Exhibit 2.5
STOCK PURCHASE AGREEMENT
Dated as of December 19, 2001
by and among
WESTERN FRANCHISE DEVELOPMENT, INC., a California corporation,
XXXXXX X. XXXXXXXX and E. XXXXXXX XXXXXXXX,
Trustees of the Xxxxxxxx Trust dated January 6, 1992,
and XXXXXX XXXXXXX XXXXXXXX as Sellers,
and
RED XXXXX INTERNATIONAL, INC.,
A Nevada corporation, as Buyer
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 19,
2001, is entered into by and among RED XXXXX INTERNATIONAL, INC., a Nevada
corporation ("Buyer") on the one hand, and WESTERN FRANCHISE DEVELOPMENT, INC, a
California corporation (the "Corporation") and XXXXXX X. XXXXXXXX and E. XXXXXXX
XXXXXXXX, Trustees of the Xxxxxxxx Trust dated January 6, 1992, and XXXXXX
XXXXXXX XXXXXXXX (the "Shareholders"), on the other hand, with reference to the
following facts. The Buyer, the Corporation and the Shareholders are sometimes
referred to collectively herein as the "parties." The Corporation and the
Shareholders are sometimes referred to collectively herein as "Selling Parties."
A. The Corporation is engaged in the operation of a restaurant business
pursuant to a franchise agreement, area development agreements,
license/franchise agreements, and the Phoenix agreements with its franchisor,
Red Xxxxx International.
B. As of the closing of the transactions contemplated herein, the
Shareholders will own all of the issued and outstanding capital stock of the
Corporation (the "Corporation's Stock").
C. Buyer wishes to acquire from the Shareholders all of the Corporation's
Stock;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto agree as follows:
1. PURCHASE OF THE CORPORATION'S STOCK
1.1 Shares To Be Purchased. At the Closing (as defined in Section 2), the
-----------------------
Shareholders shall sell and deliver to Buyer all of the issued and outstanding
shares of the Corporation's Stock, being the number of shares of stock of the
Corporation set forth on Schedule A opposite each Shareholder's name. At the
----------
Closing, Buyer shall purchase the Corporation's Stock and in exchange therefor
shall deliver to the Shareholders at the Closing the purchase price described in
Section 1.2 (the "Purchase Price").
1.2 Purchase Price. The Purchase Price shall be the sum of Six Million Five
---------------
Hundred Thousand Dollars ($6,500,000), less an amount equal to the liability
represented by the gross amount owing under the Corporation's lease for its
central office located at 0000 Xxxxxxx Xxxxxxx, Xxxxxx, Xxxxxxxxxx, and any
equipment leases for equipment located at 0000 Xxxxxxx Xxxxxxx, Xxxxxx,
Xxxxxxxxxx, and subject to further adjustment as set forth herein. If the
adjusted Total Equity of the Corporation at the Closing deviates from Two
Million One Hundred Forty-Five Thousand Dollars ($2,145,000) by more than Ten
Thousand Dollars ($10,000), the Purchase Price shall be adjusted, by increasing
or decreasing the Purchase Price on a dollar-for-dollar basis to the extent the
adjusted Total Equity exceeds $10,000 in excess of, or less than, an adjusted
Total Equity of $2,145,000. For the purpose of determining adjusted Total Equity
at the Closing, adjustments to the Corporation's balance sheet shall be made
consistent with Exhibit B attached hereto, subtracting from current assets
excess cash as determined by Corporation and those Fixed Assets identified as
1
Corporate Furniture & Equipment (including a corporate automobile) and also
subtracting Short-Term Portion Liabilities and Long-Term Portion Liabilities.
The Corporation's accountants, Xxxxxxxx, Xxxxx & Xxxxxxxx (the
"Accountants"), shall deliver to Buyer a calculation of the Total Equity of the
Corporation as of the Closing within 30 days following the Closing. The Total
Equity calculation prepared by the Accountants shall be conclusive and binding
on the parties for purposes of calculating any adjustment to the Purchase Price
unless Buyer notifies the Shareholders in writing (a "Dispute Notice"), within
10 days of Buyer's receipt of the Total Equity calculation, of any disagreements
therewith (stating with reasonable specificity the basis for any such
disagreement). During such 10-day period, the Accountants shall give Buyer and
its accountants or other representatives access to all work papers related to
the preparation of the Total Equity calculation. Buyer and the Shareholders
shall negotiate in good faith to resolve any disagreements concerning the Total
Equity calculation as promptly as practicable. If any disagreement concerning
the Total Equity calculation is not resolved by Buyer and the Shareholders
within 10 days following the Shareholders' receipt of the Dispute Notice, Buyer
and the Shareholders shall promptly engage, on standard terms and conditions for
a matter of such nature, a nationally recognized firm of independent accountants
to resolve the disputed amounts. The engagement agreement with the independent
accountants shall require the independent accountants to make their
determination with respect to the items in dispute within 10 days following
their appointment. Buyer and the Shareholders (as a group) shall share the costs
of the fees and expenses of such independent accountants equally. The resolution
by the independent accountants of any dispute concerning the Total Equity
calculation shall be final, binding and conclusive upon the parties for purposes
of any adjustment of the Purchase Price under this Section 1.2.
It is anticipated that Buyer shall elect to treat this purchase as an asset
purchase under the provisions of Internal Revenue Code Section 338. If such
election is made by Buyer, Buyer and Shareholders shall agree upon a fair
allocation of the Purchase Price with respect to the assets of the Corporation.
Shareholders and Buyer shall cooperate in executing any and all necessary
documents in connection with the Section 338 election.
1.3 Special Adjustment for Sun Valley Lease. It has been disclosed to Buyer
----------------------------------------
that Corporation has entered into a new lease for its Sun Valley location which
requires that the Corporation construct certain improvements at its Sun Valley
restaurant location. The total amount of the cost and financing for such
improvements is estimated to be between $400,000 and $450,000. To the extent
that any such financing and improvement costs are incurred prior to the Closing,
any such costs shall be amortized over the term of the Sun Valley Lease and
shall not be expensed against the Company's adjusted Total Equity for the
purposes of determining the adjusted Total Equity as described in paragraph 1.2
above.
1.4 Excess Cash and Corporate Assets, Short-Term and Long-Term Portion
------------------------------------------------------------------
Liabilities. As set forth in Section 1.2, Corporation shall have the right to
------------
distribute to its Shareholders such amounts as Corporation deems to be "excess
cash" prior to the Closing. There shall be paid from the Purchase Price
deposited by Buyer at the Closing all Short-Term Portion Liabilities and all
Long-Term Liabilities as set forth on Schedule B, and in particular as
identified on Schedule 5 and Schedule 6 of Schedule B. Corporation shall also
have the right to distribute to Shareholders a corporate motor vehicle
identified as a 1995 Infiniti Q45.
2
2. CLOSING
The closing of the transactions contemplated herein (the "Closing") shall
take place on January 14, 2002 (the "Closing Date"), following the satisfaction
or waiver of all conditions to the obligations of the parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself). The Closing shall take
place at the offices of Gagen, McCoy, XxXxxxx & Xxxxxxxxx, 000 Xxxxx Xxxxxx,
Xxxxxxxx, Xxxxxxxxxx. For accounting and tax reporting purposes, the Closing
shall be deemed effective as of 12:01 a.m. on January 14, 2002 (the "Effective
Date").
At the Closing, the respective parties shall make the following deliveries:
2.1 Shareholders' Deliveries. The Shareholders shall deliver to Buyer the
-------------------------
certificates representing all outstanding shares of the Corporation's Stock,
free and clear of all liens, security interests, claims and encumbrances,
accompanied by stock powers duly executed in blank, as well as the various
certificates, instruments, and documents referred to in Section 5.1.
2.2 Buyer's Deliveries. Buyer shall tender delivery of the Purchase Price
-------------------
in the form of a cashier's check, cash, or other instrument acceptable to
Shareholders.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS.
-----------------------------------------------------------------------
Each of the Corporation and the Shareholders represents and warrants to Buyer
that the statements contained in this Section 3 are correct and complete as of
the date of execution of this Agreement (the "Signing Date") and will be correct
and complete as of the Closing Date as though made then and as though the
Closing Date were substituted for the Signing Date throughout this Section 3.1
with respect to itself, himself or herself, except as set forth in the
disclosure schedules delivered by the Corporation and the Shareholders to the
Buyer (each a "Schedule," collectively the "Schedules").
3.1 Organization, Standing and Qualification. The Corporation is duly
-----------------------------------------
organized and formed, validly existing and in good standing under the laws of
the State of California. The Corporation has full corporate power and authority
to own and lease its properties and to carry on its business as now conducted,
to execute and deliver this Agreement.
3.2 Capitalization. Schedule A sets forth, as of the Closing Date, the
--------------- ----------
authorized and outstanding capital stock of the Corporation, the name, addresses
and social security numbers or taxpayer identification numbers of the record and
beneficial owners thereof, and the number of shares so owned, the certificate
number for each share certificate. As of the Closing, all of the issued and
outstanding shares of the capital stock of the Corporation will be owned of
record and beneficially by the Shareholders, as set forth on Schedule A. Each
-----------
share of the capital stock of the Corporation is duly and validly authorized and
issued, fully paid and nonassessable, and was not issued in violation of any
preemptive rights of any past or present shareholder of the Corporation, or in
violation of any federal or state securities law. No option, warrant, call,
conversion right or commitment of any kind (including any of the foregoing
created in connection with any indebtedness of the Corporation) exists which
obligates the Corporation to issue any of its authorized but unissued capital
stock or other equity interest.
3
3.3 All Stock Being Acquired. The Corporation's Stock being acquired by
-------------------------
Buyer hereunder constitutes all of the outstanding capital stock of the
Corporation. As of the Closing, the Shareholders will have title to and
ownership of all of the shares of the capital stock of the Corporation. Upon
consummation of the transactions contemplated by this Agreement, Buyer will
acquire the issued and outstanding Corporation's Stock and thereby acquire
indirectly all of the assets of the Corporation and all liabilities of the
Corporation, except as otherwise specifically set forth herein. No other person
holds any right or interest in any of the assets of the Corporation.
3.4 Authority for Agreement. The Corporation and each of the Shareholders
------------------------
have full right, power and authority to enter into this Agreement and the other
agreements contemplated under this Agreement to which each such person is a
party, and to perform its, his or her obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement by the Corporation have
been duly and validly authorized by its Board of Directors and the Shareholders.
This Agreement has been duly and validly executed and delivered by the
Corporation and the Shareholders and, subject to the due authorization,
execution and delivery by Buyer, constitutes the legal, valid and binding
obligation of the Corporation and the Shareholders enforceable against the
Corporation and the Shareholders in accordance with its terms.
3.5 Noncontravention. To the Knowledge of the Corporation and the
-----------------
Shareholders, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A) result in the
material breach of any of the terms or conditions of, or constitute a default
under, or allow for the acceleration or termination of, or in any manner release
any party from any obligation under, require any consent under, or result in any
lien, claim, or encumbrance on the Corporation's assets under any mortgage,
lease, note, bond, indenture, or contract, agreement, license or other
instrument or obligation of any kind or nature to which the Corporation is a
party, or by which the Corporation, or any of its assets, is or may be bound or
affected, except as to the required lessor consents for the assignment of any
lease currently held by the Corporation; or (B) violate any law or any order,
writ, injunction or decree of any court, administrative agency or governmental
authority, known to the Corporation, or require the approval, consent or
permission of any governmental or regulatory authority.
3.6 Financial Statements. Schedule B sets forth the Corporation's balance
---------------------
sheet, supporting schedules, and Adjusted Balance Sheet adjusted as agreed upon
by the parties, as of June 17, 2001 (the "Financial Statements"). Except for the
adjustments identified on the Adjusted Balance Sheet, the Financial Statements
(A) have been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") consistently applied on a basis consistent throughout the
periods indicated and consistent with each other, and (B) present fairly the
financial condition of the Corporation as of the dates specified and the results
of operations for the periods specified.
3.7 Liabilities. To the Knowledge of the Corporation and the Shareholders,
------------
Schedule C sets forth all claims, suits and proceedings which are pending
----------
against the Corporation, and, to the Knowledge of the Corporation and the
Shareholders, all material claims, suits and proceedings threatened or
anticipated against the Corporation.
3.8 Inventories; Personal Property. To the Knowledge of the Corporation and
-------------------------------
the Shareholders, Schedule D sets forth a depreciation schedule of the personal
----------
property and fixed assets of the restaurants of the Corporation as of August 8,
2001.
4
3.9 Permits and Licenses. To the Knowledge of the Corporation and the
---------------------
Shareholders, Schedule E lists, as of August 8, 2001, material permits,
----------
licenses, titles, zoning and land use approvals and authorizations, including,
without limitation, any conditional or special use approvals or zoning
variances, occupancy permits, and any other similar documents constituting a
material authorization or entitlement or otherwise material to the operation of
the business of the Corporation (collectively the "Governmental Permits") owned
by, issued to, held by or otherwise benefitting the Corporation as of the
Closing Date, including but not limited to any governmental permits required by
the California Department of Alcoholic Beverage Control, or any other
governmental authority.
3.10 Personnel. Schedule F lists, as of August 8, 2001, all multi-unit and
---------- ----------
single unit management employees of the Corporation and their respective rates
of compensation. The Corporation has not entered into any written employment
contracts with any employees.
3.11 Title to Tangible Assets. The Corporation has good title to, or a
-------------------------
valid leasehold interest in, the material tangible assets it uses regularly in
the conduct of its business.
3.12 Corporate Records. The corporate minute books, stock ledgers, books,
------------------
ledgers, financial records and other records of the Corporation have been made
available to Buyer and its agents at the offices of the Corporation's
accountants. The minute books of the Corporation contain accurate and complete
records of the meetings held, and material corporate action taken by, the
shareholders and the board of directors of the Corporation.
3.13 Current Operational Restaurants. Schedule G sets forth the restaurants
-------------------------------- ----------
currently operated by Corporation. Corporation has recently closed a restaurant
in San Leandro and there are no, or immaterial, assets remaining from the
operation of such San Leandro restaurant.
3.14 Brokers; Finders. To the Knowledge of the Corporation and the
-----------------
Shareholders, except as set forth on Schedule H, no person has acted directly or
indirectly as a broker, finder or financial advisor for the Corporation or the
Shareholders in connection with the transactions contemplated by this Agreement,
and no person is entitled to any broker's, finder's, financial advisory or
similar fee or payment in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of the Corporation or the
Shareholders.
3.15 Environmental Matters. To the Knowledge of the Corporation and the
----------------------
Shareholders, no Hazardous Materials (which shall mean any material or substance
that is prohibited or regulated by any state or federal statute as being toxic,
hazardous, or otherwise producing a danger to health, reproduction or the
environment) are present at any property leased by the Corporation, except to
the extent that such Hazardous Materials have been used in all material respects
in compliance with applicable law. Neither the Corporation nor the Shareholders
are aware of any fact or circumstance which would result in any environmental
liability which could reasonably be expected to result in a material adverse
affect on the business or financial status of the Corporation.
3.16 Tax Returns and Audits. The Corporation has prepared and timely filed
-----------------------
all required federal, state and local tax returns relating to any and all taxes
concerning or attributable to the Corporation or its operations, and such tax
returns have been completed in accordance with applicable law. The Corporation
has paid all taxes that it is required to pay and has withheld with respect to
its employees all federal and state income taxes, FICA, FUTA, and other taxes
required
5
to be withheld. No audit or other examination of any tax return of the
Corporation is presently in progress, nor has the Corporation been notified of
any requests for such an audit or other examination.
3.17 Retirement Plan Compliance. To the Knowledge of the Corporation and
---------------------------
the Shareholders, the Corporation has performed in all material respects all
obligations required by it to be performed, and is not in default or in
violation of, and neither has any knowledge of any default or violation by any
other party, of any retirement plan provided for the employees of the
Corporation, and any and all such retirement plans have been established and
maintained in all material respects in accordance with the terms and conditions
of such plan and in compliance with all applicable laws, statutes, order, rules
and regulations, including but not limited to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
3.18 Disclaimer of Other Representations and Warranties. Except as
---------------------------------------------------
expressly set forth in Section 3, the Corporation and the Shareholders make no
representation or warranty, express or implied, at law or in equity, in respect
of the Corporation or the Shareholders respective assets, liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. Buyer hereby acknowledges and agrees
that, except to the extent specifically set forth in Section 3, Buyer is
purchasing the Corporation's Stock and is taking title to the Corporation's
assets and responsibility for its liabilities on an "as-is, where-is" basis.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Corporation and the Shareholders that
each of the following representations and warranties is true as of the Signing
Date and will be true as of the Closing Date, and agrees that such
representations and warranties shall survive the Closing:
4.1 Experience of Buyer. Buyer has previously operated a franchised
--------------------
restaurant business and is familiar with restaurant operations.
4.2 No Breach of Default. The execution and delivery by Buyer of this
---------------------
Agreement, and the consummation by Buyer of the transactions contemplated
hereby, do not:
(a) result in the material breach of any of the terms or conditions
of, or constitute a default under, or allow for the acceleration or
termination of, or in any manner release any party from any obligation
under, require any consent under, or result in any lien, claim, or
encumbrance on Buyer's assets under any mortgage, lease, note, bond,
indenture, or contract, agreement, license or other instrument or
obligation of any kind or nature to which Buyer is a party, or by which
Buyer, or any of his assets, is or may be bound or affected; or
(b) violate any law or any order, writ, injunction or decree of any
court, administrative agency or governmental authority, known to Buyer, or
require the approval, consent or permission of any governmental or
regulatory authority.
4.3 Execution and Delivery of Agreement. This Agreement has been validly
------------------------------------
executed and delivered by Buyer and, subject to the due authorization, execution
and delivery by the Corporation and the Shareholders, constitutes the legal,
valid and binding obligation of Buyer
6
enforceable against Buyer in accordance with its terms. Buyer has full power,
legal right and authority to enter into and perform his obligations under this
Agreement and to carry on his business as presently conducted. No consent of,
approval by, filing with, or notice to any governmental authority or any other
person or entity is required for Buyer to execute, deliver, and perform this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and the fulfillment of and compliance with
the terms and conditions hereof do not and will not, after the giving of notice,
or the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to Buyer; or (b)
conflict with, result in a breach of or constitute a default under any material
agreement or instrument to which Buyer is a party or by which he is bound.
4.4 Brokers; Finders. No person has acted directly or indirectly as a
-----------------
broker, finder, consultant or financial advisor for Buyer in connection with the
transactions contemplated by this Agreement, and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of Buyer.
5. CONDITIONS TO OBLIGATION TO CLOSE
---------------------------------
5.1 Conditions to Obligation of Buyer. The obligation of Buyer to
----------------------------------
consummate the transactions to be performed by him in connection with the
Closing is subject to satisfaction of the following conditions, provided,
however, that Buyer may waive any condition specified in this Section 5.1 if
Buyer executes a writing so stating at or prior to the Closing:
(a) The representations and warranties set forth in Section 3 shall be
true and correct in all material respects at and as of the Closing Date;
(b) The Selling Parties shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing;
(c) There shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(d) All actions to be taken by the Selling Parties in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in
form and substance to Buyer;
(e) The Shareholders shall have caused each officer and director of
the Corporation to deliver a resignation as an officer and/or director of
the Corporation.
(f) The Shareholders shall have delivered to Buyer a Certificate of
Non-Foreign Status setting forth the home address, social security number
and a statement as to residency status of the Shareholders, dated the
Closing Date and duly executed by each Shareholder under penalty of
perjury.
7
(g) Buyer shall have completed its Due Diligence investigation of the
Corporation and the Shareholders, to Buyer's satisfaction in Buyer's sole
discretion, by no later than thirty (30) days after the execution of this
Agreement or the day before the Closing Date, whichever shall come first
(the Due Diligence period).
(h) The Corporation's lessors shall have provided their consent to an
assignment of the Corporation's leases to Buyer.
5.2 Conditions to Obligation of the Selling Parties. The obligation of the
------------------------------------------------
Selling Parties to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions, provided, however, that the requisite Selling Party may waive any
condition specified in this Section 5.2 if it executes a writing so stating at
or prior to the Closing:
(a) The representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(b) Buyer shall have performed and complied with all of his covenants
hereunder in all material respects through the Closing;
(c) There shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(d) All actions to be taken by Buyer in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance
to the requisite Selling Parties;
(e) Buyer shall have tendered for delivery to the Shareholders the
Purchase Price in accordance with Section 1.2.
(f) The Corporation's franchisor shall have approved the terms and
conditions of this Agreement and have approved the transfer of the
franchise rights from the Corporation to Buyer.
(g) The Corporation's lessors shall have provided consents to the
assignment of all the Corporation's leases to the Buyer.
5.3 Conduct of Due Diligence. Buyer shall be entitled to conduct an
-------------------------
inspection of the books, records, contracts, documents and assets of the
Corporation ("Due Diligence") during normal business hours of the Corporation,
and scheduled at mutually agreeable times and locations. All such Due Diligence
activity shall be conducted pursuant to the provisions of a Confidentiality
Agreement previously executed by Buyer, dated October 31, 2001.
Notwithstanding the foregoing, Buyer shall make no contact with
Corporation's lessors without the prior written consent of Corporation.
Corporation will initiate
8
contact with Corporation's lessors upon Buyer's indication of approval of
Corporation's financial information, and real estate leases.
6. ADDITIONAL COVENANTS OF BUYER, THE CORPORATION AND THE SHAREHOLDERS
-------------------------------------------------------------------
6.1 Further Assurances and Additional Conveyances. In case at any time
----------------------------------------------
after the Closing any further action is necessary to carry out the purposes of
this Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Section 7 below).
6.2 Confidentiality of Transaction. Except with respect to disclosures made
-------------------------------
by a party to its attorneys, accountants, and other professional service
providers employed to assist such party with the transactions contemplated by
this Agreement, and the employees of Corporation, its lessors, and state and
federal regulatory and licensing authorities, the terms contained in this
Agreement, and the existence of the negotiations between Selling Parties and
Buyer, are confidential and shall not be discussed with or disclosed to third
parties, or announced publicly by either party until after the Closing or the
termination of this Agreement pursuant to the provisions of Section 9, except by
mutual agreement of the parties. Each party agrees not to disclose any
confidential or proprietary information received from the other party or
discovered as a result of the negotiations and due diligence investigations
associated with the transactions contemplated by this Agreement at any time
without the prior written approval of the other party.
6.3 Brokers and Finders Fees. Each party shall pay and be responsible for
-------------------------
any broker's, finder's or financial advisory fees incurred by it in connection
with the transactions contemplated by this Agreement.
7. INDEMNIFICATION AND OFFSET PROCEDURES
-------------------------------------
7.1 Potential Claims. Buyer has a potential claim (a "Potential Claim")
-----------------
against Shareholders if, by no later than one (1) year after the Closing, (i)
Buyer provides Shareholders with written notice (in the manner specified in
Section 7.3 (a) below) that Buyer contends that there has been a specific
material breach of any representation or warranty of the Corporation or a
Shareholder set forth in this Agreement and (ii) Buyer has incurred, or will be
required to incur, costs and expenses (excluding attorney's fees) as a result of
the alleged material breach or alleged material undisclosed liabilities. Buyer
shall promptly notify the Shareholders of the existence of any Potential Claim
or any other matters to which Buyer intends to claim that any indemnification or
offset obligations would apply and will give the Shareholders a reasonable
opportunity to defend the same at the Shareholders' own expense and with counsel
of the Shareholders' own selection. If the Shareholders, within a reasonable
time after said notice, fail to defend, Buyer will have the right, but not the
obligation, to undertake the defense of and to compromise or settle (exercising
reasonable business judgment) the claim or other matter on behalf of the
Shareholders. If the claim is one that cannot by its nature be defended solely
by the Shareholders (including any federal or state tax proceeding), Buyer will
make available, and cause the Corporation to make available, all information and
assistance that the Shareholders may reasonably request.
9
7.2 Valid Claims. Buyer has a valid claim (a "Valid Claim") if (i) Buyer
-------------
has complied with the notice procedures set forth herein, and (ii) either the
parties have agreed that the Potential Claim states a valid claim for
indemnification pursuant to Section 7.3(b) below, or, in the absence of an
agreement by the parties, by arbitration proceedings as provided in Section
7.3(b) below, has determined that the Potential Claim states a valid claim for
indemnification pursuant to this Section 7.
7.3 Claim Procedures.
-----------------
(a) As soon as Buyer becomes aware of any Potential Claim, Buyer shall, by
no later than thirty (30) days after Buyer first becomes aware of said Potential
Claim, provide the Shareholders with written notice of said Potential Claim. As
part of its written notice to the Shareholders, Buyer shall supply the
Shareholders with reasonable backup documentation supporting its Potential
Claim. A Potential Claim shall be deemed invalid if written notice thereof is
not received by Shareholders (i) within thirty (30) days after Buyer first
became aware of said Potential Claim and (ii) by no later than one (1) year
after the Closing, even if said one (1) -year date is less than ten (10) days
after Buyer first became aware of said Potential Claim.
(b) Within thirty (30) days after Buyer provides written notice of a
Potential Claim to the Shareholders, Shareholders and Buyer will attempt to
reach agreement on whether the Potential Claim is a Valid Claim and, if they are
in agreement that the Potential Claim is a Valid Claim, the amount attributable
to the Valid Claim. If the Shareholders and Buyer are unable to reach agreement
within said thirty (30) -day period, then any controversy or claim arising out
of or relating to the Potential Claim shall be settled and resolved by binding
arbitration in accordance with this provision, and judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Any one party to this Agreement may initiate arbitration by delivering
written notice thereof to the other party. Such written notice shall state the
intent of the party to have the controversy represented by the Potential Claim
resolved by arbitration, shall specify the Potential Claim, and shall designate
an arbitrator who shall not have an economic, social or other relationship to
the party requesting arbitration ("independent" arbitrator). Delivery may be
effected by depositing a notice of such intention addressed to each party, sent
by registered mail, return receipt requested, sealed and postage prepaid in the
United States Mail, by facsimile transmission, or by personal delivery.
Arbitration shall be by the arbitrator so designated unless the other party to
whom notice has been delivered requests arbitration by three independent
arbitrators within ten (10) days after receipt of the notice of arbitration and
designation of arbitrator. If such a request is made, the party making it shall
designate a second independent arbitrator and the two arbitrators so designated
shall select a third independent arbitrator. The arbitration shall be conducted
by the arbitrator(s) pursuant to the provisions of the California Code of Civil
Procedure relating to civil arbitrations and the Rules of Court for the
California Superior Court, as may be amended and existing from time to time. A
decision of any two arbitrators shall be sufficient to constitute an enforceable
award under the provisions of this section. The costs incurred in the
arbitration, including the fees paid to the arbitrator(s) shall be shared
equally by the parties. The arbitrator(s) shall be entitled to retain legal
counsel in connection with the arbitration of the dispute submitted to
arbitration at the joint expense of the parties during the arbitration
proceeding.
If any party to this Agreement refuses to cooperate voluntarily and without
court order in the arbitration process described herein, then, provided that
notice of the time and place of the arbitration hearing is given to such party,
the arbitration shall proceed in the absence of
10
such party. Any award made by arbitration shall be final and binding on each
party to this Agreement, and at the election of any party to the arbitration, a
judgment on the arbitration award may be entered in any court having
jurisdiction thereof. The arbitrator(s) shall be empowered to award costs and
reasonable attorney's fees in connection with any matter submitted to the
arbitrator(s) for determination.
7.4 No Other Indemnification or Offset. Other than as set forth in this
-----------------------------------
Section 7, there shall be no other indemnification requirement imposed on the
Shareholders by this Agreement, or sought from the Shareholders by Buyer under
any other legal theory.
7.5 Limited Survival of Representations, Warranties, Covenants, and
---------------------------------------------------------------
Agreement. The representations and warranties of the Selling Parties contained
----------
in Section 3 and the covenants and agreements of the Selling Parties contained
in this Agreement and in any certificate, exhibit or schedule delivered pursuant
hereto, or in any other writing delivered pursuant to the provisions of this
Agreement shall survive the Closing (unless Buyer knew or had reason to know of
any misrepresentation or breach of warranty at the time of Closing) for a period
of one year thereafter. The indemnification and offset provisions of Section 7
shall be Buyer's sole remedy in regard to any claims related to said
representations, warranties, covenants and agreements of the Selling Parties.
8. OPERATIONS FROM SIGNING TO CLOSING
----------------------------------
8.1 Operations. Between the Signing Date and the Closing Date, except as
-----------
necessary to carry out the transactions contemplated by this Agreement, neither
the Corporation nor the Shareholders shall enter into any material contract,
agreement, commitment, arrangement or understanding, written or oral, relating
to or affecting the Corporation's Stock, assets or real property without Buyer's
prior written consent, other than transactions undertaken in the normal course
of business. Corporation shall however prior to the Closing have the right to
distribute excess cash, as determined by Corporation, to the Shareholders, and
to distribute a 1995 Infiniti Q45 to the Shareholders. The Corporation agrees to
carry on the Corporation's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the debts and
taxes of the Corporation when due, to pay or perform other obligations when due,
and to the extent consistent with such business, use commercially reasonable
efforts consistent with past practice and policies to preserve intact the
Corporation's present business organization, keep available the services of the
Corporation's present officers and key employees, and preserve the Corporation's
relationships with its customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired the Corporation's ongoing business.
8.2 Obtain Consents. Promptly after the Signing Date, Buyer (at Buyer's
----------------
sole cost and expense) will, and the Corporation and each of the Shareholders
shall cooperate with Buyer to, make all filings and take all steps reasonably
necessary to obtain all other approvals and consents required to be obtained in
order to complete the transactions contemplated by this Agreement, including,
but not limited to, any and all filings and steps reasonably necessary in regard
to alcoholic beverage licenses and permits and the transfer of the Corporation's
Stock.
11
8.3 Title Insurance. Buyer shall have the right to obtain, at
----------------
Buyer's cost, any title insurance Buyer desires with respect to any leasehold
interest of the Corporation, including its ground lease for the Pleasanton
restaurant.
8.4 Environmental Matters. Corporation shall provide to Buyer for
----------------------
inspection as part of Buyer's Due Diligence Period review any and all
environmental reports obtained by Corporation with respect to any of the
properties which the Corporation currently leases. Buyer shall have the further
right to conduct, at Buyer's expense, any and all additional environmental
reviews which Buyer may desire.
8.5 Shareholder Guarantees. During the period between the Signing Date and
-----------------------
the Closing, Buyer, Corporation, and Shareholders shall use their joint best
efforts to obtain a release of any and all guarantees of corporate obligations
which have been provided by Shareholders to any lessor and to any creditor of
Corporation.
9. TERMINATION OF AGREEMENT
------------------------
9.1 Termination. This Agreement may be terminated at any time prior to the
------------
Closing Date:
(a) With the mutual consent of Buyer and the Shareholders;
(b) By the Shareholders, if by the Closing Date any of the conditions
provided in Section 5.2 shall not have been satisfied, complied with or
performed and the Shareholders shall not have waived such failure of
satisfaction, noncompliance or performance;
(c) By Buyer, if by the Closing Date any of the conditions provided in
Section 5.1 shall not have been satisfied, complied with or performed and
Buyer shall not have waived such failure of satisfaction, noncompliance or
nonperformance.
(d) By either of the Shareholders or Buyer, if the Closing does not
occur by 11:59 p.m. (Pacific Time) on January 27, 2002, unless such failure
is due to a delay or default on the part of the party seeking to terminate
the Agreement.
(e) By either party upon a material breach of a representation or
warranty, or a failure to perform in any material respect any covenant of
such party in this Agreement, unless such breach or default has been cured
in all material respects within ten (10) days after written notice of such
breach or default specifying such breach or default in reasonable detail is
given to the party who committed such breach or default.
(f) In the event of any termination pursuant to this Section 9.1
(other than pursuant to Section 9.1(a)), written notice setting forth the
reasons for termination shall be given by the terminating party to the
other.
(g) If this Agreement shall be terminated as herein set forth, Buyer,
the Corporation and the Shareholders agree that they will remain obligated
under and comply with the provisions of this Agreement regarding
confidential and proprietary information set forth in Section 6.2.
12
9.2 Effect of Termination. On termination of this Agreement, the
----------------------
transactions contemplated herein shall forthwith be abandoned and all continuing
obligations and liabilities of the parties under or in connection with this
Agreement shall be terminated and of no further force or effect; provided,
however, that nothing herein shall relieve any party from liability for any
willful misrepresentation, material breach of warranty, or material breach of
covenant contained in this Agreement prior to such termination, and further
provided that all obligations of the parties as referenced in that
Confidentiality Agreement executed by Buyer, dated October 31, 2001, and as
further expressed in Section 6.2 of this Agreement shall continue in effect.
9.3 Effect of Default on Leases. With respect to any and all leases of
----------------------------
Corporation which have been guaranteed by Shareholders, and as to which such
guarantee is not removed prior to any event of default or failure to cure under
such leases, the Shareholders shall have a right to cure any such lease default
and to become, consistent with the terms of such lease, the lessee thereunder.
10. GENERAL
-------
10.1 Assignment. No party to this Agreement shall assign its rights or
-----------
obligations hereunder without the approval of all other parties to this
Agreement, which approval may be given or withheld in the sole and exclusive
discretion of any party whose consent is required. In the event of any approved
assignment, this Agreement shall be binding on and inure to the benefit of any
such approved assignee. This Agreement shall be binding and inure to the benefit
of the parties hereto and their successors, heirs, and legal representatives.
10.2 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
10.3 Notices. All notices, requests, demands and other communications
--------
hereunder shall be deemed to have been duly given if in writing and either
delivered personally, sent by facsimile transmission or by air courier service,
or mailed by postage prepaid registered or certified U.S. mail, return receipt
requested, to the addresses designated below or such other addresses as may be
designated in writing by notice given hereunder, and shall be effective upon
personal delivery or facsimile transmission thereof or upon delivery by
registered or certified U.S. mail or one (1) business day following deposit with
an air courier service:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
If to the Shareholders: At the addresses set forth on Schedule A.
With a copy to: Xxxxxxx X. XxXxx, Esq.
Gagen, McCoy, XxXxxxx & Xxxxxxxxx
000 Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
e-mail: xxxxxxx@xxxxxxx.xxx
-------------------
If to Buyer: Red Xxxxx International, Inc.
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxxxxx Xxxxxxx, XX 8011
Attn: Xxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
With a copy to: Xxxxxx X. Xxxxxx, Esq.
O'Melveny & Xxxxx LLP
000 Xxxxxxx Xxxxxx Xx., 00xx Xxxxx
Xxxxxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
10.4 Applicable Law/Venue/Exclusive Jurisdiction. The Agreement shall be
-------------------------------------------
governed by and construed in accordance with the laws of the State of
California, without regard to its conflict of laws provisions. Should it be
necessary to seek a court's assistance in regard to this Agreement, each of the
parties agrees to submit to the exclusive jurisdiction of the state court
sitting in Contra Costa County, California in any such proceeding, and agrees
that all claims in any such proceeding may be heard and determined in such
court. Each party also agrees not to bring any action or proceeding in any other
court. Each of the parties consents to venue in such jurisdiction, waives any
defense of inconvenient forum to the maintenance of any proceeding so brought
and waives any bond, surety or other security that might be required of any
other party with respect thereto. Any party may effect service of process on any
other party by sending or delivering a copy of the process to the party to be
served at the address set forth in Section 10.3 for such party provided that if
diligent efforts to serve a party are unsuccessful notwithstanding the serving
party's compliance with the foregoing, each party agrees that, in such event,
each party shall hereby be deemed to have appointed the California Secretary of
State as agent for service of process on such party and agrees that service may
be effected by delivering a copy of such service to the Secretary of State.
10.5 Payment of Fees and Expenses. Whether or not the transactions herein
----------------------------
contemplated shall be consummated, each party hereto will pay its own fees,
expenses and disbursements incurred in connection herewith and all other costs
and expenses incurred in the performance and compliance with all conditions to
be performed hereunder (including, in the case of the Shareholders, any such
fees, expenses and disbursements paid or accrued by, or charged to, the
Corporation).
10.6 Incorporation by Reference. All schedules and exhibits attached hereto
--------------------------
are incorporated herein by reference as though fully set forth at each point
referred to in this Agreement.
14
10.7 Captions. The captions in this Agreement are for convenience only and
--------
shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
10.8 Number and Gender of Words. Whenever the singular number is used
--------------------------
herein, the same shall include the plural where appropriate, and shall apply to
all of such number, and to each of them, jointly and severally, and words of any
gender shall include each other gender where appropriate.
10.9 Entire Agreement. This Agreement (including the schedules and exhibits
----------------
hereto) and the other documents delivered pursuant hereto constitute the entire
agreement and understanding between the Selling Parties and Buyer and supersedes
any prior agreement and understanding relating to the subject matter of this
Agreement among the parties hereto. This Agreement may be modified or amended
only by a written instrument executed by the Selling Parties and Buyer acting
through its officers, there unto duly authorized by its Board of Directors.
10.10 Waiver. No waiver by any party hereto at any time of any breach of,
------
or compliance with, any condition or provision of this Agreement to be performed
by any other party hereto may be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
10.11 Construction. The language in all parts of this Agreement must be in
-------------
all cases construed simply according to its fair meaning and not strictly for or
against any party. The word "Knowledge," as used in this Agreement, shall mean
---------
actual knowledge without independent investigation. Unless expressly set forth
otherwise, all references herein to a "day" are deemed to be a reference to a
---
calendar day. All references to "business day" mean any day of the year other
------------
than a Saturday, Sunday or a public or bank holiday in California. Unless
expressly stated otherwise, cross-references herein refer to provisions within
this Agreement and are not references to the overall transaction or to any other
document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons there unto duly authorized as of the date first above written.
THE CORPORATION: WESTERN FRANCHISE DEVELOPMENT, INC.,
A California corporation
By: /s/ Xxxxxx Xxxxxxxx
---------------------------
Xxxxxx Xxxxxxxx,
President
By: /s/ Xxxxxxx Xxxxxxxx
---------------------------
Xxxxxxx Xxxxxxxx,
Secretary
15
THE SHAREHOLDERS: /s/ Xxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxxx, Trustee of
The Xxxxxxxx Trust dated
January 6, 1992
/s/ E. Xxxxxxx Xxxxxxxx
------------------------------------
E. Xxxxxxx Xxxxxxxx, Trustee of
The Xxxxxxxx Trust dated
January 6, 1992
/s/ Xxxxxx Xxxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxx Xxxxxxxx
BUYER: RED XXXXX INTERNATIONAL, INC.,
A Nevada corporation
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
16
THE SHAREHOLDERS: /s/ Xxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxxx, Trustee of
The Xxxxxxxx Trust dated
January 6, 1992
/s/ E. Xxxxxxx Xxxxxxxx
------------------------------------
E. Xxxxxxx Xxxxxxxx, Trustee of
The Xxxxxxxx Trust dated
January 6, 1992
/s/ Xxxxxx Xxxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxx Xxxxxxxx
BUYER: RED XXXXX INTERNATIONAL, INC.,
A Nevada corporation
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------
Title: CEO
------------------------------
By: /s/ Xxxxx XxXxxxxxx
---------------------------------
Title: CFO
------------------------------
16
List of Omitted Exhibits and Schedules
--------------------------------------
The following exhibits and schedules to the Stock Purchase Agreement have been
omitted and shall be furnished supplementally to the Commission upon request:
Schedule A - Shareholders and Capitalization
Schedule B - Financial Statements
Schedule C - Claims, Suits and Proceedings Pending Against the Corporation
or Threatened or Anticipated
Schedule D - Depreciation, Schedule of Personal Property and Fixed Assets
Schedule E - Permits and Licenses
Schedule F - Personnel Schedule
Schedule G - Restaurants Currently Operated by Corporation
Schedule H - Brokers/Finders Compensation
