SECURITIES PURCHASE AGREEMENT
BY AND AMONG
THE QUIZNO'S CORPORATION, THE QUIZNO'S LICENSING COMPANY,
THE QUIZNO'S ACQUISITION COMPANY, THE QUIZNO'S REALTY COMPANY,
THE QUIZNO'S OPERATING COMPANY, QUIZ-DIA, INC.,
S&S COMPANY, QUIZNO'S KANSAS, LLC, CIAO B MANAGEMENT, INC.
AMERICAN FOOD DISTRIBUTORS, INC. AND
THE QUIZNO'S FRANCHISE COMPANY AND
XXXXXXX X. XXXXXXX AND XXXXXXX X. XXXXXXX
AND
XXXXXX XXXXXXXXX CAPITAL PARTNERS II, L.P.
------------------------------------------------
$13,862,259.84 Principal Amount
Secured Senior Note Due 2005
Warrant to Purchase _______ Shares of Common Stock of The Quizno's Corporation
Warrant to Purchase _______ Shares of Class A Preferred Stock of The Quizno's Corporation
Warrant to Purchase _______ Shares of Class C Preferred Stock of The Quizno's Corporation
Warrant to Purchase _______ Shares of Class D Preferred Stock of The Quizno's Corporation
Warrant to Purchase _______ Shares of Class E Preferred Stock of The Quizno's Corporation
------------------------------------------------
Dated as of November __, 2000
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EXHIBITS
Exhibit A C Form of Secured Senior Note
Exhibit B-1 C Form of Common Warrant
Exhibit B-2 C Form of Preferred Warrant
Exhibit C C Form of Guaranty
Exhibit D C Form of Intellectual Property Security Agreement
Exhibit E C Form of Investor Rights Agreement
Exhibit F C Form of Pledge Agreement
Exhibit G C Form of Registration Rights Agreement
Exhibit H C Form of Security Agreement
Exhibit I C Form of Compliance Certificate
DISCLOSURE SCHEDULES
Schedule 3.4 C Subsidiaries
Schedule 3.5(a) C No Conflicts
Schedule 3.5(b) C No Default or Breach
Schedule 3.5(c) C Financing Restrictions
Schedule 3.6 C Consents
Schedule 3.7(a) C Capitalization (Company)
Schedule 3.7(b) C Capitalization (Subsidiary)
Schedule 3.9 C Company SEC Documents
Schedule 3.10(c) C Pro Forma Closing Balance Sheet
Schedule 3.11(a) C Existing Indebtedness, Liens, Investments, Etc.
Schedule 3.11(b) C Contingent Obligations
Schedule 3.11(c) C Post-Closing Indebtedness
Schedule 3.11(e) C Senior and Pari Passu Indebtedness
Schedule 3.12(a) C Absence of Certain Changes
Schedule 3.12(b) C Payments to Shareholders
Schedule 3.13(a) C Material Contracts
Schedule 3.13(b) C Enforceability and Compliance with Material Contracts
Schedule 3.13(c) C No Restrictive Agreements
Schedule 3.16 C Employee Benefit Plans; ERISA
Schedule 3.17(c) C Taxes; Audits or Investigations
Schedule 3.18 C Litigation
Schedule 3.19(a) C Affiliates; Indebtedness
Schedule 3.19(b) C Affiliates; Other Transactions
Schedule 3.19(e) C Affiliates; Certain Transactions
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Schedule 3.19(f) C Affiliates; Loans
Schedule 3.24 C Real Property
Schedule 3.25 C Environmental Matters
Schedule 3.26 C Intellectual Property
Schedule 3.30 C Insurance
Schedule 3.31 C Franchises
Schedule 3.32 C Suppliers
Schedule 3.34 C Personal Property Leases
Schedule 3.35 C Employment Agreements
Schedule 3.37 C Use of Proceeds
Schedule 3.38 C Depository and Other Accounts
Schedule 3.42 C Brokers
Schedule 5.1 C Company Owned Stores - Assets
Schedule 5.4(b) C Tender Offer Conditions
Schedule 6.9 C Tender Offer; Minimum Condition
Schedule 10.9(e) C Permitted Asset Sales
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is entered into as of the __ day of
November 2000 (this "Agreement"), by and between THE QUIZNO'S CORPORATION, a
Colorado corporation (the "Company"), THE QUIZNO'S LICENSING COMPANY, a Colorado
corporation ("Licensing"), THE QUIZNO'S ACQUISITION COMPANY, a Colorado
corporation ("Acquisition"), THE QUIZNO'S REALTY COMPANY, a Colorado corporation
("Realty"), THE QUIZNO'S OPERATING COMPANY, a Colorado corporation,
("Operating"), QUIZ-DIA, INC., a Colorado corporation ("DIA"), S&S COMPANY, a
Colorado corporation ("S&S"), QUIZNO'S KANSAS, LLC, a Colorado limited liability
company ("Kansas"), CIAO B MANAGEMENT, INC., a Colorado corporation ("Ciao"),
AMERICAN FOOD DISTRIBUTORS, INC., a Colorado corporation ("Distributors") and
THE QUIZNO'S FRANCHISE COMPANY, a Colorado corporation ("Franchise"), and, for
purposes of Section 5.7, Section 9.22, Section 9.17 and Section 9.23 only,
Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx, on the one hand, and XXXXXX XXXXXXXXX
CAPITAL PARTNERS II, L.P., a California limited partnership (the "Purchaser"),
on the other hand. The Company, Licensing, Acquisition, Realty, Operating, DIA,
S&S, Kansas, Ciao, Distributors and Franchise, and each of their present and
future Subsidiaries may be individually referred to as a "Company Party" and
collectively referred to as the "Company Parties." Certain terms used herein are
defined in Section 1.1.
R E C I T A L S
A. The Company Parties are engaged in the business of operating
Italian-style delis, specializing in submarine sandwiches, and franchising
retail outlets for these products.
B. The Company intends to consummate the Tender Offer (as defined
herein). In connection with the Tender Offer and the financing of the business
operations of the Company, the Company Parties (other than Franchise) have
authorized the issuance and sale of the Note to the Purchaser as provided herein
in the aggregate principal amount of $13,862,259.84, and the Purchaser is
willing to purchase such Note on the terms and subject to the conditions set
forth herein.
C. To induce the Purchaser to purchase the Note, the Company is willing
to issue and sell to the Purchaser a warrant to purchase a number of shares of
the Company's Common Stock, which shares will represent, immediately after the
closing of the transactions contemplated hereby, 14.0% of the Company's Common
Stock on a Fully Diluted Basis (as such term is defined herein but not including
shares of Preferred Stock), as such number may be adjusted pursuant to the terms
of the Common Warrant, and warrants to purchase a number of shares of each class
of
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Preferred Stock, which shares will represent 14.0% of each such class of
Preferred Stock, as such number may be adjusted pursuant to the terms of each
Preferred Warrant.
D. To further induce the Purchaser to purchase the Note, the Company
Parties and certain of their Affiliates are willing to enter into other
Investment Documents, including, without limitation, an Investor Rights
Agreement under which the Company will grant to the Purchaser or one of its
Affiliates certain investment monitoring and other rights with respect to the
Company Parties and their Affiliates in connection with the transactions
contemplated by this Agreement.
E. To further induce the Purchaser to purchase the Note, and in
consideration therefor, Franchise has agreed to guaranty absolutely and
unconditionally the Guarantied Obligations (as defined in the Guaranty).
Franchise has derived and expects to derive, directly or indirectly, a
substantial benefit from the purchase by the Purchaser of the Note.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS; ACCOUNTING TERMS.
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to the
singular and the plural forms thereof):
"Affiliate" shall mean, with respect to any specified Person,
(i) any other Person that, directly or indirectly, owns or controls, or
has the right to acquire, whether beneficially or of record, or as a
trustee, guardian or other fiduciary (other than a commercial bank or
trust company), five percent (5%) or more of the Capital Stock of such
specified Person, (ii) any other Person that, directly or indirectly,
controls, is controlled by, is under direct or indirect common control
with, or is included in the Immediate Family of, such specified Person
or any Affiliate of such specified Person, or anyone in the Immediate
Family of such specified Person, or (iii) any executive officer,
director, joint venturer, partner or member of such specified Person,
or anyone in the Immediate Family of such specified Person, or any
Person included in the Immediate Family of any of the foregoing. For
the purposes of this definition, the term "control," when used with
respect to any specified Person, shall mean the power (i) to direct or
cause the direction of the management or policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise or (ii) to vote 10% or more of the
Voting Stock of such Person; and the terms "controlling" and
"controlled"
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have correlative meanings. Notwithstanding anything to the
contrary, for the purposes of this Agreement and the other Investment
Documents, neither the Purchaser nor any of its Affiliates, officers,
directors, partners or employees shall be deemed to be an Affiliate of
any Company Party.
"Agreement" shall mean this Agreement, together with the
Exhibits and the Disclosure Schedules hereto, in each case as amended,
restated, supplemented or otherwise modified from time to time.
"Agreements with Officers" shall have the meaning specified in
Section 6.7(e).
"Alternative Transaction" shall have the meaning specified in
Section 5.3.
"AMRESCO" shall have the meaning specified in Section 9.15.
"AMRESCO Agreements" shall have the meaning specified in
Section 9.15.
"Annual Financial Projections" shall have the meaning
specified in Section 9.3.
"Applicable Laws" shall mean all applicable provisions of all
(i) constitutions, treaties, statutes, laws, rules, regulations and
ordinances of any Governmental Authority and all common law duties,
(ii) Consents of any Governmental Authority and (iii) orders,
decisions, rulings, judgments, directives or decrees of any
Governmental Authority.
"Area Directorships" shall mean agreements between a
Company Party and a Person in which such Person acts as a sales
representative within a defined geographic area to solicit and , with
the tasks of identifying prospective franchisees for a Company Party,
assisting a Company Party in locating or securing sites for restaurants
within such geographic area, and providing additional support before,
during, and after such restaurant opens.
"Assignee" shall have the meaning specified in Section 13.5.
"Assignment" shall mean an assignment or other transfer of any
Note pursuant to the terms of such Note.
"Bank" shall mean, collectively, Xxxxx Fargo Bank, AMRESCO
Commercial Finance, GE Capital Business Asset Funding ("GE Capital"),
Xxxxxxx Xxxxx Business Financial Services, Inc. ("Xxxxxxx Xxxxx"),
Lucent Technologies, Oven Baked Subs, Xxxxxxx Xxxxx, and any additional
senior lender or credit facility that provides additional
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Indebtedness to a Company Party as mutually agreed upon by the
Purchaser and the Company or as otherwise allowed under Section 10.1
and Section 10.15.
"Bank Credit Agreements" shall mean the loan or other similar
agreements or documents between any Company Party and any Bank with
respect to any Indebtedness existing as of or entered into subsequent
to the date of this Agreement.
"Bank Credit Documents" shall mean the Bank Credit Agreements
and all notes and other instruments, guaranties, security agreements,
pledge agreements and other documents contemplated by the Bank Credit
Agreements and executed and delivered in connection therewith.
"Bankruptcy Laws" shall mean Title 11 of the United States
Code (11 U.S.C. Section 101 et seq.), as amended from time to time, and
any other federal or state law relating to bankruptcy, insolvency or
reorganization or for the relief of debtors.
"Benefit Plan" shall have the meaning specified in Section
3.16.
"Board of Directors" shall mean, with respect to any Person,
the board of directors (or similar governing body) of such Person.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banking institutions in the City of New York,
New York or in Los Angeles, California, are authorized or required by
law to close.
"California Permit" shall mean a Permit to be issued by the
California Department of Corporations pursuant to Section 25113 of the
California Corporate Securities Law of 1968, as amended, and qualifying
without any restrictions or conditions the issuance and sale by the
Company to the Purchaser of the Securities and the Warrant Shares.
"Capital Expenditures" shall mean, for any period, the
aggregate of all expenditures of the Company and its Subsidiaries
(whether paid in cash or accrued or financed by the incurrence of
Indebtedness) during such period, including all Capital Leases, for any
property, plant, equipment or other fixed assets, or for improvements
thereto, or for replacements, substitutions or additions thereto, that
have a useful life of more than one (1) year or are required to be
capitalized on the consolidated balance sheet of the Company and its
Subsidiaries in accordance with GAAP.
"Capital Lease" shall mean any lease or agreement of the
Company Parties for property (whether real, personal or mixed) which
has been or is required to be classified or
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accounted for as a capital lease on a consolidated balance sheet of
the Company Parties in accordance with GAAP.
"Capital Lease Obligations" shall mean all liabilities or
other obligations for the payment of rent or other amounts for any
property (whether real, personal or mixed) which has been or is
required to be classified or accounted for as a Capital Lease on a
consolidated balance sheet of the Company Parties in accordance with
GAAP with respect to a Capital Lease.
"Capital Stock" shall mean, with respect to any Person, (i) if
such Person is a corporation, any and all shares of capital stock,
participations in profits or other equivalents (however designated) or
other equity interests of such Person, including any preferred stock of
such Person, (ii) if such Person is a limited liability company, any
and all membership units or other interests, or (iii) if such Person is
a partnership or other entity, any and all partnership or entity units
or other interests.
"Cash Interest Expense" shall mean, for any period, without
duplication and only to the extent deducted in determining Net Income
(Loss) before dividends, calculated without regard to any limitation on
the payment thereof and determined in accordance with GAAP, (i) total
consolidated interest expense of the Company and its Subsidiaries
(including, without limitation, interest paid to Affiliates (other than
wholly owned Subsidiaries) and the portion of any Capitalized Lease
Obligations allocable to interest expense but not including scheduled
interest payments on the Subordinated Indebtedness), whether paid or
accrued, minus (ii) to the extent included in total consolidated
interest expense, any non-cash interest expense, including, without
limitation, any payment-in-kind interest, amortization of original
issue discount, non-cash losses on hedging agreements and amortization
of capitalized up-front costs.
"Change in Control" shall mean the occurrence of one or more
of the following events other than events involving solely the transfer
or sale of assets or equity securities from one Company Party to
another Company Party or to a New Subsidiary:
(i) any "person" (other than the Purchaser) or
"group" (as such terms are used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the
purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) of the
Exchange Act, becomes (after the date of this Agreement) the
"beneficial owner" (as such term is defined in Rule 13d-3 of
the Exchange Act (provided that a Person will be deemed to
have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable
immediately or only after the passage of time)), directly or
indirectly, of (a) twenty
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five percent (25.0%) or more of the voting power of the
Voting Stock of any Company Party; provided, however, that
the provisions of this Subsection (i) shall not apply to a
"market maker" as such term is defined in Section 3(a)(38)
of the Exchange Act;
(ii) the occurrence of a sale, transfer, assignment,
lease, conveyance or other disposition, directly or
indirectly, of the majority of the assets of any Company
Party, or the sale of any stock of any Subsidiary, unless such
transaction is permitted pursuant to Section 10.9;
(iii) (A) any Company Party is acquired by, or
merges, consolidates or amalgamates with or into, any other
Person, or (B) any Person after the date hereof acquires
"control" (as such term is defined in the definition of
"Affiliate") of any Company Party;
(iv) Xxxxxxx X. Xxxxxxx shall cease to hold any of
the offices of the Company held by him as of the date hereof
with significant daily senior management responsibilities;
(v) the Board of Directors or the shareholders of any
Company Party shall have approved any plan of liquidation,
dissolution or bankruptcy of such Company Party; or
(vi) Xxxxxxx X. Xxxxxxx or his Affiliates shall sell
or otherwise transfer to any Person (A) more than 15% of the
equity securities of the Company held by him and his
Affiliates as of the date of this Agreement, or (B) equity
securities of the Company held by him and his Affiliates for
gross proceeds in excess of $2,000,000, in each case subject
to the Investor Rights Agreement and other than (1) the
transfer or sale of Capital Stock of the Company by Xxxxxxx X.
Xxxxxxx to Xxxxxxx X. Xxxxxxx upon Xxxxxxx X. Xxxxxxx'x death
pursuant to the Stock Purchase Agreement dated July 14, 2000
between Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx, and (2) the
sale of any equity securities of the Company by Xxxxxxx X.
Xxxxxxx or his Affiliates after the date that is six (6)
months after the date that the Note is indefeasibly paid in
full or otherwise satisfied in full.
"Class A Preferred" shall mean the Company's Class A
Cumulative Convertible Preferred Stock.
"Class C Preferred" shall mean the Company's Class C
Cumulative Convertible Preferred Stock.
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"Class D Preferred" shall mean the Company's Class D Subordinated
Cumulative Convertible Preferred Stock.
"Class E Preferred" shall mean the Company's Class E Cumulative
Convertible Preferred Stock.
"Class A Warrant" shall mean the meaning specified in Section 2.1.
"Class C Warrant" shall mean the meaning specified in Section 2.1.
"Class D Warrant" shall mean the meaning specified in Section 2.1.
"Class E Warrant" shall mean the meaning specified in Section 2.1.
"Closing" shall have the meaning specified in Section 2.3.
"Closing Date" shall have the meaning specified in Section 2.3.
"Closing Fee" shall have the meaning specified in Section 6.3.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, as set forth in Section 4980B of the Code and Part 6 of
Title I of ERISA.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, and the treasury regulations promulgated thereunder.
"Collateral" shall mean the collateral under the Collateral Documents,
however defined.
"Collateral Documents" shall mean, collectively, the Security
Agreement, the Pledge Agreement, the Intellectual Property Security Agreement,
the landlord waivers and consents, the notices of security interest in deposit
accounts, the UCC financing statements, fixture filings, patent, trademark and
copyright filings, assignments, acknowledgments and all other agreements,
instruments and documents delivered from time to time in connection therewith or
otherwise to secure the Obligations or any other obligations of the Company
Parties or any other Person under this Agreement, the Note or any other
Investment Document, in each case as amended, restated, supplemental or
otherwise modified from time to time.
"Commission" shall mean the Securities and Exchange Commission, or any
successor agency.
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"Commitment Fee" shall have the meaning specified in Section 2.5.
"Common Stock" shall mean the common stock, $.001 par value per share,
of the Company.
"Common Warrant" shall have the meaning specified in Section 2.1.
"Company" shall have the meaning specified in the preamble.
"Company Party" and "Company Parties" shall have the meaning specified
in the preamble.
"Company Party Intellectual Property" shall have the meaning specified
in Section 3.26.
"Company SEC Documents" shall mean all registration statements,
prospectuses, reports, schedules, forms, proxy or other statements and other
documents (including all exhibits, schedules and other information included or
incorporated by reference therein) which were filed or required to be filed by
any Company Party prior to the date hereof, and which are required to be filed
by such Company Party on or after the date hereof, with the Commission under the
Securities Act, the Exchange Act or the rules and regulations promulgated
thereunder, and all filings, reports and other documents which were filed or
required to be filed by such Company Party, or are required to be filed by such
Company Party, with the Nasdaq or any securities exchange on which its
securities were or are listed, or with any Governmental Authority.
"Company Store Assets" shall have the meaning specified in Section
10.9.
"Competitor" shall mean any Person engaged in the business of operating
quick service restaurants, including without limitation Italian-Style delis
specializing in submarine sandwiches.
"Compliance Certificate" shall have the meaning specified in Section
9.3.
"Consent" shall mean any consent, approval, authorization, waiver,
permit, grant, franchise, license, exemption or order of, or any registration,
certificate, qualification, declaration or filing with, or any notice to, any
Person, including, without limitation, any Governmental Authority.
"Contingent Obligations" shall mean, with respect to any Person, any
obligation, or arrangement, direct or indirect, contingent or otherwise, of such
Person (i) with respect to any Indebtedness, lease, dividend, letter of credit
or other obligation ("Primary
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Obligations") of another Person, including, without limitation, any direct or
indirect guarantee of such Indebtedness (other than any endorsement for
collection or deposit in the ordinary course of business) or any other direct or
indirect obligation, by agreement or otherwise, to purchase or repurchase any
such Primary Obligation or any property constituting direct or indirect security
therefor, or to provide funds for the payment or discharge of any such Primary
Obligation (whether in the form of loans, advances, or purchases of property,
securities or services, capital contributions, dividends or otherwise), letters
of credit and reimbursement obligations for letters of credit, (ii) to provide
funds to maintain the financial condition of any other Person, (iii) otherwise
to indemnify or hold harmless the holders of Primary Obligations of another
Person against loss in respect thereof or (iv) in connection with any synthetic
lease or other off-balance sheet lease transaction. The amount of any Contingent
Obligation under clauses (i) and (ii) above shall be the maximum amount
guaranteed or otherwise supported by the Contingent Obligation.
"Convertible Securities" shall mean, with respect to any Person, any
securities or other obligations issued or issuable by such Person or any other
Person that are exercisable or exchangeable for, or convertible into, any
Capital Stock of such Person, including without limitation, with respect to the
Company, the Preferred Stock.
"Default" shall mean any Event of Default or any event or condition
which, with the giving of notice or the lapse of time or both, becomes an Event
of Default.
"Disclosure Schedules" shall have the meaning specified in the
introductory paragraph of Section 3.
"Due Diligence Statement" shall mean the statement regarding the
provision of documentation to be used in the diligence review of the Company
Parties by the Purchaser, executed by the Company and delivered to the
Purchaser.
"EBITDA" shall mean, for any period, without duplication and determined
on a consolidated basis and in accordance with GAAP (except as expressly
provided in clause(ii)):
(i) the sum of (A) Net Income (Loss) before dividends, (B)
interest expense deducted in determining Net Income (Loss) (including,
without limitation, cash interest, payment-in-kind interest and
amortization of original issue discount), (C) the amount of Taxes
deducted in determining Net Income (Loss), (D) the amount of
depreciation and amortization expense deducted in determining Net
Income (Loss) and (E) any extraordinary or unusual non-cash losses
(provided that such extraordinary or unusual non-cash losses do not
result in any cash outlay at any time after the Closing Date), in each
case for such period; minus
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(ii) any extraordinary or unusual non-cash gains for such
period, [and minus the value of any Phantom Stock granted (whether or
not required by GAAP) during such period to the extent not expensed in
clause (i)].
"Environmental Conditions" shall mean any Release of any Hazardous
Materials (whether or not such Release constituted at the time thereof a
violation of any Environmental Laws) or any violation of any Environmental Law
as a result of which any Environmental Person has or may become liable to any
Person or by reason of which the business, condition or operations of such
Environmental Person or any of its assets or properties may suffer or be
subjected to any Lien or liability.
"Environmental Laws" shall mean all Applicable Laws relating to
Hazardous Materials or the protection of human health or the environment,
including all requirements pertaining to reporting, permitting, investigating or
remediating Releases or threatened Releases of Hazardous Materials into the
environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
Without limiting the generality of the foregoing, the term "Environmental Laws"
shall include the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. '9601 et seq.) ("CERCLA"), the Hazardous Materials
Transportation Act (49 U.S.C. '1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. '6901 et seq.) ("RCRA"), the Federal Clean Water Act (33
U.S.C. '1251 et seq.), the Clean Air Act (42 U.S.C. '7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. '2601 et seq.) and the Occupational Safety and
Health Act (29 U.S.C. '651 et seq.), as such laws may be amended from time to
time, and any other present or future federal, state, local or foreign statute,
ordinance, rule, regulation, order, judgment, decree, permit, license or request
or binding determination of, or agreement with, any Governmental Authority
relating to or imposing liability or establishing standards of conduct for the
protection of human health or safety or the environment.
"Environmental Persons" shall mean, collectively, (i) all Company
Parties and any of their respective Affiliates, (ii) any other Person in which
any of the Persons listed in clause (i) above was at any time, or is, a partner,
joint venturer, member or other participant, and (iii) any predecessor or former
partnership, joint venture, trust, association, corporation, limited liability
company or other Person, whether in existence as of the date hereof or at any
time prior to the date hereof, the assets, properties, liabilities or
obligations of which have been acquired or assumed by any of the Persons listed
in clause (i) above or to which any of the Persons listed in clause (i) above
has succeeded.
"Equity Rights" shall mean, with respect to any Person, any warrants,
options or other rights to subscribe for or purchase, or obligations to issue,
any Capital Stock of such Person, or any Convertible Securities of such Person,
including, without limitation, any
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options or similar rights issued or issuable under any employee stock option
plan, stock appreciation rights plan, pension plan or other employee benefit
plan of such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute, including the rules and regulations
promulgated thereunder, in each case as amended from time to time.
"ERISA Affiliate" shall mean any Person that is or was a member of the
controlled group of corporations or trades or businesses (as defined in Sections
(b), (c), (m) or (o) of Section 414 of the Code) of which any Company Party is
or was a member at any time within the last six (6) years.
"Event of Default" shall have the meaning specified in Section 11.1.
"Event of Loss" shall mean with respect to an asset of a Person any of
the following: (i) any loss, destruction or damage, of such asset; (ii) any
pending or threatened institution of any proceedings for the condemnation or
seizure of such asset or of any right of eminent domain; or (iii) any actual
condemnation, seizure or taking, by exercise of the power of eminent domain or
otherwise, of such asset, or confiscation of such asset or requisition of the
use of such asset.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System and any successor thereto.
"Financial Statements" shall have the meaning specified in Section
3.10(a).
"Fiscal Quarter" shall mean any of the four quarters of a Fiscal Year.
"Fiscal Year" shall mean the fiscal year of the Company, which shall be
the twelve (12) month period ending on September 30, or such other period as the
Company may designate in writing and the Purchaser shall have approved in
advance in writing.
"Fixed Charge Coverage Ratio" shall mean, with respect to any period,
the ratio of (i) EBITDA for such period to (ii) Fixed Charges for such period.
"Fixed Charges" shall mean, for any period and without duplication, the
sum of (i) Cash Interest Expense; (ii) scheduled payments of principal on any
Indebtedness of the Company and its Subsidiaries other than the Subordinated
Indebtedness and Permitted Contingent Obligations; (iii) scheduled Capitalized
Lease Obligations of the Company or any of its Subsidiaries for such period;
(iv) Taxes paid by the Company and its
13
Subsidiaries; and (v) cash dividends or distributions, if any, paid by the
Company or any of its Subsidiaries.
"Fully Diluted Basis" shall mean, at any time, a basis that includes
all shares of Capital Stock of a Person issued and outstanding at such time and
all additional shares of Capital Stock of that Person which would be issued upon
the conversion or exercise of all Equity Rights of the Person outstanding at
such time.
"GAAP" shall mean generally accepted accounting principles and
practices set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, all as in effect on the date hereof,
applied on a basis consistent with prior periods.
"Governmental Authority" shall mean any nation or government, and any
state or political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, the Commission, the United States
Environmental Protection Agency ("EPA"), the Federal Trade Commission and the
Federal Drug Administration), and any court, tribunal or arbitrator(s) of
competent jurisdiction, and any self-regulatory organization.
"Government Reports" shall mean any reports issued by any Governmental
Authority with respect to the compliance or non-compliance of any Company Party
with Applicable Laws, including, without limitation, laws relating to
franchising.
"Guaranty" shall mean a Continuing Guaranty made by Franchise in favor
of the Purchaser, in form and substance satisfactory to the Purchaser, as
amended, supplemented, or otherwise modified from time to time, in substantially
the form attached hereto as Exhibit C.
"Hazardous Materials" shall mean any substance (i) the presence of
which requires investigation or remediation under any Applicable Laws; (ii) that
is defined or becomes defined as a "hazardous waste" or "hazardous substance"
under any Applicable Laws (including, without limitation, all Environmental
Laws); (iii) that is toxic, explosive, corrosive, inflammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any Governmental Authority; (iv) the presence of which on any real
property causes or threatens to cause a nuisance upon the real property or to
adjacent properties or poses or threatens to pose a hazard to any real property
or to the health or safety of Persons on or about any real property; or (v) that
contains gasoline or other petroleum hydrocarbons, polychlorinated biphenyls or
asbestos.
14
"Hazardous Materials Claim" shall have the meaning set forth in Section
9.14.
"Holder" shall mean any Person (including, without limitation, the
Purchaser) in whose name the Note is registered in the register required to be
maintained by the Company Parties pursuant to Section 10 of the Note.
"Immediate Family" of a Person includes such Person's spouse, and the
parents, children, grandchildren and siblings of such Person or his or her
spouse and their spouses and other Persons related to the foregoing by blood,
adoption or marriage within the second degree of kinship.
"Indebtedness" shall mean, with respect to any Person and without
duplication, (i) any indebtedness, liabilities or other obligations, contingent
or otherwise, for borrowed money; (ii) all obligations evidenced by bonds,
notes, debentures or similar instruments; (iii) all obligations to pay the
deferred purchase or acquisition price of property or services (other than trade
accounts payable arising in the ordinary course of business so long as such
trade accounts payable are less than sixty (60) days past their due dates) and
any installment payment non-compete agreements; (iv) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights or remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property); (v) all Capital Lease Obligations;
(vi) all obligations of others secured by a Lien to which any property or assets
owned by such Person is subject, whether or not the obligations secured thereby
have been assumed by such Person; (vii) all obligations in respect of Rate
Contracts; (viii) all obligations of such Person, contingent or otherwise, in
respect of any letters of credit or bankers' acceptances; (ix) all reimbursement
or other obligations of such Person in respect of any bank guaranties, shipside
bonds, surety bonds and similar instruments issued for the account of such
Person or as to which such Person is otherwise liable for reimbursement of
drawings or payments; (x) all obligations under facilities for the discount or
sale of receivables; (xi) the maximum repurchase price of any redeemable Capital
Stock of such Person; (xii) all Contingent Obligations; (xiii) accrued liability
under the Stock Appreciation Rights Plan; (xiv) to the extent the accrued
liability under the Stock Appreciation Rights Plan is converted to, or paid by
the issuance of, Capital Stock, at any time, the amount of such accrued
liability immediately prior to such conversion or payment; and (xv) all
obligations which are required to be classified as long-term liabilities on the
balance sheet of such Person under GAAP. The Indebtedness of any Person shall
include all recourse Indebtedness of any partnership or joint venture or limited
liability company in which such Person is a general partner or a joint venturer
or a member.
"Indemnified Environmental Costs" shall mean all actual or threatened
liabilities, claims, actions, causes of action, judgments, orders, damages
(including foreseeable and unforeseeable consequential damages), costs,
expenses, fines, penalties and losses (including sums paid in settlement of
claims and all reasonable consultant, expert and legal
15
fees and reasonable expenses of counsel) incurred in connection with any
Hazardous Materials Claim, any investigation of Site conditions or any clean-up,
Remedial Work or other remedial, removal or restoration work (whether of any
Real Property or any other real property), or any resulting damages, harm or
injuries to the Person or property of any third parties or to any natural
resources.
"Indemnified Parties" shall have the meaning specified in Section 8.2.
"Initial Financial Projections" shall have the meaning set forth in
Section 6.14.
"Intangible Assets" shall mean the book value of all intangible assets
(as defined under GAAP) shown on the consolidated balance sheet of the Company
Parties, including, without limitation, organization costs, securities issuance
costs, goodwill (including any amounts, however designated on such balance
sheet, representing the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of the Company Parties),
covenants not to compete, patents, trademarks, copyrights, trade secrets,
customer lists, know-how, licenses, contracts, franchises, software costs,
research and development costs, investments in and monies from Affiliates and
any other intangible assets.
"Intellectual Property" shall mean all intellectual property,
including, without limitation, (i) inventions, whether or not patentable,
whether or not reduced to practice, and whether or not yet made the subject of a
pending patent application or applications, (ii) ideas and conceptions of
potentially patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending patent application or applications, (iii) national
(including the United States) and multinational statutory invention
registrations, patents, patent registrations and patent applications (including
all reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations) and all rights therein provided by international treaties or
conventions and all improvements to the inventions disclosed in each such
registration, patent or application, (iv) recipes, trademarks, service marks,
domain names, trade dress, logos, trade names and corporate names, whether or
not registered, including all common law rights, and registrations and
applications for registration thereof, including, without limitation, all marks
registered in the United States Patent and Trademark Office, the Trademark
Offices of the States and Territories of the United States of America, and the
Trademark Offices of other nations throughout the world, and all rights therein
provided by international treaties or conventions, (v) copyrights (registered or
otherwise) and registrations and applications for registration thereof, (vi)
computer software, (vii) trade secrets and confidential, technical and business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice), (viii) whether or not confidential, technology (including
know-how and show-how),
16
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing and business data, pricing and
cost information, business and marketing plans and customer and supplier lists
and information, (ix) copies and tangible embodiments of all the foregoing, in
whatever form or medium, (x) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (xi) all rights to xxx
or recover and retain damages and costs and attorneys' fees for present and past
infringement of any of the foregoing.
"Intellectual Property Security Agreement" shall mean a Grant of
Security Interest in Patents, Trademarks and Licenses made by the Company
Parties, in form and substance satisfactory to Purchaser, in favor of the
Purchaser, in substantially the form attached hereto as Exhibit D, and all
amendments, modifications and joinders thereto.
"Interest Rate Event" shall be any of the events specified in Section 2
of the Note.
"Investment Documents" shall mean, collectively, this Agreement, the
Note, the Warrants, the Guaranty, the Registration Rights Agreement, the
Collateral Documents, the Investor Rights Agreement and all other agreements,
instruments, certificates, closing and other letters and other documents
executed and/or delivered in connection herewith or therewith, in each case as
amended, restated, supplemented or otherwise modified from time to time.
"Investments" shall mean, as applied to any Person, (i) any direct or
indirect acquisition by such Person of Capital Stock, other securities or other
interests of, or investments in, any other Person, or all or any substantial
part of the business or assets of any other Person, and (ii) any direct or
indirect loan, gift, advance or capital contribution by such Person to any other
Person.
"Investor Rights Agreement" shall mean an Investor Rights Agreement, in
form and substance satisfactory to the Purchaser, among the Company, the
Purchaser and the Principal Stockholders in substantially the form attached
hereto as Exhibit E.
"Leverage Ratio" shall mean, with respect to any period, the ratio of
(i) the sum of (A) total Indebtedness of the Company and its Subsidiaries at the
end of such period, net of cash (other than the Permitted Contingent Obligations
and the Subordinated Indebtedness and, to the extent the Company makes the RES
Loan to Xxxxxxx X. Xxxxxxx from borrowings under the Xxxxxxx Xxxxx Bank Credit
Documents, any Indebtedness pursuant to the Xxxxxxx Xxxxx Bank Credit Agreement
or Refinancing Indebtedness thereof in compliance with the terms of this
Agreement shall be reduced by the amount of Xxxxxxx X. Xxxxxxx'x note payable
to the Company pursuant to the RES Loan); and (B) all Capital Leases
existing at the end of such period, to (ii) EBITDA for the four (4) consecutive
Fiscal Quarters ending as of the end of such period.
17
"Lien" shall mean any lien (statutory or other), pledge, mortgage, deed
of trust, assignment, deposit arrangement, priority, security interest, charge
or encumbrance or other preferential arrangement of any kind or nature
whatsoever (including, without limitation, the interest of a lessor under a
Capital Lease having substantially the same economic effect), any agreement to
give or refrain from giving any lien, pledge, mortgage, security interest,
charge or other encumbrance of any kind, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing or existence
of any financing statement or other similar form of notice under the laws of any
jurisdiction or any security agreement authorizing any Person to file such a
financing statement, whether arising by contract, operation of law, or
otherwise.
"Liquidity" shall mean the sum of cash on hand plus borrowings which
may be made at the time of measurement under the Bank Credit Agreement between
the Company and Xxxxxxx Xxxxx or under Refinancing Indebtedness under the Bank
Credit Agreement entered into more than nine (9) months after the Closing,
provided, the Company may refinance the Bank Credit Agreements as in effect on
the date hereof within nine (9) months of the Closing as long as the amount the
Company may borrow under such Refinancing Indebtedness at any measurement
date(s) is no greater than the amount the Company may borrow under the Bank
Credit Agreement, as in effect on the date hereof, which is refinanced.
"Losses" shall have the meaning specified in Section 8.2.
"Margin Agreement" shall have the meaning specified in Section 9.22
"Margin Regulations" shall mean Regulations T, U and X of the Federal
Reserve Board, as amended from time to time.
"Margin Stock" shall mean "margin stock" as defined in the Margin
Regulations.
"Material Adverse Effect" or "Material Adverse Change" shall mean any
event, matter, condition or circumstance which (i) has or would reasonably be
expected to have a material adverse effect on or material adverse change in, as
the case may be, the business, assets, condition (financial or otherwise),
properties (whether real, personal or otherwise), operations, profitability or
prospects of the Company Parties, individually or taken as a whole, (ii) would
materially impair the ability of any Company Party to perform or observe its
obligations under this Agreement, the Note, or any other Investment Document or
Bank Credit Document to which it is a party or (iii) affects the legality,
binding affect, validity or enforceability of this Agreement or any other
Investment Document or the perfection or priority of any Lien granted to the
Purchaser under any Collateral Document.
18
"Material Contracts" shall have the meaning specified in Section 3.13.
"Minimum Store Backlog" shall mean the number of franchise agreements
sold but not used in connection with an operating franchised restaurant
(referred to in Company reports as "sold but not open").
"Monthly Reporting Package" shall have the meaning specified in Section
9.3.
"Nasdaq" shall mean the Nasdaq National Market System or The Nasdaq
SmallCap Market, as the case may be, or any successor reporting system thereof.
"Net Income (Loss)" shall mean, for any period, net income (loss)
before dividends and after Taxes of the Company and its Subsidiaries on a
consolidated basis for such period taken as a single accounting period, all
computed in accordance with GAAP. Net Income is after extraordinary gains or
losses.
"New Assets" shall mean the formation, creation or acquisition of any
property or assets of or by any Company Party.
"New Subsidiary" shall mean the formation, creation or acquisition of
any direct or indirect Subsidiary of any Company Party.
"90-Day Payables" shall mean, at any time, the total consolidated trade
payables of the Company and its Subsidiaries, determined in accordance with
GAAP, that are then outstanding ninety (90) days past the invoice date.
"90-Day Receivables"shall mean, at any time, the total consolidated
trade receivables of the Company and its Subsidiaries, determined in accordance
with GAAP, that are then outstanding ninety (90) days past the invoice date.
"Note" shall have the meaning set forth in Section 2.1, and shall also
include, where applicable, any additional note or notes issued by the Company in
connection with any Assignments.
"Obligations" shall mean any and all present and future loans,
advances, Indebtedness, claims, guarantees, liabilities or obligations of the
Company Parties, or of any other Person for or on behalf of the Company Parties,
owing to the Purchaser, any Affiliate of the Purchaser or any Indemnified Party,
of whatever nature, character or description, arising under or in connection
with this Agreement, the Note, the Warrants, the Guaranty, the Registration
Rights Agreement, the Collateral Documents, the Investor Rights Agreement, any
other Investment Document or otherwise, any and all agreements, instruments or
other documents heretofore or hereafter executed or delivered in connection
19
with any of the foregoing, in each case whether due or not due, direct or
indirect, joint and/or several, absolute or contingent, voluntary or
involuntary, liquidated or unliquidated, determined or undetermined, now or
hereafter existing, amended, renewed, extended, exchanged, restated, refinanced,
refunded or restructured, whether or not from time to time decreased or
extinguished and later increased, created or incurred, whether for principal,
interest, premiums, fees, costs, expenses (including, without limitation,
attorneys' fees) or other amounts incurred for administration, collection,
enforcement or otherwise, whether or not arising after the commencement of any
proceeding under the Bankruptcy Laws (including, without limitation,
post-petition interest) and whether or not allowed or allowable as a claim in
any such proceeding, and whether or not recovery of any such obligation or
liability may be barred by any statute of limitations or such Indebtedness,
claim, liability or obligation may otherwise be unenforceable.
"Operating Licenses" shall mean, collectively, all licenses,
franchises, permits, consents, approvals, registrations, certificates and
authorizations of all Governmental Authorities necessary or advisable to the
conduct of the businesses of any of the Company Parties.
"Other Debt Document" shall mean any agreement, instrument or other
document evidencing or governing any Indebtedness of any Company Party other
than the Note and any other Investment Document, but including, without
limitation, the Bank Credit Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, as defined
in Title IV of ERISA.
"Permitted Contingent Obligations" shall mean (i) the guaranty of the
Company of the Indebtedness of The Quizno's National Marketing Trust Fund to
Xxxxx Fargo Bank, as in existence on the date hereof; (ii) any guaranty by any
Company Party of any lease for real property of any franchisee of the Company;
(iii) any guaranty by any Company Party of any equipment loans of any franchisee
of the Company; (iv) any guaranty of the Company in the ordinary course of
business consistent with past practices; and (v) the three promissory notes made
by the named co-borrowers and the Company in favor of GE Capital set forth on
Schedule 3.11(a), provided in each case that no payment or request for payment
under any such guaranty or note has been made.
"Permitted Investments" shall mean any one or more of the following:
(i) any direct obligations of the United States of America
(including obligations issued or held in book-entry form on the books of the
Department of the Treasury of the United States of America) or obligations the
timely payment of the
20
principal of and interest on which are fully guaranteed by the United States of
America, all of which mature within three (3) months from the date of
acquisition thereof;
(ii) any interest-bearing demand or time deposits or
certificates of deposit that mature no more than sixty (60) days from the date
of creation thereof and that are either (a) insured by the Federal Deposit
Insurance Corporation or (b) held in any United States commercial bank having
general obligations rated at least "AA" or equivalent by Standard & Poor's
Rating Group Corporation or Xxxxx'x Investors Service, Inc. and having capital
and surplus of at least $500,000,000 or the equivalent;
(iii) any commercial paper rated at least "AAA" or equivalent
by Standard & Poor's Rating Group Corporation or Xxxxx'x Investors Service,
Inc., and maturing no more than sixty (60) days from the date of creation
thereof; or
(iv) loans by the Company to a Person for the limited purpose
of allowing such Person to purchase an Area Directorship or master franchises
(provided that loans to Affiliates shall be subject to Section 10.6).
"Permitted Liens" shall mean:
(i) judgment and attachment Liens in connection with (a)
judgments that do not constitute an Event of Default so long as the judgment
creditor has not succeeded in the foreclosure thereof, reserves have been
established to the extent required by GAAP as in effect at such time, and such
judgment does not pose a material risk of loss or forfeiture to any material
properties or assets of any Company Party, and (b) litigation and legal
proceedings that are being contested in good faith by appropriate proceedings so
long as such litigation or legal proceedings do not pose a material risk of loss
or forfeiture to any material properties or assets of any Company Party,
reserves have been established to the extent required by GAAP as in effect at
such time and so long as such Liens do not encumber assets by an aggregate
amount (together with the amount of any unstayed judgments against any of the
Company Parties) in excess of $250,000;
(ii) Liens for Taxes, assessments or other governmental
charges or levies on property of the Company Parties if the same shall not at
the time be delinquent or thereafter can be paid without penalty, or are being
contested in good faith by appropriate proceedings;
(iii) pledges or deposits by the Company Parties under
worker's compensation laws, unemployment insurance laws or similar legislation;
(iv) Liens on the property of any Company Party incurred in
the ordinary course of business to secure performance of obligations with
respect to statutory or regulatory requirements, performance or return-of-money
bonds, surety or indemnity
21
bonds or other obligations of like nature and incurred in a manner consistent
with industry practice, in each case which are not incurred in connection with
the borrowing of money, the obtaining of advances or credit or the payment of
the deferred purchase price of property;
(v) Liens imposed by operation of law, such as carriers',
warehousemen's and mechanics' Liens, on property of any of the Company Parties
arising in the ordinary course of business and securing payment of obligations
which are not more than sixty (60) days past due or are being contested in good
faith by appropriate proceedings and, if required by GAAP, are appropriately
reserved for on the books of the Company Parties;
(vi) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character;
(vii) Liens incurred in connection with Refinancing
Indebtedness; and
(viii) Liens in existence on the date hereof securing
collateral pursuant to Bank Credit Agreements or as otherwise permitted by
Section 9.15 and this Agreement;
provided, however, that each of the Liens described in the foregoing clauses (i)
through (viii) inclusive shall only constitute a Permitted Lien so long as such
Liens do not materially interfere with the conduct of the Company Parties'
business, individually or taken as a whole, or create a Material Adverse Change.
"Person" shall mean any individual, trustee, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, limited liability partnership and other
entity or any Governmental Authority.
"Pledge Agreement" shall mean a Pledge Agreement by and among the
Company (with respect to the Capital Stock of Distributors) as "Pledgor," on the
one hand, and the Purchaser, on the other hand, in substantially the form
attached hereto as Exhibit F, and all amendments, modifications and joinders
thereto..
"Pledged Shares" shall have the meaning specified in the Pledge
Agreement.
"Preferred Stock" shall mean, collectively, the Class A Preferred, the
Class C Preferred, the Class D Preferred and the Class E Preferred.
"Preferred Warrants" shall mean, collectively, the Class A Warrant, the
Class C Warrant, the Class D Warrant and the Class E Warrant.
22
"Pro Forma Closing Balance Sheet" shall have the meaning specified
in Section 3.10(c).
"Purchase Price" shall have the meaning specified in Section 2.2.
"Purchaser" shall have the meaning set forth in the preamble.
"Rate Contracts" shall mean rate swaps, caps, floors and collars,
currency swaps, or other similar financial products designed to provide
protection against fluctuations in interest, currency or exchange
rates.
"Real Property" shall mean any and all real property now or
hereafter owned, leased or operated by any Company Party or any
Subsidiary.
"Refinancing Indebtedness" shall mean the refinance, restructuring
or replacement of any Indebtedness pursuant to the Bank Credit
Documents existing on the Closing Date; provided, however, that the
Company Parties shall be in compliance with the financial covenants set
forth in Section 10.15 immediately prior to, and immediately after, the
incurrence of such Refinancing Indebtedness.
"Registration Rights Agreement" shall mean a Registration Rights
Agreement, in form and substance satisfactory to the Purchaser, between
the Company and the Purchaser, in substantially the form attached
hereto as Exhibit G.
"Release" shall mean any release (whether threatened or actual),
migration, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, seeping, leaching, dumping or
disposing into the environment or the workplace of any Hazardous
Materials, and otherwise as defined in any Environmental Laws.
"Released Lien" shall mean the release of any Lien of any Bank,
whether or not such Lien is in existence on the date hereof.
"Remedial Work" shall have the meaning specified in Section 9.14.
"RES Loan" shall have the meaning specified in Section 9.22.
"Restricted Payment" shall mean any one or more of the following:
(i) any dividend or other distribution (whether made in cash,
securities or other property), whether direct or indirect, declared or
paid on account of or with
23
respect to any Capital Stock or other securities of any Company Party
now or hereafter outstanding, including the Preferred Stock;
(ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any
shares of any Capital Stock of any Company Party now or hereafter
outstanding, including the Preferred Stock;
(iii) any payment or prepayment of principal of, premium, if any,
or interest, fees or other charges on or with respect to, or any
redemption, purchase or other acquisition for value, retirement,
defeasance, sinking fund or similar payment with respect to, any
Indebtedness or any payment in violation of the subordination terms of,
any Indebtedness, except (A) regularly scheduled or required payments
or redemptions of the Indebtedness under the Bank Credit Agreements and
the Refinancing Indebtedness, or (B) repayment of up to $5,000,000
pursuant to Section 4(c) of the Note, provided, that such repayment is
made other than with the proceeds of, or in connection with, any sale
or other transfer by any Company Party of any property or assets not in
the ordinary course of such Company Party's business, and provided,
further, that after giving effect to such repayment the Company shall
have Liquidity in an amount at least equal to Liquidity on the Closing
Date, and Purchaser shall have received a certificate signed by the
President and Chief Executive Officer and the Chief Financial Officer
of the Company certifying the foregoing.
(iv) any management, consulting or similar fees or any other
payments of any kind payable by any Company Party to any other Company
Party or any Affiliate of any Company Party; and
(v) any Investment (other than Permitted Investments) in any
Person.
"Securities" shall have the meaning specified in Section 2.1.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, all as the same
shall be in effect at the time.
"Security Agreement" shall mean a Security Agreement made by the
Company Parties in favor of the Purchaser, in form and substance
satisfactory to the Purchaser, in substantially the form attached
hereto as Exhibit H, and all amendments, modifications and joinders
thereto.
"Senior Indebtedness" shall mean, with respect to any Person, the
principal of, premium, if any, interest on any Indebtedness of such
Person, whether now outstanding or hereafter created, incurred, assumed
or guaranteed, unless such Indebtedness is contractually subordinate or
junior in right of payment and rights upon liquidation to the
Indebtedness evidenced by the Note. The term "Senior Indebtedness" of
the Issuers shall
24
include, without limitation, Indebtedness existing as of the date
hereof under the Bank Credit Documents and Refinancing Indebtedness,
and shall include the Indebtedness evidenced by the Note.
"Share Transaction" shall have the meaning specified in Section
5.7.
"Site" shall mean any real property previously, currently or
hereafter owned, leased or operated by any Environmental Person.
"Solvent" shall mean, with respect to any Person, that on the date
of determination: (i) the present fair saleable value of the assets
(i.e., the price a buyer is willing to pay for such asset in an
arms-length transaction) of such Person will exceed the amount that
will be required to pay the probable liability on the existing debts
(whether matured or unmatured, liquidated or unliquidated, absolute,
fixed or contingent) of such Person as they become absolute and
matured; (ii) the sum of the debts (whether matured or unmatured,
liquidated or unliquidated, absolute, fixed or contingent) of such
Person will not exceed all of the property of such Person at a fair
valuation; (iii) the assets of such Person do not constitute
unreasonably small capital for such Person to carry on its businesses
as now conducted or proposed to be conducted; and (iv) such Person does
not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay such debts and
liabilities as they mature. For purposes of the preceding sentence, the
amount of Contingent Obligations outstanding at any time shall be
computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that are
reasonably expected to become an actual or matured liability.
"Special Event of Default" shall have the meaning specified in
Section11.2(b).
"Stock Appreciation Rights Plan" shall mean an employee incentive
plan adopted by the Company and approved by the Company's Board of
Directors (and, if required by applicable law, by a majority of the
Company's shareholders) in which phantom stock or Capital Stock, either
of which is payable in cash, expensed on the Company's income
statement, and is issued to employees, officers, directors or
consultants of the Company for the primary purpose of soliciting or
retaining their employment or similar services; provided (i) that such
phantom stock or Capital Stock has been accounted for in the Initial
Financial Projections; (ii) that such Stock Appreciation Rights Plan
shall be subject to the reasonable approval of the Purchaser; and (iii)
the aggregate number of such phantom stock or Capital Stock issued
under the Stock Appreciation Rights Plan shall not exceed fifteen
percent (15.0%) of the equity of the Company on a Fully Diluted Basis
(such phantom stock or Capital Stock, the "Phantom Stock"). [The impact
of the Stock Appreciation Rights Plan on the Maximum Leverage Ratio is
set forth in Section 10.16 of this Agreement.]
25
"Subordinated Indebtedness" shall mean Indebtedness of any Company
Party to Xxxxxxx X. Xxxxxxx or any of his Affiliates for the sole
purpose of financing the repurchase of Common Stock owned by Xxxxxxx X.
Xxxxxxx, so long as the maturity of the Subordinated Indebtedness is at
least six (6) months after the Note has been indefeasibly paid in
full or otherwise satisfied in full, and provided, however, that any
such repurchase may only be made with Subordinated Indebtedness (or
nonconvertible preferred stock, as described in the last sentence of
this definition of Subordinated Indebtedness). If such repurchases are
proposed to be made at a price per share in excess of the price per
share offered by the Company in the Tender Offer, the price per share
shall be determined by a nationally recognized investment banking firm
selected by the mutual written agreement of the Company and the
Purchaser, and in the absence of such agreement, pursuant to the
procedures of clause (ii) of the definition of Fair Market Value
in the Warrants. The repurchase of shares shall not be at a price
in excess of the price per share offered by the Company in the Tender
Offer unless (i) the Company receives a fairness opinion that the price
to be paid and such repurchase are fair to the Company and its
stockholders from a financial point of view, and (ii) the Company
receives an opinion of outside counsel reasonably satisfactory to the
Purchaser that such repurchase is in compliance with state and federal
securities laws and Colorado Law. The Subordinated Indebtedness shall
be issued pursuant to a subordination agreement and subordinated note
and other related documents, each in form and substance satisfactory to
Purchaser, the Company and Xxxxxxx X. Xxxxxxx, which subordination
agreement and subordinated note shall provide that the interest rate
thereunder shall not be greater than 13.25% per annum, no interest
payments shall be made on such Subordinated Indebtedness during any
Default or Event of Default or Interest Rate Event and no principal
payments shall be made on such Subordinated Indebtedness until the
Obligations to the Purchaser under the Note have been indefeasibly
paid or otherwise satisfied in full. The term "Subordinated
Indebtedness" shall be deemed to include nonconvertible preferred
stock of the Company having equivalent terms and conditions if
nonconvertible preferred stock is issued in lieu of a subordinated
note, including that such nonconvertible preferred stock shall not
provide for dividends in an amount in excess of thirteen and one
quarter percent (13.25%) per annum and shall not be redeemable until
at least six (6) months after the Note has been indefeasibly paid in
full or otherwise satisfied in full.
"Subsidiary" and "Subsidiaries" shall mean, with respect to any
specified Person, any other Person of which more than twenty-five
percent (25.0%) of the total voting power of Capital Stock entitled to
vote (without regard to the occurrence of any contingency) in the
election of directors (or other Persons performing similar functions)
are at the time directly or indirectly owned by such specified Person.
Unless otherwise indicated, the term "Subsidiary" refers to a
Subsidiary of the Company, whether directly or indirectly owned.
"Systems" shall have the meaning specified in Section 3.39.
"Tax" or "Taxes" shall mean any present and future income, excise,
sales, use, stamp or franchise taxes and any other taxes, fees, duties,
levies, withholdings or other charges of any nature whatsoever imposed
by any taxing authority, whether federal, state, local or foreign,
together with any interest and penalties and additions to tax.
26
"Tender Offer" shall mean the tender offer of the Company to
repurchase all of its Capital Stock not currently held by Xxxxxxx X.
Xxxxxxx or Xxxxxxx X. Xxxxxxx with the intention that the Company would
no longer be subject to the Exchange Act.
"Tender Offer Documents" shall mean agreements, certificates and
instruments executed or delivered by the parties thereto in connection
with the Tender Offer or the consummation thereof, or required to be
prepared or filed in connection therewith, including any Company SEC
Documents required to be prepared or filed in connection with the
Tender Offer.
"Tender Offer Merger" shall mean a merger involving the Company for
purposes of taking the Company private, provided such merger is
completed within nine (9) months of the Closing Date, in which each of
Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx retains all of his respective
equity interests in the Company held on the date of this Agreement,
other than transfers by Xxxxxxx X. Xxxxxxx to Xxxxxxx X. Xxxxxxx
pursuant to Section 3.1 of the Investor Rights Agreement and transfers
by Xxxxxxx X. Xxxxxxx to the Company pursuant to the terms of the
Subordinated Indebtedness and Sections 10.1 and 10.4.
"Termination Event" shall mean (i) the Company, any Benefit Plan or
any fiduciary (within the meaning of Section 3(21) of ERISA) of a
Benefit Plan being named as a defendant in a lawsuit filed under ERISA;
(ii) the Internal Revenue Service giving notice that it intends to
revoke the tax-qualified status of any Benefit Plan; (iii) the
occurrence of a "Reportable Event" described in Section 4043 of ERISA
with respect to a Benefit Plan, regardless of whether the PBGC has
waived the notice requirements with respect to such event in its
regulations; (iv) the imposition of liability (whether absolute or
contingent) as a result of a complete or partial withdrawal from a
multiemployer plan; (v) the filing of a notice to terminate a Benefit
Plan in a distress termination under Section 4041(c) of ERISA; (vi) the
institution of proceedings by the PBGC to terminate a Benefit Plan or
to appoint a trustee pursuant to Section 4042 of ERISA, or the
occurrence of any event or set of circumstances that might reasonably
constitute grounds for the PBGC to do either; (vii) the restoration of
a plan by the PBGC pursuant to Section 4047 of ERISA; or (viii) the
Company's withdrawal from a single-employer plan during the plan year
in which it is a substantial employer pursuant to Section 4063 of
ERISA.
"Third Party Intellectual Property Rights" shall have the meaning
specified in Section 3.26.
"Total Payables " shall mean, at any time, the total consolidated
trade payables of the Company and its Subsidiaries at such time,
determined in accordance with GAAP.
27
"Total Receivables" shall mean, at any time, the total consolidated
trade receivables of the Company and its Subsidiaries at such time,
determined in accordance with GAAP.
"UCC" shall mean the Uniform Commercial Code, as adopted and in
force in the State of California as from time to time in effect, and
the Uniform Commercial Code of any other jurisdiction as required under
Division 9103 of the California Commercial Code.
"Voting Stock" of a Person shall mean all classes of Capital Stock
of such Person then outstanding and normally entitled (without regard
to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
"Warrants" shall mean, collectively, the Preferred Warrants and the
Common Warrant.
"Warrant Shares" shall mean, collectively, the Warrant Shares as
defined in each respective Warrant.
"Year 2000 Compliant" shall have the meaning specified in Section
3.39.
1.2 Accounting Terms and Computations. For purposes of this Agreement,
(a) all accounting terms used in this Agreement that are not expressly defined
herein have the meanings given to them under GAAP, (b) all computations made
pursuant to this Agreement or any other Investment Document shall be made in
accordance with GAAP, (c) all financial statements and other financial
information to be delivered by the Company Parties hereunder or under any other
Investment Document shall be prepared in accordance with GAAP, except that any
interim financial statements or other financial information which are unaudited
may be subject to year-end audit adjustments and may omit footnotes and (d) all
computations, financial statements and other financial information of the
Company Parties hereunder shall be determined on a consolidated basis in
accordance with GAAP.
1.3 Covenants. To the extent that this Agreement contains any covenants
or agreements of any Company Party not a signatory hereto, the Company shall be
responsible for causing such Company Party to comply with such covenants and
agreements. All covenants and agreements under this Agreement shall each be
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by another
covenant, by an exception thereto, or be otherwise within the limitations
thereof, shall not avoid the occurrence of a Default or an Event of Default if
such action is taken or condition exists.
1.4 Captions; Construction and Interpretation. The captions in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement and are not to be considered in construing or interpreting this
Agreement. All section, preamble, recital, exhibit,
28
schedule, disclosure schedule, annex, clause and party references are to this
Agreement unless otherwise stated. No party, nor its counsel, shall be deemed
the drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all provisions of this Agreement shall be construed in accordance
with their fair meaning, and not strictly for or against any party. Any
reference herein to a "shareholder," with regard to any Company Party, shall
mean and refer to a "member" if such Company Party is a limited liability
company, and any reference herein to an "officer" or a "director" of any Company
Party shall mean and refer to the equivalent position at a limited liability
company which is a Company Party.
1.5 Determinations. Any determination or calculation contemplated by
this Agreement or any other Investment Document that is made by the Purchaser
shall be final and conclusive and binding upon the Company Parties in the
absence of manifest error.
2. PURCHASE AND SALE OF THE SECURITIES.
2.1 Authorization. The Company has authorized the issuance and sale to
the Purchaser of (a) a Secured Senior Note Due 2005 in the principal amount of
$13,862,259.84, in substantially the form of Exhibit A (as the same may be
amended, restated, supplemented, modified, renewed, refinanced or restructured
from time to time, the "Note"). In addition, the Company has authorized the
issuance and sale to the Purchaser of (a) a warrant to purchase the number of
shares of Common Stock, in substantially the form of Exhibit B-1 (as the same
may be amended, restated, supplemented or otherwise modified from time to time,
the "Common Warrant"), which Common Warrant will represent 14.0% of the shares
of Common Stock on a Fully Diluted Basis (but not including Shares of Preferred
Stock) as such numbers may be adjusted pursuant to the terms thereof, and (b)
warrants to purchase shares of Class A Preferred (the "Class A Warrant"), shares
of Class C Preferred (the "Class C Warrant"), shares of Class D Preferred (the
"Class D Warrant") and shares of Class E Preferred (the "Class E Warrant"),
respectively, in substantially the form attached hereto as Exhibit B-2 (as the
same may be amended, restated, supplemented or otherwise modified from time to
time, collectively, the "Preferred Warrants"), each of which warrants will
represent 14.0% of the shares of the class of Preferred Stock outstanding, as
such number may be adjusted pursuant to the terms thereof. The Note and the
Warrants are collectively referred to herein as the "Securities." The repayment
of the Indebtedness evidenced by the Note, and all other obligations, shall be
secured by the collateral described in the Collateral Documents.
2.2 Purchase of the Securities; Issue Price. Subject to the terms and
conditions contained herein and in the other Investment Documents, and in
reliance upon the representations, warranties, covenants and agreements
contained herein, at the Closing, the Company shall issue and sell to the
Purchaser the Note and the Warrants, and the Purchaser shall purchase the
Securities from the Company. The aggregate purchase price to be paid by the
Purchaser for the Securities (the "Purchase Price") shall be $13,862,259.84,
payable as provided in Section 2.3. The Company Parties, on the one hand, and
the Purchaser, on the other hand, agree that, for purposes of Section 1271 et
seq. of the Code, the original issue price of the Note will be 98.75% of its
29
principal amount and the original issue price of the Warrants will be $173,278,
and that this agreement is intended to constitute an agreement as to the issue
prices of the Securities for all federal, state and local income tax purposes.
2.3 Closing. The closing of the issuance and sale of the Securities
under this Agreement (the "Closing") shall take place at the offices of Xxxxxxx
& XxXxxxxx, 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000,
concurrently with the Company's acceptance for and payment for shares validly
tendered and not withdrawn pursuant to the Tender Offer or as soon as
practicable thereafter immediately following the satisfaction or waiver of the
conditions precedent set forth in Section 6 and Section 7 (such date being
referred to as the "Closing Date"), subject to Section 12.1. At the Closing, the
Company Parties shall deliver to the Purchaser, among other things, the
Securities, duly executed by the Company Parties or the Company, as applicable,
against delivery by the Purchaser of the Purchase Price (net of amounts
permitted to be withheld pursuant to Sections 6.3 and 8.5) by wire transfer in
immediately available funds to such bank as the Company may request in writing
for credit to an account designated by the Company in such request, provided,
however, that such request shall be consistent with the purposes set forth in
Schedule 3.37.
2.4 Use of Proceeds. The Company Parties shall use the proceeds from
the issuance and sale of the Securities as contemplated hereunder solely for the
purposes set forth in Schedule 3.37.
2.5 Commitment Fee.
(a) Upon the execution of this Agreement, the Company Parties,
jointly and severally, shall pay to the Purchaser in immediately available
funds, to a bank account designated by the Purchaser, an amount in cash equal to
$250,000 (the "Commitment Fee"), which Commitment Fee shall be credited against
the Closing Fee if the Closing occurs, subject to subsections (b) and (c) below.
(b) If the Closing does not occur because of (i) a termination
of this Agreement by the Purchaser pursuant to Sections 12.1(a) through (c); or
(ii) the non-satisfaction of any of the conditions set forth in Section 6, the
Commitment Fee shall be retained by the Purchaser.
(c) If the Closing does not occur because of the
non-satisfaction of any of the conditions set forth in Section 7.1 or 7.4
(unless, in the case of Section 7.4, the non-payment of the Purchase Price was
due to the non-satisfaction of any closing condition set forth in Section 6),
the Commitment Fee shall be refunded to the Company on January 31, 2001.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY PARTIES. In connection
with the following representations and warranties, the Company Parties have
delivered to Purchaser disclosure schedules (the "Disclosure Schedules")
arranged in numbered parts
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corresponding to the numbering in this Agreement of the following
representations and warranties. The information disclosed in any numbered part
shall be deemed to relate to and to qualify only the particular representation
or warranty set forth in the corresponding numbered section in this Agreement
and shall not be deemed to relate to or to qualify any other representation or
warranty. To induce the Purchaser to purchase the Securities under this
Agreement, the Company Parties hereby jointly and severally represent and
warrant to the Purchaser that, except as expressly set forth in the respective
Disclosure Schedules:
3.1 Organization and Qualification. Each Company Party is a corporation
or limited liability company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation,
as applicable. Each Company Party has all requisite power and authority, and all
Operating Licenses, necessary to own or lease and operate its properties and
assets and to carry on its business as now conducted and as proposed to be
conducted, and is duly qualified or licensed to do business in each jurisdiction
in which the character of the properties or assets owned, leased or operated by
it or the nature of the activities conducted makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
could not reasonably be expected to result in a Material Adverse Effect.
3.2 Corporate or Other Power. Each Company Party has the requisite
power and authority to execute, deliver, carry out and perform its obligations
under this Agreement and all other Investment Documents to which it is a party,
including, without limitation, the power and authority to issue, sell and
deliver the Securities to be issued and sold by it to the Purchaser hereunder.
3.3 Authorization; Binding Obligations. The execution, delivery and
performance of this Agreement and each of the other Investment Documents to
which any Company Party is a party, the issuance, sale and delivery by the
Company Parties of the Securities as contemplated hereunder and the consummation
of the other transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of the Company Parties, as
applicable, by the stockholders, members, board of directors and officers of
each entity, as applicable. This Agreement has been duly executed and delivered
by the Company Parties and, at the Closing, each of the other Investment
Documents will be duly executed and delivered by each Company Party that is a
party thereto. This Agreement is, and each other Investment Document will at the
Closing be, a legal, valid and binding obligation of each Company Party that is
a party thereto, enforceable against such Company Party in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or conveyance or similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability, and except as rights of indemnity or contribution
may be limited by federal or state securities laws or the public policy
underlying such laws.
3.4 Subsidiaries.
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(a) Schedule 3.4 sets forth a true, complete and correct list
of all of the direct and indirect Subsidiaries of the Company, setting forth, as
to each such Subsidiary, its name, the address of its principal executive
offices, its state or other jurisdiction of organization, its federal and state
Tax identification numbers, and all states and other jurisdictions in which each
such Subsidiary is duly qualified or licensed to do business as a foreign
corporation or entity. Each such Subsidiary is a Company Party. The Company
owns, directly or indirectly, all of the issued and outstanding units,
membership interests or shares of Capital Stock of each Subsidiary set forth on
Schedule 3.4. Except as set forth on Schedule 3.7(b), no Subsidiary of the
Company owns or holds any Capital Stock of any other Person.
(b) Each Subsidiary of the Company is a corporation or limited
liability company duly organized, validly existing and in good standing under
the laws of its state or other jurisdiction of organization and has all
requisite power and authority, and all Operating Licenses, necessary to own or
lease and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted.
(c) Each Subsidiary of the Company is duly qualified or
licensed to do business in good standing in each jurisdiction in which the
character of the properties or assets owned, leased or operated by such
Subsidiary or the nature of the activities conducted makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
could not reasonably be expected to result, individually or in the aggregate, in
a Material Adverse Effect.
3.5 Conflict with Other Instruments; Existing Defaults; Ranking.
(a) Except as set forth in Schedule 3.5(a), the execution,
delivery and performance of this Agreement by the Company Parties and of each
other Investment Document to which any Company Party is a party, the issuance,
sale and delivery by the Company Parties of the Securities and the consummation
of the other transactions contemplated hereby and thereby do not and will not
violate, or cause a default under, or give rise to a right of termination under,
(i) the charter or bylaws, or articles of formation or operating agreement, of
any Company Party, as applicable, in each case as in effect on the date hereof,
(ii) any term of any lease, credit agreement, indenture, note, mortgage,
instrument or other agreement to which any Company Party is a party or by which
any of its or their properties or assets are bound (including, without
limitation, any Material Contracts), (iii) any Applicable Laws, or (iv) any
franchise agreement.
(b) Except as set forth in Schedule 3.5(b), no Company Party
is in default, breach or violation of (i) its charter or bylaws, or articles of
formation or operating agreement, as in effect as of the date hereof, as
applicable, (ii) any lease, credit agreement, indenture, note, mortgage,
instrument or other agreement to which it is a party or by which any of its
properties or assets are bound (including, without limitation, any Material
Contracts) or (iii) any Applicable Laws. Without limiting the generality of the
foregoing, there does not exist any "default" or "event of default" (in each
case as defined in any Other Debt Document) or any default under any
32
other credit or financing agreement to which any Company Party is a party or by
which any of its properties or assets are bound.
(c) Except as set forth in Schedule 3.5(c), there are no
contractual or other restrictions or limitations which prohibit the issuance and
sale by any Company Party of the Securities as contemplated hereunder, prohibit
or restrict any merger, sale of assets or other event which could cause a Change
in Control, or otherwise prohibit any other financings by any Company Party,
including, without limitation, any public or private debt or equity financings.
3.6 Governmental and Other Third Party Consents. Except for the
Consents listed in Schedule 3.6 and those that have already been obtained or
made (including, without limitation, the California Permit), no Company Party is
required to obtain any Consent from, or is required to make any declaration or
filing with, any Governmental Authority or any other Person in connection with
the execution, delivery and performance of this Agreement or any other
Investment Document, including, without limitation, the issuance, sale and
delivery of the Securities, or for the purpose of maintaining in full force and
effect any Operating Licenses. Each of the Consents which have been obtained or
made in connection with the execution, delivery and performance of this
Agreement or any other Investment Document is in full force and effect. The
California Permit has been duly and validly issued, without any qualification or
other condition, and is in full force and effect, and no stop order or similar
order has been issued which postpones, suspends or revokes its effectiveness or
otherwise changes any of the original terms thereof. The time within which any
administrative or judicial appeal, reconsideration, rehearing or other review of
any such Consent may be taken or instituted has lapsed, and no such appeal,
reconsideration or rehearing or other review has been taken or instituted.
3.7 Capitalization.
(a) Schedule 3.7(a) sets forth a true, correct and complete
description of the authorized capital stock of the Company and the number of
shares of each class of Capital Stock of the Company that is issued and
outstanding as of the date hereof. Except as set forth on Schedule 3.7(a), all
of the issued and outstanding shares of Capital Stock of the Company have been
duly authorized and are validly issued, fully paid and non-assessable, and are
free and clear of any Liens and other restrictions (including any restrictions
on the right to vote, sell or otherwise dispose of such Capital Stock) and of
any preemptive or other similar rights to subscribe for or to purchase any such
Capital Stock, except as set forth on Schedule 3.5(c). Except as set forth on
Schedule 3.7(a) or Schedule 3.5(c) (which Schedules set forth a true, correct
and complete description of, with respect to each security, title, name of the
holder or Person, as applicable, the number of shares of Capital Stock of the
Company underlying such security, exercise price, expiration date and percentage
of shares of such Capital Stock on a Fully Diluted Basis), as of the date
hereof, there are: (i) no outstanding Equity Rights of the Company, (ii) no
voting trusts or other agreements or undertakings with respect to the voting of
the Capital Stock of the Company; (iii) no obligations or rights (whether fixed
or contingent) on the part of any Company Party, any
33
of its directors or officers, or any other Person to purchase, repurchase,
redeem or "put" any outstanding shares of the Capital Stock of the Company or
Equity Rights of the Company; and (iv) no agreements to which the Company, any
of their directors or officers, or any other Person is a party granting any
other Person any rights of first offer or first refusal, registration rights or
"drag-along," "tag-along" or similar rights with respect to any transfer of any
Capital Stock or Equity Rights of the Company. All shares of Capital Stock and
Equity Rights of the Company that have been issued have been issued and offered
in compliance with all applicable federal and state securities laws, except for
noncompliance which is immaterial. Except as set forth on Schedule 3.7(a), no
additional shares of Capital Stock of the Company will become issuable to any
Person pursuant to any "anti-dilution" provisions of any such issued and
outstanding securities of the Company on account of the issuance of the
Securities, the exercise of the Warrants or the application of the
"anti-dilution" provisions contained in the Warrants. The shares of Common Stock
covered by the Warrants will constitute fourteen percent (14.0%) of the shares
of Common Stock on a Fully Diluted Basis (not including shares of Preferred
Stock) and fourteen percent (14%) of each class of Preferred Stock, after taking
account of the effect of the Tender Offer, the Tender Offer Merger and the
repurchase of Common Stock of Xxxxxxx X. Xxxxxxx, all as provided in the
Warrants.
(b) Schedule 3.7(b) sets forth a true, correct and complete
description of the authorized capital stock of each Subsidiary of the Company,
the number of shares of each class of Capital Stock of each such Subsidiary that
is issued and outstanding as of the date hereof, the certificate number(s)
representing such number of shares and the owner of record of such issued and
outstanding shares. All of the issued and outstanding shares of Capital Stock of
each Subsidiary of the Company have been duly authorized and are validly issued,
fully paid and non-assessable, and are free and clear of any Liens and other
restrictions (including any restrictions on the right to vote, sell or otherwise
dispose of any such Capital Stock) and of any preemptive or other similar rights
to subscribe for or to purchase any such Capital Stock. Schedule 3.7(b) sets
forth a true, correct and complete description of, with respect to each
security, title, name of the holder, number of shares of Capital Stock
underlying such security, exercise price, expiration date and percentage of
shares of such Capital Stock on a Fully Diluted Basis. There are: (i) no
outstanding Equity Rights of any Subsidiary of the Company; (ii) no voting
trusts or other agreements or undertakings with respect to the voting of the
Capital Stock of any such Subsidiary; (iii) no obligations or rights (whether
fixed or contingent) on the part of any such Subsidiary or any other Person to
purchase, repurchase, redeem or "put" any outstanding shares of the Capital
Stock or Equity Rights of any such Subsidiary; and (iv) no agreements granting
any Person any rights of first offer or first refusal, registration rights or
"drag-along," "tag-along" or similar rights with respect to any transfer of any
Capital Stock or Equity Rights of any such Subsidiary. All shares of Capital
Stock and Equity Rights of any such Subsidiary that have been issued by such
Subsidiary have been issued and offered in compliance with all applicable
federal and state securities laws. No additional shares of Capital Stock of any
Subsidiary of the Company will become issuable to any Person pursuant to any
"anti-dilution" provisions of any such issued and outstanding securities of any
such Subsidiary on account of the
34
issuance of the Securities, the exercise of the Warrants or the application of
the "anti-dilution" provisions contained in the Warrants.
3.8 Validity and Issuance of Warrant Shares. The Warrant Shares have
been duly authorized and reserved and, when issued, delivered and paid for
pursuant to the terms of each Warrant, will be duly and validly issued, fully
paid and non-assessable.
3.9 Company SEC Documents.
(a) Each Company Party has timely filed with the Commission
all Company SEC Documents and Tender Offer Documents which were required to be
filed by it with the Commission since January 1, 1997. Schedule 3.9 sets forth a
true, complete and correct list of all Company SEC Documents and Tender Offer
Documents filed by any Company Party since January 1, 1997 and the respective
dates on which they were filed.
(b) Each Company SEC Document and Tender Offer Document
previously filed by each Company Party complies with all applicable requirements
of the Securities Act and the Exchange Act, and, when filed with the SEC, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company Parties included in each
Company SEC Document and Tender Offer Document filed by each Company Party
complied as to form, as of the dates of its filing with the Commission, with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto, were prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by the Commission)
and fairly present the consolidated financial position of the Company Parties as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments consistent with past practices and
consistently applied).
(c) All information regarding the "Y2K" issue is fully and
adequately disclosed in the Company SEC Documents with respect to the Company
Parties.
3.10 Financial Statements.
(a) The Company has delivered to the Purchaser copies of (i)
audited consolidated balance sheets of the Company Parties as of December 31,
1997, 1998 and 1999, and audited consolidated statements of operations,
shareholders' equity and changes in financial position or cash flows for each of
the three (3) years then ended, together with a report and an unqualified
opinion of Xxxxxxxx Xxxxx Xxxxxxx & Xxxxxxx PC, the independent public
accountants of the Company, and (ii) subject to the provisions of Section
6.2(b), unaudited financial statements of the Company Parties consisting of a
balance sheet as of June 30, 2000, and a
35
statement of operations and cash flows for the nine (9) month period ended June
30, 2000, and (iii) the financial statements required by Section 6.2(b) (the
financial statements referred to in clauses (i) through (iii) being collectively
referred to as the "Financial Statements"). The Financial Statements (including,
in each case, the related schedules and notes) fairly present the consolidated
financial position of the Company Parties as of the respective dates of such
balance sheets and the results of operations of the Company Parties for the
respective periods covered by such statements of operations, shareholders'
equity and changes in financial position or cash flows, as the case may be, and
have been prepared in accordance with GAAP. Except as set forth on Schedule
3.12(a), since September 30, 1999, there has not been any Material Adverse
Change.
(b) Except as provided in this Agreement, no Company Party or
any of its or their officers, directors or other Affiliates (i) is contemplating
the filing of a petition under the Bankruptcy Laws with respect to any Company
Party, or the liquidation of all or any major portion of its or their assets or
properties, or (ii) is aware of any Person contemplating the filing of any
petition against any Company Party under the Bankruptcy Laws. No Company Party
is contemplating changing its business, as such business is being conducted on
the date hereof.
(c) The Company has furnished to the Purchaser a consolidated
balance sheet of the Company Parties as of June 30, 2000 (and will furnish such
consolidated balance sheet as of September 30, 2000 prior to the Closing), as
adjusted to give pro forma effect to the consummation of the transactions
contemplated by this Agreement and the Tender Offer Documents as if such
transactions had occurred on such date (the "Pro Forma Closing Balance Sheets").
Schedule 3.10(c) sets forth a true, correct and complete copy of the Pro Forma
Closing Balance Sheets, together with footnotes describing the pro forma
adjustments and the assumptions underlying the Pro Forma Closing Balance Sheets.
The Pro Forma Closing Balance Sheets present fully and fairly in all material
respects the pro forma consolidated financial position of the Company Parties as
of June 30, 2000, and September 30, 2000 and properly give effect to the
application of the pro forma adjustments described therein and contemplated
herein. All assumptions underlying the Pro Forma Closing Balance Sheets were
made in good faith and are reasonable under the circumstances and no Company
Party is aware of any facts or information that would lead it to believe that
such pro forma adjustments are incorrect or misleading in any respect.
3.11 Existing Indebtedness; Existing Liens; Investments; Etc.
(a) Schedule 3.11(a) sets forth a true, correct and complete
list, and describes, as of the date or dates indicated therein, as applicable:
(i) all Indebtedness of the Company Parties on a
consolidated and consolidating basis outstanding immediately prior to
the Closing Date, showing, as to each Indebtedness, the payee thereof
and the total amount outstanding (by principal, interest and other
amounts, if applicable);
36
(ii) all Liens in respect of any property or assets
of any Company Party existing immediately prior to the Closing Date,
showing, as to each Lien, the name of the grantor and secured party,
the Indebtedness secured thereby, the name of the debtor (if different
from the grantor) and the assets or other property covered by such
Lien;
(iii) all Investments of the Company Parties
immediately prior to the Closing Date;
(iv) all UCC financing statements existing as of
June 30, 2000, naming any Company Party as a debtor, showing, as to
each financing statement, the basis for the filing; and
(v) a trade payables aging schedule for the Company
Parties, on a consolidated basis as of June 30, 2000.
(b) No Company Party has on the date hereof any (i) Contingent
Obligation where the maximum amount guaranteed or otherwise supported by such
Contingent Obligation is in excess of $10,000, (ii) liabilities for Taxes, (iii)
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, in each case except as referred to or
reflected in the Pro Forma Closing Balance Sheet or on Schedule 3.11(b).
(c) Immediately following the Closing, the Company Parties
will not have any Indebtedness, whether accrued, absolute, contingent or
otherwise (whether individually or in the aggregate), except for the
Indebtedness set forth on Schedule 3.11(c).
(d) As of the Closing Date, Liquidity will be at least $4.7
million, provided that Liquidity as of the Closing Date may be $2.6 million if
the Company is not contingently liable in any way for the Margin Agreement or
the RES Loan and the shares of Xxxxxxx X. Xxxxxxx are not subject to any Lien
(other than the Separation Agreement dated on or about August 16, 2000 between
Xxxxxxx X. Xxxxxxx and Xxxxx Xxxxxxx).
(e) Schedule 3.11(e) sets forth a true, correct and complete
list of all Senior Indebtedness of each Company Party.
3.12 Absence of Certain Changes. Except as set forth on Schedule
3.12(a) or as set forth in the Tender Offer Documents, since June 30, 2000,
there has not been, and there is no agreement, commitment or obligation to do,
any of the following:
(a) Any transaction involving any Company Party not in the
ordinary course of business, including, without limitation, any sale of any
assets or properties (other than inventory in the ordinary course of business or
the sale of Company-owned restaurants);
(b) Any declaration, setting aside or payment of any dividend
or other distribution or payment (whether in cash, stock or property) with
respect to the Capital Stock of any Company Party, or any redemption, purchase
or other acquisition of securities of any
37
Company Party, or, to the Company's knowledge, except as set forth on Schedule
3.12(b), any payment to any shareholder of the Company not in his, her or its
capacity as a shareholder;
(c) Any damage, destruction or loss, whether or not covered by
insurance, to any material assets or properties of any Company Party;
(d) Any Material Adverse Change;
(e) Any loan or advance made by any Company Party to any
Person, except normal travel advances or other reasonable business expense
advances made in the ordinary course of business to its own employees or as
otherwise allowed under this Agreement;
(f) Any Indebtedness for borrowed money incurred by any
Company Party or any commitment to incur Indebtedness for borrowed money entered
into by any Company Party (other than as contemplated by this Agreement);
(g) Any capital expenditures or commitments to make capital
expenditures in excess of the amount reflected in the Initial Financial
Projections;
(h) Any indemnity or other claims made by or against any
Company Party with respect to or in connection with any acquisition or sale or
other disposition, whether direct or indirect, of the Capital Stock or assets of
any other Person;
(i) Any amendment or other modification to the charter,
bylaws, articles of incorporation, articles of formation or operating agreement
of any Company Party;
(j) The formation or creation of any direct or indirect
Subsidiary of any Company Party, or the disposition of the Capital Stock or
assets of any Company Party;
(k) Any waiver by any Company Party of a valuable right or of
Indebtedness owed to it;
(l) Any payment, satisfaction, discharge or cancellation of
any debts or claims of any Company Party other than in the ordinary course of
business consistent with past practices;
(m) Any amendment, modification or termination of any Material
Contract or any material agreement to which any Company Party is a party or by
which any Company Party or any of their assets or properties may be bound or
subject or of any employment or consulting agreement, other than amendments,
modifications or terminations in the ordinary course of business consistent with
past practice;
38
(n) Any change in the Contingent Obligations of any Company
Party, by way of guarantee or otherwise;
(o) Any mortgage, pledge or Lien encumbering any of the assets
or properties of any Company Party, or any assumption of, or taking any assets
or properties subject to, any liability;
(p) Any resignation by, or termination of the employment of,
any director or officer of any Company Party;
(q) Any Investment by any Company Party in the Capital Stock
of any Person;
(r) Any payment of management, consulting or similar fees by
any Company Party to any of its Affiliates;
(s) Any offer, issuance or sale of any shares of Capital Stock
or Equity Rights of any Company Party;
(t) Any alteration or change in any Company Party's credit
guidelines and policies, charge-off policies or accounting methods, quality
control procedures or policies or manner of preparing its financial statements
or maintaining its books of account;
(u) Any increase in, or commitment to increase, the salaries,
wages, bonuses or other compensation payable or to become payable to any officer
or other employee of any Company Party, other than increases in salaries and
wages in the ordinary course of business consistent with past practices;
(v) Any adoption by any Company Party of any new Benefit Plan
or amendment to any Benefit Plan to provide any new or additional plans,
programs, contracts, benefits or arrangements involving direct or indirect
compensation to any officer, director, employee, former employee, or their
dependents or beneficiaries, of the Company Parties;
(w) Any settlement of any litigation, entry of a consent
decree or entry of any judgment against any Company Party with a value of
$10,000 or more;
(x) Any revaluation by any Company Party of any of its assets,
including without limitation, any write-offs, increases in any reserves except
in the ordinary course of business consistent with past practice or any write-up
or write-down of the value of inventory, property, plant, equipment or any other
asset;
(y) Any revaluation or repricing of any Equity Rights of any
Company Party; or
39
(z) The occurrence of any other event or the development of
any other condition which has had or could have a Material Adverse Effect.
3.13 Material Contracts.
(a) Schedule 3.13(a) sets forth a true, correct and complete
list of all contracts, commitments, licenses, agreements, obligations or
arrangements, whether oral or written, formal or informal, to which any Company
Party is a party (or intends to become a party) or to which any of its assets or
properties is bound:
(i) under which any Company Party is indemnified for
or against any liability in excess of $50,000 or under which any
Company Party is or could be obligated to indemnify any Person in
excess of $50,000;
(ii) under which any Company Party leases personal
property from or to third parties under Capital Leases which involve
rental payments of at least $25,000 per annum or under operating
leases which involve rental payments of at least $50,000;
(iii) for the purchase or sale of products or other
personal property or for the furnishing or receipt of services (A)
which calls for performance over a period of more than one (1) year,
(B) which involves payments of more than the $50,000 in the aggregate
or (C) in which any Company Party has agreed to purchase a minimum
quantity of goods or services or has agreed to purchase goods or
services exclusively from any Person;
(iv) (A) granting representation, marketing or
distribution rights or (B) relating to Intellectual Property
(including, without limitation, license, franchise or similar
agreements);
(v) under which any Company Party has created,
incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) Indebtedness in excess of $50,000;
(vi) establishing or maintaining any partnership,
joint venture or strategic alliance;
(vii) under which there is or may be imposed a
security interest or other Lien on any of its assets, whether tangible
or intangible, whose net book value or fair market value is in excess
of $50,000 (other than the security interests or Liens granted in favor
of the Purchaser and the Bank);
40
(viii) concerning any confidentiality or
non-solicitation obligations entered into outside the ordinary course
of business;
(ix) under which any Company Party is restricted from
carrying on its business or any part thereof, or from competing in any
line of business or with any Person;
(x) with officers, directors, employees, consultants
or independent contractors of any Company Party;
(xi) resulting in the creation of any Lien (including
any lease notifications) other than a Permitted Lien;
(xii) involving any Affiliates of any Company Party;
(xiii) under which the consequences of a default or
termination could have a Material Adverse Effect;
(xiv) under which any Company Party will (A) receive
aggregate payments from customers, (B) make aggregate payments to
vendors or other suppliers or (C) make or receive aggregate payments to
or from any other Persons, in each case in excess of $50,000 per annum;
(xv) which are franchise agreements, including but
not limited to all master, area director and unit agreements; and
(xvi) not entered into in the ordinary course of
business and not otherwise disclosed on Schedule 3.13(a) in response to
any of the foregoing clauses.
All of the contracts, commitments, licenses, agreements,
obligations or arrangements described in clauses (i) through (xvi) above,
together with the Bank Credit Documents, the Tender Offer Documents, the real
property leases, subleases, licenses and other interests described in Section
3.24, whether entered into prior to, on or after the Closing Date, and the
Agreements with Officers, are collectively referred to herein as the "Material
Contracts".
(b) Except as disclosed on Schedule 3.13(b), each Material
Contract existing as of the date hereof is a legal, valid and binding obligation
of the Company Parties that are party thereto, on the one hand, and the other
parties thereto, on the other hand, enforceable against each of them in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or conveyance or
similar laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability, and is in full force and effect. The
parties to each Material Contract existing as of the date hereof are in
substantial compliance with the terms thereof, and no default or event of
default by any
41
Company Party or, to the best knowledge of the Company Parties, any other party
thereto exists thereunder.
(c) Except as set forth on Schedule 3.13(c), no Company Party
is a party to any contract, commitment, license, agreement, obligation or
arrangement that restricts it from carrying on its business or any part thereof,
or from competing in any line of business or with any other Person.
3.14 Accounts Receivable. All accounts receivable of the Company
Parties (a) are legal, valid and binding obligations of the Persons shown in the
accounting records of the Company Parties as the obligor with respect thereto
(and if any such accounts receivable is not legal, valid and binding obligations
of such Persons, the Company has established reserves therefor, which reserves
are adequate in accordance with GAAP), (b) arose out of bona fide sales actually
made or services actually performed on or prior to such date in the ordinary
course of business, (c) are not subject to discount, rebate, offset, return
privilege or claim (other than as reflected in the reserves taken in recording
the accounts receivable on the books of the Company Parties, which reserves are
adequate in accordance with GAAP) (d) are valid and collectible in the ordinary
course of business. To the knowledge of any Company Party, no customer has
indicated an unwillingness or an inability to pay any amount over $10,000
included in the accounts receivable of the Company Parties.
3.15 Labor Relations.
(a) Each Company Party is in full compliance with the Fair
Labor Standards Act (29 U.S.C. '201 et seq.), all state wage and hour laws and
all worker's compensation laws and is not engaged in any unfair labor practice
which has had or could have a Material Adverse Effect;
(b) There is no labor strike, slowdown, work stoppage or
charge of unfair labor practice, and there are no labor disputes, grievances,
complaints or arbitration proceedings, pending or affecting any Company Party
nor, to the best knowledge of the Company Parties, is there any basis therefor
or threat thereof;
(c) No Company Party is bound by or subject to any written or
oral, express or implied, contract, commitment or arrangement with any labor
union or other employee organization, and no labor union or other employee
organization has requested or sought to represent any of the employees,
representatives or agents of the Company Parties;
(d) No Company Party is aware of (i) any labor union or other
employee organization activity involving employees of the Company or any other
Company Party, or (ii) any executive officer who intends or intend to terminate
his or her employment with any Company Party;
42
(e) There are no petitions pending before the National Labor
Relations Board in connection with any pending claim for union representation;
and
(f) There is no fact or circumstance which could, with the
passage of time or otherwise, cause this representation and warranty to be no
longer true and correct.
3.16 Employee Benefit Plans; ERISA. For purposes of this Section 3.16,
the term "Company" shall include all Company Parties and any Person that is or
would be aggregated with the Company under Section 414(b), (c), (m), or (o) of
the Code. However, this Section 3.16 will not apply to a "Multiemployer Plan"
(as defined in Section 4001(a)(3) of ERISA), except as expressly referred to
herein.
(a) Schedule 3.16 sets forth a true, correct and complete list
of:
(i) Each termination or severance agreement involving
any Company Party, on the one hand, and any of its respective employees
whose annual compensation is at a base rate equal to or exceeding
$50,000, on the other hand;
(ii) All employee benefit plans, as defined in ERISA
Section 3(3); and
(iii) All other profit-sharing, bonus, stock option,
stock purchase, stock bonus, restricted stock, stock appreciation
right, phantom stock, vacation pay, holiday pay, tuition reimbursement,
scholarship, severance, dependent care assistance, excess benefit,
incentive compensation, salary continuation, supplemental retirement,
employee loan or loan guarantee program, split dollar, cafeteria plan,
and other compensation arrangements;
in each case maintained or contributed to by the Company for the benefit of its
employees (or former employees) and/or their beneficiaries. All of these types
of arrangements shall be collectively referred to as "Benefit Plans". An
arrangement will not fail to be a Benefit Plan simply because it only covers one
individual, or because the Company's obligations under the plan arise by reason
of its being a "successor employer" under Applicable Laws. Furthermore, a
Voluntary Employees' Beneficiary Association under Section 501(c)(9) of the Code
will be considered a Benefit Plan for this purpose.
(b) The Company has delivered to the Purchaser a true and
complete copy of the following documents, to the extent that they are
applicable:
(i) Each Benefit Plan and any related funding
agreements (e.g., trust agreements or insurance contracts), including
all amendments (and Schedule 3.16 includes a description of any such
amendment that is not in writing);
43
(ii) The current draft of the summary plan
description and all subsequent summaries of material modifications of
each Benefit Plan;
(iii) The most recent Internal Revenue Service
determination letter for each Benefit Plan that is intended to qualify
for favorable income tax treatment under Section 401(a) or 501(c)(9) of
the Code, which determination letter reflects all amendments that have
been made to the plan (except as set forth in Schedule 3.16); and
(iv) The two (2) most recent Form 5500s (including
all applicable Schedules and the opinions of the independent
accountants) that were filed on behalf of the Benefit Plan.
(c) All costs of administering and contributions required to
be made to each Benefit Plan under the terms of that Benefit Plan, ERISA, the
Code, or any other applicable law have been timely made, and are fully
deductible in the year for which they were paid. All other amounts that should
be accrued to date as liabilities of the Company under or with respect to each
Benefit Plan (including administrative expenses and incurred but not reported
claims) for the current plan year of the plan have been recorded on the books of
the Company. There will be no liability of the Company (i) with respect to any
Benefit Plan that has previously been terminated or (ii) under any insurance
policy or similar arrangement procured in connection with any Benefit Plan in
the nature of a retroactive rate adjustment, loss sharing arrangement, or other
liability arising wholly or partially out of events occurring before the
Closing.
(d) Each Benefit Plan has been operated at all times in
accordance with its terms, and complies currently, and has complied in the past
in all material respects, both in form and in operation, with all Applicable
Laws, including ERISA and the Code. The Internal Revenue Service has issued a
favorable determination letter with respect to each Benefit Plan that is
intended to qualify under Section 401(a) or 501(c)(9) of the Code, and no event
has occurred (either before or after the date of the letter) that would
reasonably be expected to disqualify the plan.
(e) The Company does not maintain any plan that provides (or
will provide) medical or death benefits to one or more former employees or
independent contractors (including retirees) following termination of
employment, other than benefits that are required to be provided under COBRA or
any state law continuation coverage or conversion rights. The Company has
complied in all material respects with the continuation coverage requirements of
COBRA.
(f) There are no investigations, proceedings, lawsuits or
claims pending or, to the best knowledge of the Company Parties, threatened
relating to any Benefit Plan, except for claims for benefits in accordance with
the terms of any Benefit Plan.
44
(g) The Company does not have any intention or commitment,
whether legally binding or not, to create any additional Benefit Plan, or to
modify any existing Benefit Plan so as to increase benefits to participants or
the cost of maintaining the plan. The benefits under all Benefit Plans are as
represented, and have not been, and will not be increased subsequent to the date
documents are provided to the Purchaser except in the ordinary course of
business and consistent with competitive business standards. No statement,
either oral or written, has been made by the Company (or any agent of the
Company) to any Person regarding any Benefit Plan that is not in accordance with
the Plan that could have adverse economic consequences to the Purchaser.
(h) None of the persons performing services for the Company
have been improperly classified as being independent contractors, leased
employees, or as being exempt from the payment of wages for overtime that would
create any material liability on the part of the Company.
(i) None of the Benefit Plans provide any benefits that (i)
become payable or become vested solely as a result of the consummation of this
transaction or (ii) would result in excess parachute payments (within the
meaning of Section 280G of the Code), either (A) solely as a result of the
consummation of this transaction or (B) as a result of the consummation of this
transaction and any actions taken by the Purchaser after the Closing Date.
Furthermore, the consummation of this transaction will not require the funding
(whether formal or informal) of the benefits under any Benefit Plan (e.g.,
contributions to a "rabbi trust").
(j) None of the assets of any Benefit Plan that is a "pension
plan" within the meaning of Section 3(2) of ERISA are invested in a group
annuity contract or other insurance contract that is subject to any surrender
charge, interest rate adjustment, or other similar expense upon its premature
termination.
(k) No Benefit Plan has any interest in any annuity contract
or other investment or insurance contract issued by an insurance company that is
the subject of bankruptcy, conservatorship, rehabilitation, or similar
proceeding.
(l) No Benefit Plan is subject to Title IV of ERISA.
(m) No Benefit Plan is subject to Code Section 412.
(n) The Company Parties have not incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) to any
Multiemployer Plan, and no event has occurred, and there exists no condition or
set of circumstances, that presents a material risk of the occurrence of any
withdrawal (partial or otherwise) from, or the partition, termination,
reorganization, or insolvency of any Multiemployer Plan that could result in any
liability on behalf of the Company to a Multiemployer Plan.
45
(o) The aggregate liability of the Company Parties to all
Multiemployer Plans in the event of a complete withdrawal therefrom, as of the
close of the most recent plan year of the Multiemployer Plan ended prior to the
date hereof would not exceed $10,000. There has been no material change in the
(i) financial condition of any Multiemployer Plan, (ii) the actuarial
assumptions, (iii) required level of Company contributions, or (iv) level of
benefits provided under any Multiemployer Plan since the close of the most
recent plan year of the Multiemployer Plan that, individually or in the
aggregate, would materially increase the amount of this liability.
3.17 Taxes.
(a) Each of the Company Parties has filed within the required
time periods (after giving effect to any permitted extensions) all federal,
state and other Tax returns required to have been filed by it or them, and has
paid all Taxes which were due and payable by it or them, prior to the date
hereof, other than Taxes that are being contested in good faith and for which
reserves have been properly established on the Pro Forma Closing Balance Sheet.
(b) Each of the Company Parties has withheld and paid all
Taxes required to be withheld and paid by it or them in connection with amounts
paid or owing to any employee, creditor, shareholder or other third party.
(c) Except as provided on Schedule 3.17(c): (i) No Company
Party has been advised that any Tax returns have been or are being audited by
any Governmental Authority; (ii) there are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
of any Taxes or deficiency against any Company Party; (iii) there are no
actions, suits, proceedings or claims now pending by or against any Company
Party in respect of any Taxes or assessments; and (iv) there is no pending or,
to the best knowledge of the Company Parties, threatened audit or investigation
of any Company Party by any Governmental Authority relating to any Taxes or
assessments, or any claims for additional taxes or assessments asserted by any
Governmental Authority.
(d) No Company Party is a party to or bound by any tax
sharing, tax indemnity or tax allocation agreement or other similar arrangement.
3.18 Litigation. Schedule 3.18 sets forth a true, complete and correct
list of all actions, suits, arbitration proceedings, investigations, inquiries
or other proceedings, whether governmental or non-governmental, before any
Governmental Authority pending or, to the best knowledge of the Company Parties,
threatened on the date hereof, or at any time since January 1, 1997, against,
relating to or affecting any Company Party, or any officer, director or employee
thereof in his or her capacity as such, or any of its or their respective
assets, properties or businesses, and which involve a monetary claim or claims
in excess of $25,000 or injunctive or other equitable relief. Such Schedule sets
forth, as to each matter identified therein, the names of
46
the parties thereto, the forum for such matter, a summary of the details of the
matter, the settlement or other disposition of the matter (including the
monetary value of such settlement or other disposition) or, if such matter is
still pending, a statement to that effect. Except as set forth on Schedule 3.18:
(a) There is not in effect any order, judgment, decree,
injunction or ruling of any Governmental Authority against, relating to or
affecting any Company Party, or any officer, director or employee thereof in his
or her capacity as such, enjoining, barring, suspending, prohibiting or
otherwise limiting the same from conducting or engaging in any aspect of the
Company Parties', or requiring any Company Party or any such officer, director
or employee to take certain action with respect to any aspect of its or their
business;
(b) No Company Party is in default under any order, judgment,
decree, injunction or ruling of any Governmental Authority, or is subject to or
a party to any order, judgment, decree or ruling arising out of any action, suit
or proceeding under any Applicable Laws, respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters; and
(c) There is no action, suit, arbitration or other proceeding,
investigation or inquiry pending or, to the best knowledge of the Company
Parties, threatened before any Governmental Authority which questions the
validity of this Agreement, the Note, the Warrants, the Guaranty, the Collateral
Documents or any other Investment Document or any actions taken or to be taken
pursuant hereto or thereto, or which could, individually or in the aggregate,
have a Material Adverse Effect.
3.19 Transactions with Affiliates.
(a) Except as set forth on Schedule 3.19(a), there is no
Indebtedness owing by any Company Party or any of their Affiliates to any other
Company Party or any of its Affiliates.
(b) Except as set forth on Schedule 3.19(b), immediately
following the Closing Date:
(i) no Company Party will be indebted, directly or
indirectly, to any of its own officers or directors, the officers or
directors of its Affiliates, or to any members of the Immediate
Families of such officers or directors, except for, in the case of
officers, compensation payable in the ordinary course of business and
reasonable travel advances accrued in the ordinary course of business
consistent with past practices;
(ii) no officer or director of any Company Party, and
no member members of their Immediate Families, will (A) be indebted to
any Company Party in any amount whatsoever or (B) to the knowledge of
any Company Party, have any direct or
47
indirect ownership interests in any Person which competes, directly or
indirectly, with the Company Party; and
(iii) there are no voting or similar agreements
between or among the shareholders of the Company.
(c) Except for the matters set forth on Schedule 3.16 and
Schedule 3.35, no officer, director or employee of any Company Party, and no
member, or Affiliate of a member, of the Immediate Families of any of the
foregoing, has any direct or indirect interest in any contract (including,
without limitation, franchise agreements), commitment, license, agreement,
obligation or arrangement to which any Company Party is a party.
(d) No Company Party is a party to any agreement relating to
the voting or disposition of the Capital Stock of any Company Party.
(e) Since January 1, 1998, except as disclosed on Schedule
3.19(e), no shareholder, employee, officer, director or Affiliate of any Company
Party, and no member, or Affiliate of a member, of the Immediate Family of any
such Person, has engaged in any transaction or relationship with any Company
Party (other than with respect to compensation payable to its officers and
employees and reasonable travel advances accrued in the ordinary course of
business).
(f) Since January 1, 1998, except as set forth on Schedule
3.19(f), no Company Party has loaned or advanced funds to any of its or their
Affiliates' officers, directors, employees or shareholders, or to any member of
the Immediate Families of any of the foregoing in an amount in excess of $5,000,
and there are no such advances outstanding as of the date hereof that were made
prior to January 1, 1998.
3.20 Investment Company Act. No Company Party is an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
3.21 Governmental Regulation. No Company Party is (i) a "holding
company" or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, or (ii) subject
to regulations under the Federal Power Act, the Interstate Commerce Act, any
state public utilities code or any other federal or state statute or regulation
limiting its ability to incur Indebtedness.
3.22 Compliance with Laws; Operating Licenses. Each of the Company
Parties is in compliance with all Applicable Laws (including, without
limitation, franchise laws), except to the extent that non-compliance could not
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, each of the Company Parties' and their
48
employees, agents and other representatives is in compliance with the Foreign
Corrupt Practices Act of 1977, as amended (15 U.S.C. '78dd-2 et seq.)). Each
Company Party has all Operating Licenses necessary or required under Applicable
Laws to own their respective assets or conduct their respective businesses as
now conducted and as proposed to be conducted. All of the Operating Licenses are
validly issued and in full force and effect, and the Company Parties have
fulfilled and performed in all material respects their obligations with respect
thereto and have full power and authority to operate thereunder. Except as set
forth on Schedule 3.22, no Company Party is aware of any law, rule, regulation,
decree, order or position issued, enacted or published by any Governmental
Authority to the effect that the business of the Company Parties or any aspect
thereof is unlawful or is being or will be challenged.
3.23 Title to Property; Liens. Each Company Party has good and
marketable title to its real properties (or holds valid leasehold interests in
real property) and good and merchantable title to its other properties, and none
of such properties is subject to any Liens except for Liens in favor of the Bank
and the Purchaser and for the Permitted Liens. Each Company Party enjoys quiet
possession under all real property leases to which they are parties as lessees,
and all of such leases are valid, subsisting and in full force and effect. None
of such leases contain any provision restricting the incurrence of indebtedness
by the lessee or any unusual or burdensome provision adversely affecting the
current and proposed operations of the Company Parties taken as a whole.
3.24 Real Property.
(a) Schedule 3.24 sets forth a true, correct and complete list
of all Real Property in which any Company Party owns or holds a fee interest,
which list includes, as to each parcel of such Real Property, the legal owner,
its common name, a legal description and the name of any mortgagee or trustee
thereof.
(b) Schedule 3.24 sets forth a true, correct and complete list
of all Real Property leases, subleases or licenses pursuant to which any Company
Party is a lessor, lessee, sublessor, sublessee, licensor or licensee, in each
case as amended through the date hereof, which list includes the street address,
the identity of the lessors, lessees, sublessors, sublessees, licensors or
licensees, the term thereof (referencing applicable extension or renewal
periods, the rent payment terms and the current use). The Company has delivered
to the Purchaser true, correct and complete copies of each such lease, sublease
or license. The Real Property interests described or listed on Schedule 3.24
constitute all of the interests in Real Property owned, leased or otherwise held
for use by any Company Party. With respect to each such lease, sublease and
license, except as set forth on Schedule 3.24 or Schedule 3.18:
(i) there are no disputes, oral agreements or
forbearance programs in effect as to any such lease, sublease or
license; and
(ii) no Company Party has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest
therein.
49
(c) Except as set forth on Schedule 3.6, no Consent of any
party to any lease, sublease, license or mortgage is required in connection with
the consummation of the transactions contemplated by this Agreement, the Note,
the Warrants or the other Investment Documents, including, without limitation,
the issuance and sale of the Securities, and no such event shall be prohibited
by, or shall constitute a default under, any such lease, sublease, license or
mortgage.
(d) All parking lots located on any Real Property subject
thereto are in compliance with Applicable Laws, including, without limitation,
zoning requirements, and are adequate for the employees and business operations
of the Company Parties, except where such compliance would not reasonably be
expected to have a Material Adverse Effect.
3.25 Environmental Matters. Except as set forth in Schedule 3.25:
(a) Each Environmental Person and each Site is in compliance
with all, and no Environmental Person has any liability under, any Environmental
Laws, and no Hazardous Materials are being used by any Company Party on any Real
Property.
(b) No Release has occurred at any Site, and there are no
present or past Environmental Conditions in any way relating to any
Environmental Person, any Site or the business or operations of any
Environmental Person.
(c) Schedule 3.25 sets forth a true, correct and complete list
of all environmental site assessments, audits, studies or reports relating to
any Environmental Condition or relating to the business, condition or operations
of all Environmental Persons. The Company has delivered to the Purchaser true,
correct and complete copies of all such environmental site assessments, audits,
studies or reports.
(d) No Environmental Person is a "potentially responsible
party" within the meaning of CERCLA with respect to any federal, state, local or
foreign environmental clean-up site or with respect to investigations or
corrective actions under any Environmental Laws.
(e) No Environmental Person has received notice of any
alleged, actual or potential responsibility, inquiry, investigation or
administrative or judicial proceeding regarding (i) any Release by any
Environmental Person at any Site or other location or (ii) any violation of or
non-compliance by any Environmental Person with the conditions of any License or
Permit required under any Environmental Laws or the provisions of any
Environmental Laws. No Environmental Person has received notice of any other
claim, demand or action by any Person alleging any actual or threatened injury
or damage to any Person, property, natural resources or the environment arising
from or relating to any Release, transportation or disposal of any Hazardous
Materials.
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(f) Each Environmental Person has furnished all notices and
warnings, made all reports and has kept and maintained all records required by,
and in compliance with, all Environmental Laws, including, without limitation,
any notices and Consents required under any Environmental Laws in connection
with the consummation of the transactions contemplated by the Investment
Documents.
3.26 Intellectual Property.
(a) Each Company Party owns, licenses or otherwise possesses
legally enforceable rights to use all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, trade secrets, inventory, ideas, algorithms,
processes, computer software programs or applications (in both source code and
object code form), tangible or intangible proprietary information or material
and other Intellectual Property that are currently used in, or material to, its
or their business (the "Company Party Intellectual Property"). Schedule 3.26
contains a true, correct and complete list of (i) all registered patents,
trademarks, trade names, service marks, and copyrights owned, used or licensed
by any Company Party, (ii) the registration number, date of registration and
jurisdiction of registration thereof, (iii) the name of the registered owner
and, if different, the user or users thereof and (iv) any applications for any
of the foregoing.
(b) The Company has provided to the Purchaser (i) all
documents, if any, relative to patents and patent applications and all
registered and unregistered trademarks, trade names and service marks,
registered and unregistered copyrights, and maskworks owned by the Company
Parties and included in the Company Party Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as to which any
Company Party is a party and pursuant to which any person is authorized to use
any Company Party Intellectual Property, and (iii) all licenses, sublicenses and
other agreements as to which any Company Party is a party and pursuant to which
any Company Party is authorized to use any third party patents, trademarks or
copyrights, including software, or any other third party Intellectual Property
("Third Party Intellectual Property Rights") which are or are presently expected
to be incorporated in, or are or expected to form a part of any existing or
proposed Company Party product, or which are or are presently expected to be
utilized in the development, modification or support of any existing or proposed
Company Party product.
(c) Except as set forth on Schedule 3.26, to the knowledge of
any Company Party, there is no unauthorized use, disclosure, infringement or
misappropriation of any Company Party Intellectual Property, any trade secret
material to the Company, or any Third Party Intellectual Property Right to the
extent licensed by or through any Company Party, by any third party. Except as
set forth on Schedule 3.26, no Company Party has entered into any agreement to
indemnify any other person against any charge of infringement of any Company
Party Intellectual
51
Property, other than indemnification provisions arising in the ordinary course
of business, such as those in purchase orders, invoices or similar sales-related
documents, or in franchise agreements, area director marketing agreements,
development agreements or master franchise agreements.
(d) No Company Party is, or will be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any franchise agreement, license, sublicense
or other agreement currently used in, or material to, to the Company Party
Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by any Company Party are validly issued and presently
subsisting. Except as set forth on Schedule 3.26 or Schedule 3.18, no Company
Party (i) has been sued in any suit, action or proceeding which involves a claim
of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary or Intellectual Property
right of any third party and (ii) since January 1, 1997, has brought any action,
suit or proceeding for infringement of Company Party Intellectual Property or
breach of any license or agreement involving Company Party Intellectual Property
against any third party. The manufacture, marketing, licensing or sale of the
Company Parties' products and services as currently conducted and proposed to be
conducted does not infringe any patent, trademark, service xxxx, copyright,
trade secret or other proprietary right of any third party.
(f) The Company Parties have taken steps which it believes to
be sufficient to protect and preserve the confidentiality of all Company Party
Intellectual Property not otherwise protected by patents, or patent applications
or copyright. All use, disclosure or appropriation by the Company Parties of
such Intellectual Property owned by any Company Party by or to a third party has
been pursuant to written agreements between the Company Parties and such third
party except where the failure to do so could not reasonably be expected to
result in a Material Adverse Effect. All use, disclosure or appropriation of
such Intellectual Property not owned by any Company Party has been pursuant to
written agreements between the Company Parties and the owner of such
Intellectual Property, or is otherwise lawful.
3.27 Nature of Business. The Company Parties are engaged only in the
business described in recital A or any other business ancillary thereto.
3.28 Powers of Attorney. There are no outstanding powers of attorney
with respect to the Company Parties (or any one of them) other than those in
connection with the trademark applications set forth on Schedule 3.26.
3.29 Listing of Common Stock. No Capital Stock or any securities of any
Company Party or Subsidiary is listed for trading on any securities exchange or
on the Nasdaq, except for the Company's Common Stock which is listed for trading
solely on the Nasdaq.
52
3.30 Insurance. There is in full force and effect one or more policies
of insurance issued by insurers of recognized national standing insuring the
properties and business of each Company Party against such losses and risks and
in such amounts as are usual and customary in the industry in which any Company
Party operates or conducts business, including, without limitation, product
liability insurance. Schedule 3.30 identifies the policies of insurance
currently maintained by, or on behalf of, each Company Party, its business and
properties, setting forth the name of the insurer, the holder of each such
policy, the nature of coverage, the amount of such coverage, the expiration
dates thereof and other material information. None of the Company Parties nor
any other insured named on Schedule 3.30 is in default with respect to its
obligations under any of such outstanding insurance policies and all premiums
with respect thereto are current. None of the Company Parties nor any other
insured named on Schedule 3.30 has failed to give any notice or to present any
material claim under any such policy in a due and timely fashion. Such policies
are in full force and effect on the date hereof and will continue to be kept in
full force and effect on substantially equivalent terms, except to the extent
policies expire and are replaced in the ordinary course of business with
policies on substantially equivalent terms. All premiums due under the policies
identified on Schedule 3.30 have been paid and none of the Company Parties nor
any such insured has been issued or has received any notice of cancellation,
material modification or termination in respect of any such policy or is in
default thereunder. None of the Company Parties nor any such insured has been
issued or has received notice that any insurer under any policy referred to on
Schedule 3.30 is denying liability with respect to a claim in excess of $25,000
thereunder or defending under a reservation of rights clause. The insurance
policies listed on Schedule 3.30 constitute insurance protection against all
liability, claims and risks occurring in the ordinary course of business
customarily included within comprehensive liability coverage and at amounts and
levels customarily maintained for a business of this type. Schedule 3.30 also
sets forth all claims made by the Company Parties under such policies during the
past three (3) years.
3.31 Franchisees. Schedule 3.31 lists the names and addresses of the
ten most significant franchisees (by revenue) of the Company Parties during each
of the two last Fiscal Years through the Fiscal Year ended September 30, 2000,
and the amount of revenues accounted for by each such franchisee during each
such period. No franchisee accounts for more than forty-five hundredths of one
percent (0.45%) of the total system-wide sales. No Company Party has received
any notice, nor has any Company Party any reason to believe, that any
significant franchisee of the Company Parties has ceased, or will cease, to use
the products or services of the Company Parties (or any one of them), or has
reduced, or will reduce, the use of such products or services at any time.
3.32 Suppliers. Schedule 3.32 lists the ten (10) largest suppliers of
any products or services to the Company Parties during each of the two last
Fiscal Years through the Fiscal Year ended September 30, 2000, and the amount of
purchases made by the Company Parties from each during each such period. No
material purchase order or commitment of the Company Parties is in excess of
normal requirements, nor are prices provided therein in excess of current market
prices
53
for the products or services to be provided thereunder. Except as set forth on
Schedule 3.32, all such contracts can be terminated upon 90 days notice without
payment of more than $50,000.
3.33 Business Relationships. There exists no actual or, to the best
knowledge of the Company Parties, threatened termination, cancellation or
limitation of, or any adverse modification or change in, the business
relationship between the Company Parties, on the one hand, and any franchisee or
any group of franchisees whose purchases, individually or in the aggregate, are
material to the business of the Company Parties, as the case may be, or with any
material suppliers, on the other hand, and there exists no present condition or
state of facts or circumstances known to the Company Parties which could
materially and adversely affect the Company Parties or prevent the Company
Parties from conducting such business after the consummation of the transactions
contemplated by this Agreement in substantially the same manner in which it has
been heretofore conducted.
3.34 Personal Property Leases. Schedule 3.34 sets forth a true and
complete list and description of all agreements (or group of related agreements)
to which any Company Party is a party for the lease of personal property,
including, with respect to each such lease, the name of the lessor and the
lessee, the type of lease (whether operating, capital or otherwise), a
description of the leased property, the monthly rental payments due and the
expiration date. No Company Party has breached any agreement pertaining to, is
in default with respect to, or is overdue in payment of, any amounts owing under
any lease agreement disclosed on Schedule 3.34. No such lease agreement contains
any provisions which restrict or prohibit (a) the issuance or sale of the
Securities as contemplated herein, (b) any other financings by any Company
Party, including, without limitation, any public or private debt or equity
financings or (c) other than ordinary restrictions on assignment, any merger,
sale of assets or other event which could cause a Change in Control.
3.35 Employment Agreements. Schedule 3.35 sets forth a true, correct
and complete list of all (a) employment contracts or agreements, agency,
independent contractor and sales representative agreements involving annual
compensation at a base rate equal to or exceeding $50,000, golden parachute
agreements, change of control agreements and employee-related non-competition
and non-solicitation agreements, in each case to which any Company Party is a
party. The Company has previously delivered true, correct and complete copies of
all such agreements, including all amendments thereto. Each such agreement is in
writing, is a valid and binding agreement enforceable against the respective
parties thereto in accordance with its terms, and no Company Party nor any other
Person that is a party to any such agreement is in breach of, or in default with
respect to, any of its obligations thereunder, nor is any Company Party aware of
any facts or circumstances which might give rise to any breach or default
thereunder which could reasonably be expected to have a Material Adverse Effect.
3.36 Solvency. Each Company Party is, and immediately following the
consummation of the transactions contemplated by this Agreement each Company
Party will be, Solvent. No
54
Company Party will, by virtue of the consummation of the transactions
contemplated hereby and by the other Investment Documents, incur debts that will
be beyond its ability to pay as they mature. No transfer of property is being
made and no obligation is being incurred in connection with the transactions
contemplated by this Agreement and the other Investment Documents with the
intent to hinder, delay or defraud either present or future creditors of the
Company Parties.
3.37 Use of Proceeds; Margin Stock. The proceeds to be received by the
Company Parties from the issuance and sale of the Securities as contemplated
hereunder shall be used solely for the purposes set forth in Schedule 3.37 and
applied in accordance with the uses described therein. No Company Party is
engaged in extending credit for the purposes of purchasing or carrying Margin
Stock. Except as set forth in Schedule 3.37, no Company Party has any Margin
Stock, as determined in accordance with the Margin Regulations. None of the
proceeds from the issuance and sale of the Note will be used to buy or carry any
Margin Stock.
3.38 Depository and Other Accounts. Schedule 3.38 sets forth a true and
complete list of all banks and other financial institutions and depositories at
which any Company Party maintains (or has caused to be maintained) deposit
accounts, spread accounts, yield supplement reserve accounts, operating
accounts, trust accounts, trust receivable accounts or other accounts of any
kind or nature into which funds of any Company Party is deposited from time to
time. Such Schedule 3.38 correctly identifies the name and address of each
depository, the name in which each account is held, the purpose of the account,
the account number, the contact person at such depository and his or her
telephone number. The Company will notify the Purchaser and supplement Schedule
3.38 as new accounts are established within two (2) Business Days thereof.
3.39 Year 2000 Compliance. All devices, systems, machinery, information
technology, computer software and hardware and other data sensitive technology
necessary for the Company Parties to carry their business as presently conducted
and as contemplated to be conducted in the future (individually and
collectively, the "Systems") are Year 2000 Compliant. For purposes of this
Agreement, the term "Year 2000 Compliant" shall mean that such Systems are
designed to be used prior to, during and after the Gregorian calendar year 2000
AD and will operate during each such time period without error relating to date
data, specifically including any error relating to, or the product of, date data
which represents or references different centuries or more than one century.
3.40 Books and Records. The minute books and other similar records of
each Company Party contain true and complete records of all actions taken at any
meeting of the Company Party's shareholders, Board of Directors or any
committees thereof, as the case may be, and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
Parties accurately reflect in all material respects the assets, liabilities,
business, financial condition and results of operations of the Company Parties,
as the case may be, and have been maintained in accordance with good business,
accounting and bookkeeping practices.
55
3.41 Burdensome Obligations; Future Expenditures. No Company Party is a
party to or bound by any agreement, instrument, deed, lease or other document,
or is subject to any charter, bylaw or other restriction, commitment or
requirement, which, in the opinion of its management, is so unusual or
burdensome that in the foreseeable future it could have a Material Adverse
Effect. No Company Party anticipates that future expenditures, if any, by the
Company Parties, as the case may be, needed to meet the provisions of any
Applicable Laws will be so burdensome as to have or cause, or create a material
risk of having or causing, a Material Adverse Effect.
3.42 Brokers; Certain Expenses. Except as set forth on Schedule 3.42,
(a) no Company Party or Affiliate has paid or is obligated to pay any fee or
commission to any broker, finder, investment banker or other intermediary, in
connection with this Agreement, any other Investment Document or any of the
transactions contemplated hereby or thereby, and (b) no Company Party or
Affiliate is bound by any agreement or commitment for the provision of
investment banking or financial advisory services with respect to any
recapitalization, issuance of debt or equity securities or other capital or
financing transactions involving the Company Parties that would operate to
restrict or prevent the Closing.
3.43 Disclosure. After due inquiry of the directors, officers and
employees of the Company Parties having knowledge of the matters represented,
warranted or stated herein, neither this Agreement, the Disclosure Schedules nor
any other Investment Document, nor any certificate, report, questionnaire,
statement or document furnished by or on behalf of any Company Party, nor any
representation or warranty contained in any of the foregoing, whether included
in any materials provided to the Purchaser prior to the date hereof or included
in this Agreement or any other Investment Document or in any Exhibit or
Disclosure Schedule or in any other document or instrument delivered at any time
prior to the Closing, is, or will be, untrue with respect to any material fact
or omits, or will omit, to state a material fact necessary in order to make the
statement made herein or therein, in light of the circumstances in which such
statement was made, not misleading. There are not facts or circumstances
existing which could have a Material Adverse Effect, either individually or in
the aggregate. The information contained in each of the management
questionnaires completed by certain officers, directors and employees of the
Company, the corporate questionnaire dated October 10, 2000 and the Due
Diligence Statement each as prepared by the Company Parties and delivered to the
Purchaser prior to the date of this Agreement, is true and correct.
3.44 Franchise Matters. Since January 1, 1995, the Company Parties (i)
have maintained proper and complete records of all franchise activities in which
full, true and complete entries have been made of all material dealings and
transactions in relation to their franchise activities, including, without
limitation, all offering circulars, franchise agreements, correspondence with
franchisees, complaints of franchisees, and Government Audits, (ii) have
complied with all Applicable Laws regarding franchise activities, (iii) have
obtained and maintained in place franchisee agreements which contain provisions
requiring the franchisee to (A) indemnify the Company with respect to claims
relating to the franchisee's business from third
56
parties and (B) to obtain insurance from financially sound and respectable
insurers to cover such indemnity, naming the Company as the loss payee, (iv) the
Company Parties have timely filed with the applicable Governmental Authority all
Uniform Franchise Offering Circulars and other required filings, and (v) each
offering circular delivered to any franchisee, prospective franchisee or
Governmental Authority by any Company Party complied as of the date delivered
with all requirements of Applicable Law, and, when delivered, did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.45 Tender Offer Documents. Each of the representations and warranties
made by any Company Party in the Tender Offer Documents shall be true and
correct in all respects as of the date made and shall be true and correct in all
respects as of the Closing Date and as of the date of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
4.1 Organization. The Purchaser is a limited partnership formed and
validly existing under the laws of the State of California, and has all
requisite power and authority to enter into this Agreement and each other
Investment Document to which it is a party and to consummate the transactions
contemplated hereby and thereby.
4.2 Authorization. The execution, delivery and performance by the
Purchaser of this Agreement and of each of the other Investment Documents to
which the Purchaser is a party, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
partnership action taken on the part of the Purchaser.
4.3 Due Execution and Delivery; Binding Obligations. This Agreement has
been duly executed and delivered by the Purchaser. This Agreement is, and at the
time of the Closing each of the other Investment Documents to which the
Purchaser is a party will be, a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or conveyance or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability, and except as rights of indemnity or contribution may be limited
by federal or state securities laws or the public policy underlying such laws.
4.4 No Violation. The execution, delivery and performance by the
Purchaser of this Agreement and each of the other Investment Documents to which
the Purchaser is a party, and the consummation of the transactions contemplated
hereby, do not violate (a) the limited partnership agreement of the Purchaser as
in effect on the date hereof, (b) any law, statute, rule or regulation
57
applicable to the Purchaser, (c) any order, ruling, judgment or decree of any
Governmental Authority binding on the Purchaser or (d) any indenture, mortgage,
lease, agreement or instrument to which the Purchaser is a party.
4.5 Investment Intent. The Purchaser is acquiring the Securities for
its own account, for investment purposes, and not with a view to or for sale in
connection with any distribution thereof. The Purchaser understands that the
Securities have not been registered under the Securities Act or registered or
qualified under any state securities laws in reliance upon specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. Therefore, the
Securities are "restricted securities" which cannot be sold without registration
under the Securities Act or pursuant to an exemption therefrom, and may have to
be held indefinitely, subject, however, to the Purchaser's registration rights
under the Registration Rights Agreement, and the Purchaser accepts the risk of
such restrictions on resale.
4.6 Accredited Investor Status. The Purchaser is an "accredited
investor" (as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act). By reason of its business and financial experience, the
Purchaser has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the
investment in the Securities, has the capacity to protect its own interests and
is able to bear the economic risk of such investment.
4.7 Purchaser Consents. The execution and delivery by the Purchaser of
this Agreement and each of the other Investment Documents to which it is a
party, and the consummation by the Purchaser of the transactions contemplated
hereby, do not and will not require the Consent of any Governmental Authority or
any other Person, other than Consents that have already been obtained or made.
4.8 Brokers. The Purchaser has not paid and is not obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with this Agreement, any other Investment Document or any of the
transactions contemplated hereby or thereby.
5. CONDUCT PRIOR TO CLOSING.
5.1 Conduct of Business Prior to Closing. From and after the date of
this Agreement and until the Closing, each Company Party shall operate its
business in the ordinary course consistent with past practices. Notwithstanding
the foregoing, no Company Party shall, without the prior written consent of the
Purchaser:
(a) amend or otherwise modify any Material Contract on terms
less favorable than those that exist on the date hereof, other than
cancellations or terminations of Material
58
Contracts by any Company Party in the ordinary course of business that would not
have a Material Adverse Effect;
(b) create or form any new Subsidiary, other than a new
Subsidiary formed to consummate the Tender Offer, provided that the Company
notifies the Purchaser in writing of the formation of such Subsidiary three (3)
Business Days prior to its formation or creation;
(c) make any change to its authorized capital stock, or amend
its charter or bylaws;
(d) take or fail to take any act which could have a Material
Adverse Effect;
(e) Intentionally Omitted;
(f) create any Contingent Obligation, by way of guarantees or
otherwise;
(g) declare, pay or set aside any dividend or other
distribution or payment in cash, stock or property in respect of shares of its
Capital Stock, or adopt or consider any plan or arrangement with respect
thereto, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of its Capital Stock or split, combine or reclassify outstanding
shares of its Capital Stock, other than in connection with the Tender Offer,
provided that the Company notifies the Purchaser of such action in writing two
(2) Business Days prior to the taking of such action;
(h) issue or sell any shares of its Capital Stock or any
Equity Rights other than (i) in connection with the exercise of stock options or
warrants existing as of the date hereof, as such options and warrants are set
forth on Schedule 5.1, or (ii) the conversion of the Preferred Stock;
(i) (i) other than in the ordinary course of business
consistent with past practices, increase the level of compensation of any
officer or employee, except in connection with the Stock Appreciation Rights
Plan; (ii) amend any existing Benefit Plan or adopt any new Benefit Plan; or
(iii) enter into any new employment or consulting agreement, other than in the
ordinary course of business consistent with past practices;
(j) (i) incur any Indebtedness for borrowed money except
Indebtedness incurred in connection with Capital Expenditures pursuant to
Section 5.1(k); (ii) transfer, lease, license, sell, mortgage, pledge, dispose
of, or encumber any asset of any Company Party with a value exceeding $10,000
individually and $50,000 in the aggregate; (iii) purchase or acquire any
business or entity, or purchase or acquire any securities or assets of any
business or entity; (iv) enter into any partnership, joint venture or strategic
alliance; (v) settle any litigation in an amount in excess of $10,000; or (vi)
accelerate payment on any Indebtedness;
59
(k) make any Capital Expenditures in excess of $500,000 in the
aggregate or sell any assets, other than (i) inventory in the ordinary course of
business consistent with past practices; (ii) the purchase of the Area
Directorships for total consideration not to exceed $2.0 million; or (iii) the
assets associated with the Company's twenty-five (25) owned stores located in
Colorado and Kansas, as such assets are described on Schedule 5.1;
(l) fail to preserve intact its business organization, fail to
keep available the services of its operating personnel, fail to preserve the
goodwill of those having business relationships with the Company Parties,
including, without limitation, customers;
(m) engage in any transactions with its or their Affiliates
except in the ordinary course of business, provided that such transaction is on
terms and conditions no less favorable to the Company Party entering into such
transaction as could be obtained from an unaffiliated third party, or Purchaser
gives its prior written consent to such transaction;
(n) fail to maintain its books and records in accordance with
past practices and in conformity with GAAP;
(o) take any action enumerated in Section 3.12 or which would
be prohibited by any other Investment Document determined as if the transactions
contemplated by this Agreement had been consummated; or
(p) take, or fail to take, any action so that any of the
representations or warranties of the Company Parties contained in this Agreement
cease to be true and correct in all respects.
The Company shall notify the Purchaser in writing of the occurrence of
any Material Adverse Effect or breach of the representations and warranties of
the Company Parties under this Agreement within one (1) day following the
occurrence thereof.
Notwithstanding the foregoing, any Company Party may take any of the
actions described in subsections (a) through (i) and (l) through (n) above,
provided that (x) such Company Party shall give two (2) Business Days prior
written notice to the Purchaser of such action; (y) such action shall not result
in a Material Adverse Change; and (z) so long as such action would otherwise be
permitted pursuant to this Agreement and the other Investment Documents as if
the Closing had occurred prior to the taking of such action, provided, however,
that no Company Party shall create or incur Refinancing Indebtedness from the
date of this Agreement through and including the date that is nine (9) months
after the Closing Date except as provided in Section 10.1(c).
5.2 Access to Information and Documents. From and after the date of
this Agreement and until the Closing, each Company Party shall give the
Purchaser and its authorized
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representatives and agents full and complete access during normal business hours
to the properties, documents, books and records of the Company Parties, and
shall furnish the Purchaser with such information concerning the Company Parties
as the Purchaser may request.
5.3 Non-Solicitation. In consideration of the capital and other
resources (human and otherwise) committed and to be committed to the Purchaser's
due diligence investigation of the Company Parties and Affiliates, the
preparation and negotiation of this Agreement and the other Investment Documents
and the consummation of the transactions contemplated hereby and thereby, each
Company Party shall not, and shall not permit any of its Affiliates,
Subsidiaries, shareholders, directors, officers, employees, attorneys,
accountants, investment bankers (including, without limitation, The Cypress
Group or Xxxxxx Xxxxxxx Capital Markets), representatives or agents to, directly
or indirectly, initiate contact with, make, solicit or encourage any inquiries
or proposals from, furnish any information regarding the Company Parties, their
Affiliates or their respective businesses or assets to, or engage or participate
in any discussions or negotiations with any Person with respect to any proposal
pursuant to which any Company Party would (i) obtain any debt or equity capital
(other than (x) the Subordinated Indebtedness or any other Indebtedness allowed
under Section 5.1(j) and (y) seller financing in connection with the repurchase
of Area Directorships for total consideration of up to $2.0 million) or (ii)
enter into any agreement to be acquired by, sold to, merged into or combined
with any such Person. Any transaction referred to in clauses (i) or (ii) above
is referred to herein as an "Alternative Transaction." The Company will
immediately communicate to the Purchaser in writing the fact that it has
received any proposal or inquiry regarding an Alternative Transaction.
5.4 Covenant to Close.
(a) Each Company Party and the Purchaser shall use its best
efforts to consummate the transactions contemplated by this Agreement in
accordance with the terms, and subject to the conditions, of this Agreement.
Without limiting the generality of the foregoing, the Company Parties shall use
their best efforts to obtain all Consents from third parties which are required
to be obtained in connection with the consummation of each of the transactions
contemplated by this Agreement, including, without limitation, any Consents of
the holders of any Indebtedness of the Company Parties to the incurrence by the
Company Parties of the Indebtedness evidenced by the Note.
(b) The Company Parties shall consummate the transactions
contemplated by this Agreement upon satisfaction of the Minimum Condition (as
defined in the Tender Offer Documents) and attached as Schedule 6.9, such shares
not having been effectively and validly withdrawn from tender. The Company shall
not modify or amend any Tender Offer Document to increase the Minimum Condition
or to alter the conditions to the Tender Offer attached as Schedule 5.4(b)
without the prior written consent of the Purchaser.
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5.5 Capitalization; Warrant Shares. The Company shall not take, and
shall not omit to take, any action, the result of which action or omission would
cause the Warrant Shares to represent more than 19.9% of the outstanding Common
Stock or more than 19.9% of the outstanding voting power of the Company, without
first complying with all Applicable Laws and all NASD Rules, and any applicable
rules of any other securities exchange, including without limitation any
shareholder approvals required under NASD Rules 4310(c)(25)(H)(i) or 4460(i)(1),
as applicable, or any successor or replacement rules.
5.6 Intentionally Omitted.
5.7 No Disposition of Shares; Voting Agreement. Xxxxxxx X. Xxxxxxx and
Xxxxxxx X. Xxxxxxx each hereby covenant and agree that, from the date of this
Agreement until the earlier of the consummation of the Tender Offer Merger or
June 30, 2001, they shall not facilitate, encourage or participate, directly or
indirectly, through agents or representatives or otherwise, in any discussions
or negotiations with respect to any Share Transaction (as hereinafter defined)
nor shall they offer or agree to, sell, transfer, tender, assign, hypothecate or
otherwise dispose of, or create or permit to exist any security interest, lien,
claim, pledge, option, right of first refusal, agreements, limitation on their
respective voting rights, charge or other encumbrance of any nature whatsoever
with respect to Capital Stock of the Company (collectively, a "Share
Transaction"); provided that the foregoing shall not preclude a transfer
pursuant to that certain Stock Purchase Agreement dated July 14, 1994, between
Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx in the event of the death of either
one of them, the execution of a new margin agreement by Xxxxxxx X. Xxxxxxx as
permitted by this Agreement. Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxxxxx each
agree to vote against any proposals for any merger, consolidation, sale or
purchase of any assets, reorganization, recapitalization, liquidation or winding
up of or by the Company or any other extraordinary corporate transaction, and
against any proposals for the amendment of the certificate of incorporation or
by-laws of the Company which shall be inconsistent with or prevent or delay the
consummation of Tender Offer and the Tender Offer Merger.
5.8 RES Loan. From the date of this Agreement until the closing of the
Tender Offer, Xxxxxxx X. Xxxxxxx may obtain bridge financing of the Margin
Agreement between Xxxxxxx X. Xxxxxxx and Ferris, Baker, Xxxxx, Incorporated from
Xxxxxx Xxxxxxx Capital Markets on terms and conditions substantially similar to
those contained in the Margin Agreement between Xxxxxxx X. Xxxxxxx and Ferris,
Baker, Xxxxx, Incorporated.
6. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The obligations of
the Purchaser to consummate the transactions contemplated hereby, including,
without limitation, to purchase the Securities as provided herein, is subject
to the satisfaction, prior to or at the Closing, of the conditions set forth
in this Section 6; provided, however, that any or all of such conditions may
be waived, in whole or in part, by the Purchaser in its sole and absolute
discretion:
6.1 Closing Date. The Closing Date shall occur on or before January 31,
2001.
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6.2 Representations and Warranties; No Default.
(a) Each of the representations and warranties made by the
Company Parties in this Agreement shall be true and correct in all respects as
of the date made, and shall be true and correct in all respects as of the
Closing Date, with the same effect as if made on and as of the Closing Date;
each of the covenants, agreements and obligations of the Company Parties under
this Agreement to be performed or satisfied by it or them on or prior to the
Closing Date shall have been performed or satisfied by it or them on or before
the date hereof; and no Default or Event of Default shall exist or result from
the issuance and sale of the Securities or the other transactions contemplated
by this Agreement or the Tender Offer Documents. The Company Parties shall have
delivered to the Purchaser an officers' certificate, signed by the President and
Chief Executive Officer and the Chief Financial Officer of the Company, dated as
of the Closing Date, to such effect and to the effect that each of the other
conditions set forth in this Section 6 has been satisfied and fulfilled.
(b) Notwithstanding the foregoing, on or before the Closing
Date, the Company shall have delivered to the Purchaser audited financial
statements of the Company Parties consisting of a balance sheet as of September
30, 2000, and a statement of operations and cash flows for the twelve (12) month
period ended September 30, 2000. On the Closing Date, the representations and
warranties by the Company Parties set forth in Section 3.10(a)(i) shall mean and
refer to the financial statements described in the previous sentence of this
Section 6.2, as well as the financials described in Section 3.10(a)(i), and the
officers' certificate to be provided by the Company Parties pursuant to this
Section 6.2 shall so state.
(c) The Company Parties shall have delivered to the Purchaser
and updated Schedule 3.7(a) reflecting the capitalization of the Company after
giving effect to the Tender Offer, which Schedule shall be based upon
information reasonably available to the Purchaser upon the Closing as to public
shareholders. The officers' certificate to be provided by the Company Parties
pursuant to this Section 6.2 shall certify the accuracy of such updated
Schedule.
6.3 Payment of Fees and Purchaser Expenses. The Company Parties,
jointly and severally, shall have paid to the Purchaser at the Closing, in
immediately available funds to a bank account designated by the Purchaser, or
the Purchaser shall have withheld the same from such proceeds to be delivered by
the Purchaser against delivery of the Securities, (i) non-refundable,
non-accountable closing fee in the amount of $350,000 ($600,000 less the
Commitment Fee) (the "Closing Fee") and (ii) all out-of-pocket fees, costs and
expenses incurred by or on behalf of the Purchaser as provided in Section 8.5.
6.4 Purchase Permitted By Applicable Laws. The consummation of the
transactions contemplated by this Agreement shall not be prohibited by or
violate any Applicable Laws and shall not subject any party to any Tax, penalty
or liability, under or pursuant to any Applicable
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Laws, and shall not be enjoined (temporarily or permanently) under, or
prohibited by or contrary to, any injunction, order, decree or ruling. Without
limiting the generality of the foregoing, the consummation of the transactions
contemplated hereby shall otherwise comply with all applicable requirements of
federal securities and state securities or "blue sky" laws.
6.5 No Material Adverse Change. No Material Adverse Change shall have
occurred in the sole judgment of the Purchaser since September 30, 1999, and the
Company Parties shall have delivered to the Purchaser an officer's certificate
executed by the Chief Executive Officer and Chief Financial Officer of each
Company Party to the effect that there has been no Material Adverse Change since
September 30, 1999, dated as of the Closing.
6.6 No Injunction, Order or Suit; California Permit. There shall not
have been issued any injunction, order, decree or ruling that prohibits or
limits any of the transactions contemplated by this Agreement or the other
Investment Documents, and there shall not be any action, suit, proceeding or
investigation pending or, to the best knowledge of the Company Parties,
threatened that (a) draws into question the validity, legality or enforceability
of this Agreement or the other Investment Documents or the consummation of the
transactions contemplated hereby or thereby or (b) might result, in the judgment
of the Purchaser, (i) in the imposition of a penalty if the Securities were
delivered as contemplated hereunder or (ii) in any Material Adverse Change. The
Company shall have obtained and delivered to the Purchaser the California Permit
which shall continue in full force and effect.
6.7 Delivery of Certain Closing Documents. The Company shall have
delivered to the Purchaser the following closing documents, each dated as of the
Closing Date:
(a) This Agreement, duly executed by the Company Parties, together
with the Exhibits and Disclosure Schedules;
(b) The Note, duly executed by the Company Parties;
(c) The California Permit;
(d) The Warrants, duly executed by the Company;
(e) Employment Agreements with each of Xxxxxxx X. Xxxxxxx and
Xxxxxxx X. Xxxxxxx, in form and substance satisfactory to the Purchaser
(collectively, the "Agreements with Officers"), which shall contain, among other
things, confidentiality, noncompetition and nonsolicitation provisions in favor
of the Company;
(f) The Registration Rights Agreement, duly executed by the Company
in form and substance satisfactory to Purchaser;
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(g) The Investor Rights Agreement, duly executed by the Principal
Shareholders and the Company, in form and substance satisfactory to the
Purchaser;
(h) The Guaranty, duly executed by Franchise;
(i) A certificate from the Chief Executive Officer and the Chief
Financial Officer of the Company, in form and substance satisfactory to the
Purchaser, attesting that the Company Parties are and will be Solvent, before
and after giving effect to the (i) Tender Offer, (ii) the Indebtedness under the
Bank Credit Documents, (iii) incurrence of Indebtedness hereunder; (iv) the
Subordinated Indebtedness and (v) all the transactions contemplated hereby and
thereby;
(j) A Compliance Certificate signed by the President and Chief
Executive Officer and the Chief Financial Officer of the Company, certifying
that each of them has reviewed this Agreement and the other Investment Documents
and that, after giving effect to the (i) Tender Offer, (ii) the incurrence of
Indebtedness under the Bank Credit Agreements, (iii) incurrence of Indebtedness
hereunder and (iv) all the transactions contemplated hereby and thereby, the
Company will be in compliance with the covenants of Section 10.1, and
(k) Such other documents as the Purchaser may reasonably request.
6.8 Actions and Documents Relating to the Collateral. Purchaser shall
have received the following in form and substance satisfactory to it:
(a) The Security Agreement and the Intellectual Property Security
Agreement, each duly executed by the Company Parties, together with the exhibits
and schedules thereto, in form and substance satisfactory to the Purchaser;
(b) The Pledge Agreement, duly executed by the Company, together
with the exhibits and schedules thereto, in form and substance satisfactory to
the Purchaser;
(c) Pledged Shares, together with stock powers duly executed by the
appropriate Company Party in blank;
(d) UCC-1 Financing Statements, naming each Company Party as
debtor, as applicable, duly executed by the Company Parties as requested by the
Purchaser, in form and substance satisfactory to the Purchaser;
(e) Evidence that all filings, registrations and recordings have
been made in the appropriate governmental offices, and all other action has been
taken, which shall be necessary to create, in favor of the Purchaser, a
perfected first priority Lien on the Collateral, and filing of completed UCC
financing statements, in each case, in the appropriate governmental offices;
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(f) Evidence that the Liens on the Collateral are subject only to
the Permitted Liens, such evidence including, without limitation, the results of
searches conducted in the UCC filing records in each of the governmental offices
in which UCC financing statements have been, or shall be, filed;
(g) Assignment of the key man life insurance policy as provided in
Section 9.8, in form and substance satisfactory to the Purchaser; and
(h) Such other documents relating to the Collateral as the
Purchaser may request.
6.9 Tender Offer and Related Agreements. The Minimum Condition (as
defined in the Tender Offer Documents) shall have been satisfied as set forth on
Schedule 6.9, such shares shall have been effectively and validly tendered and
not withdrawn, the Company shall be prepared to pay for such shares pursuant to
the Tender Offer in compliance with all Applicable Laws and applicable rules of
any securities exchange, and the Purchaser shall be satisfied in all respects
with the structure, terms and conditions of the Tender Offer, including approval
of the Commission thereof, and the provisions of Section 5.6 shall have been
complied with.
6.10 Opinion of Counsel. The Purchaser shall have received an opinion
letter of Moye, Giles, X'Xxxxx, Vermiere & Xxxxxxx, LLP, counsel to the Company
Parties, dated as of the Closing Date and addressed to the Purchaser, in form
and substance satisfactory to the Purchaser and its legal counsel.
6.11 Delivery of Corporate Documents. The Company Parties shall have
delivered to the Purchaser the following for each Company Party:
(a) Certified copies of its charter, articles of organization or
similar organizational documents as amended through the Closing Date, certified
by its Secretary as being in full force and effect as of the Closing Date;
(b) A good standing certificate and a tax good standing
certificate, issued by the Secretary of State of its state of incorporation or
organization and the taxing authority of such state, in each case dated as of
the most recent practicable date prior to the Closing Date;
(c) Good standing certificates from each jurisdiction in which it
is required to be qualified to transact business as a foreign corporation or
other entity, in each case dated as of the most recent practicable date prior to
the Closing Date;
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(d) Copies of its bylaws, operating agreement or similar governing
document as amended through the Closing Date, certified by its Secretary as
being in full force and effect as of the Closing Date;
(e) Resolutions of its Board of Directors (or similar governing
body), approving and authorizing the execution, delivery and performance of this
Agreement, the Note, the Warrants and the other Investment Documents to which it
is a party, and, in the case of the Company, approving and authorizing the
execution, issuance, sale and delivery of the Securities, certified by its
Secretary as being in full force and effect as of the Closing Date;
(f) Incumbency certificates of its officers who are authorized to
execute, deliver and perform this Agreement, the other Investment Documents and
any other agreements, instruments, certificate or other documents required to be
executed by it in connection herewith;
(g) Intentionally omitted; and
(h) Such other documents as the Purchaser may request.
6.12 Insurance. The Company shall deliver to the Purchaser certificates
of liability insurance with respect to the insurance policies required to be
maintained by the Company Parties as of the Closing Date pursuant to Section
9.8, together with additional insured and lender's loss payable endorsements in
favor of the Purchaser, all in form and substance satisfactory to the Purchaser.
The Company shall have increased its liability insurance coverage to $15
million, and shall have obtained key man life insurance on Xxxxxxx X. Xxxxxxx in
an amount not less than $6.0 million, and disability insurance on Xxxxxxx X.
Xxxxxxx at the highest amount reasonably available, which insurance policies
shall be assigned to the Purchaser, to be applied to the repayment of the Note
in the event of the death or disability of Xxxxxxx X. Xxxxxxx.
6.13 Intentionally omitted.
6.14 Delivery of Financial Statements and Projections. The Company
shall have finalized and delivered to the Purchaser prior to the Closing Date
the financial projections of the Company Parties for the five (5) Fiscal Years
ending September 30, 2005 (the "Initial Financial Projections"). The Initial
Financial Projections shall specify the assumptions on which they are based and
shall be made in good faith as previously provided to the Purchaser. The Initial
Financial Projections shall be accompanied by an officer's certificate, in form
and substance satisfactory to the Purchaser, duly executed by the Chief
Financial Officer of the Company, specifying, among other things, the
assumptions on which the Initial Financial Projections are based. The Company
shall have delivered to the Purchaser prior to the Closing Date the financial
statements described in Section 3.10 and Section 6.2(b) of this Agreement.
6.15 Third-Party Consents. The Company Parties shall have obtained all
other Consents required to be obtained from all Governmental Authorities and
other Persons in connection with
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the transactions contemplated by this Agreement (including, without limitation,
the Consents listed on Schedule 3.6), and the Purchaser shall have approved the
terms and conditions thereof, and all applicable waiting periods shall have
expired.
6.16 Intentionally omitted.
6.17 Proceedings Satisfactory. All proceedings taken prior to or at the
Closing in connection with the issuance and sale of the Securities and the
consummation of the other transactions contemplated hereby, and all papers and
other documents relating thereto, shall be in form and substance satisfactory to
the Purchaser and its counsel, and the Purchaser shall have received copies of
such documents and papers, all in form and substance satisfactory to the
Purchaser and its counsel, all such documents, where appropriate, to be
counterpart originals and/or certified by proper authorities, corporate
officials and other Persons. Without limiting the generality of the foregoing,
the Company shall have made such arrangements as may be requested by the
Purchaser to ensure that the proceeds from the issuance and sale of the
Securities are applied in the manner set forth in Schedule 3.37, including,
without limitation, provision for the direct payment of the obligations of the
Company to be paid from such proceeds as provided in Section 8.5, the
withholding of fees payable to the Purchaser as provided in Section 8.5 and the
segregation of funds to be paid to third parties concurrent with or following
the Closing.
6.18 Compliance Certificate. The Purchaser shall have received a
Compliance Certificate signed by the President and Chief Executive Officer and
the Chief Financial Officer of the Company, certifying that it has reviewed this
Agreement and the other Investment Documents and that, after giving effect to
the incurrence of Indebtedness hereunder and the consummation of the other
transactions contemplated hereby and thereby, the Company Parties will be in
compliance with the covenants of Section 10.15 (Financial Covenants).
6.19 Sources and Uses of Funds. The Purchaser shall have approved the
use of proceeds of the Note as described in Section 3.37 of this Agreement.
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY PARTIES. The obligations
of the Company Parties to consummate the transactions contemplated hereby are
subject to the satisfaction, prior to the Closing, of the conditions set forth
in this Section 7; provided, however, that any or all of such conditions may
be waived, in whole or in part, by the Company in its sole and absolute
discretion:
7.1 Representations and Warranties. The representations and warranties
of the Purchaser contained in this Agreement shall be true and correct in all
respects at and as of the Closing Date after giving effect to the transactions
contemplated by this Agreement, as if made on and as of such date, and the
Purchaser shall have performed or satisfied all of its covenants and agreements
hereunder to be performed or satisfied on or prior to the Closing Date.
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7.2 Purchase Permitted By Applicable Laws. The consummation of the
transactions contemplated by this Agreement shall not be prohibited by or
violate any Applicable Laws and shall not subject any party to any Tax, penalty
or liability, under or pursuant to any Applicable Laws, and shall not be
enjoined (temporarily or permanently) under, or prohibited by or contrary to,
any injunction, order, decree or ruling. Without limiting the generality of the
foregoing, the consummation of the transactions contemplated hereby shall
otherwise comply with all applicable requirements of federal and state
securities laws.
7.3 No Injunction or Order. There shall not have been issued any
injunction, order, decree or ruling that prohibits or limits any of the
transactions contemplated by this Agreement or the other Investment Documents.
7.4 Payment for Securities. The Purchaser shall have delivered to the
Company the Purchase Price required to be paid by Section 2.3, less the amounts
provided for in Section 6.3 and Section 8.5.
8. TAXES; INDEMNIFICATION; FEES AND EXPENSES.
8.1 Taxes. (a) Any and all payment by the Company Parties hereunder or
under the Note shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, taxes that
are imposed on Purchaser's overall net income by the United States and taxes
that are imposed on its overall net income (and franchise taxes imposed in lieu
thereof) by the state or foreign jurisdiction under the laws of which such
Purchaser is organized or any political subdivision thereof. If any Company
Party shall be required by law to deduct any such non-excluded Taxes from any
sum payable by such Company Party, (i) the amount payable shall be increased as
may be necessary so that after such Company Party and the Purchaser have made
all required deductions (including deductions applicable to additional sums
payable under this Section 8.1) the Purchaser receives an amount equal to the
sum it would have received had no such deductions been made, (ii) such Company
Party shall make all such deductions and (iii) such Company Party shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. The Company Parties shall indemnify the
Purchaser for and hold them harmless against the full amount of such
non-excluded Taxes, and for the full amount of taxes of any kind imposed by any
jurisdiction on amounts payable under this Section 8.1, imposed on or paid by
the Purchaser and any liability (including penalties, additions to tax, interest
and expenses) arising therefrom or with respect thereto. This indemnification
shall be made within two (2) Business Days from the date the Purchaser makes
written demand therefor.
(b) The Company Parties shall pay all present or future stamp,
documentary, excise, property, transfer and other similar Taxes (together in
each case with interest and penalties, if any) payable or determined to be
payable in connection with the execution and delivery of this Agreement, any
payment made hereunder, or the issuance and sale of the Securities and shall
hold
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harmless the Purchaser from and against any and all liabilities with respect to
or resulting from any delay in paying, or omission to pay, such Taxes.
8.2 Indemnity.
(a) Whether or not the transactions contemplated by this Agreement
are consummated, the Company Parties shall jointly and severally indemnify,
defend and save and hold harmless the Purchaser, its successors and assigns, and
its Affiliates, employees, partners, officers, directors, representatives,
agents, attorneys, successors and assigns (the "Indemnified Parties"), from and
against, and shall pay on demand, any and all losses, claims, damages,
liabilities, judgments, Indemnified Environmental Costs, expenses and costs,
including, without limitation, attorneys' fees and other fees and expenses
incurred in, and the costs of preparing for, investigating or defending any
matter (collectively, "Losses"), incurred by or asserted or awarded against such
Indemnified Party in connection with, by reason of, or arising from:
(i) Any breach of any warranty or the inaccuracy of any
representation made by the Company Parties (or any Company Party) in
this Agreement or any other Investment Document;
(ii) The failure of the Company Parties (or any Company Party) to
fulfill any of their (or its) covenants, agreements or undertakings
under this Agreement or any other Investment Document (or any other
document or instrument executed herewith or pursuant hereto);
(iii) Any third party actions, suits, proceedings or claims brought
against any Indemnified Party in connection with, arising out of or
with respect to (i) any other matters arising out of or in connection
with the transactions contemplated by this Agreement, the Note, the
Warrants or any other Investment Document or (ii) the business,
operations or affairs of the Company Parties (including, without
limitation, any litigation in which any Company Party is involved).
(iv) The actual or alleged presence of Hazardous Materials on any
property of any Company Party or any Environmental Condition; or
(v) The Tender Offer, the Tender Offer Merger, the Tender Offer
Documents (or any aspect thereof), payment for Common Stock of the
Company held by either Xxxxxxx X. Xxxxxxx or Xxxxxxx X. Xxxxxxx or
their respective Affiliates, purchases by the Company of its Common
Stock pursuant to Rule 10b-18 of the Exchange Act and private purchases
by the Company of its Common Stock.
(b) The Company Parties shall either pay directly all Losses which
it is required to pay hereunder or reimburse any Indemnified Party within ten
(10) days after any
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request for such payment. The obligations of the Company Parties to the
Indemnified Parties under this Section 8 shall be separate obligations to each
Indemnified Party, and the liability of the Company Parties to such Indemnified
Parties hereunder shall not be extinguished solely because any Indemnified Party
is not entitled to indemnity hereunder.
(c) In addition, notwithstanding anything in this Agreement or any
other Investment Document to the contrary, in the event of a breach of the
representation and warranty set forth in Section 3.7(a) (including, without
limitation, Schedule 3.7(a)) with respect to the number of shares of Common
Stock or Preferred Stock outstanding on a Fully Diluted Basis, to the extent
that the number of Warrant Shares evidenced by the Common Warrant immediately
after the Closing represent, as calculated therein, a percentage of the
outstanding shares of Common Stock on a Fully Diluted Basis that is less than
14.0% not including shares of Preferred Stock outstanding immediately after the
closing of the Tender Offer, as such number may be adjusted pursuant to the
terms of such Warrant, or that the number of Warrant Shares evidenced by any
Preferred Warrant immediately after the Closing represent, as calculated
therein, a percentage of the shares of Preferred Stock outstanding immediately
after the closing of the Tender Offer for which such Preferred Warrant is
exercisable that is less than 14.0%, as such number may be adjusted pursuant to
the terms of such Warrant, then the Company shall immediately issue to the
Purchaser, at no cost to the Purchaser, an additional warrant or warrants, in
form and substance satisfactory to the Purchaser, representing an additional
number of Warrant Shares such that, if such additional Warrant Shares had been
included in such Warrants immediately after the Closing, such representation and
warranty would have been true and accurate in all respects when made.
(d) The obligations of the Company Parties to the Indemnified
Parties under this Section 8 shall survive (i) the repayment of the Note
(whether at maturity, by prepayment or acceleration or otherwise), (ii) any
transfer of the Note or any interest therein, (iii) the termination of this
Agreement or any other Investment Document and (iv) the issuance, exercise,
assignment and/or sale of any Warrant (or any interest therein) or the sale of
any Warrant Shares.
8.3 Indemnification Procedures. Any Person entitled to indemnification
under this Section 8 shall (a) give prompt written notice to the Company of any
claim with respect to which it is entitled to seek indemnification and (b)
permit the Company to assume the defense of such claim with counsel selected by
the Company and reasonably acceptable to such Person; provided, however, that
any Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim and the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the Company has agreed to pay such fees or expenses; (ii) the Company has failed
to notify such Person in writing within ten (10) days of its receipt of such
written notice to the Company that it will assume the defense of such claim and
employ counsel reasonably acceptable to such Person; or (iii) in the judgment of
any such Person, a conflict of interest exists between such Person, on the one
hand, and any Company Party, on the other hand, with respect to such claims (in
which case, if the Person notifies the Company in
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writing that such Person elects to employ separate counsel at the expense of the
Company, the Company shall not have the right to assume the defense of such
claim on behalf of such Person). The Company will not be subject to any
liability for any settlement made without its consent (but such consent may not
be unreasonably withheld). No Indemnified Party may, without the consent of the
Company (which consent will not be unreasonably withheld), consent to the entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
Company of a release from all liability in respect of such claim or litigation.
8.4 Contribution. If the indemnification provided for in this Section 8
is unavailable to the Purchaser or any other Indemnified Party in respect of any
Losses, then the Company Parties, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by the Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Company Parties, on the one hand, and such Indemnified
Party, on the other hand, in connection with the actions, statements or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations. The relative fault of the Company Parties, on the one hand, and
such Indemnified Party, on the other hand, shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been taken by, or relates to information supplied by,
either any Company Party or such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
any such action, statement or omission. The parties agree that it would not be
just and equitable if contribution pursuant to this Section 8.4 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
8.5 Reimbursement of Deal-Related Costs and Expenses. Notwithstanding
anything to the contrary contained herein or otherwise, whether or not the
transactions contemplated by this Agreement are consummated or this Agreement is
terminated for any reason, and in addition to all other amounts due or owing to
the Purchaser hereunder, under any other Investment Document or otherwise, the
Company Parties shall be jointly and severally responsible, and jointly and
severally agree to promptly reimburse the Purchaser, for all costs and expenses
of every type and nature (including, without limitation, all fees and expenses
of counsel, accounting fees and expenses and other deal-related costs and
expenses) incurred by or on behalf of the Purchaser, in connection with the
Purchaser's due diligence investigation of the Company Parties and Affiliates,
the preparation, negotiation, execution, delivery and enforcement of this
Agreement, the Note, the Warrants and the other Investment Documents and the
consummation of the transactions contemplated hereby and thereby (which costs
and expenses may be withheld by the Purchaser from the proceeds to be delivered
by the Purchaser at the Closing pursuant to Section 7.4), in an amount not to
exceed $200,000. At the Purchaser's request and direction, the Company Parties
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shall reimburse third party providers of the Purchaser directly for all of such
costs and expenses. In addition, the Company Parties jointly and severally agree
to pay to the Purchaser such fees, costs and expenses upon the Closing, if the
Closing occurs, or within two (2) Business Days of any written demand therefor
by the Purchaser, if this Agreement shall not have been executed for any reason,
including, without limitation, Purchaser's decision not to proceed with the
Closing. Notwithstanding the foregoing, any fees, costs and expenses incurred by
or on behalf of the Purchaser after the execution of this Agreement shall not be
subject to the $200,000 cap described in this Section 8.5.
8.6 Costs and Expenses. The Company Parties jointly and severally agree
to pay to the Purchaser on demand all costs and expenses of every type and
nature (including, without limitation, all fees and expenses of attorneys,
accountants and other experts and all due diligence, collateral review,
appraisal, search, filing and recording fees and expenses) which are expended or
incurred by or on behalf of the Purchaser in connection with (a) the
administration of the Investment Documents or the collection and enforcement of
the Obligations, whether or not any action, suit or other proceeding is
commenced; (b) any actions for declaratory relief in any way related to the
Obligations; (c) the protection or preservation of any rights or remedies of the
Purchaser under this Agreement or any other Investment Document; (d) any actions
taken by the Purchaser in negotiating any amendment, waiver, consent or release
of or under this Agreement, the Note or any other Investment Document; (e) any
actions taken in reviewing the Company Parties' financial affairs, which actions
shall include, but not be limited to, (i) inspecting the facilities of any
Company Party or conducting audits or appraisals of the financial condition of
any Company Party; (ii) having an accounting or other firm selected by the
Purchaser review the books and records of any Company Party and perform a
thorough and complete examination thereof; (iii) interviewing the Company
Parties' employees, attorneys, accountants, customers and any other Persons
related to the Company Parties which the Purchaser believes may have relevant
information concerning the business, condition (financial or otherwise), results
of operations or prospects of any of the Company Parties; (iv) or undertaking
any other action which the Purchaser believes is necessary to assess accurately
the financial condition and prospects of the Company Parties; (f) any
refinancing, restructuring (whether in the nature of a "work out" or otherwise),
bankruptcy or insolvency proceeding involving any Company Party or Affiliates,
including, without limitation, any refinancing or restructuring of this
Agreement, the Note or any other Investment Documents; (g) any actions taken to
verify, maintain, perfect and protect any Lien granted to the Purchaser by any
Company Party or any other Person under the Investment Documents; (h) any effort
by the Purchaser to protect, assemble, complete, collect, sell, liquidate or
otherwise dispose of any collateral, including in connection with any case under
Bankruptcy Laws; or (i) having counsel advise the Purchaser as to its rights and
responsibilities, the perfection, protection or preservation of rights or
interests under the Investment Documents, with respect to negotiations with any
Company Party or with other creditors of any Company Party or with respect to
any proceeding under any Bankruptcy Law. The Company Parties hereby consent to
the taking of the foregoing actions by the Purchaser. Notwithstanding this
Section 8.6, in the event that the Purchaser assigns some, but not all of its
rights hereunder, the Company Parties'
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obligations to pay the costs and expenses described in this Section 8.6 will be
limited to those incurred directly by or on behalf of the Purchaser, but not
those costs and expenses incurred by or on behalf of any assignee.
9. AFFIRMATIVE COVENANTS. The Company Parties jointly and severally
covenant and agree that, except as set forth in Section 9.24, so long as any
Obligations to the Purchaser remain outstanding or the Purchaser owns or holds,
or has the right to acquire from the Company, directly or indirectly, at least
five per cent (5.0%) of the Common Stock on a Fully Diluted Basis, the Company
Parties shall perform, comply with and observe each of the covenants set forth
in this Section 9, as applicable.
9.1 Payment of Note and Other Obligations. The Company Parties shall
fully and timely pay all Obligations owing pursuant to the terms of this
Agreement, the Note (including, without limitation, all principal thereof,
premium, if any, and interest thereon), the Warrants and the other Investment
Documents to which they are parties, in each case on the dates and in the manner
provided for herein and therein.
9.2 Performance of Investment Documents. The Company Parties shall
perform, comply with and observe all of its obligations under this Agreement,
the Note, the Warrants and each other Investment Document.
9.3 Information Reporting Requirements. The Company Parties shall
furnish to the Purchaser:
(a) As soon as available, and in no event later than ninety (90)
days after the end of each Fiscal Year, consolidated and consolidating balance
sheets of the Company Parties as of the end of such Fiscal Year, and related
consolidated and consolidating statements of operations, shareholders' equity
and cash flows of the Company Parties for such Fiscal Year, setting forth in
comparative form the corresponding figures for the immediately preceding Fiscal
Year, all in reasonable detail and prepared in accordance with GAAP, and
accompanied by (i) a report and an opinion, prepared in accordance with
generally accepted auditing standards, of Xxxxxxxx Xxxxx Xxxxxxx & Xxxxxxx,
P.C., or any other independent certified public accountants of recognized
national standing as a "Big 5" accounting firm selected by the Company and
acceptable to the Purchaser (which opinion shall (A) provide that such
consolidated financial statements present fairly, in all material respects, the
financial position for the periods indicated in conformity with GAAP, (B) not be
qualified as to "going concern" or otherwise qualified or limited, in scope or
in any other respect and (C) state that such accounting firm has obtained no
knowledge that a Default has occurred and is continuing, or if, in the opinion
of such accounting firm, a Default has occurred and in continuing, a statement
as to the nature thereof), and (ii) a schedule in a form acceptable to the
Purchaser of the computations used by such accountants in determining, as of the
end of such Fiscal Year, compliance with the covenants contained in Section
10.15);
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(b) Within two (2) Business Days after it is prepared, and in no
event later than (x) twenty (20) days after the last day of each calendar month,
draft or preliminary copies of all the documents in the monthly financial
package described in this Section 9.3(b) (the "Monthly Reporting Package")
provided that the documents in clauses (iii) and (iv) need not be delivered
within such twenty (20) day period and (y) twenty (20) Business Days after the
last day of each calendar month, final copies of all documents in the Monthly
Reporting Package (other than the financial information described in clause
(x)), all in reasonable detail and prepared in accordance with GAAP, consisting
of at least the following:
(i) an income statement for such month on a consolidated and
consolidating basis and by division, with comparative information for
the Initial Financial Projections for the Fiscal Year ended September
30, 2000 and the Annual Financial Projections thereafter, and the same
month during the immediately preceding Fiscal Year;
(ii) a year-to-date income statement for such month on a
consolidated and consolidating basis and by division, with comparative
information for the Initial Financial Projections for the Fiscal Year
ended September 30, 2000 and the Annual Financial Projections
thereafter, and the same year-to-date month during the immediately
preceding Fiscal Year;
(iii) a cash flow statement for such month, with comparative
information for the Initial Financial Projections for the Fiscal Year
ended September 30, 2000 and the Annual Financial Projections
thereafter, and the same month during the immediately preceding Fiscal
Year;
(iv) a year-to-date cash flow statement for such month, with
comparative information for the Initial Financial Projections for the
Fiscal Year ended September 30, 2000 and the Annual Financial
Projections thereafter, and the same year-to-date period during the
immediately preceding Fiscal Year;
(v) a balance sheet as at the end of such month on a consolidated
and consolidating basis, with comparative information for the Initial
Financial Projections for the Fiscal Year ended September 30, 2000 and
the Annual Financial Projections thereafter, and as at the end of the
same month during the immediately preceding Fiscal Year;
(vi) other information, as may be requested by the Purchaser, to
monitor mutually agreeable critical success factors of the Company that
need to be achieved in order for the Company to meet its financial
projections, including, without limitation, aged backlog, receivables
aging, and payables aging;
75
(vii) a schedule in a form acceptable to the Purchaser of the
computations used by the Company Parties in determining compliance with
the covenants contained in Section 10.15;
(vii) an analysis of monthly same-store sales;
(viii) monthly detail supporting deferred revenue and assets; and
(ix) a schedule of detailed information regarding opened and closed
franchised stores, sold Company-owned stores, and sold new
franchises;
(x) any additional financial information so that LLCP may calculate
compliance with the covenants contained in Section 10.15.
(c) As soon as available and in any event within two (2) Business
Days after the end of each week (ending on Sunday), a "blast fax" for such week
including franchised store sales, as well as food, labor and paper percentages;
(d) Promptly (and in any event not later than three (3) Business
Days) after the issuance of any Governmental Report, or series of Governmental
Reports, a copy (or copies) of such Governmental Report(s) (or written summaries
of any substantially similar oral reports(s));
(e) Promptly after the same becomes publicly available (but not
later than five (5) days thereafter), copies of any Company SEC Documents as
shall be filed by any Company Party pursuant to the requirements of the
Securities Act or the Exchange Act;
(f) At least twenty (20) days prior to the beginning of each Fiscal
Year, a copy of the Company's internal financial projections for such Fiscal
Year (the "Annual Financial Projections"), prepared on a monthly basis and in
reasonable detail, which shall include the following: (i) a balance sheet,
income statement and cash flow statement for each month of such Fiscal Year;
(ii) a capital expenditures budget, including, without limitation, internal rate
of return analysis and "payback" analysis; (iii) an explanation in reasonable
detail of all material changes proposed for the business and its personnel and
facilities; (iv) an explanation in reasonable detail of all material assumptions
underlying such financial projections, which assumptions shall be believed by
the Company to be reasonable; (v) a description of the opportunities to be
pursued during such Fiscal Year; and (vi) a description of any incentive
compensation expected to be paid to senior management;
(g) At the Closing, and simultaneously with the delivery of (i) the
financial statements required to be delivered to the Purchaser under clause (a)
of this Section 9.3 and (ii) the financial statements required to be delivered
to the Purchaser under clause (b) of this Section 9.3 with respect to each
month, a compliance certificate, in substantially the form of Exhibit I (a
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"Compliance Certificate"), signed by the President and Chief Executive Officer
and the Chief Financial Officer of the Company, certifying that each of them has
reviewed this Agreement and the other Investment Documents and the financial
statements (including the financial condition and results of operations) of the
Company Parties for purposes of delivering such Compliance Certificate and
further certifying as to the matters set forth in such Compliance Certificate;
(h) Promptly after submission to any Governmental Authority (and in
any event not later than two (2) Business Days thereafter), all documents and
information furnished to such Governmental Authority in connection with any
investigation of any Company Party other than routine inquiries by such
Governmental Authority;
(i) As soon as possible (and in any event within two (2) Business
Days) after an any Company Party obtains knowledge thereof, notice of (i) the
occurrence of any event, act, development or condition which constitutes a
Default or Event of Default or any "default" or "event of default" under the
terms of any Other Debt Documents; (ii) the commencement of any litigation
against any Company Party or any investigation or other proceeding of any
Governmental Authority against any Company Party; (iii) receipt of any notice of
default or termination under or related to any Material Contract; or (iv) any
other event or development which could have a Material Adverse Effect. Each such
notice shall specify in reasonable detail the nature of the event, act,
condition, Default, Event of Default, default, event of default, litigation or
investigation or other proceeding and what action the Company Party or any other
Person is taking or proposes to take to cure the same;
(j) As soon as available and in any event within thirty (30)
calendar days after the end of each Fiscal Year, a report summarizing the
insurance coverage specifying type, amount and carrier) in effect for each
Company Party and containing such additional information as the Purchaser may
reasonably specify;
(k) Promptly: (i) upon receipt thereof, copies of all reports
submitted to the Company Parties by their independent certified public
accountants in connection with each annual, interim or special audit examination
of any Company Party made by such accountants, including the "management letter"
submitted by such accountants to any Company Party in connection with their
annual audit, and (ii) upon delivery to the Bank (and in any event within three
(3) Business Days), copies of all notices, reports, compliance certificates and
financial information delivered to the Bank by, or on behalf of, any Company
Party;
(l) Promptly upon request (and in any event not later than three
(3) Business Days thereafter), such other notices and other information (whether
or not in the possession of third parties) concerning the business, operations,
condition (financial or otherwise), affairs or prospects of any Company Party or
Affiliates as the Purchaser may from time to time request, including, without
limitation, written notices of any issuances or sales of Common Stock of the
Company;
77
(m) Promptly after the release, copies of all press releases;
(n) Promptly after any Company Party has knowledge or becomes aware
thereof, notice of the occurrence of any Event of Loss with respect to the
property or assets of any Company Party aggregating $50,000 or more;
(o) Prompt written notice, in reasonable detail, of any proposed
creation, incorporation or acquisition of a Subsidiary of any Company Party;
(p) Prompt written notice of all actions, suits and proceedings
before any Governmental Authority or arbitrator pending, or to the best of the
Company Parties' knowledge, threatened against or affecting any Company Party
which (A) if adversely determined would involve an aggregate liability of
$50,000 (or its equivalent in another currency) or more, or (B) otherwise may
have a Material Adverse Effect;
(q) The reports and notices as required by the Collateral
Documents;
(r) Within ten (10) days of the date thereof, notice of any
material change in accounting policies or financial reporting practices by any
Company Party;
(s) Promptly after the occurrence thereof, notice of any labor
controversy resulting in or threatening to result in any strike, work stoppage,
boycott, shutdown or other material labor disruption against or involving any
Company Party; and
(t) Prompt written notice of any other condition or event which has
resulted, or that could reasonably be expected to result, in a Material Adverse
Effect.
9.4 Compliance with Laws; Consents. The Company Parties shall comply at
all times with all Applicable Laws (including, without limitation, Environmental
Laws and laws relating to franchises) in respect of the conduct of its or their
businesses and the ownership of its or their properties in the states or other
jurisdictions in which it or they conduct their respective businesses, except to
the extent that non-compliance could not reasonably be expected to have a
Material Adverse Effect. The Company Parties shall obtain and maintain all
Consents necessary in connection with the execution, delivery and performance of
the Investment Documents, the consummation of the transactions therein
contemplated and the conduct of its business and the ownership of its
properties.
9.5 Legal Existence. Each Company Party shall at all times do or cause
to be done all things necessary to (a) maintain and preserve its existence and
its material rights and privileges, (b) become or remain duly qualified and in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
78
qualification necessary, except where the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect and (c) preserve, renew
and keep in full force and effect all of its Operating Licenses, except where
the failure to maintain such Operating Licenses could not reasonably be expected
to have a Material Adverse Effect.
9.6 Books and Records; Inspections. The Company Parties shall maintain
proper books of record and account in which full, true and complete entries in
conformity with GAAP and all requirements of Applicable Laws shall be made of
all material dealings and transactions in relation to its business and
activities. The Company Parties shall permit the designated representatives
and/or agents of the Purchaser to visit and inspect any of the properties of the
Company Parties, and to examine and make copies of, and abstracts from, the
books of record and account of the Company Parties without placing any
conditions on the same, and to discuss the affairs, finances and accounts of the
Company Parties with, and be advised as to the same by, its officers, employees,
attorneys and independent accountants, all during normal business hours and at
such reasonable times and to such extent as the Purchaser may request (and in
any event as soon as practicable (and not later than three (3) Business Days)
thereafter).
9.7 Maintenance of Properties. The Company Parties shall maintain and
preserve all of its or their properties which are necessary or materially useful
in the conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply at all times with the provisions of all
material personal property leases to which each of them is a party as lessee or
under which each of them occupies property, so as to prevent any loss or
forfeiture thereof or thereunder. The Company Parties shall make all payments
and otherwise perform all of its obligations under all leases of Real Property,
and all leases of material personal property, to which any Company Party is a
party, keep such leases in full force and effect and not permit such leases to
expire, lapse or be terminated (or any rights to renew such leases to be
forfeited or canceled) except in the ordinary course of business, notify the
Purchaser of any default by any party thereto and cooperate with the Purchaser
in all respects to cure any such default. Notwithstanding anything to the
contrary contained in this Section 9.7, the Company Parties may determine in
good faith that any of its assets or properties, whether owned or leased, is
obsolete or has been damaged and the cost of repair makes its inadvisable to
repair such asset or property. The Company Parties shall pay and discharge each
lawful claim which, if unpaid, would by law become a Lien (other than a
Permitted Lien) upon its property.
9.8 Insurance. The Company Parties shall maintain with financially
sound and reputable insurers policies of insurance, coverage amounts and related
terms and conditions for the Company Parties normally maintained by companies
engaged in the same or similar business as the Company Parties against loss or
damage and such other policies of insurance and coverage amount as may be
reasonably requested by the Purchaser. Such insurance shall include, without
limitation, comprehensive general liability, fire and extended coverage, product
liability and recall, property damage, workers' compensation, flood insurance
(if customarily maintained in locations in which any Company Party is located),
environmental liability insurance, business interruption
79
insurance (either for loss of revenues or for additional expenses) and directors
and officers liability insurance as provided in the Investor Rights Agreement.
All insurance covering liability shall name the Purchaser as an additional
insured, and all insurance covering property subject to a Lien in favor of the
Purchaser shall name the Purchaser as a loss payee. In addition, the Company
Parties shall procure from financially sound and reputable insurers acceptable
to the Purchaser within thirty (30) days after the Closing, and maintain until
the Obligations have been indefeasibly paid in full, key man life insurance
policies on the life of Xxxxxxx X. Xxxxxxx in a coverage amount of $6.0 million
and disability insurance policies on Xxxxxxx X. Xxxxxxx in the largest amount
reasonably available, and providing that the full amount of insurance proceeds
shall be payable to the Purchaser, to be applied to the repayment of amounts
owing under the Note in the event of the death or disability of Xxxxxxx X.
Xxxxxxx, and if the Note has been indefeasibly paid in full or otherwise
satisfied in full the insurance proceeds shall be payable to the Company.
Each of the insurance policies required to be maintained under this
Section 9.8 shall provide for at least thirty (30) days' prior
written notice to the Purchaser of the cancellation or substantial
modification thereof. Receipt of such notice shall entitle the Purchaser to
renew any such policies, cause the coverages and amounts thereof to be
maintained at levels required pursuant to the first sentence of this Section 9.8
or otherwise to obtain similar insurance in place of such policies, in each case
at the expense of the Company Parties.
9.9 Taxes. The Company Parties shall pay and discharge promptly when
due all Taxes imposed upon it or any of its or their properties or in respect of
any of its franchises, business, income or property before any penalty shall be
incurred with respect to such Taxes; provided, however, that the Company Parties
need not pay or discharge any such Tax so long as (a) the validity or amount
thereof is being contested in good faith and by appropriate proceedings, (b) the
Company's outside Tax counsel shall have advised the Company in writing that it
has a reasonable legal basis for contesting the validity or amount of such Tax
and (c) reserves as may be required by GAAP shall have been made therefor.
9.10 ERISA Matters.
(a) The Company Parties shall cause each Benefit Plan to be
operated in compliance with the terms of such Benefit Plan and Applicable Law
and shall pay and discharge promptly any liability imposed upon it or them
pursuant to the provisions of such Benefit Plan and Applicable Law; provided,
however, that no Company Party shall be required to pay any such liability if
(i) the amount, applicability, or validity thereof shall be diligently contested
in good faith by appropriate proceedings and (ii) such Person shall have set
aside on its books reserves which, in the good faith judgment of the Board of
Directors of such Person, are adequate with respect thereto.
(b) The Company Parties shall deliver to the Purchaser promptly,
but in no event more than five (5) Business Days after any officer of any
Company Party obtains knowledge of (i) the Internal Revenue Service's (A)
revocation of the tax-qualified status of any Benefit Plan
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that is a tax-qualified retirement plan, (B) imposition of an excise tax upon
the occurrence of a "prohibited transaction" as such term is defined in Section
4975 of the Code, or (C) disallowance of a deduction (in whole or in part) for a
contribution to a Benefit Plan, (ii) the institution of a lawsuit against a
Benefit Plan (or a Fiduciary of such plan), or (iii) the United Stated
Department of Labor's imposition of a penalty under Section 502 of ERISA
relating to a Benefit Plan, a written notice specifying the nature of such
action, what action has been taken, is being taken, or is proposed to be taken
with respect thereto, and a copy of any correspondence or other documentation
relating to the matter.
9.11 Communication with Accountants. The Company Parties hereby
authorize the Purchaser to communicate directly with the Company Parties'
independent certified public accountants, and authorize such accountants to
disclose to the Purchaser any and all financial statements and other supporting
financial documents, workpapers and schedules as the Purchaser may request,
without any restrictions being placed on such communications.
9.12 Compliance with Material Contracts. The Company Parties shall (a)
perform, comply with and observe all terms and provisions of each Material
Contract to be performed, complied with or observed by it, (b) subject to
Section 10.10(c), maintain each Material Contract in full force and effect and
(c) enforce each Material Contract in accordance with its terms. The Company
Parties shall promptly make such demands or requests for information from each
other party to any Material Contract, and take action against each other party
to any Material Contract, as the Purchaser may request and, in connection with
the enforcement of any rights or remedies of any Company Party under any
employment agreement, non-competition, non-solicitation and/or confidentiality
agreement or similar agreement to which it is a party, in the event the
Purchaser requests that such Company Party file any action, suit or other
proceeding seeking injunctive or other equitable relief against such other
party, such Company Party shall do so within three (3) Business Days of its
receipt of such request.
9.13 Franchise Matters. The Company Parties shall (i) maintain proper
and complete records of all franchise activities in which full, true and
complete entries are made of all material dealings and transactions in relation
to their franchise activities, including, without limitation, all offering
circulars, franchise agreements, correspondence with franchisees, complaints of
franchisees, and Government Audits, (ii) comply with all Applicable Laws
regarding franchise activities, (iii) obtain and maintain in place franchisee
agreements which contain provisions requiring the franchisee to (A) indemnify
the Company with respect to claims relating to the franchisee's business from
third parties and (B) to obtain insurance from financially sound and respectable
insurers to cover such indemnity, naming the Company as the loss payee, (iv)
timely file with the applicable Governmental Authority all Uniform Franchise
Offering Circulars and other required filings, and (v) have each offering
circular delivered to any franchisee, prospective franchisee or Governmental
Authority by any Company Party comply as of the date delivered with all
requirements of Applicable Law, and, when delivered, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to
81
make the statements therein, in light of the circumstances under which they were
made, not misleading.
9.14 Environmental Matters.
(a) The Company Parties shall, and shall use their best efforts to
cause all tenants and other Persons who may come upon any Real Property to
comply, with all Environmental Laws, including those requiring disclosures to
prospective and actual buyers or tenants of all or any portion of the Real
Property. The Company Parties will not, and will not permit their Subsidiaries
to, install or allow to be installed any underground storage tanks on any Real
Property. The Company Parties shall comply with the recommendations of any
qualified environmental engineer or other expert engaged by the Company Parties
with respect to any Real Property.
(b) The Company Parties shall each promptly (and in any event
within five (5) Business Days) notify the Purchaser in writing (i) if it knows,
suspects or believes there may be any Hazardous Materials in or around any part
of the Real Property, any improvements constructed on the Real Property, or the
soil, groundwater or soil vapor on or under the Real Property, or that any
Company Party or the Real Property may be subject to any threatened or pending
investigation by any Governmental Authority under any Applicable Laws pertaining
to any Hazardous Materials, and (ii) of any claim made or threatened by any
Person arising out of or resulting from any Hazardous Materials being present or
released in, on or around any part of the Real Property, any improvements
constructed on the Real Property or the soil, groundwater or soil vapor on or
under the Real Property (any of the matters described in clauses (i) and (ii)
above being referred to as a "Hazardous Materials Claim").
(c) The Purchaser shall have the right, during normal business
hours, to enter and visit any Real Property for the purposes of observing the
Real Property, taking and removing soil or groundwater samples and conducting
tests on any part of the Real Property, if the Purchaser has reason to believe
that Hazardous Materials may be present on the Real Property, all at the cost
and expense of the Company; provided, however, that the Purchaser shall not have
any duty to visit or observe the Real Property or to conduct tests, and no site
visit, observation or testing by the Purchaser shall impose any liability on the
Purchaser. The Company Parties shall use its reasonable efforts to obtain all
Consents necessary, if any, for the Purchaser to do any of the same. In no event
will any site visit, observation or testing by the Purchaser be a representation
that Hazardous Materials are or are not present in, on or under the Real
Property, or that there has been or will be compliance with any Environmental
Law. Neither the Company Parties nor any other Person shall be entitled to rely
on any site visit, observation or testing by the Purchaser. The Purchaser shall,
if requested by the Company, share with the Company the written results, if any,
from any such site visit, observation or testing. The Purchaser owes no duty of
care to protect the Company Parties or any other Person against or to inform the
Company Parties or any other Person of the presence of any Hazardous Materials
or any other adverse condition affecting the Real
82
Property, except that the Purchaser shall repair any damage to Real Property
caused by or on behalf of the Purchaser in connection with any inspection by the
Purchaser of such Real Property. The Purchaser shall use its reasonable efforts
to avoid interfering with the existing use of the Real Property by the Company
Parties in exercising any rights provided in this Section 9.14.
(d) The Company Parties shall promptly undertake any and all
remedial work in response to Hazardous Materials Claims ("Remedial Work") to the
extent required by any Governmental Authority involved or as recommended by
prudent business practices, if such standard requires a higher degree of
remediation, and in all events to minimize any impairment to the Real Property.
All Remedial Work must be conducted (i) in a diligent and timely fashion by
licensed contractors acting under the supervision of a consulting environmental
engineer; (ii) pursuant to a detailed written plan for the Remedial Work
approved by all public or private agencies or persons with a legal or
contractual right to such approval; (iii) with insurance coverage pertaining to
liabilities arising out of the Remedial Work as is then customarily maintained
with respect to such activities; and (iv) only following receipt of any required
permits, licenses or approvals. The selection of the Remedial Work contractors
and consulting environmental engineer, the contracts entered into with such
parties, any disclosures to or agreements with any public or private agencies or
parties relating to Remedial Work and the written plan for the Remedial Work
(and any changes thereto) at the Purchaser's option, are subject to the
Purchaser's prior written approval.
(e) Preparation of Environmental Reports. At the request of the
Purchaser from time to time, each of the Company Parties shall provide to the
Purchaser within 30 calendar days after such request, at the expense of the
Company Parties, an environmental site assessment report for any of their
properties described in such request, prepared by an environmental consulting
firm acceptable to the Purchaser, indicating the presence or absence of
Hazardous Materials and the estimated cost of any compliance, removal or
remedial action in connection with any Hazardous Materials on such properties;
without limiting the generality of the foregoing, if the Purchaser determines at
any time that a material risk exists that any such report will not be provided
within the time referred to above, the Purchaser may retain an environmental
consulting firm to prepare such report at the expense of the Company Parties,
and the Company Parties hereby grant and agree to cause any Subsidiary that owns
any property described in such request to grant at the time of such request to
the Purchaser, such firm and any agents or representatives thereof an
irrevocable non-exclusive license, subject to the rights of tenants, to enter
onto their respective properties to undertake such assessment.
9.15 Additional Company Parties or Assets; Liens Released or
Terminated. At any time or from time to time after the Closing, except to the
extent that any New Assets or any New Subsidiary would be subject to a Lien
pursuant to any Bank Credit Documents, and subject in all cases to be provisions
of this Agreement restricting or limiting or with respect to New Subsidiaries,
New Assets, or Released Liens and subject to the provisions of this Agreement
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requiring the Company Parties to use their best efforts to grant a second
priority Lien or subordinate guaranty in connection with Refinancing
Indebtedness:
(a) In the event of a New Subsidiary, the appropriate Company
Party shall, and shall cause the New Subsidiary to promptly (and in any event
within three (3) days after the formation, creation or acquisition of such New
Subsidiary) do any of the following, as requested by the Purchaser:
(i) execute and deliver to the Purchaser a joinder to the
Security Agreement, pursuant to which such New Subsidiary would grant a
first or second priority security interest in all of its properties and
assets;
(ii) execute and deliver to the Purchaser a joinder to the
Guaranty, pursuant to which such New Subsidiary would become a
guarantor of the Guarantied Obligations or a subordinate guaranty of
the Guarantied Obligations;
(iii) execute and deliver to the Purchaser a joinder to the
Intellectual Property Security Agreement, pursuant to which such New
Subsidiary would grant a first or second priority security interest in
all its Intellectual Property,
(iv) execute and deliver to the Purchaser a joinder to the
Pledge Agreement and if such New Subsidiary has any Subsidiaries and
the Lien is a first priority Lien, (A) certificates representing all of
the Capital Stock of such Subsidiaries; (B) undated stock powers
executed in blank; and (C) such opinions of counsel and such approving
certificates of such Subsidiaries as the Purchaser may request in
respect of complying with any legend on any such certificate or any
other matter relating to such shares;
(v) execute and deliver to the Purchaser such other
agreements, instruments, approvals or other documents as may be
requested by the Purchaser in order to create, perfect, establish, and
maintain the first or second priority of any Lien in favor of the
Purchaser to effect the intent that all Company Parties and all
Subsidiaries shall be bound by all of the terms, covenants and
agreements contained in the Collateral Documents and that all property
and assets of all Company Parties and all Subsidiaries shall become
Collateral for the Obligations;
(vi) execute and deliver to the Purchaser such additional
agreements, instruments, approvals and documents, and legal opinions,
as the Purchaser may request to effect the intent that such Subsidiary
shall become bound by all of the terms, covenants and agreements
contained in this Agreement and the other Investment Documents; and
(vii) within five (5) calendar days after such formation,
creation or acquisition of a Subsidiary of any Company Party, take
whatever action (including, without limitation, the recording of
mortgages, the filing of Uniform Commercial Code financing
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statements, the giving of notices and the endorsement of notices on
title documents) may be necessary or advisable in the opinion of the
Purchaser to vest in the Purchaser valid and subsisting Liens on and
security interests in all property and assets of such Subsidiary,
enforceable against all third parties in accordance with their terms.
(b) In the event of any New Assets, subject to any Lien granted to
any Bank or to a purchase money security interest of any Person providing such
Company Party financing for such New Assets, the appropriate Company Party shall
promptly (and in any event within three (3) days after the formation, creation
or acquisition of such New Assets) do any of the following, as requested by the
Purchaser:
(i) execute and deliver to the Purchaser such other
agreements, instruments, approvals or other documents as may be
requested by the Purchaser in order to create, perfect, establish, and
maintain the first priority of any Lien (unless such Lien is to be
subordinate to a Lien of any Bank in such New Assets) in favor of the
Purchaser with respect to the New Assets to effect the intent that,
subject to the certain exceptions contained in this Agreement and the
Collateral Documents, all Company Parties and all Subsidiaries shall be
bound by all of the terms, covenants and agreements contained in the
Collateral Documents and that all property and assets of all Company
Parties and all Subsidiaries shall become Collateral for the
Obligations; and
(ii) execute and deliver to the Purchaser such additional
agreements, instruments, approvals and documents, and legal opinions,
as the Purchaser may request to effect the intent that such New Assets
shall become bound by all of the terms, covenants and agreements
contained in this Agreement and the other Investment Documents.
(c) In the event of a Released Lien, subject to any Lien granted
to any Bank pursuant to Refinancing Indebtedness, the appropriate Company Party
shall promptly (and in any event within three (3) days after the release of such
Released Lien) do any of the following, as requested by the Purchaser:
(i) execute and deliver to the Purchaser such other
agreements, instruments, approvals or other documents as may be
requested by the Purchaser in order to create, perfect, establish, and
maintain the first priority of any Lien in favor of the Purchaser with
respect to the assets secured by the Released Lien (unless such assets
are to be subject to the first priority Lien of a Bank pursuant to
Refinancing Indebtedness) to effect the intent that, subject to certain
exceptions contained in this Agreement and the Collateral Documents,
all Company Parties and all Subsidiaries shall be bound by all of the
terms, covenants and agreements contained in the Collateral Documents
and that all property and assets of all Company Parties and all
Subsidiaries shall become Collateral for the Obligations; and
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(ii) execute and deliver to the Purchaser such additional
agreements, instruments, approvals and documents, and legal opinions,
as the Purchaser may request to effect the intent that the assets
previously encumbered by the Released Lien shall become bound by all of
the terms, covenants and agreements contained in this Agreement and the
other Investment Documents.
(d) Subject to Section 9.15(e), and notwithstanding any of the
foregoing, no Lien shall be granted in any franchise agreement of any Company
Party which would be prohibited by (i) the Pledge and Security Agreement dated
as of October 5, 1999 between and among the Company, Acquisition, Realty, S&S,
Operating and Kansas, on the one hand, and AMRESCO Commercial Finance, Inc.
("AMRESCO"), on the other hand, covering Colorado assets, or (ii) the Pledge and
Security Agreement dated as of October 5, 1999 between and among the Company,
Acquisition, Realty, S&S, Operating and Kansas, on the one hand, and AMRESCO
Commercial Finance, Inc. ("AMRESCO"), on the other hand, covering Kansas assets
(collectively, the "AMRESCO Agreements"), other than the Liens provided for in
the AMRESCO Agreements and in existence as of the date hereof, and no Lien shall
be granted in any collateral securing obligations under any Bank Credit
Agreement in existence on the date hereof or any Refinancing Indebtedness
without the consent of such Bank. Promptly (but in no event more than two (2)
Business Days) after the achievement of the targets set forth in Section 3.27 of
each of the AMRESCO Agreements, the Company and the other Company Parties party
to the AMRESCO Agreements shall use their best efforts to obtain the immediate
release of the Lien of AMRESCO in the franchise agreements as described in
Section 3.27 and any provisions prohibiting the grant of any Lien in such
franchise agreements of each of the AMRESCO Agreements.
(e) Notwithstanding anything in this Agreement to the contrary,
the Company Parties agree that in the event of any New Subsidiary, New Assets,
Released Lien or any Refinancing Indebtedness in which any Bank has a first
priority Lien on any collateral thereunder or any Bank proposes to obtain a
first priority Lien in connection with such Refinancing Indebtedness, the
Company Parties shall use their best efforts to ensure that the Purchaser shall
have or maintain a second priority Lien upon such collateral on terms and
conditions reasonably acceptable to the Purchaser. In the event of any
Refinancing Indebtedness, if the Company Parties are unable to negotiate an
arrangement for such second priority Liens on terms and conditions acceptable to
the Purchaser, upon the closing of such Refinancing Indebtedness, the Base
Interest Rate under the Note shall immediately and automatically adjust as
provided in Section 1(a) of the Note, and the Purchaser shall execute and
deliver to the Company Parties such agreements, instruments, approvals or other
documents, including UCC terminations, as reasonably requested by any Company
Party in order to release Purchaser's Lien on the Collateral.
9.16 Future Information. All data, certificates, reports, statements,
documents and other information furnished to the Purchaser by or on behalf of
the Company Parties, any of their Subsidiaries or any of their respective
representatives or agents in connection with this Agreement, the other
Investment Documents or the transactions contemplated hereby and thereby, at the
time the information is so furnished, shall not contain any untrue statement of
a material fact, shall be
86
complete and correct in all material respects to the extent necessary to give
the Purchaser sufficient and accurate knowledge of the subject matter thereof,
and shall not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
9.17 Further Assurances. Promptly after request by the Purchaser, from
time to time after the date hereof, the Company Parties and any successor to the
Company as a result of the Tender Offer Merger shall, and shall cause any other
Persons who are required to give their Consent to execute and deliver, such
instruments, certificates and documents, and will take all such actions, for the
purposes of implementing or effectuating the provisions of this Agreement, the
Note, the Warrants and the other Investment Documents. Upon exercise by the
Purchaser of any power, right, privilege or remedy pursuant to this Agreement,
the Securities Purchase Agreement, or any other Investment Document which
requires any Consent, the Company Parties will execute and deliver, and will
cause any other Persons to execute and deliver, all applications,
certifications, instruments and other documents and papers that may be required
to be obtained for such Consent. Promptly upon request by the Purchaser, the
Company Parties shall correct any material defect or error that may exist or be
discovered in this Agreement, the Note, the Warrants or any other Investment
Document or in the execution, acknowledgment, filing or recordation thereof.
Promptly upon request by the Purchaser, the Company Parties and any successor to
the Company as a result of the Tender Offer Merger shall do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and re-register
any and all such further acts, deeds, conveyances, pledge agreements, mortgages,
deeds of trust, trust deeds, notices of assignment, transfers, certificates,
assurances and other instruments as the Purchaser may require from time to time
in order to (A) carry out more effectively the purposes of the Investment
Documents, (B) to the fullest extent permitted by applicable law, subject each
Company Parties' properties, assets, rights or interest to the Liens now or
hereafter intended to be covered by any of the Collateral Documents, (C) perfect
and maintain the validity, effectiveness and priority of any of the Collateral
Documents and any of the Liens intended to be created thereunder and (D) assure,
convey, grant, assign, transfer, preserve, protect and confirm more effectively
unto the rights granted or now or hereafter intended to be granted to the
Purchaser under any Investment Document or under any other instrument executed
in connection with any Investment Document to which any Company Party is to be a
party. Each Company Party and any successor to the Company as a result of the
Tender Offer Merger hereby appoints the Purchaser the attorney-in-fact of such
Company Party solely for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any instrument which the Purchaser
may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Xxxxxxx X. Xxxxxxx and
Xxxxxxx X. Xxxxxxx will cause any successor to the Company as a result of the
Tender Offer Merger to take any actions and do, execute, acknowledge, deliver,
record, re-record, re-file, register and re-register any of the foregoing as
required pursuant to this Section 9.17.
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9.18 Company SEC Documents. So long as the Company has securities
registered pursuant to Section 12 of the Exchange Act or is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall timely file with the Commission, and provide to the Purchaser concurrently
(and in no event more than two (2) Business Days after filing) therewith, all
Company SEC Documents as are specified in the Exchange Act as being required to
be filed by U.S. corporations that are subject to reporting requirements of the
Exchange Act. In addition, the Company shall timely file with the Nasdaq, and
provide to the Purchaser concurrently (and in no event more than two (2)
Business Days after filing) therewith, all Company SEC Documents required to be
filed therewith. Each Company SEC Document to be filed by the Company, when
filed with the Commission or the Nasdaq, as the case may be, will comply with
all applicable requirements of the Securities Act, the Exchange Act or the
Nasdaq rules, as the case may be, and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements to be
included in each Company SEC Document to be filed by the Company will comply as
to form, as of the date of its filing with the Commission, with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, will be prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by the Commission)
and will fairly present in all material respects the consolidated financial
position of the Company Parties as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments
consistent with past practices and consistently applied).
9.19 MIS Matters. On or before June 1, 2001, the Company shall hire a
Director of Information Systems.
9.20 Intentionally omitted.
9.21 Capitalization; Warrant Shares. The Company shall not take, and
shall not omit to take, any action, the result of which action or omission would
cause the Warrant Shares to represent more than 19.9% of the outstanding Common
Stock or more than 19.9% of the outstanding voting power of the Company, without
first complying with all Applicable Laws and all NASD Rules, and any applicable
rules of any other securities exchange, including without limitation any
shareholder approvals required under NASD Rules 4310(c)(25)(H)(i) or 4460(i)(1),
as applicable, or any successor or replacement rules.
9.22 Loan to Xxxxxxx X. Xxxxxxx from the Company. At and contingent
upon the Closing, to the extent the Common Stock held by Xxxxxxx X. Xxxxxxx is
not eligible for margin pursuant to that certain letter agreement dated August
11, 2000 between Xxxxxxx X. Xxxxxxx and Ferris, Baker, Xxxxx, Incorporated, or
any successor loan made by Xxxxxx Xxxxxxx Capital Markets as described in
Section 5.8 or any other similar agreement (the "Margin Agreement"), the
Company or Xxxxxx Xxxxxxx Capital Markets may lend, and Xxxxxxx X. Xxxxxxx
may borrow from the Company, up to
88
$2,100,000 (the "RES Loan") pursuant to loan documents reasonably satisfactory
to the Purchaser, provided, that in the case of a loan from the Company, such
loan documents shall provide (a) that the RES Loan to be at the same rate as
specified in the Bank Credit Agreement with Xxxxxxx Xxxxx and (b) for payments
of interest on the RES Loan to be made 48 hours in advance of each interest
payment due under the Bank Credit Agreement with Xxxxxxx Xxxxx (or any
refinancing of such Bank Credit Agreement); and provided further, that in the
case of a loan from Xxxxxx Xxxxxxx Capital Markets, Xxxxxxx X. Xxxxxxx shall
indemnify the Company in full for any amounts paid by the Company pursuant to
any guaranty by the Company of the RES Loan, and any other losses, claims,
damages, fees, expenses and costs, including attorneys' fees, and all Capital
Stock of the Company owned by Xxxxxxx X. Xxxxxxx or his Affiliates (other than
Xxxxxxx X. Xxxxxxx) shall be pledged to the Company to secure such
indemnification obligation.
9.23 Agreements with Officers. Section 8 of each respective Agreement
with Officers shall be for the express benefit of the Purchaser, which shall be
an express third party beneficiary of Section 8 of each respective Agreement
with Officers. At Purchaser's election, and at the sole expense of Company, the
Purchaser may join with the Company in the enforcement of any provision of
Section 8 of either or both Agreements with Officers, or may, separate and
independent from the Company, at the sole expense of the Company, take any
action deemed necessary or appropriate by the Purchaser to enforce Section 8 of
either or both Agreements with Officers. Each respective Agreement with Officer
shall be for a term of five (5) years and six (6) months and shall provide that
the annual budget EBITDA approved by the Company's Board of Directors set forth
in Section 4.2 of the Agreements with Officers shall not be less than the amount
set forth in Column (A) of Section 10.15(a). The Company, Xxxxxxx X. Xxxxxxx and
Xxxxxxx X. Xxxxxxx agree and acknowledge that Section 8 of each respective
Agreement with Officer and the terms described in the preceding sentence may not
be modified, altered or amended in any way, nor may any provision or term in
Section 8 of each respective Agreement with Officer be waived by the Company
including any breach of, or material default under, Section 8 of either
Agreement with Officer, without the prior written consent of the Purchaser.
9.24 Survival of Certain Affirmative Covenants. From and after the date
that the Note has been indefeasibly paid in full or otherwise satisfied in full,
the Company Parties shall no longer be obligated to perform, comply with and
observe the covenants set forth in Sections 9.3(c) through (s) only (Information
Reporting Requirements), Section 9.7 (Maintenance of Properties), Section 9.11
(Communication with Accountants), Section 9.12 (Compliance with Material
Contracts), Section 9.15 (Additional Company Parties or Assets; Liens Released
or Terminated), and Section 9.17 (Further Assurances).
10. NEGATIVE AND FINANCIAL COVENANTS. The Company Parties jointly and severally
covenant and agree that, except as provided in Section 10.17, so long as any
Obligations to the Purchaser remain outstanding or the Purchaser owns or holds,
or has the right to acquire from the Company, directly or indirectly, at least
five per cent (5%) of the Common Stock on a Fully Diluted Basis, the Company
shall perform, comply with and observe each of the covenants set forth in this
Section 10, as applicable.
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10.1 Limitations on Indebtedness. The Company Parties shall not,
directly or indirectly, create, incur, assume, guarantee, suffer to exist or
become or remain liable with respect to any Indebtedness, except for the
following, so long as no Default or Event of Default has occurred and is
continuing or would occur as a result thereof, and provided further that no
Interest Rate Event has occurred and is continuing or would occur as a result
thereof:
(a) The Obligations;
(b) Indebtedness existing under the Bank Credit Agreements,
provided that no Company Party shall create or incur additional Indebtedness
under the Bank Credit Agreements from the date of this Agreement through and
including the date that is nine (9) months after the Closing Date;
(c) Refinancing Indebtedness, provided that no Company Party shall
create or incur Refinancing Indebtedness from the date of this Agreement through
and including the date that is nine (9) months after the Closing Date unless the
amount the Company may borrow under such Refinancing Indebtedness is no greater
than the amount the Company may borrow under the Bank Credit Agreement, as in
effect on the date hereof, which is refinanced;
(d) Indebtedness incurred pursuant to the repurchase from by the
Company of any Area Directorship or master franchise agreements, the sale of any
Area Directorships or master franchise agreements, or for Capital Expenditures,
provided that repurchases from or sales to Affiliates shall be subject to
Section 10.6;
(e) The Subordinated Indebtedness; and
(f) Permitted Contingent Obligations.
10.2 Limitations on Liens. The Company Parties shall not, directly or
indirectly, create, incur, assume or suffer to exist, any Lien on or with
respect to any of its properties (whether tangible or intangible, now owned or
hereafter acquired including, without limitation, accounts), except:
(a) Liens in favor of the Purchaser;
(b) Liens in favor of any Bank pursuant to any Bank Credit
Agreement; and
(c) Permitted Liens.
10.3 Limitations on Investments. The Company Parties shall not,
directly or indirectly, purchase, make or own any Investment, except:
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(a) Permitted Investments;
(b) Investments set forth on Schedule 3.11(a); and
(c) Purchases of Common Stock or Preferred Stock in connection
with the Tender Offer or the Tender Offer Merger.
10.4 Limitations on Restricted Payments by the Company. The Company
Parties shall not, directly or indirectly, make any Restricted Payments.
Notwithstanding the foregoing sentence, so long as each Company Party is Solvent
and no Default or Event of Default has occurred and is continuing or would occur
as a result thereof, and provided further that no Interest Rate Event has
occurred and is continuing or would occur as a result thereof, the Company
Parties may make the following Restricted Payments:
(a) Any dividend or other distribution on account of any Capital
Stock of the Company now or hereafter outstanding which is payable in shares of
the same class of Capital Stock or in cash or other assets, in each case subject
to the provisions of Section 4 of each Warrant providing for the same
distribution or dividend to be made to the Purchaser;
(b) Payment for Common Stock of the Company held by shareholders
other than either Xxxxxxx X. Xxxxxxx or Xxxxxxx X. Xxxxxxx or their respective
Affiliates, provided that such payment is made pursuant to (i) the Tender Offer
or the Tender Offer Merger during the nine (9) month period immediately
following the Closing; (ii) purchases made during the nine (9) month period
immediately following the Closing by the Company of its Common Stock pursuant to
Rule 10b-18 of the Exchange Act; (iii) private purchases by the Company of its
Common Stock made during the nine (9) month period immediately following the
Closing; or (iv) purchases of Common Stock by the Company from Xxxxxxx X.
Xxxxxxx in compliance with the terms of the Subordinated Indebtedness and
Sections 10.1 and 10.4 of this Agreement, provided, that repurchases described
in clauses (ii) and (iii) may be made during the period beginning nine (9)
months following the Closing and ending twelve (12) months following the Closing
if Liquidity is at least $1.5 million, and during the period beginning twelve
(12) months following the Closing and ending twenty-four (24) months following
the Closing if Liquidity is at least $2.0 million.
(c) Regularly scheduled interest payments on the Subordinated
Indebtedness, provided such payments are permitted by the terms thereof and by
this Agreement.
10.5 Limitations on Payment Restrictions Affecting Subsidiaries. The
Company Parties shall not enter into or permit to exist any agreement,
arrangement, instrument or other document which, directly or indirectly,
prohibits or restricts in any manner, or would have the effect of prohibiting or
restricting in any manner, the ability of any Company Party or Subsidiary to (a)
pay dividends or make other distributions in respect of its Capital Stock owned
by any Company Party,
91
(b) pay or repay any Indebtedness owed to any Company Party, (c) make loans or
advances to any Company Party, or (d) transfer any of its properties or assets
to any Company Party.
10.6 Limitations on Transactions With Affiliates. The Company Parties
shall not enter into at any time any contract, transaction or other arrangement
involving any Company Party or such Subsidiary, on the one hand, and any Company
Party, or any of its or their respective Affiliates, officers, directors or
employees, on the other hand, unless such contract, transaction or arrangement
(a) has been approved in writing in advance by a majority of the disinterested
directors of the Board of Directors of the Company, (b) will be on terms and
conditions that are no less favorable to the Company Party or Subsidiary, as the
case may be, than those that would be obtained from any Person who is not an
Affiliate of (or otherwise related to) the Company Party in a similar
transaction and (c) in the event that the Company is no longer subject to the
reporting requirements of the Exchange Act, has been approved in writing in
advance by the Purchaser, provided that such approval will not be unreasonably
withheld and provided further that if the Company can demonstrate (with the
burden of proof on the Company) that a proposed transaction meets the
requirements of Section 10.6(b) and provide an opinion of the Company's
outside counsel that a proposed transaction meets the requirements of
Section 10.6(b), such proposed transaction shall be deemed to be reasonable.
10.7 Change in Business. The Company Parties shall not engage in any
business other than the business described in recital A, and ancillary
businesses related thereto.
10.8 Sales of Receivables. The Company Parties shall not sell, assign,
discount, transfer, or otherwise dispose of any accounts receivable, chattel
paper, promissory notes, drafts or trade acceptances or other rights to receive
payment held by it, with or without recourse, except for the purpose of
collection or settlement, or sales of notes or accounts receivable on terms
consistent with market terms for like kind transactions, in each of the
foregoing cases in the ordinary course of business.
10.9 Fundamental Changes. No Company Party shall:
(a) make any change in its business objectives, purposes,
structure or operations as the same exists on the date hereof;
(b) amend, modify or alter its charter, bylaws or other
organizational documents in any manner which is either (i) adverse to the
Purchaser or (ii) adversely affects the ability of any Company Party to repay
the Obligations or the Guarantied Obligations, as the case may be, or otherwise
perform its obligations hereunder or under any other Investment Document;
(c) merge, consolidate, amalgamate, reorganize or recapitalize,
other than the Tender Offer Merger or a transaction for the purpose of acquiring
not more than twenty (20) restaurants, structured as a merger involving the
Company where the Company is the surviving
92
entity, in which the Company pays cash for shares of the target entity's equity
securities or assets, provided that no Default or Event of Default has occurred
and is continuing or would occur as a result thereof, and provided further that
no Interest Rate Event has occurred and is continuing or would occur as a result
thereof;
(d) form, create or acquire any New Subsidiary, without prior
notification to the Purchaser of the reasons for formation of the New Subsidiary
and such Company Party shall comply with Section 9.15;
(e) sell, lease, transfer or otherwise dispose of, in any
transaction or series of transactions, any assets (whether now owned or
hereafter acquired), other than (i) inventory in the ordinary course of
business; (ii) dispositions of restaurants owned by the Company or of assets or
property located in any restaurant owned by the Company (collectively, "Company
Store Assets"); (iii) assets set forth on Schedule 10.9(e); (iv) sales of
repurchased Area Directorships and master franchise agreements, so long as such
resold Area Directorships and master franchise agreements are sold for
consideration greater than the amount paid by the Company to repurchase such
Area Directorship or master franchise agreement; and (v) dispositions of assets
outside the ordinary course of business not to exceed $300,000 in the aggregate
in any Fiscal Year;
(f) wind up, liquidate or dissolve itself (or permit or suffer any
thereof);
(g) issue any of its Capital Stock except upon exercise of any
Warrant or in connection with the exercise or conversion of Option Rights (as
defined in the Common Warrant) in existence or outstanding on the date hereof or
pursuant to the Stock Appreciation Rights Plan;
(h) become a general partner in any limited partnership or joint
venture other than in the ordinary course of business; or
(i) engage in any transactions involving commodity options or
futures contracts or any similar speculative transactions.
10.10 Agreements Affecting Capital Stock and Indebtedness; Amendments
to Material Contracts. No Company Party shall, without the prior written consent
of the Purchaser:
(a) Enter into any voting agreement, voting trust, irrevocable
proxy or other agreement affecting the voting rights of the Capital Stock of any
Company Party, except for, in the case of the Company, the Investor Rights
Agreement;
(b) Amend, supplement, modify, refinance, renew, replace or
restructure any Other Debt Document, or waive any term or provision contained
therein, except for any Refinancing Indebtedness; or
93
(c) Cancel or terminate any Material Contract (or consent to or
accept any cancellation or termination thereof), amend or otherwise modify any
Material Contract or give any consent, waiver or approval thereunder, waive any
breach of or default under any Material Contract, or take any action in
connection with any Material Contract that would impair the value of the
interests or rights of any Company Party thereunder or that would impair the
interest or rights of the Purchaser hereunder or under this Agreement or any
other Investment Document, other than cancellations, terminations, amendments,
modifications, consents, waivers or approvals of or under any Material Contract
by any Company Party in the ordinary course of business that would not,
individually or in the aggregate, have a Material Adverse Effect.
10.11 Conditional Sales. No Company Party shall make any sale to any
customer on a xxxx-and-hold, guaranteed sale, sale and return, sale on approval,
consignment or any other repurchase or return basis, other than in the ordinary
course of business consistent with prior periods.
10.12 Margin Stock. No Company Party shall, directly or indirectly, use
any of the proceeds from the issuance and sale of the Securities for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any Margin Stock or maintaining or extending credit to others for such purpose
or for any other purpose that violates the Margin Regulations. If requested by
the Purchaser, the Company Parties will promptly furnish to the Purchaser a
statement in conformity with the requirements of Federal Reserve Form U-1
referred to in the Margin Regulations.
10.13 Accounting Changes. No Company Party shall make any change in
accounting policies or reporting practices, except as required by GAAP. No
Company Party will change its Fiscal Year without the written approval in
advance of the Purchaser.
10.14 Negative Pledge. No Company Party shall enter into or suffer to
exist any agreement prohibiting or conditioning the creation or assumption of
any Lien upon any of its property or assets except in favor of Purchaser or
pursuant to the Bank Credit Agreements or as otherwise allowed under Section
10.2.
10.15 Financial Covenants. The Company covenants and agrees that, so
long as any Obligations to Purchaser remain outstanding, the Company shall
perform, comply with and observe each of the covenants set forth in this Section
10.15.
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(a) Minimum EBITDA. For each of the periods listed in the table below,
EBITDA shall not be less than the total amount reflected in Column (C) (with
regard to Section 11.1) or Column (A) (with regard to Section 11.2) set forth
opposite such period in the table:
Minimum EBITDA
Column (A)
----------
Column (C)
-------
Trailing Two Fiscal Quarters ending June 30, $3,389,000 $2,542,000
2001........................................
Trailing four Consecutive Fiscal Quarters
ending :
December 31, 2001........................... 7,628,000 5,686,000
March 31, 2002.............................. 8,203,000 6,080,000
June 30, 2002............................... 8,731,000 6,438,000
September 30, 2002.......................... 9,238,000 6,775,000
December 31, 2002........................... 9,480,000 6,856,000
March 31, 2003.............................. 9,736,000 6,941,000
June 30, 2003............................... 9,977,000 7,016,000
September 30, 2003.......................... 10,167,000 7,039,000
December 31, 2003........................... 10,650,000 7,373,000
March 31, 2004.............................. 11,082,000 7,672,000
June 30, 2004............................... 11,497,000 7,959,000
September 30, 2004.......................... 11,871,000 8,218,000
December 31, 2004........................... 12,345,000 8,546,000
March 31, 2005.............................. 12,808,000 8,867,000
June 30, 2005............................... 13,273,000 9,189,000
September 30, 2005.......................... 13,738,000 9,511,000
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(b) Minimum Fixed Charge Coverage Ratio. For each of the periods listed
in the table below, the Fixed Charge Coverage Ratio shall not be less than the
ratio reflected in Column (C) (with regard to Section 11.1) or Column (A) (with
regard to Section 11.2) set forth opposite such period in the table:
Minimum Fixed Charge Coverage Ratio
----------------------------------------
Column (A)
------------
Column (C)
---------
Trailing Two Fiscal Quarters ending June 30, 2001 1.35 1.00
1.35 1.00
Trailing four Consecutive Fiscal Quarters ending:
December 31, 2001 1.35 1.00
March 31, 2002 1.35 1.00
June 30, 2002 1.35 1.00
September 30, 2002 1.35 1.00
December 31, 2002 1.35 1.00
March 31, 2003 1.35 1.00
June 30, 2003 1.35 1.00
September 30, 2003 1.35 1.00
December 31, 2003 1.35 1.00
March 31, 2004 1.35 1.00
June 30, 2004 1.35 1.00
September 30, 2004 1.35 1.00
December 31, 2004 1.35 1.00
March 31, 2005 1.35 1.00
June 30, 2005 1.35 1.00
September 30, 2005 1.35 1.00
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(c) Maximum Leverage Ratio. As of the last day of each of the Fiscal
Quarters listed in the table below, the Leverage Ratio shall not exceed the
ratio reflected in Column (C) (with regard to Section 11.1) or Column (A) (with
regard to Section 11.2) set forth opposite such Fiscal Quarter in the table:
Maximum Leverage Ratio
Column (A) Column (C)
---------- ----------
Fiscal Quarter Ending in
-------------------------
June 2001................................ 8.60 10.00
December 2001............................ 3.75 5.00
March 2002............................... 3.70 5.00
June 2002................................ 3.60 5.00
September 2002........................... 3.55 5.00
December 2002............................ 3.50 5.00
March 2003............................... 3.40 5.00
June 2003................................ 3.25 5.00
September 2003........................... 3.10 5.00
December 2003............................ 3.00 5.00
March 2004............................... 2.90 5.00
June 2004................................ 2.75 5.00
September 2004........................... 2.65 5.00
December 2004............................ 2.50 5.00
March 2005............................... 2.50 5.00
June 2005............................... 2.50 5.00
September 2005........................... 2.50 5.00
(d) Maximum Capital Expenditures. Capital Expenditures shall not exceed
$3,500,000 for the Fiscal Year ended September 30, 2001, and shall not exceed
25% of EBITDA for any Fiscal Year thereafter.
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(e) Minimum Store Backlog. As of the last day of each of the Fiscal
Quarters listed in the table below, Minimum Store Backlog for any Fiscal Quarter
shall not be less than the total amount set forth opposite such period in the
table.
Minimum Store Backlog
December 2000............................... 299
March 2001.................................. 297
June 2001................................... 261
September 2001.............................. 255
December 2001............................... 232
March 2002.................................. 211
June 2002................................... 187
September 2002.............................. 184
December 2002............................... 176
March 2003.................................. 169
June 2003................................... 163
September 2003.............................. 154
December 2003............................... 154
March 31, 2004.............................. 152
June 30, 2004............................... 151
September 30, 2004.......................... 150
December 31, 2004........................... 150
March 31, 2005.............................. 150
June 30, 2005............................... 150
September 30, 2005.......................... 150
(f) Accounts Receivable. The 90-Day Receivables at any time shall not
be greater than seven percent (7.0%) of Total Receivables at such time,
excluding Licensing Fees and Equipment Fees.
(g) Accounts Payable. The 90-Day Payables at any time shall not be
greater than seven percent (7.0%) of Total Payables at such time, not including
90-Day Payables being contested in good faith by appropriate proceedings.
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(h) Liquidity. Liquidity shall be $1,000,000 at all times from January
1, 2001 through and including December 31, 2001, and shall be $2,000,000 at all
times thereafter.
10.16 Treatment of the Stock Appreciation Rights Plan. For purposes of
the Maximum Leverage Ratio covenant, accrued liability under the Stock
Appreciation Rights Plan will be treated as Indebtedness. Accrued liability
under the Stock Appreciation Rights Plan reflected on the balance sheet cannot
be greater than the Phantom Stock expenses reflected in EBITDA. If Phantom Stock
is granted as Capital Stock, then LLCP shall have the right to approve the
valuation assigned to such Phantom Stock. At no point can the Stock Appreciation
Rights Plan represent more than fifteen percent (15%) of the equity value of
the Company.
10.17 Survival of Certain Negative Covenants. From and after the date
that the Note has been indefeasibly paid in full or otherwise satisfied in full,
the Company Parties shall no longer be obligated to perform, comply with and
observe the covenants set forth in Section 10.1 (Additional Indebtedness),
Section 10.2 (Limitations on Liens), Section 10.3 (Limitations on Investments),
Section 10.4 (Limitations on Restricted Payments by the Company), Section 10.8
(Sales of Receivables), Section 10.9 (Fundamental Changes), Section 10.10
(Agreements Affecting Capital Stock and Indebtedness; Amendments to Material
Contracts), Section 10.11 (Conditional Sales), Section 10.14 (Negative Pledge)
and Section 10.15 (Financial Covenants).
11. DEFAULTS AND REMEDIES.
11.1 Events of Default. The occurrence of any one or more of the
following events, acts or occurrences shall constitute an event of default (each
an "Event of Default"):
(a) Any Company Party shall fail to pay as and when due
(whether at stated maturity, upon acceleration or demand or required prepayment
or otherwise) any principal, premium, if any, interest or other amount payable
under the Note or any Company Party shall fail to make any payment of any other
amounts (including, without limitation, fees, costs or expenses) payable under
this Agreement or any other Investment Document (whether at stated maturity,
upon acceleration or demand or required prepayment or otherwise); or
(b) Any Company Party shall breach or fail to perform, comply
with or observe any agreement, covenant or obligation required to be performed
by it under Section 9.5 (Legal Existence), Section 9.6 (Books and Records;
Inspections), Section 9.7 (Maintenance of Properties), Section 9.15 (Additional
Company Parties or Assets; Liens Released or Terminated), Section 9.16 (Future
Information), Section 9.17 (Further Assurances), Section 10.2 (Limitations on
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Liens), Section 10.8 (Sales of Receivables), Section 10.11 (Conditional Sales)
and Section 10.12 (Margin Stock) and, if such breach or failure may be cured,
such breach or failure shall not have been remedied within ten (10) calendar
days after the Chief Executive Officer, President, Chief Operating Officer,
Chief Financial Officer, General Counsel, Treasurer or Secretary of the Company
becomes aware or should have become aware of such failure or breach; or
(c) (i) Any Company Party shall breach or fail to perform,
comply with or observe any agreement, covenant or obligation required to be
performed by it under this Agreement, the Note, the Warrants, the Investor
Rights Agreement or any other Investment Document other than the agreements,
covenants or obligations expressly covered by Sections 11.1(a) and (b); or (ii)
any Principal Shareholder (as defined in the Investor Rights Agreement) shall
breach or fail to perform, comply with or observe any agreement, covenant or
obligation required to be performed by him under the Investor Rights Agreement;
or
(d) Any representation or warranty made by any of the Company
Parties under, relating to or in connection with this Agreement or any other
Investment Document shall be false or misleading or incorrect in any respect
when made (or deemed made); or
(e) Any "Default" or "Event of Default" under any of the Bank
Credit Agreements, other Bank Credit Document, or the Subordinated Indebtedness,
shall have occurred and be continuing; or
(f) (i) Any Company Party shall default in the payment
(whether at stated maturity, upon acceleration or demand or required prepayment
or otherwise), beyond any period of grace provided therefor, of any principal of
or interest on any other Indebtedness with a principal amount in excess of
$100,000, either individually or in the aggregate, or (ii) any other breach or
default (or other event or condition) shall occur under any agreement, indenture
or instrument evidencing or governing any such other Indebtedness, if the effect
of such breach or default (or such other event or condition) is to cause, or to
permit the holder or holders of such other Indebtedness to cause (upon the
giving of notice or the passage of time or both), such other Indebtedness to
mature or become or be declared due and payable, or required to be prepaid,
redeemed, purchased or defeased prior to its stated maturity, unless such breach
or default has been waived within ten (10) days following such breach or default
by the Person or Persons entitled to give such waiver; or (iii) such other
Indebtedness shall be declared to be due and payable or required to be prepaid
or redeemed (other than by a regularly scheduled required prepayment or
redemption) purchased or defeased, or any offer to prepay, redeem, purchase or
defease such Indebtedness shall be required to be made, or is made, in each case
prior to the stated maturity thereof, provided, that if such declaration of
acceleration is rescinded before Purchaser commences legal action without the
giving of any consideration or collateral other than payment of amounts that
would otherwise have been due without regard to such acceleration, the Event of
Default shall be cured or waived; or
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(g) Any Investment Document, or any material provision
thereof, shall cease to be of full force and effect, valid and enforceable, for
any reason other than in accordance with its terms, or any Company Party shall
contest or purport to repudiate or disavow any of its obligations under or the
validity or enforceability of any Investment Document or any material provision
thereof, including by operation of law, or any Collateral Document or financing
statement shall for any reason (other than pursuant to the terms thereof) cease
to create a valid and perfected first priority lien (subject to the Liens, if
any, of the Bank) and on security interest on the Collateral purported to be
covered thereby; or
(h) There shall be commenced against any Company Party an
involuntary case seeking the liquidation or reorganization of such Person under
the Bankruptcy Laws or any similar proceeding under any other Applicable Laws or
an involuntary case or proceeding seeking the appointment of a receiver,
custodian, trustee or similar official for it, or to take possession of all or a
substantial portion of its property or to operate all or a substantial portion
of its business, and any of the following events occur: (i) any such Person
consents to such involuntary case or proceeding or fails to diligently contest
it in good faith; (ii) the petition commencing the involuntary case or
proceeding is not timely controverted; (iii) the petition commencing the
involuntary case or proceeding remains undismissed and unstayed for a period of
thirty (30) days; or (iv) an order for relief shall have been issued or entered
therein or a receiver, custodian, trustee or similar official appointed; or
(i) Any Company Party shall institute a voluntary case seeking
liquidation or reorganization under the Bankruptcy Laws or any similar
proceeding under any other Applicable Laws, or shall consent thereto; or shall
consent to the conversion of an involuntary case to a voluntary case; or shall
file a petition, answer a complaint or otherwise institute any proceeding
seeking, or shall consent or acquiesce to the appointment of, a receiver,
custodian, trustee or similar official for it, or to take possession of all or a
substantial portion of its property or to operate all or a substantial portion
of its business; or shall make a general assignment for the benefit of
creditors; or shall generally not pay its debts as they become due or shall
admit in writing its inability to pay its debts generally; or the Board of
Directors of any such Person (or any committee thereof) adopts any resolution or
otherwise authorizes action to approve any of the foregoing; or
(j) Any Company Party shall suffer any money judgment, writ,
warrant of attachment or other order that involves an amount or value,
individually or in the aggregate, in excess of $250,000 (to the extent not
covered by independent third-party insurance as to which the insurer does not
dispute coverage), and such judgment, writ, warrant or other order shall
continue unsatisfied and unstayed for a period of ten (10) days, or any
non-monetary judgment, writ, warrant or other order, shall be rendered against
any Company Party that could have a Material Adverse Effect and that continues
unsatisfied and unstayed for a period of ten (10) days; or
(k) There shall occur any Change in Control; or
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(l) The LLCP Representative, if appointed pursuant to Section
1.1 of the Investor Rights Agreement, shall be removed from the Board of
Directors of the Company, or the LLCP Representative shall not be elected or
appointed to such Board at any future election of directors, and, in each such
case, the Company shall not have caused any other individual designated by the
Purchaser as the LLCP Representative to have been elected or appointed as a
member of such Board within five (5) days after the Purchaser shall have
designated such other individual (provided, however, that the removal by the
Purchaser of the LLCP Representative shall not be deemed to constitute an Event
of Default under this clause (l)); or
(m) (i) Any Termination Event shall occur that, when taken
together with all other Termination Events that have occurred, could result in a
liability to any Company Party or any ERISA Affiliate in excess of $50,000; (ii)
any Company Party or any ERISA Affiliate shall have committed a failure
described in Section 302(f)(1) of ERISA and the amount determined under Section
302(f)(3) of ERISA is at least $50,000; (iii) any failure to make full payment
(including all required installments) when due of all amounts that, under the
provisions of any Benefit Plan or Applicable Law, any Company Party or any ERISA
Affiliate is required to pay as contributions thereto, which would result in a
liability to any Company Party or ERISA Affiliate in excess of $50,000; or (iv)
any Company Party or any ERISA Affiliate shall have incurred any accumulated
funding deficiency in excess of $50,000, whether or not waived, with respect to
any Benefit Plan; or
(n) There shall be a breach of or failure to perform, comply
with or observe Section 8 of either or both of the Agreements with Officers; or
(o) There shall occur any Material Adverse Change;
provided, however, that from and after the date that the Note has been
indefeasibly paid in full or otherwise satisfied in full, Section 11.1(f) shall
no longer be an Event of Default.
The foregoing Events of Default shall be deemed to have occurred,
respectively, and any adjustments in the interest rate under any Note or other
remedies available to the Purchaser hereunder or thereunder shall begin to
apply, at the following times:
(i) In the case of the clause (a) above, as of 10:00 a.m. (Los
Angeles time) on the day on which such payment is due but has not been
paid;
(ii) In the case of clause (b) above, as of the close of
business on the fifth Business Day after any such officer of the
Company becomes aware or should have become aware of such failure or
breach, if such breach or failure shall not have been cured, or as of
the close of business on the day such breach or violation shall have
occurred, if such breach or failure cannot be cured;
102
(iii) In the case of clause (c) or clause (n), immediately
upon the occurrence of any such breach or failure;
(iv) In the case of clause (d) above, as of the close of
business on the day on which the Company first became aware, or should
have become aware, that such representation or warranty was false or
misleading or incorrect in any material respect when made;
(v) In the case of clause (e) above, as of the occurrence of a
"Default" or "Event of Default" under the Bank Credit Agreements or
other Bank Credit Document or the Subordinated Indebtedness;
(vi) In the case of clause (f)(i) above, as of the close of
business on the day on which such payment of principal or interest is
due, or in the case of clause (f)(ii), as of the close of business on
the tenth (10th) day following such breach or default if such breach or
default has not been waived by the Person or Persons entitled to give
such waiver, or in the case of clause (f)(iii) above, immediately upon
the occurrence of any event listed therein;
(vii) In the case of clause (g) above, as of the close of
business on the day such Investment Document or provision, as the case
may be, ceases to be enforceable or is contested, repudiated, revoked
or disavowed, or such Collateral Document or financing statement ceases
to create such a valid and perfected first priority Lien;
(viii) In the case of clauses (h) and (i) above, immediately
prior to the occurrence of any of the events enumerated therein;
(ix) In the case of clause (j) above, as of the close of
business on the last day of such ten (10) day period if such judgment,
writ, warrant or order is unsatisfied or unstayed;
(x) In the case of clause (k) above, immediately upon the
occurrence of the Change in Control;
(xi) In the case of clause (l) above, as of the close of
business on the last day of such five (5) day period if the Board of
Directors of the Company shall not have duly elected or appointed such
other LLCP Representative to such Board;
(xii) In the case of clause (m) above, immediately upon the
occurrence of any such events; or
(xiii) In the case of clause (o) above, immediately upon
occurrence of the Material Adverse Change.
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11.2 Acceleration; Special Event of Default.
(a) Subject to Section 11.2(b), if any Event of Default (other
than an Event of Default specified in clause (h) or (i) of Section 11.1) occurs
and is continuing, the Purchaser may, by written notice to the Company, declare
all outstanding principal of, premium, if any, accrued and unpaid interest on,
and all other amounts under the Note, and all other Obligations, to be due and
payable. Upon any such declaration of acceleration, such principal, premium, if
any, interest and other amounts shall become immediately due and payable.
Subject to Section 11.2(b), if an Event of Default specified in clause (h) or
(i) of Section 11.1 occurs, all outstanding principal of, premium, if any,
accrued and unpaid interest on, and all other amounts under the Note, and all
other Obligations, shall become immediately due and payable without any
declaration or other act on the part of the Purchaser. The Company Parties
hereby waive all presentment for payment, demand, protest, notice of protest and
notice of dishonor, and all other notices of any kind to which it may be
entitled under Applicable Laws or otherwise.
(b) If any Event of Default specified in clause (c) of Section
11.1 occurs because of the occurrence of any of the following (the occurrence of
any of (i) through (iii) below, a "Special Event of Default"):
(i) the Minimum EBITDA is less than the amount set
forth in Column (A) of Section 10.15(a), but equals or exceeds the amount set
forth in Column (C) of Section 10.15(a) for any measurement period other than
the first measurement period (on June 30, 2001); or
(ii) the Minimum Fixed Charge Coverage Ratio is less
than the ratio set forth in Column (A) of Section 10.15(b), but the equals or
exceeds the ratio set forth in Column (C) of Section 10.15(b) for any
measurement period other than the first measurement period (on June 30, 2001);
or
(iii) the Maximum Leverage Ratio is less than the
ratio set forth in Column (A) of Section 10.15(c) but equals or exceeds the
ratio set forth in Column (C) of Section 10.15(c) other than the first
measurement period (on June 30, 2001);
then, in any such case, an Event of Default shall occur, and if the Purchaser
elects to declare all outstanding principal of, premium, if any, accrued and
unpaid interest on, and all other amounts under the Note, and all other
Obligations due and payable pursuant to this Section 11.2, the Purchaser shall
refrain from taking such action or exercising its remedies pursuant to this
Agreement and the Collateral Documents with regard to such acceleration for a
period of 180 days following the date of notice by the Purchaser of acceleration
in the event of such Special Event of Default, so long as (x) no other Default
or Event of Default shall occur or be continuing; (y) the Company shall have
delivered to the Purchaser within fifteen (15) days of the occurrence of the
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Special Event of Default a written schedule of the Company's proposed timing to
refinance the Company's obligations to the Purchaser pursuant to the Note (the
"Schedule"), which shall be reasonably acceptable to the Purchaser and shall
include timing for the following: (A) retention of an investment banker
reasonably acceptable to Purchaser to assist the Company in refinancing the
Company's obligations to the Purchaser pursuant to the Note, which investment
banker shall be engaged within thirty (30) days following the occurrence of the
Special Event of Default; (B) preparation of a placement memorandum reasonably
acceptable to Purchaser, to be delivered to potential lending sources within
sixty (60) days following the occurrence of the Special Event of Default; (C)
receipt of binding financing commitments (subject only to the customary
conditions of documentation and no Material Adverse Effect), within one hundred
twenty (120) days following the occurrence of the Special Event of Default; and
(D) a closing scheduled within one hundred eighty (180) days following the
occurrence of such Special Event of Default; and (z) the Company shall be in
compliance with the Schedule to the Purchaser's satisfaction. If the Schedule is
acceptable to the Purchaser, the Company is in compliance with the Schedule to
the Purchaser's satisfaction and if the Purchaser is repaid within one hundred
eighty (180) days of the occurrence of the Special Event of Default, the
Purchaser shall waive fifty percent (50.0%) of the amount of any prepayment
penalty that would otherwise be payable to the Purchaser under Section 4(a) of
the Note.
11.3 Interest Rate Event. The occurrence of any one or more of the
following events, acts or occurrences shall constitute an Interest Rate Event
(as defined in Section 2 of the Note) and not an Event of Default or a Special
Event of Default:
(a) With respect to the first measurement period (on June 30,
2001), the violation of any of the covenants set forth in Section 10.15(a),
Section 10.15(b) or Section 10.15(c).
(b) At any time, the violation of any test or covenant
contained in Section 10.15(e), (f) or (g).
11.4 Other Remedies. If any Default or Event of Default shall occur and
be continuing, the Purchaser may proceed to protect and enforce its rights and
remedies under this Agreement and any other Investment Document by exercising
all rights and remedies available under this Agreement, any other Investment
Document or Applicable Laws (including, without limitation, the Code), either by
suit in equity or by action at law, or both, whether for the collection of
principal of or interest on the Note, to enforce the specific performance of any
covenant or other term contained in this Agreement or any other Investment
Document. No remedy conferred in this Agreement upon the Purchaser is intended
to be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
105
11.5 Appointment of Receiver. In addition to all other rights, powers
and remedies that the Purchaser has under this Agreement, any other Investment
Document or Applicable Laws, the Purchaser shall, upon the occurrence of an
Event of Default, be entitled (to the extent permitted by Applicable Laws) to,
and the Company Parties hereby consent in advance to, the appointment of a
receiver by any court of competent jurisdiction to take control of the Company
Parties for the purpose of operating and thereafter selling any Company Party to
satisfy obligations to creditors, including the Purchaser.
11.6 Waiver of Past Defaults. The Purchaser may, by written notice to
the Company, waive any specified Default or Event of Default and its
consequences with respect to this Agreement, the Note or any other Investment
Document; provided, however, that no such waiver will extend to any subsequent
or other Default or Event of Default or impair any rights of the Purchaser which
may arise as a result of such other Default or Event of Default.
12. TERMINATION.
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) By the Purchaser if, between the date hereof and the
Closing Date: (i) any event or condition occurs that has resulted in or could
reasonably be expected to result in a Material Adverse Change; (ii) any
representation or warranty of the Company Parties contained in this Agreement
shall have been breached such that the conditions set forth in Section 6 would
not or could not be satisfied on the earlier of (A) the Closing Date and (B)
January 31, 2001; (iii) the Company Parties (or any one of them) shall not have
complied with any covenant or other agreement to be complied with by it and
contained in this Agreement; or (iv) any Company Party makes a general
assignment for the benefit of creditors, or any proceeding shall be instituted
by or against any Company Party seeking to adjudicate any of them a bankrupt or
insolvent, or seeking liquidation, winding up or reorganization, arrangement,
adjustment, protection, relief or composition of its debts under any Applicable
Laws relating to bankruptcy, insolvency or reorganization;
(b) By the Purchaser, on the one hand, or the Company (for
itself and the other Company Parties), on the other hand, if the Closing Date
shall not have occurred on or before January 31, 2001; provided, however, that
the right to terminate this Agreement under this Section 12.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing Date to occur on or prior to such date;
(c) By the Purchaser, on the one hand, or the Company (for
itself and the other Company Parties), on the other hand, if there shall have
been issued any injunction, order, decree or ruling that prohibits or limits any
of the transactions contemplated by this Agreement or the
106
other Investment Documents and such injunction, order, decree or ruling shall
have become final and non-appealable; or
(d) By the mutual written consent of the Company (for itself
and the other Company Parties) and the Purchaser.
12.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 12.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party, except (a) for
Sections 1, 8, 12 and 13 and any other Sections or provisions which survive the
termination of this Agreement by their terms and (b) that nothing herein shall
relieve any party from liability for any breach or violation of this Agreement
or payment of any obligations hereunder.
12.3 Waiver. The Purchaser may (a) extend the time for the performance
of any of the obligations or other acts of the Company, (b) waive any
inaccuracies in the representations or warranties of the Company or (c) waive
compliance with any of the conditions, covenants or agreements of the Company
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument signed by the Purchaser. Any waiver of the breach of any term
or condition shall not be construed as a waiver of any other breach or as a
subsequent waiver of the same term or condition, or as a waiver of any other
term or condition of this Agreement, the Note or the Warrants. The failure by
the Purchaser to assert, or any delay by Purchaser in asserting any of its
rights under this Agreement, the Note or the Warrants shall not constitute a
waiver of any such rights and no single or partial exercise of any such right
shall preclude any other or further exercise thereof or the exercise of any
other right.
13. MISCELLANEOUS.
13.1 Survival of Representations and Warranties; Purchaser
Investigation. All representations, warranties, covenants and agreements of the
Company Parties (or any one of them) contained herein, or made in writing by or
on behalf of them pursuant hereto or in connection herewith, shall survive the
execution and delivery of this Agreement, the issuance, sale and delivery of the
Securities, the repayment of the Note and the exercise of the Warrants and the
due diligence or other investigation of the Company Parties and their Affiliates
made by and on behalf of the Purchaser. The Company Parties hereby agree that
neither the Purchaser's review of the books and records or condition (financial
or otherwise), business, assets, properties, operations or prospects of any
Person, nor any other due diligence investigation conducted by or on behalf of
the Purchaser, shall be deemed to constitute knowledge by the Purchaser of the
existence or absence of any facts or any other matters so as so reduce the
Purchaser's right to rely on the accuracy of the representations and warranties
of the Company Parties contained in this Agreement or any other Investment
Document.
107
13.2 Consent to Amendments. No amendment, supplement or other
modification to this Agreement or any other Investment Document shall be
effective unless in writing and signed by the Purchaser, and the Company Parties
may take any action herein prohibited, or omit to perform any act herein
required to be performed by them, if, and only if, the Company Parties shall
have obtained the prior written consent of the Purchaser to such action or
omission. No course of dealing between the Company Parties, on the one hand, and
the Purchaser (or any successor or assignee thereof), on the other hand, nor any
delay in exercising any rights hereunder or under the Note or any other
Investment Document shall operate as a waiver of any rights of the Purchaser (or
any other Holder).
13.3 Entire Agreement. This Agreement, together with the Exhibits, and
the Disclosure Schedules which are all incorporated herein by this reference and
are an integral part of this Agreement, the Note, the Warrants and the other
Investment Document constitute the full and entire agreement and understanding
between the Purchaser, on the one hand, and the Company Parties, on the other
hand, relating to the subject matter hereof and thereof, and supersede all prior
oral and written, and all contemporaneous oral, agreements and understandings
relating to the subject matter hereof, including the Diligence Completion Letter
dated October 21, 2000.
13.4 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
13.5 Successors and Assigns; Assignments. This Agreement shall inure to
the benefit of, and be binding upon, the parties and their respective successors
and permitted assigns. None of the Company Parties shall assign or delegate any
of their rights and obligations hereunder or any interest herein or therein
without the prior written consent of the Purchaser. The Purchaser may, without
the consent of any Company Party, sell, assign or delegate to one or more
Persons (each an "Assignee") all or any part of its right, title and interest in
and to this Agreement and the other Investment Documents, including, without
limitation, all or any part of the Obligations, subject to compliance with
applicable federal and state securities laws; provided, however, that the
Company Parties may continue to deal solely and directly with the Purchaser in
connection with any right, title or interest so assigned until written notice of
such assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Company.
If the Purchaser assigns to any Assignee a fifty percent (50.0%) or lesser
interest in and to the aggregate principal amount of the Note then outstanding,
any decisions that the Purchaser is entitled to make under this Agreement, the
Note and the other Investment Documents shall be made by the Purchaser, and the
Company may continue to deal solely and directly with respect to the Purchaser
in connection with the interests so assigned to the Assignee. If the Purchaser
assigns to any Assignee more than a fifty percent (50.0%) interest in and to the
aggregate principal amount of the Note then outstanding, any decisions that the
Purchaser is entitled to make under this Agreement, the Note and the other
Investment Documents shall be
108
made (a) by the Holders of a majority of the aggregate principal amount of the
Note outstanding at the time such decision is or is to be made, or (b) if notice
thereof is given to the Company by the Holders of a majority of the aggregate
principal amount of the Note outstanding at the time, such decisions shall be
made in the manner directed by such Holders. Notwithstanding the foregoing, upon
such assignment by the Purchaser, the following provisions shall not be
assignable by the Purchaser to any assignee, except to an Affiliate or limited
or general partner of the Purchaser: Section 9.3(c) though Section 9.3(s) (with
regard to delivery of certain documents), Section 9.7 (only with respect to
notification of any default under all leases of Real Property), Section 9.11
(Communication with Accountants), Section 9.14(e) (Preparation of Environmental
Reports) and Section 9.18 (only with respect to providing copies of Company SEC
Documents). Any obligations of the Purchaser to indemnify any Company Party
pursuant to Section 8 shall be delegable by the Purchaser, but the Purchaser
shall remain liable thereunder.
13.6 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given if transmitted by telecopier with
receipt acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon the expiration of 72 hours
after mailing, if mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
(i) If to the Purchaser, to:
Xxxxxx Xxxxxxxxx Capital Partners II, L.P.
c/o Levine Xxxxxxxxx Capital Partners, Inc.
000 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
--------------
Xxxxxxx & XxXxxxxx
000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
(ii) If to the Company Parties (or any one
of them), to:
The Quizno's Corporation
109
0000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Legal Department
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
--------------
Moye, Giles, X'Xxxxx, Vermiere & Xxxxxxx, LLP
0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
or at such other address or addresses as the Purchaser or the Company, as the
case may be, may specify by written notice given in accordance with this Section
13.6.
13.7 Interest Expense Credit. The Purchaser shall credit to the
interest payments to be made by the Company Parties pursuant to the Note a
portion of the Closing Fee as described in this Section 13.7. The total amount
of credited interest shall be calculated on the date that is nine (9) months
after the Closing (the "Calculation Date") by multiplying 240,000 by a fraction,
the numerator of which shall be the amount of principal under the Note (up to
and including $5,000,000) that has been repaid by the Company up to and
including the Calculation Date, and the denominator of which shall be12,000,000.
The resulting amount shall be credited to future interest payments to be made
under the Note.
13.8 Counterparts. This Agreement may be executed in two or more
counterparts and by facsimile, each of which shall be deemed an original, but
all of which together shall constitute one instrument.
13.9 Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT
REGARD TO THE CHOICE OF LAW OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
13.10 Consent to Jurisdiction and Venue. EACH OF THE COMPANY PARTIES
AND THE PURCHASER HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS AND AGREES
THAT ALL ACTIONS, SUITS OR OTHER PROCEEDINGS ARISING UNDER
110
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INVESTMENT DOCUMENT SHALL BE
TRIED AND LITIGATED IN STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS
ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, WHICH COURTS SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY AND ALL CLAIMS, CONTROVERSIES
AND DISPUTES ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER INVESTMENT
DOCUMENT. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS SECTION 13.9
SHALL PRECLUDE THE PURCHASER FROM BRINGING ANY ACTION, SUIT OR OTHER PROCEEDING
IN THE COURTS OF ANY OTHER LOCATION WHERE THE COMPANY PARTIES OR ANY ONE OF THEM
OR ANY OF ITS OR THEIR ASSETS OR THE COLLATERAL MAY BE FOUND OR LOCATED OR TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER.
EACH COMPANY PARTY AND THE PURCHASER HEREBY, FOR ITSELF AND ITS
PROPERTY, (A) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION, SUIT OR OTHER PROCEEDING
COMMENCED IN ANY SUCH COURT, (B) WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR ANY OBJECTION THAT SUCH PERSON MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION OR IMPROPER VENUE AND (C) CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH COMPANY PARTY AND THE PURCHASER HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT OR OTHER PROCESS ISSUED IN ANY SUCH ACTION, SUIT OR OTHER
PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT THE
ADDRESS SET FORTH IN SECTION 13.6 (NOTICES) AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF SUCH PERSON'S ACTUAL RECEIPT THEREOF OR
FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL, PROPER POSTAGE PREPAID.
TO THE EXTENT PERMITTED UNDER THE APPLICABLE LAWS OF ANY SUCH
JURISDICTION, EACH COMPANY PARTY HEREBY WAIVES, IN RESPECT OF ANY SUCH ACTION,
SUIT OR OTHER PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR COURTS THAT NOW
OR HEREAFTER, BY REASON OF SUCH PERSON'S PRESENT OR FUTURE DOMICILE, OR
OTHERWISE, MAY BE AVAILABLE TO IT.
13.11 Reserved.
13.12 Limitation of Liability. No claim shall be made by any Company
Party or any of its or their Affiliates against the Purchaser, or any
Affiliates, partners, directors, officers, employees,
111
agents, representatives, attorneys, accountants or advisors of the Purchaser,
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract or under any other theory of liability arising out
of or related to the Tender Offer Merger, the Tender Offer, the Tender Offer
Documents or the transactions contemplated by this Agreement or any other
Investment Document, or any act, omission or event occurring in connection
therewith. Each of the Company Parties hereby waives, releases and agrees not to
xxx upon any claim for such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
13.13 Publicity. The Company Parties and their Affiliates will consult
with the Purchaser before issuing, and provide the Purchaser the opportunity to
review and comment upon, and use reasonable efforts to agree on the form and
substance of, any press release or other public statement with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make such other public announcement prior to such consultation,
except as required under Applicable Laws. The parties agree that the initial
press release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties. The Company
Parties hereby consent to the preparation and publication by the Purchaser of an
advertisement "tombstone" publicly disclosing the closing of the transactions
contemplated by this Agreement.
13.14 Waiver of Trial by Jury. EACH OF THE COMPANY PARTIES AND THE
PURCHASER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR OTHER PROCEEDING (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF, CONNECTED WITH OR RELATING TO THIS
AGREEMENT, ANY OTHER INVESTMENT DOCUMENT, THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY, OR THE ACTIONS OF PURCHASER IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF, REGARDLESS OF WHICH PARTY INITIATES SUCH
ACTION OR ACTIONS.
14. GUARANTOR PROVISIONS.
14.1 Waiver. In the event that any Subsidiary by the application of law
is treated as a guarantor of any Obligations instead of a direct obligor, the
provisions of this Section 14 shall apply. Such Subsidiary hereby irrevocably
waives:
(a) the legality, validity or enforceability of any guaranty,
the Note or any other Investment Document, any of the Obligations, any Lien or
any Collateral;
(b) any defense (other than payment), set-off or counterclaim
that may at any time be available to such Subsidiary or any other Company Party
against, and any right of setoff at any time held by, the Purchaser;
112
(c) any acts of commission or omission of any kind at any time
on the part of the Purchaser with respect to any matter whatsoever;
(d) the liquidation or dissolution of such Subsidiary or any
other Company Party, any bankruptcy, insolvency, reorganization, arrangement,
assignment for the benefit of creditors, receivership or similar event or
proceeding with respect to such Subsidiary or any other Company Party, or any
action taken by any trustee or receiver of such Subsidiary or any other Company
Party or by any court or any proceeding with respect to such Subsidiary or any
other Company Party;
(e) any change of ownership of the Capital Stock of such
Subsidiary or any other Company Party, or any change in the relationship between
any Subsidiary and such Subsidiary (including, without limitation, the
termination of such relationship);
(f) any assignment or other transfer, in whole or in part, of
the Purchaser's interest in and rights under this Agreement, the Note or any
other Investment Document, including this Agreement, or of the Purchaser's
interest in the Obligations or the Collateral;
(g) any cancellation, renunciation or surrender of any pledge,
guaranty or any debt instrument evidencing the Obligations; or
(h) any other circumstance whatsoever (with or without notice
to or knowledge of any Subsidiary or any other Company Party), whether or not
similar to any of the foregoing, that constitutes, or might be construed to
constitute, an equitable or legal discharge of such Subsidiary or any other
Company Party, in bankruptcy or in any other instance.
(i) the right to require the Purchaser to proceed against
any other Subsidiary or any other Company Party, to proceed against or exhaust
any Collateral or to pursue any other remedy in the Purchaser's power
whatsoever, and the right to have the property of any other Subsidiary or any
other Company Party first applied to the discharge of the Obligations;
(j) all rights and benefits under Section 2809 of the
California Civil Code and any similar Applicable Laws purporting to reduce a
guarantor's obligations in proportion to the obligation of the principal or
providing that the obligation of a surety or guarantor must neither be larger
nor in other respects more burdensome than that of the principal;
(k) the benefit of any statute of limitations affecting the
Obligations or such Subsidiary's liability hereunder and under Section 359.5 of
the California Code of Civil Procedure and any similar Applicable Laws;
(l) any requirement of marshaling or any other principle of
election of remedies and all rights and defenses arising out of an election of
remedies by the Purchaser, even though that election of remedies, such as
non-judicial foreclosure with respect to the security for a
113
guarantied obligation, has destroyed any Subsidiary's rights of subrogation and
reimbursement against any other Subsidiary;
(m) any right to assert against the Purchaser any defense
(legal or equitable), set-off, counterclaim and other right that any Subsidiary
may now or any time hereafter have against any other Subsidiary or any other
Company Party;
(n) presentment, demand for payment or performance (including
diligence in making demands hereunder), notice of dishonor or nonperformance,
protest, acceptance and notice of acceptance of this guaranty, and all other
notices of any kind;
(o) any rights, defenses and other benefits that any
Subsidiary may have by reason of any failure of the Purchaser to hold a
commercially reasonable public or private foreclosure sale or otherwise to
comply with Applicable Laws in connection with a disposition of Collateral;
(p) all defenses that at any time may be available to any
Subsidiary by virtue of any valuation, stay, moratorium or other law now or
hereafter in effect, and ALL RIGHTS AND DEFENSES THAT ARE OR MAY BECOME
AVAILABLE TO SUCH SUBSIDIARY BY REASON OF SECTIONS 2787 TO 2855, INCLUSIVE, AND
SECTION 3433 OF THE CALIFORNIA CIVIL CODE, AND ANY SIMILAR APPLICABLE LAWS; or
(q) any failure, omission, delay or lack of diligence on the
part of the Purchaser to enforce, assert or exercise any right, power or remedy
conferred on the Purchaser in respect of the Obligations.
Any payment by any Company Party or other circumstance that
operates to toll any statue of limitations applicable to such Company Party
shall also operate to toll the statute of limitations applicable to each
Subsidiary. When making any demand hereunder (including by commencement or
continuance of any legal proceeding), the Purchaser may, but shall be under no
obligation to, make a similar demand on all Subsidiaries or other Company
Parties, and any failure by the Purchaser to make any such demand shall not
relieve any Subsidiary of its obligations hereunder.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EACH SUBSIDIARY
WAIVES ALL RIGHTS AND DEFENSES THAT IT MAY HAVE BECAUSE THE OBLIGATIONS OF ANY
OTHER SUBSIDIARY OR COMPANY PARTY IS NOW, OR MAY HEREAFTER BE, SECURED BY REAL
PROPERTY. THIS MEANS, AMONG OTHER THINGS, THAT: (1) PURCHASER MAY COLLECT FROM
SUCH SUBSIDIARY WITHOUT FIRST FORECLOSING ON ANY REAL OR PERSONAL PROPERTY
COLLATERAL PLEDGED BY THE COMPANY; (2) IF PURCHASER FORECLOSES ON ANY REAL
PROPERTY COLLATERAL PLEDGED BY THE COMPANY: (A) THE AMOUNT OF THE
114
DEBT MAY BE REDUCED ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT THE
FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH MORE THAN THE SALE PRICE; (B)
PURCHASER MAY COLLECT FROM SUCH SUBSIDIARY EVEN IF PURCHASER, BY FORECLOSING ON
THE REAL PROPERTY COLLATERAL, HAS DESTROYED ANY RIGHT SUCH SUBSIDIARY MAY HAVE
TO COLLECT FROM THE COMPANY. THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF
ANY RIGHTS AND DEFENSES ANY SUBSIDIARY MAY HAVE BECAUSE THE COMPANY'S DEBT IS
NOW, OR HEREAFTER MAY BE, SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES
INCLUDE, BUT ARE NOT LIMITED TO, ANY RIGHTS OR DEFENSES BASED UPON SECTIONS
580a, 580b, 580d, OR 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE AND ANY
SIMILAR APPLICABLE LAWS.
IN ADDITION, SUCH SUBSIDIARY WAIVES ALL RIGHTS AND DEFENSES ARISING OUT
OF AN ELECTION OF REMEDIES BY PURCHASER, EVEN THOUGH THAT ELECTION OF REMEDIES,
SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR AN OBLIGATION,
HAS DESTROYED SUCH SUBSIDIARY'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST
THE PRINCIPAL BY THE OPERATION OF SECTION 580d OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE OR OTHERWISE.
14.2 Subrogation; Certain Agreements.
(a) Each Subsidiary hereby expressly consents and agrees that it
will not exercise any rights that it may now or hereafter have against any other
Subsidiary or Company Party that arise from the existence, payment, performance
or enforcement of any Subsidiary's obligations under this guaranty, including,
without limitation, any right of subrogation, reimbursement, exoneration,
contribution or indemnification or any right to participate in any claim or
remedy of the Purchaser against any other Subsidiary or any other Company Party
or any Collateral, whether or not such claim, remedy or right arises in equity
or under contract, statute or common law, including, without limitation, the
right to take or receive from any other Subsidiary or other Company Party,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security solely on account of such claim, remedy or right. If
any amount shall be paid to any Subsidiary in violation of the immediately
preceding sentence at any time prior to the payment in full in cash of the
Obligations and all other amounts payable under this guaranty, such amount shall
be held in trust for the benefit of the Purchaser and shall forthwith be paid to
the Purchaser to be credited and applied to the Obligations and all other
amounts payable under this guaranty, whether matured or unmatured, in accordance
with the terms of this guaranty, or to be held as collateral for any Obligations
or other amounts payable under this guaranty thereafter arising. If (i) any
Subsidiary shall make a payment to the Purchaser of all of the Obligations or
(ii) all of the Obligations and all other amounts payable under this guaranty
shall be paid in full in cash, the Purchaser will, at the Subsidiary's request
and expense, execute and deliver to the Subsidiary appropriate documents,
without recourse and without representation or warranty,
115
necessary to evidence the transfer by subrogation to the Subsidiary of an
interest in the Obligations resulting from such payment by the Subsidiary.
(b) Each Subsidiary assumes the responsibility for being and
keeping itself informed of the financial condition of any other Subsidiary or
other Company Party and of all other circumstances bearing upon the risk of
non-payment of the Obligations that diligent inquiry would reveal, and agrees
that the Purchaser shall have no duty to advise any Subsidiary of information
regarding such condition or any such circumstances.
(c) Each Subsidiary agrees that the Note and books and records of
the Purchaser showing the account between the Purchaser and any other Subsidiary
shall be admissible in any action, suit or other proceeding and shall constitute
prima facie proof of the item therein set forth. Each Subsidiary agrees that it
shall be bound by each and every ruling, order and judgment obtained by the
Purchaser against any other Subsidiary or other Company Party in respect of the
Obligations, whether or not such Subsidiary is a party to, or has received
notice of, such action, suit or other proceeding in which such ruling, order or
judgment is issued or rendered.
116
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be executed and delivered by their duly authorized representatives
as of the date first written above.
COMPANY PARTIES
THE QUIZNO'S CORPORATION, a Colorado corporation
By:______________________________________________
Name:
Title:
THE QUIZNO'S LICENSING COMPANY, a Colorado
corporation
By:______________________________________________
Name:
Title:
THE QUIZNO'S ACQUISITION COMPANY, a Colorado
corporation
By:______________________________________________
Name:
Title:
THE QUIZNO'S REALTY COMPANY, a Colorado
corporation
By:______________________________________________
Name:
Title:
117
THE QUIZNO'S OPERATING COMPANY, a Colorado
corporation
By:______________________________________________
Name:
Title:
QUIZ-DIA, INC., a Colorado corporation
By:______________________________________________
Name:
Title:
S&S COMPANY, a Colorado corporation
By:______________________________________________
Name:
Title:
QUIZNO'S KANSAS, LLC, a Colorado limited liability
company
By:______________________________________________
Name:
Title:
CIAO B MANAGEMENT, INC., a Colorado corporation
By:______________________________________________
Name:
Title:
118
AMERICAN FOOD DISTRIBUTORS, INC., a Colorado
corporation
By:______________________________________________
Name:
Title:
THE QUIZNO'S FRANCHISE COMPANY, a Colorado
corporation
By:______________________________________________
Name:
Title:
PURCHASER
XXXXXX XXXXXXXXX CAPITAL PARTNERS, INC., a
California corporation
On behalf of XXXXXX XXXXXXXXX CAPITAL
PARTNERS II, L.P., a California limited
partnership
By:_______________________________________
Xxxxxx X. Xxxxxxxxx
Chief Executive Officer
FOR PURPOSES OF SECTION 5.7, SECTION 9.17,
SECTION 9.22 AND SECTION 9.23 ONLY
XXXXXXX X. XXXXXXX
XXXXXXX X. XXXXXXX
119
TABLE OF CONTENTS
Page
----
1. DEFINITIONS; ACCOUNTING TERMS.....................................................................3
1.1 Definitions..............................................................................3
1.2 Accounting Terms and Computations.......................................................26
1.3 Covenants...............................................................................26
1.4 Captions; Construction and Interpretation...............................................26
1.5 Determinations......................................................................... 27
2. PURCHASE AND SALE OF THE SECURITIES............................................................. 27
2.1 Authorization.......................................................................... 27
2.2 Purchase of the Securities; Issue Price.................................................27
2.3 Closing.................................................................................27
2.4 Use of Proceeds.........................................................................28
2.5 Commitment Fee..........................................................................28
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................................28
3.1 Organization and Qualification..........................................................28
3.2 Corporate or Other Power................................................................29
3.3 Authorization; Binding Obligations......................................................29
3.4 Subsidiaries............................................................................29
3.5 Conflict with Other Instruments; Existing Defaults; Ranking.............................30
3.6 Governmental and Other Third Party Consents.............................................30
3.7 Capitalization..........................................................................31
3.8 Validity and Issuance of Warrant Shares.................................................32
3.9 Company SEC Documents...................................................................32
3.10 Financial Statements....................................................................33
3.11 Existing Indebtedness; Existing Liens; Investments; Etc.................................34
3.12 Absence of Certain Changes..............................................................35
3.13 Material Contracts......................................................................37
3.14 Accounts Receivable.....................................................................39
3.15 Labor Relations.........................................................................39
3.16 Employee Benefit Plans; ERISA...........................................................40
3.17 Taxes...................................................................................43
3.18 Litigation..............................................................................43
3.19 Transactions with Affiliates............................................................44
3.20 Investment Company Act..................................................................45
3.21 Governmental Regulation.................................................................45
i
3.22 Compliance with Laws; Operating Licenses................................................45
3.23 Title to Property.......................................................................46
3.24 Real Property...........................................................................46
3.25 Environmental Matters...................................................................47
3.26 Intellectual Property...................................................................48
3.27 Nature of Business......................................................................49
3.28 Powers of Attorney......................................................................49
3.29 Listing of Common Stock.................................................................49
3.30 Insurance...............................................................................49
3.31 Franchisees.............................................................................50
3.32 Suppliers...............................................................................50
3.33 Business Relationships..................................................................50
3.34 Personal Property Leases................................................................51
3.35 Employment Agreements...................................................................51
3.36 Solvency................................................................................51
3.37 Use of Proceeds; Margin Stock...........................................................51
3.38 Depository and Other Accounts...........................................................51
3.39 Year 2000 Compliance....................................................................52
3.40 Books and Records.......................................................................52
3.41 Burdensome Obligations; Future Expenditures.............................................52
3.42 Brokers; Certain Expenses...............................................................52
3.43 Disclosure..............................................................................53
3.44 Franchise Matters.......................................................................53
3.45 Tender Offer Documents..................................................................53
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................................................53
4.1 Organization............................................................................54
4.2 Authorization...........................................................................54
4.3 Due Execution and Delivery; Binding Obligations.........................................54
4.4 No Violation............................................................................54
4.5 Investment Intent.......................................................................54
4.6 Accredited Investor Status..............................................................54
4.7 Purchaser Consents......................................................................55
4.8 Brokers.................................................................................55
5. CONDUCT PRIOR TO CLOSING.........................................................................55
5.1 Conduct of Business Prior to Closing....................................................55
5.2 Access to Information and Documents.....................................................57
5.3 Non-Solicitation........................................................................57
5.4 Covenant to Close.......................................................................58
5.5 Capitalization; Warrant Shares..........................................................58
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5.6 Intentionally Omitted...................................................................58
5.7 No Disposition of Shares; Voting Agreement..............................................58
5.8 RES Loan................................................................................59
6. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER...................................................59
6.1 Closing Date............................................................................59
6.2 Representations and Warranties; No Default..............................................59
6.3 Payment of Fees and Purchaser Expenses..................................................60
6.4 Purchase Permitted By Applicable Laws...................................................60
6.5 No Material Adverse Change..............................................................60
6.6 No Injunction, Order or Suit; California Permit.........................................60
6.7 Delivery of Certain Closing Documents...................................................60
6.8 Actions and Documents Relating to the Collateral........................................61
6.9 Tender Offer and Related Agreements.....................................................62
6.10 Opinion of Counsel......................................................................62
6.11 Delivery of Corporate Documents.........................................................62
6.12 Insurance...............................................................................63
6.13 Intentionally omitted...................................................................63
6.14 Delivery of Financial Statements and Projections........................................63
6.15 Third-Party Consents....................................................................64
6.16 Intentionally omitted...................................................................64
6.17 Proceedings Satisfactory................................................................64
6.18 Compliance Certificate..................................................................64
6.19 Sources and Uses of Funds...............................................................64
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY PARTIES.............................................64
7.1 Representations and Warranties..........................................................65
7.2 Purchase Permitted By Applicable Laws...................................................65
7.3 No Injunction or Order..................................................................65
7.4 Payment for Securities..................................................................65
8. TAXES; INDEMNIFICATION; FEES AND EXPENSES........................................................65
8.1 Taxes...................................................................................65
8.2 Indemnity...............................................................................66
8.3 Indemnification Procedures..............................................................67
8.4 Contribution............................................................................68
8.5 Reimbursement of Deal-Related Costs and Expenses........................................68
8.6 Costs and Expenses......................................................................69
9. AFFIRMATIVE COVENANTS............................................................................70
9.1 Payment of Note and Other Obligations...................................................70
9.2 Performance of Investment Documents.....................................................70
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9.3 Information Reporting Requirements......................................................70
9.4 Compliance with Laws; Consents..........................................................74
9.5 Legal Existence.........................................................................74
9.6 Books and Records; Inspections..........................................................74
9.7 Maintenance of Properties.............................................................. 75
9.8 Insurance...............................................................................75
9.9 Taxes.................................................................................. 76
9.10 ERISA Matters...........................................................................76
9.11 Communication with Accountants..........................................................76
9.12 Compliance with Material Contracts......................................................76
9.13 Franchise Matters.......................................................................77
9.14 Environmental Matters...................................................................77
9.15 Additional Company Parties or Assets; Liens Released or Terminated......................79
9.16 Future Information......................................................................82
9.17 Further Assurances......................................................................82
9.18 Company SEC Documents...................................................................83
9.19 MIS Matters.............................................................................83
9.20 Intentionally omitted...................................................................83
9.21 Capitalization; Warrant Shares..........................................................83
9.22 Loan to Xxxxxxx X. Xxxxxxx from the Company............................................ 84
9.23 Agreements with Officers................................................................84
9.24 Survival of Certain Affirmative Covenants...............................................84
10. NEGATIVE AND FINANCIAL COVENANTS................................................................ 85
10.1 Limitations on Indebtedness............................................................ 85
10.2 Limitations on Liens....................................................................85
10.3 Limitations on Investments............................................................. 86
10.4 Limitations on Restricted Payments by the Company...................................... 86
10.5 Limitations on Payment Restrictions Affecting Subsidiaries............................. 87
10.6 Limitations on Transactions With Affiliates............................................ 87
10.7 Change in Business......................................................................87
10.8 Sales of Receivables....................................................................87
10.9 Fundamental Changes.....................................................................87
10.10 Agreements Affecting Capital Stock and Indebtedness; Amendments to Material Contracts...88
10.11 Conditional Sales...................................................................... 89
10.12 Margin Stock........................................................................... 89
10.13 Accounting Changes......................................................................89
10.14 Negative Pledge.........................................................................89
10.15 Financial Covenants.....................................................................89
10.16 Treatment of the Stock Appreciation Rights Plan.........................................94
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10.17 Survival of Certain Negative Covenants..................................................94
11. DEFAULTS AND REMEDIES............................................................................94
11.1 Events of Default.......................................................................94
11.2 Acceleration; Special Event of Default..................................................98
11.3 Interest Rate Event................................................................... 100
11.4 Other Remedies.........................................................................100
11.5 Appointment of Receiver................................................................100
11.6 Waiver of Past Defaults................................................................100
12. TERMINATION.................................................................................... 101
12.1 Termination........................................................................... 101
12.2 Effect of Termination..................................................................101
12.3 Waiver.................................................................................101
13. MISCELLANEOUS.................................................................................. 102
13.1 Survival of Representations and Warranties; Purchaser Investigation................... 102
13.2 Consent to Amendments..................................................................102
13.3 Entire Agreement.......................................................................102
13.4 Severability...........................................................................102
13.5 Successors and Assigns; Assignments................................................... 103
13.6 Notices................................................................................103
13.7 Interest Expense Credit................................................................104
13.8 Counterparts.......................................................................... 105
13.9 Governing Law..........................................................................105
13.10 Consent to Jurisdiction and Venue......................................................105
13.11 Reserved...............................................................................106
13.12 Limitation of Liability................................................................106
13.13 Publicity..............................................................................106
13.14 Waiver of Trial by Jury................................................................106
14. GUARANTOR PROVISIONS........................................................................... 107
14.1 Waiver.................................................................................107
14.2 Subrogation; Certain Agreements........................................................109
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