AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
AMONG
JRECK SUBS GROUP, INC.
ADMIRAL'S FLEET, INC. AND
QUALITY FRANCHISE SYSTEMS, INC.
August __, 1997
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement")
is made as of August __, 1997 among Jreck Subs Group, Inc., a Colorado
corporation ("Jreck"), Admiral's Fleet, Inc., a Washington corporation
("Admiral"), and Quality Franchise Systems, Inc., a Delaware corporation
("Target").
RECITALS
A. The parties hereto desire that Target shall be merged with and into
Admiral; that Admiral shall be the surviving corporation; and that each share of
the Common Stock, no par value, of Target which is outstanding immediately prior
to the effective time of the merger, other than those shares which become
"dissenting shares" within the meaning of Section 1300(b) of the California
General Corporations Law, if applicable, and Section 262 of the Delaware General
Corporations Law, be exchanged and converted as set forth in this Agreement into
shares of the Common Stock, no par value, of Jreck as set forth in this
Agreement.
B. The parties hereto intend that the merger constitute
a "tax free
reorganization" under Section 368(a), of the Internal Revenue Code of 1986, as
amended.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have
the meanings specified in this Article 1 unless the context expressly or by
necessary implication
otherwise requires:
1.1 Balance Sheet and Balance Sheet Date shall have the
meaning set forth in Section 4.4 of this Agreement.
1.2 Closing shall mean the delivery by Jreck and Target of the
various documents contemplated by this Agreement or otherwise required in order
to consummate the Merger.
1.3 Closing Date shall have the meaning set forth in
Section 2.2 of this
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Agreement.
1.4 Code shall mean the Internal Revenue Code of 1986,
as amended.
1.5 Corporations Code shall collectively mean the Delaware
General Corporations Law (the "Delaware Corporations Code"), and the California
General Corporations Law to the extent applicable under California Code Section
2115 (the "California Corporations Code").
1.6 Disclosure Statement shall have the meaning set forth in
the first paragraph of Article 3 of this Agreement.
1.7 Dissenting Shares shall mean all shares, if any, of the
outstanding capital stock of Target for which dissenter's rights shall be
perfected under Section 1300(b) of the California Corporations Code, if
applicable, and Section 262 of the Delaware Corporations Code.
1.8 Effective Time shall mean the time when the Plan of Merger
is filed with the Secretary of State of the State of Washington and the Merger
becomes effective.
1.9 Escrow Agreement shall mean the Agreement relating to an
escrow of certain shares of Jreck Common pursuant to Section 2.4 of this
Agreement, in the form attached to this Agreement as Exhibit A.
1.10 Escrow Holder shall mean Xxxxxxxx, Xxxxxxx & Xxxxx PLLC.
1.11 Exchange Act shall mean the Securities and Exchange Act
of 1934, as amended, and the rules and regulations thereunder.
1.12 Knowledge. Wherever in this Agreement a statement,
warranty or representation is to a party's "knowledge," knowledge shall mean all
facts actually known by such party's Board of Directors, CEO, President, CFO (or
equivalent) and all executive or senior vice presidents.
1.13 Merger shall mean the merger of Target with and into
Admiral in accordance with this Agreement, the Plan of Merger and applicable
law.
1.14 Plan of Merger shall mean the Plan of Merger between
Target and Admiral together with the Articles of Merger, in the form attached to
this Agreement as Exhibit B.
1.15 Jreck Common shall mean the unregistered voting common
stock, no par value, of Jreck issued subject to the restrictions of Rule 144 of
the Securities Act and any other restrictions specified in this Agreement.
1.16 Securities Act shall mean the Securities Act of 1933
as amended, and the
rules and regulations thereunder.
1.17 Shareholder Representative shall mean Xxxxxxx X. Xxxxxx
and any substitute representatives selected in accordance with the Escrow
Agreement. The Shareholders Representative has been selected by Target's Board
of Directors and, in the event of inability or unwillingness to act prior to the
merger, a substitute Shareholder Representative shall be similarly selected. The
Shareholder Representative is authorized by this Agreement, as a specific term
and condition of the Merger, to act hereunder and under the Escrow Agreement
with the powers and authority provided for herein and therein. Approval of this
Agreement and the Merger at the special shareholders meeting of Target called to
consider and vote this Agreement and the Merger (or Action by unanimous written
consent in lieu of such meeting) shall constitute
approval of the terms and conditions of the Shareholder Representative and of
his authority to act hereunder and under the Escrow Agreement on behalf of the
Target Shareholders and their successors.
1.18 Target Common shall mean the Class A and Class B voting
common stock, $.001 par value, of Quality Franchise Systems, Inc.
1.19 Target Shareholders shall mean the record owners of
Target Common and Target Preferred (as defined in Section 2.3.2) immediately
prior to the merger.
2. MERGER, CLOSING AND CONVERSION OF SHARES.
2.1 Merger. Subject to and in accordance with the terms and
conditions of this Agreement and the Plan of Merger, Target and Admiral shall
execute and file the Plan of Merger with the Secretary of State of the State of
Delaware and the Secretary of State of the State of Washington, whereupon Target
shall be merged with and into Admiral and Admiral shall be the surviving
corporation.
2.1.1 Articles and Bylaws. The Articles
of Incorporation and Bylaws of
Admiral, as in effect immediately prior to the Effective Date, shall be the
Articles and By-laws of the surviving corporation following the Merger until
amended as provided by law.
2.1.2 Directors and Officers. Subject to
the post-closing covenants of
Section 8.6.1 of this Agreement, the directors and officers of Admiral
immediately prior to the Effective Date shall be the officers and directors of
the surviving corporation following the Merger until replaced as provided in
Admiral's Articles and Bylaws.
2.2 Closing. The Closing shall, in Jreck's discretion, take
place either at the offices of Solomon, Ward, Seidenwurm & Xxxxx, LLP, 000 X
Xxxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx 00000, or by mail and facsimile, on
September 26, 1997 at 10:00 a.m., or at such other day and time as Jreck and
Target shall agree (the "Closing Date") after all of the conditions to the
parties' obligations to consummate the Merger set forth in Articles 6 and 7 of
this Agreement have been satisfied or waived.
2.3 Conversion of Shares. In accordance with the Plan of
Merger, each share of Target Common outstanding immediately prior to the
Effective Time (except those shares of Target Common which are Dissenting Shares
and whose holder and Target do not thereafter agree in writing should not be
treated as Dissenting Shares) shall, by virtue of the Merger and without any
action on the part of the holder thereof be converted on a proportionate pro
rata basis, at and as of the Effective Time into shares of Jreck Common equal to
(a) an aggregate of 1,000,000 shares of Jreck Common as adjusted by Section
8.7.3 for all Target Common, (b) plus such additional shares of Jreck Common, if
any, as provided in Section 2.4(b) of this Agreement and the Escrow Agreement
executed pursuant thereto. With respect to this Section 2.3, the conversion
ratio for the conversion or exchange of Target Common into Jreck Common shall be
3.2711 shares of Target Common for one (1) share of Jreck Common assuming
3,271,140 shares of Target Common outstanding immediately prior to the Merger
and issuance of 1,000,000 shares
of Jreck Common as adjusted by Section 8.7.3 pursuant to Section 2.3(a).
2.3.1 Fractional Shares. No fractional shares of Jreck Common
shall be issued upon conversion of Target Common to Jreck Common. The number of
full shares which shall be issuable upon conversion shall be computed on the
basis of the aggregate amount of Target Common surrendered at Closing. If,
except for the provisions of this Section 2.3.1, any holder of Target Common
(under this Agreement or the Escrow Agreement) would be entitled to a fractional
share of Jreck Common, Jreck shall pay to such holder an amount in cash equal to
the fractional conversion value of such fractional share as determined in
accordance with Section 2.10 of this Agreement.
2.3.2 Target Preferred Shares. As of the date hereof Target
has issued and outstanding 545 shares of Series A Preferred Stock on the terms
set forth in that certain Certificate of Designation of Quality Franchise
Systems, Inc. filed with the State of Delaware Office of Secretary of State on
May 24, 1996 (the "Target Preferred"). Target covenants to use its best efforts
to see that all holders of Target Preferred convert such shares into shares of
Target Common prior to the Closing. In the event not all holders of Target
Preferred convert to Target Common prior to the Closing, each share of Target
Preferred outstanding at Closing shall be converted into one (1) share of Jreck
preferred stock (to be created by Jreck prior to Closing) which preferred shares
shall carry, in substance, the same terms and conditions as the Target Preferred
(the "Jreck Preferred"), except, the conversion rights respecting such Jreck
Preferred shall provide for conversion into shares of unregistered Jreck common
at the same conversion ratio set forth in Section 2.3, above, respecting the
conversion of Target Common into Jreck Common.
2.3.3 Subsidiary Shares. In accordance with the Plan of
Merger, each and every share of Target's wholly owned subsidiary, Quality
Marketing Systems, Inc., a Delaware Corporation ("Target's Subsidiary"), shall
be delivered, transferred, conveyed and indorsed over to Jreck such that upon
the Closing Jreck shall be the sole owner of all issued and outstanding shares
of Target's Subsidiary and Target's Subsidiary shall be the wholly owned
subsidiary of Jreck. Neither Target or any Target shareholder or other person
shall be entitled to receive any Jreck shares or other consideration in exchange
for the transfer of the shares of Target's Subsidiary to Jreck.
2.4 Escrow. As a condition to Closing, the parties hereto
agree to execute the Escrow Agreement in the form attached hereto as Exhibit A
which escrow shall provide for the following:
(a) Contingent Shares. Subject to reduction under
Sections 2.4(b) and 2.6 below, and pursuant to Section 2.3(b) above, the parties
agree that if the franchise operations of Target achieve the earnings set forth
in Section 2.4(a)(i) below, an additional 500,000 shares of Jreck Common (in the
aggregate) or such lesser number of shares as provided in Section 2.4(a)(i),
shall be delivered to the Target Shareholders, proportionate with such
shareholder's ownership of Target Common Stock immediately prior to the Merger.
Delivery of such shares to the Shareholder Representative shall be deemed
delivery to the Target Shareholders hereunder and under the Escrow Agreement.
All escrowed shares not released to
Target Shareholders as provided in this Section 2.4, or in the Escrow Agreement,
shall be returned to Jreck for cancellation by Escrow Holder. At closing, Jreck
shall deliver to Escrow Holder pursuant to the Escrow Agreement, Stock
Certificates of Jreck Common representing 500,000 shares of Jreck Common that
may be payable pursuant to this Section 2.4(a). Jreck Common shares held in
escrow pursuant to this Section 2.4(a) and the Escrow Agreement shall have no
voting rights until such shares are actually released to the party entitled
thereto under the Escrow Agreement, provided, such shares shall retain rights to
dividends, stock splits and similar distributions which shall be paid to Escrow
Holder in accordance with the Escrow Agreement. Any rights of the Target
Shareholders to receive any shares placed in escrow under this Section 2.4(a)
shall in no circumstances be sold, assigned or otherwise transferred by them
other than by will or pursuant to the laws of descent and distribution.
(i) Earnings Test. Within a
reasonable time of
December 31, 1998, the independent certified public accounting firm regularly
employed by Jreck (or another independent public accounting firm selected by
Jreck and reasonably acceptable to the Shareholder Representative) shall audit
the franchise operations of Target as of December 31, 1998 to determine the
greatest EBITDA for any consecutive 12-month period commencing following the
Effective Time and terminating December 31, 1998 (the "Highest EBITDA"). In the
event the Highest EBITDA is $500,000.00 or more, subject to reduction under
Sections 2.4(b) and 2.6, Escrow Holder shall deliver to Shareholder
Representative all 500,000 shares of Jreck Common for delivery to the Target
Shareholders listed on Exhibit C in proportion to their respective ownership of
Target Common immediately prior to the merger. In the event that the Highest
EBITDA is greater than zero and less than $500,000.00, and subject to reduction
under Section 2.4(b) and 2.6, Escrow Holder shall deliver to Shareholder
Representative for delivery to the Target Shareholders a number of shares of
Jreck Common determined by dividing the Highest EBITDA by $500,000.00 and
multiplying the resulting fraction by 500,000. As used herein, the term "EBITDA"
shall have the meaning set forth in Exhibit D to this Agreement.
(b) Security for Indemnification. In
order to provide for
indemnification under Article 10 of this Agreement, and pursuant to the terms of
the Escrow Agreement, 75,000 of the 500,000 shares of Jreck Common placed in
Escrow pursuant to Section 2.4(a) shall be available to satisfy any such Target
indemnity obligations in accordance with the terms of the Escrow Agreement which
terms are incorporated herein by reference. Any rights of the Target
Shareholders to receive any shares or cash so placed in Escrow shall in no
circumstances be sold, assigned or otherwise transferred by them other than by
will or pursuant to the laws of descent and distribution. Any dividends or other
distributions paid in respect to the shares of Jreck Common escrowed under
Section 2.4(b) shall be paid to the Escrow Holder in accordance with the terms
of the Escrow Agreement. All certificates representing shares delivered to the
Escrow Holder shall be accompanied by separate stock powers authorizing Escrow
Holder to act in accordance with the Escrow Agreement. Target Shareholders shall
have no voting, dividend or other rights with respect to the Jreck Common Shares
deposited with Escrow Holder in accordance with this Section 2.4(a) until such
shares are actually released to the Shareholder Representative in accordance
with the Escrow Agreement.
2.5 Exchange of Certificate.
2.5.1 Contemporaneous with the Closing, Jreck shall
make available for
exchange in accordance with this Section 2.5, the 1,000,000 shares of Jreck
Common issuable pursuant to Section 2.3(a) in exchange for all outstanding
shares of Target Common, and the shares of Jreck Preferred issuable pursuant to
Section 2.3.2 in exchange for all outstanding shares of Target Preferred, if
any.
2.5.2 Upon surrender of a certificate of Target
Common, or Target
Preferred, for cancellation to Jreck duly executed, and subject to Section 2.4
and the Escrow Agreement with respect to Target Common, the holder of such
certificate shall be entitled to receive in exchange therefor the number of
shares of Jreck Common or Jreck Preferred as the case may be, to which the
Target Shareholder is entitled pursuant to Sections 2.3 and 2.3.2 hereof. The
certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Target Common or Target Preferred that is not
registered in the transfer records of Target, Jreck Common (or Jreck Preferred)
may be delivered to a transferee if the certificate representing such Target
Common or Target Preferred is presented to Jreck and accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.5.2, and subject to Section 2.4, Section 2.6 and
the Escrow Agreement, each Target Common, or Target Preferred, certificate shall
be deemed at any time after the Closing Date to represent the right to receive
upon such surrender such number of shares of Jreck Common, or Jreck Preferred,
as provided by Sections 2.3 and 2.3.2, and the provisions of the Corporations
Code.
2.5.3 No dividends or distributions payable to
holders of record of Jreck
Common or Jreck Preferred after the Effective Time, shall be paid to the holder
of any unsurrendered Target Common Certificate until the holder of the
certificate shall surrender such certificate.
2.5.4 All Jreck Common, and any Jreck Preferred,
delivered to Shareholder
Representative upon the surrender for exchange of Target Common or Target
Preferred, in accordance with the terms hereof shall be deemed to have been
delivered to the persons entitled thereto in full satisfaction of all rights
under this Agreement and the Escrow Agreement pertaining to such shares of
Target Common and Target Preferred. There shall be no further registration of
transfers on the stock transfer books of Target or its transfer agent of the
shares of Target Common or Target Preferred that were outstanding immediately
prior to the Effective Time. If, after the Closing Date, Target certificates are
presented for any reason, they shall be canceled and exchanged as provided in
this Section 2.5.
2.6 Dissenting Shares. Holders of Dissenting Shares shall have
those rights, but only those rights, of holders of "dissenting shares" under
Section 1300(b) of the California Corporations Code, if applicable, and Section
262 of the Delaware Corporations Code. Target shall give Jreck prompt notice of
any demand, purported demand or other communication received by Target with
respect to any Dissenting Shares or shares claimed to be Dissenting Shares, and
Jreck shall have the right to participate in all negotiations and proceedings
with respect to such shares. Any payments to Dissenting Shareholders prior to
the Effective Time
shall be the responsibility of Target, provided, if such payments are not due
and payable prior to the Effective Time and are therefore not paid until after
the Effective Time, any payments to Dissenting Shareholders shall be paid by
Admiral or Jreck and the amounts so paid shall reduce the number of Jreck Common
shares to be issued to Target Shareholders pursuant to Sections 2.4 and the
Escrow Agreement. Target agrees that, without the prior written consent of
Jreck, it shall not voluntarily make any payment with respect to, or settle or
offer to settle, any demand or purported demand respecting such dissenting
shares.
2.7 Unregistered Shares. The Jreck Common and Jreck Preferred
to be issued in the Merger to Target Shareholders shall not be registered under
the Securities Act and shall be subject to all relevant resale restrictions
under the Securities Act and State law. Target and its shareholders understand
that the Jreck Common and Jreck Preferred have not been registered under the
Securities Act by reason of its issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof, and that it must be held by Target Shareholders
indefinitely and Target Shareholders must therefore bear the economic risk of
such investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from registration. Target shall
in writing notify Target Shareholders of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things the existence of a public market for the shares, the
availability of certain current public information about Jreck, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and the
number of shares being sold during any three-month period not exceeding
specified limitations. Target shall further notify Target Shareholders in
writing that, while many of the restrictions of Rule 144 do not apply to the
resale of shares by a person who owned those shares for at least two years prior
to their resale and who is not an "affiliate" (within the meaning of Rule
144(a)) of the issuer and has not been an affiliate of the issuer for at least
three months prior to the date of resale of the restricted securities, Admiral
and Jreck do not warrant or represent that Target Shareholders are not an
affiliate as of the date of this Agreement or that Target Shareholders will not
be an affiliate at any relevant times in the future.
2.7.1 Other Resale Restrictions. With respect to
any shares of Jreck
Common issued pursuant to this Agreement or the Escrow Agreement to any Target
Officer, director or five percent (5%) or more Target Shareholder, for so long
as such shares of Jreck Common remain unregistered, such shares and each such
Target Shareholder shall be subject to a further restriction providing that no
one such Target Shareholder, or successor, shall sell more than 5,000 shares of
Jreck Common in any one business day, proportionately adjusted for any increase
or decrease in the number of issued shares of Jreck common voting stock
resulting from any stock split or other subdivision or consolidation of shares.
2.8 Piggyback Registration Rights. Subject to the terms of
this Agreement, in the event Jreck decides to Register (defined below) any of
its stock (either for its own account or the account of a security holder or
holders exercising their respective demand registration rights) on a form that
would be suitable for a registration involving solely Registrable Securities
(defined below), Jreck at its sole cost and expense will: (i) promptly give the
holders of Jreck Common
received in this Merger (the "Holders") written notice thereof (which notice
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable Blue Sky or other state
securities laws) and (ii) include in such Registration (and any related
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
delivered to Jreck by said Holders within fifteen (15) days after delivery of
such written notice from Jreck.
2.8.1 Piggyback Registration involving an
Underwriting. If the
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to this Section 2.8. In such event,
the right of the Holders to Registration of the Jreck Common received pursuant
to the Merger shall be conditioned upon such underwriting. If the Holders desire
to distribute their securities through such underwriting, they shall (together
with Jreck and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement with the underwriter's
representative for such offering. The Holders shall have no right to participate
in the selection of the underwriters for an offering pursuant to this Section
2.8.1 and the Holders shall have no liability for any costs and fees related
thereto. In the event the underwriter places a limit on the number of
outstanding shares of Jreck Common to be included in the underwriting, the
Holders shall participate in the underwriting on a pro rata basis with Jreck
insiders.
2.8.2 Blue Sky in Piggyback Registration.
In the event of any
Registration of Registrable Securities pursuant to this Section 2.8, Jreck will
exercise its best efforts to Register and qualify the securities covered by the
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions (not exceeding twenty (20) unless otherwise agreed to by Jreck) as
shall be reasonably appropriate for the distribution of such securities.
2.8.3 Definitions. For purposes of this
Agreement, the following
definitions shall apply:
(a) The terms "Register", "Registered",
and "Registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
(b) "Registrable Securities" shall mean
all Jreck common stock
not previously sold to the public, including stock issued or issuable pursuant
to stock splits, stock dividends and stock options.
2.9 Tax Free Reorganization. The parties intend to adopt
this Agreement as
a tax free plan of reorganization and to consummate the Merger in accordance
with the provisions
of Section 368(a) of the Code.
2.10 Share Value. For purposes of implementing the
provisions of
Sections 2.4(b), 2.6, 8.7.3, 10.1 and the Escrow Agreement respecting reduction
of the number of Jreck Common Shares to be issued to Target shareholders by the
Escrow Holder, the parties hereto agree that the Jreck Common subject to such
reductions shall be valued at the average closing price for the publicly traded
shares of Jreck common stock for the five business day period immediately
preceding the date of the Closing, as reported on the NASDAQ Bulletin Board, and
as adjusted for stock splits, stock dividends, recapitalizations and the like.
3. MUTUAL REPRESENTATIONS AND WARRANTIES.
Each of Jreck and Target is a "Company" for the purposes of
this Article 3. Any disclosure delivered by one Company to the other pursuant to
this Article, Article 4 or Article 5 shall have been in writing and delivered on
or prior to the date hereof and certified by an executive officer of the
delivering Company as true, accurate and complete, shall specifically refer to
this Agreement and shall identify the Section of this Agreement requiring the
delivery of such disclosure (each such disclosure being referred to herein as a
"Disclosure Statement"). Except as set forth in a Disclosure Statement of such
Company, each Company represents and warrants to the other party hereto that:
3.1 Organization and Authority. The Company: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all necessary corporate power
to own and lease its properties, to carry on its business as now being conducted
and to enter into and perform this Agreement and all agreements to which the
Company is or will be a party that are exhibits to this Agreement; and (iii) is
qualified to do business in all jurisdictions in which the failure to so qualify
would have a material adverse effect on its business or financial condition. The
Company has made available to the other party for inspection complete and
correct copies of its Articles of Incorporation, as amended, and Bylaws as in
effect on the date hereof and a record of any and all proceedings and actions at
all meetings of, or taken by written consent by, its Board of Directors and
shareholders, from and after January 1, 1994, in each case, certified as true,
complete and correct copies by Company's Secretary.
3.2 Authority Relating to this Agreement; No Violation of
Other Instruments.
3.2.1 The execution and delivery of this Agreement
and all agreements to
which the Company is or will be a party that are exhibits to this Agreement and
the performance hereunder and thereunder by the Company have been duly
authorized by all necessary corporate action on the part of the Company and,
assuming execution of this Agreement and such other agreements by each of the
other parties thereto, this Agreement and such other agreements will constitute
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject as to enforcement: (i) to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors' rights; and (ii) to
general principles of equity, whether such enforcement is considered in a
proceeding in equity or at law.
3.2.2 To the Company's knowledge, neither the
execution of this
Agreement or any other agreement to which the Company is or will be a party that
is an exhibit
to this Agreement nor the performance of any of them by the Company will: (i)
conflict with or result in any breach or violation of the terms of any decree,
judgment, order, law or regulation of any court or other governmental body now
in effect applicable to the Company; (ii) conflict with, or result in, with or
without the passage of time or the giving of notice, any breach of any of the
terms, conditions and provisions of, or constitute a default under or otherwise
give another party the right to terminate, or result in the creation of any
lien, charge, or encumbrance upon any of the assets or properties of the Company
pursuant to, any indenture, mortgage, lease, agreement or other instrument to
which the Company is a party or by which it or any of its assets or properties
are bound, including all Contracts (as defined in Section 4.15); (iii) permit
the acceleration of the maturity of any material indebtedness of the Company or
of any other person secured by the assets or properties of the Company; or (iv)
violate or conflict with any provision of the Company's Articles of
Incorporation, Bylaws, or similar organizational instruments.
3.2.3 Except for the parties' respective shareholder
and board approvals
of this Agreement, no consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any government or
regulatory authority is required to be made or obtained by the Company in order
to permit the execution, delivery or performance of this Agreement or any other
agreement to which the Company is or will be a party that is an exhibit to this
Agreement, or the consummation of the transactions contemplated by this
Agreement and such other agreements.
3.3 Brokers and Finders. Neither the Company nor any
shareholder, director, officer, employee or agent of the Company has retained
any broker, finder or investment banker in connection with the transactions
contemplated by this Agreement. Each Company will indemnify and hold the other
parties hereto harmless against all claims for brokers', finders' or investment
bankers' fees made or asserted by any party claiming to have been employed by
such Company or any shareholder, director, officer, employee or agent of such
Company and all costs and expenses (including the reasonable fees of counsel) of
investigating and defending such claims.
4. REPRESENTATIONS AND WARRANTIES OF TARGET.
Target hereby represents and warrants to Admiral and Jreck that except
as set forth in Target's Disclosure Statement:
4.1 Compliance with Law. To Target's knowledge, Target holds,
and has at all times held, all licenses, permits and authorizations necessary
for the lawful conduct of Target's business wherever conducted pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and subdivisions having, asserting or claiming jurisdiction
over Target or over any part of Target's operations, and the Target knows of no
violation thereof. Target is not in violation of any decree, judgment, order,
and to Target's knowledge any law or regulation of any court or other
governmental body (including without limitation, applicable environmental
protection legislation and regulations, equal employment and civil rights
regulations, wages, hours and the payment of social security taxes and
occupational health and safety legislation), which violation could have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of Target.
4.2 Investments in Others. Target does not conduct any part of
its business operations through any subsidiaries or through any other entity.
Target does not, directly or indirectly, own an equity or participation interest
in any other corporation, association, partnership, joint venture, limited
liability company or any other entity or venture.
4.3 Tax Returns and Payments. All tax returns and reports with
respect to Target required by law to be filed under the laws of any
jurisdiction, domestic or foreign, have been duly and timely filed and all
taxes, fees or other governmental charges of any nature which were required to
have been paid, have been paid or provided for. Target has no knowledge of any
actual or threatened assessment of deficiency or additional tax or other
governmental charge or a basis for such a claim against the Company. Target has
no knowledge of any tax audit of Target by any taxing or other authority in
connection with any of its fiscal years; Target has no knowledge of any such
audit currently pending or threatened, and there are no tax liens on any of
Target's properties.
4.4 Absence of Certain Changes or Events. Since the date (the
"Balance Sheet Date") of the most recent financial statement delivered by Target
pursuant to Section 4.19 (the "Balance Sheet"), there have been no material
changes in the condition, financial or otherwise, assets, liabilities, business
or the results of operations of Target, other than changes in the ordinary
course of business which in the aggregate have not been materially adverse.
4.5 Inventories. The inventories shown on the Balance Sheet of
Target are of a quantity and quality useable and saleable in accordance with
good business practices and represent a distribution of the types of inventories
utilized in the business of Target in accordance with good business practices.
Additions and deletions from the inventories since the Balance Sheet Date have
been in the ordinary course of business. The amounts shown for inventories on
the Balance Sheet of Target have been determined in accordance with U.S. GAAP on
a first-in, first-out basis and are stated at the lower of cost or market.
4.6 Accounts Receivable. The accounts receivable of Target
shown on the Balance Sheet as of the Balance Sheet Date, or thereafter acquired
by Target prior to the date hereof, have been and are (as the case may be)
collectible within 120 days after the Closing Date in amounts not less than the
aggregate amounts thereof carried on the books of Target reduced by the reserves
for discounts and bad debts taken on the Balance Sheet.
4.7 Personal Property. Target has good title, free and clear
of all liens, encumbrances and security interests, to all of its machinery,
equipment, furniture, inventory and other personal property. To Target's
knowledge, all of the leases to personal property utilized in the business of
Target are valid and enforceable against Target and are not in default.
4.8 Real Property. Target does not own any real property.
Section 4.8 of the Disclosure Statement contains a list of all leases for real
property to which Target is a party (as lessee, sublessor, sublessee or
guarantor), the monthly rental with respect to each lease and the expiration
date of each lease. To Target's knowledge, all such leases are valid and
enforceable and are not in default. The real property leased or occupied by
Target, the improvements located thereon, and the furniture, fixtures and
equipment relating thereto, (including plumbing, heating,
air conditioning and electrical systems), to Target's knowledge conform in all
material respects to any and all applicable health, fire, safety, zoning, land
use and building laws, ordinances and regulations. There are no outstanding
contracts made by Target for any material improvements made to the real
property, leased or occupied by Target that have not been paid for.
4.9 Patents, Trademarks, Trade Names and Copyrights. Section
4.9 of the Disclosure Statement sets forth all patents, trademarks, tradenames,
copyrights, and other intellectual property owned or utilized by Target. All
patents, trademarks, trade names, copyrights, processes, designs, formulas,
inventions, trade secrets, know-how, technology or other proprietary rights
which are necessary to the conduct of Target's business are owned or are useable
by Target. Upon the Merger all such items shall be owned or useable by Admiral
to the same
extent as by Target immediately prior to the Merger. To Target's knowledge, the
conduct of any business conducted by Target does not infringe any patent,
trademark, trade name, copyright, trade secret, or other proprietary right of
any other person. No litigation is pending or, to the knowledge of Target, has
been threatened against Target or any officer, director, shareholder, employee
or agent of Target, for the infringement of any patents, trademarks or trade
names of any other party or for the misuse or misappropriation of any trade
secret, know-how or other proprietary right owned by any other party nor, to the
best knowledge of Target, does any basis exist for such litigation. To Target's
knowledge, there has been no infringement or unauthorized use by any other party
of any patent, trademark, trade name, copyright, process, design, formula,
invention, trade secret, know-how, technology or other proprietary right
belonging to Target.
4.10 Warranties. Target has made no warranties or
guarantees relating to its
products other than as implied or required by law.
4.11 Litigation. Neither Target nor any officer, director,
shareholder, employee or agent of Target is a party to any pending or, to
Target's knowledge, threatened action, suit, proceeding or investigation, at law
or in equity or otherwise in, for or by any court or other governmental body
which could have a material adverse effect on: (i) the condition, financial or
otherwise, assets or properties of Target, liabilities, business or results of
operations of Target; or (ii) the transactions contemplated by this Agreement;
nor, to Target's knowledge, does any basis exist for any such action, suit,
proceeding or investigation. Target is not and has not been subject to any
pending, or to Target's knowledge threatened, product liability claim; nor to
Target's knowledge does any basis exist for any such claim. Target is not
subject to any decree, judgment, order, law or regulation of any court or other
governmental body which could have a material adverse effect on the condition,
financial or otherwise, assets, liabilities, business or results of operations
of Target or which could prevent the transactions contemplated by this
Agreement.
4.12 Personnel. Section 4.12 of the Disclosure Statement
contains a list of: (i) any and all employment, bonus, profit sharing,
percentage compensation, employee benefit, incentive, pension or retirement,
stock purchase and stock option plans, oral or written contracts or agreements
with directors, officers, employees or unions, or consulting agreements, to
which Target is a party or is subject as of the date of this Agreement; and (ii)
all group insurance programs in effect for employees of Target. Target is not in
default with respect to any of the obligations so listed. Target has delivered
complete and correct copies of all such obligations (to the extent they are in
writing or written descriptions to the extent they are oral) to the other party
hereto. Target has no union contracts or collective bargaining agreements with,
or any other obligations to, employee organizations or groups relating to
Target's negotiations except in minor grievances not involving any employee
organization or group, nor, to the knowledge of Target, is Target the subject of
any union organization affecting its business. There is no pending or, to the
Target's knowledge, threatened labor dispute, strike or work stoppage affecting
the Target's business. All plans described in Section 4.12 of the Disclosure
Statement are in full compliance with applicable provisions of the Employees
Retirement Income Security Act of 1974 ("ERISA") and regulations issued under
ERISA, and there is no unfunded liability with respect to such plans. Section
4.12 of the Disclosure Statement also lists the amount payable to employees of
Target under any other fringe benefit plans.
4.13 Contracts. Section 4.13 of the Disclosure Statement lists
all oral or written agreements, notes, instruments, or contracts to which Target
is a party or by which its assets or properties may be bound which involve the
payment or receipt of more than $20,000 (on an annual basis), or which have a
term of more than one year, or which involve the licensing or use of
intellectual property, or which are employment or consulting agreements (the
"Contracts"). Target is not in default in performance of its obligations under
any material provisions of such Contracts. Target has no knowledge of any
violation of any Contract by any other party thereto and has no knowledge of any
intent by any other party to a Contract not to perform its obligations under
such Contract.
4.14 Absence of Environmental Liabilities. Neither Target nor,
to the Target's knowledge after due inquiry, the real property at any time
owned, leased or occupied by Target is in violation of any applicable federal,
state or local law, ordinance, regulation or order relating to industrial
hygiene, worker safety, public health and safety, environmental protection, or
Hazardous Materials (as defined below) on, under or about such real property,
including the soil and ground water underlying such real property. Any handling,
transportation, storage, treatment or use of Hazardous Material (as defined
below) that has occurred on the real property owned, leased or occupied by
Target during Target's ownership, tenancy, or occupancy and prior to the Closing
Date has been and will be as of the Closing Date in compliance with all
applicable laws, ordinances, regulations and orders relating to Hazardous
Material. As used herein, the term "Hazardous Material" means any substance,
material or waste which is or becomes regulated as "hazardous," "toxic" or
"dangerous" by any local government authority, or the State of California,
including without limitation, any material or substance which is: (1) petroleum;
(2) asbestos; (3) lead containing paint; or (4) defined as a 'hazardous
substance' under Section 101 or Section 102 of the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA"), and any regulations applicable thereunder. To Target's
knowledge after due inquiry, the real property at any time owned, leased or
occupied by Target, including without limitation, the soil and groundwater on or
under such real property, is free of any significant release of any Hazardous
Material. No notification of release of Hazardous Material pursuant to CERCLA or
the Federal Clean Water Act, or any state or local environmental law or
regulatory requirement has been received by Target as to any of such real
property.
4.15 Capitalization. The authorized capital stock of Target is
10,000,000 shares of $0.001 par value Common Stock of which 353,651 shares are
outstanding and 10,000,000 shares of $0.001 par value Class B Common Stock, of
which 2,390,896 shares are issued and outstanding, for a total of 2,744,547
shares of Target Common issued and outstanding; 2,000,000 shares of $0.001 par
value Series A Preferred stock of which 545 shares are issued and outstanding
("Target Preferred"); and $1,025,000 face amount of convertible 12.75%
promissory notes (convertible into Class B Common) pursuant to that certain
Trust Indenture dated December 1, 1994 (the "Trust Indenture") of which $530,000
remains outstanding. A list of all of the shareholders of the Company by name
and address, with the number of shares owned by each as of the date hereof, is
contained in Section 4.15 of the Disclosure Statement. All such issued and
outstanding shares have been duly authorized and validly issued, and are fully
paid and non-assessable. Except as set forth in the Disclosure Statement, there
are no outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments
pursuant to which Target is or may become obligated to issue, sell, purchase,
retire or redeem any shares of capital stock or other securities (collectively
"Options"). Notwithstanding the Disclosure Statement, Target represents and
warrants that as of the Effective Time and thereafter, and other than the
Convertible Notes and Target Preferred, no Options will survive the merger.
4.16 Financial Statements. Target has delivered the following
financial statements of Target (the "Target Financial Statements") to Jreck:
audited balance sheet and income statement for year ending December 31, 1996,
unaudited balance sheet for month ending July 31, 1996 and unaudited income
statement for seven months ending July 31, 1997. Each Target Financial Statement
together with the notes thereto is in accordance with the books and records of
Target, fairly presents the financial position of Target and the results of
operations of Target for the period indicated, and has been prepared in
accordance with generally accepted accounting principles consistently applied.
4.17 Absence of Undisclosed Liabilities. As of the date
hereof, Target had no indebtedness or liability (absolute or contingent) which
is not shown or provided for in full on the Balance Sheet dated July 31, 1997
included in Target Financial Statements. Except as set forth in such Balance
Sheet dated July 31, 1997, Target does not have outstanding on the date hereof,
nor will it have outstanding on the Closing Date, any indebtedness or liability
(absolute or contingent) other than those incurred since the date of such
Balance Sheet in the ordinary course of business.
4.18 Compliance With Law. Section 4.25 of the Disclosure
Statement of Target contains a true and complete list of all licenses, permits
and authorizations necessary for the lawful conduct of Target's business
wherever conducted pursuant to all applicable statutes, laws, ordinances, rules
and regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Target or over any part of Target's
operations.
4.19 Taxes. Section 4.19 of the Disclosure Statement of Target
contains a true and complete list of all types of taxes paid or required to be
paid by Target and each state to which Target pays sales or use tax related to
the sale of its products.
4.20 Employees. Section 4.20 of the Disclosure Statement of
Target contains a list of the names, current salary rates, bonuses paid during
the last fiscal year, and accrued vacation and sick leave for all Target
employees.
4.21 Insurance. Copies of all Target insurance policies
and bonds have been
furnished to Jreck. All such insurance policies and bonds are in full force and
effect.
4.22 Bank Accounts. Section 4.22 of the Target Disclosure
Statement contains
a list of all Target bank accounts identifying the name of the bank, the account
number, and the
authorized signatories to the account.
4.23 Power of Attorney; Suretyships. Target has no power
of attorney
outstanding, nor has any obligation or liability, either actual, accrued,
accruing or contingent, as
guarantor, surety, cosigner, endorser, co-maker, indemnitor or otherwise in
respect of the
obligation of any other person, corporation, partnership, joint venture,
association, organization or other entity.
4.24 Accuracy of UFOC. To Target's knowledge, the "Mountain
Mike's Pizza Uniform Franchise Offering Circular franchised by Quality Franchise
Systems, Inc., effective date May 1, 1997" ("Target's UFOC") complies with all
legal requirements of the State of California respecting franchise offering
circulars as well as all legal requirements of any other state where Target is
doing business or offering franchises. All of the statements, financial data and
other information contained in Target's UFOC were true and correct as of May 1,
1997 and continues to be true and correct in all material respects as of the
date hereof and the date of Closing. Target's UFOC, as of the date hereof and
Closing, does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary to make the statements or facts
contained therein not misleading.
4.25 Target's Subsidiary. With respect to Quality
Marketing Systems, Inc., a
Delaware corporation ("QMS"), Target represents and warrants the following:
(a) QMS is
a corporation in good standing under the laws of Delaware and Colorado, has paid
all taxes and
license fees due and owing, and holds all licenses and government authorizations
necessary to
conduct the business presently being conducted, if any; (b) Target owns all the
outstanding shares
or other securities of QMS and no other person or entity holds any options,
warrants or other
securities respecting QMS; (c) QMS has no outstanding or contingent liabilities,
account payables
or debts of any kind; and QMS is not a party to or the subject of any pending
litigation, or to
Target's knowledge threatened litigation claims.
4.26 Shareholder Disclosure. Target will provide Target
Shareholders with the
Target Financial Statements, Jreck Financial Statements and this Agreement.
Target has given
Target Shareholders the opportunity to request additional information pertinent
to making an
investment decision.
4.27 Accuracy of Documents and Information. As of the date of
Closing, the copies of all instruments, agreements, other documents and written
information set forth as, or referenced in, Schedules or Exhibits to this
Agreement or specifically required to be furnished pursuant to this Agreement by
Target to the other party hereto, including, without limitation, Target's
Disclosure Statement, are and will be complete and correct in all material
respects. No representations or warranties made by Target in this Agreement, nor
any document, written information, statement, financial statement, certificate,
Schedule or Exhibit furnished directly to the other party hereto pursuant to
this Agreement or in the Disclosure Statement of Target contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein not misleading.
5. REPRESENTATIONS AND WARRANTIES OF JRECK.
Jreck hereby represents and warrants to Target that:
5.1 Capitalization. The authorized capital stock of
Jreck is 50,000,000 shares
of common, no par, voting stock of which 10,458,657 shares are issued and
outstanding, and
5,000,000 shares of authorized nonvoting preferred of which 700,000 shares of
Series A nonredeemable convertible preferred and 350,000 shares of Series B
nonredeemable preferred are outstanding. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
non-assessable. Jreck has outstanding options to purchase 100,000 shares of
common stock pursuant to a written agreement. Except as set forth in the
preceding sentence, there are no outstanding warrants, options, agreements,
convertible or exchangeable securities pursuant to which Jreck is or may become
obligated to issue, sell, purchase, retire or redeem any shares of capital stock
or other securities.
5.2 Financial Statements. Jreck has delivered the following
consolidated financial statements of Jreck (the "Jreck Financial Statements") to
Target: audited consolidated balance sheet and income statement for year ending
December 31, 1996, unaudited balance sheet and financial statement for quarter
ending June 30, 1997. Each Jreck Financial Statement together with the notes
thereto is in accordance with the books and records of Jreck, fairly presents
the financial position of Jreck the results of operations of Jreck for the
period indicated, and has been prepared in accordance with generally accepted
accounting principles consistently applied, except that any unaudited statement
does not contain all the notes required under generally accepted accounting
principles.
5.3 Absence of Certain Changes or Events. Since the date (the
"Balance Sheet Date") of the most recent financial statement delivered by Jreck
pursuant to Section 5.2 (the "Balance Sheet"), there have been no material
changes in the condition, financial or otherwise, assets, liabilities, business
or the results of operations of Jreck, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse.
5.4 Litigation. Neither Jreck nor any officer, director,
shareholder, employee or agent of Jreck is a party to any pending or, to Jreck's
knowledge, threatened action, suit, proceeding or investigation, at law or in
equity or otherwise in, for or by any court or other governmental body which
could have a material adverse effect on: (i) the condition, financial or
otherwise, assets or properties of Jreck, liabilities, business or results of
operations of Jreck; or (ii) the transactions contemplated by this Agreement;
nor, to Jreck's knowledge, does any basis exist for any such action, suit,
proceeding or investigation. Jreck is not and has not been subject to any
pending, or to Jreck's knowledge threatened product liability claim; nor does
any basis exist for any such claim. Target is not subject to any decree,
judgment, order, law or regulation of any court or other governmental body which
could have a material adverse effect on the condition, financial or otherwise,
assets, liabilities, business or results of operations of Target or which could
prevent the transaction contemplated by this Agreement.
5.5 Quarterly Report. Jreck's quarterly report to
shareholders dated June 30,
1997 is true and correct in all material respects as of the date thereof.
5.6 Accuracy of UFOC. To Jreck's knowledge, the Jreck Uniform
Franchise Offering Circular not yet effective ("Jreck's UFOC") and the Little
Kings, Inc. Uniform Offering Circular not yet effective ("Little Kings UFOC")
comply or will comply with all legal requirements of the State of New York with
respect to the Jreck UFOC, and the state of Nebraska with respect to the Little
Kings UFOC, respecting franchise offering circulars as well as all legal
requirements of any other state where Jreck or Little King are offering
franchises. All of the statements, financial data and other information
contained in Jreck's UFOC, and to Jreck's knowledge the Little Kings UFOC, were
true and correct as of the date thereof, and continues to be true and correct in
all material respects as of the date hereof and the date of Closing, except,
since the date of the Little Kings UFOC, Jreck has acquired all outstanding
common voting shares of Little Kings and has made certain management and
operational changes since the date of the acquisition which changes continue to
evolve. Jreck's UFOC, and to Jreck's knowledge the Little Kings UFOC, as of the
date hereof and Closing, do not contain any untrue statement of a material fact
nor do they omit to state a material fact necessary to make the statements or
facts contained therein not misleading. Jreck intends to cause its affiliate,
Admiral Subs Group, Inc. to prepare and file a UFOC with respect to the sale of
SeaWest Sub Shops in the State of Washington. At this time, Admiral Subs Group
needs to complete an audit and the UFOC must be prepared by legal counsel. Jreck
anticipates that the UFOC will be filed with the State of Washington by December
31, 1997. Once the UFOC is effective Jreck expects Admiral Subs Group to begin
selling SeaWest Sub Shop franchises.
6. CONDITIONS TO THE OBLIGATION OF JRECK.
The obligation of Jreck to consummate the Merger is subject to
the fulfillment, at or before the Closing of all the following conditions, any
one or more of which may be waived by Jreck.
6.1 Representations and Warranties True at Closing. The
representations and warranties of Target contained in this Agreement shall be
deemed to have been made again at and as of the Closing with respect to the
stated facts then existing and shall be true in all material respects.
6.2 Covenants Performed. All of the obligations of
Target to be performed at
or before the Closing pursuant to the terms of this Agreement shall have been
duly performed.
6.3 Certificate. At the Closing, Jreck shall have received a
certificate signed by the President and Chief Executive Officer of Target to the
effect that the conditions set forth in Sections 6.1 and 6.2 have been
satisfied.
6.4 Shareholder Approval. This Agreement and the Plan of
Merger, to the extent required by law, shall have been duly approved by the
shareholders and Boards of Directors of Target, and by the Board of Directors of
Jreck and Admiral as of the date hereof. Both Target and Jreck shall certify to
the other at Closing that all such shareholder and board of director approvals
continue to be effective as of the date of Closing.
6.5 Dissenting Shares. The aggregate number of
Dissenting Shares shall not
exceeds seven and one-half percent (7.5%) of the aggregate of the outstanding
shares of Target
Common outstanding immediately before the Merger.
6.6 Plan of Merger. The Plan of Merger shall have been filed
with the Secretary of State of the State of Washington and the Secretary of
State of the State of Delaware.
6.7 Escrow Agreement. Jreck, Target, Xxxxxxx Xxxxxx and
Escrow Holder
shall have executed the Escrow Agreement and delivered the same to EscrowHolder.
6.8 Disclosure Statement. Jreck shall have approved and
accepted Target's
Disclosure Statement. By Closing, Jreck shall be deemed to have accepted and
approved the
Disclosure Statement.
6.9 Material Changes in the Business of Target. There shall
have been no material adverse change in the financial position, results of
operations, assets, liabilities or business of Target since the date of this
Agreement or any subsequent pre-closing update to Target's Disclosure Statement.
6.10 Consents. Jreck shall have received in writing any
consents, approvals, and waivers required in connection with the Merger (a) from
parties to Target's agreements, indentures, mortgages, franchises, licenses,
permits, leases, and other instruments set forth in Target's Disclosure
Statement of Target, and (b) from all governmental authorities.
6.11 Documentation. All actions, proceedings, instruments,
resolutions, certificates, and documents reasonably requested by Jreck to be
executed and delivered to Jreck in order to carry out this Agreement and to
consummate the Merger, and all of the relevant legal matters, shall be
reasonably satisfactory to Jreck and its counsel including, without limitation
compliance with any applicable state or federal securities law or regulation.
6.12 Outstanding Securities. At the Effective Time, the only
issued and outstanding securities of Target shall be the Target Common, the
Convertible Notes, and Target Preferred if any, and there shall be no other
outstanding securities, options, warrants, stock option plans, or securities
entitlements of any kind.
6.13 Redemption of Chairman's Shares and Release of
Collateral. At the Effective Time, Target shall have provided to Jreck
acceptable documentation that Target's Chairman has returned his 230,000 Class B
Common Shares to Target in exchange for Target's release of a $750,000 savings
account held as collateral against the shares. The Chairman, in turn, shall
repay his personal bank loan used to acquire the shares.
7. CONDITIONS TO THE OBLIGATION OF TARGET.
The obligation of Target to consummate the Merger is subject
to the fulfillment, at or before the closing, of all of the following
conditions, any one or more of which may be waived by Target:
7.1 Representations and Warranties True at Closing. The
representations and warranties of Jreck contained in this Agreement shall be
deemed to have been made again at and as of the Closing with respect to the
stated facts then existing and shall be true in all material respects.
7.2 Covenants Performed. All of the obligations of Jreck
to be performed at
or before the Closing pursuant to the terms of this Agreement shall have been
duly performed.
7.3 Plan of Merger. The Plan of Merger shall have been
filed with the
Secretary of State of the State of Washington.
7.4 Disclosure Statement. Jreck's Disclosure Statement,
if any, has been
approved and accepted by Target. By Closing, Target shall be deemed to have
accepted and
approved the Disclosure Statement.
7.5 Documentation. All actions, proceedings, instruments,
resolutions, certificates, and documents reasonably requested by Target to be
executed and delivered to Target in order to carry out this Agreement and to
consummate the Merger, and all of the relevant legal xxxxxx, shall be reasonably
satisfactory to Target and its counsel.
7.6 Jreck Common Value. As of the date which is two (2) days
prior to the Effective Time, the closing price for the publicly traded common
shares of Jreck is $3.00 or more a share as reported on the NASDAQ Bulletin
Board.
7.7 Certificate. At Closing, Target shall have received a
certificate signed by the President and Chief Executive Officer of Jreck to the
effect that the conditions set forth in Sections 7.1 and 7.2 have been
satisfied.
7.8 Board Approval. This Agreement and the Plan of
Merger, shall have been
duly approved by the Board of Directors of both Jreck and Admiral.
7.9 Escrow Agreement. Jreck, Target, Xxxxxxx Xxxxxx and
Escrow Holder
shall have executed the Escrow Agreement and delivered the same to the Escrow
Holder.
7.10 Material Changes in Business of Jreck. There shall have
been no material adverse change in the financial position, results of
operations, assets, liabilities or business of Jreck since the date of this
Agreement or any subsequent pre-closing update to Jreck's Disclosure Statement.
8. PRE-CLOSING COVENANTS.
8.1 Pre-closing Documents. During the period from the
date of this Agreement
until the Effective Time, Target and Jreck covenant and agree as follows:
8.1.1 Advice of Changes. Target will
promptly advise Jreck in writing
(i) of any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of Target contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect and (ii) of any material adverse change in
Target's business.
8.1.2 Maintenance of Business. Target
will use its best efforts to carry
on and preserve its business and its relationships with customers, suppliers,
employees and others
in substantially the same manner as it has prior to the date hereof. If Target
becomes aware of a deterioration in the relationship with any customer, supplier
or key employee, it will promptly bring such information to the attention of
Jreck in writing and, if requested by Jreck, will exert its best efforts to
restore the relationship.
8.1.3 Conduct of Business. Unless Jreck
shall otherwise agree in writing
(which agreement shall be in Jreck's sole discretion) or as otherwise expressly
permitted or specifically contemplated by this Agreement, Target covenants and
agrees that prior to the Effective Date:
(a) The business of Target shall be
conducted only in, and
Target shall not take any action except in, the ordinary course of business, and
Target shall use its best efforts to maintain and preserve its business
organization, assets, employees and business relationships;
(b) Target shall not directly or
indirectly do any of the
following: (i) amend its Articles of Incorporation or By-laws; (ii) declare, set
aside or pay any dividend or other distribution or payment (whether in cash,
stock or property) in respect of shares of its capital stock owned by any
person, (iii) issue, grant, sell or pledge or agree to issue, grant, sell or
pledge any shares of capital stock of Target, or securities convertible into or
exchangeable or exercisable for, or otherwise evidencing a right to acquire,
shares of capital stock of Target; (iv) redeem, purchase or otherwise acquire
any outstanding shares of its capital stock or other securities (v) split,
combine or reclassify any shares of its capital stock; (vi) except as
contemplated herein, adopt a plan of liquidation or resolutions providing for
the capitalization, liquidation, dissolution, merger, consolidation or
reorganization of Target; or (vii) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the foregoing, except as
contemplated herein;
(c) Target shall not directly or
indirectly do any of the
following: (i) sell, lease, pledge, dispose of or encumber (except for such
encumbrances as will not interfere with the ability of Target to obtain secured
indebtedness for borrowed money on customary terms) any assets or rights of
Target except in the ordinary course of business; (ii) acquire any corporation,
partnership or other business organization or division thereof, or make any
investment either by purchase of stock or securities (other than acquisitions of
fixed-income securities with maturities of less than one year), contributions of
capital or property transfer; (iii) waive, release, grant or transfer any rights
of value or modify or change in any material respect any existing license or
contract, other than in the ordinary course of business or breach in any
material respect any of the terms of any existing license or contract; (iv)
enter into any agreement which cannot be performed within one year or canceled
within 30 days without penalty and which involves the expending, together with
all related expenditures, of more than $5,000; (v) incur or guarantee any
indebtedness for borrowed money other than unsecured indebtedness for borrowed
money incurred in the ordinary course of business which indebtedness is
prepayable without premium or penalty at anytime; or (vi) authorize or propose
any of the foregoing, or enter into or modify any contract, agreement,
commitment or arrangement to do any of the foregoing;
(d) Target shall not take any action (i)
with respect to the grant
of any severance or termination pay to, or the entering into of any employment
agreement with, any employee, or with any executive officer or director of
Target, or (ii) with respect to any increase of benefits payable under its
current severance or termination pay policies other than any increase resulting
from an increase in salaries granted in the ordinary course and in accordance
with past practices;
(e) Target shall not adopt or amend any
bonus, profit sharing,
stock option, pension, retirement, deferred compensation or other similar plan,
agreement, trust, fund or arrangement for the benefit of employees, except as is
necessary to comply with the law or existing contractual or collective
bargaining obligations or other than discretionary stay-put or similar payments
(which discretionary stay-put or similar payments shall be made prior to the
date of the Effective Date);
(f) Target shall (i) maintain its books
of account and record and
billing practices consistently with past practices; (ii) maintain and keep its
properties and assets in as good repair, working order and condition as at
present, except for ordinary wear and tear; (iii) promptly notify the Purchaser
of any change which would have a material adverse effect;
(g) Target shall not take any action or
fail to take any action that
could reasonably be expected to result in the expiration, revocation, suspension
or modification of any of its licenses or fail to prosecute with due diligence
any applications to any governmental authority if such action or the failure to
take such action would have, individually or in the aggregate, a material
adverse effect;
(h) Target shall comply with all laws,
rules and regulations to
which Target and its business, assets and properties are subject, except where
the failure to comply would not have, individually or in the aggregate, a
material adverse effect; and
(i) Target will continue to pay when due
all income, sales,
payroll and other taxes which may be shown to be due on tax returns required to
be filed prior to the Closing Date.
8.2 Shareholder Meeting. Target will use its best efforts to
hold a special meeting of its shareholders at the earliest practicable date, or
obtain the appropriate shareholder consents in lieu of meetings approving this
Agreement as provided by law and Target's governing corporate documents, to
submit this Agreement and related matters for their consideration and approval,
which approval shall be recommended by Target's Board of Directors and senior
management.
8.3 Necessary Consents. Prior to the Closing, Target will use
its best efforts to obtain such written consents and take such other actions as
may be necessary or appropriate to allow the consummation of the transactions
contemplated hereby and to allow Target to carry on its business after the
Closing.
8.4 Exclusivity. From the date hereof until the earlier
of termination of this
Agreement or consummation of the Merger, neither Target nor any of its officers,
directors, employees, representatives, agents or affiliates shall directly or
indirectly encourage, solicit, initiate or conduct discussions or negotiations
with, provide any information to, or enter into any agreement with, any
corporation, partnership, person or other entity or group concerning (a) any
merger, consolidation, sale of assets, sale of majority control, or other
similar transaction involving Target.
8.5 Due Diligence. Until the Closing, each party shall provide
the other (including accounting, legal, and investment banking representatives)
with access to its offices and its senior employees for the purpose of due
diligence, in accordance with procedures established by the parties to minimize
disruptions of their businesses.
8.6 Amendments to Disclosure Statements. If after execution of
this Agreement either party learns of a breach or violation of any
representation, warranty, covenant or agreement made by it herein, which it had
no knowledge of prior to its execution of this Agreement, such party (the
"initiating party") shall promptly notify the other party (the "receiving
party") in writing of such breach or violation. The other party shall then have
ten (10) days after receipt of such notice of a breach or violation to terminate
this Agreement by written notice to the initiating party, if such breach or
violation, individually, or together with other breaches or violations by the
initiating party of this Agreement, has or would have a material adverse effect
on the initiating party. If the receiving party does not send written notice
within such ten (10) days, the receiving party shall be deemed to have waived
such breach of violation; provided, however, in the event that the initiating
party notifies the receiving party in writing of a breach or violation
subsequent to any breach or violation which was so waived in accordance with
this Section 8.6, the receiving party may consider each breach or violation so
waived together with other breaches or violations by the initiating party in
determining whether a material adverse effect on the initiating party shall have
occurred with respect to such subsequent breach or violation.
8.7 Post-closing Covenants.
8.7.1 Board Position. As soon after
Closing and the Effective Time as
practicable, Jreck, its officers and directors, shall use their best efforts to
see that Xxxxxxx X. Xxxxxx is elected or appointed as a director to the Jreck
Board of Directors and as a member of the Jreck Advisory Board of Directors.
8.7.2 Convertible Note Assumption. On and
after the Effective Time,
Jreck hereby fully assumes all of Target's obligations under the Convertible
Notes and related Trust Indenture in accordance with Article 13 of the Trust
Indenture, provided, the total outstanding face amount of all such Convertible
Notes does not exceed $530,000.
8.7.3 Adjustment for Certain Target Creditors. Prior to the Effective
Time, Target shall prepare and submit for attachment hereto as Exhibit E a list
of those Target creditors who:
(a) have accepted agreed to accept Jreck Common at closing in
exchange for
cancellation of indebtedness, and the parties agree that such shares of
Jreck Common shall be deducted from the 1,000,000 shares of Jreck
Common otherwise distributable to holders of Target Common at closing;
and
(b) those Target creditors who have accepted promissory notes from
Target to evidence indebtedness owing to them, and the parties agree
that such promissory notes shall be assumed by Admiral at closing, and
that number of shares of Jreck Common determined by dividing the amount
of such notes by the share value established pursuant to Section 2.10
of this Agreement shall be deducted from the 1,000,000 shares of Jreck
Common otherwise distributable to holders of Target Common at closing.
9. CONFIDENTIALITY COVENANT AND ANNOUNCEMENTS.
9.1 Confidentiality. No party to this Agreement shall use or
disclose any non-public information obtained from another party for any purpose
unrelated to the Merger, and, if this Agreement is terminated for any reason
whatsoever, each party shall return to the other all originals and copies of all
documents and papers containing technical, financial, and other information
furnished to such party pursuant to this Agreement or during the negotiations
which preceded this Agreement, and shall neither use nor disclose any such
information except to the extent that such information is available to the
public, is rightfully obtained from third parties or is independently developed.
9.2 Announcements. No party to this Agreement shall issue a
press release or other public communication relating to this Agreement, the Plan
of Merger or the Merger without the prior approval of the other party.
Notwithstanding the foregoing, and after reasonable consultation with Target,
Jreck may make such announcements regarding the Merger as, in the judgment of
its management after consultation with legal counsel, are necessary to comply
with any securities laws or regulations.
10. Indemnification.
10.1 Indemnification Relating to Agreement. To the extent and
in the manner set forth in the Escrow Agreement and this Article 10, Target
agrees, and by approval of this Agreement and the Merger at the special
shareholders' meeting of Target (or by unanimous written consent in lieu of a
meeting), the shareholders of Target agree to defend, indemnify and hold Jreck
harmless from and against, and to reimburse Jreck with respect to, any and all
losses, damages, liabilities, claims, judgments, settlements, costs and expenses
(including reasonable attorneys' fees) of every nature which separately or in
the aggregate exceed $25,000, and incurred by Jreck by reason of or arising out
of or in connection with (i) any material breach by Target of any representation
or warranty of Target contained in this Agreement or in any certificate or other
document delivered to Jreck pursuant to the provisions of this Agreement,
including, without limitation, the Disclosure Statement of Target, or (ii) the
failure, partial or total, of Target to perform any agreement or covenant
required by this Agreement to be performed by it, and that up to 75,000 shares
of Jreck Common deposited in escrow pursuant to Section 2.4 of this Agreement
shall be used to secure and pay the above described indemnity obligation as set
forth in the Escrow Agreement.
10.2 Exclusive Remedy. Except for acts of fraud or other
intentional misrepresentation by Target or Target Shareholders, Jreck and Target
agree that the escrow of Jreck Common pursuant to the above Section 10.1 and the
Jreck Escrow Agreement shall be and constitute Jreck's sole and exclusive remedy
for the indemnity obligations set forth in Section 10.1 above. However, in the
event of fraud or other intentional misrepresentation, the escrow arrangement
shall not constitute Jreck's sole and exclusive remedy and Jreck shall be
entitled to pursue any and all remedies at law or equity for any damages
proximately caused by such fraud or other intentional misrepresentation.
11. Termination.
11.1 Mutual Agreement. This Agreement may be terminated at any
time prior to the Effective Time by the unanimous mutual consent of Jreck and
Target, even if and after the shareholders of Target have approved this
Agreement and the Plan of Merger.
11.2 Termination by Jreck. This Agreement may be terminated by
Jreck alone, by means of written notice to Target if (a) Target fails to perform
any material covenant of Target contained in this Agreement, or (b) on or before
October 1, 1997, any of the conditions set forth in Article 6 of this Agreement
shall not have been satisfied by Target or waived by Jreck.
11.3 Termination by Target. This Agreement may be terminated
by Target alone, by means of written notice to Jreck if (a) Jreck fails to
perform any material covenant of Jreck contained in this Agreement or (b) on or
before October 1, 1997, any of the conditions set forth in Article 7 of this
Agreement shall not have been satisfied by Jreck or waived by Target.
12. Miscellaneous.
12.1 Expenses. Jreck shall pay the costs of the Escrow. Each
of Jreck and Target shall pay its own costs and expenses, including legal,
accounting and investment banking fees and expenses, relating to this Agreement,
the negotiations leading up to this Agreement and the transactions contemplated
by this Agreement; provided that Target's expenses shall not exceed $50,000 and
any excess shall be paid by the shareholders of Target.
12.2 Time; Amendment. Time is of the essence of this
Agreement. This Agreement shall not be amended except by a writing duly executed
by both parties.
12.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of this State of Washington and venue of
any action shall be the state and federal courts of the State of Washington and
Target hereby consents to the jurisdiction of such state and federal courts.
12.4 Headings. The headings contained in this Agreement
are intended for
convenience and shall not be used to determine the rights of the parties.
12.5 Notices. All notices, requests, demands, and other
communications made
in connection with this Agreement shall be in writing and shall be deemed to
have been duly given on the date of delivery if delivered by hand delivery or by
facsimile to the persons identified below for five days after mailing if mailed
by certified or registered mail postage prepaid return receipt requested
addressed as follows:
If to Jreck:
Jreck Subs Group, Inc.
X.X. Xxx 0
Xxxxxxxxx, X.X. 00000
Xxxxxxxxx: Xxxxxxxxxxx Xxxxxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxx X. Xxxxx, Esq.
Xxxxxxxx, Xxxxxxx & Xxxxx PLLC
Two Union Square
000 Xxxxx Xxxxxx, Xxxxx 0000
X.X. Xxx 00000
Xxxxxxx, XX 00000-0000
If to Target:
Quality Franchise Systems, Inc.
0000 X. Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxx Xxxxxxxxxx, Esq.
Solomon, Ward, Seidenwurm & Xxxxx, LLP
000 X Xxxxxx Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Such addresses may be changed, from time to time by means of a
notice given in the matter provided in this section.
12.6 Severability. If any provision of this Agreement is held
to be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
12.7 Survival of Representation and Warranties. All
representations and warranties contained in this Agreement, including the
Exhibits, Schedules and other documents delivered pursuant to this Agreement
shall survive the Effective Time and shall expire one year thereafter.
12.8 Waiver. Waiver of any term or condition of this Agreement
by any party shall not be construed as a waiver of a subsequent breach or
failure of the same term or condition, or a waiver of any other term or
condition in this Agreement.
12.9 Assignment. Neither party may assign, by operation of law
or otherwise, all or any portion of its rights or duties under this Agreement
without the prior written consent of the other party, which consent may be
withheld in the absolute discretion of the party asked to give consent.
12.10 Counterpart/Facsimile Signature. This Agreement may be
signed by facsimile and in counterparts with the same effect as if the
signatures of each party were original upon a single instrument. All such
facsimiles and counterparts shall be deemed an original of this Agreement.
12.11 Other Remedies. Unless expressly provided otherwise, no
remedies contained in this Agreement or in any of the Exhibits or Schedules
hereto shall be in lieu of, or constitute a waiver of, any remedies at law or in
equity (not based upon negligent misrepresentations) that one party may
otherwise have against the other party hereto or against any present or former
officer, director or controlling shareholder of such party.
12.12 Arbitration. The parties hereto agree that any disputes
between the parties relating to or arising from this Agreement shall be
submitted to binding arbitration in accordance with the rules of the American
Arbitration Association with such arbitration to be held in Denver, Colorado, or
such other location if mutually agreed to by both parties. The results,
determination, finding, judgment or award rendered through such arbitration,
shall be final and binding on each of the parties hereto and not subject to
appeal.
12.13 Attorney Fees. In the event of a dispute between the
parties hereto relating to this Agreement or the Escrow Agreement, the
prevailing party shall be entitled to recover from the other party its
reasonable attorney fees and costs incurred in any action or arbitration in
addition to any other damages or type of relief.
12.14 Entire Agreement. This Agreement, including the Exhibit,
Schedules, Disclosure Statements, and other documents delivered pursuant to this
Agreement, contains all the terms and conditions agreed upon by the parties
relating to the subject matter of this Agreement and supersedes all prior
agreements, negotiations, correspondence, undertakings, and communications of
the parties, whether oral or written, respecting that subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
JRECK SUBS GROUP, INC.
By:
Its: President and CEO
ADMIRAL'S FLEET, INC.
By:
Its President and CEO
QUALITY FRANCHISE SYSTEMS, INC.
By:
Its President and CEO
