EXHIBIT 10.5
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ASSET PURCHASE AGREEMENT
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AMONG
AFC ENTERPRISES, INC.
THE AMERICAN BAGEL COMPANY, D/B/A
CHESAPEAKE BAGEL BAKERY
XXXXXXX XXXXXXXX
XXXX XXXXXXX
DATED AS OF MAY 5, 1997
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ASSET PURCHASE AGREEMENT
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THIS ASSET PURCHASE AGREEMENT is made and entered into this 5th day of May,
1997, by and among THE AMERICAN BAGEL COMPANY, a Maryland corporation
("Seller"); XXXXXXX XXXXXXXX, a resident of the state of Maryland ("Xxxxxxxx")
and XXXX XXXXXXX, a resident of the state of Virginia ("Manstof")
(hereinafter, Manstof and Xxxxxxxx are sometimes referred to, individually, as a
"Principal" and, collectively, as the "Principals"); and AFC ENTERPRISES, INC.,
a Minnesota corporation ("Purchaser").
W I T N E S S E T H:
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WHEREAS, Seller is engaged in the business (the "Business") of operating in
the United States and internationally, a franchise system (the "Chesapeake
System") for opening and operating quick service restaurants ("Chesapeake
Restaurants") specializing in freshly baked bagels and other food and non-food
items from the premises located at 0000 Xxxxxx Xxxxxxx Xxxxxxxxx, XxXxxx,
Xxxxxxxx (the "Premises"), which system is identified by various trade names,
trademarks and service marks, including without limitation the name "Chesapeake
Bagel Bakery."
WHEREAS, Manstof and Xxxxxxxx are the sole owners of all of the issued and
outstanding stock of Seller; and
WHEREAS, Seller desires to sell substantially all of its assets used in the
Business or in connection with the Chesapeake System, as a going concern, to
Purchaser on certain terms and conditions, which terms and conditions are
acceptable to Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, and other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, Seller, the
Principals and Purchaser hereby mutually agree as follows:
1. PURCHASE OF ASSETS. On the terms and conditions hereinafter set
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forth, Seller shall sell and Purchaser shall purchase the following assets, free
and clear of any and all liens, claims, charges and encumbrances whatsoever:
a. all electronic data and computer files and the storage media upon
which such files are located including, but not limited to diskettes,
tapes, CD-ROMs or other storage media, together with all computer
hardware (except as set forth in Schedule 2) and software (subject to
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any restrictions contained in the license agreements with respect
thereto) determined by Purchaser to be necessary to utilize the
foregoing, including without limitation those items set forth on
Schedule 1(a) attached hereto and made a part hereof, together with
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all service contracts, maintenance agreements and warranties
applicable thereto;
b. all inventory and supplies of Seller (both on hand and on order) which
incorporate or use in any manner any of Seller's Proprietary Rights
(hereinafter defined) located on the Premises or otherwise owned by
Seller (collectively, the "Proprietary Property"), including, but not
limited to, stationary, forms, labels, office supplies, production
supplies, advertising and promotional and sales materials, a list of
which Proprietary Property is set forth on Schedule
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1(b) attached hereto and made a part hereof (which Schedule shall be
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updated and supplemented as of the Closing);
c. all cash on hand as of the Closing, all prepaid items or expenses of
whatever nature related to the Purchased Assets, all accounts
receivable (including, but not limited to, all service fees due from
Franchisees on Franchisee's gross sales during the month of April,
1997 and thereafter and any service fees, including interest thereon,
for any preceding month which were not collected prior to Closing)
(the "Accounts Receivable") and all promissory notes reflecting unpaid
franchise fees (the "Franchise Fee Notes"), all as more particularly
described in Schedule 1(c) hereof, which Schedule shall be updated and
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supplemented as of the Closing;
d. all rights and interests of Seller in, to and under all written
franchise agreements (including any modifications or amendments
thereto and including any rights to terminate such agreements or
declare defaults thereunder), pursuant to which Seller has franchised
to other parties ("Franchisees") the right to operate a Chesapeake
Restaurant or to use any component of the Chesapeake System, and all
applications to enter into franchise agreements, a complete list of
which franchise agreements and applications is set forth on Schedule
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1(d) attached hereto and made a part hereof (hereinafter collectively
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referred to as the "Franchise Agreements");
e. all rights and interests of Seller in, to and under all written
development agreements (including any modifications or amendments
thereto and including any rights to terminate such agreements or
declare defaults thereunder), pursuant to which Seller has granted
other parties ("Developers") the right to develop one or more
Chesapeake Restaurants or any other business using any component of
the Chesapeake System, and all applications to enter into development
agreements, a complete list of which development agreements and
applications is set forth on Schedule 1(e) attached hereto and made a
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part hereof (hereinafter collectively referred to as the "Development
Agreements");
f. all rights and interests of Seller in, to and under that certain
Marketing Agreement with Coca-Cola USA Fountain dated the 24th day of
February, 1997 and that certain Approved Coffee Supplier Agreement
with Superior Coffee and Foods, a division of Xxxx Xxx Corporation
dated as of the 22nd day of December, 1994 and any other contracts
relating to Seller's Business or the Chesapeake System which Purchaser
elects to assume as set forth on Schedule 1(f) attached hereto and
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made a part hereof (the "Assumed Agreements");
g. all of Seller's rights in and to (i) all U.S. and Foreign trade names,
trademarks, service marks, logos, slogans, and fictitious trade names
used in the conduct of the Business or the operation of the Chesapeake
System, including, but not limited to, the name "Chesapeake Bagel
Bakery" and any abbreviation or variation thereof (collectively the
"Marks"); (ii) all U.S. and foreign trademark and service xxxx
registrations and applications for registration (collectively, the
"Trademark Registration Rights"); (iii) all elements of the trade
dress used in the Chesapeake System (the "Trade Dress"); (iv) all U.S.
and foreign common law copyrights ("Copyrights"); (v) any existing
U.S. and foreign registrations and applications for registration of
any Copyright (collectively, the "Copyright Registration Rights");
(vi) any existing U.S. and foreign patents and patent applications,
technology, know-how, processes, training manuals, operations manuals,
proprietary information, trade secrets,
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formulae, recipes, technical information and data, research and
development data, confidential information, discoveries, inventions
and improvements (collectively the "Trade Secrets"); and (vii) other
similar intangible property and rights used in, or relating to the
Chesapeake System (hereinafter collectively referred to as the
"Intellectual Property") (hereinafter the Marks, the Trademark
Registration Rights, the Trade Dress, the Copyrights, the Copyright
Registration Rights, the Trade Secrets and the Intellectual Property
shall be collectively referred to as the "Proprietary Rights");
h. the right to xxx and recover for any past infringement dilution or
unauthorized use of any of the Proprietary Rights;
i. all of Seller's rights to any goodwill associated with the Business,
the Chesapeake System and the Proprietary Rights;
j. all Franchisee, Developer and supplier and prospective Franchisee,
Developer and supplier lists, sales records and files (including
without limitation all original Franchise and Development Agreements,
UFOC receipts and other documents whether in the possession of Seller
or Seller's attorneys, brokers or other agents); records and files
regarding the Proprietary Rights and all other books and records
(including electronic records), specifications, designs, layouts,
renderings, equipment lists, manuals, training materials, videos,
brochures, photographs, negatives, and schedules and other materials
relating to the operation of the Business and the Chesapeake System;
k. all licenses, governmental authorizations, permits and all similar
rights and interests applied for, issued to or owned by Seller, or
used in the conduct of Seller's Business or the operation of the
Chesapeake System;
l. the right to receive rebates or marketing allowances payable to Seller
by vendors, suppliers or others;
m. such rights as Seller has to use all present telephone numbers from
and after the Closing (as defined in Paragraph 9 hereof);
n. all other tangible and intangible assets of Seller relating to and
used in connection with the Business or the Chesapeake System or the
performance of marketing services, development services, advertising,
publicity and training related thereto.
Hereinafter, all of the foregoing are referred to, in the aggregate, as the
"Purchased Assets." Possession of the Purchased Assets shall be delivered from
Seller to Purchaser at the Closing.
2. EXCLUDED ASSETS. Anything in this Agreement to the contrary
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notwithstanding, Purchaser shall not purchase, and shall have no rights or
obligations with respect to any furniture, fixtures, equipment (other than the
computer hardware described in Paragraph 1.a. above), or other assets, if any,
listed on Schedule 2 attached hereto and made a part hereof (collectively, the
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"Excluded Assets").
3. CONSIDERATION. As payment in full for the Purchased Assets,
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Purchaser agrees to deliver, subject to the terms of this Agreement and subject
to adjustment as provided for in Paragraph 4 below, for the
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account of Seller, an amount equal to Thirteen Million Seven Hundred Fifty
Thousand Dollars ($13,750,000) (hereinafter, referred to, as adjusted, as the
"Purchase Price"), payable as follows:
x. Xxxxxxx Money Deposit. Purchaser has received a refund of that certain
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xxxxxxx money deposit (the "Xxxxxxx Money Deposit") paid by Purchaser
to Wheat First Butcher Singer in the amount of One Hundred Thousand
Dollars ($100,000). Purchase shall retain the Xxxxxxx Money Deposit.
b. Escrow. The sum of Two Million Dollars ($2,000,000) shall be paid over
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to the Escrow Agent (hereinafter defined) to be held in accordance with
the terms of the Escrow Agreement described in Paragraph 6 below.
c. Development Fee. The sum of One Hundred Five Thousand ($105,000) shall
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be retained by Purchaser to be applied to the prepaid franchise fee
payable by Almike Enterprises, Inc., a corporation wholly-owned by the
Principals and their spouses ("Almike"), pursuant to the development
agreement attached hereto as Exhibit M.
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d. Wire Transfer. The sum of Nine Million Seven Hundred One Thousand
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Dollars ($9,701,000), representing the balance of the Purchase Price
less the adjustment to the Purchase Price provided for in Paragraph
4.a. below, shall be remitted by wire transfer to the account of Seller
specified to Purchaser on or before the Closing.
4. PURCHASE PRICE ADJUSTMENT. The Purchase Price shall be adjusted as
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follows:
a. The Purchase Price shall be reduced by an amount equal to the sum of
One Million Nine-Hundred Forty-four Thousand Dollars ($1,944,000)],
representing the agreed adjustment associated with deferred franchise
fee revenue and deferred franchise costs.
b. The Purchase Price shall be increased by the sum of One Million Dollars
($1,000,000) in the event at least three hundred (300) new units are
opened pursuant to commitments specifically listed in Seller's existing
franchise commitment pool (as set forth on Schedule 4(b) attached
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hereto and made a part hereof) (the "Existing Franchise Commitment
Pool") within five (5) years following the Closing Date (the
"Determination Date"). Purchaser shall pay such additional sum to
Seller within forty-five (45) days after the 300th unit has been
opened. The Purchase Price shall be increased by an additional Two
Million Five-Hundred Thousand Dollars ($2,500,000) in the event at
least four hundred (400) new units are opened pursuant to commitments
in the Existing Franchise Commitment Pool by the "Determination Date".
Purchaser shall pay such additional sum to Seller within forty-five
(45) days after the 400th unit has been opened. Any Units opened by
Almike pursuant to the Almike Agreements (as hereinafter described)
shall be excluded from the Existing Franchise Commitment Pool.
5. NO ASSUMPTION OF LIABILITIES. Except for (a) liabilities arising
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after the Closing Date under the Assumed Agreements, the Franchise Agreements
and the Development Agreements; (b) obligations of Seller arising prior to the
date hereof solely with respect to providing Franchisees (who are not in
default) with site selection assistance and training (to the extent required by
provisions of Franchise Agreements substantially similar to those set forth in
Sections 3 and 6 of the form Franchise Agreement, designated 03060001.ST8
(RO:122696) and attached hereto as Exhibit "F-1") in consideration for prepaid
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franchise fees; and (c) the Coupon Obligation (as defined, and to the extent
provided, in Paragraph 7.e. hereof), Purchaser does not, and shall not be deemed
to, assume any
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existing or future liabilities, debts, obligations, accounts payable, lease
obligations, contracts, warranties, or agreements of Seller that arise from,
relate to, or are based on occurrences, facts or circumstances prior to Closing,
regardless how such obligations may have arisen and regardless of disclosure of
such liabilities hereunder (hereinafter collectively referred to as the
"Retained Liabilities"), including without limitation (i) all obligations for
taxes (including taxes which are not due as of the Closing but are attributable
to any period prior to the Closing), (ii) indebtedness of Seller for borrowed
money, (iii) liabilities in connection with any litigation (including, but not
limited to, all claims of Franchisees arising out of circumstances existing
prior to the Closing or arising out of the operation of the National Advertising
Fund, as hereinafter described), (iv) liabilities for workers compensation,
product liability, environmental claims, tort liability or general liability,
personal injury or property damage; (v) liabilities regarding independent
contractors or employees of Seller, including, without limitation, liabilities
for vacation pay, sick pay, severance pay, profit-sharing or pension plans,
bonuses, or any other employee benefit or "fringe benefit" arrangement; and (vi)
liabilities under any contracts or agreements of Seller that are not Assumed
Agreements. Seller shall, contemporaneously with the consummation of the
transactions contemplated by this Agreement, absolutely and unconditionally pay,
or reserve for and pay when due, in full (or otherwise satisfy), all Retained
Liabilities (both current and contingent) and shall pay in full, and cause to be
released or satisfied prior to the Closing, all liens and encumbrances on the
Purchased Assets.
6. ESCROW. Purchaser and Seller, together with NationsBank, N.A. as
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escrow agent (the "Escrow Agent"), shall execute and deliver an escrow agreement
substantially in the form of Exhibit A attached hereto and made a part hereof
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(the "Escrow Agreement"), pursuant to the terms of which Purchaser shall deliver
to the Escrow Agent, for the account of Seller, Two Million Dollars ($2,000,000)
in accordance with Paragraph 3.c. hereof (collectively, the "Escrow Funds"), to
be held in an interest-bearing account in accordance with the terms and
conditions of the Escrow Agreement. The Escrow Funds shall secure the
indemnification obligations of Seller and the Principals as set forth herein and
specifically including, but not limited to, to Paragraph 19 below. The Escrow
Agreement will further provide that (i) thirty-three and one-third percent (33-
1/3%) of the Escrow Funds held by the Escrow Agent at the expiration of twelve
(12) months following the Closing Date (the "First Release Date") will be
released to Seller on the First Release Date, to the extent they exceed any
outstanding claims (as defined in the Escrow Agreement) as of such First Release
Date; (ii) fifty percent (50%) of the Escrow Funds held by the Escrow Agent at
the expiration of twenty-four (24) months following the Closing Date (the
"Second Release Date") will be released to Seller on the Second Release Date, to
the extent they exceed any outstanding claims (as defined in the Escrow
Agreement) as of such Second Release Date; (iii) the balance of the Escrow Funds
held by the Escrow Agent at the expiration of thirty-six (36) months following
the Closing Date (the "Third Release Date") will be released to Seller on the
Third Release Date, to the extent they exceed any outstanding claims (as defined
in the Escrow Agreement) as of such Third Release Date; and (iv) any Escrow
Funds not released on the Third Release Date shall be released to Seller as soon
thereafter as there are no claims outstanding as more particularly described in
the Escrow Agreement. Purchaser and Seller will share all expenses of the Escrow
Agent equally.
7. ADDITIONAL AGREEMENTS. At Closing:
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a. Restrictive Covenants. Seller, each Principal and Almike shall enter
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into a Confidentiality and Non-Competition Agreement in the form of
Exhibit "B" attached hereto and made a part hereof (the
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"Confidentiality and Non-Competition Agreement").
b. Consulting Agreements. Manstof, Xxxxxxxx and Xxxxx Xxxxxx will enter
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into agreements with Purchaser (the "Consulting Agreements") to
provide such consulting services at such times and at such locations
as may be mutually agreed upon, in good faith, between such
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individual and Purchaser with respect to the Purchased Assets, the
Franchisees, the Chesapeake System and the Business for a per diem cost
of Five Hundred Dollars ($500) per day (pro rated, based upon an eight-
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hour day, for any period of less than a full day) plus reasonable out
of pocket expenses actually incurred by such individual for a period of
up to twelve (12) months following the Closing Date. Each such
Consulting Agreement shall be substantially in the form of Exhibit "C"
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attached hereto and made a part hereof. In addition, each of said
individuals hereby agrees that he shall, at any time and from time to
time after the date of this Agreement, upon the reasonable request of
Purchaser, cooperate with Purchaser and, to the extent necessary,
provide to Purchase such additional materials as may be necessary to
assure that Purchaser's information and documentation related to the
Purchased Assets is complete and accurate in all material respects.
c. License to Use Office Facilities. Seller shall grant Purchaser the
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right to use the Premises, together with all furniture, fixtures,
equipment, telephone systems and supplies currently located thereat for
a period up to ninety (90) days following the Closing, at no cost to
Purchaser, pursuant to a License Agreement substantially in the form of
Exhibit "D" attached hereto and made a part hereof (the "License
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Agreement").
d. National Advertising Fund. Seller shall cause CBB National Advertising
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Fund, Inc. (the "National Advertising Fund") to pay all of its accounts
payable and other obligations (except the Coupon Obligation, as
hereinafter defined) with a view to exhausting the account balance
therein (except to the extent necessary to satisfy the Coupon
Obligation) by Closing. Should any funds remain in the National
Advertising Fund after the payment of such obligations, Seller shall
cause the assignment of such funds, together with an amount sufficient
to satisfy the Coupon Obligation, to an account to be established by
Purchaser for the benefit of the Franchisees (and for the benefit of
Purchaser to the extent of any operating units which may be owned by
Purchaser), together with all rights of Seller in and to any and all of
the assets of the National Advertising Fund held for the benefit of the
Franchisees or any other party having a beneficial interest therein,
including without limitation cash, accounts receivable, deposits,
advertising materials and rights to rebates, marketing and advertising
allowances, pursuant to an Assignment of National Advertising Fund
Assets in the form of Exhibit "E" attached hereto and made a part
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hereof (the "Assignment of Fund Assets"). Such assignment shall be free
of any liens, claims or encumbrances whatsoever and Seller and
Principals shall indemnify and hold harmless Purchaser from and against
any and all losses, damages, expenses or claims of any nature made by
any party with respect to such assigned assets.
e. Coupon Obligation. Seller and the Principals hereby represent and
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warrant that (i) the National Advertising Fund currently maintains an
account at Crestar Bank (the "Coupon Obligation Account"), with a
balance of $18,623.00, as of April 30, 1997; (ii) the only funds
deposited in the Coupon Obligation Account are amounts paid by
Franchisees to purchase coupons (the "Distributed Coupons") for
distribution to customers for redemption at Chesapeake Restaurants;
(iii) upon a Franchisee's redemption of any Distributed Coupon, the
Franchisee may submit the redeemed Distributed Coupon to the National
Advertising Fund and the National Advertising Fund has the obligation
(the "Coupon Obligation") to pay to the Franchisee the face amount of
such Distributed Coupon; and (iv) there are (and will be as of the
Closing Date) sufficient funds in the Coupon Obligation Account to
satisfy the Coupon Obligation with respect to all Distributed Coupons.
Accordingly, at the Closing, (i) Seller and the Principals shall cause
the National Advertising Fund to assign the balance in the Coupon
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Obligation Account (the "Coupon Account Balance") to Purchaser free of
any liens, claims or encumbrances whatsoever other than the Coupon
Obligations; (ii) Purchaser shall assume the Coupon Obligations, but
only to the extent of the Coupon Account Balance transferred; and (iii)
Seller and Principals shall indemnify and hold harmless Purchaser from
and against any and all losses, damages, expenses or claims of any
nature made by any party with respect to any Coupon Obligations in
excess of the Coupon Account Balance.
f. Development Agreement in Peru. Seller and Principals shall terminate,
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at no cost, expense or liability to Purchaser, the existing Development
Agreement between Seller and Xxxxxxxxx Xxxxx and Xxxxxx Xxxxxxx, dated
December 30, 1996, granting development rights in the country of Peru
(the "Peru Development Agreement"). Such termination shall be a
condition precedent to Closing.
x. Xxxx-Xxxx Design Associates, Inc. Contract. Seller and Purchaser hereby
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acknowledge, represent, warrant and agree that (i) Xxxx-Xxxx Design
Associates ("WD") has retained all rights to drawings, schedules,
specifications, and other materials (collectively the "Materials") in
connection with restaurant design services performed by WD pursuant to
that certain agreement executed May 3, 1996 (the "WD Contract"); (ii) a
true, correct and complete copy of the WD Contract has been furnished
by Seller to Purchaser prior to the Closing; (iii) Purchaser is not
assuming any obligations of Seller under the WD Contract; (iv)
Purchaser may avail itself of WD's services under the WD Contract for
any Chesapeake Restaurant provided that Purchaser pays (or causes the
applicable Franchisee to pay) to WD a fee in the amount of $333; and
(v) Seller shall pay the balance of the fees due to WD under the WD
Contract upon termination thereof, and simultaneously with such
payment, shall obtain from WD and assign to Purchaser all of WD's and
Seller's right, title and interest in and to the Materials.
8. ALLOCATION OF PURCHASE PRICE. The Purchase Price payable hereunder
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shall be allocated among the Purchased Assets and the Non-Competition and
Confidentiality Agreement in accordance with Schedule 8 attached hereto and made
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a part hereof, which allocations shall be used by Purchaser and Seller for
accounting, financial reporting, tax and all other purposes. The parties agree
that the Purchased Assets are being purchased and sold at their respective fair
market values, which are the values set forth on Schedule 8. These prices were
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arrived at by arm's length negotiation and properly reflect the respective fair
market values of such Purchased Assets. It is further agreed that such values
are binding on Purchaser and Seller for federal and state income tax reporting
purposes, and that Purchaser and Seller will prepare and file a Form 8594 with
their respective returns for the period in which this sale occurred, reflecting
the values set forth in Schedule 8 to this Agreement.
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9. CLOSING. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place on May 5, 1997 (the "Closing Date").
The Closing shall be held at the offices of Xxxxx Xxxxxxx Xxxxxx Xxxxxxx &
Xxxxxxxxx, P.C. in Atlanta, Georgia, at 10:00 a.m. on the Closing Date.
10. PROFESSIONAL FEES/BROKERS.
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a. Fees. Each party shall be responsible for its or his attorneys' fees,
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other professional fees and expenses incurred in connection with the
transactions contemplated by this Agreement.
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b. Brokers and Finders. Seller and the Principals, on the one hand, and
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Purchaser, on the other hand, shall be solely responsible for any and
all brokerage fees or finders' fees incurred by it or him which are
payable in connection with this transaction.
11. EXAMINATION.
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a. Prior to Closing. Seller and each of the Principals represents and
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agrees that Purchaser and Purchaser's representatives have been given,
prior to the date hereof, and will be given after the date hereof and
until Closing, full access to the books and records (including
electronic records) of Seller including, but not limited to, income tax
returns, sales and use tax returns, financial statements and related
materials, bank statements, invoices, accounts receivable, accounts
payable and Franchisee, Developer and supplier lists. In addition,
Seller shall permit Purchaser to copy, at Purchaser's expense, the
contents of all files maintained by Seller's attorneys, brokers or
other agents relating to the Franchisees, the Developers, the Purchased
Assets, the Chesapeake System, and the conduct of the Business prior to
the Closing.
b. After Closing. Seller and each of the Principals covenants and agrees
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that Purchaser and Purchaser's representatives shall be given, upon the
request of Purchaser at any time within the one (1) year period
following the Closing, copies of such financial records of the National
Advertising Fund as have been maintained by Seller and/or the National
Advertising Fund through Closing.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND THE
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PRINCIPALS. To induce Purchaser to enter into this Agreement and consummate the
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transactions contemplated hereunder, Seller, Xxxxxxxx and Manstof, jointly and
severally, hereby represent, warrant and covenant as of the date hereof, as
follows, which representations, warranties and covenants set forth herein shall
be true and correct on the Closing Date and shall survive the consummation of
the transactions hereunder for the period described in Paragraph 19.e. below:
a. Organization and Good Standing. Seller (i) is a corporation duly
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organized, validly existing and in good standing under the laws of the
State of Maryland; (ii) has all requisite corporate power and authority
to conduct its business and own, operate and lease its properties as
and in the places where such business is now conducted and such
properties are now owned, leased or operated; and (iii) is duly
qualified as a foreign corporation in all jurisdictions in which it
transacts business and in which failure to qualify would have a
material adverse effect on its business, financial condition or assets.
b. Seller-Corporate Power, Authority and Enforceability. Seller has full
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right, title and authority to sell, transfer and assign the Purchased
Assets, and, except as specifically disclosed on Schedule 12.b.
attached hereto and made a part hereof, there are no liens, claims,
charges, obligations or encumbrances whatsoever (including, without
limitation, taxes) against the Purchased Assets. All corporate action
on the part of Seller, its directors and shareholders, necessary for
(i) the authorization, execution, delivery and performance of the
Transaction Documents (as defined in Paragraph 18 below) by Seller;
(ii) the sale of the Purchased Assets to Purchaser; and (iii) the
performance of all of the obligations of Seller under the Transaction
Documents, has been duly and validly taken. This Agreement and each of
the other Transaction Documents to which Seller is a party, when
executed and delivered on behalf of
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Seller, shall constitute a valid and binding obligation of Seller,
enforceable against it in accordance with its terms.
c. Principals - Authority and Enforceability. Each of the Transaction
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Documents constitutes the valid obligation of each Principal, to the
extent he is a party thereto, is legally binding upon each of them and
is enforceable against each of them in accordance with their terms.
d. Financial Statements. Attached hereto as Schedule 12.d are copies of
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(i) Seller's audited financial statements (including balance sheet,
statement of operations and statement of cash flows) for the periods
ending December 31, 1996, December 31, 1995 and December 31, 1994; and
(ii) Seller's unaudited financial statements for the period ending
March 31, 1997 (hereinafter, such financial statements are referred
to, collectively, as the "Financial Statements", and the Financial
Statements dated as of March 31, 1997 are referred to as the "Current
Financial Statements"). The Financial Statements have been prepared
in accordance with GAAP (except for the Current Financial Statements,
which are subject to year-end audit and other normal or recurring
year-end adjustments and do not include deferred revenue and deferred
expense amounts) and in accordance with the books and records of
Seller. The Financial Statements are complete and correct in all
material respects. The Financial Statements accurately present the
financial condition and operating results of Seller as of the dates,
and during the periods, indicated therein. Since March 31, 1997,
there has not been any change in the assets, liabilities, financial
condition or operations of Seller from that reflected in its Financial
Statements, except changes in the ordinary course of business that
have not been, individually or in the aggregate, materially adverse.
Except to the extent reflected or reserved against or noted in
Financial Statements (including the Current Financial Statements),
Seller had, as of such date, no material liabilities or obligations
that would be required under GAAP to be included in the Financial
Statements (including the Current Financial Statements), including
without limitation tax liabilities, whether incurred in respect to or
measured by Seller's income for any period prior to the date of such
Current Financial Statements, or arising out of transactions entered
into, or any set of facts existing prior thereto. To the best
knowledge of Seller, there exists no basis for the assertion against
Seller, the Business or the Chesapeake System, as of the date hereof
or as of the date of the Current Financial Statements, of any material
liability of any nature or in any amount not fully reflected or
reserved against or noted in the Current Financial Statements. Seller
acknowledges that Purchaser is relying on Seller's Current Financial
Statements in connection with its determination that the transactions
contemplated herein do not require a filing under the Xxxx-Xxxxx-
Xxxxxx Antitrust Improvements Act based upon Seller's total assets, as
reflected on the Current Financial Statements, totaling less than Ten
Million Dollars ($10,000,000).
e. Taxes. Seller has filed or obtained extensions for all required
-----
Federal, state and local tax returns. Each return or report is true and
correct and all taxes, fees and other governmental charges reflected
thereon have been paid or accrued. There is not and there will not be
any liability for Federal, state or local income, sales, use, excise or
other taxes arising out of, attributable to, or affecting the Purchased
Assets or the conduct of the Business or the operation of the
Chesapeake System through the Closing Date, or attributable to the
conduct of the operations of Seller at any time prior to the Closing
Date, which has not been fully paid or reserved for on the Current
Balance Sheet. Seller is not presently under, nor has Seller received
notice of any contemplated, investigation or audit by the Internal
Revenue Service
9
or any state, local or other agency concerning any fiscal year or
period ended prior to the date hereof. Seller has never granted any
waiver of any statute of limitations with respect to, or any extension
of period for the assessment of, any taxes.
f. Proprietary Property. Schedule 1(b). is a true, correct and complete
-------------------- --------------
list of all Proprietary Property of Seller. All of such Proprietary
Property is (i) clean, merchantable and saleable or usable in the
normal course of business; (ii) located at the Premises; and (iii)
owned by Seller free and clear of any and all liens, claims, charges,
encumbrances or security interests in favor of others.
g. Franchise Fee Notes . Schedule 1(c) contains a true, correct and
-------------------- -------------
complete list of all Franchise Fee Notes, and except as set forth in
Schedule 12.q.v., such Franchise Fee Notes reflect all unpaid franchise
and license fees owed by franchisees as of the date hereof. All
Franchise Fee Notes are valid obligations of the respective debtors
without any claims, set-offs or defenses. Seller makes no warranty or
representation regarding the collectibility of the Franchise Fee Notes.
h. Accounts Receivable. Schedule 1(c) contains a true, substantially
------------------- -------------
correct and complete list of all Accounts Receivable of Seller. All
Accounts Receivable are valid obligations of the respective debtors.
Seller makes no warranty or representation regarding the collectibility
of the Accounts Receivable.
i. Purchased Assets. The Purchased Assets are the sole property of
----------------
Seller and in normal operating condition (ordinary wear and tear
excepted), free from any defects, damages or malfunction. If any of the
Purchased Assets are subject to a manufacturer's warranty or any
service agreement, Seller shall assign such warranty or service
agreement to Purchaser to the fullest extent permitted by the
manufacturer or service provider. Any prepayment of such contracts
shall be solely for the benefit of Purchaser.
j. No Violation. The execution, delivery and performance of this
------------
Agreement and the agreements contemplated in this Agreement do not and
will not violate the provisions of (i) the Articles of Incorporation or
Bylaws of Seller; (ii) any mortgage, indenture, security agreement,
contract, undertaking or other agreement to which Seller or either of
the Principals is a party or which is binding upon Seller or either of
the Principals or any of its or their property or assets; or (iii) any
law, regulation, judgment or order which is binding upon Seller or
either of the Principals, or any of its or their property or assets.
k. No Breach. Except as set forth on Schedule 12.p.ix and 12.q.viii.,
--------- -------------------------------
Seller is not is in breach of any, and has complied with and performed
all obligations under each, contract or agreement regarding the
Purchased Assets, in each case the breach of or noncompliance with
which would be likely to have a material adverse effect on the
Business. To Seller's knowledge, there is no basis for the assertion
against Seller or the Purchased Assets of any liens, claims, charges,
encumbrances, liabilities, debts or obligations, whether due or to
become due, including but not limited to liabilities or obligations on
account of taxes (including without limitation taxes arising out of
this transaction) or other governmental charges which would adversely
affect or cause a lien upon the Purchased Assets, or diminish the
rights to be acquired by Purchaser pursuant to this Agreement.
10
l. Compliance with Laws. Seller is, and has been at all times in the
--------------------
past, in material compliance with all laws, rules, ordinances,
governmental regulations and orders of all governmental authorities
and/or jurisdictions relating to the offer and sale of franchises and
the servicing and operation of a franchise system. Seller is, and has
been at all times during the immediately preceding two years, in
material compliance with all other laws, rules, ordinances,
governmental regulations and orders of all governmental authorities
and/or jurisdictions applicable to the conduct of the Business. The
laws, rules, ordinances, governmental regulations and orders described
herein are hereinafter referred to, collectively, as the "Applicable
Laws."
m. Consents and Approvals. No consent or approval of any other party
----------------------
(including without limitation any lending institution or any
governmental authority, bureau or agency) is required in connection
with the execution, delivery, performance, validity or enforceability
of this Agreement or the agreements contemplated by this Agreement,
other than consents or approvals which have been obtained and delivered
to Purchaser.
n. Actions and Proceedings. Except as disclosed on Schedule 12.n., there
----------------------- --------------
is no action, suit or proceeding pending or, to the knowledge of Seller
and the Principals, threatened against or affecting Seller, the
Principals, the Business or the Chesapeake System which would relate to
or affect, directly or indirectly, the business of Seller or the
Purchased Assets, before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, or which would have a material adverse effect on the Business,
the Purchased Assets, or the Chesapeake System or prevent the sale,
transfer and assignment of the Purchased Assets.
o. Proprietary Rights.
------------------
i. Attached hereto and made a part hereof as Schedule 12.o.i. is a
----------------
true, correct and complete list of all Marks and all Trademark
Registration Rights with respect thereto, including (a) the
jurisdictions, if any, by or in which such Marks are registered
or for which an application has been filed, (b) the registration
or application numbers, (c) the dates of any such registration or
application and (d) the dates that any affidavits of use or
renewals have been or are required to be filed. Except as
disclosed on Schedule 12.o.i, the Marks listed in Schedule
--------------- --------
12.o.i. constitute all of the trademarks, service marks, trade
-------
names, fictitious trade names, logos and slogans necessary for
the conduct of the Business as it is currently being conducted
and the operation of the Chesapeake System as it is currently
being operated. Nothing herein or in Schedule 12.0.i. shall be
----------------
construed to limit the transfer of unregistered common law Marks
and attendant goodwill, as provided in Paragraph 1.g. hereof,
which transfer shall be effective without an express inventory of
said common law Marks.
ii. Attached hereto and made a part hereof as Schedule 12.o.ii. is a
-----------------
true, correct and complete list of all materials in which Seller
claims Copyrights. None of such Copyrights are registered and no
application for registration has been filed with respect thereto.
The materials listed in Schedule 12.o.ii. constitute all of the
-----------------
Copyright materials necessary for the conduct of the Business as
it is currently
11
being conducted and the operation of the Chesapeake System as it
is currently being operated.
iii. Attached hereto and made a part hereof as Schedule 12.o.iii. is
------------------
a true, correct and complete list, by name or other commonly-used
description, of all Trade Secrets, There are no patents included
within the Trade Secrets. The Trade Secrets listed on Schedule
--------
12.o.iii, constitute all of the Trade Secrets which are currently
--------
being used in the conduct of the Business as it is currently
being conducted and the operation of the Chesapeake System as it
is currently being operated.
iv. Seller is the sole and exclusive owner of the Proprietary Rights,
free and clear of all liens, claims and encumbrances. Except for
the rights granted to franchisees or developers in the Franchise
Agreements and Development Agreements, Seller has sole and
exclusive rights to use, execute, reproduce, display, perform,
modify, enhance, distribute, prepare derivative works of, license
and transfer the Proprietary Rights; has not granted any options
or licenses or entered into any agreements of any kind relating
to the Proprietary Rights or the marketing and distribution
thereof; and the transfer to Purchaser, as contemplated herein,
will not result in the loss or impairment of any Proprietary
Right. All registrations and applications relating to the
Proprietary Rights are standing in the name of Seller.
v. Seller has not, as of and since the date upon which Seller
acquired the Proprietary Rights, (i) filed or authorized the
filing with the Assignment Division of the United States Patent
and Trademark Office ("PTO") or similar foreign office of any
lien, security interest or encumbrance against any registration
or application identified in Schedules 12.o.i, ii or iii; (ii)
---------------------------
authorized or filed any lien relating to Proprietary Rights under
the UCC or any similar foreign statute; (iii) entered into any
license, franchise or other agreement with respect to any of the
Proprietary Rights with any third person (except for the
Franchise Agreements listed on Schedule 1(d) and the Development
-------------
Agreements listed in Schedule 1(e)); (iii) otherwise transferred,
-------------
conveyed, sold, assigned, pledged, mortgaged, granted a security
interest in or encumbered any of the Proprietary Rights, or (iv)
entered into any settlement, consent, covenant not to xxx or
similar agreement with respect to any Proprietary Right.
vi. Seller has not received any notice to the effect that it is not
the sole owner of, or does not have the sole and exclusive right
to use, the Proprietary Rights.
vii. Except as disclosed on Schedules 12.o.i, ii. and iii, all
------------------------------
registrations and applications for the items on Schedules
---------
12.o.i., ii. and iii. are subsisting and in good standing, and
--------------------
the Proprietary Rights are valid and enforceable and no act or
omission has occurred which would adversely affect the validity
or enforceability of any Proprietary Rights. Except as disclosed
on Schedules 12.o.i, ii. and iii, Seller has taken all reasonable
-----------------------------
measures to maintain and enforce the Proprietary Rights and to
safeguard the secrecy of all Proprietary Rights which are
considered to be confidential information or trade secrets.
12
viii. Neither the conduct of the Business nor the operation of the
Chesapeake System, nor the use of any of the Proprietary Rights
therein, infringes upon, dilutes or constitutes an unauthorized
use of any proprietary rights owned or controlled by any third
party. Except as set forth in Schedule 12.n.. attached hereto,
--------------
there is no claim, suit, action or proceeding (a "Proprietary
Right Claim") pending or, to the knowledge of Seller, threatened
against Seller or against any Franchisee alleging that use of the
Proprietary Rights by Seller or its Franchisees infringes upon,
dilutes or constitutes an unauthorized use of the proprietary
rights of any third person, or alleging that Seller does not have
the valid right to use any Proprietary Right.
ix. Except as set forth in Schedule 12.n., to Seller's and the
--------------
Principals' knowledge, there are no existing infringements,
dilutions or unauthorized uses by any third party of any of the
Proprietary Rights, and Seller has no claim outstanding with
respect to prior infringements, dilutions or unauthorized uses.
x. There are no agreements which are included in, or relate to, the
Proprietary Rights.
xi. To Seller's knowledge, Seller currently licenses, or otherwise
has the legal right to use, all computer software that is
material to the conduct of the Business and the operation of the
Chesapeake System and all such computer software is being so used
in compliance with any applicable licenses.
xii. No former or current officer, employee or agent has any claim
against Seller in connection with such person's involvement in
the conception and development of any Proprietary Rights and no
such claim has been threatened or asserted. None of the current
officers or employees of Seller have any patents issued or
applications pending for any device, process, design or invention
of any kind now used or needed by Seller in connection with the
conduct of the Business or the operation of the Chesapeake
System, which patents or applications have not been assigned to
Seller, with such assignments duly recorded in the "PTO".
xiii. The word Xxxx "Chesapeake Bagel Bakery" has (a) been in
continuous use in interstate commerce as a service xxxx for
restaurant services since as early as November 1, 1983; and (b)
to Seller's knowledge, is registerable by Seller (and upon
assignment of such Xxxx to Purchaser will be registerable by
Purchaser) with the PTO on the Principal Register as a service
xxxx in International Class 42 for restaurant and bakery
services.
xiv. All Franchise Agreements give Seller and its successors and
assigns the right to control the quality of products and services
sold under the Marks and Seller has diligently exercised such
rights.
p. Franchise Agreements.
--------------------
i. Schedule 1(d) hereto includes a correct and complete list of all
-------------
Franchise Agreements (including master Franchise Agreements, if
any) and amendments or modifications thereto (oral or written)
that are in effect and have not been terminated as of the date of
this Agreement, indicating with respect to each
13
Franchise Agreement (a) the name of the Franchisee, (b) the
Chesapeake Restaurant number, (c) the Chesapeake Restaurant
address and (d) the commencement and termination dates of the
term of the Franchise Agreement.
ii. There are no outstanding applications to enter into Franchise
Agreements with Seller.
iii. Schedule 12.p.iii. hereto is a correct and complete list of (a)
-----------------
all addendums to Franchise Agreements or other agreements (verbal
or written) (collectively the "Express Agreements") entered into
between Seller and any Franchisee or other person or entity
authorizing such person or entity to develop and/or operate one
or more Express Chesapeake Restaurants ("Express Restaurants")
indicating with respect to each Express Agreement (x) the name of
the Franchisee, (y) the address and store number of the Express
Restaurant and (z) the Franchise Agreement and the store location
thereunder to which such Express Restaurant is associated; (b)
the term commencement and termination date of each such Express
Agreement and (c) all Express Restaurants opened as of the date
hereof whether pursuant to a written agreement or otherwise and
the locations thereof.
iv. Except as set forth on Schedule 12.p.iv., the forms of Franchise
----------------
Agreements attached hereto as Exhibits "F-1" through "F-9"
----------------------------
constitute all of the forms of franchise agreements used by
Seller in connection with the sale of franchises since January 1,
1994. The forms of Franchise Agreements attached hereto as
Exhibits "G -1" through "G-2" constitute all of the forms of
-----------------------------
express franchise agreements used by Seller in connection with
the sale of express Chesapeake Restaurant franchises.
v. Neither Seller nor either of the Principals has endeavored to
induce any applicant or potential applicant for a Franchise
Agreement to enter into a franchise agreement with any system
other than the Chesapeake System.
vi. Schedule 00.x.xx. specifies each Franchisee that is a party to
-----------------
any Franchise Agreement that (a) is in financial default under
such Franchise Agreement; (b) is the subject of a case under the
Bankruptcy Code or any other bankruptcy, insolvency, receivership
or similar case or proceeding under state or federal law, of
which Seller has been notified; or (c) to Seller's knowledge, is
otherwise in material violation of or default under any of the
terms of its Franchise Agreement. Schedule 12.q.v. further
----------------
specifies the date and contents of each default and/or
termination notice sent to any Franchisee since January 1, 1996
and the status of such default or termination notice.
vii. Seller has and had, at all relevant times and in all material
respects, the corporate power and authority and legal right to
(i) enter into and carry out the terms of each Franchise
Agreement; (ii) assign each Franchise Agreement to its successors
in interest; and (iii) assign to Purchaser each Franchise
Agreement without the consent of third parties (including without
limitation Franchisees), free and clear of all mortgages, liens,
security interests, pledges, guarantees, conditional sale
14
agreements, claims, charges, restrictions, options, commitments,
third party rights and other encumbrances.
viii. Each Franchise Agreement, and all agreements, instruments and
documents furnished pursuant to a Franchise Agreement comply in
all material respects with all federal and state laws (and rules
or regulations thereunder) and all orders, consents or decrees
from any federal or state administrative or regulatory agency; to
Seller's knowledge, each Franchise Agreement represents the
legal, valid and binding obligation of the Franchisee thereunder,
subject to any Franchisees' rights in bankruptcy, and is
enforceable against such Franchisee in accordance with its terms.
ix. Except as set forth on Schedule 12.p.ix., no Franchise Agreement
-----------------
listed on Schedule 1(d) has been subordinated, assigned,
-------------
rescinded, or terminated prior to its stated expiration date
without being reinstated within 90 days of such subordination,
assignment, rescission or termination; no provision regarding the
calculation and payment of royalty fees in any Franchise
Agreement has been waived, altered or modified in any material
respect adverse to the franchisor thereunder; no right of
rescission, set-off, counterclaim or defense in excess of One
Thousand Dollars ($1,000.00) has been asserted or, to Seller's
knowledge, threatened with respect to any Franchise Agreement;
Seller is not in material violation of or in default under any
term of any Franchise Agreement; and Seller has not waived any
default by a Franchisee which would materially adversely affect
any Franchise Agreement.
x. No Franchise Agreement was originated in, or is subject to, the
laws of any jurisdiction which would make the transfer and
assignment of such Franchise Agreement unlawful. Within ten (10)
days after the Closing Date all filings (including, without
limitation, UCC filings) and notices that must be made by Seller
in any relevant jurisdiction to transfer all right, title and
interest of Seller in the Franchise Agreements to Purchaser will
have been made.
xi. Seller does not own, lease or operate any Chesapeake Restaurants.
xii. Franchisor currently requires all Franchisees to maintain
insurance polices (the "Required Policies") with the coverage
described on Schedule 12.p.xii. attached hereto and made a part
-----------------
hereof. Based solely on information previously obtained from
insurance brokers, the Franchisees listed on Schedule 12.p.xii
-----------------
currently have the Required Policies in full force and effect and
have named Seller as an additional insured thereunder.
xiii. Schedule 12.p.xiii attached hereto (and to be updated and
------------------
supplemented as of the Closing) sets forth a complete list of (i)
all rebates, marketing and advertising allowances received by
Seller from suppliers, vendors or other persons (collectively
"Suppliers") since January 1, 1996; and (ii) the last date
through which all rebates, marketing and advertising allowances
which are paid on a quarterly basis have been paid. Except as
set forth in Schedule 12.p.xiii, all rebates received by Seller
------------------
prior to the date hereof from Suppliers have been contributed by
Seller to the National
15
Advertising Fund or have been paid directly from suppliers to
Franchisees. No claim of any nature has been made by any
Franchisee with respect to the application of such funds by
Seller.
xiv. Schedule 12.p.xiv. attached hereto sets forth a complete list of
------------------
all Franchise Agreements under which restaurants have been opened
and that have terminated by reason of the expiration of the term
thereof or otherwise. Except as set forth in Schedule 12.p.xiv,
-----------------
to Seller's knowledge, all Restaurants (the "Terminated
Restaurants") formerly governed by such terminated Franchise
Agreements are no longer operated as Chesapeake Restaurants; and
to the knowledge of Seller the operators of the Terminated
Restaurants (a) have ceased to use, by advertising or in any
manner whatsoever, any Proprietary Rights or other features of
the Chesapeake System, including, without limitation, recipes,
menus, equipment, methods, procedures, and techniques associated
with the Chesapeake System, in connection with the operation of
the Terminated Restaurants; and (b) have made all changes,
modifications or alterations to the Terminated Restaurant
premises necessary to eliminate any interior and exterior design
features, decor items, signage and other Trade Dress items
associated with the Chesapeake System. Except as set forth in
Schedule 12.p.xiv. all Chesapeake Restaurants are operating
------------------
pursuant to valid, binding and enforceable written Franchise
Agreements.
q. Development Agreements.
----------------------
i. Schedule 1(e) hereto is a correct and complete list of all
-------------
Development Agreements and amendments thereto in effect as of the
date of this Agreement, indicating with respect to each
Development Agreement (a) the name of the Developer; (b) the
territory in which the Developer is granted development rights
and whether that territory is exclusive; (c) the number of
Chesapeake Restaurants required to be developed pursuant to the
Development Agreement; and (d) the date of such Development
Agreement. Except as set forth on Schedule 1(e), all Development
-------------
Agreements and amendments thereto or modifications thereof are in
writing and there are no oral Development Agreements or oral
modifications or amendments to any Development Agreements.
ii. There are no outstanding applications to enter into Development
Agreements with Seller.
iii. Except as set forth on Schedule 12.q.iii, All of the form
-----------------
Development Agreements used by Seller in the Business are
attached to this Agreement as Exhibits "H-1" though "H-5".
---------------------------
iv. Neither Seller nor either of the Principals has endeavored to
induce any applicant or potential applicant for a Development
Agreement to enter into a development agreement with any system
other than the Chesapeake System.
v. Schedule 12.q.v. specifies each Developer that is a party to any
----------------
Development Agreement that (i) is not in material compliance with
the development schedule set
16
forth in such Developer's Development Agreement; (ii) is
otherwise in material violation or default of any of the terms of
such Development Agreement; or (iii) is the subject of a case
under the Bankruptcy Code or any other bankruptcy, insolvency,
receivership or similar case or proceeding under state or federal
law, of which Seller has been notified. Schedule 12.q.v. further
specifies, with respect to each Developer that is in default
under a Development Agreement, the date and contents of each
default and/or termination notice, if any, sent to such Developer
since January 1, 1996, and the status of such default or
termination notice.
vi. Seller has and had, at all relevant times and in all material
respects, the corporate power and authority and legal right to
(i) enter into and carry out the terms of each Development
Agreement, (ii) assign each Development Agreement to its
successors in interest, and (iii) assign to Purchaser each
Development Agreement without the consent of third parties
(including without limitation the Developers), free and clear of
all mortgages, liens, security interests, pledges, guarantees,
conditional sale agreements, claims, charges, restrictions,
options, commitments, third party rights and other encumbrances.
vii. Each Development Agreement complies in all material respects with
all federal and state laws (and rules or regulations thereunder)
and all orders, consents or decrees from any federal or state
administrative or regulatory agency; to Seller's knowledge, each
Development Agreement represents the legal, valid and binding
obligation of the Developer thereunder, subject to any
Developer's rights in bankruptcy, and is enforceable against such
Developer in accordance with its terms.
viii. Except as set forth on Schedule 12.q.viii., no development
-------------------
schedule in any Development Agreement listed on Schedule 1(e) has
-------------
been waived, altered or modified in any respect; and Seller is
not in material violation of or in material default under any
term of a Development Agreement.
.
ix. No Development Agreement was originated in, or is subject to, the
laws of any jurisdiction which would make the transfer and
assignment of such Development Agreement unlawful. Within ten
(10) days of the Closing Date all filings (including, without
limitation, UCC filings) and notices that must be made by Seller
in any relevant jurisdiction to transfer all right, title and
interest of Seller in the Development Agreements to Purchaser
will have been made.
r. National Advertising Fund.
-------------------------
i. Schedule 12.r.i. attached hereto and made a part hereof, contains
----------------
a correct and complete list of all accounts (the "Ad Fund
Accounts") in which funds have been deposited as of the date of
this Agreement. All assets of the National Advertising Fund are,
as of the date of this Agreement, and shall be, as of the Closing
Date, deposited in the Ad Fund Accounts. No monies, other than
Franchisees' contributions to the National Advertising Fund and
supplier rebates, marketing and advertising allowances have been
deposited in the Ad Fund Accounts.
17
ii. All contributions to the National Advertising Fund made by
Franchisees, Suppliers or any other person or entity have been
deposited in the Ad Fund Accounts and used solely for purposes of
marketing and advertising Chesapeake Restaurants on behalf, and
for the benefit, of all of the Franchisees.
iii. Seller has neither possession of nor control over any other
funds contributed by Franchisees, Suppliers or any other person
or entity for advertising purposes (national or regional), except
the funds in the Ad Fund Accounts. Seller has not collected and
is not currently holding any fees designated for use in any
advertising program whether related to the National Advertising
Fund or otherwise.
iv. Seller has operated and administered the National Advertising
Fund in material compliance with laws, rules and regulations
applicable thereto and in accordance with its fiduciary and legal
responsibilities established in any governing documents of the
National Advertising Fund and in any other agreements or
understandings entered into with franchisees, suppliers, vendors
or others in connection therewith. As of the date hereof the
National Advertising Fund has no material liabilities or
obligations (other than trade payables) of any nature, whether
accrued, absolute, contingent or otherwise, including without
limitation tax liabilities. To Seller's knowledge, there exists
no basis for the assertion against the National Advertising Fund,
as of the date hereof or as of the Closing Date, of any material
liability of any nature or in any amount.
s. Regional Cooperatives. Schedule 12.s. attached hereto contains a
--------------------- ---------------
complete and correct list of all regional advertising cooperatives
currently in existence and the addresses and owners of the Chesapeake
Restaurants that participate in each such cooperative.
t. Franchise Matters/UFOC.
----------------------
i. Schedule 12.t.i. sets forth a true and complete list of (a) all
----------------
states in which Seller is, as of the date of this Agreement,
registered to sell Chesapeake Bagel Bakery franchises; (b) all
states in which Seller has received an official notice from the
appropriate state officials that Seller's offer to sell and the
sale of its franchises are exempt from the registration
provisions of such jurisdiction's franchise registration law; and
(c) all other states in which Seller has offered to sell or has
sold its franchises based upon a claimed exemption from the
registration provisions of such state's applicable franchise
registration laws. True and correct copies of all notices of
registrations and all notices of exemption, as described in
clauses (a) and (b) above, have been furnished to Purchaser, and
such registration and exemption notices are in full force and
effect as of the date hereof except as set forth in Schedule
--------
12.t.i..
-------
ii. Seller has delivered to Purchaser true and correct copies of
Seller's Uniform Franchise Offering Circulars ("UFOCs"), which
are currently being used in connection with the offers to sell
and the sales of its franchises. The UFOCS, and all UFOC's
heretofore used by Seller (a) comply in all material respects
with all applicable federal and state laws and regulations
pertaining to offers to sell and the sale of franchises,
including, without limitation the Federal Trade Commission's
18
Disclosure Rule entitled "Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity
Ventures", 16 C.F.R. (S)436; and (b) do 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.
u. Material Agreements. Except as disclosed in Schedule 12.u. attached
------------------- --------------
hereto, and except as set forth below, neither Seller nor the Business
is a party to (in its own name or as successor in interest), or bound
by, any written or oral (i) contract or commitment involving any profit
sharing, pension, bonus, percentage compensation, stock option or
warrants, sick pay, vacation pay, severance pay, health care or other
"fringe benefit" arrangement which shall be binding upon or assumed by
Purchaser after the Closing; (ii) lease or sublease with respect to any
property real, personal or mixed, in which Seller, the Business or the
Chesapeake System is involved as either lessor, lessee, sublessor or
sublessee; (iii) contract or commitment involving an obligation of
Seller, the Business or the Chesapeake System of more than Ten Thousand
Dollars ($10,000.00) during any twelve (12) month period; (iv) contract
or commitment under which Seller has assumed, guaranteed, endorsed or
otherwise become liable in connection with the obligation of any
person, firm or corporation; (v) contract or commitment involving any
loan or financing arrangement; (vi) barter or other trade or exchange
arrangement; (vii) contract or other arrangement or understanding not
included above which (1) was not made in the ordinary course of the
business; or (2) is material to the operation of the business; or
(viii) contract with any labor union.
Unless specifically assumed by Purchaser hereunder, no such obligations
shall be binding upon Purchaser nor shall they create any lien, claim
or encumbrance against the Purchased Assets as a result of the
consummation of the transactions described herein.
v. Records. At Closing, Seller will deliver to Purchaser (as part of the
-------
delivery of its computer systems and computers), a true, correct and
complete copy of all electronic and written records relating to its
Franchisees, Developers and Suppliers.
w. Licenses. Schedule 12.w. attached hereto and made a part hereof
-------- --------------
contains a complete listing of all governmental or regulatory licenses,
permits and authorizations held by Seller (collectively, the
"Licenses"). The Licenses are all in full force and effect and
constitute all of the Licenses necessary to conduct the Business as it
is now being conducted and operate the Chesapeake System as it is now
being operated, and none of such Licenses will be impaired as a result
of the transactions contemplated by this Agreement. Seller has not
received any notice to the effect that it is not in compliance with, or
that it is in violation of, any such Licenses and to Seller's knowledge
there are not currently existing circumstances that are likely to
result in a failure of Seller to comply with, or in a violation by
Seller of, any such Licenses.
x. Employees and Labor Matters. Schedule 12.x. attached hereto and made
--------------------------- --------------
a part hereof is a list of (i) all employees (part-time and full-time)
of Seller; (ii) the rate of compensation payable to each such employee;
and (iii) the accrued vacation pay and other severance benefits to be
paid by Seller to each employee listed on Schedule 12.x. Except as set
--------------
forth on Schedule 12.x., Seller has made no promise or commitment,
--------------
whether oral or in writing, to increase any employee's compensation or
grant any bonus to any employee.
19
Seller is not a party to nor has any obligations under any agreement,
collective bargaining or otherwise, with any party regarding the rates
of pay or working conditions of any of its employees. Seller is not
obligated under any agreement to recognize or bargain with any labor
organization or union on behalf of its employees. There is not now any
formal organization activity among any of the employees of Seller, nor,
within the preceding two (2) years, has Seller been charged with, or
received notice of any threatened action with respect to, any unfair
labor practice.
Seller has reasonably satisfactory labor relations with its employees,
has not, within the preceding two (2) years, experienced a material
labor dispute and, in its reasonable opinion, employs or retains
sufficient qualified personnel for the efficient conduct of all
existing operations.
Seller has complied in all material respects with all applicable
federal and state laws and regulations concerning the employer/employee
relationship and with all of its respective agreements relating to the
employment of its employees, including without limitation provisions
thereof relating to wages, bonuses, hours of work and payment of Social
Security and other withholding taxes.
y. Interest in Franchisees, Developers, Suppliers, Chesapeake Restaurants
----------------------------------------------------------------------
and Competitors. Other than Almike, neither Seller nor any Principal
---------------
nor any Principal's spouse or immediate family members, nor to the best
knowledge and belief of Seller and each Principal, any officer,
director or employee of any Seller or any spouse or other relative of
any of them, has any direct or indirect interest in any franchisee,
developer, supplier or competitor of Seller or in any Chesapeake
Restaurant or any person from whom or to whom Seller leases any real or
personal property, or in any other person with whom Seller is doing
business, whether in existence as of the date hereof or proposed, other
than the ownership of stock of publicly traded corporations which does
not exceed one percent (1%) of the issued and outstanding stock of any
such corporation.
z. Benefit Plans. The employee benefit plans and agreements described on
-------------
Schedule 12.z. attached hereto and made a part hereof are the only
--------------
employee benefit plans and agreements maintained by Seller for the
benefit of its shareholders, officers, directors, employees or
independent contractors, including without limitation (i) any
affirmative action plans or programs; (ii) current and deferred
compensation, pension, profit sharing, severance, vacation, stock
purchase, stock option, bonus and incentive compensation benefits and
other employee benefit plans (as defined in Title I, Subtitle A,
Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA")) for such shareholders, employees, directors, agents and
independent contractors; and (iii) the medical, hospital, life, health,
accident, disability, death and other fringe and welfare benefits for
such shareholders, employees, directors, agents and independent
contractors, including any split-dollar life insurance policies, all of
which plans, programs, practices, policies and other individual and
group arrangements and agreements, including any unwritten
compensation, fringe benefit, payroll or employment practices,
procedures or policies of any kind or description are hereinafter
referred to as "Benefit Programs and Employment Policies." Except as
disclosed on Schedule 12.z., there are no contributions or payments due
--------------
with respect to any of the Benefit Programs and Employment Policies.
Except as disclosed on Schedule 12.z., Seller and each Benefit Program
---------------
and Employment Policy are or will be, within the time permitted by law,
in
20
compliance, in all material respects, with the provisions of ERISA and
the Internal Revenue Code of 1986, as amended (the "Code") applicable
to it. No Benefit Program or Employment Policy which is subject to the
minimum funding standards of ERISA or the Code, if any, has incurred
any material accumulated funding deficiency within the meaning of ERISA
or the Code. Seller has not incurred any liability to the Pension
Benefit Guaranty Corporation in connection with any Benefit Program or
Employment Policy which is subject to Title IV of ERISA, if any. Except
as disclosed on Schedule 12.z., the assets of each Benefit Program and
--------------
Employment Policy that are subject to Title IV of ERISA, if any, are
sufficient to provide the benefits under such Benefit Program or
Employment Policy which the Pension Benefit Guaranty Corporation would
guarantee the payment thereof if such Benefit Program or Employment
Policy terminated, and are also sufficient to provide all other
benefits due under the Benefit Program or Employment Policy. No event
which constitutes a "reportable event" as defined in Section 4043 of
ERISA has occurred and is continuing with respect to any Benefit
Program or Employment Policy covered by ERISA.
Seller has not failed at any time, within the past two (2) years, to
provide to the extent required by law, continuation coverage with
respect to group health coverage to any former employee under the
Consolidated Omnibus Budget Reconciliation Act of 1985, or any laws of
any state to which Seller is subject.
aa. Environmental Compliance.
------------------------
i. Seller is not in violation of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters,
including, without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as
amended ("CERCLA"), the Superfund Amendments and Reauthorization
Act of 1986 ("XXXX"), the Federal Water Pollution Control Act,
the Toxic Substances Control Act or any state or local statute,
regulation, ordinance, order or decree relating to health, safety
or the environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the business,
assets or financial condition of Seller.
ii. Seller has not received notice that it has been identified by the
United States Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 000 Xxxxxxxx X
(1986); nor has Seller received any notification that any
hazardous waste, as defined by 42 U.S.C. (S)9601(14), any
"pollutant or contaminant" as defined by 42 U.S.C (S)9601(33) and
any toxic substance, hazardous materials, oil, or other chemicals
or substances regulated by any Environmental Laws ("Hazardous
Substances") which it has disposed of has been found at any site
at which a federal or state agency is conducting a remedial
investigation or other action pursuant to any Environmental Law.
iii. Seller has not, in the conduct of the Business, handled,
processed, stored or disposed of Hazardous Substances; in the
course of its activities, Seller has not generated, nor is it
generating, any hazardous waste; there have been no releases
(i.e., any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying,
21
discharging, injecting, escaping, leaching, disposing or dumping)
of Hazardous Substances by Seller on, upon, or into any property
used by it, which releases would have a material adverse effect
on the value of such property.
bb. Further Assurances. Seller shall, at any time and from time to time
------------------
after the date of this Agreement, upon the reasonable request of
Purchaser, and the Principals shall cause Seller to, execute,
acknowledge and deliver, or cause to be executed, acknowledged and
delivered, all such further documents as may be required to confirm (i)
the title of the Purchased Assets sold, transferred and assigned to
Purchaser; (ii) the possession by Purchaser of the property hereby
purchased by it; and (iii) the right of Purchaser to conduct the
Business.
cc. Brokers and Finders. Other than Wheat First Butcher Singer, who has
-------------------
been employed by Seller, neither Seller nor any Principal has employed
any investment banker, broker, agent or finder or incurred any
liability for any investment banking fees, brokerage fees, agent's
commissions or finder's fees concerning the transactions contemplated
hereby.
dd. Equipment Lessors. Purchaser shall have no liability to any lessor of
-----------------
equipment for acts or events, including without limitation any damage
to such items, occurring prior to the Closing Date or, except for
Assumed Agreements, after the Closing Date.
ee. No Material Adverse Changes. Except as set forth on Schedule 00.xx.
--------------------------- ---------------
attached hereto, since January 1, 1997, there has not been (i) any
transaction or transactions by Seller which, either individually or in
the aggregate, are materially adverse; (ii) any change in the
financial condition, operations, properties or assets of the Business
or the Chesapeake System, except changes in the ordinary course of
business, none of which have been, individually or in the aggregate,
materially adverse; (iii) any damage or destruction to, or loss of,
any material assets of Seller; (iv) any mortgage, pledge, grant of a
security interest or other encumbrance of any tangible assets of
Seller; (v) with respect to Seller, any material contract canceled or
any notice received with respect to any such contract terminating or
threatening termination of any such contract; or (vii) any material
adverse change in the gross sales or gross profits of Seller.
ff. Products Liability and Warranties. There are no product liability,
---------------------------------
warranty claims or other claims existing or, to the best knowledge and
belief of Seller and the Principals, threatened against Seller which
relate to the products sold or distributed by Seller or, to the best
knowledge of Seller and the Principals, any Franchisees.
gg. Suppliers. Schedule 00.xx. attached hereto and made a part hereof
--------- ----------------
sets forth a true, correct and complete list of each Supplier who has
furnished Proprietary Property or other merchandise to Seller or, to
the knowledge of Seller, the Franchisees at any time since January 1,
1996. Except as set forth on Schedule 00.xx., no Supplier is a sole
------
source of supply of any good or service used by Seller or, to Seller's
knowledge, the Franchisees. None of the Suppliers has canceled or
otherwise terminated, or threatened in writing to cancel or otherwise
terminate its relationship with Seller or, to Seller's knowledge, any
Franchisee, since January 1, 1996, decreased materially, or threatened
to decrease or limit materially, its services, supplies or materials to
Seller or, to Seller's knowledge any Franchisees. Except as set forth
on Schedule 00.xx., Seller has no list of approved suppliers (i.e.
---------------
suppliers endorsed by Seller for use by Franchisees) or designated
suppliers (i.e. suppliers required to be used by Franchisees for the
purchase of certain designated items).
22
hh. Disclosure. No representation or warranty by Seller or by any of the
----------
Principals contained in this Agreement, nor any statement, certificate,
schedule or exhibit hereto furnished by or on behalf of Seller or such
Principal pursuant to this Agreement, contains or shall contain any
untrue statement of material fact or omits or shall omit a material
fact necessary to make the statement contained therein not misleading.
ii. Exhibits. All Exhibits prepared by or on behalf of Seller and the
--------
Principals are attached hereto and made a part hereof and are true,
correct and complete. Seller and the Principals have delivered to
Purchaser, prior to the date hereof, a true, correct and complete copy
of all Exhibits (and attachments thereto) required to be delivered by
them pursuant to this Agreement.
jj. Knowledge of Seller. Whenever used herein, the term "knowledge of
-------------------
Seller" or "Seller's knowledge" shall be deemed to include the
knowledge of each Principal, Xxxxx Xxxxxx, Xxxxx Xxx, and each employee
of Seller.
13. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
-------------------------------------------
represents and warrants as follows, which representations, warranties and
covenants set forth herein shall be true and correct on the Closing Date and
shall survive the consummation of the transactions hereunder for the period
described in Paragraph 20.e. below:
a. Organization and Good Standing. Purchaser is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
State of Minnesota.
b. Corporate Authority. Purchaser has taken all necessary corporate
-------------------
action to authorize the execution, delivery and performance of the
Transaction Documents to which Purchaser is a party, and Purchaser has
the power to make, deliver and perform Purchaser's obligations under
the Transaction Documents.
c. Enforceability. The Transaction Documents, when executed, will
--------------
constitute the valid obligation of Purchaser, legally binding upon it
and enforceable against it in accordance with their respective terms.
d. Consents. No consent or approval of any other party, including, but
--------
not limited to, any lending institution or any governmental authority,
bureau or agency, is required in connection with the execution,
delivery, performance, validity and enforceability of this Agreement
which has not been obtained.
e. Officer Authority. The undersigned officers of Purchaser are duly
-----------------
authorized and empowered to execute and attest the Transaction
Documents for and on behalf of the Corporation.
f. No Violation. The execution, delivery, and performance of the
------------
Transaction Documents will not violate the provisions of (i)
Purchaser's articles of incorporation or by-laws, (ii) any mortgage,
indenture, security agreement, contract, undertaking or other
agreement to which Purchaser is a party or which is binding upon
Purchaser or any of its property or assets; or (iii) any law,
regulation, judgment or order which is binding upon Purchaser or any
of its property or assets.
23
g. Disclosure. No representation or warranty by Purchaser contained in
----------
this Agreement, nor any statement, certificate, schedule or exhibit
hereto furnished or to be furnished by or on behalf of Purchaser
pursuant to this Agreement, nor any document or certificate delivered
to Seller pursuant to this Agreement or in connection with the
transactions contemplated hereby, contains or shall contain any untrue
statement of material fact or omits or shall omit a material fact
necessary to make the statement contained therein not misleading.
h. Purchaser's Due Diligence. At the Closing, Purchaser shall have
-------------------------
delivered to Seller a certificate (the "Due Diligence Certificate") to
the effect that: (i) Purchaser and its employees, agents and accounting
and legal representatives have been afforded reasonable access to the
books, records, key personnel, facilities and other things reasonably
related to the Purchased Assets and the Business; (ii) Purchaser and
its employees, agents and accounting and legal representatives have
been given a reasonable opportunity to ask questions relating to the
Purchased Assets and the Business and to receive answers thereto; (iii)
Purchaser has completed its business, accounting and legal due
diligence review of the Purchased Assets and the Business; and (iv) in
completing the transactions contemplated in accordance with this
Agreement, Purchaser has not and is not relying on representations and
warranties of Seller which are not expressly stated in this Agreement;
provided, however, that notwithstanding the investigation conducted by
Purchaser and any knowledge of facts determined or determinable by the
Purchaser pursuant to such investigation, Purchaser has the right to
rely upon the representations, warranties, covenants and agreements of
Seller and Principals contained in this Agreement except to the extent
that (i) Purchaser had, prior to Closing, actual knowledge of Seller's
and the Principals' breach of any such representation or warranty; (ii)
neither Seller nor either of the Principals had knowledge of such
breach ; and (iii) Purchaser intentionally withheld such knowledge from
Seller and the Principals. For purposes of the foregoing, (i)
Purchaser's knowledge shall be deemed to include the knowledge of only
Xxxxxxx X. Xxxxxx, Xxxxx Xxxxxx and Xx Xxxxxx, and (ii) Seller's
knowledge shall be deemed to include the knowledge of the persons named
in Section 12.kk. hereof.
i. Nondisparagement. Purchaser will not make, and will use its reasonable
----------------
efforts to prevent its officers, directors, employees or agents from
making, any statement that disparages or reflects adversely upon or
impugns the Principals or Seller or any of Seller's officers, directors
or employees, except for factual disclosures made in connection with
any claims of third parties or legal proceedings. In addition,
Purchaser will not advise, and will use its reasonable efforts to
prevent its officers, directors, employees or agents from advising, any
franchisee or other third party to assert any claim against Seller of
the Principals or suggest that Seller or the Principals have assets
which may be available to satisfy the claims of franchisees or other
third parties, except for factual disclosures made in connection with
any claims of third parties or legal proceedings.
14. COMPLIANCE WITH THE BULK TRANSFER PROVISIONS OF THE UNIFORM
-----------------------------------------------------------
COMMERCIAL CODE. Seller and Purchaser hereby acknowledge and agree that, to
---------------
expedite the closing of the transactions pursuant to this Agreement, Purchaser
shall be under no obligation to comply with any applicable Bulk Transfer
provisions of the Uniform Commercial Code as adopted in the states of Maryland
and Virginia. Seller shall pay all of its accounts payable and Seller and
Principals shall, jointly and severally, indemnify and hold harmless Purchaser,
upon demand, from and against any and all liability incurred by Purchaser by
reason of Seller's failure to pay any accounts payable or by reason of the
failure of Purchaser to conform to the requirements of such Bulk
24
Transfer provisions. Seller and the Principals acknowledge that the
representations and covenants made herein have been made with the express
purpose of inducing Purchaser to waive compliance with such Bulk Transfer
provisions.
15. PRE-CLOSING COVENANTS REGARDING SELLER. Seller and each Principal
--------------------------------------
covenant that between the date hereof and the Closing, Seller shall, and each
such Principal shall cause Seller to:
a. Conduct of Business/Operation of Chesapeake System. Carry on the
--------------------------------------------------
Business and operate the Chesapeake System in the ordinary course in
substantially the same manner as they were carried on and operated
prior to the execution of this Agreement (including, without
limitation, operating in accordance with current budgets, expansion
plans, capital expenditure plans and the like and retaining and
handling all cash and cash equivalents in a manner consistent with
prior practices) and, to the extent consistent therewith, use all
reasonable efforts, in good faith, to preserve its relationship with
franchisees, developers, suppliers and others having business dealings
with it to the end that such Business, as a going concern, and the
Chesapeake System shall be unimpaired at the Closing;
b. Obligations. Perform all of its obligations under all agreements,
-----------
contracts and instruments relating to or affecting the Purchased
Assets, Business or the Chesapeake System;
c. Compliance. Comply in all material respects with all Applicable Laws;
----------
d. Other Agreements. Not enter into or assume any agreement, contract
----------------
or commitment disposing of or altering any of the Purchased Assets or
the ability of Seller to convey same;
e. Maintain Property. Maintain, at its sole expense, all of its property
-----------------
in customary repair, order and condition, reasonable wear and use and
damage by fire or unavoidable casualty excepted;
f. No Contracts or Commitments. Not enter into any contract relating to
---------------------------
the Business or the Chesapeake System extending beyond the date of the
Closing without Purchaser's written approval, including without
limitation Franchise Agreements and Development Agreements;
g. No Borrowings. Not assume, guarantee, endorse or otherwise become
-------------
responsible, directly or indirectly, for the obligations of any other
individual, firm or corporation, except as may be approved in writing
by Purchaser;
h. Compensation and Bonuses. Not increase the formula in the
------------------------
compensation payable or to become payable to any officers, or make any
bonus payment or arrangement to or with any officer, except for the
formula as existed during Seller's last fiscal or calendar year;
i. Maintain Books. Continue to maintain its books of account and records
--------------
in the usual, regular and ordinary manner;
j. Distributions. Make no distributions of cash or other property (other
-------------
than to pay normal operating expenses or income tax liabilities of the
Principals attributable to the inclusion in their taxable income of the
taxable income of Seller ) to the Principals or any other party without
the prior written consent of Purchaser;
25
k. Maintain Insurance. Maintain insurance upon all its properties and
------------------
with respect to the conduct of its business in at least such amounts
and of such kinds as were maintained as of the date of this Agreement;
l. No Sale of Assets. Not sell, dispose of or encumber, directly or
-----------------
indirectly, any of its assets or engage in any activity or transaction,
except in the ordinary course of business;
m. No Mortgages. Not subject any of its assets to any mortgage, pledge or
------------
lien;
n. No Modification of Contracts. Not modify, amend, cancel or terminate
----------------------------
any existing agreement or arrangement relating to its business, except
in the ordinary course of its business and not enter into any
transaction involving the exchange of ownership of any retail units
operated by Franchisees for retail units currently operated by any
other entity or under any other name;
o. Litigation, Etc. Promptly notify Purchaser in writing of any
----------------
judgments, orders or decrees entered or any suits, actions, claims,
administrative proceedings or labor negotiations instituted, threatened
or asserted by or against Seller, after the date of this Agreement and
before the Closing, which have or may reasonably be expected to have a
materially adverse effect on Seller or Purchased Assets; and
p. Notice of Changes. Promptly advise Purchaser in writing of any
-----------------
material adverse change in the financial condition, operation,
business, properties or prospects of Seller relative to the Purchased
Assets, the Business, the Chesapeake System.
16. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The following shall
------------------------------------------------
constitute conditions precedent to Purchaser's obligations to consummate the
transactions contemplated herein, and the failure of any such condition to be
satisfied within thirty (30) days of the date of this Agreement shall give
Purchaser the option of terminating this Agreement:
a. Representations and Warranties. The representations and warranties of
------------------------------
Seller and the Principals contained herein shall be true and correct in
all material respects as of Closing; Seller and the Principals shall
have complied with, performed or satisfied all agreements, covenants
and conditions required by this Agreement to be complied with,
performed or satisfied by them at or prior to Closing; and, Seller and
the Principals shall have delivered to Purchaser a certificate to such
effect.
b. Legal Opinion. Purchaser shall have received the favorable legal
-------------
opinion of Xxxxxxxxx Xxxxxxx Xxxxx & Xxxxxxxx LLP, counsel for Seller
and the Principals, dated as of the Closing Date, in substantially the
form attached hereto as Exhibit "I".
-----------
c. Absence of Changes. Since the date of this Agreement there shall not
------------------
have occurred any material adverse change in the condition (financial
or otherwise), business, properties, assets or prospects of Seller.
d. Approvals. All actions, proceedings, instruments and documents required
---------
to carry out this Agreement, or incidental thereto, and all other
related legal matters, shall have been approved by counsel for
Purchaser, which approval shall not be unreasonably withheld.
26
e. Actions. No action, suit or proceeding shall have been instituted
-------
before a court or governmental body, or instituted or threatened by any
governmental agency or body, to restrain or prevent the carrying out of
the transactions contemplated hereby, which shall not have been
disposed of to the satisfaction of Purchaser.
f. Agreements. Seller and each Principal shall have entered into the Non-
----------
Competition and Confidentiality Agreement.
g. Consents. Purchaser shall have received written consents to the
--------
transfer or assignment to Purchaser of the two agreements referred to
in Section 1(f).
h. Employees. Seller shall have terminated the employment of those of its
---------
employees designated by Purchaser at the Closing whom Purchaser intends
to hire following the Closing on a permanent or temporary basis;
provided, however, that nothing herein shall be construed to grant any
employee of Seller any right to employment by Purchaser.
i. Consulting Agreements. Each of Manstof, Xxxxxxxx and Xxxxx Xxxxxx
---------------------
shall have executed and delivered a Consulting Agreement.
j. Release of Liens. All liens and encumbrances listed on Schedule 12.b.
---------------- --------------
shall have been satisfied in full and released (except for liens on
equipment which is not part of the Purchased Assets).
k. Franchise and Development Agreements. Seller and Almike and, where
------------------------------------
indicated, Purchaser shall have entered into the following Agreements
(the "Almike Agreements"):
i. Seller's standard franchise agreement for each of the eight (8)
Chesapeake Restaurants currently operated by the Principals, as
well as the Washington National Airport location contemplated to
be opened in July 1997 (collectively the "Existing Almike
Units"), in the form of Exhibit L attached hereto and made a part
---------
hereof granting to Almike the right to operate each of the
Existing Almike Units as Chesapeake Restaurants for a period of
ten (10) years from the Closing Date on the terms and conditions
set forth therein. Such franchise agreement shall be transferred
to Purchaser as part of the Purchased Assets simultaneously with
the closing of the transactions contemplated herein. Such
franchise agreement shall contain a provision requiring Almike to
enter into, within thirty (30) days of receipt of notice from
Purchaser, the standard franchise agreement to be developed by
Purchaser after the Closing for the Franchisees so long as the
term and the economic provisions thereof are not changed.
ii. Seller's standard development agreement granting to Almike the
right to develop ten (10) additional Chesapeake Restaurants in
the Washington, D.C. designated market area by December 15, 2002
in the form of Exhibit M attached hereto and made a part hereof.
---------
Such development agreement shall be transferred to Purchaser as
part of the Purchased Assets simultaneously with the closing of
the transactions contemplated herein. Such development agreement
shall contain a provision requiring Almike to enter into, within
thirty (30) days of the receipt of notice from Purchaser, the
standard development agreement to be prepared by Purchaser after
the
27
Closing for development of Chesapeake Restaurants so long as
the term and the economic provisions thereof are not changed.
iii. An agreement acknowledging that the Principals and Almike have no
rights in or to the Proprietary Rights and quitclaiming to
Purchaser any rights therein that they may have acquired. Such
agreement shall be transferred to Purchase as part of the
Purchased Assets simultaneously with the closing of the
transactions contemplated herein.
iv. An agreement between Almike, Principals and Purchaser permitting
Purchaser to use, at no cost to Purchaser, up to three (3) of the
Existing Almike Units designated by Purchaser in its sole
discretion, for the purposes of training new Franchisees for a
period of six (6) months following the Closing.
l. Peru Development Agreement. Seller shall have terminated the Peru
--------------------------
Development Agreement as provided in Paragraph 7.e. and shall have
received a consent to such termination and a release from the developer
thereunder.
17. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS. The following shall
----------------------------------------------
constitute conditions precedent to each Seller's obligations to consummate the
transactions contemplated herein, and the failure of any such condition to be
satisfied within thirty (30) days of the date hereof shall give Seller the
option of terminating this Agreement (which shall result in termination of this
Agreement in full):
a. Representations and Warranties. The representations and warranties of
------------------------------
Purchaser contained herein shall be true and correct in all material
respects as of Closing; Purchaser shall have complied with, performed
or satisfied all agreements, covenants and conditions required by this
Agreement to be complied with, performed or satisfied by it; and,
Purchaser shall have delivered to Seller a certificate to such effect.
b. Legal Opinion. Seller shall have received the favorable legal opinion
-------------
of Xxxxx Xxxxxxx Xxxxxx Xxxxxxx & Xxxxxxxxx, P.C., counsel for
Purchaser, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit "J".
-----------
c. Approvals. All actions, proceedings, instruments and documents required
---------
to carry out this Agreement, or incidental thereto, and all other
related legal matters, shall have been approved by counsel for Seller,
which approval shall not be unreasonably withheld.
d. Actions. No action, suit or proceeding shall have been instituted
-------
before a court or governmental body, or instituted or threatened by any
governmental agency or body, to restrain or prevent the carrying out of
the transactions contemplated hereby, which shall not have been
disposed of to the satisfaction of Seller.
e. Almike Agreements. Purchaser, Seller, Principals (where required) and
-----------------
Almike shall have entered into the Almike Agreements.
f. Due Diligence Certificate. Purchaser shall have delivered the Due
-------------------------
Diligence Certificate described in Paragraph 13.h.
28
18. DOCUMENTS DELIVERED AT CLOSING. Execution and delivery of the
------------------------------
following documents shall also be conditions precedent to Closing:
a. a Xxxx of Sale and Assignment substantially in the form of Exhibit "K"
-----------
attached hereto and made a part hereof (the "Xxxx of Sale and
Assignment");
b. an assignment of each of the Marks, Trademark Registration Rights,
Copyrights, Copyright Registration Rights and any other Proprietary
Rights for which Purchaser shall request a separate assignment,
together with the good will associated therewith (the "Proprietary
Right Assignments");
c. the Non-Competition and Confidentiality Agreements and the Consulting
Agreements;
d. the License Agreement;
e. the Escrow Agreement;
f. the Almike Agreements;
g. the Due Diligence Certificate;
h. an Assignment and Assumption Agreement with respect to each of the
Franchise Agreements, Development Agreements, Assumed Contracts and
with respect to any other material contract or liability being assumed
by Purchaser hereunder (the "Contract Assignments");
i. the Certificate of the Secretary of Purchaser and the Secretary of
Seller, respectively, certifying as true and correct a copy of the
Articles of Incorporation, By-Laws (and all amendments thereto) and of
resolutions approving the transactions contemplated by this Agreement
dated as of the Closing Date ;
j. a certificate of good standing as to Purchaser and Seller issued not
more than fifteen (15) days prior to the Closing Date by the Secretary
of State of the state of its incorporation;
k. the "bring down" certificates described in Paragraphs 16.a and 17.a.
hereof;
l. the legal opinions described in Paragraphs 16.b. and 17.b. hereof;
m. the Assignment of Fund Assets described in Paragraph 7.d. hereof.
n. such other documents as shall be necessary to evidence compliance by
Seller, the Principals and Purchaser with the terms and conditions set
forth in this Agreement.
As used in this Agreement, "Transaction Documents" means, collectively, this
Agreement, the Xxxx of Sale and Assignment, the Non-Competition and
Confidentiality Agreements, the Consulting Agreements, the License Agreement,
the Escrow Agreement, the Proprietary Right Assignments, the Almike Agreements
and the Contract Assignments.
29
19. INDEMNIFICATION BY SELLER AND PRINCIPALS.
----------------------------------------
a. General. Subject to the limitations set forth herein, Seller and each
-------
of the Principals hereby, jointly and severally, agree to indemnify,
defend and hold harmless Purchaser, on demand, from and against any and
all Losses (as hereinafter defined) arising out of or due to:
i. a breach of, or material inaccuracy in, any representation or
warranty made by them, or any of them, and contained in this
Agreement or in any certificate, document or instrument delivered
to Purchaser pursuant hereto, or any nonfulfillment of any
covenant made by them, or any of them, contained herein
(including, but not limited to, the covenants and indemnities in
Paragraph 7.d. relating to the National Advertising Fund) or any
certificate, document, or instrument delivered to Purchaser
pursuant hereto;
ii. any and all taxes (local, State or Federal) owed by Seller
relative to the Purchased Assets, the Business, or the Chesapeake
System for any period prior to the Closing Date;
iii. any liability, debt, obligation, account payable, contract or
agreement of Seller not specifically assumed by Purchaser
pursuant to Paragraph 5 or 7.e. hereof;
v. any act, claim, omission, transaction, circumstance, state of
facts or other condition which existed, occurred or arises out of
Seller's conduct of the Business prior to the Closing Date,
whether or not then known, due or payable and whether or not
covered by any warranty, representation or covenant contained
herein except to the extent expressly assumed by Purchaser
pursuant to the terms of this Agreement;
vi. any claim for severance or vacation pay accruing by employees of
Seller or any claims relating to any employee benefits
attributable to service performed prior to the Closing; and
vii. any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses including, without
limitation, legal fees and expenses, incident to any of the
foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this
indemnity.
b. Claims Basket. Subject to subparagraph d. below, Seller and Principals
-------------
shall not be responsible for any Losses arising under this Paragraph
for which Purchaser would otherwise be entitled to indemnification
hereunder unless and until the aggregate of such Losses exceeds
$50,000, and then only to the extent of such excess.
c. Limitation on Personal Liability. Subject to subparagraph d. below, in
--------------------------------
no event shall the aggregate liability of each Principal to Purchaser
for indemnification hereunder or for any other matter arising under
this Agreement exceed the sum of (i) Four Million Seven Hundred Fifty
Thousand Dollars ($4,750,000), plus (ii) fifty percent (50%) of any
amounts paid by Purchaser pursuant to the Purchase Price adjustment
provisions of Section 4.b. hereof, plus (iii) fifty percent (50%) of
any amounts distributed to Seller or the Principals pursuant to the
Escrow Agreement. In addition, Purchaser shall not seek indemnification
for any Loss unless
30
or until the Escrow Funds shall be inadequate to cover such claim or if
the Escrow shall be terminated.
d. Exclusions from Claims Basket. Nothing contained in this Agreement
-----------------------------
shall relieve Seller or Principals of any liability or limit any
liability they may have on account of (i) common law fraud or
purposeful misrepresentation in connection with the making of any
representation or warranty contained in this Agreement, if such
representation or warranty is untrue in any material respect; (ii) any
pending litigation and any other claim or litigation arising out of
Seller's relationship with a Franchisee; (iii) any claims of suppliers
or vendors; (iv) any claims relating to personal injuries suffered by
employees or others on the premises of a Franchisee; and (v) any tax
related liabilities.
e. Offset. In the event that any Loss shall arise for which Purchaser
------
shall be entitled to indemnification and if the Escrow shall, in
Purchaser's reasonable judgment, be inadequate to cover such claim or
if the Escrow shall be terminated, then Purchaser, after compliance
with the notification provisions set forth below and the failure of
Sellers or Principals to make indemnification within such time period,
may offset such amounts against amounts due and payable pursuant to any
other obligations due to Sellers or Principals.
f. Survival. The obligation to indemnify contained herein shall survive
--------
the Closing for a period of five (5) years. Thereafter, the
representations and warranties of Seller and Principals contained in
Paragraph 12 herein and in any certificate executed by them in
connection with this Agreement shall terminate and expire.
g. Losses. The term "Loss" or Losses" shall mean any and all damages,
------
losses, liabilities, deficiencies, judgments, penalties, fines, costs
and expenses, including but not limited to, reasonable attorneys' fees.
For purposes of determining the amount of Loss and whether a Loss or
Losses individually or in the aggregate exceed the limitation amounts
set forth in subparagraphs b. and c. of this Paragraph 19, Losses shall
be determined after giving effect to (i) any net federal or state tax
benefit obtained or received by Purchaser as a result of Purchaser's
incurring the Loss and (ii) any other third party reimbursements or
other payments actually received with respect to such Losses.
20. INDEMNIFICATION BY PURCHASER.
----------------------------
a. General. Purchaser hereby agrees to indemnify, defend and hold
-------
harmless Seller and the Principals from and against any and all Losses
(as hereinafter defined)arising out of or due to:
i. A breach of, or inaccuracy in, any representation, warranty or
covenant made by Purchaser contained in this Agreement;
ii. any failure by Purchaser to perform or satisfy (x) its
obligations arising after the Closing pursuant to any Assumed
Contracts, Franchise Agreements or Development Agreements, or (y)
any other obligations of Seller specifically assumed, in writing,
by Purchaser herein; and
31
iii. any act, claim, omission, transaction, circumstance, state of
facts or other condition which arises out of Purchaser's conduct
of the Business after the Closing Date, whether or not covered by
any warranty, representation or covenant contained herein.
b. Claims Basket. Subject to subparagraph d. below, Purchaser shall not
-------------
be responsible for any Losses arising under this Paragraph for which
Seller and Principals would otherwise be entitled to indemnification
hereunder unless and until the aggregate of such Losses exceed $50,000,
and then only to the extent of such excess.
c. Limitation on Liability. Subject to subparagraph d. below, in no event
-----------------------
shall the aggregate liability of Purchaser to Seller and Principals for
indemnification hereunder or for any other matter arising under this
Agreement (other than pursuant to Paragraph 4.b.) exceed the sum of
Eleven Million Five Hundred Thousand Dollars ($11,500,000).
d. Exclusions from Claims Basket. Nothing contained in this Agreement
-----------------------------
shall relieve Purchaser of any liability or limit any liability they
may have on account of (i) common law fraud or purposeful
misrepresentation in connection with the making of any representation
or warranty contained in this Agreement, if such representation or
warranty is untrue in any material respect; (ii) any pending litigation
and any other claim or litigation arising out of Purchaser's
relationship with a Franchisee; (iii) any claims of suppliers or
vendors arising in connection with the conduct of the Business by
Purchaser after the Closing; (iv) any claims relating to personal
injuries suffered, after the Closing, by employees or others on the
premises of a Franchisee; and (v) any tax related liabilities arising
in connection with the conduct of the Business by Purchaser after the
Closing.
e. Survival. The obligation to indemnify contained herein shall survive
--------
the Closing for a period of five (5) years. Thereafter, the
representations and warranties of Purchaser contained in Paragraph 13
herein and in any certificate executed by it in connection with this
Agreement shall terminate and expire.
f. Losses. The term "Loss" or Losses" shall mean any and all damages,
------
losses, liabilities, deficiencies, judgments, penalties, fines, costs
and expenses, including but no limited to, reasonable attorneys' fees.
For purposes of determining the amount of Loss and whether a Loss or
Losses individually or in the aggregate exceed the limitation amounts
set forth in subparagraphs b. and c. of this Paragraph 20, Losses shall
be determined after giving effect to (i) any net federal or state tax
benefit obtained or received by Seller or Principals as a result of
Seller's or Principals' incurring the Loss, and (ii) any other third
party reimbursements or other payments actually received with respect
to such Losses.
21. NOTICE OF CLAIMS.
----------------
a. Notification Procedures. In the event that any party to this Agreement
-----------------------
proposes to make any claim for indemnification pursuant to Paragraph 19
or 20, the party making the claim (or with such right) shall promptly
deliver on or prior to the date upon which the applicable
representations and warranties or covenants expire, pursuant to the
terms of Paragraph 19.f. or 20.e. of this Agreement, and within a
reasonable time of discovery of the matter giving rise to such claim, a
certificate signed by the party making the claim ("Claim Certificate")
to the other party, and if to Seller or Principals, to the Escrow
Agent, which Claim Certificate shall
32
(i) state the occurrence giving rise to the claim; (ii) specify the
Paragraph(s) of this Agreement under which such claim is made; and
(iii) specify in reasonable detail each individual item of Loss or
other claim, including the reasonable amount thereof, if reasonably
ascertainable, the date such Loss or liability was incurred, properly
accrued or is anticipated, the basis for any anticipated Loss or
liability and the nature of the misrepresentation, breach of warranty
or the claim to which such Loss or liability is related.
b. Third Party Claims. Each party entitled to indemnification under
------------------
Paragraph 19 or Paragraph 20 above (the "Indemnified Party") shall give
notice, in accordance with the provisions of Paragraph 21, to the party
required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any third party
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Paragraph 21 unless the failure to give such
notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party
shall not assume the defense for matters as to which there is a
conflict of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to
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 such Indemnified Party of a release from all liability in
respect to such claim or litigation.
22. DISPUTE RESOLUTION.
------------------
a. Mediation. No party hereto shall commence an arbitration proceeding
---------
pursuant to the provisions of subparagraph b. below unless such party
shall first give a written notice (a "Dispute Notice") to the other
party or parties setting forth the nature of the dispute. The parties
shall attempt in good faith to resolve the dispute by mediation under
the Commercial Mediation Rules of the American Arbitration Association
in effect on the date of this Agreement. If the parties cannot agree on
the selection of a mediator within twenty (20) days after delivery of
the Dispute Notice, the mediator will be selected by the President of
the North Carolina Bar Association. If the dispute has not been
resolved by mediation as provided above within sixty (60) days after
the delivery of the Dispute Notice, then the dispute shall be
determined by arbitration in accordance with the provisions of
subparagraph b. hereof.
b. Arbitration. Any controversy, claim or dispute of whatever nature
-----------
arising between the parties, including but not limited to those arising
out of or relating to this Agreement or the construction,
interpretation, performance, breach, termination, enforceability or
validity of this Agreement, whether such claim existed prior to or
arises on or after the date of this Agreement, including the
determination of the scope of this agreement to arbitrate (which is not
settled through mediation as provided in Paragraph a. above) shall be
determined by arbitration in Charlotte, North Carolina by one
arbitrator in accordance with the Commercial
33
Arbitration Rules of the American Arbitration Association and its
Supplementary Procedures for Large, Complex Disputes, except that (a)
every person named on all lists of potential arbitrators shall be a
neutral and impartial lawyer with excellent academic and professional
credentials (i) who is or has been practicing law as a partner in a
highly respected law firm for at least fifteen (15) years, specializing
in either general commercial litigation or general corporate and
commercial matters, with experience in the field of franchise law and
(ii) who has had experience, and is generally available to serve, as an
arbitrator, and (b) each party shall be entitled to strike on a
peremptory basis, for any reason or no reason, any or all of the names
of potential arbitrators on any list submitted to the parties by the
AAA and any person selected by the AAA to serve as an arbitrator by
administrative appointment. In the event the parties cannot agree on a
mutually acceptable arbitrator from the one or more lists submitted by
the AAA within thirty (30) days after the AAA transmits to the parties
its first list of potential arbitrators, the President of the North
Carolina Bar Association shall designate three persons who, in his or
her opinion, meet the criteria set forth herein, which designees may
include persons named on any list submitted by the AAA. Each party
shall be entitled to strike one of such three (3) designees on a
peremptory basis within ten (10) after its receipt of such list of
designees, indicating its order of preference with respect to the
remaining designees. If two (2) of such designees have been stricken by
the parties, the unstricken designee shall be the arbitrator.
Otherwise, the selection of the arbitrator shall be made by the AAA
from the remaining designees in accordance with their mutual order of
preference, or by random selection in the absence of a mutual order of
preference. The arbitrator shall base his or her award on applicable
law and judicial precedent and, unless all parties agree otherwise,
shall include in such award the findings of fact and conclusions of law
upon which the award is based. Judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
c. Limited Judicial Review of Arbitration Award Notwithstanding the
--------------------------------------------
foregoing, upon the application by any party to a court for an order
confirming, modifying or vacating the award, the court shall have the
power to review whether, as a matter of law based on the findings of
fact determined by the arbitrator, the award should be confirmed,
modified or vacated in order to correct any errors of law made by the
arbitrator. In order to effectuate such judicial review limited to
issues of law, the parties agree (and shall so stipulate to the court)
that the findings of fact made by the arbitrator shall be binding on
the parties and shall serve as the facts to be submitted to and relied
on by the court in determining the extent to which the award should be
confirmed, modified or vacated.
d. Costs and Attorneys Fees. If any party fails to proceed with mediation
------------------------
or arbitration as provided herein or unsuccessfully seeks to stay such
mediation or arbitration, or fails to comply with any arbitration
award, or is unsuccessfully in vacating or modifying the award pursuant
to a petition or application for judicial review, the other party shall
be entitled to be awarded costs, including reasonable attorneys' fees,
paid or incurred by such other party in successfully compelling such
mediation or arbitration or defending against the attempt to stay,
vacate or modify such mediation or arbitration award and/or
successfully defending or enforcing the award.
23. BENEFIT. This Agreement shall be binding upon and inure to the
-------
benefit of Seller, Purchaser and the Principals, and their respective heirs,
administrators, executors, assigns and successors. Purchaser
34
acknowledges and agrees that any obligations of Purchaser to Seller created
hereunder may, in the event of the liquidation of Seller, be assigned to the
Principals in accordance with such liquidation and in proportion to their
ownership percentage in such Seller. Seller and Principals acknowledge and agree
that Purchaser may assign its rights and obligations hereunder to a wholly-owned
subsidiary of Purchaser, provided that Purchaser shall remain liable for its
obligations under Paragraph 4.b. Except as otherwise provided herein, the rights
and obligations of the parties hereunder may not be assigned by any party hereto
without the express written consent of the other parties.
24. NOTICES. All notices given by any party to any other party shall be
-------
deemed adequate if given by certified mail, postage prepaid, and addressed as
follows or to such other address as either party may designate by certified
mail:
In the case of Seller and the Principals:
The American Bagel Company
0000 Xxxxxx Xxxxxxx Xxxxxxxxx
XxXxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
with copy to:
Xxxxxxxxx Xxxxxxx Xxxxx & Xxxxxxxx LLP
0000 X Xxxxxx X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxx Xxxxxxxxx, Esq.
or in the case of Purchaser:
AFC Enterprises, Inc.
Xxx Xxxxxxxxx Xxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
with a copy to:
Xxxxx Xxxxxxx Xxxxxx Xxxxxxx & Xxxxxxxxx, P.C.
0000 XxxxxXxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: H. Xxxxxxx Xxxxxx, Esq.
25. GOVERNING LAW. Each party hereto expressly submits for himself and
-------------
itself, and any legal action or proceeding relating to this Agreement (to the
extent not prohibited by Paragraph 22 hereof) or for recognition and enforcement
of any judgment in respect hereof, to the exclusive jurisdiction of the courts
of the State of North Carolina, the courts of the United States of America for
the Western District of North Carolina; and appellate courts from any thereof;
consents that any action or proceeding shall be brought in such courts and
waives any objection that it or he may now or hereafter have to the venue of any
such action or
35
proceeding in any such court; and agrees that service of process of any such
action may be made, in addition to any method provided by law, in the same
manner as notices are to be given under this Agreement. This Agreement and all
rights, obligations and liabilities arising hereunder shall be construed and
governed by the substantive law of the State of North Carolina, without giving
effect to the principles of conflicts of law thereof.
26. CONSTRUCTION. In the event any parts of this Agreement are found to
------------
be void, the remaining provisions of this Agreement shall nevertheless be
binding with the same effect as though the void parts were deleted.
27. EXECUTION OF AGREEMENT. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall constitute an original, but all together
of which shall constitute but a single document.
28. ENTIRE AGREEMENT. This Agreement, together with the written
----------------
agreements executed contemporaneously herewith, contain the entire Agreement of
the parties hereto, and no representations, warranties, covenants or agreements,
not embodied or incorporated herein, oral or otherwise, shall be of any force of
effect.
29. HEADINGS. The headings or titles of the paragraphs of this
--------
Agreement are for convenience only, are not a part of this Agreement and shall
not be used as an aid in the construction of any provision hereof.
30. WAIVER. A waiver of any breach hereunder by any party hereto shall
------
not constitute a waiver by such party of any other breach or a waiver by such
party of the same breach on any other occasion; and, to be effective, any waiver
hereunder must be in writing.
31. NO THIRD PARTY BENEFICIARY. This Agreement is intended and agreed to
--------------------------
be solely for the benefit of the parties hereto, and no third party shall accrue
any benefit, claim or right of any kind whatsoever pursuant to, under, by or
through this Agreement.
32. CONFIDENTIALITY. Each party shall hold this Agreement confidential
---------------
and shall not disclose its terms to any third party, including without
limitation any franchisee.
33. EXHIBITS AND SCHEDULES. All exhibits, schedules, certificates,
----------------------
recitals and other instruments or documents referred to herein are specifically
made a part of this Agreement. Any reference in this Agreement to an Exhibit or
Schedule shall be deemed to be a reference to an Exhibit or Schedule to this
Agreement unless the context expressly indicates otherwise. Any item disclosed
in a Schedule hereto in response to one Paragraph of this Agreement shall be
deemed disclosed in response to any other applicable or appropriate Paragraph
hereof.
34. ACCESS TO BOOKS AND RECORDS. For a period of five (5) years from the
---------------------------
Closing Date or until the expiration of the applicable statute of limitations
for a tax audit, to the extent reasonably required by Seller in connection with
any matter relating to Seller's ownership of the Purchased Assets or conduct of
the Business prior to the Closing Date, Purchaser shall allow Seller access to
and to copy, at Seller's expense, all business records of Seller which relate to
the operation of the Business prior to the Closing Date, upon reasonable advance
notice during normal working hours.
36
IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be
executed and delivered by its duly authorized officers, and the Principals have
set their hands and seals, all as of the day and year first above written.
ATTEST: THE AMERICAN BAGEL COMPANY
By: /s/ By: /s/
-------------------------------------- ----------------------------------
Xxxxx X. Xxxxxx, Assistant Secretary Xxxx Xxxxxxx, President
/s/ /s/
------------------------------------------ ---------------------------(SEAL)
WITNESS XXXXXXX XXXXXXXX
/s/ /s/
------------------------------------------ ---------------------------(SEAL)
WITNESS XXXX XXXXXXX
ATTEST: AFC ENTERPRISES, INC.
By: /s/ By: /s/
-------------------------------------- ----------------------------------
Xxxxxxx X. Xxxxxx, Vice President Xxxxx Xxxxxx, Vice President
Assistant General Counsel Strategic Development
Almike Enterprises, Inc. has caused this Agreement to be executed by its
duly authorized officers solely to indicate its agreement to be bound by the
terms and conditions set forth in Paragraph 16.k.
ATTEST: ALMIKE ENTERPRISES, INC.
By: /s/ By: /s/
-------------------------------------- ----------------------------------
Its ________ Secretary Its ____________ President
37
EXHIBIT LIST
------------
A Escrow Agreement (refer to Paragraph 6.)
B Confidentiality and Non-Competition Agreement (refer to
Paragraph 7.a.)
C Consulting Agreements (refer to Paragraph 7.b.)
D License Agreement (refer to Paragraph 7.c.)
E Assignment of Fund Assets (refer to Paragraph 7.d.)
F-1 -- F-9 Form Franchise Agreements (refer to Paragraph 12.p.iv)
G-1 -- G-2 Form Express Agreements (refer to Paragraph 12.p.iv)
H-1 -- H-5 Form Development Agreements (refer to Paragraph 12.q.iii)
I Legal Opinion of Seller's Counsel (refer to Paragraph 16.b.)
J Legal Opinion of Purchaser's Counsel (refer to Paragraph 17.b.)
K Xxxx of Sale and Assignment (refer to Paragraph 18.a.)
L Almike Franchise Agreement
M Almike Area Development Agreement
SCHEDULE LIST
-------------
1(a) Computer Software and Data
1(b) Proprietary Property
1(c) Franchise Fee Notes and Accounts Receivable
1(d) Franchise Agreements
1(e) Development Agreements
1(f) Assumed Contracts
2 Excluded Assets
4(b) Existing Franchise Commitment Pool
8 Purchase Price Allocation
12.b. Liens and Encumbrances
12.d. Financial Statements
12.n. Actions and Proceedings
12.o.i Marks
12.o.ii Copyrights
12.o.iii. Trade Secrets
12.p.iii. Express Agreements
12.p.iv. Exceptions to Form Franchise Agreements
00.x.xx. Franchise Agreement Defaults
12.p.ix Subordinated, Terminated and Rescinded Franchise Agreements
12.p.xii. Required Policies
12.p.xiii. Application of Rebates
12.p.xiv. Terminated Restaurants >12.q.iii. Exceptions to Form
Development
12.q.v. Development Agreement Defaults Agreement
12.q.viii. Waived, Altered or Modified Development Schedules
12.r.i. Ad Fund Assets
12.s. Regional Cooperatives
38
12.t.i. State Franchise Registrations
12.u. Material Agreements
12.w. Licenses
12.x. Employees and Labor Matters
12.z. Benefit Plans
00.xx. Material Adverse Changes
00.xx. Suppliers
39
