the Closing Date falls.
(c) AUDITS AND OTHER PROCEEDINGS. Following the Closing,
AFC will control and allow the Company and the Subsidiary and their counsel to
participate, at Buyer's expense, in any audit or other administrative or
judicial proceeding of AFC's consolidated, unitary or combined income Tax
Returns to the extent that such Tax Returns relate to the Company or the
Subsidiary. AFC will not settle any such audit in a manner which would adversely
affect the Company or the Subsidiary after the Closing Date without the prior
consent of Buyer, which shall not be unreasonably withheld or delayed. Buyer
shall control the conduct of all stages of all other audits or other
administrative or judicial proceedings with respect to Taxes of the Company or
the Subsidiary for all periods following the Closing.
(d) CARRYBACKS. AFC will immediately pay to Buyer any Tax
refund (or reduction in Tax liability) resulting from a carryback of a
post-Closing Tax attribute of the Company or the Subsidiary into AFC's
consolidated, unitary or combined Tax Returns, when such refund or reduction is
realized by the AFC Affiliated Group. AFC will cooperate with the Company and
the Subsidiary in obtaining such refunds (or reduction in Tax liability),
including through the filing of amended Tax Returns or refund claims. Buyer
agrees to indemnify AFC for any Taxes paid by AFC that result from a Final
Determination of the disallowance of such post-Closing Tax attribute after
submission to Buyer of evidence reasonably satisfactory to Buyer of such Final
Determination and calculation and payment of such increased Taxes resulting
therefrom.
(e) COOPERATION ON TAX MATTERS. Buyer, the Company, the
Subsidiary and AFC shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax Returns
pursuant to this Section 2.10 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other Party's request) the provision of records and information which
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are reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Buyer, the
Company, the Subsidiary and AFC agree (i) to retain all books and records with
respect to Tax matters pertinent to the Company and the Subsidiary relating to
any taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer or AFC, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other Party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other Party so requests,
the Company and the Subsidiary or AFC, as the case may be, shall allow the other
Party to take possession of such books and records.
3. REPRESENTATIONS AND WARRANTIES OF AFC.
AFC represents and warrants to the Buyer as follows, and all such
representations and warranties shall be true and correct at and as of the
Closing Date as though then made:
3.1 CORPORATE. Each of AFC, the Company and the Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and it has all necessary power and
authority to own, lease and operate its properties and other assets and to carry
on its business as it is now being conducted or presently proposed to be
conducted. Each of the Company and the Subsidiary is duly licensed and qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases any real property except as disclosed on
the Disclosure Schedule and in every jurisdiction where the failure to so
qualify could reasonably be expected to have a Company Material Adverse Effect.
The Disclosure Schedule contains a complete and current copy of the Certificate
of Incorporation and of the Bylaws of each of the Company and the Subsidiary.
The Disclosure Schedule lists with respect to the Company and the Subsidiary its
name, jurisdiction of incorporation, officers and directors, and states and
other jurisdictions in which it is qualified to do business as a foreign
corporation.
3.2 AUTHORIZATION. AFC has all necessary corporate power and
authority to execute, deliver and perform this Agreement and to perform the
Transactions to be performed by it. Such execution, delivery and performance
have been duly authorized by all necessary corporate action, including any
required approval by AFC's stockholders and Board of Directors. This Agreement
constitutes the legal, valid and binding obligation of AFC, enforceable against
it in accordance with its terms.
3.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for the consents
specified in the Disclosure Schedule, neither the execution and delivery by AFC
of this Agreement, nor the performance of the Transactions to be performed by it
will violate, constitute a breach or default (with or without the giving of
notice, or lapse of time, or both), require any filing, consent, authorization
or approval under or be in conflict with (with or without the giving of notice,
or lapse of time, or both) or result in the imposition of any Encumbrance
against the Shares or any property or other asset of the Company or the
Subsidiary pursuant
- 15 -
to (a) any Regulation or Court Order to which the Company or the Subsidiary or
any of their respective properties or assets are subject, (b) (i) the
Certificate of Incorporation or Bylaws of the Company or the Subsidiary or (ii)
any resolution adopted by the board of directors or the stockholders of either
the Company or the Subsidiary; or (c) any material Contract or other material
document to which the Company or the Subsidiary is a party or to which any of
their respective properties or other assets may be subject.
3.4 CAPITALIZATION AND STOCK OWNERSHIP.
(a) The total authorized capital stock of the Company
consists of 10,000 shares of Common Stock, par value $0.01 per share. As of the
date of this Agreement 9,950 shares of Common Stock are issued and outstanding,
all of which are owned by AFC. Except for the security interest of the Secured
Lender which shall be terminated at Closing, AFC owns, and as of the Effective
Time shall own, the Shares, free and clear of all Encumbrances and shall at
Closing have full and unfettered right to transfer and deliver the Shares to
Buyer. There are no, and as of the Effective Time there will not be any,
options, warrants, calls, commitments or other rights of any character
(including conversion rights) obligating the Company or the Subsidiary to issue,
transfer or sell capital stock of the Company or the Subsidiary. The Shares are
duly and validly authorized and issued, fully paid, non-assessable and free of
pre-emptive rights.
(b) The total authorized capital stock of the Subsidiary
consists of 100 shares of common stock, par value $0.01 per share, and as of the
date of this Agreement 100 shares of common stock are issued and outstanding,
all of which are owned by the Company. The outstanding shares of the
Subsidiary's common stock are duly and validly authorized and issued, fully
paid, non-assessable and free of pre-emptive rights.
3.5 FINANCIAL STATEMENTS. AFC has delivered to Buyer copies of (i)
AFC's audited financial statements (including balance sheet, statement of
operations and statement of cash flows) for its fiscal years ending December 30,
2001, December 29, 2002 and December 28, 2003 (the "AFC FINANCIAL STATEMENTS")
and (ii) the Subsidiary's unaudited financial statements for the year ending
December 28, 2003 and the Subsidiary's sixth accounting period ended June 13,
2004 (the "SUBSIDIARY FINANCIAL STATEMENTS"). The AFC Financial Statements and
the Subsidiary Financial Statements (collectively, the "FINANCIAL STATEMENTS")
(a) are true, correct, complete and in accordance with the books and records of
AFC and the Subsidiary, (b) have been prepared in conformity with GAAP
consistently applied for the respective periods covered thereby, except with
respect to the Subsidiary Financial Statements which do not reflect adjustments
for income tax obligations and expenses filed on a consolidated basis (the
"EXCLUDED ITEMS"), the effect of which will not, individually or in the
aggregate, be materially adverse and do not include footnote disclosures; and
(c) when read together with the related notes to the audited AFC Financial
Statements, fairly present the financial condition of the Subsidiary as of such
dates and the results of its operations for the periods ended on such dates.
Except to the extent disclosed on Section 3.5 of the Disclosure Schedule or
reflected or reserved against or noted in the Subsidiary Balance Sheet and
except with respect to the Excluded Items on the Subsidiary Financial
Statements, neither the Company nor the Subsidiary has any material liabilities
or
- 16 -
obligations of any nature, whether accrued, absolute, contingent or otherwise
which are required to be set forth on the Subsidiary Balance Sheet (or a balance
sheet for the Company as of the Subsidiary Balance Sheet Date) in accordance
with GAAP, other than current liabilities incurred in the Ordinary Course of
Business since the date thereof. For purposes of this agreement, the Subsidiary
Financial Statements as of June 13, 2004 are referred to as the "CURRENT
FINANCIAL STATEMENTS," the balance sheet of the Subsidiary as of June 13, 2004
is referred to as the "SUBSIDIARY BALANCE SHEET" and the date thereof is
referred to as the "SUBSIDIARY BALANCE SHEET DATE".
3.6 TITLE TO ASSETS AND RELATED MATTERS.
(a) Each of the Company and the Subsidiary has good and
marketable title to all of its Assets, including the Assets listed on the
Subsidiary Balance Sheet, free and clear of any Encumbrances except (i) those
specified in the Disclosure Schedule, (ii) the security interest held by the
Secured Lender, which shall be released at Closing, and (iii) other matters
that, in the aggregate, are immaterial.
(b) The Company's sole asset consists of the outstanding
shares of the Subsidiary's capital stock.
3.7 PERMITS. Except as set forth on the Disclosure Schedule, (i)
each of the Company and the Subsidiary holds all material permits that are
required by any Governmental Authority to permit it to conduct its respective
business as now being conducted or presently proposed to be conducted, the
failure of which to hold could reasonably be expected to have a Company Material
Adverse Effect and (ii) all such permits have been validly issued and are in
full force and effect and will remain so upon consummation of the Transactions.
No suspension, cancellation or termination of any such permit that could
reasonably be expected to have a Company Material Adverse Effect is, to AFC's
knowledge, threatened or imminent.
3.8 REAL PROPERTY.
(a) Leased Property. The Disclosure Schedule describes
all real estate used in the operation of the Business as well as any other real
estate that is in the possession of or leased by the Company or the Subsidiary
(as tenant or sub-lessor) (collectively, the "PREMISES"). Neither the Company
nor the Subsidiary owns any real estate. All leasehold properties held by the
Company or the Subsidiary as lessee are held under valid, binding and
enforceable leases, true and correct copies of which have been delivered to the
Buyer. Except as set forth on the Disclosure Schedule, no consents, approvals or
other actions are required to maintain each of the leases existing at the
Effective Time in full force and effect after the Effective Time. The Disclosure
Schedule contains a true and correct description of each lease (including any
amendment thereto) to which the Company or the Subsidiary is a party, together
with a list of all current rent obligations payable thereunder, and each of the
leases disclosed on the Disclosure Schedule is in full force and effect and
there are no existing defaults or events of default on the part of the Company
or the Subsidiary or, to AFC's knowledge, any other party thereto, or events
which with notice or lapse of time or
- 17 -
both would constitute defaults, the consequences of which, severally or in the
aggregate, would have a Company Material Adverse Effect. There are no monetary
obligations in excess of $1,000 to any lessor under any such lease (including,
without limitation, any obligation to repair or make improvements to any of the
Premises subject to such leases) that are required to be performed prior to the
Closing Date that have not been, or will not be, fully performed by that time.
Except as indicated on the Disclosure Schedule, all improvements on any
Company-Owned Bakery Premises are in compliance with the terms of the lease
relating to such Premises, except where the failure so to comply would not have
a material adverse effect on the Business conducted on such Premises. The
Company-Owned Bakery Premises and, to AFC's knowledge, all other Premises, are
zoned for the purposes for which they are presently being used.
(b) Violations. Neither AFC, the Company nor the
Subsidiary has received written notice from any Governmental Authority that the
Premises or any improvements situated thereon, or the uses conducted thereon or
therein, materially violate any Regulations of any Governmental Authority having
jurisdiction over the Premises, and, to AFC's knowledge, no conditions exist
that are likely to give rise to any such notice. The use, occupancy, operation
and condition of the Company-Owned Bakery Premises, and to AFC's knowledge, all
other Premises, and all improvements on the Company-Owned Bakery Premises, and
to AFC's knowledge, all other Premises, comply with all applicable covenants,
conditions, restrictions and agreements contained in any lease relating to the
Premises and any applicable health, safety, environmental and other Regulations
to which they are subject, except where the failure so to comply would not have
a material adverse effect on the business conducted at such location. All
consents and all applicable permits, licenses and other evidences of compliance
which are or were required to be obtained in connection with the construction of
the improvements on the Company-Owned Bakery Premises, and, to AFC's knowledge,
all other Premises, and the occupancy, condition, operation and use of the
Company-Owned Bakery Premises, and, to AFC's knowledge, all other Premises, have
been obtained and complied with, except where the failure so to comply would not
have a material adverse effect on the business conducted at such location.
(c) Environmental. (i) Neither the Company nor the
Subsidiary is in violation of any Regulation relating to pollution or protection
of human health or the environment including, without limitation, Regulations
relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products, asbestos or asbestos-containing materials, or
polychlorinated biphenyls ("MATERIALS OF ENVIRONMENTAL CONCERN"), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "ENVIRONMENTAL LAWS") which could reasonably be expected to have
a Company Material Adverse Effect.
(ii) Neither AFC, the Company nor the Subsidiary has
received any communication alleging that the Company or the Subsidiary is or may
be liable or is not in full compliance with any Environmental Laws or permit or
authorization required under applicable Environmental Laws where such failure to
comply fully could reasonably be
- 18 -
expected to have a Company Material Adverse Effect and, to AFC's knowledge,
there are no circumstances that may prevent or interfere with such full
compliance in the future.
(iii) To AFC's knowledge, there is no claim, action, cause
of action, investigation or notice by any person or entity alleging potential
liability arising out of, based on or resulting from (a) the presence in or
release into the environment of any Materials of Environmental Concern at any
location owned, leased or operated, now or in the past, by the Company or the
Subsidiary or (b) circumstances forming the basis of any violation or alleged
violation of any Environmental Law pending or, to AFC's knowledge, threatened
against the Company or the Subsidiary.
(d) Utilities. Except as set forth on the Disclosure
Schedule, all utilities and major service systems (including, without
limitation, electrical, sanitary and sewage, HVAC, air filtering, refrigeration
and water supply) necessary for the operation of the Company-Owned Bakery
Premises and, to AFC's knowledge, all other Premises are in working order and
are adequate for the present needs of the Premises. To the knowledge of AFC,
there are no facts or circumstances which will result in the termination of the
present access from any Premises to utility services or existing streets,
highways and roads adjoining such Premises.
(e) Condemnation. AFC has no knowledge and neither the
Company nor the Subsidiary has received written notice, that any of the Premises
are or will be subjected to or affected by (i) any special assessments, whether
or not presently a lien thereon, or (ii) any condemnation, eminent domain or
similar proceedings.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Subsidiary
(the "ACCOUNTS RECEIVABLE") are bona fide accounts receivable created in the
Ordinary Course of Business and are not subject to any right of set-off. All
Accounts Receivable of the Subsidiary (other than those which have arisen since
the Subsidiary Balance Sheet Date) are accurately reflected on the Subsidiary
Balance Sheet in accordance with GAAP. Unless paid prior to the Closing Date,
the Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Subsidiary Balance Sheet
or on the Closing Date Balance Sheet (which reserves are adequate and calculated
consistent with past practice and, in the case of the reserves reflected on the
Closing Date Balance Sheet, will not represent a lesser percentage of the
Accounts Receivable as of the Closing Date than the reserves reflected in the
Subsidiary Balance Sheet with respect to the Accounts Receivable reflected
therein and will not represent a material adverse change in the composition of
such Accounts Receivable in terms of aging). Accounts Receivable in the
aggregate amount reflected on the Closing Date Balance Sheet, net of related
reserves, will be collected in full, without any set-off, on or before February
15, 2005. Section 3.9 of the Disclosure Schedule contains a complete and
accurate list of all Accounts Receivable as of the Base Working Capital Date,
which list sets forth the aging of such Accounts Receivable.
3.10 INVENTORY. All inventory of the Subsidiary, whether or not
reflected in the Subsidiary Balance Sheet, consists, in all material respects,
of items of quality and quantity usable and saleable in the Ordinary Course of
Business, except for items that are obsolete,
- 19 -
discontinued, returned, damaged or of below-standard quality or merchantability
that for purposes of the Subsidiary Balance Sheet have been written down to the
bona fide selling price less cost of disposition, or for which adequate reserves
have been provided.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities
or other obligations of the Company or the Subsidiary (whether absolute,
accrued, contingent or otherwise and whether or not due) required to be shown in
the Financial Statements in accordance with GAAP and not shown except (i) to the
extent reflected in the Subsidiary Balance Sheet and the notes and schedules
thereto, (ii) those liabilities described in this Agreement, (iii) those
liabilities incurred in the Ordinary Course of Business since the Subsidiary
Balance Sheet Date, and (iv) those liabilities not required under GAAP to be
reflected in the Financial Statements.
3.12 TAXES.
(a) All Tax Returns required to be filed by or on behalf
of the Company or the Subsidiary or any Affiliated Group of which the Company or
the Subsidiary is or was a member have been duly and timely filed with the
appropriate taxing authority in all jurisdictions in which such Tax Returns are
required to be filed (after giving effect to any valid extensions of time in
which to make such filings), and all such Tax Returns are true, complete and
accurate in all material respects, except as explained in the Disclosure
Schedule in connection with AFC's restatement of its financial statements for
its 2000, 2001 and 2002 fiscal years (the "RESTATEMENT YEARS"). It is
acknowledged and agreed that any income tax refunds payable with respect to the
Restatement Years, the 2003 fiscal year, and the stub period ending on the
Closing Date shall be the property of AFC and neither the Company nor the
Subsidiary shall have any right to any portion thereof.
(b) All Taxes with respect to the Company, the Subsidiary
or any Affiliated Group of which the Company or any Subsidiary is or was a
member shown to be payable on the Tax Returns and any subsequent assessments
with respect thereto have been timely paid in full or in the case of Taxes that
are not yet due or owing, the Company and the Subsidiary have made due and
sufficient accruals for the payment of all such Taxes on the face of the Final
Closing Date Balance Sheet and on its books and records and no other Taxes are
payable by the AFC Affiliated Group with respect to the Company or the
Subsidiary, other than Taxes that AFC, the Company or the Subsidiary is
contesting in good faith through appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP. There are no liens on
any of the Shares or Assets with respect to Taxes, other than liens for Taxes
not yet due and payable or for Taxes that AFC or the Company or the Subsidiary
is contesting in good faith through appropriate proceedings and for which
adequate reserves have been established in accordance with GAAP. All required
estimated Tax payments sufficient to avoid any underpayment penalties have been
made by or on behalf of the Company and the Subsidiary.
(c) Except as set forth in the Disclosure Schedule, none
of the Company, the Subsidiary or any other Person on their behalf has (i)
waived any statute of limitations in respect of any Taxes or agreed to any
extension of time with respect to a Tax assessment or
- 20 -
deficiency for any taxable period during which the Company or the Subsidiary was
a member of the AFC Affiliated Group, (ii) filed a consent pursuant to Section
341(f) of the Code (as in effect prior to the repeal under the Jobs and Growth
Tax reconciliation Act of 2003) or agreed to have Section 341(f)(2) of the code
(as in effect prior to the repeal under the Jobs and Growth Tax Reconciliation
Act of 2003) apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or the
Subsidiary, (iii) agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Code or any similar provision of law or has any knowledge
that any taxing authority has proposed any such adjustment, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the Company or the Subsidiary (iv)
executed or entered into a closing agreement pursuant to Section 7121 of the
Code or any similar provision of law with respect to the Company or the
Subsidiary, (v) requested any extension of time within which to file any Tax
Return, which Tax Return has since not been filed, or (vi) granted to any Person
any power of attorney that is currently in force with respect to any Tax matter.
(d) The Company and the Subsidiary have complied in all
material respects with all applicable laws relating to the payment and
withholding of Taxes and have duly and timely withheld and paid over to the
appropriate taxing authority all amounts required to be so withheld and paid
under all applicable laws.
(e) No taxing authority in a jurisdiction where the
Company or the Subsidiary does not file Tax Returns has sent written notice to
the Company or the Subsidiary claiming that it is or may be subject to taxation
by that jurisdiction.
(f) All deficiencies asserted or assessments made as a
result of any examinations by any taxing authority of the Tax Returns of, or
including, the Company or the Subsidiary have been fully paid other than
asserted deficiencies or assessments that AFC, the Company or the Subsidiary is
contesting in good faith through appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP, and there are no other
audits or investigations by any taxing authority in progress, nor has AFC, the
Company or the Subsidiary received any written notice from any taxing authority
that it intends to conduct such an audit or investigation.
(g) Neither the Company nor the Subsidiary has any
"corporate acquisition indebtedness" within the meaning of Section 279 of the
Code.
(h) Neither the Company nor the Subsidiary has been a
U.S. real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.
(i) Neither the Company nor the Subsidiary is a party to
any tax sharing, allocation, indemnity or similar agreement or arrangement
(whether or not written) pursuant to which it will have any obligation to make
any payments after the Closing.
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(j) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Buyer, the Company or
their respective Affiliates by reason of Section 280G of the Code or would be
subject to withholding under Section 4999 of the Code.
(k) Neither the Company nor the Subsidiary is subject to
any private letter ruling of the IRS or comparable rulings of any taxing
authority.
(l) Since the Acquisition Date, neither the Company nor
the Subsidiary has ever been a member of any consolidated, combined, affiliated
or unitary group of corporations for any Tax purposes other than the AFC
Affiliated Group.
(m) Neither the Company nor the Subsidiary has
constituted either a "distributing corporation" or a "controlled corporation"
(within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code in the
five (5) years prior to the date of this Agreement.
(n) Section 3.12(n) of the Disclosure Schedule sets
forth, with respect to each of the Company and the Subsidiary (i) any
"intercompany transactions" in respect of which gain was and continues to be
deferred pursuant to Treasury Regulations Section 1.1502-13 or any analogous or
similar provision of Law, (ii) any "excess loss accounts" in respect of the
stock of the Subsidiary pursuant to Treasury Regulations Section 1.1502-19, or
any analogous or similar provision of Law, and (iii) any taxable income of the
Company or the Subsidiary that will be required under applicable Tax law to be
reported by the Buyer or any of its affiliates, including the Company or the
Subsidiary, for a taxable period beginning after the Closing Date which taxable
income was realized prior to the Closing Date.
(o) The Company and the Subsidiary have disclosed on
their federal income Tax Returns all positions taken therein that could give
rise to substantial understatement of federal income tax within the meaning of
Section 6662 of the Code.
(q) Neither the Company nor the Subsidiary has
participated in any reportable transaction, as defined in Treasury Regulation
Section 1.6011-4(b)(1), or a transaction substantially similar to a reportable
transaction.
(r) Neither the Company nor the Subsidiary has, or has
ever had, a permanent establishment in any country other than the United States,
or has engaged in a trade or business in any country other than the United
States that subjected it to tax in such country.
For purposes of this Section 3.12, any reference to the Company or the
Subsidiary shall be deemed to include any Person which merged with or was
liquidated into such Company or Subsidiary.
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3.13 EQUIPMENT. The Disclosure Schedule sets forth a brief
description of each item of machinery or equipment typically owned or leased by
the Company or the Subsidiary and used or held for use in the Company-Owned
Bakeries with an original book basis, in the case of owned equipment, in excess
of $5,000, indicating the typical budgeted cost of each such item when purchased
new, and in the case of leased equipment with an annual lease obligation in
excess of $1,500. Except as set forth on the Disclosure Schedule, each
Company-Owned Bakery has substantially all of the machinery and equipment
referenced in this Section 3.13. The machinery and equipment used in the
Business is in good operating condition and repair, and is adequate for the uses
to which it is being put, and none of such equipment is in need of maintenance
or repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. Except as set forth in the Disclosure Schedule, the
Assets are sufficient for the continued conduct of the Business after the
Closing in substantially the same manner as conducted prior to the Closing.
3.14 BENEFIT PLANS. The employee benefit plans and agreements
described in the Disclosure Schedule are the only employee benefit plans and
agreements maintained by the Company, the Subsidiary and AFC for the benefit of
their employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and agents, including without limitation (i)
current and deferred compensation, pension, profit sharing, severance, vacation,
stock purchase, stock option, bonus and incentive compensation benefits and
other employee benefit plans (as defined in Title I, Subtitle A, Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA")) for such
employees and agents; and (ii) the medical, hospital, life, health, accident,
disability, death and other fringe and welfare benefits for such employees and
agents; all of which plans, programs, practices, policies and other individual
and group arrangements and agreements, including any unwritten compensation,
fringe benefit, payroll or employment practices, procedures or policies of any
kind or description, are hereinafter referred to as "BENEFIT PLANS." For each
Benefit Plan, AFC has delivered or made available to Buyer true, correct and
complete copies of (i) the most recent two determination letters issued with
respect to any Benefit Plan intended to be qualified under Code Section 401(a);
(ii) copies of the most recent summary plan descriptions and any material
modifications thereto for the Benefit Plans covered by ERISA and subject to the
summary plan description requirements; (iii) all employment manuals and
policies; (iv) all collective bargaining agreements; and (v) the most recently
filed three IRS Forms 5500, including all schedules thereto and opinions of
independent accountants, filed for each Benefit Plan subject to the requirement
to file such an annual report. Except as disclosed in the Disclosure Schedule,
there are no contributions or payments due with respect to any of the Benefit
Plans other than contributions and payments due in the normal course. Other than
routine claims for benefits, no claim against or legal proceeding involving any
Benefit Plan is pending or, to AFC's knowledge, threatened. Except as disclosed
in the Disclosure Schedule, the Company, the Subsidiary and each Benefit Plan
are in compliance with the provisions of ERISA, the Code and any other laws
applicable to it, except where failure to comply could not reasonably be
expected to have a Company Material Adverse Effect. Each Benefit Plan that is
intended to be qualified under Code Section 401(a) has received a favorable
determination letter from the Internal Revenue Service, and AFC is not aware of
any circumstances likely to result in revocation of any such favorable
determination letter. AFC, the Company and the Subsidiary have never maintained
a plan subject to Title IV of ERISA. No "party in interest" (as defined in
Section 3(14) of ERISA) or "disqualified person" (as defined in
- 23 -
Code Section 4975(e)(2)) with respect to any Benefit Plan has engaged in any
nonexempt "prohibited transaction" (described in Code Section 4975(c) or Section
406 of ERISA) the penalty of which could have a Company Material Adverse Effect.
No tax under Code Sections 4980B or 5000 has been incurred with respect to any
Benefit Plan, and to AFC's knowledge, no circumstances exist which could give
rise to such tax.
3.15 SUBSIDIARIES. Other than the Subsidiary, the Company does not
own directly or indirectly, any interest or investment (whether equity or debt)
in any Person.
3.16 COMPLIANCE WITH COURT ORDERS AND REGULATIONS. Neither the
Company nor the Subsidiary is in material violation of any Court Order or any
Regulation, and neither the Business nor the Assets have been used or operated
by the Company or the Subsidiary in material violation of any Court Order or any
Regulation. Except as set forth on the Disclosure Schedule, neither the Company
nor the Subsidiary has received notice that any investigation or review by any
Governmental Authority with respect to the Company or the Subsidiary is pending
or that any such investigation or review is contemplated. Neither Company nor
the Subsidiary is subject to any judgment or Court Order in any lawsuit or
proceeding which has or may have a Company Material Adverse Effect on its rights
and interests in any Franchise Agreement. To AFC's knowledge, there are not
currently, nor have there ever been any administrative actions, cease and desist
orders, or other administrative actions against the Company or the Subsidiary by
any Governmental Authority which regulates the sale of Franchises (as defined
below).
3.17 LEGAL PROCEEDINGS. Except as disclosed on the Disclosure
Schedule, there is no Proceeding that is pending or, to AFC's knowledge,
threatened against the Company or the Subsidiary, and to AFC's knowledge, there
is no basis for any Proceeding.
3.18 CONTRACTS AND COMMITMENTS.
(a) The Disclosure Schedule lists (and the Company has
provided true and correct copies to the Buyer of) each of the following items to
which either the Company or the Subsidiary is a party or to which any of their
properties or other assets are subject, except for any Contracts that may be
terminated without liability or penalty on not more than 30 days' notice and any
Contracts under which the executory obligation of the Company or the Subsidiary
involves an individual amount of less than $10,000 (unless a different amount is
specified below):
(i) Contracts with any present or former
stockholder, director, officer, employee, partner or
consultant of the Company or the Subsidiary;
(ii) Contracts for the future purchase of, or
payment for, supplies or products, or for the performance of
services by a third party, in excess of $20,000 in any
individual case;
(iii) Contracts to sell or supply products or to
perform services to or for third parties, in excess of $10,000
in any individual case;
- 24 -
(iv) notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit
agreements, reimbursement agreements, loan agreements or other
Contracts for the borrowing or lending of money, agreements or
arrangements for a line of credit or guarantee, pledge or
undertaking in any manner (including guarantees of lease
obligations) whatsoever of the indebtedness of any other
Person;
(v) Contracts limiting or restraining the
Company or the Subsidiary from engaging or competing in any
line of business or any geographical area;
(vi) Contracts relating to any license, franchise
or distributorship, or copyright, or to any ideas, technical
assistance or other know-how of or used by the Company or the
Subsidiary;
(vii) Collective bargaining agreements or other
contracts with labor unions;
(viii) Agreements relating to severance
arrangements, retirement benefits, deferred compensation or
termination of employment;
(ix) Contracts not made in the Ordinary Course of
Business that individually involve the payment or receipt of
more than $10,000;
(x) each joint venture, partnership, and other
Contract (however named) involving a sharing of profits,
losses, costs, or liabilities by either the Company or the
Subsidiary with any other Person;
(xi) each power of attorney that is currently
effective and outstanding; and
(xii) each domestic and foreign Cinnabon
Franchisee or Licensee competition and reward program.
(b) Neither the Company, the Subsidiary nor, to AFC's
knowledge, any other party is in default under, nor to AFC's knowledge, has any
event occurred that (with or without the giving of notice or lapse of time, or
both) would constitute a material default under any of the Contracts. Neither
the Company nor the Subsidiary has received any communication from, or given any
communication to, any other party indicating that the Company, the Subsidiary or
such other party, as the case may be, is currently or by the lapse of time will
be in material default under any Contract.
3.19 INSURANCE.
(a) The Company and the Subsidiary are covered by
policies of insurance maintained by AFC, the Company or the Subsidiary covering
such risks, in such amounts
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and with such deductibles and exclusions as are reasonable for the Business and
the Assets, as determined by AFC in its reasonable business judgment. None of
the Company or the Subsidiary is in material default with respect to its
obligations under any of such insurance policies, and to AFC's knowledge, no
event has occurred which, with notice or the lapse of time or both, would
constitute a material breach or default, or permit termination, modification, or
acceleration, under the policy. To the extent that the Company and the
Subsidiary self-insure certain of their properties or risks, such self-insurance
protects against such casualties and contingencies and is at such levels as is
in accordance with reasonable business practices, as determined by AFC in its
reasonable business judgment.
(b) To AFC's knowledge, no party to any such insurance
policy has repudiated any material provision thereof. All known claims asserted
against the Company or the Subsidiary as of the date hereof, if any, of which
the Company or the Subsidiary has received written notice that may by covered by
insurance have been disclosed to and accepted by the appropriate insurance
companies and are being defended by such appropriate insurance companies and are
described in Section 3.19 of the Disclosure Schedule. Except as disclosed in the
Disclosure Schedule, no claims have been denied coverage during the last two
years. Other than for health insurance premium increases and as set forth in the
Disclosure Schedule, neither the Company nor the Subsidiary has received any
written notice (i) of any material pending premium increase under any policy,
(ii) that it is subject to any retroactive premium adjustment or other material
loss-sharing arrangement or (iii) of the intent of any insurance company not to
renew any such policy.
3.20 LABOR MATTERS. Neither the Company nor the Subsidiary is
obligated under any agreement to recognize or bargain with any labor
organization or union on behalf of its employees. To AFC's knowledge, there is
not now any formal organization activity among any of the employees of the
Company or the Subsidiary, nor has the Company or the Subsidiary received
written notice of any threatened action with respect to, any unfair labor
practice. Neither the Company nor the Subsidiary is (a) a party to, involved in
or, to the knowledge of AFC, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective bargaining
agreement, and neither the Company nor the Subsidiary has experienced any work
stoppage during the last two years. Neither the Company nor the Subsidiary is
subject to any order, decree, judgment, settlement agreement or award requiring
the payment by it to any employee, former employee or labor organization of any
back wages or other money damages in a material amount for any reason
whatsoever.
3.21 INTELLECTUAL PROPERTY.
(a) Included in the Disclosure Schedule is a true,
correct and complete list of the following Company Intellectual Property and
Company Registered Intellectual Property:
(i) WITH RESPECT TO THE CI SYSTEM:
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A. All U.S. and Foreign trade names,
trademarks, service marks, logos,
slogans, Internet domain names and
assumed names currently used in the
conduct and operation of the CI
Division (collectively the "CI
MARKS") and all U.S. and foreign
trademark and service xxxx
registrations and applications for
registration with respect to all
Company Intellectual Property,
including but not limited to (i)
the jurisdictions, if any, by or in
which such CI Marks are registered
or for which an application has
been filed, (ii) the registration
or application numbers, (iii) the
dates of any such registration or
application and (iv) the dates that
any affidavits of use or renewals
have been or are required to be
filed.
B. All U.S. and foreign copyright
registrations and applications for
registration of the Company and the
Subsidiary pertaining to the
materials in which the Company or
the Subsidiary claim a copyright
and which materials are currently
being used in the conduct of the CI
Division (the "COPYRIGHTS"),
including but not limited to as to
all Company Intellectual Property:
(i) the jurisdictions, if any, by
or in which such Copyrights are
registered or for which an
application has been filed, (ii)
the registration or application
numbers and (iii) the dates of any
such registrations or applications.
C. All U.S. and foreign patents and
patent applications currently used
for the conduct and operation of
the CI Division (collectively the
"PATENTS"), together with the
number and date of issuance of any
patents and the application number
and filing date of any application
for a patent.
D. All of the training manuals, trade
secrets, formulae, recipes, unique
sources of supply and sources not
generally known which are currently
used for the conduct and operation
of the CI Division.
(ii) WITH RESPECT TO THE SBC DIVISION:
A. All trade names, trademarks,
service marks, logos, slogans,
Internet domain names and assumed
names licensed by the Subsidiary
pursuant to the Master License
Agreement for use in the conduct
and
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operation of the SBC Division
(collectively the "SBC LICENSED
MARKS") and all trademark and
service xxxx registrations and
applications for registration in
the International Territories with
respect to all SBC Licensed
Intellectual Property, including
but not limited to (i) the
International Territories, if any,
by or in which such SBC Licensed
Marks are registered or for which
an application has been filed, (ii)
the registration or application
numbers, (iii) the dates of any
such registration or application
and (iv) the dates that any
affidavits of use or renewals have
been or are required to be filed.
B. All of the training manuals, trade
secrets, formulae, recipes, unique
sources of supply and sources not
generally known which are or have
been since July 14, 2003 used for
the conduct and operation of the
SBC Division.
C. Except as set forth on the
Disclosure Schedule, neither the
Company nor the Subsidiary claims
any proprietary rights in any of
the SBC Licensed Intellectual
Property currently being used for
the conduct of the SBC Division as
it is currently being conducted.
(b) Except as otherwise described in the Disclosure
Schedule, the Company or the Subsidiary is the sole and exclusive owner of the
Company Intellectual Property, free and clear of all liens, claims and
Encumbrances. Any licenses to Intellectual Property granted to the Company or
the Subsidiary (including, without limitation, the SBC Licensed Intellectual
Property) are sufficient for the conduct and operation of the Business as
currently conducted. Except for the rights granted to Franchisees and Licensees
and as otherwise described in the Disclosure Schedule, the Company and the
Subsidiary have sole and exclusive rights to use, execute, reproduce, display,
perform, modify, enhance, distribute, prepare derivative works of, license and
transfer the Company Intellectual Property; have not granted any options or
licenses or entered into any agreements of any kind relating to the Company
Intellectual Property or the marketing and distribution thereof; and the sale of
the Shares, as contemplated herein, will not result, directly or indirectly, in
the loss or impairment, in whole or in part, of any Company Intellectual
Property or any SBC Licensed Intellectual Property. Except as set forth in the
Disclosure Schedule, all registrations and applications relating to the Company
Intellectual Property are standing in the name of the Company or the Subsidiary.
Except as set forth in the Disclosure Schedule, no Company Intellectual Property
or product or service used in the Business related to Company Intellectual
Property or, to AFC's knowledge, any of the SBC Licensed Intellectual Property,
is subject to any Proceeding or outstanding decree, Court Order, judgment,
agreement or stipulation restricting in any manner the use, transfer or
licensing
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thereof by the Company or the Subsidiary, or which may affect the validity, use
or enforceability of Company Intellectual Property or SBC Licensed Intellectual
Property. Since July 14, 2003, no Company Intellectual Property has been used in
the conduct and operation of the SBC Division.
(c) Except for the security interest of the Secured
Lender which shall be terminated at Closing and as otherwise described in the
Disclosure Schedule, neither the Company nor the Subsidiary has, as of and since
the date upon which it acquired the Company Intellectual Property, (i) filed or
authorized the filing with the Assignment Division of the United States Patent
and Trademark Office (the "PTO"), United States Copyright Office or similar
foreign office of any lien, security interest or encumbrance against any
registration, patent or application identified in the Disclosure Schedule; (ii)
authorized or filed any lien relating to Company Intellectual Property under the
UCC or any similar foreign statute; (iii) entered into any license, franchise or
other agreement with respect to any of the Company Intellectual Property or SBC
Licensed Intellectual Property with any third person (except for the Franchise
Agreements on the Disclosure Schedule); (iv) otherwise transferred, conveyed,
sold, assigned, pledged, mortgaged, granted a security interest in or encumbered
any of the Company Intellectual Property or SBC Licensed Intellectual Property
or (v) entered into any settlement consent, covenant not to xxx or similar
agreement with respect to any Company Intellectual Property or SBC Licensed
Intellectual Property.
(d) Except as described in the Disclosure Schedule,
neither the Company nor the Subsidiary has received any written notice (nor, to
AFC's knowledge, has the Company or the Subsidiary received any oral
communication) to the effect that the Company and/or the Subsidiary are not the
sole owners of or do not have the sole and exclusive right to use (except as
otherwise provided in the Franchise Agreements) the Company Intellectual
Property.
(e) All Company Registered Intellectual Property is
subsisting and in good standing, the Company Intellectual Property is valid and
enforceable and, to AFC's knowledge, no act or omission has occurred which would
adversely affect the validity or enforceability of any Company Intellectual
Property or the enforceability of its license to the SBC Licensed Intellectual
Property. To the extent that Company Intellectual Property has been developed or
created by a third party (other than an employee) for the Company or the
Subsidiary, the Company or the Subsidiary has a written agreement with such
third party with respect thereto and Company or the Subsidiary thereby has
obtained ownership of and is the exclusive owner of all of such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment, to the fullest extent it is legally possible to do so. To
the extent that Company Intellectual Property has been developed or created by
any employee of the Company or the Subsidiary, such Company Intellectual
Property constitutes a work made for hire under applicable law. To the extent
any such work of authorship was not a work made for hire under applicable law,
the employee transferred all right, title and interest in and to such work of
authorship to the Company or the Subsidiary. Except as set forth in the
Disclosure Schedule, all necessary registration, maintenance and renewal fees
currently due in connection with Company Registered
- 29 -
Intellectual Property have been made and all necessary documents, recordations
and certifications in connection with Company Registered Intellectual Property
have been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purpose of maintaining the Company Registered Intellectual Property.
Except as described in the Disclosure Schedule, the Company and the Subsidiary
have obtained confidentiality and nondisclosure agreements to protect the
secrecy of all Company Intellectual Property and SBC Licensed Intellectual
Property which are considered to be confidential information or trade secrets
where the failure to obtain such agreements would have a material adverse effect
on the Company Intellectual Property or on the SBC Licensed Intellectual
Property. Since the Acquisition Date, the Company and the Subsidiary have taken
reasonable steps under the circumstances to protect the rights of the Company
and the Subsidiary in the confidential information and trade secrets of the
Company and the Subsidiary used in the Business of the Company and the
Subsidiary or any trade secrets or confidential information of third parties
used in the Business of the Company and the Subsidiary
(f) To AFC's knowledge, neither the conduct of the
Business nor the operation of the Company-Owned Bakeries, Franchised Bakeries or
SBC International Cafes, nor the use of the Company Intellectual Property by the
Company or the Subsidiary or by any Franchisee or Licensee of the Subsidiary
infringes upon, misappropriates, dilutes or constitutes an unauthorized use of
any proprietary rights owned or controlled by any third party. Except as set
forth on the Disclosure Schedule, there is no claim, suit, action or Proceeding
(a "PROPRIETARY RIGHT CLAIM") pending or, to AFC's knowledge, threatened against
the Company, the Subsidiary or any Franchisees or Licensees alleging that use of
the Company Intellectual Property or SBC Licensed Intellectual Property by the
Company, the Subsidiary or such Franchisees or Licensees infringes upon,
misappropriates, dilutes or constitutes an unauthorized use of the proprietary
rights of any third person, or alleging that the Company, the Subsidiary and/or
such Franchisees or Licensees do not have the valid right to use any Company
Intellectual Property or SBC Licensed Intellectual Property. The Disclosure
Schedule lists each Proprietary Right Claim pending or threatened against the
Company, the Subsidiary or, to AFC's knowledge, any Franchisee, together with
(i) the identity of the Company Intellectual Property or SBC Licensed
Intellectual Property alleged to be infringing; (ii) the basis for such claim,
including the right alleged to be infringed; (iii) the name of the party by whom
such Proprietary Right Claim has been made; and (iv) if applicable, the
jurisdiction, court or agency before which the Proprietary Right Claim has been
commenced and the number assigned to such proceeding.
(g) Except as described in the Disclosure Schedule, to
AFC's knowledge, there are no existing infringements, misappropriations,
dilutions or unauthorized uses by any third party of any of the Company
Intellectual Property or SBC Licensed Intellectual Property, and neither the
Company nor the Subsidiary has any claim outstanding with respect to prior
infringements, misappropriations, dilutions or unauthorized uses. The Disclosure
Schedule lists each such Proprietary Right Claim against any third party pending
or threatened by the Company or the Subsidiary, together with (i) the identity
of the Company Intellectual Property or SBC Licensed Intellectual Property
alleged to be infringed; (ii) the basis for such claim, including the right
alleged to be infringed; (iii) the name of the party
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against whom such Proprietary Right Claim has been made; and (iv) if applicable,
the jurisdiction, court or agency before which such Proprietary Right Claim has
been commenced and the number assigned to such proceeding.
(h) There are no breaches or defaults on the part of the
Company or the Subsidiary under agreements which are included in the Company
Intellectual Property or SBC Licensed Intellectual Property, including any
license agreements permitting the use of the Company Intellectual Property by
third parties, and all such agreements constitute valid and binding obligations
of the parties thereto, enforceable in accordance with their respective terms.
Except as set forth in the Disclosure Schedule, the consummation of the
transactions contemplated by this Agreement will not constitute a breach or
default or event which, with notice, lapse of time, or both, would constitute a
default or an event of default under any agreement included within or relating
to any of the Company Intellectual Property or SBC Licensed Intellectual
Property.
(i) Except as described in the Disclosure Schedule, the
Company and the Subsidiary currently license or own, and, in either case have
the legal right to use, all computer software that is material to the conduct of
the Business (including, but not limited to, the CI Division and the SBC
Division) and the operation of the Company-Owned Bakeries, Franchised Bakeries
and SBC International Cafes and the CI System and, to AFC's knowledge, all such
computer software is being so used in a manner that does not breach any term of
the license or other contract between the Company and/or the Subsidiary and any
third party in any material respect. The Company and the Subsidiary are in
compliance, in all material respects, with the terms and conditions of all
license agreements in favor of the Company and the Subsidiary relating to such
computer software. The Disclosure Schedule sets forth a list of (i) the computer
software owned by the Company or the Subsidiary, and (ii) the computer software
licensed by the Company or the Subsidiary. The source code for any Company or
Subsidiary owned computer software has been maintained in confidence.
(j) Except as described in the Disclosure Schedule, no
former or current officer, employee or agent has asserted in writing any claim
against the Company or the Subsidiary in connection with such person's
involvement in the conception and development of any Company Intellectual
Property. None of the current officers or employees of the Company or the
Subsidiary have any patents issued or applications pending for any device,
process, design or invention of any kind now used or needed by the Company or
the Subsidiary in connection with the conduct of the Business (including, but
not limited to, the CI Division and the SBC Division)or the operation of the
Franchised Bakeries, the CI System and the SBC International Cafes, which
patents or applications have not been assigned to the Company or the applicable
Subsidiary, with such assignments duly recorded in the PTO.
(k) All Franchise Agreements and License Agreements
(including those license and manufacturing agreements listed in the Disclosure
Schedule) granting the right to use the Company Intellectual Property or SBC
Licensed Intellectual Property to third parties give the Company or the
Subsidiary as franchisor or licensor and its successors and assigns the rights
to control the quality of products and services sold under the Company
Intellectual
- 31 -
Property or SBC Licensed Intellectual Property described under the Franchise
Agreements or license agreements, as the case may be.
(l) Except as set forth in the Disclosure Schedule, Any
computer software owned by the Company or the Subsidiary was (i) developed by
the Company's or the Subsidiary's employees working within the scope of their
employment at the time of such development and was a work made for hire under
applicable law, (ii) developed by agents, consultants, contractors or others who
have executed appropriate instruments of assignment in favor of the Company or
the Subsidiary as assignee that have conveyed to the Company or the Subsidiary
ownership of all of its intellectual property rights in such computer software
or (iii) acquired by the Company or the Subsidiary in connection with
acquisitions in which the Company or the Subsidiary obtained appropriate
representations, warranties and indemnities from the transferring party relating
to the title to such computer software. To the extent any work of authorship
referenced in clause (i) was not a work made for hire under applicable law, the
employee transferred all right, title and interest in and to such work of
authorship to the Company or the Subsidiary. Neither the Company nor the
Subsidiary has received notice from any third party claiming any right, title or
interest in such computer software. Neither the Company nor the Subsidiary has
granted rights in such computer software except to Franchisees and Licensees.
3.22 ABSENCE OF CERTAIN CHANGES. Since the Subsidiary Balance Sheet
Date, the Company and the Subsidiary have conducted the Business in the Ordinary
Course of Business (except as of the Closing Date for actions that shall not
have violated Section 5.1 or 5.3) and except as set forth on the Disclosure
Schedule there has not been with respect to the Company or the Subsidiary:
(a) any Company Material Adverse Change;
(b) any increase in the compensation payable or to become
payable by the Company or the Subsidiary to any director, officer, employee or
agent of the Company or the Subsidiary, except for merit and seniority increases
made in the Ordinary Course of Business not exceeding $5,000 per director,
officer, employee or agent or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(c) any waiver or release of any claim or right in excess
of $2,000 of the Company or the Subsidiary or cancellation of any debt in excess
of $2,000 held by the Company or the Subsidiary;
(d) any casualty, loss, damage or destruction (whether or
not covered by insurance) of any material property of the Company or the
Subsidiary;
(e) any material change in the accounting methods or
practices of the Company or the Subsidiary or any change in depreciation or
amortization policies or rates theretofore adopted by the Company or the
Subsidiary;
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(f) any change in the Company's or the Subsidiary's
authorized or issued capital stock; any grant of any stock option or right to
purchase shares of capital stock of either the Company or the Subsidiary;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company or the Subsidiary of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment with
respect of shares of capital stock;
(g) any amendment to the certificates of incorporation or
bylaws of either of the Company or the Subsidiary;
(h) any adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
employees of either the Company or the Subsidiary;
(i) any sale (other than sales of inventory in the
Ordinary Course of Business), lease, or other disposition of any material asset
or property of either the Company or the Subsidiary or mortgage, pledge, or
imposition of any lien or other Encumbrance on any material asset or property of
either the Company or the Subsidiary, including the sale, lease, or other
disposition of any of the Company Intellectual Property;
(j) any written or legally-binding oral agreement by
either the Company or the Subsidiary to do any of the foregoing.
3.23 [INTENTIONALLY BLANK]
3.24 FRANCHISE, LICENSE AND DEVELOPMENT AGREEMENTS.
(a) The Disclosure Schedule sets forth a true and
complete list of, and, except as noted on the Disclosure Schedule, the Company
has made available to the Buyer, or provided the Buyer with a copy of, all
documents that are currently in the Company's or Subsidiary's possession or
control within each of the following categories:
(i) each Franchise Agreement in effect as of the
date of this Agreement, and any written amendments or
modifications thereto, pursuant to which the Company or the
Subsidiary has granted to Franchisees or Licensees the right
to operate Franchised Bakeries or to use any components of the
CI System or the Company Intellectual Property;
(ii) each Franchise Agreement (including each
International Contract) in effect as of the date of this
Agreement, and any written amendments or modifications thereto
pertaining to the right to develop and operate SBC
International Cafes; and
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(iii) each license and manufacturing agreement and
any written amendments or modifications thereto, in effect as
of the date of this Agreement, pertaining to the right of
third parties to use the Company Intellectual Property in
association with products and services, whether such products
and services are the same as, are similar to, or dissimilar
from, those products and services offered at Franchised
Bakeries and/or SBC International Cafes.
(b) The Disclosure Schedule sets forth a true and
complete list of and, except as noted on the Disclosure Schedule, the Company
has made available to the Buyer, or provided the Buyer with a copy of, all
documents that are currently in the Company's or Subsidiary's possession or
control within each of the following categories:
(i) each Franchise Agreement (including
International Contracts), to AFC's knowledge after reasonable
inquiry, for which a material default exists as of the date of
this Agreement and has not been cured, the details of such
default, the date and details of each default and/or
termination notice, if any, sent to such Franchisee or
Licensee, the current status of each such default notice, and
all Franchisees to whom the Subsidiary has sent a written
notice of default since September 1, 2003 (including a copy of
such default notice);
(ii) each material default by the Company or the
Subsidiary with regard to any Franchise Agreement (including
International Contracts) either asserted by a Franchisee in a
written notice received by the Company or the Subsidiary, or
to AFC's knowledge, otherwise asserted by a Franchisee, which
default currently is in effect as of the date of this
Agreement and the details of that default;
(iii) each oral Franchise Agreement entered into
by the Company or the Subsidiary that currently is in effect
as of the date of this Agreement and pursuant to which a
Franchisee or Licensee currently is operating a Franchised
Bakery or an SBC International Cafe;
(iv) each material oral modification, approved by
the Company or the Subsidiary, to a Franchise Agreement
(including International Contracts) that currently is in
effect as of the date of this Agreement;
(v) a list of all locations at which, to AFC's
knowledge, former Franchisees or Licensees continue to use the
Company Intellectual Property or other significant elements of
the CI System or SBC Licensed Intellectual Property or system
by which the SBC International Cafes are operated, other than
minor non-material elements of trade dress;
(vi) to AFC's knowledge, a list of all
Franchisees and Licensees that are the subject of a case under
domestic or foreign bankruptcy or
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insolvency laws of which the Company or the Subsidiary has
been notified; and
(vii) all written or oral agreements or
arrangements (and with respect to oral agreements a
description thereof) currently in effect with independent
sales representatives, contractors, brokers or consultants
under which the Company or the Subsidiary has authorized any
person to sell or promote the sale of Franchises on behalf of
the Company or the Subsidiary or agreed to rebate or share
amounts receivable under any Franchise Agreement and
indicating which of such agreements are in default and may be
terminated by the Company or the Subsidiary by notice to the
other party. The Company has delivered to Buyer true, correct
and complete copies of all written correspondence and
memoranda evidencing any such oral agreements. The payments
payable to all parties to each such oral agreement are set
forth on the Disclosure Schedule.
(c) With respect to each Franchise Agreement (including
International Contracts), the Disclosure Schedule sets forth a true and complete
list of:
(i) the initial license or development fee paid
to the Company or the Subsidiary by each Franchisee or
Licensee during the period commencing January 1, 2003 for the
CI System and July 14, 2003 for the SBC Division and ending
June 13, 2004; and
(ii) the total amount paid to the Subsidiary by
the Franchisee or Licensee as royalties for the period
commencing January 1, 2003 for the CI System and July 14, 2003
for the SBC Division and ending June 13, 2004.
(d) Except as set forth on the Disclosure Schedule,
neither the Company nor the Subsidiary, since September 1, 1999 with respect to
the CI Division and since July 14, 2003 with respect to the SBC Division, has
had, any subsidiary or affiliate offering or selling franchises, master
franchises, area development agreements, subfranchises, licenses, business
opportunities or seller-assisted marketing plans (collectively "FRANCHISES"),
domestically or internationally for the CI System or the Best System (as defined
in the Master License Agreement). Neither the Company nor the Subsidiary has
granted subfranchising rights to the CI System or the system by which the SBC
International Cafes are operated.
(e) Except as set forth in the Disclosure Schedule, each
Franchise Agreement entered into since September 1, 1999 with respect to the CI
Division and since July 14, 2003 with respect to the SBC Division, is
substantially similar to the form of Franchise Agreement incorporated into the
UFOC that was issued to the Franchisee or Licensee in connection with the sale
of that Franchise by the Company or the Subsidiary. The Company and the
Subsidiary had, at all relevant times, the corporate power and authority and
legal right to enter into and carry out the terms of each Franchise Agreement.
All of the Franchise Agreements are valid, binding and enforceable against the
Franchisee or
- 35 -
Licensee thereunder in accordance with its terms, subject to any such
Franchisee's or Licensee's bankruptcy, insolvency, receivership or similar
proceeding under domestic or foreign law.
(f) Except as set forth on the Disclosure Schedule, and
except as may be granted by operation of law or pursuant to the terms of any
Franchise Agreement, no Franchisee or Licensee has a protected territory,
exclusive territory, covenant not to compete, right of first refusal, option or
other arrangement (collectively, the "TERRITORIAL RIGHTS") with the Company or
the Subsidiary pursuant to which (i) the Company or the Subsidiary is restricted
in any way in its right to own or operate, or license others to own or operate,
any business or line of business; or (ii) the Franchisee or Licensee is granted
rights for the acquisition of additional Franchises or expansion of the
Franchisee's or Licensee's territory. Except as described in the Disclosure
Schedule, no Franchisee's or Licensee's Territorial Rights conflict with the
Territorial Rights of any other Franchisee or Licensee. Except as set forth on
the Disclosure Schedule, to the extent the Company or the Subsidiary granted any
such Territorial Rights (whether disclosed or required to be disclosed herein),
the Company and the Subsidiary have not violated the Territorial Rights of any
Franchisee or Licensee. Except as set forth on the Disclosure Schedule, neither
the Company nor the Subsidiary has any written policies or procedures which in
any way restrict or limit the Company's or Subsidiary's right to own or operate,
or license others to own or operate, any business in any geographic location,
including but not limited to, locations in close proximity to existing
Franchised Bakeries or SBC International Cafes, wherever located.
(g) Except as set forth in the Disclosure Schedule, and
excluding entertainment by vendors/suppliers in the ordinary course of business,
since September 1, 1999 with respect to the CI Division and since July 14, 2003
with respect to the SBC Division, neither the Company nor the Subsidiary has
entered into any contracts, agreements or arrangements, orally or in writing,
whereby the Company or the Subsidiary receives rebates, commissions, marketing
and advertising allowances, discounts or other payments or remuneration of any
kind (collectively, "Rebates") from vendors, suppliers, contractors or other
Persons (collectively, "Suppliers") due to purchases by Franchisees of products
or services or due to purchases by the Company or the Subsidiary for
Company-Owned Bakeries or relating to the sale of the Suppliers' products or
services to Franchisees. The Disclosure Schedule sets forth each material
complaint or claim received by the Company or the Subsidiary by a current or
past (subsequent to September 1, 1999) Franchisee or Licensee regarding the
Company's or the Subsidiary's receipt or application of Rebates from Suppliers
since September 1, 1999 with respect to the CI Division and since July 14, 2003
with respect to the SBC Division.
(h) Except as set forth in the Disclosure Schedule,
neither the execution of this Agreement nor the consummation of the Transactions
would result in a violation of or a default under, or give rise to a right of
termination, modification, cancellation, rescission or acceleration of any
obligation or loss of material benefits to the Company or Subsidiary under, the
terms of any Franchise Agreement or any license or manufacturing agreement
disclosed on the Disclosure Schedule, which violation, default, termination,
modification, cancellation, rescission or acceleration would have a Company
Material Adverse Effect. No
- 36 -
Franchise Agreement requires the consent or approval of a Franchisee or Licensee
in connection with the consummation of the Transactions.
(i) Except as set forth on the Disclosure Schedule, the
Company and the Subsidiary have not made to any Franchisee or Licensee, or any
of its Franchisee's or Licensee's employees or agents, any commitment, promise
or pledge (whether oral or in writing) to provide any special discount,
allowance or accommodation (other than as set forth in the respective UFOCs and
Franchise Agreements) which individually or collectively could have a Company
Material Adverse Effect. There are no material agreements or special
arrangements with any Franchisee or Licensee other than as set forth in the
respective UFOCs and Franchise Agreements. Except as set forth on the Disclosure
Schedule, the Company and the Subsidiary have not made any commitment, promise
or pledge (whether oral or in writing) to share with Franchisees and Licensees
(i) any portion of the revenue AFC, the Company or the Subsidiary received, or
to be received, from licensees under those license and manufacturing agreements
which are listed on the Disclosure Schedule, (ii) any Rebates received, or to be
received, by AFC, the Company or the Subsidiary from Suppliers, or (iii) any
revenues received, or to be received, by AFC, the Company or the Subsidiary from
third parties who sell or distribute specialty baked goods bearing the xxxx
"Cinnabon" or other trademarks, service marks or logotypes which are part of the
Company Intellectual Property or the SBC Licensed Intellectual Property. Except
as provided in the SBC License and as set forth in the Disclosure Schedule,
neither the Company nor the Subsidiary has made any commitment, promise or
pledge (whether oral or in writing) to refrain from licensing, selling, or
otherwise distributing any product or service bearing the Company Intellectual
Property or the SBC Licensed Intellectual Property, or any Intellectual Property
licensed by the Company or the Subsidiary, through any distribution channel or
in any geographic territory except as expressly set forth in its and their
respective Franchise Agreements.
(j) Except as specified on the Disclosure Schedule, to
AFC's knowledge, neither the Company nor the Subsidiary has waived enforcement
of any noncompete restriction under a Franchise Agreement which would otherwise
be in effect as of the date of this Agreement or become effective in the future,
and to AFC's knowledge, no current or former Franchisee or Licensee is currently
in violation of any noncompete covenant.
(k) Except as set forth in the Disclosure Schedule, no
event has occurred which (with notice, or lapse of time, or both) would
constitute a material default by the Company or the Subsidiary under any
Franchise Agreement which would permit any Franchisee to terminate its Franchise
Agreement, or that would otherwise, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Since September 1, 2003,
except as set forth in the Settlement Agreements included in the definition of
Excluded Liabilities, neither the Company nor the Subsidiary has waived any
default by a Franchisee under a Franchise Agreement which would reasonably be
expected to have a Company Material Adverse Effect. The Company and the
Subsidiary have not, since September 1, 2001, violated any Franchise Regulation
in connection with the issuance of a notice of default or termination of any
Franchise Agreement that could reasonably be expected to have a Company Material
Adverse Effect.
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3.25 ADVERTISING FUNDS.
(a) The Disclosure Schedule sets forth each material
written complaint or claim received by the Company or the Subsidiary by a
current or past (subsequent to September 1, 2001) Franchisee or Licensee
regarding the Company's or Subsidiary's use or administration of the CI Ad Fund
and the SBC International Ad Fund (as such terms are defined below).
(b) The Disclosure Schedule sets forth a true and
complete list of:
(i) with respect to the advertising fund for the
CI System (the "CI AD FUND"):
(A) the asset or liability amount
constituting the CI Ad Fund as of
June 13, 2004;
(B) the aggregate of all Rebates
received by the Company or the
Subsidiary from Suppliers since
January 1, 2001, that were
contributed to the CI Ad Fund by
the Company or the Subsidiary as
June 13, 2004; and
(C) a true and complete list of the
total amounts paid to the Company
or the Subsidiary for contribution
to the CI Ad Fund by each owner of
a Franchised Bakery for the 12
month period ending June 13, 2004;
(ii) with respect to the advertising fund for the
SBC Division (the "SBC INTERNATIONAL AD FUND"):
(A) the asset or liability amount
constituting the SBC International
Ad Fund as of June 13, 2004;
(B) the aggregate of all Rebates
received by the Company or the
Subsidiary from Suppliers since
July 14, 2003, that were
contributed to the SBC
International Ad Fund by the
Company or the Subsidiary as of
June 13, 2004; and
(C) a true and complete list of the
total amounts paid to the Company
or the Subsidiary for contribution
to the SBC International Ad Fund by
each owner of an SBC International
Cafe for the period commencing July
14, 2003 and ending June 13, 2004.
(c) Except as set forth on the Disclosure Schedule, to
AFC's knowledge, at all times during the Company's and the Subsidiary's
operation of the CI Ad Fund and the
- 38 -
SBC International Ad Fund, the Company's and the Subsidiary's use or
administration of contributions and fees made under the Franchise Agreements has
complied with all Franchise Agreement covenants or other agreements made by the
Company and the Subsidiary with respect to its and/or their use of such
contributions and fees, conform with any UFOC descriptions of such activities in
all material respects, and to AFC's knowledge, does not violate any Franchise
Regulation.
3.26 FRANCHISE REGISTRATION/UFOC.
(a) Except as noted on the Disclosure Schedule, the
Company has made available to Buyer, or provided the Buyer with a copy of, all
documents that are currently within the Company's or the Subsidiary's possession
or control, within each of the following categories:
(i) each letter or other correspondence from
franchise examiners or similar state or federal employees
received by the Company or the Subsidiary since September 1,
1999 relating to Franchise Agreements for the CI System;
(ii) each letter or other correspondence from
franchise examiners or similar state or federal employees
received by the Company or the Subsidiary since September 1,
1999 relating to franchise registration status of the Company
or the Subsidiary in that jurisdiction with respect to the
sale of Franchises for Franchised Bakeries;
(iii) each letter or other correspondence from
franchise examiners or similar state or federal employees
received by the Company or the Subsidiary since September 1,
1999 relating to the Company or the Subsidiary's exemption
from the registration provisions of such jurisdiction's
franchise registration law with respect to the sale of
Franchises for Franchised Bakeries;
(iv) each UFOC provided to a Franchisee or
Licensee or registered with any foreign or domestic
jurisdiction since January 1, 1999 with respect to the offer
or sale of Franchises for Franchised Bakeries or since July
14, 2003 with respect to the offer or sale of Franchises for
SBC International Cafes; and
(v) each acknowledgment of receipt of a UFOC
since January 1, 1999 that relates to a Franchise Agreement
with respect to the offer or sale of Franchises for Franchised
Bakeries or since July 14, 2003 with respect to the offer or
sale of Franchises for SBC International Cafes.
(b) The Disclosure Schedule sets forth a complete list of
the domestic and foreign jurisdictions in which the Company or the Subsidiary's
franchise offering of Franchised Bakeries or SBC International Cafes currently
is registered.
- 39 -
(c) Except as set forth on the Disclosure Schedule and
the Settlement Agreements included in the definition of Excluded Liabilities:
(i) since September 1, 1999, the Company and the
Subsidiary have prepared and maintained each of its and their
UFOCs in accordance with applicable law, have filed UFOCs in
all foreign and domestic jurisdictions requiring registration
and approval prior to any offers or sales of Franchises in
such jurisdictions, and have filed all material changes,
amendments, and renewals thereto on a timely basis as required
by applicable law (except for failures to file during periods
in which no Franchises were sold by the Company or the
Subsidiary in the applicable jurisdiction). The UFOCs were
prepared in all material respects in compliance with
applicable Franchise Regulations, and to AFC's knowledge,
there were no material misrepresentations or material
omissions of information in any UFOC at the time the Company
or the Subsidiary was using such UFOC;
(ii) each Franchise Agreement complies in all
material respects, and since September 1, 1999, the offer or
sale of Franchises complied in all material respects at the
time such offer or sale was made, with all Franchise
Regulations;
(iii) no provision regarding the calculation and
payment of royalty fees in any Franchise Agreement has been
waived, altered, subordinated or modified in any way which
could have a Company Material Adverse Effect, and since
September 1, 1999, no right of rescission, set-off,
counterclaim or defense has been asserted in a written notice
received by the Company or the Subsidiary with respect to any
Franchise Agreement which could have a Company Material
Adverse Effect, nor to AFC's knowledge is any such assertion
threatened;
(iv) to AFC's knowledge, no independent
franchisee organization exists which holds itself out as a
representative of the Franchisees;
(v) since September 1, 1999, no orders, consents
or decrees (other than routine comment letters from
regulators, orders approving registrations, renewals of
registrations or registration exemptions) have been issued by
any Governmental Authority to the Company or the Subsidiary
nor, to AFC's knowledge, have letters of inquiry,
investigations or the like been issued to the Company or the
Subsidiary by such Governmental Authority or undertaken by
such Governmental Authority with respect to the Company or the
Subsidiary, relating, directly or indirectly, to the Company's
or the Subsidiary's offer and sale of Franchises;
(vi) Company and the Subsidiary have made
available to Buyer correct and complete copies of all
registrations, material advertising or
- 40 -
promotional materials, UFOCs, disclosure documents or
agreements (A) filed since September 1, 1999 with any
Governmental Authority and currently in the possession or
control of the Company or the Subsidiary or its affiliates or
(B) otherwise used by the Company or the Subsidiary in
connection with the offer, sale and operation of Franchises in
any jurisdiction (domestic or foreign) and currently in
possession or control of the Company or the Subsidiary or its
affiliates;
(vii) there is no action, proceeding, or
investigation pending, or to AFC's knowledge, threatened
against or involving the Company or the Subsidiary with
respect to any of its domestic or foreign Franchises, and to
AFC's knowledge, there is no basis for any such action,
proceeding or investigation except for actions, Proceedings or
investigations that could not, in any individual case or in
the aggregate, reasonably be expected to have a Company
Material Adverse Effect;
(viii) the Company and the Subsidiary has provided
or upon request will provide to Buyer full access to all its
files relating to current and former Franchisees and
Licensees.
3.27 SBC LICENSE.
(a) The SBC License is in full force and effect and there
are no existing defaults or events of default on the part of the Company or the
Subsidiary under the SBC License Agreement or events which with notice or lapse
of time or both would constitute defaults, the consequences of which, severally
or in the aggregate, would have a Company Material Adverse Effect.
(b) As of the date of this Agreement, the Master Licensor
has not exercised its call option under the SBC License (the "CALL OPTION"). No
representation or warranty is made as to whether the Master Licensor shall
exercise the Call Option prior to the Closing Date and no such exercise shall
constitute a failure of AFC to satisfy any of its conditions to Closing or
require an adjustment to the Purchase Price; provided, however, that if the Call
Option is exercised and closed prior to Closing, the sales proceeds, net of
out-of-pocket closing costs actually paid to unaffiliated third parties in
connection with the closing of such transaction, shall be retained by the
Subsidiary.
(c) The Company has provided the Buyer with a copy of all
written notices that the Subsidiary has sent to, or received from, the Master
Licensor pursuant to the SBC License.
3.28 EMPLOYEES.
(a) Attached to the Disclosure Schedule is a list of (i)
all employees (part-time and full-time) of the Company and the Subsidiary who
currently have annualized compensation of greater than $75,000; (ii) the rate of
compensation payable to each such
- 41 -
employee; and (iii) the accrued vacation pay and other benefits payable by the
Company or the Subsidiary to each employee listed thereon. Except as set forth
on the Disclosure Schedule, since June 13, 2004, neither the Company nor any
Subsidiary has made any promise or commitment, whether oral or in writing, to
increase any employee's compensation (other than in connection with regular
salary reviews), xxxxx xxxxxxxxx pay or grant any bonus to any employee. Except
as otherwise described in the Disclosure Schedule, the employment of each
employee or independent contractors of Company or Subsidiary is terminable at
will and neither the Company nor any Subsidiary is a party to or has any
obligations under any agreement, collective bargaining or otherwise, with any
party regarding the rates of pay or working conditions of any of its employees.
Except as disclosed on the Disclosure Schedule and any accrued amounts not yet
due and payable, Company will not owe any amounts to any of its employees or
independent contractor as of the Closing Date, including, without limitation,
any amounts incurred for wages, commissions, bonuses, vacation pay, sick leave
or severance obligations.
(b) The Company and the Subsidiary have complied with all
applicable Regulations concerning the employer/employee relationship and with
all of their respective agreements relating to the employment of their
employees, including without limitation, all applicable federal, state, local
and foreign laws, and regulations pertaining to wage and hour obligations, fair
employment laws, health and safety laws, plant closing and mass layoff laws,
workers' compensation laws, unemployment laws and Social Security laws, except
where the failure so to comply would not have a material adverse effect on the
Business Condition. Except as disclosed on the Disclosure Schedule and such
amounts owing for the current pay period in the Ordinary Course of Business,
neither the Company nor the Subsidiary is liable for any unpaid wages, bonuses
or commissions, or any tax, penalty, assessment or forfeiture, for failure to
comply with any of the foregoing. Except as shown on either Attachment 1 or
Attachment 2 to Appendix A hereto, no payments in the nature of severance
payments, stay bonuses, change in control payments, transition bonuses,
transition payments, outplacement payments or other like or similar payments are
payable to any employee of the Company or the Subsidiary or will become due as a
result of the consummation of the transactions provided for herein.
(c) The Company and the Subsidiary have complied, in all
material respects, with and met all obligations under the Worker Adjustment and
Retraining Notification Act (and all related state and local statutes and
ordinances) and warrant that they have not effectuated any "plant closing" or
"mass layoff" affecting any site of employment at any time in the last three (3)
years.
(d) The Company and the Subsidiary are in compliance in
all material respects with, and have not violated the terms and provisions of,
the Immigration Reform and Control Act of 1986 (including all related
regulations promulgated thereunder) ("IMMIGRATION LAWS") in any material
respect, and except as set forth in the Disclosure Schedule, to AFC's knowledge,
have not been the subject of any inspection or investigation relating to their
compliance with or violation of the Immigration Laws.
- 42 -
3.29 PRODUCTS LIABILITY AND WARRANTIES. There are no product
liability, warranty claims or other claims existing or, to the knowledge of AFC,
threatened in writing against the Company or the Subsidiary which relate to the
products or services sold or distributed by the Company, the Subsidiary or any
Franchisee.
3.30 SUPPLIERS. The Disclosure Schedule sets forth a true, correct
and complete list of the ten (10) largest Suppliers to the Subsidiary (based on
purchases from January 1, 2004, through June 13, 2004), together with the volume
of the purchases made from such Suppliers during such period. Except as set
forth on the Disclosure Schedule, no Supplier is a sole source of supply of any
good or service used by the Company or the Subsidiary. None of the Suppliers has
canceled or otherwise terminated, or threatened in writing to cancel or
otherwise terminate its relationship with the Company or the Subsidiary. No
Supplier has notified the Company or the Subsidiary of its intention to decrease
or materially limit the services, supplies or materials sold or furnished to the
Company or the Subsidiary where such action would have a material adverse effect
on the Business Condition.
3.31 NO FINDER'S FEE. Except for Bear, Xxxxxxx & Co. Inc., the fee
and expenses of which shall be paid by AFC, no person, corporation, partnership
or firm is entitled to receive from the Company or the Subsidiary any commission
or finder's or similar fee in connection with the Transactions.
3.32 ACCOUNTS PAYABLE. Except as set forth on the Disclosure
Schedule or those being contested by AFC in good faith, all accounts payable of
each of the Company and the Subsidiary are currently within their respective
terms or understandings in all material respects and are not in default or
otherwise materially past due.
3.33 MATERIALITY. When used herein, qualifications as to material
adverse effect and materiality shall be read and interpreted so as to require
that all the breaches of representations and warranties contained herein,
determined as if such qualifications did not exist, shall not, taken as a whole,
result in a Company Material Adverse Effect.
3.34 DISCLOSURE. The information contained in this Agreement and
the Schedules and Exhibits hereto, taken as a whole, does not contain any
material misstatement or omit to state any material information necessary to
make the statements contained herein, in light of the circumstances under which
they were made, true in all material respects. Notwithstanding the foregoing,
the Company shall not be deemed to have violated this Section by virtue of
having failed to disclose facts or developments relating to the economy in
general.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
The Buyer represents and warrants to AFC that the statements set forth
in this Section 4 are true and correct as of the date hereof, except as
otherwise provided in this Agreement.
4.1 CORPORATE. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it was
incorporated.
- 43 -
4.2 AUTHORIZATION. The Buyer has the corporate power and authority
to execute, deliver and perform this Agreement and to perform the Transactions
to be performed by it. Such execution, delivery and performance have been duly
authorized and approved by all necessary corporate action, including approval by
the Stockholders and Board of Directors of the Buyer. This Agreement constitutes
the valid and binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms.
4.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the execution
and delivery by the Buyer of this Agreement, nor the performance of the
Transactions to be performed by it will violate, require any filing, consent or
approval under or be in conflict with (with or without the giving of notice, or
lapse of time, or both) (i) any Regulation or Court Order that is applicable to
the Buyer, (ii) the Certificate of Incorporation or Bylaws of the Buyer or (iii)
any material Contract or other material document to which the Buyer is a party
or by which any of its properties or other assets may be subject.
4.4 NO FINDER'S FEE. No person, corporation, partnership or firm
retained by the Buyer is entitled to any commission or finder's or similar fee
payable by either the Company or the Subsidiary in connection with the
Transactions.
4.5 AVAILABLE FUNDS. The Buyer has sufficient funds available to
it to fund the Purchase Price and to fund all other payments, fees and expenses
of the Buyer associated with or contemplated by this Agreement and Transactions.
5. COVENANTS OF AFC.
5.1 INTERIM CONDUCT OF BUSINESS. From the date hereof until the
Effective Time, AFC shall use commercially reasonable effort to cause the
Company and the Subsidiary to (i) operate their respective businesses as a going
concern consistent with prior practice and in the Ordinary Course of Business
and (ii) use their reasonable best efforts to preserve intact their respective
business organizations and relationships with third parties and to keep
available the services of their respective key employees, subject to the terms
of this Agreement. Without limiting the generality of the foregoing, from the
date hereof until the Effective Time, except as may be contemplated pursuant to
this Agreement or as expressly approved in writing by the Buyer (which approval
shall not be unreasonably withheld or delayed), neither the Company nor the
Subsidiary shall:
(i) Enter into or amend any employment, bonus, severance
or retirement contract or arrangement, or increase any salary or other
form of compensation payable or to become payable to any of its
executives, stockholders, affiliates, directors or employees, enter
into or amend any contract or arrangement of any affiliates, directors
or employees nor pay any special bonus to its executives, stockholders,
affiliates, directors or employees except for payments under those
contracts and arrangements disclosed in the Disclosure Schedule;
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(ii) Purchase, lease or otherwise acquire any real estate
or any personal property (excluding inventory not in excess of normal
requirements and equipment purchased or leased in the Ordinary Course
of Business);
(iii) Merge or consolidate with or agree to merge or
consolidate with, nor purchase or agree to purchase all or
substantially all of the assets of, nor otherwise acquire any
corporation, partnership, or other business organization;
(iv) Sell, lease, license or otherwise dispose of or agree
to sell, lease, license or otherwise dispose of any of its assets,
properties, rights or claims, except for fair consideration and in the
Ordinary Course of Business and except for Company-Owned Bakery
closings which were negotiated prior to the date of this Agreement and
those planned Company-Owned Bakery closings which are currently being
negotiated, all of which are set forth on Section 5.1(iv) of the
Disclosure Schedule;
(v) Authorize for issuance, issue, sell or deliver any
additional shares of its capital stock or any securities or obligations
convertible into shares of its capital stock or issue or grant any
option, warrant or other right to purchase any shares of its capital
stock;
(vi) Split, combine or reclassify any shares of its
capital stock of any class or redeem, repurchase or otherwise acquire,
directly or indirectly any shares of its capital stock;
(vii) Incur any liability, guaranty or obligation (fixed or
contingent) other than in the Ordinary Course of Business;
(viii) Mortgage, pledge or subject to lien or security
interest any of its assets or properties, other than statutory liens
arising in the Ordinary Course of Business;
(ix) Make or propose any amendments to its Certificate of
Incorporation or Bylaws;
(x) Accelerate receivables, delay payables, liquidate
inventory or enter into any other material transaction;
(xi) Settle any audit, make or change any election, change
an annual accounting period, adopt or change any accounting method,
file any amended Tax Return, enter into any closing agreement, settle
any Tax claim or assessment relating to the Company or the Subsidiary,
surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax
claim or assessment relating to the Company or the Subsidiary, or take
any similar action relating to the filing of any Tax Return or the
payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action would have
the effect of materially increasing the Tax Liability of the
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Company or the Subsidiary for any period ending after the Closing Date
or materially decreasing any Tax attribute of the Company or the
Subsidiary existing on the Closing Date;
(xii) Fail to maintain insurance on the Assets and with
respect to the conduct of the Business in at least such amounts and of
such kinds as are currently maintained;
(xiii) Modify or amend in any material respect, cancel,
terminate or renew any existing lease agreement, except for negotiated
Company-Owned Bakery closings set forth on Section 5.1(xiii) of the
Disclosure Schedule; provided however, that the Subsidiary may renew
existing leases nearing termination if it in its sole discretion, after
consultation with the Buyer, deems appropriate;
(xiv) Modify, amend, cancel or terminate any existing
agreement or arrangement relating to the Business involving any
obligation with a value in excess of $10,000 and not otherwise
expressly provided for in this Section 5.1, except in the Ordinary
Course of Business and not enter into any transaction involving the
exchange of ownership of any Franchised Bakeries operated by
franchisees for retail units currently operated by any other entity or
under any other name;
(xv) Fail to promptly notify Buyer in writing of any
material judgments, orders or decrees entered or any material suits,
actions, claims, administrative proceedings or labor negotiations
instituted, threatened or asserted by or against the Company or the
Subsidiary, after the date of this Agreement and prior to the Effective
Time;
(xvi) Fail to timely advise Buyer in writing of any Company
Material Adverse Change;
(xvii) Enter into any contract relating to the Business
extending beyond the date of the Closing (other than negotiated
Company-Owned Bakery closings or Company-Owned Bakery remodel contracts
set forth on the Disclosure Schedule, as updated pursuant to Section
5.5 hereof) with either (i) a value in excess of $10,000 or (ii) which
cannot be terminated by the Company or the Subsidiary without cost or
penalty upon no more than 30 days written notice, including, without
limitation, franchise agreements and development agreements;
(xviii) Fail to maintain, at their sole expense, all of their
property in customary repair, order and condition, reasonable wear and
use and damage by fire or unavoidable casualty excepted;
(xix) Fail to comply in all material respects with all
Regulations applicable to the Business;
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(xx) Abandon any part of its business or authorize,
recommend, propose, or agree to do any of the foregoing; and
(xxi) Amend, cancel or terminate, or give notice of a
proposed amendment, cancellation or termination of, any Franchise
Agreement other than those listed on Schedule 5.1(xxi) of the
Disclosure Schedule. This provision does not prohibit the Subsidiary
from giving notice of default to Franchisees or terminating Franchisees
where an event of default allows for a termination under the Franchise
Agreement, provided the Subsidiary acts in good faith and in accordance
with past practices, and provides notice to the Buyer.
5.2 FULFILLMENT OF CONDITIONS. At and prior to the Closing, AFC
shall use commercially reasonable efforts to fulfill the conditions specified in
Section 7 to the extent that the fulfillment of such conditions is within AFC's
control. The foregoing obligation includes the use of commercially reasonable
efforts to assure the accuracy of its representations and warranties as of the
Closing, the execution and delivery of the documents referred to in Section 7
and the use of commercially reasonable efforts to prepare all necessary
documentation and to obtain all necessary approvals, waivers and consents.
5.3 NO SOLICITATION. During the continuance of this Agreement, AFC
shall deal exclusively with the Buyer in connection with the subject matter
hereof. During the continuance of this Agreement, AFC will not, directly or
indirectly (through any officer, director, shareholder, employee or agent) or
otherwise, solicit, initiate or encourage any proposal from any third party to
merge or combine with, or purchase or acquire all or substantially all of the
assets or equity securities of, the Company or the Subsidiary (each, an
"ALTERNATIVE TRANSACTION") or enter into or engage in any negotiations or
discussions with, or provide any information to, any third party relating to an
Alternative Transaction. AFC will suspend any discussions involving an
Alternative Transaction existing as of the date of this Agreement and
communicate to the Buyer the terms of, and the identity of any party making, any
inquiry, proposal, offer or contact with respect to an Alternative Transaction
promptly upon obtaining knowledge of such inquiry, proposal, offer or contact.
5.4 ACCESS TO INFORMATION. From the date hereof to the Effective
Time, AFC shall give the Buyer, its counsel, financial advisors and sources,
auditors and other authorized representatives reasonable access to the offices,
properties, books and records of the Company and the Subsidiary, furnish to the
Buyer, its counsel, financial advisors and sources, auditors and other
authorized representatives such financial and operating data and other
information as such persons may reasonably request, and instruct its employees,
counsel and financial advisors to cooperate fully with the Buyer in its
investigation of the businesses of the Company and the Subsidiary; provided that
no investigation pursuant to this Section or conducted by or on behalf of the
Buyer prior to the date hereof shall affect the ability of the Buyer to rely on
any representation or warranty given by the Company to such party hereunder, it
being understood that Buyer has specifically bargained for the truth and
accuracy of each such representation and warranty. The Buyer and each of its
representatives agree to treat any information obtained in connection with their
investigation hereunder as confidential information subject to the terms of the
Confidentiality Agreement.
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5.5 DISCLOSURE SUPPLEMENTS.
(a) Contemporaneously with the execution and delivery of
this Agreement, AFC has delivered to Buyer the Disclosure Schedule. The
Disclosure Schedule is deemed to constitute an integral part of this Agreement
and to modify the representations, warranties, covenants or agreements of AFC
contained in this Agreement. The inclusion of any item on the Disclosure
Schedule shall constitute disclosure for all purposes under this Agreement, and
shall not be construed as an indication of the materiality or lack of
materiality of such item. Each of the Schedules to this Agreement (or any
Section of the Disclosure Schedule) shall be deemed to apply only to the
specific section of this Agreement referenced in such Schedule (or Section of
the Disclosure Schedule); provided, however, that a matter disclosed with
respect to one section of this Agreement shall be deemed to have been disclosed
for the purposes of any other section of this Agreement if, but only to the
extent that, the relevance or applicability to such other section is manifestly
apparent based on the content of the Schedule.
(b) Prior to the Closing Date, AFC will be obligated to
update and supplement the Disclosure Schedule from time to time by written
notice to Buyer (including adding a new schedule to serve as an exception to a
representation and warranty that does not now have a schedule exception) in
order to cause the Disclosure Schedule to remain correct and complete in all
material respects. AFC's delivery to Buyer of corrections and supplements to the
Disclosure Schedule will be an amendment to the Disclosure Schedule delivered
with and a part of this Agreement unless Buyer, within ten (10) business days
after the delivery of any correction or supplement to the Disclosure Schedule,
notifies AFC in writing (a "REJECTION NOTICE") that Buyer believes that either
(i) the information set forth in such correction or supplement reflects a matter
that constitutes a Company Material Adverse Effect, or (ii) the aggregation of
all such corrections and supplements, including those previously made, reflect
matters that constitute a Company Material Adverse Effect when taken in their
entirety (clauses (i) and (ii) are collectively referred to as the "Criteria").
If Buyer shall not send a Rejection Notice to AFC within such ten (10) business
day period, such supplement to the Disclosure Schedule shall be effective as of
the date hereof. If Buyer shall deliver a Rejection Notice and AFC does not
provide Buyer with notice (an "OBJECTION NOTICE") of its disagreement with
Buyer's determination within five (5) business days following receipt of the
Rejection Notice, Buyer may terminate this Agreement pursuant to Section 9.1(e)
hereof by written notice to AFC given within five (5) business days after the
expiration of such five (5) business day period in which case AFC and Buyer
shall be released from all obligations and liability hereunder. If AFC delivers
an Objection Notice within such five (5) business days, the provisions of
subsection (c) below shall control.
(c) If AFC delivers an Objection Notice within such five
(5) business days, with respect to any proposed correction or supplement to the
Disclosure Schedule (the "Proposed Modification") the disagreement shall be
submitted for resolution to a neutral and impartial lawyer (the "Arbitrator")
with excellent academic and professional credentials who has been actively
engaged in the practice of mergers and acquisitions as a partner in a highly
respected law firm during the ten (10) year period ending on the date of the
Objection
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Notice. The Arbitrator shall be selected by the mutual agreement of AFC and
Buyer. If AFC and Buyer cannot agree on a mutually acceptable Arbitrator within
three (3) days after AFC's delivery of the Objection Notice (the "Objection
Notice Delivery Date"), then AFC and Buyer shall each select an Arbitrator who
meets the foregoing criteria within five (5) days after AFC's delivery of the
Objection Notice and such Arbitrators so selected shall jointly determine
whether the any Criteria has been satisfied. In the event the two Arbitrators so
designated are unable to agree upon whether any Criteria has been satisfied
within ten (10) days following the Objection Notice Delivery Date, they shall
jointly designate a third Arbitrator and such third Arbitrator, together with
the first two Arbitrators, shall by majority vote determine whether any Criteria
has been satisfied, which determination shall be final and binding on all
parties. If the Arbitrator or Arbitrators determine that any Criteria has been
satisfied, then Buyer shall have the right to terminate this Agreement pursuant
to Section 9.1(e) hereof by written notice to AFC given within five (5) business
days after the determination of the Arbitrator(s), in which case AFC and Buyer
shall be released from all obligations and liability hereunder. If Buyer fails
to give such termination notice within such five day period or if the
Arbitrator(s) determine that none of the Criteria have been satisfied, such
supplement to the Disclosure Schedule shall be effective as of the date hereof.
If AFC and Buyer agree upon one Arbitrator, then the fees and expenses of the
Arbitrator shall be shared equally by the parties. If AFC and the Buyer are
unable to agree upon one Arbitrator, then each shall pay the fees and expenses
of the Arbitrator selected by it; and if a third Arbitrator is selected, the
fees and expenses of such third Arbitrator shall be shared equally by AFC and
Buyer.
5.6 AGREEMENT WITH SUPPLY MANAGEMENT SERVICES, INC. The parties
acknowledge that the Subsidiary and certain Franchisees of the CI System are
members of Supply Management Services, Inc., a Georgia nonprofit corporation
("SMS") which negotiates purchases, arranges distribution services and performs
related services for Company-Owned Bakeries and Franchised Bakeries, as well as
certain other brands affiliated with AFC. Following the execution of this
Agreement, AFC and the Buyer shall negotiate in good faith the terms of an
agreement (the "SMS AGREEMENT") mutually acceptable to the Subsidiary and SMS
with respect to the Subsidiary's and the Franchisees' purchase of products and
receipt of services from and through SMS following Closing. The SMS Agreement
will set forth the right of the Subsidiary and the Franchisees of the Subsidiary
to purchase products and obtain services from and through SMS; provided,
however, that neither the Subsidiary nor the Franchisees shall have any
obligation to purchase any products or services from or through SMS, except for
those purchases for which they have made commitments or placed orders. Further,
the SMS Agreement will restrict the right of SMS to impose any fees,
assessments, distribution costs, surcharges on purchases from or through SMS, or
other charges on the Subsidiary or such Franchisees, as otherwise permitted by
the governing documents of SMS, without the prior consent of the Subsidiary and
such Franchisees, except to the extent such fees, assessments, distribution
costs, surcharges on purchases from or through SMS, or other charges are
uniformly imposed on all members of SMS.
5.7 LANDLORD CONSENTS AND ESTOPPEL LETTERS. Both prior to and
after Closing, AFC shall use its commercially reasonable efforts to obtain (a)
all consents from the
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landlords under leases for Premises where such leases require such consent to
the transactions provided for herein, and (b) estoppel letters from landlords
under all leases for Premises. All such consents and estoppels shall be in
writing and in form and substance reasonably satisfactory to Buyer and its
counsel, and executed counterparts thereof will be delivered to Buyer promptly
after receipt thereof. If any such consent shall not be obtained prior to
Closing or if the consummation of the Transactions would impair the Company's or
the Subsidiary's rights under the lease in question so that Company or the
Subsidiary would not in effect acquire the benefit of all such rights, AFC, to
the maximum extent permitted by law and the terms of the relevant lease, shall
act after the Closing as Buyer's agent in order to obtain for the Company or the
Subsidiary the benefits thereunder, and AFC shall cooperate, to the maximum
extent permitted by law and the specific relevant lease with Buyer, in any other
reasonable arrangement designed to provide such benefits to Buyer, including any
sublease or subcontract or similar arrangement.
5.8 TRANSITION SERVICES AGREEMENTS. AFC shall use its commercially
reasonable efforts to cause each of IBM, Deloitte & Touche, Ceridian, Netifice,
and Xxxxxx to either directly or through AFC enter into agreements (each a
"TRANSITION SERVICES AGREEMENT") pursuant to which each of such parties agrees
to provide to the Company and the Subsidiary, for a period of not less than six
(6) months following the Closing Date, services and products substantially
identical to the services and products respectively provided by such entity to
the Company and the Subsidiary under agreements existing on the date hereof
between such party and AFC, on terms and conditions no less favorable to the
Company and the Subsidiary than those prevailing on the date hereof under such
existing agreements; provided; however, that the Company and the Subsidiary
shall be entitled to terminate the provision of any such service or product upon
thirty (30) days notice (or such longer notice period as may be negotiated
between the Company and the Subsidiary and such service provider in connection
with the election by the Company and Subsidiary to receive services) at no
penalty or premium to the Company or the Subsidiary. AFC and Buyer agree to
negotiate the terms of the Transition Services Agreements in good faith.
Furthermore, AFC shall exert commercially reasonable efforts to facilitate the
conversion of IT services to the Company and the Subsidiary during the
Transition Services Agreement time frame. This shall include, but not be limited
to, reasonable access to AFC technology and business staff by the Company and
the Subsidiary for purposes of data gathering and consultation, as well as
reasonable efforts in designing, creating and implementing such programs or
systems changes that are needed to convert relevant AFC systems to the Company
and the Subsidiary.
5.9 SUBLEASE AGREEMENT. After the execution of this Agreement, AFC
and Buyer shall negotiate in good faith the terms of a sublease (the "SUBLEASE")
mutually acceptable to AFC and Buyer whereby Buyer shall sublease from AFC a
portion of the real property leased by AFC at Building 2241, Xxxxx 0, Xxxxxxxxx
Xxxxx Xxxxxx Xxxx, Xxxxxxx, Xxxxxxx 00000 (the "R&D FACILITY"). The Sublease
shall provide for the payment by Buyer of the Applicable Percentage (determined
as hereinafter provided) of all rent, common area charges and other amounts
payable by AFC pursuant to the master lease for the R&D Facility and shall
contain such other terms and conditions as are customarily included in
subleases. The "APPLICABLE PERCENTAGE" shall be determined by dividing (a) the
sum of the number of square feet at the R&D Facility subleased by the Buyer for
its exclusive use pursuant to the Sublease, plus
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50% of the number of square feet in the portion of the R&D Facility to be shared
by AFC and Buyer pursuant to the Sublease, by (b) the total number of square
feet leased by AFC pursuant to the master lease for the R&D Facility. On or
before Closing, AFC shall transfer to the Subsidiary, all of the furniture and
equipment owned by AFC; located at the R&D Facility and at AFC's headquarters on
the sixteenth floor, Xxx Xxxxxxxxx Xxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxx 00000;
and used primarily in the Business, which furniture and equipment shall include,
without limitation, the items listed on SCHEDULE 5.9 attached hereto.
5.10 CALL OPTION. If, prior to the Closing Date, the Master
Licensor under the SBC License exercises and thereafter consummates its Call
Option, AFC shall cause all proceeds paid by the Master Licensor in respect of
the exercise of the Call Option (net of out-of-pocket closing costs actually
paid to unaffiliated third parties in connection with the closing of such
transaction) to be paid to and retained by the Company, and shall not, without
the prior consent of Buyer, cause, permit or allow the Company to use any such
net proceeds for the operation of the Business or the payment of any creditor of
the Company or AFC or any member of the AFC Affiliated Group. Exhibit 2.8 hereto
shall be deemed amended to add the amount of such proceeds to the amount
reflected thereon.
5.11 BONUS PAYMENTS. Immediately prior to the Effective Time, AFC
shall cause the Subsidiary to pay all bonus amounts payable to employees of the
Business under the terms and conditions of the 2004 Short Term Incentive Plans
of AFC that have been accrued, or are required to be accrued by GAAP, as of the
Effective Time.
5.12 LICENSE. At the Closing, AFC shall grant to the Buyer or its
designee a perpetual, unlimited, royalty-free, license to "AFC specific systems
and enhancements" solely for internal uses in the conduct of the Business. Such
license shall be transferable only to a purchaser of substantially all of the
assets of the Business. As used herein, "AFC specific systems and enhancements"
shall mean all software and computer programs (including all source code, object
code, configuration settings, customizations, input and output interfaces ,
enhancements and modifications) and all related technical and user documentation
in all media, specifically developed by AFC, its subsidiaries and/or third
parties retained by AFC, whether modifications and enhancements are related to
third-party systems or systems created in their entirety by AFC. AFC will
provide copies of system configuration, customization, documentation, passwords,
access lists and other related information required for the operation of "AFC
specific systems and enhancements" as requested by the Company or the
Subsidiary. All of such AFC specific systems and enhancements shall be licensed
to Buyer "AS IS" with not representations or warranties of any kind or nature
whatsoever, including without limitation warranties of merchantability or
fitness for any particular purpose.
5.13 HOT PLATES. AFC represents and warrants that, as of the date
of this Agreement: (a) the Subsidiary has placed orders for forty-three (43)
Hussman hot plates (the "ORDERED HOT PLATES") for installation in certain
Company-Owned Bakeries heretofore designated by the Subsidiary, (b) that
thirteen (13) of the Ordered Hot Plates have been delivered and installed in
Company-Owned Bakeries as of the date of this Agreement, and (c) that the
purchase price and installation costs for all Ordered Hot Plates have been or
will
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be paid in full prior to Closing. Buyer shall deliver to AFC, no later than
thirty (30) days following Closing (the "LIST DELIVERY EXPIRATION DATE") a list
identifying up to twenty-nine (29) additional Company-Owned Bakeries at which it
would like Hussman hot plates (the "ADDITIONAL HOT PLATES") installed. Promptly
following the later of receipt of such list or the Closing, AFC shall place
orders on behalf of the Subsidiary for the Additional Hot Plates for the
Company-Owned Bakeries reflected on such list and shall pay the purchase price
and installation costs charged by the supplier for the Additional Hot Plates.
From and after the placement of such orders and the payment of the purchase
price and installation charges reflected on the purchase orders therefor, AFC
shall have no further responsibility with respect to the Additional Hot Plates
or the Ordered Hot Plates, and the Subsidiary shall be responsible for all
matters relating thereto, including without limitation, supervision of the
installation thereof and any warranty or other claims against the manufacturer
thereof. In the event that Buyer fails to submit such list to AFC prior to the
List Delivery Expiration Date, AFC shall have no further obligation to purchase
the Additional Hot Plates.
5.14 ASSUMPTION OF BUYER'S OBLIGATIONS. At the Closing, Buyer shall
cause the Company and the Subsidiary to execute an agreement (the "ASSUMPTION
AGREEMENT") to be jointly and severally liable for all obligations of Buyer
under this Agreement (including without limitation, Buyer's indemnification
obligations). In no event shall the Assumption Agreement be construed to relieve
Buyer from any of its obligations under this Agreement.
5.15 RADIANT SYSTEMS, INC. CONTRACT. AFC shall use its commercially
reasonable efforts to cause Radiant Systems, Inc. ("RADIANT") to enter into an
agreement (the "RADIANT AGREEMENT") with the Subsidiary at the Closing that
provides for the assignment to, and assumption by, the Subsidiary of the Radiant
Rights and Obligations. For purposes hereof, the term "Radiant Rights and
Obligations" shall mean all rights AFC may possess pursuant to the Radiant
Software License, Support and Purchase Agreement dated May 6, 2002, as it may be
amended from time to time ("EXISTING RADIANT AGREEMENT") to use the Radiant
Software (as defined therein) at the eighty-seven (87) Company-Owned Bakeries
and the obligations set forth therein related thereto (including without
limitation any and all applicable subscription, maintenance, support and hosting
fees). All obligations of the Subsidiary under the Existing Radiant Agreement
related to the purchase of hardware or software or the payment of installation
fees or costs for such hardware or software shall be satisfied prior to Closing,
and neither the Company nor the Subsidiary shall have any liability for such
obligations following Closing. Any transfer or similar fees payable to Radiant
or its contractors incurred to enter into the Radiant Agreement shall be payable
by AFC.
6. COVENANTS OF THE BUYER.
6.1 FULFILLMENT OF CONDITIONS. At and prior to the Closing, the
Buyer shall use commercially reasonable efforts to fulfill the conditions
specified in Section 8, to the extent that the fulfillment of such conditions is
within its control. The foregoing obligation includes the use of commercially
reasonable efforts to assure the accuracy of its representations and warranties
as of the Closing, the execution and delivery of the documents
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referred to in Section 8 and the use of commercially reasonable efforts to
prepare all necessary documentation and to obtain all necessary approvals,
waivers and consents.
7. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.
All obligations of the Buyer to be performed on the Closing Date shall
be subject to the satisfaction (or waiver by the Buyer), prior thereto, of the
following conditions:
7.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of AFC set forth in this Agreement shall be true and correct, in all
material respects, at and as of the Closing Date as though such representations
and warranties were made at and as of such time.
7.2 PERFORMANCE OF COVENANTS. AFC shall have performed, in all
material respects, all covenants and agreements that are to be performed by it
under this Agreement on or prior to the Closing Date and shall have delivered to
the Buyer evidence, in form and substance satisfactory to Buyer's counsel, that
such covenants and agreements have been performed.
7.3 LITIGATION AFFECTING CLOSING. No action, suit or proceeding
shall have been instituted before a court or governmental body, or instituted or
threatened by any governmental agency or body, to restrain or prevent the
consummation of the Transactions and no Court Order shall have been issued or
entered that would be violated by the completion of the Transactions.
7.4 REGULATORY COMPLIANCE AND APPROVALS. All approvals required
under any Law or Regulation, including HSR, if applicable, to carry out the
Transactions shall have been obtained, and AFC, the Company and the Subsidiary
shall have complied in all material respects with all Laws and regulations
applicable to AFC, the Company and the Subsidiary with respect to the
Transactions.
7.5 OPINION OF AFC'S COUNSEL. Xxxxx Xxxxxxx Xxxxxx Xxxxxxx &
Small, P.C., counsel to AFC shall have delivered to the Buyer its opinion, dated
the Closing Date, in form and substance reasonably acceptable to Buyer.
7.6 NO COMPANY MATERIAL ADVERSE CHANGE. Since the Balance Sheet
Date, there shall not have been any Company Material Adverse Change.
7.7 RELEASE OF LIENS. Concurrently with the Closing, all liens and
encumbrances on the Shares and the Assets (other than Permitted Encumbrances)
shall have been released and the Company shall have delivered to Buyer evidence
in form and substance reasonably satisfactory to Buyer and its counsel of the
release of all such liens.
7.8 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall have
received resignations of those officers and directors of the Company and the
Subsidiary as the Buyer shall have requested.
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7.9 CORPORATE DOCUMENTS. The Buyer shall have received:
(a) A Certificate of the Secretary of AFC, certifying the
incumbency of officers and genuineness of signatures of all officers executing
this Agreement or any document or certificate delivered in connection herewith
for it, and copies of its director and, if applicable, stockholder resolutions
authorizing the Transactions; and
(b) A Certificate of Corporate Good Standing and Legal
Existence of each of AFC, the Company and the Subsidiary from the Secretaries of
State of their respective states of incorporation.
7.10 INFORMATION CALLS. Buyer shall have been afforded access to
the Company's and the Subsidiary's principal Suppliers, Franchisees and
landlords and permitted to inquire of them as to the nature of the business
relationship between the Company or the Subsidiary and such Suppliers,
Franchisees and landlords.
7.11 CERTAIN PAYMENTS. Concurrently with the Closing, AFC shall
have paid or provided for the payment of all amounts then due and payable that
AFC is obligated hereunder to pay, and shall have furnished to Buyer evidence to
this effect reasonably satisfactory to Buyer. The foregoing shall not be
construed to require AFC to pay any amounts contested by AFC in good faith.
7.12 SMS AGREEMENT; SUBLEASE. SMS shall have executed and delivered
the SMS Agreement and AFC shall have executed and delivered the Sublease.
7.13 TRANSITION SERVICES AGREEMENTS. Each of IBM, Deloitte &
Touche, Ceridian, USI, Netifice, and Xxxxxx shall have entered into a Transition
Services Agreement as described in Section 5.8 above.
7.14 SIDE LETTER DOCUMENTS. AFC and the Subsidiary shall have
executed and delivered the documents contemplated by that certain side-letter of
even date herewith between Buyer and AFC.
7.15 NON-FOREIGN PERSON AFFIDAVIT. Buyer shall also have received
from AFC a non-foreign person affidavit dated as of the Closing Date, sworn
under penalty of perjury and in form and substance required under the Treasury
Regulations issued pursuant to Section 1445 of the Code.
7.16 RADIANT AGREEMENT. Radiant and the Subsidiary shall have
executed and delivered the Radiant Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF AFC.
All obligations of AFC to be performed on the Closing Date shall be
subject to the satisfaction (or waiver by AFC), prior thereto, of each of the
following conditions:
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8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Buyer set forth in this Agreement shall be true and correct,
in all material respects, at and as of the Closing Date as though such
representations and warranties were made at and as of such time.
8.2 PERFORMANCE OF COVENANTS. The Buyer shall have performed, in
all material respects, all covenants and agreements that are to be performed by
it under this Agreement on or prior to the Closing Date and shall have delivered
to AFC evidence, in form and substance satisfactory to counsel to AFC, that such
covenants and agreements have been performed.
8.3 LITIGATION AFFECTING CLOSING. No Court Order shall have been
issued or entered that would be violated by the completion of the Transactions.
8.4 REGULATORY COMPLIANCE AND APPROVALS. All approvals required
under any Regulation to carry out the Transactions required to be obtained by
the Buyer shall have been obtained, and the Buyer shall have complied in all
material respects with all Laws applicable to it with respect to the
Transactions.
8.5 OPINION OF BUYER'S COUNSEL. Xxxxxx & Bird LLP, counsel to the
Buyer, shall have delivered to AFC its opinion, dated the Closing Date, in form
and substance reasonably acceptable to AFC.
8.6 CORPORATE DOCUMENTS. AFC shall have received:
(a) Certificates of the Secretary of the Buyer,
certifying the incumbency of officers and genuineness of signatures of all
officers executing this Agreement or any document or certificate delivered in
connection herewith for it, copies of its By-laws, and copies of its director
and stockholder resolutions authorizing the Transactions;
(b) Certificates of Incorporation, as amended, of the
Buyer certified as of a recent date by the Secretary of State of the State of
its incorporation; and
(c) Certificates of Corporate Good Standing and Legal
Existence of the Buyer as of a recent date from the Secretary of State of the
State of its incorporation.
8.7 SMS AGREEMENT; SUBLEASE. The Company and the Subsidiary shall
have executed and delivered the SMS Agreement and the Sublease.
8.9 RADIANT AGREEMENT. Radiant shall have executed and delivered
the Radiant Agreement.
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8.10 ASSUMPTION AGREEMENT. The Company and the Subsidiary shall
have executed the Assumption Agreement.
9. TERMINATION.
9.1 RIGHT OF TERMINATION. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by either Buyer or AFC if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7
has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Buyer to
comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by AFC, if any of the
conditions in Section 8 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of AFC to comply with its obligations under this Agreement) and AFC
has not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and AFC;
(d) by either Buyer or AFC if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply in all material respects with its obligations under this
Agreement) on or before November 8, 2004, or such later date as the parties may
agree upon; or
(e) by Buyer as provided in Section 5.5.
9.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 11.1 and 11.7 will survive; provided, however,
that if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES.
10.1 SURVIVAL. All representations, warranties, covenants, and
obligations in this Agreement, the Disclosure Schedule, any supplements to the
Disclosure Schedule, and any certificate or document delivered pursuant to this
Agreement will survive the Closing for the
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period hereinafter specified. The waiver of any condition based on the accuracy
of any representation or warranty, or on the performance of or compliance with
any covenant or obligation, will not affect the right to indemnification,
payment of Damages, or other remedy based on such representations, warranties,
covenants, and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY AFC.
(a) AFC will indemnify and hold harmless Buyer, the
Company, the Subsidiary, and their respective representatives, stockholders,
controlling persons, and affiliates (collectively, the "INDEMNIFIED PERSONS")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, assessment, penalty, fine, damage (but excluding incidental and
consequential damages), or expense (including costs of investigation and defense
and reasonable attorneys' fees), whether or not involving a third-party claim
(collectively, "DAMAGES"), arising, directly or indirectly, from or in
connection with:
(i) any breach of any representation or warranty
made by AFC in this Agreement (without giving effect to any supplement
to the Disclosure Schedule), the Disclosure Schedule, the supplements
to the Disclosure Schedule, or any other certificate or document
delivered by AFC pursuant to this Agreement;
(ii) any breach by AFC of any covenant or
obligation of AFC in this Agreement;
(iii) any claim by any Person for brokerage or
finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person
with AFC, the Company or the Subsidiary (or any Person acting on their
behalf) in connection with any of the Transactions;
(iv) the Retained Employment Liabilities;
(v) the legal Proceedings set forth on Section
3.16, 3.17 and 3.26(c) of the Disclosure Schedule;
(vi) any claims or assessments arising under any
Benefit Plan;
(vii) the Excluded Liabilities;
(viii) any asserted claim, whether or not resulting
in a filed lawsuit or action, by any shareholder of AFC, in his, her or
its capacity as a shareholder, against AFC or any of its affiliates or
against its officers or directors;
(ix) any failure prior to the Effective Time on
the part of AFC, the Company and/or the Subsidiary to disclose to
prospective Franchisees and Licensees Rebates received from Suppliers
and others as required by any Franchise Regulation;
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(x) any claims related to the offer or sale of
Franchises by SBC prior to July 13, 2003; and
(xi) any claims that offers or sales of any
Franchise offered or sold during the period March 1, 2003 through May
25, 2004 or offers or sales of non-United States Franchises violated
applicable Franchise Regulations.
(b) Notwithstanding anything to the contrary in this
Agreement, AFC will indemnify Buyer, the Company, the Subsidiary, and
their affiliates and hold them harmless from and against (without
duplication), any loss, claim, liability, expense, or other damage
attributable to (i) all Taxes (or the non-payment thereof) of the
Company and the Subsidiary for all Taxable periods ending on or before
the Closing Date and the portion through the end of the Closing Date
for any Taxable period that includes (but does not end on) the Closing
Date ("PRE-CLOSING TAX PERIOD"), (ii) all Taxes of any member of an
affiliated, consolidated, combined or unitary group of which the
Company or the Subsidiary (or any predecessor of any of the foregoing)
is or was a member on or prior to the Closing Date, including pursuant
to Treasury Regulation Section 1.1502-6 or any analogous or similar
state, local, or foreign law or regulation, and (iii) any and all Taxes
of any person (other than the Company and the Subsidiary) imposed on
the Company or the Subsidiary as a transferee or successor, by contract
or pursuant to any law, rule, or regulation, which Taxes relate to an
event or transaction occurring before the Closing; provided, however,
that in the case of clauses (i), (ii), and (iii) above, AFC shall be
liable only to the extent that such Taxes exceed the amount, if any,
reserved for such Taxes (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
on the face of the Final Closing Date Balance Sheet (rather than in any
notes thereto) and taken into account in determining the purchase price
adjustment pursuant to Section 2.7. AFC shall reimburse Buyer for any
Taxes of the Company or the Subsidiary which are the responsibility of
AFC pursuant to this Section 10.2(b) within fifteen (15) business days
after payment of such Taxes by Buyer and submission to AFC of evidence
reasonably satisfactory to AFC of such payment, the Company, or the
Subsidiary; provided, however, that Buyer shall not make or agree to
make any such payments without the prior written consent of AFC. Such
indemnity provided under this Section 10.2(b) shall be referred to
herein as the "TAX INDEMNITY." For purposes of the Agreement, in the
case of any Taxable period that includes (but does not end on) the
Closing Date (a "STRADDLE PERIOD"), the amount of any Taxes based on or
measured by income or receipts of the Company and its Subsidiaries for
the Pre-Closing Tax Period shall be determined based on an interim
closing of the books as of the close of business on the Closing Date
(and for such purpose, the Taxable period of any partnership or other
pass-through entity in which the Company or any of its Subsidiaries
holds a beneficial interest shall be deemed to terminate at such time)
and the amount of other Taxes of the Company and its Subsidiaries for a
Straddle Period which relate to the Pre-Closing Tax Period shall be
deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days
in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in such Straddle Period.
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10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless AFC, and will pay to AFC the amount of any Damages
arising, directly or indirectly, from or in connection with (a) any breach of
any representation or warranty made by Buyer in this Agreement or in any
certificate delivered by Buyer pursuant to this Agreement, (b) any breach by
Buyer of any covenant or obligation of Buyer in this Agreement, (c) any claim by
any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the Transactions; or (d) the conduct of the Business after the Effective Time.
10.4 TIME LIMITATIONS. If the Closing occurs, AFC will have no
liability for indemnification with respect to:
(a) any representation or warranty contained in Article III (other
than the representations and warranties contained in Sections
3.4 (Capitalization and Stock Ownership), 3.6 (Title to Assets
and Related matters), 3.12 (Taxes) and 3.14 (Benefit Plans))
unless on or before the first anniversary of the Closing Date,
Buyer notifies AFC of a claim based upon a breach of any such
representation and warranty;
(b) the obligations under Section 10.2(a)(x), unless on or before
the third anniversary of the Closing Date, Buyer notifies AFC
of a claim based upon any offer or sale of a franchise
contemplated thereby;
(c) the obligations under Sections 10.2(a) (xi), unless on or
before the earlier of the fifth anniversary of the Closing
Date or the expiration of the applicable statute of
limitations with respect to the basis for such claim, Buyer
notifies AFC of a claim based upon such offer or sale of a
franchise contemplated thereby; and
(d) the representations and warranties contained in Sections 3.12
and 3.14 unless Buyer notifies AFC of a claim based upon a
breach of any such representation and warranty prior to the
expiration of the applicable statute of limitations with
respect to the basis for such claim.
A claim based upon the breach of any other representation and warranty of AFC
contained in this Agreement or based upon the breach by AFC of any covenant or
agreement to be performed by it hereunder may be brought at any time. If the
Closing occurs, Buyer will have no liability for indemnification with respect to
any representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before the first
anniversary of the Closing Date, AFC notifies Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
AFC.
10.5 LIMITATIONS ON AMOUNT--AFC. AFC will have no liability for
indemnification with respect to the matters described in clause (a)(i) of
Section 10.2 until the
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total of all Damages subject to such indemnification exceeds $200,000, in which
case AFC shall be liable only for such Damages in excess of that amount.
However, this Section 10.5 will not apply to fraud. The aggregate liability of
AFC under clauses (a)(i), (ix), (x) and (xi) of Section 10.2 shall not exceed
twenty-five percent (25%) of the Purchase Price, it being understood that such
maximum liability limitation shall not apply to liability under any other clause
of Section 10.2(a); provided, however that the aggregate liability of AFC for
all indemnification claims shall not exceed the Purchase Price.
10.6 LIMITATIONS ON AMOUNT--BUYER. Buyer will have no liability for
indemnification with respect to the matters described in clause (a) of Section
10.3 until the total of all Damages with respect to such matters exceeds
$200,000, in which case Buyer shall be liable only for such Damages in excess of
that amount. However, this Section 10.6 will not apply to fraud. The aggregate
liability of Buyer under clause (a) of Section 10.3 shall not exceed twenty-five
percent (25%) of the Purchase Price, it being understood that such maximum
liability limitation shall not apply to liability under any other clause of
Section 10.3; provided, however that the aggregate liability of Buyer for all
indemnification claims shall not exceed the Purchase Price.
10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
(a) NOTICE OF CLAIM. Any party seeking indemnification
pursuant to Section 10.2 or 10.3 above (the "INDEMNIFIED PARTY") shall promptly
give written notice (a "CLAIM NOTICE") to the party from whom such
indemnification is sought (the "INDEMNIFYING PARTY") of such claim for
indemnification (an "INDEMNIFIED CLAIM") specifying in reasonable detail the
factual basis of the Indemnified Claim, stating the amount of the Indemnified
Claim, if known, the method of computation thereof, and containing a reference
to the provision of this Agreement in respect of which such Indemnified Claim
arises. The failure of an Indemnified Party to provide notice pursuant to this
Section 10.7 shall not constitute a waiver of that party's claims to
indemnification pursuant to Section 10.2 or 10.3, as the case may be, except to
the extent that the Indemnifying Party demonstrates that the defense of such
action is prejudiced by the failure to give such notice. If the Indemnified
Claim arises from the assertion of any claim, or the commencement of any suit,
action or proceeding brought by a person that is not a party hereto (a "THIRD
PARTY CLAIM") any such notice to the Indemnifying Party shall be accompanied by
a copy of any papers theretofore served on the Indemnified Party in connection
with such Third Party Claim.
(b) THIRD PARTY CLAIMS. If a Third Party Claim is brought
against an Indemnified Party and it gives notice to the Indemnifying Party of
the commencement of such Third Party Claim, the Indemnifying Party will be
entitled to participate in such Third Party Claim and, unless the claim involves
Taxes, to the extent that it wishes (unless (i) the Indemnifying Party is also a
party to such Third Party Claim and the Indemnified Party determines in good
faith that joint representation would be inappropriate, or (ii) the Indemnifying
Party fails to provide reasonable assurance to the Indemnified Party of its
financial capacity to defend such Third Party Claim and provide indemnification
with respect to such Third Party Claim), to assume the defense of such Third
Party Claim with counsel reasonably satisfactory to the Indemnified Party and,
after notice from the
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Indemnifying Party to the Indemnified Party of its election to assume the
defense of such Third Party Claim, the Indemnifying Party will not, as long as
it diligently conducts such defense, be liable to the Indemnified Party under
this Section 10 for any fees of other counsel or any other expenses with respect
to the defense of such Third Party Claim, in each case subsequently incurred by
the Indemnified Party in connection with the defense of such Third Party Claim,
other than reasonable costs of investigation. If the Indemnifying Party assumes
the defense of a Third Party Claim, (i) it will be conclusively established for
purposes of this Agreement that the claims made in that Third Party Claim are
within the scope of and subject to indemnification; (ii) no compromise or
settlement of such claims may be effected by the Indemnifying Party without the
Indemnified Party's consent unless (A) there is no finding or admission of any
violation of any Regulation or any violation of the rights of any Person and no
effect on any other claims that may be made against the Indemnified Party, and
(B) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party; and (iii) the Indemnified Party will have no liability with
respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an Indemnifying Party of the commencement of any
Third Party Claim and the Indemnifying Party does not, within ten business days
after the Indemnified Party's notice is given, give notice to the Indemnified
Party of its election to assume the defense of such Third Party Claim, the
Indemnifying Party will be bound by any determination made in such Third Party
Claim or any compromise or settlement effected by the Indemnified Party.
(c) Notwithstanding the foregoing, if an Indemnified
Party determines in good faith that there is a reasonable probability that a
Third Party Claim may adversely affect it or its affiliates other than as a
result of monetary damages for which it would be entitled to indemnification
under this Agreement, the Indemnified Party may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise, or settle such Third
Party Claim, but the Indemnifying Party will not be bound by any determination
of a Third Party Claim so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld).
(d) TAX EFFECT AND INSURANCE. The liability of an
Indemnifying Party under Section 10.2 or 10.3 above shall be reduced by the tax
benefit actually realized and any insurance proceeds received by the Indemnified
Party (or in the case of Buyer, the Company or the Subsidiary) as a result of
any Damages upon which such indemnification claim is based. The amount of any
such tax benefit shall be determined by taking into account the effect, if any
and to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such Damages
and shall otherwise be determined so that payment by the Indemnifying Party of
the indemnification claim, as adjusted to give effect to any such tax benefit,
will make the Indemnified Party as economically whole as is reasonably practical
with respect to the Damages upon which the indemnification claim is based. If
any such tax benefit is subsequently disallowed, in whole or in part, the
Indemnifying Party shall make appropriate reconciliation payments to the
Indemnified Party. A tax benefit that results from an event giving rise to the
indemnity payment shall only be considered actually realized by the Indemnified
Party to the extent that, but for such tax benefit, such the Indemnified Party's
Tax liability would be higher than it is with such tax benefit (e.g., deductions
or losses of the Indemnified Party that do not
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result from the event giving rise to the indemnity payment shall be deemed to be
used prior to the use of any deduction or loss that does result from the event
giving rise to the indemnity payment).
10.11 EXCLUSIVE REMEDY. If the Closing occurs, except for remedies
based upon fraud and except for equitable remedies, the remedies provided in
this Article 10 constitute the sole and exclusive remedies for recovery against
a party to this Agreement.
11. GENERAL.
11.1 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the Laws of the State of Georgia.
11.2 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver any and all papers and documents necessary to complete the Transactions
contemplated hereby.
11.3 BINDING EFFECT. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns. This Agreement and
all rights hereunder may not be assigned by any party hereto without the written
consent of the other parties, except that Buyer shall have the right to assign
this Agreement and Buyer's rights benefits and obligations hereunder to any
affiliate of Buyer without the consent of AFC, in which event such assignee
shall be the Buyer hereunder for all purposes; provided, however, that no such
assignment shall relieve any party hereto of its obligations hereunder.
Notwithstanding the foregoing, if Focus Brands Inc. ("Focus") transfers the
Carvel franchise system (the "Carvel Business") to another Person, Focus shall
be relieved of and released from all obligations hereunder if the transferee of
the Carvel Business shall expressly assume the obligations of Focus hereunder.
11.4 WAIVER OF CONDITIONS. Any party hereto may waive any condition
provided in this Agreement for its benefit.
11.5 EXHIBITS. All of the Exhibits attached to this Agreement are
hereby incorporated herein and made a part hereof.
11.6 PUBLIC ANNOUNCEMENTS. Prior to Closing, there shall
be no public announcement or comments with respect to this Agreement or the
transactions contemplated hereby, except as mutually agreed by AFC and Buyer;
provided, however, that such announcements as are required by law or
governmental regulation may be made without mutual agreement, and if time or
circumstance makes prior consultation between the parties impractical,
unnecessary or otherwise not feasible, in such event, the party making such
announcement shall notify the other party as soon as practicable thereafter.
11.7 EXPENSES. Except as otherwise expressly provided herein, all
costs and expenses incurred by or on behalf of AFC or, prior to Closing, the
Company or the Subsidiary in connection with this Agreement shall be paid by
AFC, and all costs and
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expenses incurred by or on behalf of Buyer or, after Closing, the Company or the
Subsidiary in connection with this Agreement shall be paid by Buyer.
11.8 ENTIRE AGREEMENT. This Agreement and the Confidentiality
Agreement contain the entire agreement among the parties hereto and there are no
agreements, representations or warranties which are not set forth herein. All
prior negotiations, agreements and understandings are superseded hereby.
11.9 NOTICES. Every notice or other communication required,
contemplated or permitted by this Agreement by any party shall be in writing and
shall be delivered by personal delivery, telegram, private courier service or by
certified mail, postage prepaid, return receipt requested or sent by telegraph,
telefax, telecopy or telex and confirmed via courier or postal service,
addressed as follows:
TO AFC:
AFC Enterprises, Inc.
Xxx Xxxxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Office of the General Counsel
Facsimile: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxx Xxxxxx Xxxxxxx & Small, P.C.
0000 Xxxxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
TO THE BUYER:
Xxxxx Capital Group, Inc.
0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx & Bird LLP
0000 X. Xxxxxxxxx Xx.
Xxxxxxx, Xxxxxxx 00000
Attention: Xxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
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11.10 EXECUTION OF AGREEMENT. This Agreement may be executed in two
or more counterparts, each of which is an original and all of which together
shall be deemed to be one and the same instrument. This Agreement shall become
binding when one or more counterparts taken together shall have been executed
and delivered by all of the parties. It shall not be necessary in making proof
of this Agreement or any counterpart hereof to produce or account for any of the
other counterparts. Facsimile signatures shall constitute originals for all
purposes hereof.
11.11 AMENDMENT. This Agreement may be amended by the parties hereto
at any time prior to the Closing, and any such amendment shall be by a written
instrument signed by each of the parties hereto.
11.12 INTERPRETATION. This Agreement was negotiated with the benefit
of legal representation for all parties, and any rule of construction or
interpretation otherwise requiring this Agreement to be construed or interpreted
against any party shall not apply to any construction or interpretation hereof.
"Herein", "hereof" and "hereunder" refer to this Agreement as a whole and not to
any particular part. Headings or captions are for convenience only and shall not
affect the construction or interpretation of this Agreement. Words importing the
singular number only shall include the plural and vice versa and words importing
the masculine gender shall include the feminine and neuter genders and vice
versa. The word "including" means including without limiting the scope or
generality of any description preceding such word, and the word "or" means, and
is used in the inclusive sense of, "and/or". References to documents,
instruments or agreements shall be deemed to refer as well to all addenda,
exhibits, schedules or amendments thereto.
11.13 SEVERABILITY. In the event any parts of this Agreement are
found to be void, the remaining provisions of this Agreement shall nevertheless
be binding with the same effect as though the void parts were deleted.
11.14 SPECIFIC PERFORMANCE. Each party agrees that remedies at law
may be inadequate to protect the other party from and against any actual or
threatened breach of this Agreement by such party or any of its representatives.
Without prejudice to the rights and remedies otherwise available to it, each
party agrees that any other party may seek equitable relief in favor of the
other party by way of specific performance or otherwise without proof of actual
damages, if such party or any of its representatives breach or threaten to
breach any of the provisions of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
Attest: AFC ENTERPRISES, INC.
Xxxxxxxxx Xxxxxxxxx By: /s/ Xxxxx X. Xxxxxxx
--------------------------- ------------------------------
Name: Xxxxx X. Xxxxxxx
----------------------------
Title: Chairman of the Board and
Chief Executive Officer
---------------------------
Attest: FOCUS BRANDS INC.
Xxxxxxx Xxxxxx By: /s/ Xxxx Xxxxxxx
--------------------------- ------------------------------
Name: Xxxx Xxxxxxx
----------------------------
Title: Chairman of the Board
---------------------------
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